Q2FY24 Review: UPL: Weak results, Cuts guidance again

31 Oct 2023 , 02:17 PM

UPL reported yet another weak results with revenue and Ebitda declining 18.7% and 43.1% YoY; respectively. While sales got impacted by global channel destocking and elevated pricing pressure, Ebitda came under pressure due to liquidation of highcost inventory, higher than usual sales returns and rebates to support channel partners. Seeds business revenue rose by 10% YoY, while Ebitda declined 3% due to higher opex (headcount addition). The Company has downgraded its FY24 guidance yet again and now expects revenue to be flattish (from earlier 1-5% growth) while EBITDA to be flattish to negative 5% (from 3-7% growth). Analysts of IIFL Capital Services believe the guidance is still optimistic given the significant pricing headwinds and therefore they estimate revenue/Ebitda to decline ~11%/19% in FY24 resulting into FY24- 26 EPS estimates cut of 10-28%. Analysts of IIFL Capital Services TP, rolled over to Dec’24, now stands at Rs605 (down from Rs655).

Weak performance continues: 

UPL performance was below expectations due to industry-wide destocking, pricing headwinds and tactical purchases and cost management by its distributors, especially in the US and Brazil. The differentiated and sustainable business did well and helped it to register ~1%YoY volume growth in the crop protection business (ex-India). Gross margins were down 520bps YoY due to liquidation of high-cost inventory, higher than usual sales returns and rebates to support channel partners.

Seeds business does well: 

Advanta/Seeds reported 10% YoY growth in revenue driven by higher prices and volumes in sunflower, corn, canola, sorghum and vegetables portfolios. Though contribution margins expanded by 159bps YoY to 56.3%, Ebitda margin contracted by 332bps to 24.8% due to higher employee costs. It is on track to deliver its FY24 guidance of 11-15% revenue growth and 14-18% Ebitda growth.

Sticks to debt repayment target: 

Net debt rose to $3.7bn on the back of sharp decline in payable and lower factoring. The company remained committed to reduce gross debt by $500mn by Mar’24. Further, the management commentary suggest that a large portion of its guidance would be driven by performance during H2FY24. Analysts of IIFL Capital Services see the renewed guidance to be optimistic, given that the ask rate is now upwards of 30% growth for H2FY24 (at the lower end), which seems difficult in the current environment. So at this point, they see limited triggers for the stock.