In the past three days, the stock slipped 12 per cent after the company reported a lower-than-expected operational and profit performance in September quarter (Q2FY21). Ebitda (earnings before interest, taxes, depreciation, and amortisation) margins improved 50 basis points to 20 per cent. Gross margin contracted to 40 per cent from 42 per cent, due to change in the product/ geography mix, price decline and exchange impact.
Revenues were up 14 per cent higher year-on-year (YoY), driven by Latin America/ India/ RoW markets while Europe/North America markets grew in single digit. Profit after tax of the company grew 47 per cent YoY during the quarter, mainly due to increase in other income, lower interest cost and lower tax rate.
However, the management maintains revenue guidance of 6-8 per cent and 10-12 per cent in Ebitda. The growth will be driven by a focus on differentiated solutions as well as new product launches. Price increases in local currencies and cost savings will support margins, it said.
Debt remains a key concern as net debt increased by Rs 178 crore versus March 2020. Overall, balance sheet of the company has not shown significant improvement and cash flow from operations was also under pressure due to higher inventory, Motilal Oswal Securities said in result update.
Analysts at Emkay Global Financial Services do not anticipate any meaningful change in receivable days except if UPL goes for higher factoring. The brokerage firm believe that the improvement in payables would be offset by slightly higher inventory levels going ahead as its Mar-20 inventory was lower on account of supply disruption.