Moody's Downgrades UPL; Sees Weaker Credit Metrics Amid Industry Headwinds

Moody's Investors Service downgraded the senior unsecured rating of UPL Corporation Ltd., a subsidiary of UPL Ltd., to Ba1 from Baa3.

Moody's also assigned a Ba1 corporate family rating to UPL Corp. and withdrew the agrochemical producer’s Baa3 issuer rating. In addition, the rating agency downgraded the long-term junior subordinated rating on UPL Corp.'s $400 million undated perpetual Eurobonds to Ba3 from Ba2.

“The downgrade to Ba1 is driven by a protracted deterioration in the agrochemical industry fundamentals that will keep UPL's credit metrics weaker than our expectation for an investment-grade rating," Kaustubh Chaubal, a Moody's senior vice president, said in a statement.

Moody's said its rating action follows UPL's weak operating results for the third quarter of the fiscal year ending March 2024.

The company's revenue and EBITDA during the quarter fell 28% and 86%, year-on-year, respectively, causing its Moody's adjusted gross debt/last twelve-month (LTM) EBITDA leverage to spike to around 7x from 4.8x as of September 2023 and 3.4x as of March 2023, it added.

INDUSTRY DOWN CYCLE

Chaubal who is also Moody's lead analyst for UPL, said the company entered the current industry down cycle with substantial leverage.

"This, combined with UPL's working-capital intensive business model and its weak liquidity have exacerbated the impact of the tight funding conditions on its credit profile," he added.

Moody's, which maintained the negative rating outlook, said it previously expected the pace of channel destocking, rebates and price declines to abate by December 2023. However, it now appears that the global agrochemical industry's woes will likely linger into the next fiscal year, it noted.

The rating agency's revised forecasts assume that UPL's FY24 revenue will drop by a quarter and then by another mid-single digit percentage in the following fiscal year, according to the statement.

Moody's said its negative outlook reflects the significant deterioration in UPL's earnings and cash flow amid a challenging operating environment that will keep the company's credit metrics weakly positioned for its Ba1 CFR.

Listed on the BSE and the National Stock Exchange, UPL was 32.35% (as of 31 December 2023) owned by its promoter family, led by Jaidev Shroff, chairman and group CEO, according to the statement.

(Send feedback to editor@cornerofficejournal.com)