UPL. Stable quarter but guidance lowered. Q4FY18: Volume growth at 8%; currency impact moderates

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1 India Midcaps RESULT UPDATE UPL Stable quarter but guidance lowered India Equity Research Midcap Agri UPL s Q4FY18 results were broadly in line with our and consensus estimates with the marginal miss in revenues compensated by EBITDA margin expansion. PAT, at INR7.4bn, stood 5% above estimates on higher other income. In FY18, UPL s volume growth moderated to 10% vs. FY15-17 average of 16% due to weak global agrochem market and high base. Management guidance of 10-12% growth in top line is lower than past three year s average growth guidance of 12-15%, but we see there is an opportunity for margin expansion. UPL has also geared up its capex plan to ~INR15bn p.a., vs. earlier ~INR10bn p.a., to aid backward integration and product innovation. We see UPL continuing to strengthen its global presence driven by new products and low-cost model. Maintain BUY with TP of INR988 (INR1,023 earlier), based on 18x FY20E EPS. Q4FY18: Volume growth at 8%; currency impact moderates Volume grew 8% YoY (9mFY18 average: 11%) with 0%/1% adverse impact due to price/currency. Region-wise YoY growth and key highlights: 1) India: Up 6% YoY (FY18: 8%); growth was stable driven by key brands and growth of new fungicides. However, lack of rainfall in Southern states played spoil sport; 2) LATAM: Up 7% YoY (FY18: 5%); growth came off from 26% seen in FY17 due to high channel inventories and weather impact in Brazil and Argentina. Overall LATAM market was down 4% YoY; 3) Europe: Up 7% (FY18: 7%); while industry fell 2% YoY, UPL s performance was led by herbicide portfolio on sugar beet; 4) North America: Up 7% (FY18: 7%); outperformed industry growth of 3%, driven by herbicides portfolio; and 5) RoW: Up 5% YoY (FY18: 7%) Marginal increase in net debt for FY18; working capital reduces UPL witnessed fall in NWC by 7 days to 84 in FY18, driven by an increase in payables. Net debt spurted by INR2.8bn YoY, despite higher-than-guided capex led by working capital release. For FY19, UPL is guiding for capex of INR15bn. Outlook and valuations: Growth guidance 10-12%; maintain BUY While we had built in 14% revenue growth for FY19E, factoring in constant currency guidance of 10-12%, we also adjust our growth to 12%. However, our higher margin expectations are moderated by higher interest leading to a 3% cut in FY19/20E EPS. We maintain our target multiple at 18x on FY20E EPS, giving us TP of INR988 (INR1,023 earlier). Maintain BUY. Significant reduction in debt can lead to improved valuations. Financials (Consolidated) (INR mn) Year to Q4FY18 Q4FY17 % change Q3FY18 % change FY18 FY19E FY20E Net rev. 56,910 53, , , , ,243 EBITDA 12,180 11, , ,160 40,447 47,125 Adj. profit 7,420 7, , ,724 22,804 27,823 Adj. EPS (INR) (0.3) Diluted P/E (x) EV/EBITDA (x) ROAE (%) Edelweiss Research is also available on earch.com, Bloomberg ED EL <GO >, Thomson First Call, Reu ters and Facts et. EDELWEISS RATINGS Absolute Rating Investment Characteristics BUY Growth MARKET DATA (R: UPLL.BO, B: UPLL IN) CMP : INR 730 Target Price : INR week range (INR) : 903 / 673 Share in issue (mn) : M cap (INR bn/usd mn) : 372 / 5,765 Avg. Daily Vol. BSE/NSE ( 000) : 1,567.1 SHARE HOLDING PATTERN (%) Current Q3FY18 Q2FY18 Promoters * MF's, FI's & BKs FII's Others * Promoters pledged shares (% of share in issue) : NIL PRICE PERFORMANCE (%) BSE Midcap Index Stock Edelweiss Securities Limited Stock over Index 1 month (6.4) 3 months (2.0) (2.7) (0.7) 12 months 15.0 (9.2) (24.2) Rohan Gupta rohan.gupta@edelweissfin.com Nihal Mahesh Jham nihal.jh am@ed elweissfin.com April 30, 2018

