Volume No. 1 Issue No. 22 UPL Ltd. - India’s #1 Online ... · Rating Target (Potential Upside 0 100 200-14 -14 -14 -14 14 v-14 -14 Jan-15 -15 -15 r-15 May-15 -15 CNX Nifty UPL One

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Established in 1969, UPL Ltd (UPL) is a crop protection, chemicals and

seeds company. The company offers a wide range of products while

operating through its two segments, namely, agro activities and non-agro

activities. UPL’s product portfolio includes insecticides, fungicides,

herbicides, fumigants, plant growth and regulators and rodenticides.

Globally, UPL has presence in North America, Europe, Latin America and

Rest of the World (RoW), apart from India.

Investment Rationale

Sustained revenue growth - set to continue: Driven by world class

brands, a wide distribution network and a robust B2B and B2C business

model, the company’s sustained revenue growth at CAGR ~14% over FY10-

FY15, is poised to continue as its expands its footprint into multiple

geographies and enhances its reach through acquiring brands that are

reasonably valued and having a payback period of 3-4 years. Further, the

company has applied for multiple product registration, which management

tracks keenly on continuous basis, and is investing on R&D for new

products and technology. Moreover, the management has set an

estimated revenue target of USD 4 bn in the next 4 years, which if

achieved, will set UPL apart from the competition in terms of ROE and ROI.

Product launches to drive growth: In a bid to provide a boost to its

revenue-base, UPL is eyeing launch of 69 new ingredients over the next

three years which would have a direct impact on its revenue-base. We

expect the company to achieve its target of increasing the revenue by two-

fold over the next four years, given its healthy product pipeline.

International penetration de-risks UPL’s business model: UPL

generates ~80% of its revenue from international operations while the

remaining 20% comes from domestic operations. The company’s 50

subsidiaries across 124 countries along with a diversified product portfolio

de-risk its business model, making the prospects brighter for the coming

times.

Increased focus on per hectare productivity will increase demand for

Agrochemicals: The world’s population is estimated to reach 11 bn in

2100, posing grave challenges for food supplies. Hence, it is crucial to

increase per hectare productivity to meet food supply that can be achieved

through use of agrochemicals. UPL, being one of the largest players in the

segment, is expected to benefit proportionately from strong demand for

agrochemicals.

Rating BUY

CMP (`) 520.8

Target (`) 621.2

Potential Upside ~19.3%

Duration Long Term

Face Value (`) 2.0

52 week H/L (`) 570.0/285.6

Adj. all time High (`) 570.0

Decline from 52WH (%) 8.6

Rise from 52WL (%) 82.4

Beta 0.9

Mkt. Cap (`cr) 22,323.4

EV (`cr) 24,004.7

Promoters 29.8 29.8 -

FII 46.3 46.5 (0.2)

DII 10.1 8.6 1.5

Others 13.8 15.1 (1.3)

Shareholding Pattern

Mar15 Dec14 Diff.

Market Data

Y/E FY14A FY15A FY16E FY17E

Revenue (`cr) 10,770.9 12,090.5 13,904.1 16,267.8

EBITDA (`cr) 2,019.6 2,362.6 2,862.8 3,732.7

Adj. net Profit

(`cr)

1,043.4 1,151.4 1,743.4 2,554.1

Adj. EPS (`) 23.7 26.9 40.7 59.6

Adj. P/E (x) 22.0 19.4 12.8 8.7

P/BV (x) 4.4 3.8 3.2 2.7

EV/EBITDA (x) 12.3 10.0 7.8 6.0

ROCE (%) 21.2 23.0 27.6 32.8

ROE (%) 19.9 19.6 25.0 30.6

Fiscal Year Ended

June 11, 2015

BSE Code: 512070 NSE Code: UPL Reuters Code: UPLL.NS Bloomberg Code: UPLL:IN CRG:IN

Volume No. 1 Issue No. 22 UPL Ltd.

UPL - leading global producer of crop protection products, intermediates,

specialty/industrial chemicals and seeds

UPL Ltd (formerly United Phosphorus Ltd) is a global generic crop protection, chemicals and

seeds company. While operating through two key segments, namely, agro activities and non-

agro activities, the company offers a range of products that includes insecticides, fungicides,

herbicides, fumigants, plant growth and regulators and rodenticides. The agro activity division of

the company manufactures and markets agrochemical products, seeds and other agricultural-

related products. The non-agro activity division, on the other hand, manufactures and markets

industrial chemical and other non-agricultural-related products.

Internationally, UPL has expanded its footprints in North America, Europe, Latin America and

Rest of the World (RoW), apart from India. While the Indian market accounted for ~21% of the

total revenue, North America, Europe, Latin America and Rest of the World constituted ~20%,

~19%, ~27% and ~14% of the total revenue (as in FY14).

