Brokerage Firm's Concerns
Nuvama Institutional Equities has re-evaluated its stance on the company's stock, shifting its rating to 'Hold'. This decision stems from several key observations
by the brokerage. Firstly, the recent surge in the company's share price has been taken into account. Secondly, persistent concerns regarding the company's debt levels, or leverage, remain a significant factor. Finally, the potential for dilution of existing share value following the proposed restructuring has also contributed to the downgrade. In light of these factors, Nuvama has established a new price target of ₹816 per share, indicating a recalibration of its valuation expectations for the company following the announcement of its strategic reorganization plan.
The Restructuring Blueprint
The company has unveiled a comprehensive plan to reorganize its corporate structure, aiming to consolidate its various operations into a more streamlined and powerful entity. The core of this initiative involves merging two key subsidiaries, UPL SAS and UPL Corp, to establish a singular, unified platform dedicated to crop protection. This newly formed combined entity is slated to be publicly listed under the name UPL Global. Meanwhile, the existing entity, UPL Ltd., will continue its operations, retaining its role as the parent company responsible for overseeing critical functions such as the formulations business, research and development (R&D) activities, the SUPERFORM division, and Advanta. This strategic demerger is specifically designed to foster greater operational efficiencies and unlock new avenues for value creation, as articulated by Nuvama. The brokerage also emphasized that this transaction is structured to be neutral in terms of both cash flow and tax implications for the company and its shareholders. Furthermore, it's designed to protect the interests of minority shareholders and does not necessitate any alterations to the company's existing capital structure. Crucially, the move is not anticipated to have any material repercussions on the company's current debt overhang. The company has officially sanctioned a composite scheme of arrangement, which will serve as the framework for consolidating its crop protection businesses, both within India and internationally, into a distinct, separately listed entity. This ambitious move is projected to create what the company claims will be the world's second-largest publicly traded entity exclusively focused on crop protection.
Dual Entity Formation
Following the proposed restructuring, the corporate landscape will feature two distinct publicly traded entities. One entity, which will continue under the name UPL, will maintain its diversified portfolio, encompassing agriculture and specialty chemicals. The other, a newly established entity named UPL Global Sustainable Agri Solutions, will specifically house all consolidated crop protection operations. This strategic alignment will bring together UPL's domestic and international crop protection businesses under the umbrella of UPL Global. The objective is to position this new entity as a focused and integrated player within the crop protection sector, equipped with its own independent management structure and enhanced flexibility to secure capital. The entire transaction is slated to unfold in three distinct phases to ensure a smooth and controlled transition. Initially, UPL Sustainable Agri Solutions, which currently holds the Indian crop protection platform and in which UPL possesses a substantial 90.91% stake, will be merged into the main UPL entity. Following this, the Indian crop protection business will be separated from UPL through a vertical demerger and transferred to UPL Global. The final step involves UPL Crop Protection Holdings, the entity through which UPL exercises its 77.78% ownership in its international crop protection business, being amalgamated into UPL Global. Once all these stages are successfully completed, UPL Global will be listed on the stock exchanges, establishing itself as a dedicated crop protection platform with a presence in both Indian and global markets. This entire restructuring process is contingent upon obtaining the necessary regulatory approvals and other necessary clearances, with the anticipated completion timeline estimated between 12 to 15 months from the approval date.
