Sell UPL: East India Securities

UPL posted gross revenue growth of 19% in Q2FY17, mainly on account of strong volume growth of 23% during the quarter. There was a price decline of 5% while exchange impacted positively by 1%. Total net revenues grew by 26% during the quarter. Geographically, India/Latin America contributed highest to the growth with 23%/34% respectively. 

Seed business witnessed a revenue growth of 23%. UPL’s Q2FY16 results were marginally below our estimated. UPL is a leading global generic player in the agrochemical Industry (ranks among the Top-5 post patent agrochemical manufacturers in the world). We expect UPL sales to register CAGR of 14.5% over FY2016-18E, while Adj PAT is likely to show a CAGR of 20.2% during same period. 

Over past few quarters, UPL has seen a strong revival in volume growth, with improving gross margin. At current price stock is trading at 25x & 20x its FY17E & FY18E earnings respectively. Due to recent run up in the price, stock trades near to its fair value, hence we rate stock Sell with TP of Rs 688 per share.