Quarterly Update

29 JUL 2016

UPL

BUY

MIDCAPS

Target Price: Rs 700

Advanta merger complete; guidance intact

UPL (including Advanta) reported Q1FY17 sales of Rs 35.1 bn, up 7%
YoY; Advanta (~10% of sales) de-grew 20% YoY, whereas Crop
Protection grew 10% YoY (Volume: 10% YoY, Price: -2% YoY, FX: +2%
YoY). EBITDA margin expanded 90 bps YoY to 19.9% (+2% YoY). Tax
rate was much lower as a result of amalgamation of Advanta. As a
result, reported PAT was Rs 4 bn, up 24% YoY.
Management maintained FY17 revenue growth guidance at 12-15%,
EBITDA margin of 60-100 bps YoY, and working capital days of 90110 days. We fine-tune EBITDA margin to reflect 50 bps improvement
p.a., and retain sales growth at 12% p.a. Our estimates do not reflect
the amalgamation of Advanta yet (refer report), as comparable full year
FY16 data is still unavailable. Maintain BUY with revised TP of Rs 700
(Rs 620 earlier), based on 15x FY18E EPS.

CMP
Potential Upside

: Rs 625
: 12%

MARKET DATA
No. of Shares
Free Float
Market Cap
52-week High / Low
Avg. Daily vol. (6mth)
Bloomberg Code
Promoters Holding
FII / DII

: 429 mn
: 70%
: Rs 268 bn
: Rs 630 / Rs 342
: 1.7 mn shares
: UPLL IB Equity
: 30%
: 47% / 11%

Key highlights

Geographical revenue mix: Latin America (20% of sales) and RoW (16% of sales) grew at 13% YoY each, Europe
(16% of sales) grew 12% YoY, while North America (18% of sales) and India (30% of sales) grew slower at
5% YoY and 1% YoY

Working capital: Net working capital days declined by 12 YoY to 90 days. Higher inventory days
(114 vs. 111 in Q1FY16), were offset by lower receivable days (109 vs. 115 in Q1FY16) and higher payable
days (133 vs. 124 in Q1FY16)

Gross debt at Rs 5.3 bn (vs. 5.1 bn in Q1FY16), and Cash at Rs 1.2 bn (vs. Rs 1.1 bn in Q1FY16)

(Continued on page 2)

Financial summary (Consolidated)

Y/E March

Key drivers

FY15

FY16

FY17E

FY18E

(%)

FY16

FY17E

FY18E

10%

12%

12%

20.4%

20.9%

21.4%

119,111

130,407

145,842

163,621

Revenue growth

Adj PAT (Rs mn)

11,563

14,839

16,174

19,917

EBITDA margin

Con. EPS* (Rs.)

37.6

44.0

27.0

34.6

37.7

46.4

9.2

28.3

9.0

23.1

P/E (x)

23.2

18.1

16.6

13.5

RoE (%)

20.8

23.7

22.2

23.0

RoCE (%)

20.3

23.2

22.5

23.6

EV/EBITDA (x)

12.3

10.5

9.5

8.1

5.0

7.2

8.0

8.0

Sales (Rs mn)

EPS (Rs.)
Change YOY (%)

DPS

Price performance
120

Sensex

United Phosphorus

100
80

60
Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

Source: *Consensus broker estimates, Company, Axis Capital

Kashyap Pujara Executive Director - Midcaps

kashyap.pujara@axiscap.in 91 22 4325 1146

Snigdha Sharma AVP - Midcaps

snigdha.sharma@axiscap.in 91 22 4325 1129

Axis Capital is available on Bloomberg (AXCP<GO>), Reuters.com, Firstcall.com and Factset.com

01

29 JUL 2016

Quarterly Update

UPL
MIDCAPS

Exhibit 1: Results update

(Rs mn)

Jun-16

Quarter ended
Jun-15
% Chg

Mar-16

% Chg

Total Income
EBIDTA
Other income
PBIDT
Depreciation
Interest
PBT
Tax
PAT before minority/ associate share
Minority interest
Share of profit from associates
Extra ordinary income/ (exp.)
Reported PAT
No. of shares (mn)
EBIDTA margin (%)
PBIDT margin (%)
EPS - annualized (Rs.)

35,102
6,987
83
7,069
1,691
1,060
4,319
26
4,293
16
23
(281)
4,020
429
19.9
20.1
40.0

32,752
6,208
(214)
5,994
1,548
675
3,771
342
3,429
(23)
(34)
(169)
3,250
429
19.0
18.3
32.0

43,397
9,813
729
10,542
1,590
2,034
6,917
643
6,275
233
94
(320)
5,815
429
22.6
24.3
58.5

(19.1)
(28.8)
(88.7)
(32.9)
6.3
(47.9)
(37.6)
(95.9)
(99.6)
(30.9)
31.6

7.2
12.5
(138.7)
17.9
9.2
56.9
14.5
(92.4)
25.2
23.7
25.2

12 months ended
FY17E
FY16
% Chg
145,842
31,064
850
31,914
5,577
6,369
19,968
3,994
15,974
100
300
0
16,174
429
21.3
21.9
37.7

