Latin America and Europe boost UPL in June quarter

With Latin America and Europe together generating almost half of revenues in the past fiscal, the favourable outlook augurs well for UPL


Revenues in India increased just 1% as high inventories in the retail system and the slow progress of crop sowing weighed on sales.
Revenues in India increased just 1% as high inventories in the retail system and the slow progress of crop sowing weighed on sales.

Agriculture inputs provider UPL Ltd reported a subdued start to the current financial year. Revenues in the June quarter increased 7%, slower than the double-digit growth the Street was forecasting. The revenue miss is primarily due to India and North America. Together, the two regions generated two-fifth of UPL’s revenues in the past fiscal.

Revenues in India increased just 1% as high inventories in the retail system and the slow progress of crop sowing weighed on sales. In North America, insect and disease pressure on field crops was low, the company said.

The rest of the regions did well. Revenues in Latin America, Europe and other regions grew in the range of 12-13%. Even then, the overall revenue growth of 7% not only trailed Street estimates, but is also way below UPL’s annual growth guidance of 12-15%.

Still, investors drove up the stock 2% on Friday after the results announcement. Two factors led to this. One of them is profitability. Cost of goods as a percentage of sales fell. Despite the pressure on prices, UPL improved margins by almost one percentage point, driving up net profit by 24%. Volume growth at 8% was also decent.

The second is management commentary. In the investor update, the company sounded optimistic about prospects, especially in Latin America and Europe.

In Latin America, UPL has a good fungicide portfolio to manage Asian rust diseases. It registered new products in Mexico and Argentina after these countries removed licence requirements for agrochemical imports, making it easier for trade.

In Europe, sugar crop acreages increased from last year, which should aid herbicides sales in the region. Also, good rains improved the prospects for vine and potatoes fungicide. With Latin America and Europe together generating almost half of revenues in the past fiscal, the favourable outlook augurs well for UPL.

These factors, along with a recovery in crop seasons in Asia and Australia, are expected to help UPL recoup sales in the rest of the fiscal year.

“A normal monsoon and strong growth momentum in the Latin American market will help the company maintain its FY17 revenue growth guidance of 12-15% and 60-100 basis points improvement in Ebidta margin,” Sharekhan Ltd points out.

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