Daily Brief Credit: UPL Limited – Earnings Flash – Q2 FY 2023-24 Results – Lucror Analytics and more

UPL’s Q2/23-24 results were very weak, with revenues and earnings declining significantly and a deterioration in working capital. Our scepticism of the company has continued to deepen with the results. We are concerned about the lack of discussion on the huge debt reduction and unusual earnings call set-up in Q4/22-23, as well as the subsequent rebound in debt in Q1/23-24. We note that the pressure to reduce net debt to USD 2 bn in Q4/22-23 was to meet management’s aggressive guidance and rating agencies’ expectations. Management had released the Q4 results in early May 2023, almost halfway through Q1/23-24. Yet, there were few indications of very weak Q1 or H1 numbers.

In addition, we are sceptical of management’s guidance, even after it has been revised downwards. The new guidance implies c. 18% y-o-y revenue growth and a c. 28-30% increase in EBITDA in H2/23-24. That said, management does not expect y-o-y improvement in Q3. Hence, for UPL to meet the guidance, all the growth would have to be registered in Q4. We do not believe that the company will be able to meet the full-year guidance.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Lippo Karawaci