Latin American business grew six per cent and was hit by poor commodity prices, high channel inventories and drought in Mexico. The European growth of four per cent too was impacted by hot weather in South Europe despite beet acreage improving. UPL's overall revenue growth of six per cent was supported by North American business growing seven per cent and Rest of the World geographies growing nine per cent.
Earnings before interest, tax, depreciation and amortisation (Ebitda) thus was up just 7.3 per cent. However, adjusted net profit surged 26.8 per cent supported by higher other income, lower interest expenses, lower depreciation, and lower tax rate.
Management also offered a positive outlook for both geographies, with soybean prices beginning to perk up in Latin America. Management has also maintained FY18 guidance for 12-15 per cent revenue growth, 50-75 bps Ebitda margin expansion, and a 20-22 per cent effective tax rate.
Analysts at Morgan Stanley, too, say that they would not extrapolate trends from June quarter. Business is very seasonal and second half dominates overall profitability.
Nevertheless, for now, most analysts including those at Morgan Stanley, Edelweiss, IIFL have target price ranging from Rs 965-1026 for the stock trading at Rs 886 levels.
Company has had a history of successfully turning around acquisitions. The only risk that analysts highlight is that the acquisition should not be too big to stretch the balance sheet. Analysts at Deutsche Bank say that while it is still early days, a likelihood of a mega acquisition may emerge as an overhang on the stock given potential equity dilution to fund it.
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