1. NATVERLAL RESEARCH
Monday
UPL Limited
Natverlal Research
Regd. Off. : Fairy Manor, 5th Floor, 13 Rustom Sidhwa Marg, Fort, Mumbai - 400 001.
Tel. Board: 91-22-4213 4444 Dealing Rm: 91-22-4213 4400, 2265 1121 Fax : 91-22-4213 4440 Email : reasearch@natverlal.com
BUY
BSE Code 512070
NSE Code UPL
Bloomberg Code UPLL:IN
Current Price 395
Target Price 539
Mcap ` bn 169.3
Mcap US bn 2.8
52 wk H/L 576/327
Face Value 10
2 wk avg vol (000) 832
Financial Snapshot
` Mn FY15 FY16E FY17E
Net sales 120,905 130,678 142,605
% ch 8.1 9.1
EBIDTA 23,598 25,214 27,969
%ch 6.8 10.9
PAT 11,440 12,380 14,334
%ch 8.2 15.8
EPS 26.7 28.9 33.4
BV 136.7 159.2 185.0
P/E 14.8 13.7 11.8
EV/EBIDTA 8.1 7.5 6.7
Shareholding Pattern
Sameer Dalal
Sameer@natverlal.com
91-22-42134444
Gaurav Singh
gaurav.singh@natverlal.com
91-22-42134421
Diversified Agrochemical player, expected to grow steadily with growing industry
UPL Limited (UPL) is a multinational global giant in crop protection chemicals. It has a
consolidated market capitalization of $2.5 billion. It is industry leader in India and among
one of the most profitable agrochemicals companies in the world. It has an outstanding
track record of beating the industry estimates time and again and is gradually scaling its
dominance in global generic market.
Crop protection a key focus area: Globally the demand for food production has been
growing to feed the ever increasing population. With land under cultivation seeing a
decline it become important to protect crops to ensure higher yields. Pesticides can be one
of the major factors contributing to the increase in food production by reducing crop
losses. UPL’s focus on this will ensure they will be able to grow with the demand increase.
Geographical diversification: Its widespread reach is an advantage as it reduces its
dependency on country specific factors. Crop ailments are very similar globally and hence a
product that works in one region will work in all regions enabling it to leverage its R&D
globally increasing operational efficiencies.
Product diversification with IP rights: Its well diversified product portfolio for various
types of soil and seasons is another big competitive advantage. It has a registrations
portfolio of 4692 products, a reflection of its product development, documentation and
regulatory compliance capabilities. UPL is an innovation led generics manufacturing comp
any that focuses on creating hybrid combinations of existing molecules to counter pests.
The company has 388 patents filed in its record and 124 patents have been granted so far.
Under penetration in India: The low consumption of crop protection in India at 0.6 kg per
hectare compared to global average of 3 kg per hectare offers immense potential for
growth. To meet the food demands of India’s huge population, pesticide usage is a
necessity. At present UPL is working on awareness programs which will drive growth.
Strong distribution network: UPL has strong marketing tie ups across the world which is
very essential for a sector where reach plays a key role. Pesticides are a pull product so
demand will remain, however which product to use is a push and this strong distribution
network will go a long way to ensure some amount of market protection.
Vertical Integration enable margins to sustain: UPL has a backward and forward
integration with most of its key molecule made in house. This enables it to become one of
the low cost generic agrochemical companies in the world. Further it has set up most of
manufacturing in low cost regions although it competes in all the developed markets.
Healthy balance sheet: UPL has a comfortable debt-equity ratio and standard inventory
and receivable cycle. The company has good cash balance and is also well placed to raise
finances if required for growth and expansion.
