UPL slumps to 52-week low as weaker-than-expected Q3 earnings triggers downgrades

UPL expects earnings pressure in Q4 as well on weak demand and sees normalisation kicking in from Q2 of FY25 instead of the earlier H2 of FY24

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Shares of agrochemical player UPL slumped over 5 percent to a 52-week low of Rs 504 on February 5 after the company reported a quarterly loss in the October-December period as it struggled with weak demand, inventory destocking and falling prices.

The company’s weaker-than-expected not only has brokerages cautious about its growth outlook but also triggered another round of downgrades for the stock.

At 09.21 am, shares of UPL were trading at Rs 507.05 on the NSE.

The company reported a net loss of Rs 1,217 crore, steeper than the Street’s estimate of Rs 527.80 crore. UPL  posted a net profit of Rs 1,326 crore in the year-ago period.

Revenue also slumped nearly 28 percent to Rs 9,887 crore, down from Rs 13,679 crore in the base period.

The fall in revenue has been attributed to a sharp slump in sales across most key markets. All markets (except RoW) witnessed a drop in sales from at least 20 percent (India) to 64 percent (North America). The Rest of the World market grew 12 percent on year.

Continued pressure on pricing, higher discounts and forex losses led to a sharp erosion in the EBITDA margin to 4.21 percent the third quarter against 22.2 percent in the year-ago period.

Going by the weak demand environment, the company expects pressure to persist in the next January-March period as well and now see business normalising from the second quarter of FY25 instead of the earlier H2 of FY24.

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Disappointed by the company’s Q3 numbers, DAM Capital downgraded its rating for the stock to “sell”, with a price target of Rs 462.

Jefferies reduced its price target on UPL to Rs 635 to factor in the weak Q3 numbers but retained its “buy” call. The brokerage also cut its FY25-26 EPS target by 13-15 percent.

Jefferies said an FY25 PE of 9x, demand recovery and inventory liquidation would be key to UPL’s re-rating. The firm also estimates a net loss for UPL in not just Q4 but also for FY24.

Though Nuvama expects margin pressure to subside in FY25, it still sees a risk of credit rating downgrades and pressure on UPL’s balance sheet.

UPL plans to raise money through a rights issue but Nuvama chose to downgrade the stock to “reduce” from “buy” on near-term risks. The firm also slashed its price target for the stock by over 32 percent to Rs 486 and its FY24-25 EPS estimates by 36 percent.

Motilal Oswal Financial Services also reduced its FY25-26 EPS targets for UPL by 11-23 percent to factor in the subdued Q3 performance.

The firm sees near-term challenges for UPL due to weakness in the global agrochemical industry due to high inventory as distributors opt for need-based tactical purchases and declining agrochemical prices led by aggressive price competition from Chinese (post-patent) exporters.

Incred Equities has a contrarian view on UPL. It upgraded the stock to “add” with a price target of Rs 694. Incred said during a downturn cycle, it is imperative to save balancesheet and vendor base, which UPL is doing.

The stock remains volatile as it at the cusp of a change and hence can be bought aggressively on dips.

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