Company Update | Agro Chemicals
July 24, 2018
UPL Corporation Ltd, international arm of the UPL (United Phosphorus Ltd),
has entered into an agreement to acquire Arystra Lifesciences for US$4.2bn,
making it to Top 5 in the world. UPL will now have sales of US$5bn &
20%+EBDITA margins (pre synergies).Transaction provides UPL a perfect
match with powerful synergies across geographies, crops and products,
strengthened through best-in-class manufacturing & differentiated R&D
capabilities. Acquisition is funded part by equity of US$1.2bn & Debt of
Market Cap (
Net Debt (
US$3bn. It expects Net Debt/ EBDITA of 2.5-2.7x after accounting for
synergies V/s 3.2-3.5x as of now. On EPS front, the transaction will add
52 Week High / Low
Rs10-12 in FY2020. The merger is expected to close in late CY2018 and
Avg. Daily Volume
Face Value (
early CY2019. We recommend a HOLD.
Expanded & diversified product portfolio: UPL boasts of an agrochemical
product portfolio that is spread out across geographies and crops. The
acquisition will not only boost UPL’s product portfolio for crops where it
already has a strong presence, but also in those where it has limited presence
Shareholding Pattern (%)
(e.g. wheat, barley, nuts and a wide variety of specialty crops). According to
MF / Banks / Indian F ls
management, Arysta has a strong presence in bio solutions (among top eight
F II / NR Is / OCBs
global players) and seed treatment (ranked fourth globally).
Indian P ublic / Others
Strengthened presence in Europe: The overseas revenue mix for UPL is tilted
3m 1yr 3yr
in favor LataM (33% of its sales) as of now; Europe contributes just 13% of its
sales. However, post the acquisition of Arysta (for which Europe revenue
contribution is at 39% and LataM is at 36% of sales), UPL will have a more
balanced geographical revenue mix, with LataM accounting for 33-34% of
sales & Europe’s contribution rising to 24% of sales.
Cost synergies to improve: Arysta relies on contract manufacturers for raw
material sourcing from low-cost manufacturing countries like India, China
3-year price chart
and Eastern Europe. The company also almost entirely sources its AIs from
third-party manufacturers. Management has guided for cost synergies of
US$100-120mn in the first year of consolidation and US$200mn annually
Y/E March (
Adj. Net profit
EBITDA margin (%)
Source: Company, Angel Research
Sarabjit Kour Nangra
022-39357800 Ext: 6806
Source: Company, Angel Research Note: CMP as of June 24, 2018,FY20 represents a merged
Please refer to important disclosures at the end of this report
Outlook & Valuations: While the acquisition of Arysta would drive significant
benefits, it would also result in a highly leveraged balance sheet for UPL.
FY2020 net D/E would jump from 0.1 to 1.9x and FY2020 net debt to EBITDA
would rise from 0.4 to 3.3x. Thus, the ROE and ROCE of the company will
come down to 22.1% & 20.3% to 20.1% & 19.0% respectively. In addition, the
EPS has come down from Rs54.1 to Rs52.0 for FY2020E, on back of the
acquisition because of the interest and depreciation expenses increasing more
than the synergy benefits, especially during first year of acquisitions. We, we
believe that the stock will given the financials, will trade lower multiples. Thus,
we recommend a hold with a price target of Rs680.
July 24, 2018
Research Team Tel: 022 - 39357800
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Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
Reduce (-5% to -15%)
Sell (< -15%)
July 24, 2018