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UPL's Q1FY19 results (Outperformer) - Stable performance

Q1FY19 result highlights 

UPL Ltd results  were broadly in-line with our estimates 

• Q1FY19 consolidated revenues grew by 11%yoy to Rs41.3bn (est. Rs39.8bn) led by 8% volume growth and 3% favourable exchange impact
• Geographical growth split-North America(+7%),Latam (+17%), RoW(+6%),Europe (+11%) and India (+12%)
• GMs remained stable at 55.5%.Lower fixed overheads and employee costs led to 12.9% yoy growth in EBITDA to Rs8.47bn (est.Rs8.48bn). EBITDA margins rose by 35bps yoy to 20.5%,
• Despite higher other income (includes forex loss of Rs500m), higher interest costs and depreciation restricted   PAT growth. PAT increased by 3% yoy at Rs5.14bn, in line with our estimates.

Key positives: Stable EBITDA margins, Strong recovery in Latam

Key negatives: Increase in interest costs

Impact on financials: Earnings estimate maintained for FY19E. Cut FY20E EPS by 2.4% (Arysta acquisition not included in these estimates) 

Valuations & view

UPL has continued to deliver stable operating performance in Q1FY19 through a combination of steady volume growth and tight cost control.  In FY19E, we expect UPL’s volume growth trajectory to remain strong (~8-10%), led by success from new product launches in its key markets. Moreover reducing channel inventories and expected improvement in commodity prices in coming quarters should accelerate revenue and earnings growth momentum. In the long run, we believe the recently announced deal of Arysta life Science is a transformational one and can create significant strategic value for UPL along with potential meaningful upside (pls refer to our note highlighting the Arysta transaction details (). Overall, we expect UPL’s earnings to witness CAGR of 13.6% in FY18-20E (ex-Arysta). Maintain Outperformer with a revised target price of 959 (18x FY20E EPS).