UPL shares in focus after Fitch downgrade, negative outlook on weak demand, poor EBITDA

UPL shares will be in focus on February 16 after the global rating agency Fitch Ratings downgraded UPL Corporation’s long-term issuer default rating.

The rating has been downgraded to ‘BB+’ from ‘BBB-‘ with Fitch citing the weak 9MFY24 EBITDA and lower global crop-protection industry demand due to prolonged destocking and production overcapacity in China. The outlook is negative.

Fitch has also downgraded UPL Corp’s senior unsecured rating and the ratings on the senior unsecured notes to ‘BB+’, from ‘BBB-‘. The senior unsecured notes have been assigned a recovery rating of ‘RR4’.

On February 15, shares of UPL settled at Rs 488.4, higher by 1.4 percent on the NSE. However, over the past six months, the stock has notched losses of more than 17 percent. In comparison, the benchmark index Nifty 50 has surged around 11 percent in the same time period.

UPL 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 performance not only has brokerages cautious about its growth outlook but also triggered another round of downgrades for the stock.

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

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

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.

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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