Strong Latin American performance saves the day for UPL during Q1

As India and Europe business saw muted performance, Latin America growth pulls up UPL's performance

The international business of India's largest agrichemical player UPL cushioned the decline in domestic growth. Though European business was also soft, the Latin America business growth supported by North America and the rest of the world compensated.

The lack of rainfall in June delayed the entire season. The India business contributed 15 per cent to mark an eight percent year-on-year decline in revenues. Europe too remains an important geography. It contributed 21 per cent to revenues. The result led to a 3 per cent fall in the stock price.

The delayed and weak season in Eastern and Western Europe due to drought and heat took a toll but it was partially mitigated with year-on-year growth in the Mediterranean region. Nevertheless, the company says that unprecedented heatwave across Europe left growers uncertain about planting and Sugar beet plantations saw a reduction by 10 per cent. Not surprising, the European revenues during the quarter declined 3 per cent year-on-year.

However, Brazil saw good growth with strong performance across row crops. Placement of products and customers commitment was the key growth driver in Argentina and South Cone. With overall acceptability of combined UPL product portfolio for several crops resulting in good placements during June quarter, the Latin America sales contributing 30 per cent to overall growth of 5 per cent year-on-year. 

North American sales contributing 15 per cent supported well with 6 per cent growth. Despite the general market decline, (estimated at 10 per cent sequentially), due to floods in Midwest, the company said that it is also expected that 10 million acres of row crops will be significantly impacted, though positive post-integration momentum with customers and China uncertainty contributed to the results for UPL. 

Rest of the world sales grew seven per cent year-on-year.

However, on overall financials, analysts say that in the year-ago quarter Arysta integration was not completed and therefore, the numbers are not comparable. Also, analysts did not have previous quarter Arysta numbers and management had indicated full-year Arysta EBIDTA and synergy benefits.

The reported revenues at Rs 7,858 crore growing 7 per cent year-on-year came ahead of Rs 7,204.4 crore consensus estimates as indicated by Bloomberg. Gross margins compressed significantly (about 296 bps lower). However, other expenses were significantly lower than estimates and more than offset compression in gross margins. The reported operating profits grew 11 per cent year-on-year.

Analysts generally remain positive on the company prospects looking at diversified global operations. Management has reiterated its commitment to achieving growth and debt reduction guidance during the year.