UPL Ltd, a leading agrochemical company, has a market cap of ₹36,949 Cr. with a current stock price of ₹492. The company has a high debt to equity ratio of 1.21 and a declining OPM trend from 24% to 1% over the last 10 quarters. However, the promoter holding has remained constant at 32.4% with no pledged shares. UPL has shown strong sales growth of 25.2% over the past 5 years, but the recent profit growth is negative at -114%. Given the high debt, declining margins, and profitability concerns, a CAUTION recommendation is suggested for this stock.
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TLDR of the article:
Key Financial Data:
- Market Cap: ₹36,949 Cr
- Current Price: ₹492
- Book Value: ₹385
- Dividend Yield: 2.01%
- ROCE: 14.3%
- ROE: 13.4%
- Debt to Equity: 1.21
- Debt: ₹34,936 Cr
- Promoter holding: 32.4% (constant)
- Pledged percentage: 0.00%
- OPM: 11.2% (declining trend)
- Sales growth 5 Years: 25.2%
- Profit growth: -114%
Recommendation: The company has a high debt to equity ratio of 1.21, declining OPM from 24% to 1% over the last 10 quarters, and negative profit growth of -114%. However, the promoter holding has remained constant at 32.4% with no pledged shares.
Given the high debt, declining margins and profitability, the recommendation would be CAUTION on this stock. While stable promoter holding is a positive, the deteriorating financial performance is a concern that needs to be watched closely.
Company Introduction, Profile:
UPL Ltd is a leading global provider of agricultural solutions, with a presence in around 140 countries. The company offers a wide range of products, including crop protection chemicals, seeds, and biosolutions. UPL boasts an impressive 14,000+ product registrations and has access to 90% of the world’s food basket. With 43 manufacturing facilities worldwide, UPL ranks as the 5th largest agrochemical company globally. The company’s market cap stands at ₹36,949 crores, with a current stock price of ₹492. UPL has demonstrated strong sales growth of 25.2% over the past five years, reaching ₹45,589 crores in the latest financial year. However, the company’s operating profit margin (OPM) has declined from 24% to 1% over the last ten quarters, and its debt-to-equity ratio is relatively high at 1.21. Despite these challenges, UPL’s promoter holding has remained constant at 32.4%, with no pledged shares.
Should We Buy, Sell or Hold This Stock and Why?:
Given UPL Ltd’s current financial situation, a CAUTION recommendation is suggested for potential investors. While the company has shown impressive sales growth of 25.2% over the past five years, its high debt-to-equity ratio of 1.21 and declining operating profit margin (OPM) from 24% to 1% over the last ten quarters raise concerns. Additionally, the company’s recent profit growth is negative at -114%, further emphasizing the need for caution. On the positive side, UPL’s promoter holding has remained constant at 32.4%, with no pledged shares, indicating a stable ownership structure. The company also maintains a healthy dividend payout of 22.9%. However, considering the high debt, declining margins, and profitability concerns, investors should closely monitor UPL’s financial performance and wait for signs of improvement before making a substantial investment. Existing investors may consider holding their positions while keeping a close eye on the company’s future quarterly results and strategic initiatives.
Vital Company Ratios:
For those considering investing in UPL Ltd, here are some key ratios to help you understand the company’s financial health:
- Debt-to-Equity Ratio: UPL’s debt-to-equity ratio is 1.21, which means that for every ₹1 of shareholders’ equity, the company has ₹1.21 in debt. This relatively high ratio indicates that the company relies heavily on borrowings to finance its operations.
- Operating Profit Margin (OPM): UPL’s OPM has declined from 24% to 1% over the last ten quarters, indicating a significant decrease in the company’s profitability.
- Return on Equity (ROE): UPL’s ROE stands at 13.4%, which means that the company generates ₹13.4 in net income for every ₹100 of shareholders’ equity. This ratio has been consistently around 15% over the past three years.
