Upl - 3qfy15 - Hdfc Sec

8/9/2019 Upl - 3qfy15 - Hdfc Sec

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RESULTS REVIEW 3QFY15 3 FEB 2015

UPL LtdBUY

Momentum continuesUPLs 3QFY15 revenues were Rs 30.5bn (+15% YoY)mainly led by volume growth. EBITDA margin

expanded to 18.9% (+129 bps) led by lower operating

expenses. Consequently, EBITDA came in at Rs 5.7bn

(+24%). However, lower other income (Rs 136mn, -

73%) and higher interest cost (Rs 1.4bn, +26%, higher

forex losses) restricted APAT to Rs 2.6bn (+5%).

We remain positive on the long term growth

prospects of UPL. Assurance of no big acquisition andfocus on product/geographical consolidation further

improves outlook. Mgt maintained its guidance for

(1) Revenue growth of 12-15% (2) EBITDA margins at

18-19% (3) Working capital to remain at ~105 days.

Diversified portfolio and geographical spread protect

UPL from weather/commodity shocks. Strong

growth, no acquisition and debt reduction will reduce

valuation discount to peers. Maintain BUY and raise

TP to Rs 460 (14x FY17E EPS, rolling fwd to FY17E andraising multiple from 13x to 14x vs 20/18x for PI

Industries/Rallis India).

3QFY15 highlights

Revenue growth : Volume +16%, price +2% and

exchange impact -2%.

Geographic revenue growth: India (+25%), Latin

America (+14%), Europe (+2%), North America (+3%)

and ROW (+22% YoY).

Labour shortage and rising cost are driving up usage of

herbicides particularly in India. Muted commodity

prices and excess inventory in some of the areas

remains a concern.

UPL continues to maintain its focus on new launches

and corporate + product branding, which will drive

volumes in the future.

Risks : (1) Regulatory risks (subsidiaries in 88countries) (2) Cross currency volatility. Europe/Latin

America/RoW contributes 18/27/15% of revenues.

Valuations and view : Maintaining high revenuegrowth rate and cash generation will be the key

drivers. With no major capex, net D/E should reduce

from 0.4x in FY14 to 0.1x by FY17E. UPL trades at

12.0/2.0x FY17E EPS/BV. Maintain BUY, TP Rs 460.

FINANCIAL SUMMARY (CONSOLIDATED)Year Ending March (Rs mn) 3QFY15 3QFY14 YoY (%) 2QFY15 QoQ (%) FY13 FY14 FY15E FY16E FY17E

Net Sales 30,472 26,469 15.1 26,623 14.5 91,945 107,709 121,373 134,646 149,172

EBITDA 5,746 4,651 23.6 4,805 19.6 16,618 20,196 22,757 24,842 27,433

APAT 2,616 2,489 5.1 1,773 47.5 7,982 10,313 11,341 12,099 14,093

Diluted EPS (Rs) 6.1 5.8 5.1 4.1 47.5 18.6 24.1 26.5 28.2 32.9

P/E (x) 21.1 16.3 14.9 13.9 12.0

EV / EBITDA (x) 11.4 9.3 8.1 7.2 6.3

RoE (%) 18.1 20.9 19.9 18.2 18.3

Source: Company, HDFC sec Inst Research

INDUSTRY AGROCHEMICAL

CMP (as on 2 Feb 2015) Rs 393

Target Price Rs 460

Nifty 8,797

Sensex 29,122

KEY STOCK DATA

Bloomberg/Reuters UPLL IN/UPLL.BO

No. of Shares (mn) 429

MCap (Rs bn) / ($ mn) 169/2,7296m avg traded value (Rs mn) 623

STOCK PERFORMANCE (%)

52 Week high / low Rs 396/177

3M 6M 12M

Absolute (%) 13.0 18.4 108.2

Relative (%) 8.5 4.1 66.3

SHAREHOLDING PATTERN (%)

Promoters 29.80

FIs & Local MFs 8.62

FIIs 46.47

Public & Others 15.11

Source : BSE

Satish Mishra

[email protected]

+91-22-6171-7334

HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters


2/7

UPL : RESULTS REVIEW 3QFY15

QUARTERLY FINANCIALS SNAPSHOT (CONSOLIDATED)

(Rs mn) 3QFY15 3QFY14 YoY (%) 2QFY15 QoQ (%)