Valuations: At present UPL is trading at a P/E of 13.7x and 11.8x and an EV/EBIDTA of 7.5x
and 6.7x its FY16E and FY17E respectively. At present we believe valuations factor in all the
negatives that exist, based on that we believe the future prospects look bright. We initiate
coverage on the stock with a BUY recommendation with a target of `540
Promoters, 29.8
FII, 47.79
DII, 9.93
Bodies
corporate,
4.17
Retail

2. NATVERLAL RESEARCH UPL Limited
Natverlal Research
2
Investment Rationale
Crop protection a key focus area: The global demand for food production is increasing at a
breakneck speed because of increase in global population and the increase in food intake
per capita. Due to the rapid pace of urbanization and industrialization across the world the
area under arable land has remained constant to reduced. In a situation like this one of the
factors which can immensely contribute to the rising need of food production is the usage
of pesticide as it can substantially reduce the crop loss. Yield per hectare can be improved
with the usage of pesticide. Food availability is a universal goal of United Nation which will
be addressed and combated by each country for this crop protection is going to be
something that will be a focus. The global crop protection chemicals market is projected
to reach US$ 69,614 million by 2019 with an estimated CAGR of 5.5% from 2014 to 2019.
The global population is expected to touch 9 billion by 2050 with a growing income levels.
The world’s food production need to double from current levels even as farm acreages are
shrinking and fertile regions are getting adversely impacted on account of environmental
degradation. It is estimated that 10-15% of global crop production is lost to pests. The
revenue of UPL has been growing at a CAGR of 26% over the last 5 years. UPL being one of
the fastest growing global generic players is poised for good growth in the coming years.
Geographical diversification: UPL has presence in 122 countries. It has 13 manufacturing
locations in India and 15 abroad. It operates through 76 global subsidiaries. The
geographical spread de risks the company from climatic vagaries in addition to giving it a
larger target market with its product base which requires large spends on R&D. Latin
America being the biggest market is poised for good growth and UPL is very comfortably
placed in Brazil which constitutes the biggest market in the region. India has recently
surpassed China as fastest growing economy and targeted to grow at 7.5% in FY 2016-
2017. Agrochemical sector in India is going to be one of the fastest growing sectors in the
coming years. North America and Europe is expected to grow at a good rate because of the
growing concentration of farmers towards technology driven agriculture practices.
UPL growing better than industry averages: UPL has been able to grow at a very robust
pace over the past 5 years delivering a CAGR growth rate of 17%. Even when we look at
growth rate for all products region wise UPL has been able to outperform in almost all
regions of importance. Being a recent entrant in brazil the growth seems much higher than
industry however this difference will reduce over time. However given its product
diversification and strong distribution reach they should be able to grow at industry rates
over the next couple years at the minimum.
Source: UPL, Natverlal Reserach
Latin America,
28.17
India, 21.69
Europe, 16.81
North America,
18.68
Rest of the
World, 14.65
Geographicalbreakup of sales
0
20
40
60
80
100
North
America
Latin
America
Brazil Europe India Rest of
World
CAGR UPL vs Industry past 5 years
Industry CAGR UPL CAGR

3. NATVERLAL RESEARCH UPL Limited
Natverlal Research
3
Product diversification: It offers a very comprehensive product portfolio towards the
agriculture space which includes crop protection chemicals, plant growth regulators,
specialty chemicals, nutrifeeds and seeds (through Advanta which is soon to be merged).
Almost 80% of the revenues are derived from branded products which will create recall
and ensure longevity of the product. Its key product profile includes Acephate which is an
organophosphate insecticide. It is used on cotton, sunflower and paddy. Propanil is a
acetanilide post emergence herbicide used I controlling grasses and broad leaved weeds in
rice. Mancozeb is fungicide which controls fungal diseases across a range of field crops,
fruit, nuts, vegetables and ornamentals. Its prominent products and brands include
Manzate Prostick and Vondozeb among Fungicides, Super Whan and Tricor among
Herbicides and Lancer Gold among Insecticides.