2 (%) (Days) Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 (INR bn) Midcap Agri Chart 1: Net debt remained increased by INR2.8bn YoY 60.0 Net Debt Net Debt Chart 2: Working capit al reduced by 7 days for FY Q2FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Inventory Receivables Payables Net working capital Chart 3: Exchange losses continue to impact revenue growth (3.0) (10.0) Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Volume Price Exchange Overall Source: Company, Edelweiss research 2 Edelweiss Securities Limited

3 UPL Table 1: FY18 Product launches Seed Adjacent Herbicides Fungicides Insecticides Treatment Technologies India LATAM Europe RoW North America Total Fig. 1: Cash deployment FY18 Source: Company, Edelweiss research Source: Company 3 Edelweiss Securities Limited

4 Midcap Agri Financial snapshot (INR mn) Year to March Q4FY18 Q4FY17 % change Q3FY18 % change FY18 FY19E FY20E Net revenues 56,910 53, , , , ,243 Raw material costs 29,020 27, , ,120 90, ,993 Gross profit 27,890 25, , , , ,250 Employee expenses 4,300 4, , ,130 19,446 22,124 Other expenses 11,410 10, , ,370 43,948 50,001 Total expenditure 15,710 14, , ,500 63,394 72,125 EBITDA 12,180 11, , ,160 40,447 47,125 Depreciation 1,840 1,870 (1.6) 1, ,750 8,083 9,258 EBIT 10,340 9, , ,410 32,365 37,867 Other income 3, , ,030 2,000 2,000 Interest 4,100 2, , ,830 5,535 4,763 Add: Prior period items Profit before tax 9,450 7, , ,610 28,830 35,104 Tax 1, (140) (1,285.7) 2,750 5,766 7,021 Minority interest 370 (120) (408.3) (120) (408.3) Associate profit share (930) (200) (200) Reported net profit 7,360 7,410 (0.7) 5, ,346 22,804 27,823 Adjusted Profit 7,420 7, , ,724 22,804 27,823 Adj. EPS (INR) Diluted P/E (x) EV/EBITDA (x) ROAE (%) COGS Gross profit Employee cost Other expenses Total expenses EBITDA Reported net profit Edelweiss Securities Limited

5 Company Description UPL UPL, incorporated in 1969, is a global player in the agro-chemicals industry with strong presence in off-patent market of US and Europe. UPL ranks among the Top five generic agro-chemical companies in the world. Historically, the company has managed to deliver high growth rates based on its strategy to acquire small agro-chemical companies and tailend brands of big players in US and Europe. Investment Theme UPL is a direct proxy for increase in demand for food crops due to rising commodity prices, high population growth and high demand for bio-fuel. It has historically focused on acquisitions of smaller companies and brands to achieve higher growth than the market. We expect 15% CAGR revenue growth and earnings growth of 27% over FY17-19E, reflecting strength in the base business. Moreover large acquisitions like Mancozeb, RiceCo, SIB, DVA Agro, provide further upside. Key Risks Demand concerns due to cyclical and seasonal effects The agro-chemical industry, in general, is cyclical with demands for some products seasonal in nature. Seasonal usage follows varying agricultural seasonal patterns, weather conditions and pest related pressures. This volatility impacts the overall demand for agro chemicals. This seasonality risk is somewhat mitigated for UPL, given its geographic reach and nondependence on any one geography for sal es. Volatility in input prices and company s limited ability to pass on costs The company operates broadly under the concept of pass -through, where lower raw material costs benefits are passed on to consumers as lower prices and vice versa. High volatility in prices of raw materials for agro chemicals, leads to lower price realization and can cause margin pressures given that the average holding period of inventory is 3-4 months. Increase in GM crops usage negative for agro chemicals Growth in GM crops (biotech products) poses a structural risk to agro-chemicals usage, as GM crops have more resistance to pests and diseases relative to non-gm crops. This could typically lead to reduction in pesticide usage. Forex risk UPL, like most companies with a large export interface, faces risks from an appreciating INR. Further at the operational level company has higher exposure to EUR (given the large exposure from Cerexagri operations) which has been recently been volatile. Most of the forex liabilities are in USD. However, the company has a natural hedge on its imports and on manufacturing done at its international locations. 5 Edelweiss Securities Limited

