Shares of fertiliser maker UPL Ltd. slumped over 15 percent in two sessions as China reduced soybean imports after an African swine fever outbreak amid an ongoing trade war with the U.S.
Soybean imports by China—the world's biggest buyer of the legume—fell about 25 percent year-on-year in May. That would lead to an inventory pile-up of more than 20 million tonnes next year in the U.S., the largest producer of soybeans, according to HSBC. Also, rising U.S. exports to European Union and other countries would keep prices in Brazil—China's biggest market for soybean imports—in check, the research firm said in a recent report.
UPL derived close to 35 percent of its overall revenue in financial year ended March from Latin America—one of the fastest growing markets for the company. But the spread of African swine fever in China hurt demand for the animal feed ingredient, thus lowering the consumption of pesticide to grow the crop. China accounts for nearly 61 percent of global soybean imports and uses most of it to feed pigs.
“Soybean pesticide consumption forms close to 55 percent of the Latin America market and assuming no substitution, lower China demand could lead to a near 7 percent decline in Brazil soybean exports,” HSBC said in the report.
Still, HSBC remains bullish on UPL as they expect the impact to not be “very material” in the near term. The research firm maintains its ‘Buy' rating on the counter with a target price of Rs 1,220. Currently, 28 of the 32 analysts covering the UPL stock recommend a ‘Buy', while Bloomberg consensus target shows a potential upside of 25 percent.
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