Net Sales 30,472 26,469 15.1 26,623 14.5

Material Expenses 15,413 13,244 16.4 12,948 19.0

Employee Expenses 2,640 2,619 0.8 2,547 3.6

Other Expenses 6,673 5,955 12.1 6,323 5.5EBITDA 5,746 4,651 23.6 4,805 19.6

Other Income 136 501 (72.9) 171 (20.7)

Depreciation 1,086 1,043 4.0 1,092 (0.5)

PBIT 4,796 4,108 16.7 3,885 23.5

Interest 1,381 1,095 26.1 1,401 (1.5)

E/o items 184 397 168

PBT 3,231 2,615 23.5 2,315 39.5

Tax 598 521 14.8 462 29.6

PAT 2,632 2,094 25.7 1,853 42.0

Minority Interest/Associate (140) 129 (193)

RPAT 2,493 2,222 12.2 1,661 50.1APAT 2,616 2,489 5.1 1,773 47.5

AEPS (Rs/sh) 6.1 5.8 5.1 4.1 47.5


MARGIN ANALYSIS

3QFY15 3QFY14 YoY (bps) 2QFY15 QoQ (pbs)

Material Expenses as % of Net Sales 50.6 50.0 55 48.6 195

Employee Expenses as % of Net Sales 8.7 9.9 (123) 9.6 (90)

Other Expenses as % of Net Sales 21.9 22.5 (60) 23.7 (185)

EBIDTA Margin (%) 18.9 17.6 129 18.0 81

Net Profit Margin (%) 8.6 9.4 (82) 6.7 192

Tax Rate (%) 15.7 19.9 (420) 19.9 (421)


SEGMENTAL REVENUES

3QFY15 3QFY14 YoY (%) 2QFY15 QoQ (%)

North America 5,320 5,180 2.7 3,420 55.6

India 6,030 4,840 24.6 6,860 (12.1)

Europe 3,320 3,260 1.8 4,010 (17.2)

RoW 4,650 3,820 21.7 3,560 30.6

Latin America 11,290 9,870 14.4 8,940 26.3

Total 30,610 26,970 13.5 26,790 14.3


Higher interest Cost (+26%) is

due to higher forex losses (Rs

440mn vs Rs 170mn)

Lower operating expenses

boosted EBITDA margins

Growth was robust in most of

the geographies

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ASSUMPTIONS

FY12 FY13 FY14 FY15E FY16E FY17E

Revenues YoY Growth (%)

North America 27.4 31.5 13.5 5.5 6.0 6.0

India 15.1 5.0 25.9 17.0 12.0 12.0

Europe 16.0 20.8 18.8 6.0 6.0 6.0

Rest of World 57.7 21.8 14.5 16.0 14.0 14.0

Latin America - 21.3 16.6 15.0 15.0 14.0

Tax Rate (%) 17.6 21.5 19.2 18.0 24.0 24.0

Cash conversion cycle (days) 137 105 102 105 105 105

Capex (Rs bn) 9.3 5.0 5.7 6.0 6.0 6.0

Source : Company, HDFC sec Inst Research

CHANGE IN ESTIMATES

(Rs mn) FY16E Old FY16E New YoY Gr (%) FY17E Old FY17E New YoY Gr (%)

Revenue 131,980 134,646 2.0 146,157 149,172 2.1EBITDA 23,888 24,842 4.0 26,454 27,433 3.7

PAT 12,016 12,099 0.7 13,473 14,093 4.6

EPS (Rs/sh) 28.0 28.2 0.7 31.4 32.9 4.6


PEER VALUATIONS

CMP

(Rs/sh)

Mcap

(Rs bn)Rating

EPS (Rs/sh) P/E P/BV ROE (%)

FY13 FY14 FY15E FY16E FY13 FY14 FY15E FY16E FY13 FY14 FY15E FY16E FY13 FY14 FY15E FY16EChambal Fert 61 25.3 BUY 5.9 7.8 8.7 9.2 10.4 7.8 7.0 6.6 1.2 1.1 1.0 0.9 12.5 14.9 14.9 14.1

Coromandel Int 283 80.1 BUY 12.6 15.5 19.3 25.0 22.5 18.3 14.7 11.3 3.5 3.1 2.7 2.3 15.9 18.0 19.7 22.1

Deepak Fert 142 12.5 SELL 26.8 13.8 17.3 24.2 5.3 10.3 8.2 5.9 0.8 0.8 0.8 0.7 16.8 8.0 9.5 12.4

