Moody's Investors Service downgraded UPL Ltd.'s senior unsecured rating on Tuesday to 'Ba1' from 'Baa3' on deterioration in the agrochemical industry fundamentals.
The rating agency has maintained a negative rating outlook for the company. The outlook reflects the significant deterioration in UPL's earnings and cash flow amid a challenging operating environment, Moody's said.
Moody's has also downgraded the company's long-term junior subordinated rating to 'Ba3' from 'Ba2', assigned 'Ba1' corporate family rating and withdrew the company's 'Baa3' issuer rating.
"The downgrade to 'Ba1' is driven by a protracted deterioration in the agrochemical industry fundamentals that will keep UPL's credit metrics weaker than our expectation for an investment-grade rating," Kaustubh Chaubal, senior vice president at Moody's Investors Service, said.
The rating is on the back of UPL's weak operating results for the third quarter of the fiscal. The agrochemical manufacturer posted a net loss of Rs 1,607 crore in the quarter ended December. This compares with a net profit of Rs 5.2 crore, as per consensus estimates of analysts tracked by Bloomberg.
The rating also reflects the overlapping of the group's Indian and overseas operations. "It now appears that the global agrochemical industry's woes will likely linger into the next fiscal year."
The rating agency's revised forecasts assume that UPL's fiscal 2024 revenues will drop by a quarter and then by another mid-single digit percentage in the following fiscal, it said.
UPL's heavy reliance on short-term financing remains a key credit concern, Moody's said.
On Tuesday, UPL shares rose 1.63% to Rs 481.9 apiece on the BSE, while the benchmark Sensex ended the day 0.63% higher.
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