UPL's Q4FY21 results were better on all parameters and ahead of Jefferies estimates, with sales/ PAT at 15%/45% YoY. Net D/EBITDA was at 2.2x as of Mar'21 (JEFe at 2.5x). Globally, a rise in crop prices is likely to boost farmer income, auguring well for UPL (potential price hikes). UPL Management expects FY22 sales growth at 7-10%, with EBITDA at 12-15%; Net D/EBITDA at < 2.0x. Factoring Q4 / FY21 beat, robust crop prices, deleveraging, positive management comments and guidance,  Jefferies raise FY22-24 EPS by 15%+. Jefferies say Buy; price target at Rs 800 on UPL.

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Globally, a rise in crop prices (eg: soyabean, crop, corn) is expected to boost farmer income, which could augur well for UPL's business (potential price hikes). Currently, there is a modest inventory overhang in select regions, however the company is hopeful of ending the year at optimal inventory levels. Management expects FY22 sales growth at 7-10%, with EBITDA at +12-15% and Net D/ EBITDA at < 2x (2.2x as of Mar'21). Capex guided at $300-320mn. Jefferies say Effective tax rate at 15-18%. Long term revenue growth ambition at 7-10%, says Jefferies.

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Jefferies say that Net debt reduced to Rs 189 bn in FY21 (Rs 201 bn in FY20). However, Net Debt/ EBITDA at 2.2x, was tad higher vs. guided 2.0x (Jefferies estimate at 2.5x). UPL replaced $ 500 mn acquisition loan with sustainability loan, with 30bps lower interest and extended maturity by 2 yrs

Over FY16-21, UPL's sales / EBITDA clocked CAGR of +21%/+25%, with core op-margin expanding to 22.1% now (+510 bps). Differentiated & Sustainable Solutions (margin accretive) in UPL's crop protection mix rose from 14% in FY16 to 29% in FY21. UPL Management envisages this to reach 50% BY FY26. UPL expects op-margin to reach 25% over next 3 years. Post Arysta acquisition in Feb'20, UPL has achieved revenue synergies worth $ 203 mn in FY21 - cumulative at $443mn now. Cost synergies of $126mn in FY21, total at $ 235 mn now. UPL expects revenue synergies worth 350+mn in Year 3, says Jefferies.

Factoring Q4 / FY21 beat, strong crop prices, deleveraging, positive mgmt commentary and guidance, Jefferies raise FY22-24 earnings by 17-20%. Over FY20-24e, Jefferies estimate UPL to clock sales CAGR of 8%, with op-margin at 23.5% by FY24e (+140 bps) aided by improving mix and Arysta synergies. We estimate Net D/ EBITDA for FY22 at 1.6x. Jefferies Retain Buy with Price Target of Rs 800 (vs Rs 655). Retain target PE at 12x (15% discount to hist. 5-yr avg).

UPL Key Risks:

Global disruption, delay in Arysta synergies, pricing pressure