fundraising: UPL seeks to raise $500-550 million from private equity funds; values ​​seeds and formulations at $5 billion


KKR and Co, Brookfield along with existing investors TPG and Abu Dhabi Investment Authority (ADIA) are seeking to invest $500-550 million in two wholly-owned subsidiaries of UPL Limited, the leading agrochemicals, seeds and crop protection, people in the know said. .

While KKR is expected to invest $300 million in seed technology company Advanta, Brookfield, TPG and ADIA are expected to invest an additional $200-250 million in UPL Sustainable Agri Solutions Limited, which focuses on manufacturing and marketing of agrochemicals and formulations. After the infusion, the two arms will be valued at $5 billion ($2.5 billion each).

Parent UPL Limited, formerly United Phosphorus Limited, the current market capitalization on Wednesday was 53,112.62 crore rupees ($6.63 billion).

According to the latest ESB filings, UPL Promoters, the Shroff family, owns 28.9% while public and institutional investors own 71.04% of the company.

An official announcement is expected this week but could come as early as Thursday evening after UPL Ltd’s board meeting.

Letters sent to UPL, KKR, Brookfield, TPG, ADIA were not immediately answered.

CASE JUSTIFICATION

The capital increase will help unlock value in the underlying subsidiaries and also reduce net debt levels. In 2018, UPL acquired Arysta Life Sciences for $4.2 billion and broke into the top 5 agrochemical companies in the world dominated by global giants like Bayer Lifesciences, Syngenta, Dow AgroScience, BASF, FMC, etc. TPG and ADIA had partly financed the acquisition. with a $1.2 billion infusion into UPL Corp for around 22% in the company which houses all of UPL Ltd’s international operations and was used as a vehicle for the mega acquisition.

The increase in net debt after the June 2022 quarter results to Rs 26,500 crore due to working capital management has made several analysts nervous. Most agricultural businesses have seasonal working capital needs and need to borrow more during this time. Most analysts fear that for fiscal year 2023, there won’t be much improvement in net debt/EBITDA targets. According to March 2022 financial results, net debt / EBITDA was 1.86 (x). It was 2.21(x) in fiscal year 2021. However, in the last 1-2 years there is a clear attempt to bring in “sustainability linked loans” which are cheaper in cost and therefore reduce the interest expense. According to their filings, sustainability-related loans currently represent 42% of total debt (previously 15% of total debt in fiscal 2021).

“Net debt to EBITDA ratio (including perpetual bonds) is expected to decline to 1.7x in FY23 from 2.2x in FY22. However, we believe cash flow generation and Debt repayments remain the key controllable items in a highly inflationary environment in FY23E,” said Sumant Kumar, analyst at Motilal Oswal.

Globally, investors have been willing to pay a higher multiple for seed companies compared to agrichemical companies, as these companies are driven by IP and R&D spending and thus achieve higher science-rich valuations. of life compared to valuations closer to chemical values ​​for agrochemical companies. At 20x EV/EBITDA for the current year, Advanta’s valuations look positive, industry analysts say. “Most agrochemical companies have substantial vagaries of seasonal demand and also fluctuations in commodity prices and therefore are often valued in the 8-10(x) EV/EBITDA range if they are integrated players. Domestic standalone agri-formulation players get slightly richer multiples due to higher ROCE., UPL currently quotes at approx. 7(x) FY 2023 (E)EV/EBITDA,” said Navroz Mahudawala, founder of Candle Partners, a Mumbai-based consultancy.

For the financial year 2022, Advanta’s seed business recorded revenue of Rs 2,985 crore with an EBITDA of Rs 774 crore. The activity increased by 24% compared to the previous year. While revenue achieved a CAGR of 14% over 3 years (FY 2019-22); EBITDA increased by 23%. After the deal, it is expected to become one of the most valuable independent seed companies.

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