Buy UPL; target of Rs 1206: Dolat Capital
Dolat Capital’s research report on UPL
UPL’s 4QFY19 performance (excluding Arysta Lifescience’s two months results) was largely in line with our estimates. The sales/EBITDA/Adj. PAT grew 15.2/0.9/23.5% YoY to ` 65.5/14.3/9.0bn, respectively. The adj.PAT growth of 23.5% YoY was primarily due to a decline in interest costs (down 59.3% YoY) and a lower tax rate (2.6% in 4QFY19 against 23.1% in 4QFY18). Sales rose 15.2% YoY, driven by a volume/value/exchange rate growth of 7.0/5.0/3.0% YoY, respectively. The 4QFY19 and FY19 results include the two -month performance of Arysta Lifescience, which reported Sales/EBITDA/Adj.PAT of ` 85.2/12.9/5.2bn. According to the management, the reported performance (inclusive of Arysta) includes purchase price allocations at fair value, i.e., a ` 4.42bn inventory write down, a ` 1.02bn rise in depreciation on Arysta Lifescience’s results, the ` 1.63bn impact of deferred tax, and the ` 1.31bn interest costs on the debt to finance the Arysta Lifescience acquisition. The management believes integration costs of USD 60-80mn are likely to reflect in the income statement in FY20 (as exceptional items).
UPL is expected to deliver a OCF yield of 9.9/9.1% and a FCFF yield of 7.2/6.1% in FY20E/FY21E, respectively, which lead us to assume a 10x EV/EBITDA multiple to arrive at a TP of ` 1,206 (implied P/E multiple of 13.7x FY21 EPS). We resume coverage, with a Buy rating.
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