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UPL's 2Q revenue rose 41% and EBITDA 40% yoy, in line with our forecasts. Net income
was impacted by FX losses. We believe UPL will benefit from a strong tailwind in the global
crop protection business, while its valuation is factoring in too much risk. We adjust our
forecasts and target price but remain at Buy.
2Q strong at operating level but impacted by FX loss (almost fully recoverable in 3Q)
UPL’s 2Q revenues grew 41% yoy to Rs17.57bn and EBITDA 40% yoy to Rs3.2bn, aided by
strong volume growth and acquisitions. Organic revenue growth was also strong at 22% yoy
in an otherwise seasonally weak quarter in developed markets. Revenue in its India business
(32% revenue share in 2Q) grew 25% yoy. An FX loss of Rs1.1bn dented reported net
income, which came in at Rs570m. Ex-loss, PBT grew 38% yoy. According to the company,
Rs850m of the FX loss was hedged, and will be likely written back in 3Q.
Raises FY12 revenue growth guidance, but lowers margin guidance slightly
The company is seeing strong market tailwinds globally and thus guided for higher FY12 revenue
growth of 30-35% (from 25-30%). The challenge is in managing input price and exchange rate
volatility, and the EBITDA margin guidance was reduced from 20-21% to 19-20%.
Debt up more than expected due to currency and acquisitions
Net debt rose about Rs10bn qoq, higher than our expectations, due to investments in acquired
companies. The working capital cycle has lengthened by eight days yoy, as Brazilian markets
have a longer cycle.
Strong growth likely over the next two to three years, driven by developing markets
Developing markets (India, Rest of the World) accounted for 70% of UPL’s revenue in 2Q, up
800bp yoy. These markets should drive a 20% revenue and EPS CAGR over FY12-14F. We
adjust our forecasts slightly (FY12F EBITDA +8%, FY12/13F EPS +2%/-4%) and raise our target
price 3%. Our investment thesis remains intact – growth is becoming more visible as the revenue
mix moves more towards developing markets, and current low valuations factor in too many
concerns in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UPL's 2Q revenue rose 41% and EBITDA 40% yoy, in line with our forecasts. Net income
was impacted by FX losses. We believe UPL will benefit from a strong tailwind in the global
crop protection business, while its valuation is factoring in too much risk. We adjust our
forecasts and target price but remain at Buy.
2Q strong at operating level but impacted by FX loss (almost fully recoverable in 3Q)
UPL’s 2Q revenues grew 41% yoy to Rs17.57bn and EBITDA 40% yoy to Rs3.2bn, aided by
strong volume growth and acquisitions. Organic revenue growth was also strong at 22% yoy
in an otherwise seasonally weak quarter in developed markets. Revenue in its India business
(32% revenue share in 2Q) grew 25% yoy. An FX loss of Rs1.1bn dented reported net
income, which came in at Rs570m. Ex-loss, PBT grew 38% yoy. According to the company,
Rs850m of the FX loss was hedged, and will be likely written back in 3Q.
Raises FY12 revenue growth guidance, but lowers margin guidance slightly
The company is seeing strong market tailwinds globally and thus guided for higher FY12 revenue
growth of 30-35% (from 25-30%). The challenge is in managing input price and exchange rate
volatility, and the EBITDA margin guidance was reduced from 20-21% to 19-20%.
Debt up more than expected due to currency and acquisitions
Net debt rose about Rs10bn qoq, higher than our expectations, due to investments in acquired
companies. The working capital cycle has lengthened by eight days yoy, as Brazilian markets
have a longer cycle.
Strong growth likely over the next two to three years, driven by developing markets
Developing markets (India, Rest of the World) accounted for 70% of UPL’s revenue in 2Q, up
800bp yoy. These markets should drive a 20% revenue and EPS CAGR over FY12-14F. We
adjust our forecasts slightly (FY12F EBITDA +8%, FY12/13F EPS +2%/-4%) and raise our target
price 3%. Our investment thesis remains intact – growth is becoming more visible as the revenue
mix moves more towards developing markets, and current low valuations factor in too many
concerns in our view.
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