Q2 Results: What Analysts Have To Say About UPL’s Performance

Most analysts cut target price for UPL Ltd. after the agro-chemical maker’s profit missed estimates in the quarter ended September.

Net profit stood at Rs 89 crore during the period, according to an exchange filing. The company had reported a profit of Rs 270 crore a year ago.

Profitability was negatively impacted by an exceptional cost of Rs 305 crore on the back of litigation expenses in one of its subsidiaries in the U.S. and integration costs associated with acquiring Arysta Lifesciences, UPL said. The year-on-year figures, however, aren’t comparable as the company started incorporating financials of Arysta Lifesciences starting quarter ended March.

Still, the company maintained its revenue and Ebitda guidance for the ongoing financial year. Also, analysts retained their bullish investment recommendation as they expect a seasonally strong second half and strong growth in Latin America would drive growth.

Shares of UPL fell as much as 4 percent during the day but recovered some of the losses to trade 2.9 percent lower at Rs 561.25 apiece. That compares with a 0.13 percent drop in the benchmark Nifty 50 Index.

Here’s what analysts have to say about UPL’s second-quarter performance…

JPMorgan

• Maintains ‘Overweight’ with a target price of Rs 700
• Revenue growth supported by volumes as prices decline.
• Ebitda below expectation due to adverse product mix.
• All eyes on second half of the financial year for margin improvement and debt reduction.

CLSA

• Maintains ‘Buy’ with a target price of Rs 720
• Revenue/Ebitda grew 9 percent/11 percent year-on-year on a like-for-like basis in second quarter FY20.
• Weak European Union and U.S. offset by strong India and Latin America.
• Maintains FY20 revenue and Ebitda guidance despite challenging environment.

Morgan Stanley

• Maintains ‘Overweight’ with a target price of Rs 759 apiece.
• Ebitda as reported in first half is largely in line with seasonality.
• 15 percent volume growth and four days’ reduction in working capital were positive.
• Negative was gross margin compression, due to strong growth in Latin America, greater competitive intensity and adverse product mix.

Citi

• Maintains ‘Buy’ and cuts target price to Rs 770 from Rs 800.
• Steady revenue growth as Latin America strength offsets weakness in other markets.
• Synergies ahead of the curve but adverse mix hits margins.
• Seasonally strong second half and continued strength in Latin America to drive growth.

Prabhudas Lilladher

• Maintains ‘Buy’ and cuts target price to Rs 740 from Rs 752 earlier.
• 15 percent volume growth minimises the impact of price decline and currency pressure.
• Margins in Nafta to be under pressure.
• Latin America business to continue growth momentum.

HSBC

• Maintains ‘Buy’ but cuts target price to Rs 680 from Rs 720.
• Second quarter of FY20 a miss; volume growth impressive at 15 percent led by Latin America but lower-than-expected margins surprised.
• Delivery on synergies remains on track.
• Global agro-chem could strengthen over the remainder of FY20.