institutional equities upl · 2020. 4. 23. · 14.5x ( 8% discount to global peers and 4% discount...

Institutional Equities

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Reuters: UPLL.NS; Bloomberg: UPLL IN

UPL

Management positive on growth and synergy benefits We met UPL management on Friday and returned positive on longer term prospects on the UPL-Arysta combine based on UPL’s robust footprint in LatAm – especially Brazil; and Arysta’s strong foothold in Eastern Europe and Africa, with steady outlook for business in the US and Western Europe. Added positives include the company’s plans to add 2 new products in each market every year to meet its “innovation rate” target of 15% of revenue and visible progress on merger synergies, having already achieved more than 50% of the FY20E target of US$80mn, at the halfway mark. The management also sounded positive on near term outlook, especially for LatAm based on (i) the delayed pick-up in sowing data for key crops and soya rust infestation and (ii) encouraging performance of UPL’s Spectro (insecticide) as well as Arysta’sClethodim (herbicide) in Brazil, a leading CPC market in the world with reported annual sales of more than US$10bn.Key concerns: (i) the recent US-China partial trade deal that may impact Brazil crops and CPC sales on the margin - however management expects higher crop exports from the US to partly offset the trade deal impact and (ii) increase in working capital, which is likely to reverse with improving business prospects in the 2HFY20.We have tweaked our TP up 3% from 665 to Rs686 based on Sept21E PE of 14.5x ( 8% discount to global peers and 4% discount to SD-1 on 5 year median) Maintain Buy based on Sept 21PE with TP of Rs686 (15.3% upside from CMP).

Key takeaways from the meeting

Signed a definitive agreement to acquire 75% stake in a small Chinese agrochemical firm: (1) to acquire 75% stake in LaotingYoloo Bio-technology Co.Ltd (LYB).for US$13mn and (2) to acquire the remaining 25% in next 5 years through milestone payment linked to LYB’s profits. LYB’sFY19 revenue was around US$45-50mn and EBITDA margin at around 10-12%. LYB has widespread presence in China that gives UPL access to its 1200 strong B2C distributor network. LYB is in the formulation space and has 107 registrations. Management expects the target’s revenue to rise 50-80% over the3-4 years.

Product launches: UPL is aiming for at least 2 new product launches every year in each key country. Innovation category products are in line with the goal of sustaining "innovation rate" at 15%.

India: India could also see Arysta use UPL's distribution to monetize its vast portfolio of registrations - current Arysta India sales are under US$15mn.

LatAm: Growth outlook for LatAm, especially Brazil is positive with Spectro (Insecticide) reported to be doing well. Arysta’s Clethodim(herbicide) is also getting good traction in the market. LatAm and Brazil are seeing good start to seasonal sowing and Soya rust - though after a delay. The company is looking at glufosinate-based herbicides to be one of the key drivers, especially in India and Brazil.

Raw material supply and cost: On cost pressure from China supply disruption, the company sees this easing in the coming months. The exposure to mancozeb derivatives has halved in Brazil. UPL is 100% backward integrated in this molecule, and hence not subject to the input cost pressures faced by other competitors, including Coromandel.

North America: North America business is under pressure due to inventory overhang as the American Midwest experienced flooding last year. Hence, the growth in the market has been muted. Management is hopeful of securing orders from the US distributors by March 2020, for the spring/summer sowing season.

Europe: UPL expects its European business to perform better than the industry and sustain growth in mid-single digits over time. Arysta has strong presence in eastern Europe(Ukraine, Poland, Hungary, Russia and Romania), which forms about 40-50% of Europe sales or 8-10% company sales

Emerging market: Africa should benefit from healthy growth of legacy Arysta portfolio, and established distribution network, particularly across northern and western Africa.

