Buy This Pesticides & Agrochemicals Stock In November For 41% Gains, Says KR Choksey

Brokerage firm KR Choksey suggests buy the stock of UPL with a target price of Rs 1,041 per share. UPL Ltd. is among the top picks in KR Choksey's November 2022 - Top Idea Picks Report. The brokerage predicts an increase in share price of up to 41% from the current price based on the given target price.

UPL Ltd. is a global provider of sustainable agriculture products & solutions. The company is focused on facilitating progress for the entire agricultural value chain. As one of the largest agriculture solutions companies worldwide, UPL's robust portfolio consists of biological and traditional crop protection solutions with more than 14,000 registrations. The company is present in more than 138 countries.

Stock Outlook & Returns

The UPL's last traded share price is Rs 738.85 per share. The stock's 52-week high is Rs 848 was recorded in May 2022, and the 52-week low is Rs 607.50 was recorded in June 2022, respectively. It has a market cap of Rs 55,458.65 crore.

In terms of returns on investment, the stock has delivered decent returns in past 5 years. It has given 3.49% in a week, 7.09% in 1 month, and 0.16% in 1 year, respectively.  In the past 3 and 5 years, the stock has given 24.33% and 42.89%, respectively. 

 

Management expects H2FY23 to remain robust on continued traction in pricing front

UPL exhibited resilient performance during H1FY23 despite challenging macro environment. The company's management is upbeat about continuing its growth momentum in H2FY23 as well. UPL management believes its H2FY23 growth will be led by increase in market share and improved realization on continued traction in pricing front. The company is hopeful of gross margin improvement in the coming two quarters as well. 

Focus on debt reduction and cash generation

UPL's net debt increased to USD 3,500 mn in Q2FY23 from USD 2,497 mn in Q2FY22, a rise of USD 734 mn. UPL management is aiming to reduce its net debt by USD 650 Mn by the end of FY23E in order to bring its Net Debt/EBITDA ratio below 2x. The company has recently undergone a restructuring exercise where marquee international investors like Abu Dhabi Investment Authority (ADIA), Brookfield and TPG has invested a net USD 259 mn into the company. The proceeds from this will be used by UPL to reduce its debt as well as shorten its working capital days, which has shot up to 124 days in Q2FY23 from 114 days in Q2FY22. 

Future Outlook & Valuation

According to the brokerage, over the years, UPL has mostly outperformed the industry's growth rate. Potential market share gain for UPL given its global scale, backward integration and focus on high-growth bio solutions space would drive its volume/revenue growth going ahead. We believe, success in its debt reduction plan and keeping its rating at investment grade by bringing Net Debt/EBITDA below 2x, will drive re-rating of the stock. 

"At CMP of INR 739, UPL is trading at a P/E of 11.3x/9.2x its FY23E/FY24E EPS of INR 65.1 and INR 80.0 respectively. We are optimistic about UPL's future growth prospects and value the stock at 13x its FY24E earnings, which yields a target price of INR 1,041 per share; an upside potential of 40.8% from the CMP. Accordingly, we maintain our 'BUY' rating on the stock," the brokerage has said. 

Disclaimer

The stock has been picked from the brokerage report of KR Choksey. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.