Mumbai: Rajju D. Shroff, chairman and managing director of United Phosphorus Ltd, the country’s largest crop protection firm by revenue, is confident margin pressures won’t be an issue for the company despite the rise in input prices globally. This, because the end-to-end integrated firm produces its own raw material and even has sufficient quantity to feed its subsidiaries abroad.
UPL, run by him and his two sons Jai and Vikram Shroff, will grow at a healthy 30-40% annually with or without acquisitions, Shroff said, though he admitted some deals were in the offing. Edited excerpts:
United Phosphorus has been growing aggressively over the years. Much of it has come through acquisitions. UPL has recently raised its growth outlook from 15% to 30-40%? Will all this growth come from overseas operations?
A large part of our growth is contributed through our recent acquisitions. Increasing our production capacities and our R and D (research and development) efforts have also contributed to this growth. In Spain, we supply raw materials from India. In France, however, we don’t supply raw materials from here. In each country, we have adapted differently. For our Japanese subsidiary, an entry into Japan is not only difficult but practically impossible.
After many years of work we entered Japan. In Japan, the consumption of pesticides per acre is highest in the world, (and) the prices are the highest compared to any other country. We are now doing business in a big way in that country.
It means you have adjusted to life after Arysta Life Sciences? (United Phosphorus was one of the serious bidders for the Japanese firm, valued close to $2 billion)?
We were looking at Arysta for some time. Some of our financiers encouraged us to clinch the deal by making even higher bids. We bid initially for the company but decided against upping our offer. In the current scenario, the successful bidders will be crying soon.
Analysts commended your opting out of raising your Arysta bids. They said the company is conservative and that United Phosphorus would not chase acquisitions for the sake of it.
We know how much we can pay for an acquisition. We make a thorough study. We bought two companies in Argentina, and added two more plants in that country. In Japan, we have jointly put in a big marketing team, but the products are sold through our 100% subsidiary. Only the marketing part is in a JV (joint venture).
How are the US operations faring?
Out of 80 people in USA, 15 are in R&D. One farm owned by a US farmer is equal to the acreage available in one district in India. In northwest USA, Sikh farmers still haven’t forgotten the roots. They build gurudwaras and prefer to talk in Punjabi. We got Punjabi product literature specially done for them.
In Latin America too we have a big market. We have reached Rs4,000 crore in turnover, but the global crop protection market is Rs1.3 trillion. We have unlimited opportunities.
Tell us about your strategy to grow. UPL now has a presence in practically most of the granaries of the world.
To grow we have to plan. We are spending more money to get our strategy right by hiring McKinsey. We gave them a Rs10 crore assignment, and now we have given another Rs10 crore assignment, Rs20 crore to study what type of market, what type of manpower and basically strategize on integration, systems, etc.
We are growing at 45% every year.
Analysts say that you have a deal pipeline for acquisitions worth $250 million.
We don’t want to comment. We are studying everything.. There are so many companies like Arysta around. We have to see whether we have the capacity to handle it.
In hindsight, Arysta was very big?
Arysta was ideal for us. Everything matched. We were willing to go up to $1.8 billion. If somebody bid $2.2 billion, he was a fool. We calculated the risk reward. The new owner has no base in the industry, whereas we have a base.
So do you think Arysta could come up again?
Someone told me there are chances of it coming up again. They cannot survive this acquisition.
There are other companies in India, especially Punjab Chemicals, who are replicating your strategy to grow?
If a company has two good chemicals then they make money. We have eight factories over and above what we own in other countries. So we have a very good base. We import some basic chemicals from China. Our man sits in China and tests the chemicals and once it meets our standards it is dispatched to us.
Quality control in this industry is high. We have to have rigid standards. In our case, we have a sizeable export turnover and export quality is very important. Otherwise we’ll die. Out of exports of Rs3,000 crore, even if Rs100 crore worth of products are bad, we will be in (a) soup.
The agrochemical industry is facing margin pressure these days. Chinese companies have hiked raw material prices by 400% in some products.
China has raised prices of phosphorus products. We are the only company to manufacture the products here. So when the Chinese were dumping them cheaply, we were running very slowly. Now we have high profits, after they hiked prices.
We are producing 3,000 tonne and we are planning to expand it. We are completely integrated, and we can maintain quality and price can be controlled.
For instance, Cypermethyrin (an agrochemical) was sold at $100 a kilo. Top agrochemical makers in the world could produce it with 92% purity. We are exporting the same product at 98% purity and at $10 a kilo. What happens is that when we produce such products at such rates, the huge plants in England and Germany cannot compete with us.
UPL also has a stake in the seeds business through Advanta Seeds. Tell us how the company is progressing.
We have to increase yield and the only way you can do it is through hybrid seeds. Advanta has the world’s biggest seed farm in Australia. We are working on many fronts. In Argentina, Advanta scientists are working on a project that has taken over 10 years. The old owners almost gave up. When we came in we pursued this project. The sunflower seeds yield more oleic acid than normal ones.
Global giants such as Unilever and Cadburys are pursuing us. They want 100% of the production once we start production. This is going to be our blockbuster. We have hybrid sorghum seeds, mustard seeds, that can be grown in drought prone areas.
Except in France, where integration of Cerexagiri is progressing slowly, your company has integrated most of the other acquisitions.
We have an advantage. We see how the business (we plan to acquire) complements with our main business. We then go ahead and acquire the business if it jells with the rest of our business.
Unlike others, we promote the man from the same company by giving them the reins of the company.
Luckily, every company we have acquired the factory workers and the executives are happy with us.
Once we acquire (a company) we know we can double the turnover in one or two years. Or we can make it very profitable.
But are you facing hurdles on integrating Cerexagiri?
Cerexagiri had two problems in the past. It was owned by Arkema, a $40 billion company. Cerexagiri was a Rs1,000 crore company that made hardly 5% profit. They were neglected. Arkema group was least interested in running the crop protection business.
We have doubled profits and also turnover has increased at Cerexagiri.
But analysts say the integration with Cerexagiri is slow?
It is going slowly. It is not taking time, but integration is happening at its own pace.
We have introduced our financial systems in Cerexagiri. Raw materials usually come from India in some companies. But this company has a very strong manufacturing base.
In the crop protection business, there are insecticides, then there are fumigants, herbicides and fungicides. Fungicides are required to preserve fruits. We are very strong in other three, but Cerexagiri is very strong in fungicides. They have a world monopoly in one product called Deko and almost 80% of the market.
If prices of crop protection products rise the way they are, do you think farmers can afford them?
Look at Argentina. It is a country where everything depends on agriculture. It is as big as India, but (its) population is only 35 million. It is an agricultural economy. They export almost everything they produce. The government in Argentina gives maximum encouragement and we were the beneficiaries when we acquired factories there. We have built more plants. What they did was impose a 40% duty on exports of farm produce. Soya prices have gone up 80% and so farmers can afford to pay (export duty).
Imagine what turmoil it would have caused if such a duty was levied locally.