130,407
27,163
1,117
29,350
5,017
6,223
18,111
2,830
15,281
128
(314)
(781)
12,988
429
20.8
22.5
34.6

11.8
14.4
8.7
11.2
2.4
10.3
41.1
4.5
24.5
8.9

Source: Company, Axis Capital

(Continued from page 1)

Q1FY17 Region-wise key performance highlights:

India Q1 revenue of Rs 10.6 bn (+1% YoY)
Two week delay in monsoons, but widespread rains now across India except
for parts of Gujarat and Rajasthan

High opening inventories from last year

Significant crop shift from Cotton to Pulses & Corn across India

Expansion of UPL brand Ulala on sucking insects (Punjab, Haryana

& Rajasthan)

Launch of Wuxal in crop nutrient portfolio (Horticulture Crops)

Advanta seeds: Hybrid corn, rice and forage performance better than last year

Latin America Q1 revenue of Rs 6.9 bn (+13% YoY)

Soybean to continue as dominant crop in terms of area in Brazil

UPL has excellent fungicide portfolio (Unizeb, Glory) to manage Asian

rust diseases

New product registrations in Mexico on multiple crops

Market is sensitive due to existing and future peso devaluation in Mexico

License requirement for Agrochemical import in Argentina removed

Advanta seeds: Higher GM corn sales in Argentina, Lower sales in Brazil,

season is expected to pick up in next quarter

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02

29 JUL 2016

Quarterly Update

UPL
MIDCAPS

Europe Q1 revenue of Rs 5.6 bn (+12% YoY)

Extended sugar beet season & increase of acreage compared to last year
supported our range of sugar beet herbicides
Delay in rice season pushed herbicide application spray to July
Europe benefitted from good rains, vine and potatoes fungicide are
increasing by 30% due to mildew and late blight
Registration guidelines are becoming much more stringent for Agrochemicals
Rest of the World (RoW) Q1 revenue of Rs 5.5 bn (+13% YoY)
Overall season is recovering in Asia & Australia after a prolonged drought.
Performance of fungicides has been good and there is traction in liquidating
inventory stuck in channel
Geographic expansion of non-selective herbicides portfolio in Asia
Good growth in Turkey due to Institutional Business despite slow season
Pulses area increased significantly in Australia leading to growth in fungicides
Business recovery in selected counties in Africa with new products
Advanta seeds: Good rain in June across Thailand which enhanced corn
planting area, Good growth registered in field corn sales; Lower canola sales
in Australia due to reduction in canola acreages by 25%; Shift towards
OP varieties
North America Q1 revenue of Rs 6.3 bn (+5% YoY)
Increase in Cotton, Corn & Wheat planting area

Reduced insect and disease pressure on field crops

Positive outlook for Rice as west coast received enough snow during winter

Non-selective herbicides facing price competition, though higher volumes due

to resistance issue

Successful launch of miticide Banter in USA

Aquatic business (Cascade and Teton) continues to outpace 2015 with

improved water in the streams

Advanta seeds: Lower sales of Sorghum and Forage sorghum due to reduction
in area

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03

Quarterly Update

29 JUL 2016

UPL
MIDCAPS

Financial summary (Consolidated)

Profit & loss (Rs mn)
Y/E March

Cash flow (Rs mn)

FY15

FY16

FY17E

FY18E

119,111

130,407

145,842

163,621

1,794

2,608

2,917

3,272

Total operating income

120,905

133,015

148,759

Cost of goods sold

(60,164)

(64,112)

60,741

68,903

Net sales
Other operating income

Gross profit

Gross margin (%)

Total operating expenses
EBITDA

EBITDA margin (%)

FY15

FY16

FY17E

FY18E

Profit before tax

14,182

18,111

19,968

24,646

Depreciation & Amortisation

(4,245)

(5,017)

(5,577)

(6,097)

166,894

Chg in working capital

(1,863)

(3,298)

(11,079)

(6,072)

(72,192)

(80,993)

Cash flow from operations

18,871

22,153

16,842

25,519

76,567

85,901

Capital expenditure

(9,159)

(10,130)

(8,000)

(8,000)

Cash flow from investing

51.0

52.8

52.5

52.5

(37,115)

(40,670)

(45,503)

(50,232)

23,626

28,233

31,064

35,669

Y/E March

(9,450)

(13,302)

(4,861)

(7,150)

Equity raised/ (repaid)

(217)

1,262

(1,045)

Debt raised/ (repaid)

(689)

5,797

(5,000)

19.8

21.6

21.3

21.8

Dividend paid

(2,200)

(3,142)

(3,386)

(3,394)

Depreciation

(4,245)

(5,017)

(5,577)

(6,097)

Cash flow from financing

(9,550)

(2,880)

(11,776)

(15,147)

EBIT

19,381

23,217

25,487

29,572

Net chg in cash

(130)

5,971

204

3,222

Net interest

(5,170)

(6,223)

(6,369)

(5,776)

(28)

1,117

850

850

Profit before tax

14,182

18,111

19,968

24,646

Y/E March

FY15

FY16

FY17E

FY18E

Total taxation

(2,440)

