Q3FY23 Preview: UPL: Revenue seen at Rs132,424 million, PAT at Rs9,721 million

30 Jan 2023 , 10:23 AM

Result date: 31^st January, 2023

Recommendation: Buy

Target price: Rs 1,005

Analysts at IIFL Capital Services expect UPL to post revenue growth of 17% over the year-ago quarter, driven by forex-led pricing tailwinds. Besides, revenue growth due to price hikes in H1FY23, would also continue in Q3FY23. North America and LatAm are likely to deliver high-double digit growth. However, analysts at IIFL Capital Services note that agri-output across several countries are impacted by the climatic conditions from La Lina. Strong demand for corn and soybean from LatAm region, continues to support demand for Agrochemicals. Besides, favorable forex movement will also add to revenue growth.

Revenues from Rest of the World regions would be modest, owing to impact in China. Growth will be from high-single digit to low-teens. Growth in North America should be supported by continued price hikes. Demand for glufosinate is robust in North America and UPL will be a key beneficiary across this portfolio.

Europe will remain flat, on a constant currency basis. The business continues to see impact from implementation of product bans. Besides, INR appreciation versus the Euro will further drag performance. Rabi has started on a very positive note, especially with improved sowing and bumper harvest for wheat. Demand for Herbicides is very strong in the market. However, the channel is in an oversupply across Insecticides portfolio. Besides, there would be some impact of channel returns (from Kharif seasons) in Q3.

UPL could keep gross margins stable as compared to the year-ago quarter. Logistics costs have also moderated and should benefit EBITDA. However, there can be negative impact from FX on working capital due to currency volatility.

Analysts at IIFL Capital Services have built-in higher finance cost in Q3FY23, because of rise in working capital requirements. Profit After Tax or PAT could decline 1.7% over the year-ago quarter.

Important management insights to watch out for:

• Trends in input costs
• Capital Expenditure lined up
• Debt levels of UPL

	December 2022 estimates	YoY change
Revenue (Rs mn)	132,424	17.2%
EBITDA (Rs mn)	29,577	11.0%
EBITDA margin	22.3%	(126) bps
Profit After Tax (Rs mn)	9,721	(1.7)%

Source: IIFL Research