Analyst corner: Maintain ‘buy’ on UPL with target price of Rs 615

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December 12, 2020 9:12 AM

Management has highlighted strong progress of cropping season across global markets. Rise in commodity prices along with demand recovery across ATAM and South-East Asia is helping UPL gain market share.

Given the strong agri-input demand, the company has been expanding its herbicides capacity.

In a recent article published by a leading newspaper, a whistle blower has made serious allegations of third-party transactions against promoters of UPL. As per the article, the whistle blower has alleged that the company has entered into rent deals with shell companies owned by its employees and has paid hefty rents for the properties. We believe recurring corporate governance issues have marred UPL’s strong fundamentals and kept valuations under pressure (trading at 6.5x FY22E EV/EBITDA). In our view, addressing these issues will be key for the stock’s re-rating. Given strong business fundamentals and solid global franchise in agrochemical space, maintain ‘BUY’ with Rs 615 TP.

In a recent article published by a leading newspaper, a whistle blower has made serious allegations of third-party transactions against promoters of UPL. As per the article, the whistle blower has alleged that the company has entered into rent deals with shell companies owned by its employees and has paid hefty rents for the properties, which were earlier held by promoters. Management, during the conference call, quashed these allegations, citing no involvement of either the promoters or the company’s employees with reference to the entities mentioned. Also, the company has refuted the claim made by the article and stated that none of the current or retired board members in the past seven years have been involved in the said allegations.

Management has highlighted strong progress of cropping season across global markets. Rise in commodity prices along with demand recovery across ATAM and South-East Asia is helping UPL gain market share. Given the strong agri-input demand, the company has been expanding its herbicides capacity. Advanta (contributes less than 10% to overall revenue mix) is expected to deliver 20-30% YoY growth during FY21 led by strong demand for corn seeds globally. Management remains committed to reducing gross debt via strong cash flows.

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