BUY

Sector: Chemicals

CMP: Rs595

Target Price: Rs686

Upside: 15.3%

Amit Agarwal Research Analyst [email protected] +91-22-6273 8145

Key Data

Current Shares O/S (mn) 763.9

Mkt Cap (Rsbn/US$bn) 454.9/6.4

52 Wk H / L (Rs) 709/495

Daily Vol. (3M NSE Avg.) 2,673,528

Price Performance (%)

1-M 6-M 1-Yr

UPL 4.6 (8.6) 19.6

Nifty Index 2.4 3.1 15.1

Source: Bloomberg

Exhibit 1: Key Financials

Y/E March (Rsmn) FY18 FY19 FY20E FY21E FY22E

Revenues 173,780 218,370 322,342 357,609 402,544

EBITDA 35,050 38,130 63,545 77,958 93,729

Consolidated Net Profit Adj 20,060 18,980 17,294 30,231 42,081

EPS (Rs) 26.26 24.84 22.64 39.57 55.08

EPS gr (%) 10.95 (5.38) (8.88) 74.81 39.20

EBITDA Margin (%) 20.2 17.5 19.7 21.8 23.3

P/E 22.7 24.0 26.3 15.0 10.8

EV/EBITDA 20.4 18.7 11.2 9.2 7.6

Dividend Yield (%) 0.90 0.90 0.84 1.26 1.68

FCF yield (%) 1.0 (64.1) 20.0 10.1 13.8

Pre-tax RoCE (%) 19.7 9.0 8.5 10.6 14.1

RoE (%) 24.2 15.9 11.2 18.3 21.7

Source: Company,Nirmal Bang Institutional Equities Research

3 January 2020


UPL 2

Impact of China and USA trade deal: US-China trade deal may impact Brazil crops and CPC sales on the margin. However, management expects gains in US crops to offset this to an extent. Also, the company said that culling of pigs has been stopped in China, which is likely to boost demand for corn and soy meal in that country.

Valuation: We maintain our Buy rating on UPL with TP of Rs686 derived using 14.5x PE on Sept 21E EPS of Rs47.3. The stock is currently trading at 12.57x PE on Sept.FY21E EPS (vs.5-year median PE of 18.3x) based on CAGR of 56% in EPS and healthy average ROE of 17% over FY20-22E.

Arysta integration

Arysta merger accounting issues: These are required by IFRS accounting norms as suggested by their accounting firm EY. PPA adjustments in P&L are no longer required, while depreciation related adjustments pertaining to acquired intangible assets will continue for 15years as per accounting policy. Pl see Annexure 1 for details

Synergies post Arysta merger: The company guides in terms of run rates and sticks to its long term target - Cost synergy: US$220-250mn by year 2- FY21, implying this would boost FY22E EBITDA, in full. FY20 Cost synergy on track for US$80mn, with close to US$45mn achieved in 1HFY20.

Revenue synergy: US$350mn overall run rate by year 3, at 30% in year1, 70% in year 2 and full in year 3, implying full impact by FY23E.

This implies potential upside in EBITDA of US$120-150mn from cost savings, US$14.5-18mn (18% margin of US$80-100mn revenue gains) in FY21E and US$225mn by FY22E.

We along with the street expect the synergy benefit targets to be achieved with a lag of 6 months to a year vs. company guidance. This does not take away the positive impact on UPL’s free cash flow prospects assuming such staggered progress in achieving synergy benefits by FY22-FY23E. And this should reduce the leverage with Net Debt/EBITDA likely to decline from 6.82 to 0.96 over FY19-FY22E.

Cash flow cycle

According to Management UPL’s working capital usually peaks in December based on:

1) 3rd quarter (Oct -Dec) is the peak season for Latin America and

2) advance preparation in 4th quarter for North America and Europe’s peak season.

The company is confident of meeting its target to repay US$500mn by end FY20, based on improved outlook for cash flows in 2HFY20 - from operations and reduction in working capital likely by March 2020.

