Leading Brokerage Firm Places A Buy On This Large Cap Agri-Fertilizer Stock Despite Losses in Q4FY23

Leading brokerage house, Anand Rathi has placed a buy call on the UPL, one of the leading agri-fertilizer company stock, despite the company posting a net loss of Rs7,920 million for the fourth quarter. The stock broking firm has even suggested that the stock price will rally to the target price of Rs 850 per share. Based on the management guidance, the brokerage firm has arrived at the buy rating on the stock.

March 2023 Quarter Performance
UPL has reported a growth of 4.5% in its consolidated sales to Rs1,65,690 million in Q4-FY23 as against Rs1,58,610 million in the same quarter the previous year. The growth was lower due to a decline in product prices mainly for post-patent products in North America and delays in planting season that resulted in headwinds for product placements, as per Anand Rathi's research note.

The company's consolidated operating profit margin stood at 16.4% at Rs27,220 million in Q4-FY23 as against 21.3% at Rs33,800 million in Q4-FY22, a decline of 488 basis points.

Further, the broking firm explained that the margins were lower due to lower realisation in post-patent products with the ramp-up of supply from China, idle capacity costs due to high-cost inventory liquidation, and unfavourable regional mix (increase in the share of LATAM) significantly impacted margins. The company's profit after-tax margins stood at 4.8% at Rs7,920 million in Q4-FY23 as against 8.7% at Rs13,790 million in Q4-FY22.

Outlook & Guidance
The management guided that the company expects revenue growth of about 6-10%, EBITDA growth of about 8-12%, and an improvement in their ROC E by about 125 to 175 bps to about 16.5-17%, the research report highlighted. However, the company expects some headwinds in the initial first two quarters due to post-patent products, but the company remains confident in meeting the guidance for the full year.

Besides, Anand Rathi's note stated that this large-cap company expects to ramp up new product launches shortly. Also, it intends to maintain agility in capturing volume-driven growth and improving working capital going forward. The company is also focused on investing despite the recent global disruption and has tested lots of platforms within Nurture. It now focuses on these and expects to break even in the next 24 months.

Valuation & Rating
Anand Rathi explained the reasons for giving a buy rating to the UPL stock. "With improvement in demand for products along with robust product pipeline driving the momentum for revenue growth. The company's focus on cost control and higher-margin products should enable margin improvement thereby improving the medium-term outlook of the business. We maintain our BUY rating on the stock with a revised target price of Rs 850 per share.

Stock Movement
The last closing price of UPL stock is Rs 667.50 per share, which has fallen marginally by 0.88% over the previous day's closing. In the last one year, the share price has declined by nearly -17.39% but over the last three years, it has surged by 82.1%.

Disclaimer
The stock has been picked up from the brokerage reports of Anand Rathi. Greynium Information Technologies, the author, or the brokerage firm is not liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.