UPL - Another Bumper Quarter; Re-Rating to Continue; Result Update Q3FY15 ::Edelweiss

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UPL’s Q3FY15 sales and EBITDA surpassed our estimates. However, PAT came in line primarily on account of higher interest cost and lower other income. Key quarter positives were: (i) commendable performance in all geographies; (ii) 16% and 2% YoY surge in volume and realisation, respectively; (iii) 130bps YoY jump in EBITDA margin; and (iv) improvement in net working capital by 2 days YoY. Key negative was the INR5.6bn and INR2.3bn surge in gross debt QoQ and YoY, respectively, led by higher working capital ahead of upcoming US/Europe season. However, it is expected to dip during Q4FY15. Management continued to maintain 12-15% YoY FY15 revenue growth guidance with margin improvement of 60-100bps. We believe the stock’s re-rating is imminent given improvement in EBITDA margin, strengthening balance sheet and return ratios. Further, it is available at a huge discount to peers. We expect the valuation gap to narrow in the near term led by better financials.

Strong volume-led growth; forex loss dents PAT

In Q3FY15, UPL’s net sales surged 15.1% YoY to INR30.5bn predominantly on account of volume and price (rate) growth of 16% and 2% YoY, respectively; however, forex impact was negative 2% YoY. India, Latin America and RoW grew 24.6%, 14.4% and 21.7% YoY, respectively. EBITDA margin jumped 130bps YoY to 18.9% (estimate: 18.3%), primarily on account of better operating leverage despite 60bps dip in gross margin. Change in geographical mix led to dip in gross margin. Interest cost rose 26.1% YoY to INR1.4bn (estimate: INR1.1bn) owing to forex loss of INR0.44bn.

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https://www.edelweiss.in/research/UPL--Another-Bumper-Quarter;-Re-Rating-to-Continue;-Result-Update-Q3FY15/28215.html