Upl Yanked Down By Arms

It is also concerned about the impact of rising interest costs on margins and its interest coverage. UPL's sales were down 12.84 per cent in the first half of 1997-98 to Rs 257 crore while net profit was declined by 18.8 per cent to Rs 15.04 crore.

Between 1995-96 and 1996-97, UPL's investment in its subsidiaries moved up by 211 per cent to Rs 75.58 crore. Thus, investments in subsidiaries as a percentage of total funds shot up to 11.8 per cent from 3.7 per cent.

Investment in the equity capital of Search Chem Industries (SCM) and Bio-Win Corporation (BWC), US, accounted for 80 per cent of UPL's total investment in subsidiaries. SCM produces phosphorus trichloride (UPL transferred this product, which is the key intermediate to manufacture a wide range of phosphorus based pesticides, to this subsidiary) and posted a net loss of Rs 4.51 crore in the first half of 1997-98. It had achieved a net profit of Rs 5.79 crore in 1996-97.

 

The downtrend in the global agrochemicals market has affected profitability of the other subsidiary - BWC. As a result, despite registering a 59 per cent growth in turnover, BWC ended up with a 44.5 per cent decline in net profit in 1996-97.

A similar situation prevails at the other subsidiaries. Inventa Corporation's sales improved by 5.9 per cent but its net profit declined by 73.7 per cent. Enviro Tehnology which provides effluent treatment services to small and medium units suffered a loss of Rs 6 lakh in its first year of operation.

Its subsidiary in Zambia too suffered due to a sluggish market in that country. Investments in overseas subsidiaries, despite initial hiccups, will provide UPL with the ability to expand its reach through exports. This will give it a cushion from the problems being faced on the domestic front due to poor offtake and price undercutting.

UPL's interest burden has pulled down its profits. Despite a 23 per cent jump in turnover to Rs 516.09 crore in 1996-97, net profit fell by 43 per cent to Rs 27.58 crore. Interest charges during the period increased 267 per cent to Rs 46.14 crore. This consequently brought down the interest coverage ratio from two times to just one time. The share price has fallen from Rs 112 in January to about Rs 88 at present.