Under penetration in India: The low consumption of crop protection in India at 0.6 kg per
hectare compared to global average of 3 kg per hectare and offers immense potential for
growth. UPL Limited provides training to farmers on its demonstration plot in product
efficacy and progressive farming practices. Company’s initiative of Unimart stores across
India serve as repositories of agriculture information where farmers can get their queries
addressed in order to enhance pesticides awareness among farmers. Further growing
awareness of usage of pesticide and initiatives to reduce crop loss will accelerate the
market for agrochemicals. India accounts for 16% of the world’s population but accounts
for less than 2% of the global usage of crop protection chemicals. Agrochemical sector in
India is going to be one of the fastest growing sectors in the coming years.
Source: Natverlal Research, UPL
Vertical Integration enable margins to sustain: Over the years UPL Limited has created a
strong presence across the sectoral value chain- covering research and development
registration to manufacturing to packaging and marketing. The company’s vertical
integration enables it to reduce production costs. The company is one of the most holistic
agrochemical companies in the world. It has a strong presence across the length of the
sectoral value chain- covering research and development, registration, manufacturing,
packaging and marketing.
UPL’s Value Chain
MANUFACTURING
Fungicides,30%
Insecticides,
28%
Herbicides,27%
Others,15%
Product diversification
0
2
4
6
8
10
12
14
India Canada USA France Thailand China Japan
Crop protection usage per hectare
PROPREITARY
RESEARCH
PRODUCT
DEVELOPMENT REGISTRATION
MANUFACTURING PACKAGING DISTRIBUTION

4. NATVERLAL RESEARCH UPL Limited
Natverlal Research
4
Strong distribution network: In a sector like agrochemical where sales push does matter
for product usage a strong distribution network is required. UPL has an integrated network
of distributors across the globe which allows it to seamlessly distribute products and
circumvent logistic bottlenecks. The company operates through hub and spoke distribution
model which allows it to manufacture bulk of its chemicals in India and formulate specific
products in plant located closer to markets. This enables company to achieve cost
competitiveness and also achieves qualitative consistency. Further with UPL having a large
base of products and a good global reach they have operational efficiencies which allows
them to price the product well in addition to be able to give a good margin to its
distribution network. Both these factors will ensure they are able to defend market shares
for many of its products in regions it operate.
Intellectual Property Rights: Globally the industry faces stringent environmental
regulations, changing weather conditions is a potential threat. Major chemicals such as
glyphosate (herbicide), chlorpyrifos (insecticide), atrazine (herbicide) and others are under
constant review facing the risk of being phased out or banned if more environment
friendly alternatives are available. UPL has progressively churned product portfolio,
phasing out the old and introducing the new one. The company has invested extensively in
research to create a pipeline of globally patented products. It has 124 patents granted till
now and in total 388 patents have been filed.
Strong balance Sheet: UPL’s net worth has consistently shown an increase reflecting a
considerable growth in reserves and surplus. The company’s debt has been reducing,
reflecting a strong cash reserves and strong internal financing. The company has sufficient
cash reserves and is strongly positioned to raise finances if required. Its fixed assets have
been increasing on account of takeovers and expansion. Its decent receivable days are at
111 days and inventory at 88 days which is very comfortable from a business point of view.
Its stable debt equity ratio over the years which is at 0.4 presently and healthy interest
coverage at 4.4 for FY16E is a good sign. Its strong cash balance represents a confidence in
the management of the company.
Corporate Information: UPL is a multinational company of Indian origin. The company was
founded in 1969 by Mr. R. D. Shroff, who is currently the chairman. It is engaged in the
business of not only manufacturing and marketing crop protection chemicals but also
offering crop protection solutions. The company markets branded generics and proprietary
branded products in all major agro economics across the globe, reinforcing its identity as
one of the most profitable agrochemicals companies in the world. Mr. R.D. Shroff serves as
chairman and managing director of the company. It is led by a team of professionals
consisting of Jaidev Shroff serve as the CEO of the company. Anand Vora is the chief
financial officer of the company who is also chartered accountant by profession. UPL
employs professional of 25 nationalities.
