![](\"https:\/\/im.rediff.com\/money\/2021\/feb\/11fertiliser.jpg?w=670&h=900\")
<\/p>\nThe stock of India’s largest agrochemical player — UPL (formerly United Phosphorus) — fell 2.8 per cent in trade.<\/p>\n
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It was among the top losers in the BSE 100 on Tuesday. Weak 2022-23 (FY23) January-March quarter (fourth quarter, or Q4) performance and muted near-term outlook led to the decline.<\/p>\n
The company reported lacklustre growth in revenue of 4 per cent on the back of a price reduction of 3 per cent and volume growth of 1 per cent.<\/p>\n
This was offset by a 6 per cent foreign exchange benefit.<\/p>\n
The muted top-line performance was due to a dip in North American sales which were down 14 per cent year-on-year (YoY).<\/p>\n
The North American market, which accounted for 18 per cent of sales, missed estimates by a fifth on account of a sharp decline in prices of herbicide glufosinate and a delayed Spring.<\/p>\n
Latin America (LatAm) — 39 per cent of revenue — posted double-digit growth (11.9 per cent), led by a strong volume performance in the herbicide segment.<\/p>\n
Domestic (India) revenue grew 15 per cent on account of bio solutions and herbicide-led growth.<\/p>\n
Europe registered a 6.5 per cent rise in revenue, notwithstanding multiple challenges, including a ban on the sale of fungicide mancozeb and herbicide propanil, among others, resulted in flat volumes.<\/p>\n
A weak revenue performance and lower gross margins weighed on the operating performance of the company.<\/p>\n
Gross margins slid by a sharp 890 basis points (bps) YoY to 40.7 per cent.<\/p>\n
The company highlighted that the decline in post-patent product prices with a ramp-up of supply from China, idle capacity costs to achieve a competitive inventory position, and unfavourable regional mix (increase in the share of the LatAm market) significantly impacted contribution margins in Q4.<\/p>\n
With the lifting of the Covid lockdown, there was a surge in supplies from China which depressed prices.<\/p>\n
Operating profit margins fell 490 bps to 16.4 per cent.<\/p>\n
The company has guided for revenue growth of 6-10 per cent and operating profit growth of 8-12 per cent in 2023-24 (FY24), although the first two quarters of the year are expected to be challenging, given the oversupply situation.<\/p>\n
Analysts of Kotak Institutional Equities, led by Abhijit Akella, believe that the current environment of falling prices and elevated channel inventories could put pressure on both volume growth and realisations.<\/p>\n
A positive for the company is debt reduction. Gross debt came down from Rs 25,870 crore in 2021-22 to Rs 23,000 crore in FY23, while net debt was down to Rs 16,900 crore, from Rs 18,900 crore last year.<\/p>\n
The agri-input company achieved a net debt reduction of $440 million, compared to the guidance of $500 million in the October-December quarter of FY23.<\/p>\n
Given the disappointing showing and near-term guidance, most brokerages have trimmed their earnings estimates between 13 per cent and 22 per cent for FY24.<\/p>\n
While JM Financial Research has cut its profit estimates by 15 per cent as well as its target price, it has maintained a ‘buy’ rating on account of deleveraging and the possibility of value unlocking in the specialty chemical business. Nuvama Research, too, has a ‘buy’ rating on the stock.<\/p>\n
“Even as we acknowledge the earnings risk, we anticipate a sustained improvement on the balance sheet, while inexpensive valuations protect downside risk,” observes Rohan Gupta of the brokerage.<\/p>\n