Broking firm Sharekhan sees an upside of nearly 25% on the stock of UPL and has placed a "buy" call on the stock. The broking firm has set a target of Rs 632 against the current market price of Rs 507.
According to a Sharekhan, UPL's management is focused on increasing the share of revenue from high-margin BioSolutions to 20% (from only 5% currently) over the next few years and enhance its product offering (38 new active ingredients in early stage and 14 in late stage of development, with a potential sales value of US$1 billion-1.5 billion for the next five to eight years). This is expected to drive 7% revenue CAGR over FY2020-FY2023E
"We have largely maintained our FY2021 and FY2022 earnings estimates and have introduced our FY2023 earnings estimate in this report. Improving earnings outlook (expect PAT CAGR of 16% over FY2020-FY2023E; RoE of 16-17%) and focus on balance sheet deleveraging would act as key re-rating catalyst for UPL.
Moreover, management's target of net debt to equity of 2x by March 2021 (versus our expectation of 2.7x) seems ambitious, but success on the same could accelerate re-rating of UPL as concerns over debt would recede earlier than street expectations. We maintain our Buy rating on UPL with a revised target price of Rs. 632 [increased to reflect higher valuation multiple of 13x (in-line with historical average one-year forward PE of 13x) and roll over of target multiple to FY2023E EPS]. At the current market price, the stock is trading at 11.3x its FY2022E EPS and 10.3 FY2023E its EPS," the broking firm has said.