Growth momentum, lower leverage to drive gains for agrochemical company UPL

Brokerages bullish on stock amid easing leverage situation

The country’s largest agrochemical company, UPL, saw better than expected operating performance during the September quarter. Strong Q2 numbers, a stable debt situation, and expectations that the company may outperform the sector led to a 1.7 per cent gain in the share price on Friday. 

The stock is up 36.5 per cent over the past year compared to the Nifty 200 gains of 4.3 per cent during this period. Riding on a 7 per cent volume growth, the company posted consolidated sales growth of 8.4 per cent year-on-year (Y-o-Y) to ₹12,019 crore.

 

  While there were some forex-related gains, the overall growth came in despite lower realisations. 

Growth was led by the North American and Latin American (Latam) markets, which saw an uptick of 63 per cent and 13 per cent, respectively. Growth in the former was led by the healthy volume gains in key molecules-metribuzin, metolachlor, and glufosinate.

 

The Latam performance was on account of Brazil (mancozeb and herbicide portfolio) and a partial recovery in Argentina on higher herbicide demand as well as for corn/sunflower. While Europe was largely flat due to normalisation in fungicide (mancozeb) sales, the rest-of-the-world business declined by 6 per cent. 

In India, revenues saw a growth of 6 per cent Y-o-Y. It was supported by the maize seed portfolio, partly offset by a weaker crop protection segment. 

The company’s seeds business, housed under Advanta, reported a revenue growth of 26 per cent. It was led by strong demand for corn (India, Argentina, other Latin American countries, Indonesia) and sunflower (Argentina). 

The company’s post harvest (Decco) business, too, saw a healthy September quarter and H1FY26 performance. 

Operating performance was healthy with the company reporting a 464 basis points (bps) expansion in gross margins to 52.1 per cent. It was led by a favourable product mix and benefits from low-cost inventory. 

The operating profit margins improved by 414 bps Y-o-Y to 18.3 per cent. This was led by higher gross margins, volume-led margin improvement in Advanta and better mix in the specialty chemicals (superform) segment. 

Given the strong Q2 show, the company upgraded its operating profit guidance for FY26 to 12-16 per cent from 10-14 per cent. 

However, it has maintained its revenue guidance of 4-8 per cent. Brokerages are bullish on the stock given the Q2 show and the easing leverage situation. 

Antique Stock Broking has revised its FY26 earnings estimates by over 18 per cent after the strong operational performance and a decline in interest costs due to lower debt. Manish Mahawar and Riju Dalui of the brokerage have maintained a buy rating, raising their target price from ₹760 to ₹830. 

Archit Joshi and Rohan Ohri of Nuvama Research believe that UPL’s growth engines delivered good performances, especially from UPL Corp and Advanta. Balance-sheet issues are now largely under control (with net-debt-to-operating-profit assum­ption at 1.7 times). They have set a buy rating with a revised target price of ₹823. 

According to Motilal Oswal Research, growth will be led by healthy volume growth, while pricing is expected to remain soft. 

  With improved working capital efficiency, healthy balance sheet metrics (post repayment of perpetual bond), and healthy liquidity post-rights issue, UPL remains well positioned to invest strategically in innovation and differentiated offerings, says the brokerage.