UPL Q1 Results: Management expects intense competition from China, analysts cut earnings estimates

The management in its earnings call said that prices are barely covering raw material costs. Although they expect prices to move up, but find it difficult in predicting when they will rise. The company further said that the current prices are likely to persist in the near-term due to the lower demand scenario.

UPL reduced debt by $160 million compared to June last year. It also plans on undertaking a cost reduction initiative of $100 million over the next 24 months, half of which will be realised in the current financial year itself. The management expects working capital to increase in the September and December quarter, post which it is likely to come down in the March quarter.

Revenue for UPL's North America business halved when compared to the June quarter last year. The management expects restocking in the US market to take place in the December and March quarter, post which demand is likely to pick up.

Despite the miss and guidance cut, brokerages like Citi and Jefferies have maintained their respective buy recommendations on UPL with a price target of Rs 800 each. Citi has cut UPL's financial year 2024 and 2025 operating profit or EBITDA estimate by 15 percent and 12 percent to factor in the hit from the June quarter.

Jefferies attributed the earnings miss to pressure on both volume and price. The brokerage has cut UPL's financial year 2025 and 2026 Earnings per Share estimates by 9-10 percent with sharper cuts to the estimates for the current financial year.

Shares of UPL are trading 1.1 percent lower at Rs 617.80. 23 of the 29 analysts that track UPL have a buy recommendation, while four and two analysts have a hold and sell rating on the stock respectively.