UPL: Favourable conditions in key markets to boost growth in coming qtrs

However, strong India business and margin gains were better than expectations

Pegged back by muted sales in Latin America and North America, UPL posted a flat revenue performance in the June quarter (Q1). Sales in Latin America, its largest market, were down 16 per cent compared with the corresponding period in the previous year because of sharp currency fluctuation.

Orders in Q1 were postponed because of the devaluation of the Brazilian Real, while in the North American market there was pre-buying in March quarter (up 40 per cent year-on-year) due to the pandemic. 

The management indicated that it expects business to recover in Latin America given robust demand and new product launches. The North American market, which was down 16 per cent, is expected to stabilise in the coming quarters, with the company gaining from the China-US tariff war and demand from herbicide glufosinate. 

The clear outperformer has been the India business, which reported a 27 per cent jump in sales against market growth of 15 per cent. The growth was led by a 36 per cent uptick in the branded business spurred by the insecticides and herbicides segments.

 

 

The management indicated that the company is well positioned to deliver good growth in the coming quarters on the back of favourable conditions across its key markets. While sales growth was lower than estimates because of changing demand patterns, currency volatility and supply disruption, the company posted a strong operating performance. 

While operating profit was up 29 per cent, margins rose by 500 basis points to 22 per cent. Analysts had pegged this at 20 per cent. 

Improved product mix, lower raw material prices, benefits from integrating Arysta as well as raising sales efficiencies helped improve profitability. The company is expected to drive further gains especially on the sales, general and administration fronts. A differentiated product portfolio, cost management and synergies both on the cost and revenues fronts are expected to aid margin improvement to 24-25 per cent over the next 2-3 years. 

Going ahead, the Street will keep an eye on growth in key markets and progress on reducing leverage with net debt pegged at about Rs 22,000 crore at the end of the June quarter.