3541
3902
4272
4692
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2011-2012 2012-2013 2013-2014 2014-2015
Growing product registrations
3100
3200
3300
3400
3500
3600
3700
3800
3900
4000
4100
4200
2011-2012 2012-2013 2013-2014 2014-2015
Distributionreach India
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2011-2012 2012-2013 2013-2014 2014-2015
Distributionreach SWAL

5. NATVERLAL RESEARCH UPL Limited
Natverlal Research
5
Merger with Advanta Limited: For every share in Advanta, Advanta shareholders will
receive one UPL equity share and three preference shares worth Rs 30 in UPL. With this
merger UPL will expand its product portfolio to cover the agriculture value chain and
provide an opportunity to engage directly with the farmers. Advanta will benefit from a
strong distribution network of UPL and will be able to fast track its growth plans on the
back of a strong balance sheet of the combined entity. UPL also expects to save Rs 90
crores through the merger. The merger will result in access to newer territories, enhance
coverage in existing markets, leveraging channel capabilities and improve customer access
through early and direct engagement. As of now we are not incorporating Advanata
Limited financial statements as the merger will take place in a year or two. However post
merger the financial data will be updated.
Issues hampering UPL’s profitability at present:
El Niño creating problems: During calendar year 2015 the world has witnessed the worst
el Niño since 1993, due to this the crop cycles in many countries have been very negatively
impacted. El-Niño is a climate cycle in the Pacific Ocean with a global impact on weather
patterns. The cycle begins when warm water in the western tropical Pacific Ocean shifts
eastward along the equator toward the coast of South America. What this does is it
impacts the monsoons and heat and cold climatic conditions in many parts of south
America a few in north America and parts of Asia.
Poor monsoon in India: Indian has had a second consecutive year of poor monsoon with it
being below 14% of annual averages for the current year. Half of India was under severe
rain deficit by more than 20% of the normal. In addition the previous 3 crop cycles have
been affected due to climatic conditions which include the effects of the El Nino. The
expectation is the next crop season too could be a negative one for the agriculture sector
as moisture content in the land in many parts is quite poor. UPL has a fourth of its sales in
India and if we believe the planting of crops would be lower than demand for pesticides
too can be negatively impacted as without the first there is certainty of the second.
Latin American Currency crisis: Apart from the El Niño playing havoc on crops globally in
the current year UPL has had to deal with currency fluctuations as well. Many of the Latin
American countries have seen their currencies decline over the past 12 months by almost
50%. These countries are commodity dependent and with no commodity prices expected
to remain subdued these currencies could continue to remain under pressure.

6. NATVERLAL RESEARCH UPL Limited
Natverlal Research
6
Valuation:
UPL limited has had a decent half 1 during the current financial year even with some
negative impacts from a lower monsoon in India. However things in the second half would
be even worse for it as the full effect of the lower monsoon will be felt here. This will be
worsened with the sharp depreciation in the argentinian peso recently. Latin American
countries have seen difficult times and this to would have impact on profitability.
Due to the above reason we have seen a almost 30% correction the stock price of UPL over
the past 6 months from a high of `576 to a recent low of `395. This correction in the stock
price due to expected lower growth in revenue and profitability for FY16E than earlier
anticipated. Going forward to FY17E too revenue growth will be slower as some of the
effects of currency fluctuation would eat in the consolidated entities profits. Following this
correction and the lower expectations we believe the stock has come to attractive
valuations at the moment.
At present UPL is trading at a P/E of 13.7x and 11.8x, its P/B is 2.1x and 1.8x and an
EV/EBIDTA of 7.5x and 6.7x for FY16E and FY17E respectively. UPL has a RoCE of 19.7% and
a RoE of 19.5% which are extremely healthy. With debt levels and interest coverage also at
very comfortable levels at 0.4x and 4.4x respectively for FY16E we don’t see any concerns
from that front.
