Buy This Large Cap Agrochemical Stock For 37% Gains As Recommended By Chola Wealth Direct

Chola Wealth Direct is bullish on UPL Limited, a Large cap Agrochemical sector stock. The brokerage recommends buy the stock of the company for an estimated target price of Rs 1050 apiece. Taking the estimated target price of the stock into consideration, investors buying the stocks at the current market price could be benefited with a potential gain of 37% in 12 months.

UPL Limited is the 5th agrochemical company in the world, after the acquisition of Arysta LifeScience, The company is a global leader in global food systems. With a revenue of US$ 5,040 million, UPL is present in More than 138 countries. The company has market access to 90% of the world's food basket and is focused on ushering growth and progress for the complete agricultural value chain including growers, distributors, suppliers and innovation partners.

Stock Outlook

UPL Limited stock closed on Friday at Rs 768.25 apiece after a dip of 0.79%. Currently, the stock is trading below Rs 160.75 below the 52-week high and Rs 79.75 apiece below the 52-week high, respectively. The stock hit the 52-week low on 23 June 2022 at Rs 607.50 and the 52 week high on 4 May 2022 at Rs 848 apiece. The market cap of the company is Rs 57,665.43 crore. 
 

Returns on Investments

The stocks have witnessed a dip of 2.62 over the week, whereas, over the month, the stocks surged 12.26%. The stock of the company over the years gave a positive return of roughly 0.79%. In the past 3 and 5 years, the stocks gave a positive return of 41.73% and 36.38%, respectively.

Business Performance

UPL persisted on its strong earnings growth trajectory, reporting a solid revenue of Rs 108.2bn (+27.1% YoY/-31.8% QoQ), an 8.5% beat to our estimates. This was propelled by volume growth of 6% YoY, realization lead growth of 18% YoY & favourable foreign exchange fluctuations. The EBITDA grew by 25.8% YoY to Rs 23.4bn bolstered by efficient supply chain management & improved realizations while PAT came at Rs 8.8bn up by 29.5% YoY. The EBITDA Margin declined moderately by 20bps YoY to 21.7%, due to higher SG&A expenses.

Revenue Growth

The company posted double-digit growth across all regions barring India. LATAM/NAFTA/Europe/ROW recorded growth of 38%/47%/14%/31% YoY respectively. The growth of 38% in LATAM was led by growth in Brazil stemming from better herbicide pricing & by solid double-digit growth in NPP BioSolutions in Mexico & Andean Region. Revenue growth of 47% YoY in North America was backed by improved product mix & prices, which pushed herbicide growth. Business in Europe remained affected by challenges arising from the Russia-Ukraine conflict. ROW revenue grew 31% YoY led by growth South-east Asian & Australia/New Zealand in insecticides and fungicides, irrespective of supply chain constrains. Growth of 8% in India was moderate due to external constrains like delay in planting of key crops.

UPL targets to drive 50% from differentiated product sales

Led by the price hikes undertaken by the company to mitigate inflated RM costs and higher contribution of differentiated products, Gross Margins were pushed up 40bps YoY. At present, the product mix contains 70% post patented and 30% sustainable and differentiated products. UPL targets to drive 50% from differentiated product sales which are immune to raw material volatility.

Gross debt grew

Gross debt grew to Rs 301bn from Rs 259bn in 1QFY22. Net Debt was recorded at Rs 294bn, up Rs 50.1bn YoY/Rs 75.7bn led by increase in working capital, higher revenue growth, short-term inventory buildup, increase in receivables backed by strong growth in LATAM. Working Capital days was recorded at 108 days in 1QFY23. The company aims to reduce working capital days to 80 days and has set net debt reduction target at USD400mn for FY23E. The management guided capex for FY23E stands at USD300-250mn.

Chola Wealth Direct Suggests Buy For A Target Price of Rs 1050

UPL is expected to further fortify its industry-leading position and garner most of the evolving opportunities evolving in the agro-chemical space over the long-term on account of market share gains, increasing contribution of high-margin bio-solutions business, expanding geographical presence via diverse acquisitions. The demand momentum & sustainable pricing in near term and colling RM inflation are likely to cushion strong earnings growth momentum. Moreover, the management has raised its guidance for FY23 revenue/EBITDA growth to 12-15%/15-18% on account of sustainable pricing over next couple of quarters. The stock is trading at 13.1x/10.4x on FY23/24E. "We retain our stock rating as a BUY with a target price of Rs 1050," the brokerage said.

According to the brokerage firm, the risks would be Unfavourable weather conditions, inability in yielding synergetic benefits, stringent regulatory restrictions.

Disclaimer

The stock has been picked from the brokerage report of Chola Wealth Direct. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.