Wednesday 27 April 2022

A Quick Glance at UPL Limited - vrk100 - 27Apr2022

A Quick Glance at UPL Limited 

 

(Disclaimer: This is just for information purposes only; this is not an investment recommendation. Prospective investors should consult their investment advisors before making any trades.)

 

My opinion on UPL Limited:

-- business-wise, UPL Limited has been doing well, with a compounded annualised growth rate (CAGR) of 18 to 20 per cent in both sales as well as net profit over the past ten years

-- this high growth is reflected in the current share price--which has a CAGR of 26 per cent in the past 10 years

-- UPL Limited is one of the big agro-chem players in the world, rubbing shoulders with the likes of Bayer Crop Science AG, Syngenta, BASF SE and others

-- the company's buyback programme is now going on; it's buying back equity shares with a maximum price of Rs 875 per share through stock market mechanism--the buyback will last till 06Oct2022--the company proposes to buy shares worth Rs 1,100 crore

-- in general, the buyback programmes give support to stock prices, that is, at least till the closure of the buyback (06Oct2022), subject to business prospects

-- the main business activity of UPL is manufacture and marketing of agro-chemical products, seeds and other agriculture-related products

-- Some years ago, the company amalgamated Advanta Ltd with itself

-- the company's total long-term borrowings are Rs 22,200 crore (30Sep2021)

-- Its debt-equity ratio is high at 1.02

-- its liquidity position is decent; its ability to repay short term debt is good--its cash & cash equivalents are Rs 2,867 crore (30Sep2021)

-- as per CRISIL Ratings Ltd's report (dated 21Dec2021 for total bank facilities of Rs 6,400 crore), its long-term credit rating is AA+/Stable and short-term is A1+

-- the company's stock  is a market favourite 

-- operating profit margins are decent; but return on capital employed (ROCE) has been less than satisfactory for the past three years

-- total promoter holding is low at 28 per cent; foreign investors hold 35 per cent; domestic institutions 18 per cent and the remaining is with the public 

-- the company raised equity capital in financial year 2019-20

-- it's apparent the company in recent years is focusing on sales growth while compromising on return on equity and return on capital employed

-- with a debt of Rs 22,000 crore, why the company is doing a buyback of Rs 1,100 crore isn't clear to me (may be, to prop up company's share price?)

-- moreover, it has paid dividends worth Rs 1,940 crore in the past five years

-- why is the company doing a buyback and paying such dividends when the company's debt-equity ratio is more than one?

-- other red flags are it had done an equity issue in FY 2019-20 and now it's doing a buyback of Rs 1,100 crore--I'm unable to fathom the reason behind such contradictory moves in a short span of time

-- markets for some of the time don't care about management integrity until they do

-- the company has made intriguing changes to its name several times in the past (tweet dated 10Nov2018)--changing many avataars 

-- I'm sceptical of the promoter's intentions and wonder whether their interests align with those of minority shareholders 

-- there were certain allegations on the company in Dec2020 

-- the current market price is Rs 797 per share (intra-day 27Apr2022), with a market cap of Rs 60,900 crore

-- its price-to-earnings ratio is 17.6, price-to-book-value is 3.0 and price-to-sales ratio is  1.4

-- Finally, given the above concerns, I'm not in favour of buying the stock (this is just my opinion, this should not be construed as investment advice)

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Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

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He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100

 

 

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