Shares of UPL Ltd, engaged in the agrochemical business, have the potential to reach Rs. 1,020/share from its current market price of Rs. 717, implying a 42.25% potential upside, according to domestic brokerage firm Prabhudas Lilladher.
Analysts at Prabhudas Lilladher are bullish on the company on the back of the company restructuring strategy.
UPL has announced a strategic corporate realignment of its existing businesses by creating four distinct business verticals. Marquee investors ADIA, TPG, Brookfield, and KKR are investing a total of $500 million in UPL. While ADIA and TPG will receive $241 million for their exit from non-crop protection in the UPL Corp business, this will result in net proceeds of $259 million, said the brokerage.
"We believe the net proceeds of $259 million are likely to be utilised towards debt reduction and the working capital requirements of the company and would not meaningfully impact the company's earnings profile in the near term," it added.
In the long run, the brokerage is optimistic about UPL and said it is a positive move in terms of unlocking the fair value of each business segment. However, the brokerage kept its EPS unchanged for FY23 and FY24.
On Tuesday, UPL reported a 28.59% jump in its consolidated net profit at ₹814 crore in the September ending quarter on the back of strong sales. The company posted a consolidated net profit of ₹633 crore during the second quarter of the previous year, according to the PTI report.
The company reported an 18.35% increase in overall revenues during the September-ending quarter, at Rs. 12,507 crore, compared to Rs. 10,567 crore in the same quarter last fiscal. During Q2, company expenses remained higher at Rs. 11,315 crore, an increase of nearly 18.34% YoY. EBITDA margin came in at 22.1% in the September ending quarter, an expansion of 270 basis points.
The company's gross debt was ₹32,550 crore as of September 30, up from ₹30,123 crore at the end of the June quarter. Net debt increased to ₹28,512 crore from ₹26,480 crore in the June quarter.
"We are confident of meeting our FY23 guidance of revenue growth of 12-15 per cent, EBITDA growth of 15-18 per cent, and reducing net debt by $650 million," said CEO Jai Shroff.
"Due to the ongoing war between Russia and Ukraine, and the sanctions in the region, the Group's business has been impacted to some extent," the company said in a regulatory filing.
The group had approximately ₹86 crore of inventory and ₹54 crore of receivables as of September 30 in this war-affected region, it said, adding that the company is continuously monitoring the situation.
"The Group continues to do business in these two countries and is taking the necessary steps to protect itself from the various risks involved. "Management is confident of the realisation of these assets," UPL added.
The stock did poorly in terms of performance over the last six months, generating a negative return of 12.8% as compared to the Nifty 100, which returned 4.96% over the same period. while the stock delivered a return of 21.82% over the last three years.
UPL is a large-cap stock with a market capitalization of over Rs. 54,154 crore. The company is engaged in the business of both agro and non-agro activities.
An average of 26 analysts polled by MintGenie have a strong 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.