Exhibit 2: Five-year forward P/E

Source: Company, Nirmal Bang Institutional Equities Research

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Forward P/E median PE SD +1 SD -1

(x)


UPL 3

Exhibit 3: Price performance trend %


Exhibit 4: International Peer comparison

Code CMP Mkt cap (US$bn) EPS (Rs) FY21E PE (x) FY21E

Bayer Monsanto EUR 72.89 80.3 8.3 9.9

Corteva USD 29.56 22.1 1.5 19.8

BASF EUR 68.25 70.3 5.0 15.3

FMC USD 99.82 12.9 6.7 14.9

ADAMA LTD* CNY 10.14 3.4 0.1 16.5

NUFARM** AUD 6.13 1.6 0.2 17.9

Average

15.7

Source: Company, Nirmal Bang Institutional Equities Research, *December ending, **July ending

4.42

0.08

(9.25)

18.07

1.94

8.12

3.12

13.80

1 Month

3 Month

6 Month

1 Year

Nifty Index UPLL IN Equity


UPL 4

Annexure 1: Arysta merger impact on accounting

Purchase consideration for the Arysta acquisition was initially fixed at US$4.2bn, including the working capital estimated at around US$750mn. However, on the deal closure date, working capital increased by US$90mn, which increased the acquisition price.

The purchase price adjustment (PPA) written off in the pro-forma consolidated P&L in March’19 and June’19 results isan accounting entry to provide for step up in the value of inventory and reduction in goodwill.

The company explained this with the following illustrative example:

Assumption: Arysta has only inventory worth US$3bn as assets in the books. For the deal UPL valued the inventory at US$4.2bn – implying goodwill at US$1.2bn (deal value less book value of inventory).As per IFRS accounting norms, the assets have to be valued at their fair values on the acquisition date. The fair value is the deal valuation at US$4.2bn. This excess of the deal valuation and book value as a result of the revaluation of the inventory in UPL’s consolidated books, results in inventory being restated to the extent of this difference. This difference is written off as PPA adjustment in the consolidated P&L, according to IFRS accounting norms

The PPA adjustment will continue to be written off in consolidated books until the asset is completely disposed off. In the case of intangible assets acquired –the depreciation and amortization on these assets will be written off over 15 years - the useful life for acquired intangible assets as per UPL’s accounting policy.


UPL 5

Annexure 2: Business outlook and challenges

LatAm is likely to be the driver for the industry along with emerging markets (EM) in Eastern Europe, Asia and nascent markets in Africa. NA and Western Europe are mature markets, which may trudge along at mid-single digits.

In terms of operating margins NA and WE will lead the world, but the topline growth will be led by LatAm, driven by potential for high single digit to low double-digit growth. And within LatAm, Brazil will remain the biggest opportunity followed by Argentina.

Brazil is attractive for CPC industry based on the following factors:

1. The large share of agriculture in its GDP

2. Is a leading producer of key CPC using crops, including Soya, Corn, Sugar and F&V

3. The registration process is disorganized and takes up to 8 years – among the longest

4. However, this is offset by fairly lax safety and toxicology requirements for new AI and formulation registration, which is being increasingly questioned by health experts and environmental activists

5. Recently there is news of more than 50 registrations being cleared that would benefit the leading CPC giants Bayer Monsanto, Dow-Dupont/Corteva, BASF and Syngenta

6. Brazil and LatAm as a whole have been able to step up their share of exports of key crops – Soya and Corn in the last three years, as the US has not been able to keep pace with global demand, especially China, which has been a leading importer.

What does this mean for UPL?

UPL has 36.4% of its pie in LatAm, which is growing at >25%. This is likely to sustain and get added momentum based on management’s view that the Arysta relationship with the farm cooperatives will complement UPL’s distribution reach, especially in Brazil. The relatively less stringent regulations that approve chemicals banned or restricted in US and Europe offer UPL the opportunity to milk this region for another 5-10 years before local regulations get tightened. The only risk in such a situation is that the company may find it challenging to justify its investments in the region under a sustainable development framework, especially to investment institutions, many of whom are being scrutinized for their commitment towards ESR investments.

Exhibit 5: Revenue pie % across regions

Note: FY19 revenue breakup; Source: Company, Nirmal Bang Institutional Equities Research

This is also a broader philosophical poser for the global industry as well as investment institutions in terms of how to navigate and exploit business and investment opportunities without increasing the sale of potentially hazardous chemicals that could cause irreversible damage to human health and the environment as well as future crop yield.

