Crop protection business boosts UPL results

Strong Latin American growth is likely to continue as India growth catches pace

The good crop activity in India after a normal monsoon and improvement in Brazil has kept the Street upbeat on UPL’s prospects. The company’s December quarter performance holds testimony, beating Street estimates on all fronts. Not surprising then, the stock was up 1.4 per cent on Wednesday and hit its 52-week high of Rs 754.50 intra-day. 
 

A 20 per cent jump in domestic revenues and 18 per cent rise in international revenues pushed up overall revenues by 18 per cent year-on-year to Rs 3,987 crore, much above Bloomberg consensus estimates of Rs 3,597 crore. The domestic segment contributed about 16 per cent to revenues. 

Revenue growth was largely driven by volumes that grew 18 per cent, with exchange gains of about three per cent, nullifying a similar fall in prices. International growth was driven by Latin America, which surged 37 per cent (mainly led by Brazil) and contributed about 43 per cent to revenues. 

Even earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 749 crore grew 33 per cent year-on-year with margins expanding 200 basis points to 19 per cent. This, coupled with a decline of 15 per cent in finance costs, saw net profit surge 63.4 per cent to Rs 459 crore on a year-on-year basis. 

The agrochemicals major’s performance is largely being driven by its crop protection solutions. In domestic markets, while there was a decline in seed sales compared to last year, the expansion of UPL’s herbicide brands of pulses and soybean helped push up the December quarter performance. The country has seen significant crop shift from cotton to pulses and from oil seeds to soybean to the benefit of the company. A favourable season in Brazil this year helped UPL benefit from its well-positioned fungicide portfolio to manage Asian Rust (a disease that affects crops). Unizeb is UPL’s flagship product in Brazil that targets the $2-billion soybean rust category and is positioned as a protectant. While the company has other products too and launched two new ones (herbicide and fungicide) this year in Latin America for multiple crops, Unizeb is expected to continue driving its performance. Though a new product has been launched by competitors of late, analysts say that UPL has now got a head start of nearly four years in creating a strong brand for Unizeb and this should ensure leadership as the company is also working on developing improved versions too. 

With the company has maintained its 12-15 per cent growth guidance for FY17 and expansion of 50-100 basis points in margins, most analysts remain positive. If the company is able to cut its debt by Rs 2,000 crore as planned, from Rs 5,500 crore currently, it could help sentiments further.