6 Midcap Agri Financial Statements Key Assumptions Macro GDP(Y-o-Y %) Inflation (Avg) Repo rate (exit rate) USD/INR (Avg) Company N. America rev growth(%) Europe rev growth (%) RoW revenue growth (%) Income statement (INR mn) Income from operations 163, , , ,243 Materials costs 78,160 81,120 90, ,993 Employee costs 16,270 17,130 19,446 22,124 Selling & admin. exp 36,460 40,370 43,948 50,001 Total operating expenses 130, , , ,119 EBITDA 32,230 35,160 40,447 47,125 Depreciation 6,720 6,750 8,083 9,258 EBIT 25,510 28,410 32,365 37,867 Add: Other income 2, , , , Less: Interest Expense 7,350 7,830 5,535 4,763 Profit Before Tax 20,220 24,610 28,830 35,104 Less: Provision for Tax 1,890 2,750 5,766 7,021 Less: Minority Interest Associate profit share (190) (930) (200) (200) Exceptional items (810) (630) - - Reported Profit 17,270 20,220 22,804 27,823 Exceptional Items (648) (504) - - Adjusted Profit 17,918 20,724 22,804 27,823 Shares o /s (mn) Adjusted Basic EPS Diluted shares o/s (mn) Adjusted Diluted EPS Adjusted Cash EPS Dividend per share (DPS) Dividend Payout Ratio(%) Common size metrics Operating expenses Staff costs Cost of revenues Selling & admin. Exp Depreciation Interest Expense EBITDA margins Net Profit margins Growth ratios (%) Revenues EBITDA PBT Adjusted Profit EPS Edelweiss Securities Limited

7 UPL Balance sheet (INR mn) As on 31st March FY17 FY18 FY19E FY20E Share capital 1,010 1,020 1,020 1,020 Reserves & Surplus 72,960 90, , ,303 Shareholders' funds 73,970 91, , ,323 Minority Interest Short term borrowings 10,110 6,340 6,200 6,200 Long term borrowings 53,500 58,730 51,730 44,730 Total Borrowings 63,610 65,070 57,930 50,930 Long Term Liabilities 3,940 2,520 2,520 2,520 Def. Tax Liability (net) (5,010) (4,410) (4,410) (4,410) Sources of funds 136, , , ,673 Gross Block 56,679 67,339 82,339 92,339 Net Block 24,830 28,740 35,657 36,399 Capital work in progress 6,330 10,900 10,900 10,900 Intangible Assets 17,470 17,920 17,920 17,920 Total Fixed Assets 48,630 57,560 64,477 65,219 Non current investments 3,780 10,270 10,270 10,270 Cash and Equivalents 28,950 29,010 29,655 39,075 Inventories 41,560 45,380 48,412 54,490 Sundry Debtors 56,560 60,570 67,661 76,981 Loans & Advances 17,630 23,450 23,000 23,000 Current Assets (ex cash) 115, , , ,470 Trade payable 48,850 56,750 62,067 69,858 Other Current Liab Total Current Liab 11,420 14,430 15,494 17,503 Net Curr Assets-ex cash 55,480 58,220 61,512 67,108 Uses of funds 136, , , ,673 BVPS (INR) Free cash flow (INR mn) Reported Profit 17,270 20,220 22,804 27,823 Add: Depreciation 4,925 5,246 3,708 3,191 Others (1,015) (5,842) (3,508) (2,991) Gross cash flow 23,990 26,970 30,887 37,081 Less: Changes in WC 1,210 4,160 3,292 5,597 Operating cash flow 26,690 22,214 27,795 31,685 Less: Capex 12,030 15,680 15,000 10,000 Free Cash Flow 14,660 6,534 12,795 21,685 Cash flow metrics Operating cash flow 26,690 22,214 27,795 31,685 Investing cash flow (9,990) (22,240) (15,000) (10,000) Financing cash flow 560 (1,084) (11,950) (12,065) Net cash Flow 17,260 (1,110) 845 9,620 Capex (12,030) (15,680) (15,000) (10,000) Profitability and efficiency ratios ROAE (%) ROACE (%) Debtors Days Payable Days Cash Conversion Cycle Current Ratio Gross Debt/EBITDA Gross Debt/Equity Adjusted Debt/Equity Interest Coverage Ratio Operating ratios Total Asset Turnover Fixed Asset Turnover Equity Turnover Valuation parameters Adj. Diluted EPS (INR) Y-o-Y growth (%) Adjusted Cash EPS (INR) Diluted P/E (x) P/B (x) EV / Sales (x) EV / EBITDA (x) Dividend Yield (%) Peer comparison valuation Market cap Diluted P/E (X) EV / EBITDA (X) ROAE (%) Name (USD mn) FY19E FY20E FY19E FY20E FY19E FY20E UPL 5, Bayer Cropscience 2, Dhanuka Agritech Rallis India Median AVERAGE Source: Edelweiss research 7 Edelweiss Securities Limited

