Sector Outlook: Neutral
Operational performance improves sequentially
UPL, an agrochemical company, reported a 15% drop in annual revenue to Rs. 140,780 million this quarter, which was slightly below expectations. This drop was mainly because the prices in the markets where patents had expired were lower compared to last year. Their sales volumes remained stable, though. Internationally, the company struggled in Latin America, India, and North America with significant revenue drops of 23%, 24%, and 49%, respectively. However, they saw growth in Europe and other regions, with revenues up by 10% and 21%. Their earnings before interest, taxes, depreciation, and amortisation (EBITDA) fell by 32.1% compared to last year but saw a massive quarter-on-quarter increase of 1887.1% to Rs. 18,480 million. The company experienced a loss of Rs. 800 million this quarter, which was better than expected. They faced challenges like reduced product demand in North America, Europe, and Brazil but managed to cut some costs, planning further reductions next year. UPL is optimistic about a recovery in 2025, expecting growth in key international markets.
Key Concall Highlights
UPL Global Crop Protection (excludes India):
- The global crop protection market is currently struggling due to too much inventory and falling prices, worsened by increased production from China.
- The company dealt with ongoing issues such as distributors reducing their inventory, buyers delaying their purchases until the growing season, and increased discounts on products whose patents have expired, all of which lowered this quarter’s revenue.
- Sales of certain weed killers, specifically glufosinate, clethodim, and s-metolachlor, in North America have continued to fall.
- The company’s management anticipates a return to normal business operations starting from the second quarter of the next financial year, as the reduction in inventory levels stabilises in crucial markets.
UPL Sustainable Agri Solutions (India):
- This quarter’s revenue dropped because of decreased sales volume and lower prices. The performance of the Indian market was mostly affected by bad weather, especially impacting crops like cotton and summer pulses, where the company makes most of its profits.
- Sales of glufosinate were low due to high stock levels and strong competition. However, the management is optimistic that demand for glufosinate will pick up during the upcoming planting season.
- The company is hopeful that a better monsoon will boost demand and improve business performance starting from the second quarter of the next financial year.
Advanta Enterprises:
- The company delivered healthy growth for Q4FY24, driven by higher prices and corn, canola, and sorghum volumes.
- The contribution margins decreased 670 bps YoY during the quarter due to improved mix, lower cost of sales and improved B2C performance in Australia, Thailand and Indonesia.
- The company expects FY25 to have low double-digit growth for the full year.
UPL Specialty Chemicals:
- UPL specialty chemicals revenue declined primarily due to a slowdown in the agrochemical and the broader chemical industry.
- In the specialty chemicals business, key chemistries that UPL specialises in are phosgene, cyanides, carbon disulfide and hydrogen sulphide.
UPL Growth Outlook:
The company expects to achieve revenue growth of 4-8% for FY25 and EBITDA growth guidance of 50% in FY25.
Debt Update:
The company’s net debt increased from US$2.1 bn in FY23 to US$2.7 bn in FY24 due to the decline in profitability and reduction in factoring. The company announced a rights issue of USD 500 mn to reduce debt, which is expected to conclude by the end of Q2FY25.
Valuation and Outlook
The global agrochemical industry has been struggling with too much stock and falling prices, largely because of excessive production in China. These issues hurt the company’s earnings and profit margins in FY24. However, UPL is optimistic about FY25, predicting a recovery in sales volumes and healthier profit margins, driven by strong sales of its unique and eco-friendly products. The company expects revenue to grow by 4-8% and profits by more than 50% next year. UPL is hopeful for a return to normal operations as excess stock levels decrease. To boost its profit margins, UPL has started reducing costs and plans to continue these efforts for the next two years. The company is preparing for a better performance in FY25 with stable prices and higher sales volumes. With new products and a focus on specialised items, UPL is managing well despite the tough market conditions and is on track for improvement as the market stabilises in FY25.
