Debt reduced; commodity cycle to be growth driver; TP up to Rs 850; ‘Buy’ retained
UPL’s Q4FY21 sales/EBITDA growth of 15%/31% y-o-y is ahead of estimate and led to a 70% y-o-y surge in PAT despite several one-offs. For FY21, the company clocked 11% volume growth and pared net debt to Rs 19 bn from Rs 22 bn, broadly achieving its guidance.
Management shared their vision of maintaining 7–10% growth by FY26 while raising Ebitda margin to 25% (from 22%). We believe the ongoing favourable agri commodity cycle is a key growth driver in the near term. With net debt/Ebitda <2x, the overhang of a leveraged balance sheet has passed; hence, we are moving back to a P/E valuation from EV/Ebitda. Assigning a 15x PE (in line with 5-year average) yields a TP of Rs 850 (up from Rs 655); reiterate Buy.
Higher top-line growth drives profitability: UPL posted 15% y-o-y revenue growth to Rs 128 bn driven by solid 18% y-o-y volume growth and 1% price growth while FX impact was -4%. An uptick of 40% y-o-y in Latam (40%) and India (23%) boosted overall sales. Europe (17%), ROW (11%) too supported growth; North America witnessed flat growth. Ebitda margin expansion of 270bps y-o-y to 22.2% led by a 200bps increase in gross margin lifted Ebitda 31% y-o-y to Rs 28.4 bn. Q4FY21 also reported an extraordinary gain of Rs 800 mn related to restructuring cost and other gains. Reported PAT jumped 72% y-o-y to Rs 10.6 bn.
Outlook: Balance sheet strengthened —Successful debt reduction (net debt/ Ebitda <2x by FY22) and strong growth visibility eliminate the risks related to UPL’s ‘leveraged’ balance sheet. We move to a P/E valuation with a Rs 850 TP (15x Sep-23E EPS) from an EV/Ebitda-based TP of Rs 655 (8.5x FY22). Implied EV/Ebitda works out to 9x at PE-based TP; ‘BUY/SO’.