MOSL: UPL (INITIATING COVERAGE)-Reaping growth-Generic pesticides, backward integration to drive profitability

UPL (initiating coverage): Reaping growth; Generic pesticides, backward integration to drive profitability

(UPLL IN, Mkt Cap USD5.6b, CMP INR721, TP INR945, 31% Upside, Buy)

UPL is the second largest post-patent global player in crop protection. It has evolved from a crop protection chemicals company into a complete agro solutions provider, offering seeds, crop protection chemicals, biologicals, soil nutrients and post-harvest solutions. It is well diversified across geographies, with revenue contribution of 32% from Latin America, 20% from India, 17% from North America, 13% from Europe, and 18% from Rest of the World.

•  A multitude of products going off-patent would unleash a generics opportunity of ~USD3b over CY17-20. With strong R&D and integrated manufacturing facilities, UPL is in a sweet spot to grab the impending opportunity in the generics market.
• The company is also set to benefit from the increasing phenomenon of pest resistance across crops with its broad array of products, which enables it to launch new combinations to tackle resistance.
• Pest resistance to major agrochemical ‘glyphosate’ (market size of ~USD5b) could provide UPL with its next key growth driver – its variant, ‘gluphosinate’.
• We expect UPL to clock ~12% revenue CAGR and ~14% PAT CAGR over FY18-20 and value the company at 17x FY20E EPS of INR55.6, arriving at a TP of INR945. Initiate coverage with Buy.