Having subsidiaries across the world, UPL has customer base in 123 countries. The company has

24 manufacturing facilities with 10 in India, 4 in France, 2 in Spain, 3 in Argentina and 1 each in

UK, Vietnam, Netherlands, Italy and China.

UPL offers a range of

products that includes

insecticides, fungicides,

herbicides, fumigants, plant

growth and regulators and

rodenticides.

Internationally, UPL has

expanded its footprints in

North America, Europe, Latin

America and Rest of the

World (RoW), apart from

India.

UPL’s Product Profile

Agrochemicals

Fungicides Herbicides Insecticides

Manzate Prostick Super Wham Starthene

Vandozeb Tricor Lancer Gold

Saaf Devrinol Phoskill

Cuprofix Ultra Blazer Ulala

Blue Bordo Dost Super Assail

Microthial Fascinate Trinca

Uthane Surflan Bifenture

Unizeb Gold Saathi Tengard

Elixir Eros Gold Bracket

Super Tin Jhatka Doom

Topsin Lagaam Umet

Penncozeb Zartan Viraat

Industrial and speciality chemicals

White/Yellow Phosphorus (WP/YP) Triphenyl Phosphate (TPPA) Phosphorus Red (RP)

Meta Chloro Phenyl Isocyanate Phosphorus Trichloride (PCL3) Triphenyl Phosphite (TPPI)

Phosphorus Oxychloride (POCL3) Triethyl Phosphite (TEPI) Phosphorus Pentachloride (PCL5)

Phenyl Isocyanate (PI) Phosphorus Pentoxide (P2O5) Meta Chloro Phenyl Isocyanate (MCPI)

Trimethyl Phosphite (TMP)

Seeds

Rice – PAC 835, 807, 801 Grain Sorghum – PAC 501 Cauliflower – Shigra

Field corn – PAC 740 Mustard/Canola – PAC 401, CORL 432 Cabbage – G Ball 65

Forages – Nutrifeed, Sugar graze,

Makkhan grass Peas – GS 10 Beet Root Lalima

Spinach – Shobha

Recorded healthy numbers in Q4FY15

UPL showcased healthy performance in Q4FY15 with 8.6% YoY growth in consolidated total

revenue at `3,624.3 crore as against `3,338.8 crore in the year-ago period. This was mainly on

account of 8.9% YoY increase in revenue from the agro business segment which accounts for

~97% of the company’s top-line. Revenue from the non-agro segment grew 10.4% YoY to

`215.0 crore, during the quarter. Sequentially, the company reported 18.9% YoY surge in

revenue.

Geography-wise, growth in revenue was led by Latin America with ~29% growth, followed by

~13% growth in Rest of the world (RoW), ~9% in the US and ~5% in India.

EBITDA margin expanded

160bps YoY to 21.7%, during

the quarter under review, as

against 20.1% in the same

period a year ago.

Quarterly performance trend

3,3

38

.8

2,7

56

.7

2,6

62

.3

3,0

47

.2

3,6

24

.3

36

0.3

28

8.6

16

6.1

24

9.3

44

0.1

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15

Total income Net profit

3,2

16

.6

2,9

33

.0

3,5

03

.4

19

4.7

22

0.8

21

5.0

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

Q4FY14 Q3FY15 Q4FY15

Agro Activities Non Agro Activities

While revenue from agro

segment grew 8.9% YoY, non

agro segment reported a

10.4% YoY growth in revenue.

`cr

ore

Segment-wise revenue break-up

`cr

ore

Demonstrating a decent performance, UPL reported a 17% surge in EBITDA to `784.9 crore in

Q4FY15 compared to `671.0 crore in Q4FY14 led by 160bps YoY decline in operating expenses

(as a percentage of total revenue) to 78.3% in Q4FY15 from 79.9% in Q4FY14. Consequently,

EBITDA margin expanded 160bps YoY to 21.7%, during the quarter under review, as against

20.1% in the same period a year ago.

Supported by healthy operational performance, UPL recorded 22.1% YoY growth in net profit

to `440.1 crore in Q4FY15 as against `360.3 crore in Q4FY14. Financial expenses like interest

and taxation charges grew 3.3% and 14.2% YoY to `122.6 crore and `49.7 crore, while

depreciation charges declined by 13.4% YoY to `103.5 crore, during the above-mentioned

quarter.

International business paved way for continued growth momentum in

Q4FY15

Primarily driven by Latin America and RoW, UPL registered 8.6% YoY growth in its consolidated

top-line. While revenue from Latin America grew by ~29%, RoW recorded a revenue growth of

~13% in Q4FY15. Among others, UPL saw ~9% and ~5% growth in revenue from the US and

Indian market, respectively. Besides, Europe registered de-growth by ~10% due to currency

devaluation, export ban to Russia which impacted potato and fruits business and added to

price pressure. It was observed that volume growth remained the highest at 18% in Q4FY15,

while price declined by 2%, during the quarter.