13.08

36.44

15.78

16.38

18.31

India LatAm North America Europe ROW


UPL 6

On the positive side, we believe that these concerns will likely get allayed by the overwhelming desire among industry and investment leaders to align corporate and investment decisions to the sustainable development model. This coupled with government and regulatory initiatives to weed out chemicals that pose short-term and long- term threat to human health and the environment without any loopholes should help the CPC industry successfully navigate the transition over the next few years. Short term outlook

The data points for sowing and crop output is bit mixed and confusing at this stage. Overall, the leading agencies like USDA and ICC see crop output sustain CY19 levels with the uncertainty in weather patterns being the key risk to their forecast.

LatAm

The early sowing data for Brazil indicates that Soya and Corn crops will catch up over the next six months as sowing in November and this month has improved to offset the delay in October, which show a 4-5% decline from a year ago.

Also, the incidence of soya rust infestation in Brazil is likely to touch more than 400 over the current season, and will boost fungicide sales (although it has set in with a month’s delay in November). This along with the decent cotton sowing and crop outlook in this country is positive for UPL.

Argentina too is looking set for healthy CPC sales based on sowing and crop output estimates.

The US -China trade deal may have a temporary negative impact on exports of soya and corn from Brazil as China has to lift higher volumes of these key crops from the US. This implies potential positive for US CPC usage for these crops. The trend may become visible only once the US season starts in the next six months, although bookings may start by March-April 2020. The inventory overhang in the US market may dampen these bookings until it is absorbed.

According to global agencies and consultants, Brazil may see higher demand for hog meat exports as a result of the swine flu in China. This is expected to boost the sale of corn and soya meal within Brazil and hence offsets the potential reduction in Chinese imports of crops from Brazil post the US -China trade deal.

This along with the weaker BR implies a potential premium for domestic sales of these crops, which in turn reduces the stock available for exports and hence support better realization on these crops for domestic and export sales, according to global agencies.

Finally, Brazilian and LatAm farmers enjoyed decent cash flows last year based on the boom in local consumption and exports. This is positive for offtake of key inputs like CPC in that region.

Crop data

USDA estimates world production to be 1.4% lower in Corn, 5.8% lower in Soya and tad lower in Rice whereas Wheat and Cotton production is expected to be higher by 4.7% and 2.7%, respectively.


UPL 7

Exhibit 6: Crop output trend across key regions CY18-CY20E

Brazil CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn Mn tonne 82 101 101 23.17 -

Soya Mn tonne 122 117 123 (4.10) 5.13

Wheat Mn tonne 4.26 5.43 4.3 27.46 (20.81)

Rice Mn tonne 8.2 7.14 7.14 (12.93) -

Cotton (Million 480 lb. bales) 9.22 12.52 12.5 35.79 (0.16)

US CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn Mn tonne 371.1 366.29 347.01 (1.30) (5.26)

Soya Mn tonne 120.07 120.52 96.62 0.37 (19.83)

Wheat Mn tonne 47.38 51.31 52.26 8.29 1.85

Rice Mn tonne 5.66 7.12 5.97 25.80 (16.15)

Cotton (Million 480 lb. bales) 20.92 18.37 20.21 (12.19) 10.02

EU CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn Mn tonne 62.02 64.22 64.56 3.55 0.53

Soya Mn tonne 2.54 2.66 2.6 4.72 (2.26)

Wheat Mn tonne 151.13 136.86 153.5 (9.44) 12.16

Rice Mn tonne 2.03 1.96 2 (3.45) 2.04

Cotton (Million 480 lb. bales) - - - - -

India CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn Mn tonne 28.75 27.23 29 (5.29) 6.50

Soya Mn tonne 8.35 10.93 9 30.90 (17.66)

Wheat Mn tonne 98.51 99.87 102.19 1.38 2.32

Rice Mn tonne 112.76 116.42 115 3.25 (1.22)

Cotton (Million 480 lb. bales) 29 25.8 29.5 (11.03) 14.34

China CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn Mn tonne 259.07 257.33 260.77 (0.67) 1.34