The company’s geographical and product diversification gives it an edge among its peers
because of its resilience against local factors such as monsoon or crop failure in a particular
region. Its dominant position in Indian market, growing presence in global market and
sustained growth over the years makes it a stable investment. We have chosen to value
the company on a EV/EBIDTA as that would factor in its core operations. Given its sheer
size and growth opportunity and superior fundamentals we are giving it a valuation
multiple of 9x 18 month forward which is the average valuation multiple for all companies
within the space. Based on this we arrive at a target price of `540 implying an upside of
37% over the next 12 to 18 months.
We have in addition factored in most of the negatives from the poor monsoon in India
during the current year which will affect sales and also to some extent the fluctuation in
the currency from Latin America which has been present over the past month. After taking
these negatives into consideration and have conservative estimates we believe the risk-
reward is in favour of reward for UPL limited and hence recommend a BUY with a target of
`540.

7. NATVERLAL RESEARCH UPL Limited
Natverlal Research
7
Risk Management:
Currency risk: Exposure to volatility in foreign currency exchange rates poses a threat to
the UPL as it has manufacturing and sales in multiple countries which have volatile
currencies. It strives to maintain natural hedges to insulate it from foreign currency
exchange rate fluctuations as far as possible. For open exposures, forward covers are taken
to mitigate risks. Prudent hedging practice makes the company averse the risk. However
post all of these issues there will always remain a concern with currency there is never a
complete hedge and there will always be years of losses due to currency fluctuations
however this risks is far smaller than not being present in the other markets which reduces
geographic risk which is a big concern for this sector.
Government Regulations: India’s large agricultural subsidies have hampered productivity
enhancing investment. Overregulation of agriculture has increased costs, price risks and
uncertainty. Agriculture credit has been poorly managed and has led to high debt burdens
on the farmers which have resulted in hampering growth. Government policies have been
inadequate to deal with farmers grievances.
Health and environment risk: Stringent environmental regulations across all countries
increase the cost of developing new products. Exposure to pesticides often occurs in the
case of agricultural workers in open fields and greenhouses, workers in the pesticide
industry. Pesticide has an adverse impact on the environment (water, soil and air
contamination from leaching, run off and spray drift as well as the detrimental effects on
wildlife, fish, plants and other non target organisms). UPL invested in systems to prevent
emission, it created a dedicated green cell to address environment issues across various
units. It took adequate measure to ensure better employee health.
Climatic Vagaries: Agrochemicals globally are linked to climatic conditions which vary
from rains, heat and cold. Unseasonal occurrences and special situations as el-Niño can
adversely affect crop growth which in turn can affect demand of pesticides which comes in
the second half of a crop cycle. In most of the developed countries there is enough
irrigated land to ensure reduced risk of low rains in India however we are not as irrigated
and a bad monsoon as we have had in the current year can affect demand. UPL’s global
presence and diversified product portfolio makes it possible to protect against unexpected
climatic patterns in one region.
Import Dependency: Almost 30% of raw materials are imported from China, USA and
Germany. Any disturbance in the supply side will severely impact because domestic
substitutes are not competitively priced.
Compliance to pollution control norms: Pollution control norms have become stringent.
