Shares of crop protection major UPL drifted lower despite the company reporting a decent set of the fourth quarter and full-year numbers on Friday. It closed at Rs 366.6, down 1.3 percent over its previous close after hitting a high of Rs 386.40 intraday.

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Quarterly revenues rose 31 percent year-on-year to Rs 1140 crore, operating profit grew 17 percent to Rs 2169 crore, operating margins slipped to 202 basis points to 19.5 percent, and profit after tax surged 145 percent to Rs 617 crore.

The company completed its acquisition of US-based Arysta LifeScience in February 2019 and hence the March quarter numbers are not comparable with those of the same period during the previous year.

After adjusting for the acquisition, quarterly revenues grew by 26 percent, driven by a 29 percent growth in volumes. EBITDA grew 25 percent, margins came in at 19.5 percent and PAT declined by 18 percent. The PAT for the fourth quarter of the previous year had been inflated by a tax reversal.

The company reported strong growth across geographies, Latin America region grew by 27 percent, India grew by 36 percent, North America grew by 45 percent, and the rest of the regions, by 33 percent.

For FY20, the company achieved its guidance on all fronts.

Revenue growth at 13 percent vs expectations of 8-10 percent

EBITDA growth at 18 percent vs expectations of 16-20 percent

Net debt reduced by Rs 4400 crore vs expectations of Rs 3150-3500 crore

FY20 cost synergies at Rs 770 crore was also ahead of target

While the company aims to reduce its net debt to EBITDA ratio from 2.9X to 2.0X in FY21, concerns around debt still linger. According to the company’s investor presentation, net debt reduced by Rs 4400 crore to Rs 22060 crore. That is also because Rs 3027 crore worth of perpetual bonds proceeds were treated at quasi-equity under International Financial Reporting Standards.

“However, if we treat perpetual bonds as debt, then the net debt has reduced by only Rs 1200 crore in FY20 to around Rs 25000 crore,” says a report by broking firm Motilal Oswal.

“And hence net debt (including perpetual bonds) to EBITDA would still stand at 3.4X in FY20 (vs accounted net debt to EBITDA at 2.9X). And this would mean that this is likely to reduce to 2.7X in FY21,” the note added.

Another cause of concern for UPL investors is rupee depreciation. UPL in its release last month had said that its net debt stood at $2.9 billion at the end of FY20, compared to $3.8 billion in FY19. The rupee was 69 to the dollar at the end of FY19 and was 76 to the dollar at the end of FY20. So the effective reduction in debt in rupee terms would be lower. UPL has 44 percent of its debt in US dollars, 40 percent in euros, 10 percent in yen, 3 percent in rupees, 2 percent in real, and 1 percent in other currency.

The stock has shed 40 percent this year due to concerns over its debt and is trading at 6.8 times estimated FY21 EPS.

First Published:May 26, 2020 3:42 PM IST