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Growing Food demand, Agrochemicals are important link in value chain
In the period from 1960 to 2005, the global population has grown from 3 billion to nearly 6.5 billion and is expected to reach nearly 8.2 billion in 2030, which means 1.7 billion more mouths need to be fed; this along with rising income levels in developing countries is taking demand higher for food. The ratio of arable land to population is set to decline by 40%-55% by 2030. Apart from these factors, Growth in horticulture and floriculture is further expected to increase the usage of agrochemicals.
Off-patent products ~74% of market, products worth $4 billion more to be off-patent till 2014
UPL is one of the top 4 generic players in global agrochemical industry. Industry is highly consolidated with 84% market share controlled by Top 6 innovator companies. 26% of the market is controlled by patented products, while 29% comes from proprietary off-patent products. Generic players (products with companies other than original patent holders) account for 45% market share. UPL is growing rapidly (29% CAGR from FY06-FY10) through organic and inorganic route and is positioned to capture the growth opportunities from rising share of generics as well as $4 billion products going off-patent from 2011-2014.
Acquisitions led growth, 30 acquisitions in last decade
UPL has been one of the fastest growing global agrichemical company compared to its larger MNC peers like Makhteshim-Agan Industries, Sumitomo Chemical and Nufarm Ltd. During 2004-09, the industry grew at an average CAGR of 4% v/s UPL, which registered CAGR of 29%. UPL will continue to pursue organic as well as inorganic growth opportunities with over `15 billion war-chest to fund acquisitions.
Valuations & Recommendation
At CMP of `131, UPL is trading at P/E multiple of 8.4x of its FY12E and 7.1x on FY13E EPS of `15.6 and `18.4 respectively. Increasing population, emphasis on achieving food security, limited arable farmland availability alongwith pressure to increase yield per hectare and growth in horticulture and floriculture is expected to drive agrochemical growth going forward. UPL is one of the largest and fastest growing generic global agrochemical play. Hence, we initiate coverage with ‘Buy’ rating with price target of `188 (44% upside potential) based on P/E multiple of 12x for its FY12E earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Growing Food demand, Agrochemicals are important link in value chain
In the period from 1960 to 2005, the global population has grown from 3 billion to nearly 6.5 billion and is expected to reach nearly 8.2 billion in 2030, which means 1.7 billion more mouths need to be fed; this along with rising income levels in developing countries is taking demand higher for food. The ratio of arable land to population is set to decline by 40%-55% by 2030. Apart from these factors, Growth in horticulture and floriculture is further expected to increase the usage of agrochemicals.
Off-patent products ~74% of market, products worth $4 billion more to be off-patent till 2014
UPL is one of the top 4 generic players in global agrochemical industry. Industry is highly consolidated with 84% market share controlled by Top 6 innovator companies. 26% of the market is controlled by patented products, while 29% comes from proprietary off-patent products. Generic players (products with companies other than original patent holders) account for 45% market share. UPL is growing rapidly (29% CAGR from FY06-FY10) through organic and inorganic route and is positioned to capture the growth opportunities from rising share of generics as well as $4 billion products going off-patent from 2011-2014.
Acquisitions led growth, 30 acquisitions in last decade
UPL has been one of the fastest growing global agrichemical company compared to its larger MNC peers like Makhteshim-Agan Industries, Sumitomo Chemical and Nufarm Ltd. During 2004-09, the industry grew at an average CAGR of 4% v/s UPL, which registered CAGR of 29%. UPL will continue to pursue organic as well as inorganic growth opportunities with over `15 billion war-chest to fund acquisitions.
Valuations & Recommendation
At CMP of `131, UPL is trading at P/E multiple of 8.4x of its FY12E and 7.1x on FY13E EPS of `15.6 and `18.4 respectively. Increasing population, emphasis on achieving food security, limited arable farmland availability alongwith pressure to increase yield per hectare and growth in horticulture and floriculture is expected to drive agrochemical growth going forward. UPL is one of the largest and fastest growing generic global agrochemical play. Hence, we initiate coverage with ‘Buy’ rating with price target of `188 (44% upside potential) based on P/E multiple of 12x for its FY12E earnings.
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