Hyderabad: India’s largest agro-chemical and seeds company, United Phosphorus Ltd (UPL), is betting on Brazil and the local market to fuel growth in the coming years. UPL, with consolidated revenue of Rs 7,654.7 crore for the year ended 31 March, is expecting sales growth of 15% in the current financial year on the back of new product introductions in India and consolidation of its two acquisitions in Brazil. UPL generates around 75% of its revenue through exports. Jai R. Shroff,46, chief executive officer of UPL, said in an interview in Hyderabad last week that he’s bullish on the near-term prospects of the industry given the stability of food prices globally and a depreciating rupee. Edited excerpts:
Where do you see growth coming from?
Over the last 15 years, we have organically and through acquisitions built a platform for the distribution of our crop protection chemicals all over the world.
Expansion drive: Jai R. Shroff, chief executive officer, UPL.
We believe that in future India and Brazil will be our top-performing markets. We made two investments in Brazil. The total exposure (in Brazil) we have is $300 million. We had the highest amount of new registrations in Brazil. And we believe that our pipeline is very strong. We are aiming at increasing Brazil’s contribution from the current 12% to about 18% in the next two-three years. In India, which contributes about 25% of revenue, we are going to launch three products this year, out of which two will be be launched in collaboration with Japanese crop chemicals company Ishihara Sangyo Kaisha Ltd (ISK).
(UPL bought a 51% stake in Brazilian firm DVA Agro Brazil for $150 million from Germany’s DVA Group and Isagro’s 50% stake in Sipcam Isagro Brasil S/A(SIB) in 2011.)
How do you read the market situation, given the general economic slowdown the world is going through?
The farmers are not impacted by the slowdown. If you look at soya bean, corn and edible oil, the prices are very high. I don’t see farmers suffering at all. The Brazilian currency has weakened so farmers are going to benefit from that as Brazil is a major exporter of commodities. In India, there is a problem with rain. It does impact the farmer’s ability to make some money. It’s too early—we still have 50 days left.
Crop protection chemicals are a low operating profit margin business. What is your strategy to improve margins?
In the last 10 years, we have done a lot of patenting, we have launched a lot of innovative formulations and innovative products (over) which we have intellectual property ownership. These products are well accepted. Almost 30% of our portfolio in India is patented products. In-licensing — like the one with ISK —is a strategy we are adopting to bring these patented products. This has helped us to differentiate ourselves and improve our margins.
You have made 35 acquisitions in the last 15 years. Do you see further scope for expanding inorganically?
In the past, we made acquisitions to get distribution access to the markets and to pick some tail-end portfolio products. Now, we have presence globally, so going forward we are looking more at consolidation and organic growth. If there is a compelling opportunity we will obviously look at it.
What about your capital expansion plans?
We on an average spend about Rs 300 crore on capex (capital expenditure) per year. We spend money on a lot of regulatory filings around the world. We have some projects in-house like debottlenecking and plant expansion. It’s a continuous process.
How much does the seed business contribute and how are you planning to expand that business?
About 80% of our revenue come from chemicals, the rest 20% from seed. The seed business share should increase over time. Last year, Advanta (India Ltd) clocked about Rs 1,200 crore (in revenue). This year we will be launching hybrid BT cotton with Bollgard II technology. I believe that will be a real winner for Advanta. In India, we are developing fodder crops, which is a huge growth area. The Indian government is very concerned with quality of the fodder, so it’s an area that we expect to grow a lot. In hybrid rice, there is a big transformation. Most state governments, especially in the eastern part of the country, like West Bengal, Orissa, Bihar and Chhattisgarh, are focused on improving the productivity. Hybrid rice is bringing three times the yield. That is another growth area for us.
Cotton was one of the major crops that consumed a large volume of pesticides. But do you see large-scale adoption of BT cotton hitting agro chemical companies like yours?
I don’t see BT cotton as a threat to crop protection chemicals. But there is a shift in the product mix. BT cotton is still not the magical solution, farmers have other problems, so there are complementary tools farmers need like herbicides to control weeds and pesticides for controlling a variety of sucking insects. Also, there are other crops like rice which need a lot of pesticides. But biotechnology did help cotton farmers improve their productivity.
The Competition Commission of India has imposed a penalty of Rs 252.44 crore on allegations of cartelization and price manipulation against UPL. Your comments.
There is a window to appeal—we have some 90 days time to appeal. We believe that we have a strong case and we think that it’s an unjust case.
You did a share buyback a few weeks back. What was the rationale behind it?
The rationale behind the buyback is we have acquired confidence of cash flows. We think the stock will not be available this cheap. So we believed that it’s good to give it a boost. We have set aside Rs 290 crore for this purpose.