Soya Mn tonne 15.28 15.9 18.1 4.06 13.84

Wheat Mn tonne 134.33 131.43 133.59 (2.16) 1.64

Rice Mn tonne 148.87 148.49 146.73 (0.26) (1.19)

Cotton (Million 480 lb. bales) 27.5 27.75 27.25 0.91 (1.80)

World CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn Mn tonne 1079.91 1124.49 1108.62 4.13 (1.41)

Soya Mn tonne 341.99 358.21 337.48 4.74 (5.79)

Wheat Mn tonne 762.88 731.35 765.41 (4.13) 4.66

Rice Mn tonne 494.8 499.19 498.4 0.89 (0.16)

Cotton (Million 480 lb. bales) 123.78 118.1 121.11 (4.59) 2.55

Source: USDA, Company, Nirmal Bang Institutional Equities Research


UPL 8

Exhibit 7: Trend in crop area sown across key regions CY18-CY20E

Brazil mn hectares CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn 16.6 17.5 18.1 5.42 3.43

Soya 35.15 35.9 36.9 2.13 2.79

Wheat 1.92 2.04 2.05 6.25 0.49

Rice 1.97 1.7 1.68 (13.71) (1.18)

Cotton 1.18 1.62 1.62 37.29 -

US mn hectares CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn 33.48 33.08 33.11 (1.19) 0.09

Soya 36.24 35.45 30.61 (2.18) (13.65)

Wheat 15.2 16.03 15.04 5.46 (6.18)

Rice 0.96 1.18 1 22.92 (15.25)

Cotton 4.49 4.13 5.06 (8.02) 22.52

EU mn hectares CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn 8.26 8.27 8.59 0.12 3.87

Soya 0.93 0.93 0.91 - (2.15)

Wheat 26.16 25.58 26.08 (2.22) 1.95

Rice 0.43 0.41 0.42 (4.65) 2.44

INDIA mn hectares CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn 9.38 9.2 9.5 (1.92) 3.26

Soya 10.4 11.33 11.25 8.94 (0.71)

Wheat 30.79 29.65 29.85 (3.70) 0.67

Rice 43.77 43.8 43.5 0.07 (0.68)

Cotton 12.6 12.6 13 - 3.17

CHINA mn hectares CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn 42.4 42.13 41.28 (0.64) (2.02)

Soya 8.25 8.4 9.3 1.82 10.71

Wheat 24.51 24.27 23.73 (0.98) (2.22)

Rice 30.75 30.19 29.69 (1.82) (1.66)

Cotton 3.4 3.5 3.45 2.94 (1.43)

World mn hectares CY2018 CY2019 CY2020E CY19/CY18 ch % CY20E/CY19 ch %

Corn 192.12 191.86 192.05 (0.14) 0.10

Soya 124.48 125.48 122.98 0.80 (1.99)

Wheat 218.61 215.48 217.22 (1.43) 0.81

Rice 162.96 162.8 162.19 (0.10) (0.37)

