UPL recovers a day after tumbling 11%; here is what brokerages say

A day after tumbling nearly 11 per cent on reports that a whistle-blower had alleged corporate governance lapses in the company and that its promoters had siphoned off funds, shares of UPL recovered a bit and rose as much as 4 per cent to Rs 456.40 in the intra-day deals on Friday.

In a clarification on the reports, the company said that this was an old matter and was reported to the audit committee in 2017. After an independent probe, the matter was closed, it said.

Further, in a statement to the stock exchanges, UPL denied that the whistle-blower was a member of the board. “An identical whistle-blower complaint was received by the audit committee of UPL on June 2, 2017,” the statement said. READ MORE

At 12:35 pm, the stock was trading over 1 per cent higher at Rs 444 on the BSE as compared to a 0.64 per cent gain in the benchmark S&P BSE Sensex.

Here's a look at how some of the brokerages have interpreted the development and what's their views on the stock.

Edelweiss Securities

We believe recurring corporate governance issues have marred UPL’s strong fundamentals and kept valuations under pressure (trading at 6.5x FY22E EV/EBITDA). In our view, addressing these issues will be key for the stock’s re-rating. Given strong business fundamentals and solid global franchise in the agrochemical space, maintain ‘BUY’ with Rs 615 target price.

BOB Capital Markets

UPL has faced multiple corporate governance issues in the past which are well known and reflected in the steep valuation discount of 40 per cent against the five-year average. The alleged misappropriation, in this case, is under US$ 10mn but has led to the stock being pummeled on Thursday (losing >US$ 700mn in Mcap).

We see the correction as an opportunity to accumulate ahead of buoyant agronomic conditions across the US, EU, and Latin America (LATAM) and continued price hikes in LATAM that bode well for strong H2 earnings and debt reduction for UPL. Near-term concerns of a stressed balance sheet are in the price and current valuations of 6x FY22E EV/EBITDA are compelling. BUY, Sep’21 TP Rs 650.

JM Financial

We believe that fundamentally the business remains strong and maintain BUY with the target price of Rs 550. Key risk relates to the vagaries of nature (given the nature of business) but as a global company, the risk is reasonably mitigated.