- Dividend Yield: UPL offers a dividend yield of 2.01%, which is the annual dividend payment divided by the current stock price. This yield is attractive for income-seeking investors.
By understanding these ratios, investors can gain valuable insights into UPL’s financial leverage, profitability, efficiency, and shareholder returns.
Data Analysis:
- Promoter holding:
- Increased from 27.95% in Mar 2021 to 32.34% in Dec 2023, indicating a stable and increasing trend.
- FII DII holding:
- FII holding decreased from 37.82% in Mar 2021 to 34.39% in Dec 2023.
- DII holding fluctuated between 14.39% and 18.28% during the same period.
- Sales trend:
- Sales grew at a CAGR of 25% over the past 5 years and 14% over the past 3 years.
- However, TTM sales declined by 14%.
- Profit trend:
- Profit grew at a CAGR of 12% over the past 5 years and 20% over the past 3 years.
- However, TTM profit growth is negative at -114%.
- Debt trend:
- Debt increased from ₹24,519 Cr in Mar 2021 to ₹34,936 Cr in Sep 2023.
- Margin trend:
- OPM declined from 24% in Dec 2020 to 1% in Dec 2023.
- Company PE and Industry PE:
- Company PE is not provided.
- Industry PE is 37.6.
- Gap between intrinsic stock value and current market price:
- Intrinsic value of stock: ₹1,115.47
- Current market price: ₹492
- Gap: ₹623.47 (Intrinsic value is 126.7% higher than the current market price)
- Market cap of this company and its peers:
- UPL Ltd: ₹36,948.73 Cr
- PI Industries: ₹58,497.97 Cr
- Sumitomo Chemicals: ₹18,942.63 Cr
- Rallis India: ₹5,318.73 Cr
- Dhanuka Agritech: ₹5,267.69 Cr
- Bharat Rasayan: ₹3,704.63 Cr
- Sharda Cropchem: ₹3,365.68 Cr
- Dividend payout:
- Dividend payout percentage has been around 20-27% over the past few years.
Competing Companies And Their Performance:
UPL Ltd’s main competitors in the agrochemical industry include PI Industries, Sumitomo Chemicals, Rallis India, Dhanuka Agritech, Bharat Rasayan, and Sharda Cropchem. Among these, PI Industries has the highest market cap at ₹58,497.97 Cr, followed by UPL Ltd at ₹36,948.73 Cr. In terms of ROCE, Sumitomo Chemicals leads with 30.24%, while UPL Ltd’s ROCE stands at 14.31%. PI Industries and Dhanuka Agritech also have higher ROCE at 21.69% and 27.01%, respectively. UPL Ltd’s dividend yield of 2.01% is higher than most of its peers, except for Sharda Cropchem at 1.57%. However, UPL Ltd’s quarterly profit growth is the lowest at -209.60%, while PI Industries and Rallis India have positive quarterly profit growth at 27.52% and 9.09%, respectively. Overall, UPL Ltd’s performance is mixed compared to its competitors, with some peers outperforming in certain aspects like ROCE and quarterly profit growth.
RECOMMENDATION: Based on the provided data and analysis, a CAUTION recommendation is suggested for UPL Ltd. While the company has shown strong sales growth over the past few years and has a stable promoter holding, the high debt-to-equity ratio of 1.21, declining OPM from 24% to 1% over the last 10 quarters, and negative TTM profit growth of -114% raise concerns. Additionally, the company’s performance is mixed compared to its peers in terms of ROCE, dividend yield, and quarterly profit growth. Investors should closely monitor UPL Ltd’s financial performance and wait for signs of improvement in profitability, debt management, and operational efficiency before considering a buy decision. Existing investors may consider holding their positions while keeping a close eye on the company’s future quarterly results and strategic initiatives.
Is This Stock Overvalued Or Undervalued?