GSFC 98 39.1 BUY 8.6 11.3 13.9 15.0 11.4 8.7 7.1 6.6 0.9 0.9 0.8 0.7 8.4 10.3 11.6 11.4

PI Industries 505 69.2 NEU 13.9 17.4 21.3 25.5 36.5 29.1 23.7 19.8 10.0 7.7 6.1 4.8 30.7 29.7 28.4 26.9

Rallis India 224 43.5 BUY 7.8 8.4 10.7 14.0 28.7 26.7 20.8 16.0 6.1 5.3 4.5 3.8 22.7 21.1 23.3 25.8

UPL Ltd 393 168.4 BUY 24.1 26.5 28.2 32.9 16.3 14.9 13.9 12.0 3.2 2.7 2.4 2.0 20.9 19.9 18.2 18.3


Growth will be driven by India,

Latin America and ROW

Change in estimates factoring

higher margins

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INCOME STATEMENT (CONSOLIDATED)

(Rs mn) FY13 FY14 FY15E FY16E FY17E

Net Sales 91,945 107,709 121,373 134,646 149,172

Growth (%) 20.1 17.1 12.7 10.9 10.8

Material Expenses 46,874 54,408 60,687 67,727 75,033

Employee Expenses 8,526 9,469 10,195 11,243 12,396

Other Operating Expenses 19,927 23,636 27,734 30,834 34,309

EBIDTA 16,618 20,196 22,757 24,842 27,433

EBIDTA Margin (%) 18.1 18.8 18.8 18.5 18.4

EBIDTA Growth (%) 21.5 21.5 12.7 9.2 10.4

Other Income 1,000 1,314 733 813 900

Depreciation 3,537 4,069 4,418 4,797 5,169

EBIT 14,081 17,440 19,073 20,858 23,164

Interest & Financial charges 4,290 4,866 4,754 4,411 4,095

PBT 9,791 12,574 14,318 16,446 19,070

Tax 2,032 2,217 2,577 3,947 4,577

EO profit/(loss) (352) (1,009) - - -

RPAT 7,407 9,349 11,741 12,499 14,493

Minority Interest (16) 72 600 600 600

Profit from Associates 323 221 200 200 200

APAT 7,982 10,313 11,341 12,099 14,093

APAT Growth (%) 39.1 29.2 10.0 6.7 16.5

APAT (continuing ops) 7,982 10,313 11,341 12,099 14,093

AEPS 18.6 24.1 26.5 28.2 32.9

EPS Growth (%) 39.1 29.2 10.0 6.7 16.5Source: Company, HDFC sec Inst Research

BALANCE SHEET (CONSOLIDATED)


SOURCES OF FUNDS

Share Capital 885 857 857 857 857

Reserves 45,567 51,617 60,701 70,293 81,879

Total Shareholders Funds 46,452 52,474 61,559 71,151 82,736

Minority Interest 2,342 1,721 1,721 1,721 1,721

Long Term Debt 28,123 22,543 22,043 20,043 17,543

Short Term Debt 11,147 6,067 5,567 3,567 3,067

Total Debt 39,270 28,610 27,610 23,610 20,610

Other long-term liabilities 3,945 3,109 3,109 3,109 3,109

Long-term provisions 514 530 530 530 530

TOTAL SOURCES OF FUNDS 92,524 86,443 94,528 100,119 108,705

APPLICATION OF FUNDS

Net Block 13,217 17,121 19,031 20,509 21,760

CWIP 2,451 2,251 1,751 1,451 1,151

Goodwill 23,000 21,115 21,287 21,312 21,192

Investments 7,415 7,373 7,373 7,373 7,373

LT Loans & Advances 2,691 3,891 3,891 3,891 3,891

Inventories 20,687 24,801 28,265 31,356 34,739

Trade Receivables 26,931 32,204 36,246 40,209 44,547

Cash & Equivalents 18,319 10,228 11,879 12,450 16,026

ST Loans & Advances 7,862 7,707 7,707 7,707 7,707

Other Current Assets 657 901 901 901 901

Current Assets 74,456 75,840 84,998 92,623 103,919Trade Payables 21,176 26,940 29,595 32,831 36,373

Other Current Liabilities 7,057 10,244 10,244 10,244 10,244

Provisions 2,603 3,151 3,151 3,151 3,151

Current Liabilities 30,836 40,335 42,990 46,226 49,768

Net current Assets 43,620 35,506 42,007 46,397 54,151

Net deferred tax asset 131 (813) (813) (813) (813)

