UPL slips 7%, hits 3-year low on Q3 loss; cautions on weaker Q4FY24

The company said revenue and margin to be impacted by global channel destocking and ongoing pricing pressure in post patent space exacerbated by higher rebates.

Shares of UPL hit over three-year low at Rs 498.40, on falling 7 per cent on the BSE in Monday’s intra-day trade amid heavy volumes after the company reported a net loss of Rs 1,217 crore in December quarter (Q3F24), due to weak operational performance. The stock of pesticides & agrochemicals company had posted net profit of Rs 1,087 crore in a year ago quarter.

The stock is trading at its lowest level since November 2020. It has corrected 36 per cent from its 52-week high of Rs 780 touched on February 17, 2023. At 10:10 am; UPL was quoting 6 per cent lower, as compared to 0.3 per cent rise in the S&P BSE Sensex. The averge trading volumes at the counter nearly doubled with a combined nearly 7.1 million shares changing hands on the NSE and BSE.

UPL’s revenue declined 28 per cent year-on-year (YoY) at Rs 9,887 crore from Rs 13,679 crore in Q3FY23. Earnings before interest, taxes, depreciation, and amortization (Ebitda) were down 86 per cent YoY at Rs 416 crore, margin contracted 1800 bps to 4.2 per cent.

Revenue and margin to be impacted by global channel destocking and ongoing pricing pressure in post patent space exacerbated by higher rebates. Liquidation of high-cost inventory, and higher rebates to support channel partners, impacted contribution margin.

The management said destocking continued to weigh down the global agrochemical market. Overall, prices remained stable QoQ in the crop protection business but came off significantly vis-à-vis the high base of previous year amid intense post patent price competition.

UPL expects Q4FY24 to be weaker YoY; however, it expects margin improvement QoQ. The management expects normalized business performance in Q2FY25. The management expects the price challenge to continue in the near term. UPL is witnessing a pick-up in volumes in Latin America and double-digit growth in revenue in the RoW region.

Motilal Oswal Financial Services said it see near-term challenges in the global agrochemical industry due to the accumulation of high inventory as distributors opt for need-based tactical purchases, and declining agrochemical prices led by aggressive price competition from Chinese (post-patent) exporters. Considering the short-term challenges, cash flow generation and debt repayments remain the key monitorables, the brokerage firm said in result update.

This extremely weak earnings was driven by higher rebates given to distributors and product returns, and liquidation of high cost inventories. Going forward, inventory rationalisation is unlikely to be repeated given the company will be entering FY25 on a low cost inventory basis, analyst at JM Financial Institutional Securities.

Given no operating cash flows and working capital increase, net debt has risen further to $3.7 billion at end December 2023. The company expects to bring net debt down to $2.5 billion (excluding the rights issue) via higher collections in Q4FY24 and capital-raise opportunities at platforms (e.g., seeds, specialty chemicals, etc.).