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UPL Growing Strong on Latin American Wave

UPL Ltd continues to show strong signs of growth on the


power push up from Latin America. Revenues, volumes and
operating profit were up 17 per cent, 23 per cent and 19 per
cent, respectively, in the month of September quarter.
This significant growth of the company is driven by India and
Latin America. Together, these two regions generated more
than half of its sales last fiscal year.
Latin America is the clear outlier in the race among the two.
Revenues are up 34 per cent. In the first two quarters they rose 26 per cent, better than the
10 per cent rise in India.
This strong show, however, failed to impress investors who drove the stock down 1 per
cent on Friday. A one-time expense related to the Advanta Limited merger weighed on
profit growth. Excluding this item, profit would have grown 44 per cent and led to
earnings upgrades.
Nevertheless, the UPL share price is still up 47 per cent from a year ago, much better than
the 10 per cent rise in the BSE 500 index. Management commentary remains optimistic. It
maintained revenue growth guidance of 12 to 15 per cent and 60 to 100 basis points
expansion in margins on strong prospects in India and Latin America. A hundred basis
points equals to one percentage point.
The growth is again expected to be driven by Latin America, which is seeing traction in
the agriculture activities. Last fiscal year, the region alone generated 32 per cent of UPLs
sales.
Rallis India Ltd, which released its second quarter results last week and exports
agrochemicals to Brazil, also added that prospects are looking up in the region.
According to the market analysts, the company has been gaining market share in Brazil
and expects to outperform the industry in the near term.

With the prospects for the domestic market also looking positive due to good soil moisture
as well as improved groundwater levels, analysts expect the company to perform better in
the second half of the financial year and possibly even beat its own revenue growth
guidance.
The expectations have driven up the companys stock and valuations in the past several
months. At 16 times one-year forward earnings estimates, UPL shares are no longer cheap.
For this to continue to outperform the broader markets, profitability should maintain pace
with revenue growth.
Despite low raw material costs as well as strong volumes, margins expanded less than 30
basis points in the September quarter.
While this indicates strong competition along with pricing pressures, the slow progress is
weighing on earnings estimates. Better profitability can drive earnings and also maintain
the outperformance of the stock.

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judgment while making investment decision.
Dynamic Equities Pvt. Ltd - SEBI Investment Advisory Reg. No.: INA300002022

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Associates/ Research Analyst/ his Relative:

Do not have any financial interest / any actual/beneficial ownership in the subject company.
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Have not managed or co-managed public offering of securities for the subject company.
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Article Written by
Nabarupa Kanjilal