(2,830)

(3,994)

(4,929)

OPERATIONAL
FDEPS (Rs)

27.0

34.6

37.7

46.4

CEPS (Rs)

36.6

44.5

50.7

60.6

Other income

Tax rate (%)

Profit after tax
Minorities
Profit/ Loss associate co(s)
Adjusted net profit

Adj. PAT margin (%)

Net non-recurring items
Reported net profit

17.2

15.6

20.0

20.0

11,742

15,281

15,974

19,717

(433)

(128)

(100)

(100)

254

(314)

300

300

11,563

14,839

16,174

19,917

9.7

11.4

11.1

12.2

(123)

(781)

11,440

14,058

16,174

19,917

Balance sheet (Rs mn)

Y/E March

Key ratios

DPS (Rs)
Dividend payout ratio (%)

5.0

7.2

8.0

8.0

18.7

22.1

21.2

17.2

GROWTH
Net sales (%)

12.6

9.5

11.8

12.2

EBITDA (%)

17.0

19.5

10.0

14.8

Adj net profit (%)

9.2

28.3

9.0

23.1

FDEPS (%)

9.2

28.3

9.0

23.1

RoE (%)

20.8

23.7

22.2

23.0

RoCE (%)

20.3

23.2

22.5

23.6

PERFORMANCE

FY15

FY16

FY17E

FY18E

857

857

857

857

Reserves & surplus

57,746

67,050

78,018

93,763

EFFICIENCY

Net worth

58,603

66,646

78,875

94,620

Asset turnover (x)

1.5

1.5

1.4

1.5

Borrowing

32,806

38,603

38,603

33,603

Sales/ total assets (x)

0.9

0.8

0.9

0.9

Paid-up capital

Other non-current liabilities

Total liabilities

6,917

5,117

5,615

5,615

0.3

0.3

0.3

0.3

141,670

166,718

172,859

189,422

Receivable days

112.7

134.6

124.8

124.8

Working capital/ sales (x)

Gross fixed assets

79,845

92,433

100,433

108,433

Inventory days

110.2

112.4

110.2

110.3

Less: Depreciation

(37,164)

(42,180)

(47,757)

(53,855)

Payable days

146.7

181.6

142.8

142.9

42,681

50,253

52,675

54,578

FINANCIAL STABILITY

Net fixed assets

Add: Capital WIP
Total fixed assets
Total Investment

3,458

1,000

1,000

1,000

Total debt/ equity (x)

0.6

0.6

0.5

0.4

46,139

51,253

53,675

55,578

Net debt/ equity (x)

0.4

0.4

0.4

0.2

7,636

10,664

9,636

9,636

Current ratio (x)

2.0

1.9

2.2

2.3

Inventory

29,376

32,263

35,531

39,642

Interest cover (x)

3.7

3.7

4.0

5.1

Debtors

36,762

48,102

49,861

55,939

VALUATION

Cash & bank

10,098

10,679

11,030

13,901

PE (x)

23.2

18.1

16.6

13.5

Loans & advances

11,659

13,759

13,126

14,726

EV/ EBITDA (x)

12.3

10.5

9.5

8.1

Current liabilities

42,901

55,929

49,244

54,963

EV/ Net sales (x)

2.4

2.3

2.0

1.8

Net current assets

44,994

48,872

60,303

69,246

PB (x)

4.6

4.0

3.4

2.8

Dividend yield (%)

0.8

1.2

1.3

1.3

141,670

166,718

172,859

189,422

Free cash flow yield (%)

1.7

2.2

0.9

4.4

Other non-current assets

Total assets
Source: Company, Axis Capital

Source: Company, Axis Capital

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04

29 JUL 2016

Quarterly Update

UPL
MIDCAPS

Axis Capital Limited is registered with the Securities & Exchange Board of India (SEBI) as Research Analyst with SEBI-registration
number INH000002434 and which registration is valid up to 03/12/2020.
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The research analyst or any of his / her family members or relatives may have financial interest or any other material conflict of interest in the subject company
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immediately preceding the date of publication of this research report.

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subject company as at the end of the month immediately preceding the date of publication of this research report.

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05

29 JUL 2016

Quarterly Update

UPL
MIDCAPS

Axis Capital Limited

Axis House, C2, Wadia International Centre, P.B Marg, Worli, Mumbai 400 025, India.
Tel:- Board +91-22 4325 2525; Dealing +91-22 2438 8861-69;
Fax:- Research +91-22 4325 1100; Dealing +91-22 4325 3500

DEFINITION OF RATINGS
Ratings

Expected absolute returns over 12 months

BUY

More than 10%

HOLD

Between 10% and -10%

SELL

Less than -10%

ANALYST DISCLOSURES
1.
2.

The analyst(s) declares that neither he/ his relatives have a Beneficial or Actual ownership of > 1% of equity of subject company/ companies
The analyst(s) declares that he has no material conflict of interest with the subject company/ companies of this report

UPL (UPLL.BO, UPLL IN) Price and Recommendation History

Source: Axis Capital

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06