UPL Shares Fundamental Analysis and Future Outlook
United Phosphorous Limited (UPL) is the 5th largest crop protection chemicals company in the world. The company in 1969 started as an import substitute for phosphorous based chemicals in India. By 1980 the company diversified into agrochemicals and speciality chemicals and had exports to 63 countries. In 2018–19 the company had a presence in 138+ countries and 82% of the revenue came from exports.
- The vision of the company is to be the market leader right from seeds to post-harvest products in the crop life cycle by FY 2028. The Industry size has grown from $ 56 billion to $ 100 billion globally.
- After the acquisition of Arysta, the company has become a market leader in high growth BioSolutions and Emerging Markets.
- The business model is such that 30% of the revenue comes from Herbicides, 25% from Fungicides, 26% from Insecticides, 9% from seeds and rest from other products. The geographical distribution of revenue includes 35% from Latin America, 18% from Europe, 16% from North America, 10% from India and rest from other 90+ countries in the world.
- The company is also highly focused on R&D and has a team of 550+ research professionals and 25+ R&D facility across 4 continents. Overall the business model is well diversified across products and geographies.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: UPL Shares Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- A big acquisition for the company comes at a time of a global pandemic. UPL has a global presence so the overall impact will depend upon how agriculture gets affected across the world. The disrupted supply chains will also be an issue in the coming years, which will impact the input costs as well. Based on preliminary projections agriculture and food supply chain can see recovery only after 2–3 years.
- Brazil crop protection demand on soybeans has benefited from the US-China trade war, despite drought conditions in South America. UPL has outperformed in Brazil, increasing market share in crops like sugarcane, cotton and speciality crops.
- .The company is gaining market share in herbicides business in the US and in fungicides business in Europe. The company expects gross margins to reach 40–42% in the next few years due to the increasing input costs.
- The management gave a guidance of $ 500 million of debt reduction by FY 2020. It expects to reach net debt/EBITDA of 3.2–3.3 times by next year. This will improve the solvency of the company.
- UPL saw a good business growth in West Africa and parts of South-East Asia and continues expanding its presence in countries like Ivory Coast, Ghana and Indonesia.
The company can see a temporary loss of revenue but will improve its market share in the key geographies of the world. The future growth in business and share price will depend upon how agriculture across the world revives after the pandemic. The long term outlook, however, remains favourable for UPL.
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