UPL Ltd. will stand to gain from the Brazilian government's decision to suspend the sale of 37 chemicals used to treat fungus affecting soybean crops, said Deutsche Bank.
Some the manufacturers making these chemicals also known as fungicides are made by UPL's competitors like Adama, Bayer Crop, BASF and FMC to name a few.
Brazil is a big export market for UPL contributing 20 percent to its topline. The brokerage house pegs the soybean fungicide market at around $2.5 billion, with UPL commanding a 7-8 percent market share there.
UPL’s market share would be doubled to 15 percent in the next two years and revenue increasing to 30 percent over the same period.Deutsche Bank Research Report
Competition Seen Increasing In The Long Term
UPL may lose its advantage over the next 2-5 years, said the brokerage house, with its competitors coming up with new product formulations in segments where UPL has traditionally been a strong player. Sumitomo has announced a tie up with BASF and Bayer Crop for new products. Complex formulations and higher research and development on new formulations may help UPL take on competition, said Deutsche Bank.
The Brazilian government had passed a similar order in December 2016, suspending the use of 63 fungicides, which helped UPL report a 17 percent revenue growth in Latin America in fourth quarter of the last financial year.
25 out of 30 analysts tracked by Bloomberg have a ‘buy’ rating on the stock.