TOTAL APPLICATION OF FUNDS 92,524 86,443 94,528 100,119 108,705


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CASH FLOW (CONSOLIDATED)


Reported PAT 8,353 10,357 11,741 12,499 14,493

Non-operating inc & EO items 154 880 491 545 603

PAT from Operations 8,198 9,477 11,250 11,955 13,890

Interest 4,290 4,866 4,754 4,411 4,095

Depreciation 3,537 4,069 4,418 4,797 5,169

Working Capital Change 399 (84) (4,815) (3,782) (4,143)

OPERATING CASH FLOW ( a ) 16,424 18,328 15,607 17,381 19,010

Capex (4,975) (5,660) (6,000) (6,000) (6,000)

Free cash flow (FCF) 11,449 12,668 9,607 11,381 13,010

Investments (719) 42 - - -

Non-operating income 435 880 491 545 603

INVESTING CASH FLOW ( b ) (5,259) (4,738) (5,509) (5,455) (5,397)

Share capital Issuance (2,235) (2,830) - - -

Debt Issuance 6,224 (10,661) (1,000) (4,000) (3,000)

Dividend (1,334) (2,006) (2,257) (2,507) (2,507)

Interest (3,379) (4,866) (4,754) (4,411) (4,095)

FINANCING CASH FLOW ( c ) (724) (20,362) (8,011) (10,919) (9,602)

NET CASH FLOW (a+b+c) 10,441 (6,773) 2,087 1,007 4,012

EO items (281) - - - -

Closing Cash & Equivalents 18,319 10,228 11,879 12,450 16,026


KEY RATIOS

FY13 FY14 FY15E FY16E FY17E

PROFITABILITY (%)

GPM 49.0 49.5 50.0 49.7 49.7

EBITDA Margin 18.1 18.8 18.8 18.5 18.4

EBIT Margin 15.3 16.2 15.7 15.5 15.5

APAT Margin 8.7 9.6 9.3 9.0 9.4

RoE 18.1 20.9 19.9 18.2 18.3

Core RoCE 14.1 17.2 18.4 17.4 18.3

RoCE 13.1 15.9 16.8 15.9 16.5

EFFICIENCY

Tax Rate (%) 21.5 19.2 18.0 24.0 24.0

Asset Turnover (x) 1.1 1.2 1.3 1.4 1.4

Inventory (days) 82 84 85 85 85

Debtors (days) 107 109 109 109 109

Payables (days) 84 91 89 89 89

Cash Conversion Cycle (days) 105 102 105 105 105

Debt/EBITDA (x) 2.4 1.4 1.2 1.0 0.8

Net D/E 0.5 0.4 0.3 0.2 0.1

Interest Coverage 3.3 3.6 4.0 4.7 5.7

PER SHARE DATA

EPS (Rs/sh) 18.6 24.1 26.5 28.2 32.9

CEPS (Rs/sh) 26.9 33.6 36.8 39.4 44.9

DPS (Rs/sh) 2.6 4.0 4.5 5.0 5.0

BV (Rs/sh) 108.4 122.4 143.6 166.0 193.0VALUATION

P/E 21.1 16.3 14.9 13.9 12.0

P/BV 3.6 3.2 2.7 2.4 2.0

EV/EBITDA 11.4 9.3 8.1 7.2 6.3

Dividend Yield (%) 0.7 1.0 1.1 1.3 1.3

OCF/EV (%) 8.7 9.8 8.5 9.7 11.0

FCF/EV (%) 6.0 6.8 5.2 6.3 7.5

FCFE/Mcap (%) 4.3 4.6 2.9 4.1 5.3


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RECOMMENDATION HISTORY

Rating Definitions

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period

SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target

25-Apr-14 230 BUY 280

28-Jul-14 311 BUY 364

22-Oct-14 327 BUY 3643-Feb-15 393 BUY 460

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UPL TP

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Disclosure:I, Satish Mishra, MBA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subjectissuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or itsAssociate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. FurtherResearch Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.Any holding in stock No

Disclaimer:This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled orarrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation ofwarranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is forinformation purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not beconstrued as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments.This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in anylocality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFCSecurities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction.If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document maynot be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd .Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derivedfrom them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.

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Upl - 3qfy15 - Hdfc Sec