Buy UPL: target of Rs 930: Sharekhan

Sharekhan is bullish on UPL has recommended buy rating on the stock with a target price of Rs 930 in its research report dated December 13, 2021.

“India’s specialty chemicals industry is a decadal growth opportunity and it is still not too late to participate in the value creation process. We prefer CRAMS/CSM players Navin Fluorine (Navin) and PI Industries (PI) as they provide long-term earnings visibility. We also like UPL due to robust growth outlook and reducing debt concerns and SRF due to rising contribution from the chemicals business,” JM Financial research report.

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Sharekhan’s research report on UPL

Potential market share gains given a global scale, backward integration and focus on high growth bio-solutions space would drive industry leading volume/revenue growth for UPL over FY22E-24E; expect it to beat FY22 revenue growth guidance of 7-10% given H1FY22 growth of 14% y-o-y and as H2 is normally a strong growth period. Differentiated & sustainable solutions would be a key growth driver as this segment is growing at 15-20% rate and its gross margins are ~1,000-1,500 bps higher than that of normal products. Thus, management’s aim to increase share of differentiated & sustainable solutions in to 50% by FY26, which would drive margin expansion to 24-25%. We expect UPL’s EBITDA to clock a 14% CAGR over FY21-24E and generate cumulative FCF of Rs. 11,642 crore over FY22E-24E, which would help UPL to further deleverage its balance sheet (management target of net debt/EBITDA target to <2x by March’22).

Outlook

A 14% fall in UPL’s stock price from 52-week high makes risk reward favourable given attractive valuation of 11.7x/10.1x FY23E/FY24E EPS considering improving earnings profile (higher margin and RoE) and management focus to strengthen balance sheet. Hence, we maintain our Buy rating on UPL with an unchanged PT of Rs930.

For all recommendations report, click here

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