Buy UPL; target of Rs 1030: KR Choksey

KR Choksey's research report on UPL

UPL reported revenue growth of 6.5% YoY to INR 37.7bn. The growth was hampered owing to subdued sales from agro activities. Agro business registered a revenue growth of 2.6% YoY to INR 36.21bn, while non-agro activity reported growth of 9.2% YoY to INR 2.01bn. OPM excl. ex gain/loss expanded by 100bps YoY to 19.1%, which led EBITDA to up by 12.3% YoY to INR 7.2bn.  There was exceptional item related to legal charges for product counterfeiting case in Europe along with higher losses from associates. Further, fall in other income (-7% YoY) also contributed lower than estimated bottom-line performance during the qtr. PAT was up by 43.6% YoY to INR 2.37bn.

Outlook
We have rolled over our estimates to FY20. We believe that UPL’s revenue to grow at a CAGR of 11% over FY17-20E largely driven by North & Latin America market. Further, introduction of more value added products to drive expansion in operational performance over the coming period. We believe that OPM to expand by 174bps over FY17-20E to 21.5%, while PAT to increase at a CAGR of 21% over the same period. In terms of valuations, we assigned P/E multiple of 17x on FY20E earnings and arrived a target price of INR 1030, potential upside of 25% from CMP of INR 824. We recommend a BUY rating on the stock.

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