Harvesting Value

UPL promoter Rajnikant Shroff through holding company Nerka Chemicals has been on a buying spree since September

Soumik Kar

The stock of agrochemicals maker UPL has come off from its 52-week high of Rs.828 in January to Rs.630 now and is down 16% in 2018. The decline accentuated after the company 4.95% topline growth in FY18 – the first single digit growth in five years. In the first quarter of FY19, net sales increased 7.35% (year-on-year) to Rs.41.34 billion, while net profit rose 5.54% to Rs.5.14 billion. However, driven by an 11% spike in raw material cost, total expenditure rose 7.14% during the quarter.

The adverse investor sentiment has seen the promoter step in to increase his holding. Promoter Rajnikant Shroff controlled entity Nerka Chemicals has bought around a million shares, worth Rs.716 million, in the current fiscal. A chunk of the purchase, 619,603 shares worth Rs.418 million, was bought between September and October 5th. Interestingly, promoter stake had reduced in FY18 with Shilpa Sagar and Pradip Sagar offloading holding worth Rs.336 million. The overall promoter holding fell from 30.27% in March 2017 to 27.72% in March 2018, and stood at 27.75% as of June 2018.

The promoter’s acquisition spree comes days after UPL announced its decision to acquire Arysta LifeScience for $4 billion. The acquisition of Arysta is likely to complement UPL in terms of geographical, segment and product mix, according to a report by HDFC Institutional Equities. Analysts are also bullish on long-term prospects of UPL. “The company has witnessed the positive effects of reduced channel inventory in most of the geographies it is present. We believe that the impact has just begun to kick in reflected by strong demand in Latin America,” states a Motilal Oswal Securities report. HDFC Institutional Equities also has a positive outlook for the sector given that 74% of the country has seen normal rainfall this year.

However, FIIs and mutual funds have been selling. Between June 2017 and June 2018, overall mutual fund stake is down from 10.19% to 8.41%. According to Value Research, HDFC MF and Reliance MF have reduced their stake from 2.34% and 1.98% in September 2017 to 1.94% and 0.59% in September 2018 respectively. But over the same period, SBI MF and ICICI Prudential have upped their stake from 2.61% to 2.65% and 0.33% to 0.62%, respectively. FIIs have reduced their stake from 41.98% to 40.70%. Government Pension Fund Global and Government of Singapore have bucked the trend, increasing their stake to 2.79% and 1.50% from 2.25% and 1.33% respectively.