8 Midcap Agri Additional Data Directors Dat a Mr. Rajnikant Shroff Chairman and Managing Director Mrs. S. R. Shroff Vice Chairman Mr. J. R. Shroff Global CEO of the Group Mr. V. R. Shroff Executive Director Mr. A. C. Ashar Director Finance Mr. K. Banerjee Whole - Time Director Mr. Pradeep Goyal Director Dr. Reena Ramachandran Director Mr. Pradip Madhavji Director Mr. Vinod Sethi Director Mr. Hardeep Singh Director Mr. Vasant P. Gandhi Director Auditors - S.V. Ghatalia & Associates *as per last available data Holding Top -10 Perc. Holding Perc. Holding Blackrock 4.60 Invesco Limited 2.2 Sbi Fund Management 2.66 HDFC Asset Management 1.95 Vanguard Group 2.47 Dimensional Fund Advisors 1.81 Government Pension Fund - Global 2.25 Mawer Investment Management 1.66 Norges Bank 2.25 Artisan Partners Ltd. Partnership 1.62 *as per last available data Bulk Deals Data Acquired / Seller B/S Qty Traded Price No Data Available *as per last available data Insider Trades Reporting Data Acquired / Seller B/S Qty Traded 23 Mar 2018 Shilpa P. Sagar Sell Mar 2018 Nerka Chemicals Private Limited Buy Mar 2018 Shilpa P. Sagar Sell Mar 2018 Shilpa P. Sagar Sell Mar 2018 Shilpa P. Sagar Sell *as per last available data 8 Edelweiss Securities Limited

9 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 (INR) UPL Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai Board: (91-22) , Aditya Narain Head of Research Coverage group(s) of stocks by primary analyst(s): Midcap Agri Bayer Cropscience, Dhanuka Agritech, Jain Irrigation, PI Industries, Rallis India, Sharda Cropchem, UPL ` Recent Research Date Company Title Price (INR) Recos 04-Apr Apr Jan-18 Agri Inputs Agri Inputs Jain Irrigation Systems New NBS subsidy rates favourable for the sector; Sector Update Margins to be key monitorable; Q4FY18 Result Preview Growth bounces back; outlook strong; Result Update 140 Buy Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation Buy Hold Reduce Total Rating Distribution* * 1stocks under review > 50bn Between 10bn and 50 bn < 10bn Market Cap (INR) Rating Buy Hold Reduce Expected to appreciate more than 15% over a 12-month period appreciate up to 15% over a 12-month period depreciate more than 5% over a 12-month period One year price chart 1, UPL 9 Edelweiss Securities Limited

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