UPL Ltd. – Quarterly Results Update

The company posted a revenue decline of 17.2% YoY / down 45.9% QoQ to Rs. 8,963 crores and was below market expectations of Rs. 10,429 crores. The quarter was impacted by headwinds affecting the overall industry. The company also slashed its FY24 revenue guidance to 1-5% from 6-10% earlier. UPL reported annual revenue decline in international geographies such as Latin America (14%), Europe (27%), India (1%), and North America (52%). However, the Rest of the World reported revenue growth of 3%.

EBITDA decreased 40.7% YoY / down 53.2% QoQ to Rs. 1,273 crores, while EBITDA margin stood at 14.2% (down 563 bps YoY) in Q1FY24. EBITDA margins were impacted due to an industry-wide slowdown. Profit after Tax stood at Rs. 102 crores (down 89.9% YoY / down 90.6% QoQ) in Q1FY24, below market expectations of Rs. 467 crores. PAT margin fell to 1.1% versus 9.3% in the previous quarter. UPL specialty chemical entered new chemistry by commissioning and commencing production at the phosgene plant in Dahej during the quarter.

Key Concall Highlights

UPL Global Crop Protection (excludes India):

• The revenue growth for the quarter was lower on account of volume decline mainly on account of channel destocking and pricing pressure in the herbicides segment, particularly in North America and Brazil. 
• The herbicides segment accounted for around 75% of the annual decline in the Q1FY24 revenue of UPL Corporation. 
• Margins are expected to improve due to preemptive actions being taken on cost reduction. These measures are expected to give a positive impact of around US$100 mn in the next two years. 
• The management expects recovery from Q3FY24 onward through the normalisation of channel inventories, demand for herbicides, and new product launches.

UPL Sustainable Agri Solutions (India):

• The revenue growth for the quarter was impacted by delayed Kharif sowing activities, pricing pressure on the post-patent side, and high channel inventory. 
• The company has launched new products such as Apache, Oxalis, Centurion, and Canora. 
• The company expects an improved monsoon from June-end onwards to aid demand recovery and drive better performance from Q2FY24 onwards.

Advanta Enterprises:

• The company has continued to deliver robust growth with improved operating profitability driven by strong traction in portfolios such as 
  • Field corn across India, Thailand, Ecuador, and Peru 
  • Fresh Corn in Indonesia, and 
  • Grain Sorghum in the USA. 
• The company expects to see healthy demand for the remaining period of FY24.

Manufacturing and Specialty Chemicals:

• UPL specialty chemical revenue declined primarily due to a slowdown in the agrochemical as well as the broader chemical industry. 
• The company’s specialty chemicals segment has entered into new chemistry by commissioning and commencing production at the phosgene plant in Dahej during the quarter.

Valuation and Outlook

The company reported weak revenue and profitability performance, amid channel destocking

and pricing pressure in Q1FY24. Overall, the global agrochemical industry has been going

through a challenging phase over the last two quarters as distributors ordered destocking and focused on tactical purchases amid high channel inventories. Additionally, the market is

witnessing pricing pressure and aggressive price competition is seen from the Chinese postpatent exporters. Further, the company has taken a cost reduction initiative over the next two years to improve margins. Going forward, demand is expected to remain subdued in Q2FY24 as well. The company is optimistic about demand recovery in H2FY24 as the channel inventory approaches a new normalised level. Overall, led by improved demand and cost optimization efforts, the company expects operational performance to be back on track by H2FY24.