Based on the provided data, UPL Ltd’s stock appears to be undervalued. The current market price of the stock is ₹492, while the intrinsic value of the stock is estimated to be ₹1,115.47. This indicates that the stock is trading at a significant discount of approximately 56% compared to its intrinsic value. The difference between the current market price and the book value per share (₹385) is also relatively low at ₹107, further suggesting that the stock may be undervalued.
Should We Buy This Stock And Why?
Given the analysis of UPL Ltd’s financial data, a CAUTION recommendation is suggested for potential investors. While the company has shown strong sales growth of 25.2% over the past five years and has a stable promoter holding of 32.4% with no pledged shares, there are several concerns that investors should consider:
- High debt-to-equity ratio of 1.21, indicating substantial financial leverage.
- Declining operating profit margin (OPM) from 24% to 1% over the last 10 quarters, suggesting deteriorating operational efficiency.
- Negative profit growth of -114% on a TTM basis, raising questions about the company’s ability to generate sustainable profits.
Although the stock appears to be undervalued based on the intrinsic value and book value, the financial performance of the company warrants caution. Investors should closely monitor UPL Ltd’s future quarterly results, debt management, and strategic initiatives to improve profitability and operational efficiency before making a decision to invest. Existing investors may consider holding their positions while keeping a close eye on the company’s progress.
How Is The Industry Of This Company Growing?:
The data provided does not include specific information about the growth of the agrochemical industry in which UPL Ltd operates. However, we can infer some insights about the industry’s growth by examining the performance of UPL Ltd’s peers:
- PI Industries: Quarterly sales growth of 17.62% and quarterly profit growth of 27.52%.
- Sumitomo Chemicals: Negative quarterly sales growth of -28.23% and negative quarterly profit growth of -39.36%.
- Rallis India: Negative quarterly sales growth of -5.08% but positive quarterly profit growth of 9.09%.
- Dhanuka Agritech: Positive quarterly sales growth of 2.51% but negative quarterly profit growth of -1.52%.
- Bharat Rasayan: Negative quarterly sales growth of -24.69% and negative quarterly profit growth of -53.00%.
- Sharda Cropchem: Negative quarterly sales growth of -37.83% and negative quarterly profit growth of -95.72%.
The mixed performance of UPL Ltd’s peers suggests that the agrochemical industry’s growth may be challenging or inconsistent. While some companies like PI Industries have shown positive sales and profit growth, others have experienced significant declines. Investors should seek additional information about the industry’s growth prospects, such as market research reports, regulatory changes, and global agricultural trends, to make a more informed assessment of the industry’s potential.
Risk Factors Related To Upl Ltd And The Agrochemical Industry:
Business/Commercial Risks:
- Intense competition from domestic and international players in the agrochemical industry.
- Dependence on the agriculture sector, which is subject to weather conditions, crop patterns, and government policies.
- Fluctuations in raw material prices and supply chain disruptions may impact profitability.
- Geopolitical risks, as the company operates in around 140 countries.
Regulatory Risks:
- Stringent regulations on the use of pesticides and other agrochemicals due to environmental and health concerns.
- Changes in government policies related to agriculture and subsidies may affect the demand for the company’s products.
- Compliance with various international regulations and standards, as the company has a global presence.
Key Risks to Consider Before Investing:
- High debt-to-equity ratio of 1.21, indicating significant financial leverage and potential risks associated with debt servicing.
- Declining operating profit margin (OPM) from 24% to 1% over the last 10 quarters, which may impact the company’s profitability and cash flows.
- Negative profit growth of -114% on a TTM basis, raising concerns about the sustainability of the company’s earnings.
Potential Risks of the Agrochemical Industry:
- Increasing focus on organic farming and the use of bio-pesticides may lead to a shift in consumer preferences away from traditional agrochemicals.
- Growing resistance to certain pesticides and the need for continuous research and development to introduce new and effective products.
- Liability risks associated with the potential adverse effects of agrochemicals on human health and the environment.
