UPL Corp Gets 'BB+' Downgrade From Fitch Ratings, Outlook Negative
The company's leverage will improve materially over the next three years, on strong underlying demand and supply rationalisation in China, it said.
Fitch Ratings Inc. has downgraded UPL Corp.'s long-term issuer default rating to 'BB+', from 'BBB-' on lower global crop protection industry demand and production overcapacity in China.
"Fitch has also downgraded UPL Corp.'s senior unsecured rating and the ratings on the senior unsecured notes to 'BB+', from 'BBB-'," the agency said in a Feb. 15 note.
Lower global crop protection and production overcapacity in China has weakened the financial profile of parent UPL Ltd., with whose credit profile UPL Corp.'s rating is aligned, Fitch said.
A surge in production capacity in China has hit UPL's consolidated Ebitda margin more than peers, with weaker vertical integration, the note said.
"We now estimate UPL's total debt-to-Ebitda leverage, based on deduction of dividends to minorities from Ebitda, in the financial year ending March FY24 to jump to 6.0 times, from 3.6 times in FY23." The rating agency expects Ebitda to halve in FY24, on sharply lower revenue and margin.
The company's leverage will improve materially over the next three years, on strong underlying demand and supply rationalisation in China, it said. "We estimate leverage will decline to below 4 times by FY26, a level consistent with the rating."
However, Fitch said that the persistent oversupply from China could delay the company's deleveraging and sustain pressure on its financial profile.
The company's significant backward integration is a key competitive advantage, but it may shrink in the face of sustained manufacturing overcapacity in the industry.
To help deleverage, the company has said it is exploring options to raise more capital from further stake sales and has approved a rights issue of up to $500 million. "Still, the size and timing of inflows are uncertain."
On Feb. 6, rating agency Moody's downgraded UPL's senior unsecured rating to 'Ba1' from 'Baa3', on deterioration in the agrochemical industry fundamentals.
On Thursday, UPL shares rose 1.25% to Rs 487.4 apiece on the BSE, while the benchmark Sensex ended the day 0.32% higher.
