Q3FY23 Review: UPL: Price and FX tailwinds drive earnings

1 Feb 2023 , 10:32 AM

UPL reported strong revenue growth of 21%, largely driven by price inflation and positive FX translations. However, volumes continue to remain soft (+1% YoY for Q3FY23; flat YoY for M9FY23), owing to product rationalisation and focus on product mix. Despite delivering ~24% Ebitda growth during M9FY23, management continues to peg FY23 Ebitda growth just at higherend of 15-18% range. UPL delivered decent operational performance — modestly above IIFLe. North America revenues exceeded expectations, supported by strong commodity prices and traction in herbicides. LatAm businesses benefited from volume growth within Insecticides portfolio in Brazil.

UPL volume growth in Q3FY23 was merely ~1%. Besides, volumes were largely flat during M9FY23, owing to product rationalisation and focus on mix. While the company is carrying high inventory levels, management expects inventory liquidation closer to the onset of season (especially in LatAm) during Q4FY23.

Gross debt at Dec-end stood at ~Rs328bn; net debt at ~Rs275bn — down ~Rs10bn QoQ. Management retained guidance for net-debt repayment by $500mn to $2bn as on Mar’23. This also implies a reduction of ~$1.3bn in net debt from Dec’22 levels. Net cash inflow of $250-260mn from the recently announced corporate realignment and release of working capital (including proceeds from factoring) will be used for debt repayment.

With 12x 1YF P/E, analysts of IIFL Capital Services maintain Buy with Target Price of Rs 1,020.