UPL's Q4FY18 results (Outperformer) - Stable performance
Q4FY18 result highlights
- UPL reported EBITDA and PAT in-line with our estimates, however revenue growth missed our expectation.
- Q4FY18 consolidated revenues grew by 6.5% yoy to Rs56.9bn (est. Rs58bn) let by 8% volume growth (exchange rate impact was 1%).
- Geographical growth split-North America (+7%),Latam (+7%), RoW(+5%),Europe (+7%) and India (+6%)
- GMs improved 90bps to 49% .Stable fixed overheads and employee costs enabled 8.2% growth in EBITDA to Rs12.1bn (est.Rs12.1bn). EBITDA margins rose by 30bps yoy to 21.4%,
- Despite higher other income, higher interest costs and tax rate (17.6% vs 7.1% in Q4FY17) led to flat PAT growth. PAT stood at Rs7.4bn (est Rs7.5bn).
Key positives: Gross margin expansion, Recovery in Latam
Key negatives: Weak growth in India and RoW
Impact on financials: Earnings estimate for FY19/20E maintained
Valuations & view
UPL has continued to deliver stable operating performance in Q4FY18 despite supressed global demand through a combination of steady volume growth and tight cost control. We expect UPL’s volume growth trajectory to remain strong (~10-12%), led by success from new product launches in its key markets Growing strains in China dependent agrochem supply chains are adding to UPL’s competitive advantage. This combined with expected improvement in commodity prices in coming quarters should accelerate revenue and earnings growth momentum. Overall, we expect UPL’s earnings to witness CAGR of 16.9% in FY18-20E. Also, with management’s stated intent to participate in global M&A, development on the inorganic initiative will also be key to watch out for. Given its global scale and strong earnings visibility, UPL looks attractive at 16.2x FY19E and 13.8x FY20E EPS. Maintain Outperformer with a target price of 982.
UPL is a global producer of crop protection products, intermediates, specialty chemicals and other industrial chemicals based in India. Co. offers a range of products that includes insecticides, Fungicides, Herbicides, Fumigants, PGR and Rodenticides. Co. manufactures and markets Caustic Chlorine, White Phosphorus, Industrial Chemicals, Specialty Chemicals and is engaged in Captive Power Generation of 48.5 MW. Co. maintains a range of generic agrochemical and other chemical intermediates which are exported to more than 100 countries in the world.
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