Takeaways from Q2FY23: (1) while volume growth was a tad underwhelming, higher realisations resulted in 18.4% YoY growth in revenues; (2) domestic business grew 21.9% YoY and international business too expanded across geographies (ex-Europe). We believe the company has likely gained market shares across key geographies; (3) gross and EBITDA margins were up 319bps and 263bps YoY respectively, due to better realisations. We note UPL launched multiple products in Q2FY23. Net working capital days increased during Q2FY23 due to higher debtor days, but we model it to normalise in next 2-3 quarters. We model revenue and earnings CAGRs of 12.7% and 22.7% respectively over FY22-FY24E, with RoCE > cost of equity.

Q2FY23 performance: UPL reported revenue and EBITDA growth of 18.4% and 34% YoY respectively. Net profit was up 35% YoY. Gross margin expanded 319bps YoY. EBITDA margin was up 263bps YoY. During the quarter, volume growth was -7% and realisation-led growth was 21% YoY. Company also benefitted from favourable forex fluctuations.

Strong growth in North and Latin Americas: UPL reported strong revenue growth YoY in almost all international geographies: Latin America (20.4%), North America (23.7%), Europe (1.3%) and rest of world (21.4%). Europe business was impacted due to EUR devaluation. India revenues were up 21.9% YoY, led by growth in glufosinate and biosolutions.

Steady launch of new products: UPL continued to launch new products during the quarter. It introduced a new range of insecticides in India for paddy and cotton crops. It also launched a new fungicide in Latin America. We believe sustained launch of new products will likely drive volume growth for the company.

Levers to improve return ratios: Apart from its efforts to improve EBITDA margins, the company continues to replace its corporate debt with low-cost sustainable loans, to improve net profit margins. UPL is also planning to reduce its working capital investments by rationalising the timing of sales to distributors and reducing the credit period. We believe these efforts will likely generate higher operating cashflows and higher return on equity.