Why is UPL Ltd. falling/rising?

Market Performance and Recent Price Movement

UPL Ltd. outperformed both its sector and the broader market on 03-Feb, registering a gain of 5.7% compared to the Pesticides & Agrochemicals sector’s 3.09% rise and the Sensex’s more modest gains. The stock opened with a gap up of 3.8% and reached an intraday high of ₹753.75, marking a 7.77% increase from the previous close. This rally extends a recent positive trend, with the stock gaining 11.11% over the past two days, signalling renewed investor confidence. Notably, the stock’s price remains above its 5-day, 100-day, and 200-day moving averages, indicating underlying strength despite being below the 20-day and 50-day averages.

Strong Financial Results Bolster Investor Sentiment

The primary catalyst behind UPL’s price appreciation is its impressive financial performance over the last two quarters. The company reported a profit after tax (PAT) of ₹879.05 crores for the latest six months, reflecting a substantial growth of 87.43%. Even more striking is the growth in profit before tax excluding other income (PBT LESS OI), which surged by 144.23% to ₹635 crores. These figures underscore the company’s operational efficiency and profitability improvements, which have resonated well with investors.

Valuation and Institutional Confidence

UPL’s valuation metrics further support its appeal. The company boasts a return on capital employed (ROCE) of 9.9%, which is considered attractive within its sector. Its enterprise value to capital employed ratio stands at a modest 1.5, suggesting the stock is trading at a discount relative to its peers’ historical averages. Over the past year, UPL has delivered a total return of 17.33%, outperforming the Sensex’s 8.49% return, while its profits have soared by an extraordinary 585.1%. This combination of strong earnings growth and reasonable valuation is reflected in a low PEG ratio of 0.1, indicating that the stock’s price growth is not yet fully priced in by the market.

Sector Leadership and Market Position

As the largest company in the Pesticides & Agrochemicals sector, UPL commands a market capitalisation of ₹59,080 crores, representing 29.14% of the entire sector’s market value. Its annual sales of ₹49,077 crores account for nearly half (46.65%) of the industry’s total revenue, underscoring its dominant position. This scale provides UPL with competitive advantages in terms of market reach and operational efficiencies, which likely contribute to its sustained profitability and investor appeal.

Rising Investor Participation and Liquidity

Investor interest in UPL has been on the rise, as evidenced by a 24.15% increase in delivery volume to 24.13 lakh shares on 02 Feb compared to the five-day average. This heightened participation suggests growing conviction among market participants. Additionally, the stock’s liquidity is sufficient to support sizeable trades, with a typical trade size of ₹4.55 crores based on 2% of the five-day average traded value, making it accessible for institutional and retail investors alike.

Balancing Recent Performance with Longer-Term Trends

While UPL’s recent price surge is encouraging, it is important to contextualise this within its broader performance. The stock has experienced a decline of 6.98% year-to-date and an 8.08% drop over the past month, both underperforming the Sensex’s respective declines of 1.74% and 2.36%. Over three and five years, UPL’s returns of 3.24% and 32.51% lag behind the Sensex’s 37.63% and 66.63%, respectively. This suggests that despite short-term gains, the stock faces challenges in maintaining consistent long-term outperformance. Nevertheless, the recent strong earnings growth and institutional backing provide a foundation for optimism.

Institutional Backing and Market Confidence

Institutional investors hold a significant 57.72% stake in UPL, reflecting confidence from entities with extensive analytical resources. Their holdings have increased by 0.67% over the previous quarter, signalling continued support. Such backing often lends stability and credibility to a stock, potentially cushioning it against volatility and attracting further investment.

In summary, UPL Ltd.’s rise on 03-Feb is primarily driven by its robust financial results, attractive valuation metrics, and growing investor participation amid a positive sectoral backdrop. While the stock has faced some recent volatility, its dominant market position and strong institutional interest underpin its current momentum.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →