UPL Limited Research Report By HDFC Sec

Incorporated in 1969, United Phosphorus Ltd. is a global generic crop protection, chemicals and seeds company. The company manufactures and markets agrochemicals, industrial chemicals, chemical intermediates, and specialty chemicals in 130+ countries across all six continents. The Company’s segments include Agro activity and Non-agro activity. The Agro activity segment includes the manufacturing and marketing of conventional agrochemical products, seeds and other agricultural related products. The Non-agro activity segment includes the manufacturing and marketing of industrial chemicals and other non-agriculture related products. It offers products like fungicides, herbicides, insecticides, plant growth and regulators, rodenticides, industrial and specialty chemicals, and nutrifeeds. The Company sells its products in approximately 130 countries. It has 14 Manufacturing units in India and 19 outside India. We recommend UPL as a Buy at CMP of Rs. 801 and add on decline of Rs. 740 for the target of Rs.988 (18x of FY20 EPS) for the time frame of 4 Quarters.

Investment Rationale:

Dominant Player in the High Entry Barrier Industry

India is the fourth largest global producer of agrochemicals in the world after US, Japan and China. This segment generated a value of US $4.4bn in FY15 and is expected to grow at 7.5% per annum to reach US $6.3bn by FY20. UPL is the 2rd largest post-patent crop protection chemical company and the 9th largest agrochemical company in the world. It has done 25+ acquisitions in more than two decades of time. Acquisitions were done to gain access to the overseas markets, and to increase their distribution, brands and registrations. Most of these acquisitions were turned around successfully and boosted UPL’s presence globally. Crop protection market is a mature industry and has very high entry barriers because of three key factors, high upfront investments, high R&D Cost and strict regulations. Companies have to incur huge capex for plants, machinery etc. before they see any sales in this industry. Even the R&D cost for the development of new products is quite high for this industry. The overall process of product registration in various geographies remains tedious and time-consuming. For instance, in the USA, it takes 3-3.5 years to register a product. Europe and Japan have even longer periods for product registration with 4-5 years and 8-9 years respectively.

Superior & Innovative product and wider geographic range

UPL is not just a product driven company; over the period of time company has evolved itself as servicedriven organization. The company is now a one stop solution for farmers in their all agriculture related needs. It has presence in manufacturing seed, protecting seeds and post-harvest storage solutions also. UPL has 5934 of product registrations across countries. It not only manufactures and markets agrochemicals but also industrial chemicals, chemical intermediates, and specialty.

UPL is constantly doing R&D for developing new and innovative product. It has shown tremendous progress improving its product mix over the past few years, with innovation rate rising form 2.5% in FY14 to 15% in FY17.

The Company sells its products in approximately 130 countries. It has 14 Manufacturing units in India and 19 outside India. Almost 80% of the revenue comes from Outside India. Regions of Latin America, Europe, and the North America continue to remain largest markets outside India. This helps company in getting balanced revenue throughout the year and reduces the risk of fluctuating demand from any one region.

Presence across value chain: