Rights Issue Soon? Dividend Paying Largecap Chemical Company UPL Board To Fix Issue Price, Dates & More

Agrochemical major UPL Ltd is gearing up for a board meeting on November 20, where it will finalize the specifics of its much-anticipated rights issue. The agenda includes determining the issue price, payment terms, entitlement ratio, record date, and the overall timeline for the offering.

The rights issue, initially announced in December 2022, was aimed at raising Rs 4,200 crore. However, during its recent earnings release, UPL revised the size down to $400 million from the previously planned $500 million, citing strategic adjustments. Regulatory feedback on this modification is currently awaited.

Rights Issue Process
The timing of UPL's rights issue coincides with the Securities and Exchange Board of India (SEBI)'s new regulations designed to expedite rights issues. The updated framework allows the process to be completed within 23 days of board approval, an improvement from the earlier average of 317 days.

Q2FY25 Financial Snapshot
In Q2FY25, UPL reported a net loss of Rs 443 crore, more than double the Rs 189 crore loss in the same quarter of the previous year. Revenue, however, grew by 9% year-on-year to Rs 11,090 crore, driven by a 16% increase in volumes, although pricing pressures led to a 7% decline in average realizations.

Contribution Margins fell by 220 basis points to 37.7%, primarily due to pricing challenges in the crop protection segment. EBITDA held steady at Rs 1,576 crore, but the EBITDA margin contracted by 130 basis points to 14.2%, reflecting increased competition and cost pressures.

Management Commentary
Despite the tough quarterly performance, UPL's management reaffirmed its full-year guidance, emphasizing measures to improve margins and cash flow. Efforts include better inventory management and price stabilization in the coming quarters. This reassurance helped the company's stock recover after an initial dip following its earnings announcement.

On Thursday, UPL's shares rose by over 2%, closing at Rs 525.80 per share on the National Stock Exchange (NSE). However, the stock has delivered negative returns of over 6% in the past year.

Analysts from Phillip Capital acknowledged UPL's robust volume growth but flagged concerns over high inventory levels, pricing pressures, and weaker demand in key markets. While these factors weigh on near-term profitability, a recovery in the global agrochemical market is expected to aid demand in FY25.

UPL is banking on a stronger second half, with projected volume growth of 5% and expansion across all segments in FY26. However, the company continues to face pricing challenges, particularly due to overcapacity in China.