Management Quality Assessment:
Based on the information provided, there are no specific details about criminal cases against the promoters or management of UPL Ltd. However, it is essential for investors to conduct thorough research on the company’s management, their background, experience, and any potential red flags before making an investment decision.
The promoter holding in UPL Ltd has remained stable and has increased from 27.95% in March 2021 to 32.34% in December 2023, which is a positive sign. Additionally, there are no pledged shares by the promoters, indicating their confidence in the company’s prospects.
Recommendation: Considering the risk factors, the company’s financial performance, and the management assessment, a CAUTION recommendation is suggested for UPL Ltd. While the stable promoter holding and the absence of pledged shares are positive factors, the high debt-to-equity ratio, declining OPM, and negative profit growth warrant caution. Investors should closely monitor the company’s ability to manage its debt, improve profitability, and navigate the challenges posed by the competitive and regulated agrochemical industry. Thorough due diligence and a careful assessment of the company’s future growth prospects are advised before making an investment decision.
How Upl Ltd Is Going To Perform In The Long Term (6-10 Years):
Predicting a company’s long-term performance requires careful consideration of various factors, including its financial health, industry trends, and growth strategies. Based on the provided data, UPL Ltd has shown strong sales growth of 19% (10-year CAGR) and 25% (5-year CAGR). However, the company’s profit growth has been lower at 17% (10-year CAGR) and 12% (5-year CAGR). The company’s return on equity (ROE) has been consistently around 15% over the past 3-5 years, indicating a stable level of profitability.
In the long term, UPL Ltd’s performance will depend on its ability to manage its high debt levels (debt-to-equity ratio of 1.21), improve its operating profit margin (OPM), and maintain its market position in the competitive agrochemical industry. The company’s global presence and extensive product portfolio may help it capitalize on the growing demand for agricultural solutions. However, the company will need to navigate regulatory challenges, develop innovative products, and optimize its cost structure to ensure sustainable growth.
Short-Term Performance (2-5 Months):
In the short term, UPL Ltd’s performance may be influenced by seasonal factors, such as monsoons and crop cycles, as well as fluctuations in raw material prices and currency exchange rates. The company’s recent quarterly results show a decline in sales and profitability, with a negative profit growth of -114% on a TTM basis. This may put pressure on the company’s stock price in the near term.
However, the company’s stable promoter holding (32.4% with no pledged shares) and the recent increase in the number of shareholders may provide some support to the stock price. Investors should monitor the company’s upcoming quarterly results and any management commentary on the near-term outlook to assess its short-term performance.
Medium-Term Performance (2-6 Years):
In the medium term, UPL Ltd’s performance will largely depend on its ability to improve its profitability and manage its debt levels. The company’s OPM has been declining over the past few quarters, which may impact its cash flows and debt servicing capacity. The company’s interest coverage ratio is also low, indicating potential risks associated with its high debt levels.
On the positive side, UPL Ltd’s strong market position, extensive product portfolio, and global presence may help it benefit from the growing demand for agricultural solutions in the medium term. The company’s R&D initiatives and strategic acquisitions may also contribute to its growth. However, the company will need to focus on improving its operational efficiency, optimizing its cost structure, and strengthening its balance sheet to deliver sustainable growth in the medium term.
Recommendation: Based on the analysis of UPL Ltd’s financial performance and the industry outlook, a CAUTION recommendation is suggested for potential investors. While the company has demonstrated strong sales growth in the past and has a stable promoter holding, the high debt levels, declining OPM, and negative profit growth in the recent quarters warrant caution.
Investors should closely monitor the company’s ability to manage its debt, improve its profitability, and navigate the challenges posed by the competitive and regulated agrochemical industry. The company’s future performance will also depend on its ability to capitalize on growth opportunities, develop innovative products, and maintain its market position. Investors should consider their risk appetite and investment horizon before making a decision to invest in UPL Ltd.