HDFC Bank Investment Advisory Group July 26, 2018

UPL Ltd – acquisition of Arysta LifeScience Inc.

Event Update
The Event
UPL Corporation Ltd (UPL Corp), the international arm of UPL Ltd (UPL), has entered into an
agreement to acquire Arysta LifeScience Inc. (Arysta) for ~USD 4.2 bn.
 About Arysta LifeScience Inc.
Arysta is a global provider of innovative crop protection solutions, including BioSolutions and Seed
Treatment. Arysta specializes in the development, formulation, registration, marketing and
distribution of differentiated crop protection chemicals for a variety of crops and applications.
Arysta’s diverse crop protection chemicals control biotic stresses such as diseases (fungicides),
weeds (herbicides) and insects (insecticides). Arysta’s portfolio of proven BioSolutions is comprised
of biological stimulants, which are derived from natural substances applied to plants, seeds or the
soil in order to enhance yields and help crops withstand abiotic stress, such as drought or cold.
Arysta was formed through the combination of Arysta LifeScience Ltd, which was acquired by
Platform Specialty Products Corporation (Platform) in February 2015 and two additional crop
protection chemical companies acquired by Platform in 2014, Agriphar and the Chemtura
AgroSolutions business of Chemtura Corporation.
 Acquisition Details
The revenue of the combined entity is likely to be USD 4.67 bn and an EBITDA of USD 967 mn with
a margin of 20.7% (excluding synergies) as per the FY18 data. The transaction is backed by a
USD 1.2 bn equity investment in UPL Corp from long-term investors including a wholly-owned
subsidiary of the Abu Dhabi Investment Authority (ADIA) and TPG, a leading global alternative asset
firm. The balance USD 3 bn would be met through debt. The transaction is expected to be complete
by late CY18/by early CY19, subject to regulatory approvals and other customary closing conditions.
 Benefits of acquisition
This acquisition would help UPL to fulfill its’ objective of creating an integrated patent and post-
patent agricultural solutions business with a global footprint. Following the acquisition, UPL would be
the world’s fifth largest global crop protection company, with an innovative and differentiated product
portfolio. The acquisition is not only likely to strengthen its crop protection portfolio but is also likely
to provide access to high growth segments like BioSolutions and Seed treatment (estimated industry
5 year CAGR of 14%, source: Company presentation). The acquisition is also likely to help in
achieving more balanced geographical revenue mix with Europe’s contribution improving to 24%
from 13% in FY18. Post the acquisition, Arysta is likely to gain from UPL’s strong low cost
manufacturing base, which would help in achieving cost efficiencies in the near to medium term. The
company expects synergy benefit of USD 205-255 mn annually from second year and expects deal
to be EPS accretive for UPL by Rs.10-12 in FY20.
View
UPL is a leading global generic player in the Agrochemical Industry and would be ranked
among the top-5 post patent agrochemical manufacturers in the world after the acquisition of
Arysta. The acquisition would provide access to high growing segments, more balanced
geographical revenue mix and synergy benefit to the tune of USD 200-250 mn annually from
second year. UPL’s leadership position in key pest resistance products and its cost
advantage is helping the company to outperform the industry in key markets and gain market
share. Going ahead, the overall volume growth is expected to improve on the back of
increased focus on 1) product portfolio expansion, 2) sustainable technology, 3) untapped
markets like Africa & China and 4) synergy benefit of consolidation of seeds business of
Advanta Ltd and Arysta. However, there will be significant increase in the debt level for the
company on a consolidated basis (from ~0.4x in FY18 to 2.6x post the acquisition at a
conversion of Rs.69 per USD). This is likely to impact the company’s profitability in the near
term. While we may look to revise our numbers post the Q1FY19 result where we may get
more clarity on the overall outlook on the company, currently, we are lowering our target
multiple to 13x (~25% discount to four year average PE multiple). We maintain our BUY rating
on the stock with the revised target price of Rs.728, which is 14x FY20E EPS of Rs.56.0. Any
revision in the target price would depend upon the change in the product launching strategy,
volume growth, forex impact, management guidance, accrual of synergy benefits and general
business momentum.
Please refer to Disclaimer on the next page
 July 26, 2018

1000 Daily closing price for last 3 years of UPL

900
800
700
600
Rating Interpretation
500
Rating Expected to
400
Buy Appreciate more than 10% over a 12 to 15 month period
300
Hold Appreciate below 10% over a 12 to 15 month period
Jul-15
Sep-15
Nov-15
Jan-16

