Earnings Outlook:UPL revenue to rise but input costs to impact margin

 27 Jul 2022

UPL Ltd is likely to have recorded a rise in its volume and realisations in the quarter ended June leading to a rise in its net sales.

But input cost pressures may have resulted in a marginal decline in its operating margin, even as operating profit is expected to increase on the back of sales increase.

The bottomline of the pesticides and agrochemicals company is, however, seen down due to the high base of last year when a tax write-back had boosted the net profit.

UPL’s consolidated net profit in Apr-Jun is expected to be 6.2 bln rupees, according to an average of estimates by four brokerages. The estimates peg the company’s consolidated net sales at 95.8 bln rupees.

The estimated net profit is 9% lower while the estimated net sales is 13% higher as compared to the corresponding figures of year ago period. Sequentially, however, the net profit is lower by 55% and the net sales by 40%.

The company will declare its June quarter results on Monday.

According to brokerage Nirmal Bang Equities UPL’s consolidated revenue in Apr-Jun is expected to increase by 9.9% on the year on the back of volume growth across all the regions.

It expects volume growth of 20% in Latin American markets followed by 15% in domestic market and 5% in North American region. UPL’s volume growth in the European region will be flat and lower by 0.7% in the rest of the overseas markets.

Sales to Latin American region constituted around 30% in the year ago quarter.

UPL’s revenue growth will be aided by double-digit increases in average realisations, brokerage Kotak Institutional Equities said.

The operating margin of the company is seen contracting a little in the June quarter due to input cost pressures.

Nirmal Bang Equities estimates the EBITDA margin “to be a tad lower at 20.7% versus year-ago level of 20.8%”. Kotak Institutional Equities believes it will “compress modestly.” EBITDA is earnings before interest, tax, depreciation, and amortisation.

The revenue increase will, however, pep up the operating profit of UPL in Apr-Jun by around 10%.

Besides the potential pressure from high input costs UPL may have incurred higher than expected working capital requirement and there may have been an adverse impact due to the rupee depreciation, according to Nirmal Bang Equities.

The company’s net profit will likely decline on the year due to a “difficult base”, said Kotak Institutional Equities. UPL’s net profit in the year ago quarter included a tax credit, it said.