UPL stock tanks after auditor of Mauritius subsidiary steps down

The communication on Thursday said that the auditor of the UPL Corporation (UPL's Mauritius subsidiary), KPMG Mauritius, had resigned with effect from October 8, 2020

Agrochemical firm UPL’s shares fell 9.54 per cent intra-day on Friday, sparked by news of the resignation of the auditor at a key subsidiary. It recovered later and closed at Rs 467.75, down 7.66 per cent, after the firm clarified on the matter. 

On Thursday, it was revealed that Mauritius subsidiary UPL Corporation’s auditor KPMG Mauritius had resigned with effect from October 8. It clarified on Friday that a KPMG sub-licencee continues to audit the parent company. It also included a note from the Mauritius auditor, which said that there was nothing about the resignation that it felt was necessary to tell the board. “There are no circumstances connected with our resignation which we consider should be brought to the notice of the members,” it said.

Resignations have previously resulted in significant declines when investors have seen them as a negative signal on companies’ financials.  “It is strange that an auditor of a large material subsidiary resigns mid-term without ascribing any reasons... The company should communicate the reasons that led to this resignation to the shareholders,” said Shriram Subramanian, founder and managing director of InGovern Research Services, which advises on corporate governance issues.

The sudden exit of an auditor is not a healthy sign for companies in general, said Amit Tandon, founder and managing director of advisory firm Institutional Investor Advisory Services India. “Any mid-term (resignations) of auditors need to be looked at closely,” he said.

The company, which manufactures chemicals used in agriculture, including insecticides and herbicides, had recorded over Rs 35,700 crore in revenue from operations in financial year 2019-2020 (FY20). Shareholders in the parent company had an attributable net profit of Rs 1,776 crore. Its Mauritius subsidiary had been a vehicle for a major acquisition in the previous financial year. The latest annual report noted that it had completed integration of the $4.2 billion acquisition of Arysta LifeScience ahead of schedule. This was expected to help optimise manufacturing and with research and development, among other gains.

“Following the acquisition of Arysta LifeScience, we became one of the top five agricultural solutions companies worldwide. As a new company, we now offer an integrated portfolio of both patented and post-patent agricultural solutions for various arable and specialty crops, including biological, crop protection, seed treatment and post-harvest solutions spanning the entire crop value chain,” the firm’s FY20 annual report said.