Jul-16
Sep-16
Mar-16

Nov-16

Jul-17
Sep-17
Nov-17

Jul-18
May-16

Jan-17
Mar-17
May-17

Jan-18
Mar-18
May-18
Under Review Rating under review
Source: Bloomberg Exit Exited out of the Model Portfolio

Disclaimer: This communication is being sent by the Investment Advisory Group of HDFC Bank Ltd., registered under SEBI
(Investment Advisors) Regulations, 2013
This note has been prepared exclusively for the benefit and internal use of the recipient and does not carry any right of
reproduction or disclosure. Neither this note nor any of its contents maybe used for any other purpose without the prior written
consent of HDFC Bank Ltd, Investment Advisory Group. In preparing this note, we have relied upon and assumed, without any
independent verification, accuracy and completeness of all information available in public domain or from sources considered
reliable. This note contains certain assumptions and views, which HDFC Bank Ltd, Investment Advisory Group considers
reasonable at this point in time, and which are subject to change. Computations adopted in this note are indicative and are
based on current market prices and general market sentiment. No representation or warranty is given by HDFC Bank Ltd,
Investment Advisory Group as to the achievement or reasonableness or completeness of any idea and/or assumptions. This
note does not purport to contain all the information that the recipient may require. Recipients should not construe any of the
contents herein as advice relating to business, financial, legal, taxation, or other matters and they are advised to consult their
own business, financial, legal, taxation and other experts / advisors concerning the company regarding the appropriateness of
investing in any securities or investment strategies discussed or recommended in this note and should understand that
statements regarding future prospects may not be realized. It may be noted that investments in equity and equity-related
securities involve a degree of risk and investors should not invest any funds unless they can afford to take the risk of losing their
investment. Investors are advised to undertake necessary due diligence before making an investment decision. For making an
investment decision, investors must rely on their own examination of the Company including the risks involved. Investors should
note that income from investment in such securities, if any, may fluctuate and that each security’s price or value may rise or fall.
Accordingly, investors may receive back less than originally invested. Neither HDFC Bank nor any of its employees shall be
liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in
any way from the information contained in this material. This note does not constitute an offer for sale, or an invitation to
subscribe for, or purchase equity shares or other assets or securities of the company and the information contained herein shall
not form the basis of any contract. It is also not meant to be or to constitute any offer for any transaction. HDFC Bank and its
affiliates, officers, directors, key managerial persons and employees, including persons involved in the preparation or issuance
of this material may from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies)
mentioned herein. HDFC Bank may at any time solicit or provide commercial banking, credit, advisory or other services to the
issuer of any security referred to herein. Accordingly, information may be available to HDFC Bank, which is not reflected in this
material, and HDFC Bank may have acted upon or used the information prior to, or immediately following its publication.
HDFC BANK neither guarantees nor makes any representations or warranties, express or implied, with respect to the fairness,
correctness, accuracy, adequacy, reasonableness, viability for any particular purpose or completeness of the information and
opinions. Further, HDFC BANK disclaims all liability in relation to use of data or information used in this report which is sourced
from third parties.

Disclosures:
Research analyst or his/her relatives or HDFC Bank or its associates may have financial interest in the subject company in
ordinary course of business. Research analyst or his/her relatives does not have actual/ beneficial ownership of 1% or more
securities of the subject company at the end of the month immediately preceding the date of publication of research report:
HDFC Bank or its associates may have actual/beneficial ownership of 1% or more securities of the subject company at the end
of the month immediately preceding the date of publication of research report. Research analyst or his/her relatives or HDFC
Bank or its associates may have other potential / material conflict of interest with respect to any recommendation and related
information and opinions at the time of publication of the research report. Subject company may have been client of HDFC Bank
or its associates during twelve months preceding the date of publication of the research report. HDFC Bank or its associates
may have received compensation from the subject company in the past twelve months. HDFC Bank or its associates may have
managed or co-managed public offering of securities for the subject company in the past twelve months. HDFC Bank or its
associates may have received compensation for investment banking or merchant banking or brokerage services from the
subject company in the past twelve months. HDFC Bank or its associates may have received compensation for products or
services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve
months. HDFC Bank or its associates has not received compensation or other benefits from the subject company or third party
in connection with the research report. Research analyst has not served as an officer, director or employee of the subject
company. Neither research analyst nor HDFC Bank has been engaged in market making activity for the subject company. Three
year price history of the daily closing price of the securities covered in this note is available at www.nseindia.com and
www.bseindia.com.