Cotton 33.73 33.54 34.87 (0.56) 3.97

Source: USDA, Company, Nirmal Bang Institutional Equities Research


UPL 9

Financials–Consolidated

Exhibit 8: Income statement


Net Revenue 173,780 218,370 322,342 357,609 402,544

y/y (%) 6.54 25.66 47.61 10.94 12.57

Raw Material Expenses 81,120 109,040 177,288 185,957 201,272

RM/Sales % 46.7 49.9 55.0 52.0 50.0

Employee cost 17,130 20,950 36,019 44,195 50,784

Other expenses 40,480 50,250 45,491 49,499 56,759

EBITDA 35,050 38,130 63,545 77,958 93,729

y/y (%) 17.42 8.79 66.65 22.68 20.23

Depreciation 6,750 9,690 22,243 23,740 25,040

EBIT 28,300 28,440 41,302 54,218 68,689

Interest Expense 7,830 9,630 18,430 13,161 10,318

Other Income 4,140 2,400 1,630 2,900 3,400

PBT (adjusted) 24,610 21,210 24,501 43,958 61,770

Income Tax Expense 3,540 1,650 3,863 6,945 9,764

Exceptional Income -630 -4,510 -5,770 -2,160 0

Associates inc/loss(+/-) -930 140 140 140 130

Minority Interest 80 720 3,484 6,922 10,055

Consolidated Net Profit Adj. 20,060 18,980 17,294 30,231 42,081

EPS (Rs) 26.26 24.84 22.64 39.57 55.08

y/y (%) 10.95 -5.38 -8.88 74.81 39.20


Exhibit 10: Balance sheet


Equity 1,020 1,020 1,020 1,020 1,020

Reserves 90,670 145,430 153,134 175,475 209,915

Net worth 91,690 146,450 154,154 176,495 210,935

Non controlling interests 190 33,580 37,064 43,986 54,042

Long Term Borrowings 58,730 263,830 249,378 239,371 225,599

Other LT liabilities 3,400 30,980 60,084 60,839 61,868

Total Non-Current Liabilities 62,320 328,390 346,526 344,196 341,508

Short Term Borrowings 6,340 24,780 24,780 14,780 14,780

Trade Payables 56,750 94,230 83,047 92,070 103,725

Other current liab. 13,330 36,630 43,600 43,600 43,600

Total Current Liabilities 76,420 155,640 151,427 150,450 162,105

Total Capital & Liab. Liabilities 230,430 630,480 652,107 671,141 714,548

Net block plus WIP 57,560 336,840 334,597 330,857 320,817

Other LT assets 12,290 16,660 16,860 17,060 17,260

Long-term investments 10,270 7,060 7,060 7,060 7,060

Total Non-Current Assets 80,120 360,560 358,517 354,977 345,137

Inventories 45,380 92,700 97,144 107,772 121,315

Trade Receivables 60,560 118,120 58,286 61,136 66,172

Cash And Cash Equivalents 28,940 28,260 107,569 115,705 150,375

Other Current Assets 15,430 30,840 30,590 31,550 31,550

Total Current Assets 150,310 269,920 293,590 316,164 369,412

Total Assets 230,430 630,480 652,107 671,141 714,548


Exhibit 9: Cash flow


EBIT 28,300 28,440 41,302 54,218 68,689

Add: Depreciation and other non cash charges

6,750 8,810 22,243 23,740 25,040

Change in W/C 6,590 5,640 (51,176) 5,415 6,923

Opg cashflow after W/C change 28,460 31,610 114,721 72,543 86,806

Income tax 2,320 3,540 3,399 6,290 8,835

Cashflow from Operations (A) 26,140 28,070 111,322 66,253 77,971

Capex 15,680 15,530 20,000 20,000 15,000

Investments 6,560 (3,270) - - -

Payment for Arysta - 309,890 - - -

Other Non Current Assets (540) (2,470) 200 200 200

Free Cashflow 4,440 (291,610) 91,122 46,053 62,771

Cashflow from Investing (B) (21,700) (319,680) (20,200) (20,200) (15,200)

Ch in Borrowing 4,490 219,670 (14,452) (20,007) (13,772)

Ch in equity - 83,580 - - -

Other Long term Liability (1,520) - 28,640 100 100

Arysta Cash On Acquisition - 10,480 - - -

Dividends (3,690) (4,240) (3,820) (5,730) (7,640)

Interest exp (6,470) (10,070) (13,985) (13,161) (10,318)

Other income/(expense) 2,740 (8,140) (8,446) 880 3,530

Cashflow from Financing (C) (4,450) 291,280 (12,063) (37,917) (28,101)

