Q3FY15 result highlights
* Cons. revenues grew by a strong 15% yoy to Rs30.5bn (est., Rs29.1bn), led by strong growth in India (+25%), RoW (+22%) and Latam (+14%). Europe (+2%) and North America (+3%) were weak. Overall, 16% of growth was driven by volumes and 2% by price. However, there was 2% negative exchange impact.
* EBITDA grew by 24% yoy to Rs5.75bn (est., Rs5.24bn). EBIDTA margins increased by 130bp yoy and 90bp qoq to 18.9% (est., 18%).
* UPL reported higher interest cost of Rs1.4bn as there was forex loss of Rs440m. The tax rate was lower, at 17.5%. UPL booked exceptional expenses (Rs160m).
* Overall, PAT increased by 12% yoy to Rs2.49bn, vs. our estimate of Rs2 .34bn. Adjusted for exceptional items, PAT was 15% below our estimate.
Key positives: Strong growth in India and RoW; volume growth; higher OPM.
Key negatives: Weak growth in North America and Europe; forex losses.
Impact on financials: We have increased our FY16/ 17E earnings by 3.9%/ 5.5% to factor in strong revenue growth.
Valuations & view
A shift in focus from revenue growth to profit, emphasis on organic growth, higher return ratios and distribution of free cash to shareholders underpin UPL’s new growth strategy. This addresses key investor concerns (see report, New Avatar, dated 15 Jan 2014). At 10.3x FY17E earnings, 20%+ RoE/ RoCE, 6x EV/ EBITDA (FY17E) and 20% EPS CAGR over FY15-17E (after 26% CAGR over FY12-15), UPL is a strong re-rating candidate. Maintain Outperformer, with a revised TP of Rs532.
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