In Latin America, new product in Mexico performed as per company’s plan. Unizeb Gold, which

is for resistance management against Asian rust disease on soya, showed impressive

performance. In RoW, new product program in Philippines (on Banana) and Indonesia (on Rice)

performed exceptionally well. Australian business picked momentum in FY15 and new

registration increased market access in Africa. However, due to regulatory process, new

product launches delayed in Thailand and Vietnam. Overall new herbicide (Glufosinate)

supported growth in Asia. In India, new products Iris (Soya) and Eros (Rice), both herbicides,

performed as per company’s plan. Moreover, existing products Ulala, Lancer Gold, Starthene

Power, Saaf, Saathi also performed reasonably well.

New product launches to drive growth

In a move to drive the revenue growth and to stay ahead of its peers, UPL has been constantly

launching new products across different regions. With the help of such launches, UPL recorded

a revenue growth of 11% in FY15. In North America, the company recently launched Lifeline

and Satellite; while in India, its two products, Iris and Eros, received positive response.

UPL recorded 22.1% YoY growth

in net profit to `440.1 crore in

Q4FY15 as against `360.3 crore

in Q4FY14.

Revenue from Latin America

grew by ~29%, while, RoW

recorded a revenue growth of

~13% in Q4FY15.

UPL has consistently focused on

new product launches across

geographies to stay competitive

and to drive revenue growth.

EBITDA margin trend

67

1.0

52

2.6

48

0.5

57

4.6

78

4.9

20.1

19.0 18.0

18.9

21.7

16.0

17.0

18.0

19.0

20.0

21.0

22.0

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15

EBITDA EBITDA margin (%)

`cr

ore

%

Going forward, UPL is expected to launch 69 active ingredients over the next three years. The

management has set an ambitious target of attaining USD 4 bn in sales in the next four years.

As per our estimates, revenue is expected to grow by 14% and 16%, respectively, in FY16 and

FY17.

UPL set to prosper amid strong agrochemicals demand scenario

The agrochemical industry has seen rapid growth in recent years and is estimated to grow at a

CAGR of 12-13% over medium term. With the rise in global population, agrochemicals play an

important role in meeting the food requirement by boosting the productivity. With

expectation of an increase in India’s share in world protection market by 9% in 2014 to ~13%

in FY19, UPL, being one of the country’s largest players in crop-protection market, is well

placed to take advantage of it. The company being consistent in product innovation and

product diversification is likely to benefit from the growing demand for agrochemicals. Thus

UPL, which generates ~80% revenue from international markets, is well placed to reap the

benefits from this growth momentum.

Registered 187 products in FY15

In FY15, the company obtained registrations on 187 products, taking its total product

registrations to 3,687 to date. New registrations have also been lined up as the company seeks

to strengthen its pipeline. Additionally, strong growth opportunity is expected to open up for

UPL as ~ USD 5bn worth of products are expected to go off-patent by 2020. The company,

over the years has transformed itself from a pure generics manufacturer to having an

innovation-led brand portfolio, and has created various niche products, thereby strengthening

its competitiveness. A diversified product mix at competitive costs, coupled with well-

established brands across geographies, is expected to boost the company’s growth.

Key risks

Foreign exchange risks

A significant portion of UPL’s earnings is exposed to foreign currencies. The company, which

derives a significant amount of its revenue from exports, is exposed to a variety of risks,

including the effects of changes in foreign currency exchange rates, interest rates etc. Any

adverse movement in the domestic currency could have a material impact on revenues.

Competitive market could reduce yields

Competition among key players could be a major risk for the company. However, UPL is one of

the most profitable in the global generics agrochemicals space with a large product portfolio

comprising around 50 molecules and 5,500 SKU’s of different products, which helps it stand

among other players in the market.

High raw material cost

For UPL, raw material cost accounts for ~51% of the total operating expenses (as in Q4FY15),

which poses a serious challenge in front of the company. However, the company has tried to

reduce its exposure to this particular risk through backward integration. Moreover, UPL tries

and procure raw materials through long-term contracts in order to reduce its exposure to

price volatility.

Indian agrochemical Industry,

which has seen rapid growth in

recent years, and currently the

world’s 5th

largest producer of

agrochemicals, is expected to

grow at a CAGR of 12-13% over

the medium term.

In FY15, the company obtained

registrations on 187 products,

taking its total product

registrations to 3,687 to date.

