The shares of agricultural solutions and services major UPL plunged over 6% in two days after the company reported a 95% drop in net profit year-on-year in Q4FY24. The share price of UPL slipped 6.07% to two day low of Rs 501.65 on NSE.
On Monday, UPL reported a substantial 95% year-on-year (YoY) decrease in its consolidated net profit, amounting to Rs 40 crore for the fourth quarter ending March 2024, contrasting with Rs 792 crore in the corresponding period of the previous year.
Similarly, revenue from operations during the same period witnessed a decline of 15% YoY, falling to Rs 14,078 crore compared to Rs 16,569 crore in the previous year.
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The decline in revenue is primarily attributed to lower prices in the post-patent market, as prices decreased compared to the higher base of the previous year.
UPL posted an operating profit (EBITDA) of Rs 1,933 crore, marking a decline of 36% YoY. Meanwhile, margins for the March quarter contracted by 458 basis points to 13.7%.
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The contribution margins for the quarter were at 29.4%, marking a decline of 500 basis points year-on-year (YoY). This decrease was primarily influenced by the liquidation of high-cost inventory and the implementation of increased rebates to support the channel.
Brokerages on UPL
Motilal Oswal On UPL
Motilal Oswal reiterates a Neutral rating for UPL with a target price of Rs 560. This valuation is based on 12x FY26 EPS, representing a ~25% discount to its five-year average and a one-year forward P/E of 16x.
The report on UPL highlights anticipated challenges for the global agrochemical industry in the first half of FY25. The firm cites the liquidation of high-cost inventory, which will result in lower margins.
Motilal Oswal also adds the stabilization of agrochemical prices at lower levels as key factors. However, they expect a recovery in overall demand and pricing in the second half of FY25. Despite these short-term challenges, cash flow generation and debt repayments remain critical areas to monitor.
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Motilal Oswal has raised its FY25 EPS estimate by 21%, reflecting a better-than-expected performance in the fourth quarter and an improving operating scenario in FY25, while maintaining the FY26 EPS estimate.
Elara Securities on UPL
In its report on UPL, Elara Securities noted that new agrochemical supplies from China at extremely low prices may limit realizations for UPL.
Despite this challenge, the management remains confident in achieving its 4-8% growth guidance, driven by new products and accelerated volume growth in the sustainable solutions business.
Elara Securities has upgraded its FY25E and FY26E EBITDA estimates by 58% and 27%, respectively, due to better visibility on unsold inventory liquidation and limited further impact from rebates.
Consequently, Elara Securities has upgraded UPL to “Accumulate” from “Reduce” and raised the target price to Rs 597 from Rs 491, based on 6x FY26 EV/EBITDA.
(Disclaimer: Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)
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