Daily Brief India: Polycab India , UPL Ltd and more

• Halfway through the review period, we see 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
• Estimated one-way turnover is 15.26% and that will result in a one-way trade of INR 24bn. There will be more than 2x ADV to sell on nearly all deletes.
• There is a possibility of an index methodology change, but no news for the last 4 months could indicate pushback from users or more stocks added to the F&O market.

UPL’s Q2/23-24 results were very weak, with revenues and earnings declining significantly and a deterioration in working capital. Our scepticism of the company has continued to deepen with the results. We are concerned about the lack of discussion on the huge debt reduction and unusual earnings call set-up in Q4/22-23, as well as the subsequent rebound in debt in Q1/23-24. We note that the pressure to reduce net debt to USD 2 bn in Q4/22-23 was to meet management’s aggressive guidance and rating agencies’ expectations. Management had released the Q4 results in early May 2023, almost halfway through Q1/23-24. Yet, there were few indications of very weak Q1 or H1 numbers.

In addition, we are sceptical of management’s guidance, even after it has been revised downwards. The new guidance implies c. 18% y-o-y revenue growth and a c. 28-30% increase in EBITDA in H2/23-24. That said, management does not expect y-o-y improvement in Q3. Hence, for UPL to meet the guidance, all the growth would have to be registered in Q4. We do not believe that the company will be able to meet the full-year guidance.