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CLSA also retained its buy rating on UPL with a target at Rs 500 per share as Q4 revenue was 11 percent ahead of its estimates and key markets saw healthy revenue growth led by volume & market share gains, though weak gross margin led to an EBITDA miss.

Crop protection and agrochemical maker UPL share price gained 4 percent intraday on May 26 as most of the brokerages maintained their positive view on the stock after March quarter earnings.

While having a buy call on the stock with a target at Rs 465 per share, global brokerage house Jefferies said Q4 results were ahead of estimates.

“Key highlight was robust deleveraging and balance sheet improvement. Working capital improved notably and synergies are on track,” it said.

Management envisaged FY21 revenue/cost synergies at $200/$150 million.

CLSA also retained its buy rating on UPL with a target at Rs 500 per share as Q4 revenue was 11 percent ahead of its estimates and key markets saw healthy revenue growth led by volume & market share gains, though weak gross margin led to an EBITDA miss.

The company is well-positioned to gain further market share in FY21 and its deleveraging should continue in FY21, the brokerage feels.

Lower margin assumptions led CLSA to cut its FY21 EPS estimate by 2 percent, but stock offers favourable risk-reward, it said.

The stock was trading at Rs 382.40, up 3.04 percent on the BSE at 10:59 hours IST.

UPL has reported a 146.8 percent year-on-year growth in consolidated profit at Rs 617 crore on revenue of Rs 11,141 crore that grew by 30.7 percent. Operating profit increased 47.5 percent YoY to Rs 1,904 crore and margin expanded 195 basis points YoY to 17.09 percent in the quarter ended March 2020.

Sharekhan also reiterated its buy rating on UPL with a revised price target of Rs 450 per share.

“Performance is likely to be impacted during Q1FY21 and thereafter owing to COVID-19 crisis; however, long-term investors can consider accumulating the stock owing to reasonable valuation and further strengthening of the balance sheet led by deleveraging,” said the brokerage.

The company has seen significant improvement in operating cash flow due to improved profitability and lower working capital requirement, which led to debt reduction. Net debt/EBITDA is expected to improve further to 2x by FY2021, Sharekhan feels.

Although management has not provided absolute guidance for FY21, the brokerage believes it anticipates to deliver growth both at the revenue and EBITDA level. “We expect revenue and earnings CAGR of 7.5 percent and 17.3 percent, respectively, over FY20-FY22.”

While retaining buy rating with a target of Rs 550, JM Financial also said UPL reported Q4FY20 results which were slightly higher than its estimates.

In the ensuing presentation, management indicated that the net debt (excluding Perpetual bonds which have been treated as quasi-equity as per IFRS) has been reduced to Rs 22,060 crore. Also, comforting was the fact that during the presentation, management stated that 77 percent of the debt has a maturity profile of 4 years and another 9 percent has a maturity profile of 7-8 years thus mitigating any concerns on significant debt, said JM Financial.

Management also indicated that they would like to reduce the net debt / EBITDA to around 2 by March 21.

On the recent proposal by GoI to ban certain chemicals, management stated that they understand that only domestic consumption could be banned while the exports are likely to be allowed. Thus, they do not see a significant risk.

However, Kotak Institutional Equities retained sell call on the stock and also slashed the price target to Rs 350 (from Rs 510 earlier) as the company ended FY20 on a weak note with a sharp contraction in underlying margins.

“Margin contraction mitigated robust revenue growth and synergy gains. Net debt reduced largely due to working capital, which may be difficult to repeat,” said the brokerage which cut its FY21-22 EPS estimates by 22-25 percent factoring in lower margin amid adversities.

In FY20, UPL reported a 19.1 percent growth in profit at Rs 1,776 crore on revenue of Rs 35,756 crore which grew by 63.7 percent YoY.

Post Author: Stangrowth

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