Accumulate UPL; target of Rs 591: KR Choksey

KR Choksey's research report on UPL

UPL has announced a significant investment agreement with Alpha Wave Global, under which Alpha Wave will invest USD 350 Mn in Advanta Enterprises Limited, UPL’s subsidiary specializing in the global seeds business. The investment includes USD 250 Mn for a secondary share purchase, acquiring 8.93% of Advanta, and USD 100 Mn as a primary investment for fresh equity, representing 3.51%. This transaction values Advanta at approximately USD 2.85 Bn and leaves UPL with a 74.70% stake, KKR with 12.86%, and Alpha Wave with 12.44%. The primary proceeds will be used to advance Advanta’s growth through organic and inorganic initiatives, capitalizing on its superior competitive positioning and robust tailwinds within the global seeds industry. The secondary proceeds will be utilized by UPL to deleverage its balance sheet. The secondary proceeds of USD 250 Mn will be equivalent to INR 21,110 Mn, this will reduce the total debt and save interest cost of about INR 2,977 Mn in FY26E. Consequently, the Adj. EPS will increase to INR 49.2 in FY26E from INR 46.2. This marks the second major investment in Advanta, following a USD 300 Mn investment by KKR in CY22, underscoring its strong growth trajectory and potential IPO prospects. Advanta, a leader in sustainable agriculture, operates in over 80 countries, delivering innovative seed solutions and focusing on crops like corn, sorghum, sunflower, and rice.

Outlook

We expect the revenue to grow at 9.1% CAGR and EBITDA to grow at 41.9% CAGR over FY24- FY26E. We increase our FY26E EPS estimates to INR 49.2 (previously: INR 46.2) and increase the PE multiple to 12.0x (previously: 11.4x) as we believe earlier concerns around the interest cost is addressed, better debt profile which will improve the financial health and the company’s ability to unlock value in subsidiaries. Therefore, we arrive at a target price of INR 591 (previously: INR 527) and upgrade our rating to “ACCUMULATE” from “HOLD” which will have an upside potential of 8.3%.

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UPL - 21112024 - kr