UPL Shares Fall Most In Six Weeks As Analysts Flag Debt Concerns After Q1

Shares of UPL Ltd. fell the most in nearly six weeks as analysts flagged concerns over mounting debt on working capital needs.

The fertiliser maker's net profit and revenue, however, beat estimates in the quarter ended June.

UPL Q1 FY23 Results (Consolidated, YoY)

• Net profit at Rs 877 crore vs Rs 677 crore (Estimate: Rs 640 crore).

• Revenue at Rs 10,821 crore vs Rs 8,515 crore (Estimate: Rs 9,717 crore).

• Ebitda at Rs 2,343 crore vs Rs 1,863 crore (Estimate: Rs 2,087 crore).

• Ebitda margin at 21.6% vs 21.9%.

• Upgrades Ebitda growth guidance to 15-18% from 12-15% earlier

• Upgrades revenue growth guidance to 12-15% from 10% earlier

Shares of UPL fell nearly 5% around noon on Tuesday. The stock closed 3.62% lower, the worst day since June 22. The trading volume was more than twice the 30-day average, when markets closed.

The stock moved below the 200-day simple moving average, indicating potential downward price momentum.

Of the 30 analysts tracking UPL, 28 recommend a 'buy', and one each suggests a 'hold' and a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 35.9%.

Since the first-quarter results, at least 17 analysts reiterated investment recommendations. Kotak Institutional Equities downgraded the stock to 'add' from 'buy'.

Here's what brokerages have to say about UPL's Q1 FY23 results:

Kotak Institutional Equities

• Downgrades to 'add' from 'buy', cuts target price to Rs 875 from Rs 910, still an implied return of 18.14%.

• Cuts FY2023-25E EPS by 9-10%, predominantly due to higher interest expense.

• Net debt ballooned from Rs 7,600 crore to Rs 26,500 crore as working capital management turned challenging.

• Awaits evidence of execution on balance sheet front.

Motilal Oswal

• Maintains 'neutral' with a target price of Rs 800, an implied upside of 7.97%

• Net debt rose to Rs 26,500 crore, mainly on account of working capital needs.

• Cash flow generation, debt repayment as key monitorables amid high inflation regime.

• Raises FY23E/FY23E earnings by 8%/9% to factor in the positive Q1 results

Prabhudas Lilladher

• Reiterates 'buy', raises target to Rs 1,020 from Rs 1,010, an implied upside of 37.78%.

• Net debt is on the higher side, led by higher working capital and seasonality of business.

• Margin remained stable despite inflationary raw material cost environment.