Around 30% of capital expenditure in industry is towards pollution control. UPL handles
various hazardous chemicals in product manufacture. It installed superior scrubbers to
minimize the emission of harmful chemicals, fumes and dust particles. The company
contained SPM levels lower than those recommended by the Gujarat Pollution Control
Board

8. NATVERLAL RESEARCH UPL Limited
Natverlal Research
8
Financials
Profit & Loss Balance Sheet
In ` million FY14 FY15 FY16E FY17E In ` million FY14 FY15 FY16E FY17E
Net sales 107,709 120,905 130,678 142,605 Equity capital 857 857 857 857
YoY (%) 17 12 8 Reserves 51,617 57,746 67,366 78,419
Total expenses 87,526 97,279 105,647 115,390 Minority interest 1,721 444 444 444
EBIDTA 20,183 23,626 25,030 27,214 Total borrowings 33,495 32,806 29,815 32,815
YoY (%) 17.1 5.9 8.7
EBIDTA (%) 18.7 19.5 19.2 19.1 Non current liabilities 4,451 6,917 6,947 6,991
Other income 1,239 911 834 1,056 Current liabilities 35,449 42,901 46,177 50,703
PBIDT 21,421 23,598 25,214 27,970 Total Liabilities 127,591 141,670 151,606 170,228
Depreciation 4,069 4,245 4,440 4,970
PBIT 17,352 19,353 20,774 23,001
Interest 4,853 5,170 4,697 4,384 Net Assets 26,086 25,815 27,206 30,360
Extra-ordinary expenses 1,009 79 0 0 CWIP 1,228 3,458 5,750 3,750
PBT 11,491 14,104 16,078 18,617 Intangible assets under development1,049 2,373 2,373 2,373
(-) Tax 2,217 2,440 3,698 4,282 Goodwill on consolidation 12,124 14,493 14,493 14,493
Tax/ PBT 19 17 23 23
Minority interest 149 (223) 0 0 Non current assets 11,495 11,815 11,815 12,179
PAT 9,423 11,440 12,380 14,335 Current assets 75,609 83,717 89,968 107,073
YoY (%) 21.4 8.2 15.8 Total Assets 127,591 141,670 151,606 170,228
Cash Flow Key Ratios
In ` million FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E
Net profit 9,423 11,440 12,380 14,335 EPS (Rs) 22.0 26.7 28.9 33.4
Depn and w/o 4,069 4,245 4,440 4,970 CEPS (Rs) 31.5 36.6 39.2 45.0
Deferred tax 1,016 (565) 0 0 Book value (Rs) 3.2 2.9 2.5 2.1
Change in wrkg cap (1,949) (786) (2,484) (2,317) DPS (Rs) 4.0 5.0 5.3 6.4
Other income 1,239 911 834 1,056 Debt-equity (x) 0.6 0.6 0.4 0.4
Operating cash flow 11,320 13,424 13,502 15,932 ROCE 17.8 19.7 19.6 18.7
Other income 1,239 911 834 1,056 ROE 18.0 19.5 18.1 18.1
Capex 3,714 (4,267) (8,123) (6,123)
Investments 2,807 (696) (8,000) (8,364)
Investing cash flow 7,760 (4,053) (15,289) (13,431) Valuations
Dividend (2,006) (2,582) (2,760) (3,282)
Equity (28) 0 0 0 PE (x) 18.0 14.8 13.7 11.8
Debt (8,538) (689) (2,991) 3,000 Cash PE (x) 12.5 10.8 10.1 8.8
Change in long term WC (14,294) 407 31 43 Price/book value (x) 3.2 2.9 2.5 2.1
Financing cash flow (24,866) (2,864) (5,721) (239) Market cap/sales 1.6 1.4 1.3 1.2
Others 532 (6,637) 0 0 EV/sales (x) 1.7 1.5 1.5 1.3
Net change in cash (5,255) (130) (7,508) 2,262 EV/EBDITA (x) 9.5 8.1 7.5 6.7
Disclaimer
The information provided in the document is from publicly available data and other sources, which we believe are reliable. It also includes analysis and views expressed
by our research team.
The report is purely for information purposes and does not construe to be investment recommendation/advice. Investors should not solely rely on the information
contained in this document and must make investment decisions based on their own investment objectives, risk profile and financial position. Efforts are made to try
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Natverlal Research. Fairy Manor, 13 Rustom Sidhwa Marg Fort Mumbai 400001 Tel 91-22-42134444 Email research@natverlal.com