A farm worker sprays cotton plants with pesticides on the farm of Jarnail Singh in Jajjal village, Punjab, India (Photographer: Prashanth Vishwanathan/Bloomberg)  

UPL Hits Record As It Sheds Arysta Buyout Debt Worries

Shares of UPL Ltd. jumped to a record as the pesticide maker sheds debt concerns stemming from its last year’s acquisition of Arysta Lifesciences.

UPL bought Arysta from William Ackman-backed Platform Specialty Products Corporation. Abu Dhabi Investment Authority and TPG invested $600 million each, while the rest was funded via $3-billion debt.

The stock tumbled about 40 percent after the company announced the acquisition in July 2018. It has since rebounded 65 percent as the concerns abated. The shares jumped as much as 1.14 percent today to Rs 906 apiece to their all-time high.

UPL Hits Record As It Sheds Arysta Buyout Debt Worries

Deutsche Bank said it expects free cash flow of $300 million from the next financial year, helping reduce leverage over time. The brokerage expects a 23 percent annualised earnings per share growth in the next two years, betting on revenue outlook and synergies.

Jai Shroff, chief executive officer of UPL, had told BloombergQuint after the deal that the company will repay the debt within three-and-a-half years and interest burden on the entire transaction would be $120 million. It expected cash flow from Arysta to take care of the debt.

In its third-quarter earnings, UPL said the acquisition was complete and the consolidated numbers would be reported from the quarter ending March. That makes it the world’s fifth-largest global agrochemical company, selling products in the Americas, western Europe, Africa, Russia and Eastern Europe, besides India.

Synergies

The management pegs revenue synergies through cross-selling at $350 million in the next three years, with 30 percent of it expected to flow in the first year, 50 percent by the second and the rest in the third year. The revenue synergies would be met by cross selling of products.

UPL expects cost synergies worth $200-250 million over two years, aided by bringing production of certain Arysta molecules in-house, joint procurement of raw material and plant and job cuts, according to Shroff.

About 90 percent of the analysts tracking UPL recommend a ‘Buy’ on the stock, according to Bloomberg data. But 12-month target implies an upside of just 0.7 percent. IDFC Securities and Jefferies are among the most bullish, with a target of Rs 1,111 and Rs 1,000 target apiece, citing synergies. CLSA has a target of Rs 970. The stock closed at Rs 898.

Jefferies cited supply glut in the global agrochemical market as a risk to earnings, while Deutsche Bank said adverse weather conditions and currency movements could be potential concerns.