UPL shares hit a new low on subdued June qtr, weak outlook
₹8,963 crore. This drop was driven by a 10% decrease in prices coupled with a 9% dip in volumes, resulting in weak sales across all operational geographies. But despite the drop in volumes and prices, Ebitda (earnings before interest, tax, depreciation, and amortization) margin held steady at 18% sequentially due to favourable product mix.
Although, year-on-year, the margin contracted by 387 basis points. If the pressure on price and volume persists, the margin could see an impact in the coming quarters. The management expects the September quarter to be weak.
Considering the near-term headwinds, the management has lowered its FY24 guidance and now expects revenue growth in the range of 1-5% from 6-10% earlier. Ebitda growth, too, has been revised lower to 3-7% from 8-12%. Analysts from Kotak Institutional Equities indicate that the management guidance may still be at risk.
“Q2FY24 revenues seem likely to decline somewhere around 10% year-on-year (largely driven by price erosion), requiring the company to record mid-teens revenue growth in H2FY24 to meet the midpoint of its guidance range," Kotak’s analysts said in a report. While there’s optimism that commodity prices might improve in the coming quarters, the excess channel inventory levels could remain a potential obstacle to growth. Consequently, stimulating revenue growth through volume enhancement may prove challenging.
UPL’s management is hopeful of an improved business climate in H2FY24, planning to focus on cash conservation, debt repayment, and if necessary, delaying capital expenditure. The capex guidance for FY24 has been revised downwards from $350 million to $300 million, and any progress on this front could be a positive for UPL. However, investors may need
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