Ch in Cash and Cash equiv (10) (330) 79,059 8,136 34,670

opening cash 28,950 28,590 28,260 107,569 115,705

closing cash 28,940 28,260 107,569 115,705 150,375


Exhibit 11: Key ratios


Profitability & return ratios

EBITDA margin (%) 20.2 17.5 19.7 21.8 23.3

EBIT margin (%) 16.3 13.0 12.8 15.2 17.1

Net profit margin (%) 11.6 6.6 3.6 7.8 10.5

RoE (%) 24.2 15.9 11.2 18.3 21.7

Pre-tax RoCE (%) 19.7 9.0 8.5 10.6 14.1

RoIC (%) 23.4 9.5 8.8 11.5 14.6

Working capital ratios

Receivables (days) 127.2 197.4 120.0 120.0 120.0

Inventory (days) 95.3 154.9 110.0 110.0 110.0

Payables (days) 119.2 157.5 114.0 114.0 114.0

Cash conversion cycle 103.3 194.9 116.0 116.0 116.0

Leverage ratios

Net debt (Rsmn) 36,060 260,080 166,568 138,426 89,983

Net Debt (cash)/Equity (X) 0.39 1.44 0.87 0.63 0.34

Net Debt/EBITDA 1.03 6.82 2.62 1.78 0.96

Valuation ratios

EV/sales (x) 4.11 3.27 2.22 2.00 1.78

EV/EBITDA (x) 20.39 18.74 11.25 9.17 7.62

EV/FCF 158.46 -2.45 7.84 15.52 11.39

P/E (x) 22.66 23.95 26.29 15.04 10.80

P/BV (x) 4.96 3.10 2.95 2.58 2.16

FCF Yield (%) 0.99 -64.15 20.04 10.13 13.81

Dividend Yield (%) 0.90 0.90 0.84 1.26 1.68

Per share ratios

EPS 26.26 24.84 22.64 39.57 55.08

Cash EPS 35.09 37.53 51.75 70.64 87.85

BVPS 120.01 191.68 201.77 231.01 276.09

DPS 5.33 5.33 5.00 7.50 10.00



UPL 10

Rating track

Date Rating Market price (Rs) Target price (Rs)

26th March 2019 Buy 913 1,134

20th May 2019 Accumulate 1,019 1,129

1 August 2019 Buy 594 753

9 October 2019 Buy 588 688

8 November 2019 Buy 559 665

3 January 2020 Buy 595 686

Rating track graph

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Jul-1

8

Au

g-1

8

Se

p-1

8

Oct

-18

No

v-1

8

De

c-1

8

Jan

-19

Fe

b-1

9

Ma

r-1

9

Ap

r-1

9

Ma

y-1

9

Jun

-19

Jul-1

9

Au

g-1

9

Se

p-1

9

Oct

-19

No

v-1

9

De

c-1

9

Jan

-20

Not Covered Covered


UPL 11

DISCLOSURES

This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as “NBEPL”) for private circulation. NBEPL is a registered Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no. INH000001436. NBEPL is also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in securities Market. NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBEPL or its associates or Analyst do not have any conflict or material conflict of interest at the time of publication of the research report with the subject company. NBEPL or its associates or Analyst or his relatives do not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of this research report. NBEPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. NBEPL or its associates have not received any compensation or other benefits from the company covered by Analyst or third party in connection with the research report. Analyst has not served as an officer, director or employee of Subject Company and NBEPL / analyst has not been engaged in market making activity of the subject company. Analyst Certification: I, Amit Agarwal, research analyst the author of this report, hereby certify that the views expressed in this research report accurately reflects my personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst is principally responsible for the preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.


UPL 12

Disclaimer

Stock Ratings Absolute Returns

BUY > 15%

ACCUMULATE -5% to15%

SELL < -5%

This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. NBEPL is not soliciting any action based upon it. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any such transaction. In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader.

This research has been prepared for the general use of the clients of NBEPL and must not be copied, either in whole or in part, or distributed or redistributed to any other person in any form. If you are not the intended recipient you must not use or disclose the information in this research in any way. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. NBEPL will not treat recipients as customers by virtue of their receiving this report. This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject NBEPL & its group companies to registration or licensing requirements within such jurisdictions.

The report is based on the information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up-to-date and it should not be relied upon as such. We accept no obligation to correct or update the information or opinions in it. NBEPL or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. NBEPL or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.

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institutional equities upl · 2020. 4. 23. · 14.5x ( 8% discount to global peers and 4% discount...

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