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MOSL: UPL (Neutral)-Higher fixed costs weigh on margins

UPL: Higher fixed costs weigh on margins

(UPLL IN, Mkt Cap USD8.3b, CMP INR808, TP INR760, 6% Downside, Neutral)

 

Operating performance below our expectation

• UPLL reported a muted operating performance despite gross margin expansion, weighed by higher fixed costs (+10% YoY) and logistic costs. The gross margin expansion was attributable to a better product mix as well as realization, partially offset by higher raw material cost. In 1QFY22, the company's net debt further increased INR26b and stood at INR215b as of Jun'21.
• Net profit was above our expectation, led by tax benefits, despite UPLL reporting a muted operating performance during the quarter. Factoring in the same, we maintain our estimates for FY22/FY23 as well as our Neutral rating, with TP of INR760.

 

Realization and product mix change lead to gross margin improvement

• UPLL reported revenue growth of 9% YoY to INR85.2b (est INR85b) in 1QFY22 (volume growth: +6%, price: +2%, and exchange: +1%). EBITDA was up 5% YoY to INR18.6b (est INR20b). The EBITDA margin contracted 80bp YoY to 21.9%. Reported PAT grew 23% YoY to INR6.8b. However, adjusted for exceptional items and the exchange impact, adj PAT stood at INR10.2b (up 50% YoY v/s est INR8.6b).
• In 1QFY22, strong revenue growth was seen across regions (India: 27%, LatAm: +24%, and NA: +19%), barring Europe (-11% YoY) and RoW (-14% YoY).
• India revenue grew 27% despite (i) delayed monsoons in parts, (ii) the second COVID wave, and (iii) delayed upward price revisions. Strong volume growth (~14%) in Glufosinate (Ferio, Sweep Power), coupled with higher price realization (by ~7%), aided performance.