Profit & Loss Account (Consolidated)

Y/E (`cr) FY14A FY15A FY16E FY17E Share Capital 85.7 85.7 85.7 85.7

Reserves &

Surplus 5,161.7 5,774.6 6,889.0 8,252.0

Net Worth 5,247.4 5,860.3 6,974.7 8,337.7

Minority interest 172.1 44.4 44.4 44.4

Total debt 2,861.0 2,781.5 2,551.4 2,399.9

Deferred tax

liability 180.7 182.3 186.0 189.7

Provisions 368.1 414.8 496.5 595.0

Other non-

current liabilities 310.9 613.0 673.7 740.5

Other current

liabilities 3,718.4 4,408.5 5,290.2 6,348.3

Total equity &

liabilities 12,858.5 14,304.8 16,216.8 18,655.5

Fixed assets 4,048.7 3,164.6 4,715.2 4,809.5

Goodwill - 1,449.3 1,449.3 1,449.3

Investments 737.3 763.6 794.2 825.9

Deferred tax

assets 99.4 137.8 151.5 166.7

Loans & advances 1,159.8 995.6 1,016.1 1,037.7

Other non-

current assets 11.9 7.9 8.3 8.7

Other current

assets 6,801.4 7,786.0 8,082.1 10,357.6

Total assets 12,858.5 14,304.8 16,216.8 18,655.5

Y/E (`cr) FY14A FY15A FY16E FY17E

Total revenue 10,770.9 12,090.5 13,904.1 16,267.8

Operating

Expenses 8,751.3 9,727.9 11,041.3 12,535.1

EBITDA 2,019.6 2,362.6 2,862.8 3,732.7

Other Income 131.4 (2.8) 139.0 162.7

Depreciation 406.9 424.5 445.7 468.0

EBIT 1,744.0 1,935.3 2,556.1 3,427.3

Interest 486.6 517.0 465.3 418.8

Prior period

adjustments 15.6 4.9 4.9 4.9

Exceptional item 93.6 7.4 11.8 16.3

PBT 1,148.2 1,406.0 2,074.1 2,987.4

Tax 221.7 244.0 324.5 431.6

Minority Interest 7.2 43.3 43.3 43.3

Share in profit/loss

of asso. 30.4 25.4 25.4 25.4

Net profit 949.8 1,144.0 1,731.6 2,537.8

Adj net profit 1,043.4 1,151.4 1,743.4 2,554.1

Y/E FY14A FY15A FY16E FY17E

EBITDA Margin (%) 18.8 19.5 20.6 22.9

EBIT Margin (%) 16.2 16.0 18.4 21.1

NPM (%) 8.8 9.5 12.5 15.6

Adj. NPM (%) 9.7 9.5 12.5 15.7

ROCE (%) 21.2 23.0 27.6 32.8

ROE (%) 19.9 19.6 25.0 30.6

EPS (`) 21.6 26.7 40.4 59.2

Adj. EPS (`) 23.7 26.9 40.7 59.6

P/E (x) 24.1 19.5 12.9 8.8

Adj. P/E (x) 22.0 19.4 12.8 8.7

BVPS(`) 119.3 136.7 162.7 194.5

P/BVPS (x) 4.4 3.8 3.2 2.7

EV/Net Sales (x) 2.3 2.0 1.6 1.4

EV/EBITDA (x) 12.3 10.0 7.8 6.0

Key Ratios (Consolidated)

Balance Sheet (Consolidated)

Valuation and view

UPL is well placed as a global player in agrochemicals space.

The company showcased strong performance in Q4FY15 with

a growth of 8.6% and 22.1%, respectively, in consolidated

top-line and bottom-line. Further, strong product pipe-line

coupled with expectations to obtain new registrations makes

us positive about the stock. The comfortable level of working

capital cycle at 90 days in FY15, Debt/Equity at 0.30x and

interest coverage ratio at 3.74x, makes UPL financially strong,

thereby reiterating our stance on the stock.

We initiate BUY rating on UPL. At a current CMP of `520.8,

UPL is currently trading at an EV/EBITDA of 7.8x FY16E and

6.0x FY17E. Considering the company’s strong fundamentals,

we recommend ‘BUY’ with a target price of `621.2, which

implies potential upside of ~19.3% to the CMP from 1 year

perspective.

For private circulation only

Disclaimer : This document has been prepared by Funds India and Dion Global Solution Ltd. (the company) and is being

distributed in India by Funds India. The information in the document has been compiled by the research department. Due

care has been taken in preparing the above document. However, this document is not, and should not be construed, as an

offer to sell or solicitation to buy any securities. Any act of buying, selling or otherwise dealing in any securities referred to

in this document shall be at investor’s sole risk and responsibility. This document may not be reproduced, distributed or

published, in whole or in part, without prior permission from the Company.

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