CLSA says UPL denies whistleblower's 'malafide' allegations; no siphoning of funds

CLSA highlights that the UPL management on a conference call denied allegations and said that the same whistleblower who is motivated by ‘malafide intentions’ has gone to the media despite the matter being closed in 2017. UPL share price today perked up after plunging in earlier sessions. While we are unable to ascertain a direct link between UPL and the entities listed in the report, management said that the property in question was rented by UPL as accommodation for UPL CEO JL Shroff, but the person/company renting it is not related to the promoter family nor is an employee of UPL.

UPL denies that the whistleblower is a member of the board reported in the news article as these allegations were discussed and investigated by the Audit Committee and the Board in 2017/2018. The WhistleBlower Committee undertook a detailed review including each related party transactions with the help of independent law firms and had concluded two and half years back that those transactions were at arm’s length and in compliance with applicable laws.

CLSA said that UPL confirms that all transactions in question were on arm's-length basis and there has been no siphoning of funds as alleged in the news article. UPL believes and reassures that all corporate governance norms and applicable laws have been duly complied with. UPL also said that it will evaluate all the legal options available to defend the company's position and image.

Valuation details:

CLSA values UPL at 14x Sep-22CL PE, which is its 10-year average across business cycles. CLSA uses a PE-based valuation approach as they believe it better captures growth potential and allows investors to easily compare stocks across subsectors.

Investment risks:

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Risks include rising input cost prices, lower than expected synergies from the Arysta integration, currency volatility, a potential ban on key product Mancozeb, and political issues in local markets. Deterioration of agronomic conditions globally due to Covid-19 could hinder demand for agrochemicals and related revenue growth.