UPL Shares Plummet 17% as Investors Weigh Debt Risks Against Massive Split

UPL Ltd. witnessed a dramatic sell-off on Monday, February 23, with its share price plunging nearly 17 per cent to an Intraday low of Rs 625.55 on the NSE. The sharp decline wiped out the stock’s yearly gains, leaving it down 0.91 per cent for the year, despite a robust 38 per cent climb over the previous two years. This aggressive market reaction followed the board’s approval of a sweeping "composite scheme of arrangement" aimed at fundamentally redrawing the company’s corporate map.

The centrepiece of this overhaul is the creation of two distinct listed entities. The first, UPL 1, will remain the listed parent acting as a diversified agriculture and specialty chemicals platform. The second, UPL 2—to be named UPL Global Sustainable Agri Solutions Limited—will emerge as a dedicated global crop protection powerhouse. Management anticipates that this new entity will rank as the world’s second-largest listed pure-play crop protection company, operating across more than 140 countries.

To achieve this, UPL has outlined a complex three-step execution strategy. The process begins with merging the Indian crop protection arm (UPL SAS) into UPL Limited, followed by a vertical demerger of that business into the new UPL Global entity. Finally, the international crop protection holdings currently housed in the Cayman Islands will be folded into UPL Global. This consolidation ensures that both domestic and international crop protection operations are unified under one roof before the new entity hits the Indian stock exchanges.

The strategic rationale behind this manoeuvre is to eliminate the "conglomerate discount" that often weighs on diversified firms. By separating the businesses, UPL hopes to allow for clearer value discovery and provide investors with independently benchmarkable platforms. Beyond the crop protection split, the group also plans to pursue an IPO for Advanta, its seeds business, further simplifying the corporate structure while driving operational synergies in research and manufacturing.

From a governance and shareholding perspective, the transition is designed to be seamless for current investors. Shareholders of UPL 1 will receive one share of UPL 2 for every share they currently hold. To instil market confidence, the promoter group has voluntarily committed to an 18-month lock-in period for its shares in the new global entity. Additionally, the Upswing Trust will transition into a public shareholder in UPL 2 with a 16.78 per cent stake and the authority to nominate a non-executive director.

Despite the promise of long-term value, the financial profile of the deal has left some investors uneasy. While the restructuring is cash and Tax-neutral, it does not immediately reduce the company’s debt. Total debt will simply be redistributed, with UPL Global expected to carry approximately Rs 19,000 crore and the standalone business holding roughly Rs 3,200 crore. The 12-to-15-month timeline for regulatory approvals also means that any potential deleveraging benefits are still a distant prospect.

The massive share price drop ultimately reflects a "wait-and-see" attitude from the market. While the move could eventually lead to a valuation re-rating, investors are currently focused on persistent debt levels and the potential for dilution. Combined with a recent rally in the stock that invited profit-booking, the complexity of the restructuring triggered a sharp correction as the market attempts to digest the long-term implications of UPL’s ambitious transformation.

Disclaimer: The article is for informational purposes only and not investment advice.