UPL surges 15% after Arysta deal; analysts see more upside for the stock

The stock surged 15% to Rs 631 after the company announced the acquisition of Arysta LifeScience - the agrochemical business of US-based Platform Chemicals - for a consideration of US $ 4.2 billion.

UPL has surged 15% to Rs 631 on the BSE on heavy volumes in noon deals, after the company announced the acquisition of Arysta LifeScience – the agrochemical business of US-based Platform Chemicals – for a consideration of $4.2 billion.

UPL, on Friday, said that its wholly-owned subsidiary, UPL Corporation, has signed a definitive agreement with Platform Specialty Products Corporation to acquire Arysta LifeScience Inc. and its subsidiaries for a cash consideration of about $4.2 billion.

A wholly-owned subsidiary of the Abu Dhabi Investment Authority (ADIA) and TPG have partnered with UPL Corp to support the proposed acquisition. The deal is subject to customary closing conditions and regulatory approvals.

“This acquisition will create a "New UPL" and fulfills UPL's objective of creating an integrated patent and post-patent agricultural solutions business with a global footprint.”New UPL" will represent a compelling value proposition for growers, distributors, suppliers and innovation partners in a consolidating market,” UPL said in a press release.

“While the acquisition of Arysta would drive significant synergy benefits (product portfolio expansion, strengthened presence in Europe and cost synergies on backward integration and efficiencies), it would also result in a highly leveraged balance sheet for UPL,” Motilal Oswal Securities said in a note.

While we revise up our FY20 revenue and EBITDA estimate by 62% and 59% (building in financials of Arysta), respectively, we cut our FY20 PAT estimate by 8% (due to higher interest cost on increased debt). We, thus, cut our valuation multiple from 17x to 13x FY20E EPS and arrive at a target price of Rs 664 (+21% upside), it added.

Thus far in calendar year 2018 (CY18), UPL had underperformed the market by falling 28% as compared to 7.2% rise in the S&P BSE Sensex till Friday. At 12:09 pm; the stock was trading 13% higher at Rs 623 on the BSE, as compared to 0.24% rise in the benchmark index. A combined 12.7 million equity shares changed hands on the counter on the BSE and NSE so far.