Shares of UPL Ltd are in focus, dipping nearly 8% to trade at Rs 692 apiece after the company organised a restructuring plan last week.
Nuvama Institutional Equities has downgraded UPL Ltd to "Hold" from "Buy," citing unresolved leverage concerns and dilution following the company's proposed restructuring. The brokerage has revised its 12-month target price to Rs 816 per share.
This follows UPL's announcement of a composite scheme to consolidate its global crop protection operations into a newly structured entity, UPL Global, which will be separately listed. The move combines UPL SAS and UPL Corp into a unified global crop protection platform, while UPL Limited will retain its formulation business, R&D, SUPERFORM and Advanta.
Kotak Remains Cautious
Kotak Institutional Equities has taken a more guarded stance, maintaining a cautious view with a target price of Rs 630. It said the demerger provides private equity investors an exit route while introducing the risk of a holding company discount that could weigh on valuations. Kotak added that public shareholders may be negatively impacted, citing dilution in indirect stakes.
The brokerage sees no material value unlocking from the restructuring, noting that the implied swap ratio values UPL SAS at around Rs 8,800 crore, nearly half the price at which private equity investors had entered. While Advanta and Superform plans remain unchanged, including potential IPO or stake sales, Kotak believes holding company discounts are likely to cap upside.
Structure Simplified, but Debt Burden Persists
Nuvama said the restructuring could unlock value by creating focused business verticals and improving administrative efficiencies. However, the brokerage flagged that the total debt level remains largely unchanged, though redistributed between entities.
As per the report, net debt at UPL Global is expected to be around Rs 19,000 crore, while the standalone business would carry roughly Rs 32,000 crore. Deleveraging, Nuvama noted, will depend on future cash flows and working capital management, making the near-term impact neutral from a balance sheet perspective.
The restructuring will also result in the issuance of 11.73 crore new shares, taking the total outstanding shares to 85.5 crore, leading to dilution.
Shift to SOTP Valuation
Reflecting the new structure, Nuvama has moved to a sum-of-the-parts (SOTP) valuation. The brokerage assigns a 7x EV/EBITDA multiple to the Global Crop Protection business and 25x to Advanta, along with a 20% holding company discount. SUPERFORM remains within the holding company and will be reassessed as visibility improves.
On this basis, Nuvama arrives at an equity valuation of Rs 816 per share.
UPL is projected to deliver revenue growth of 7-8% annually through FY28, with EBITDA margins expanding to around 20-21%. Net debt-to-EBITDA is expected to improve to 0.6x by FY28 from 1.7x in FY26.
While operational recovery appears on track, Nuvama believes the recent stock rally and limited clarity on deleveraging cap upside in the near term, prompting a more cautious stance on the agri-input major.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.