Mumbai: UPL Ltd, formerly known as United Phosphorous Ltd, has initiated exploratory talks with Telangana-based Kaveri Seeds Co. Ltd for a potential stake purchase, said two people aware of the discussions.

The development comes at a time when UPL is trying to strengthen its seed portfolio. UPL has become one of the largest crop protection firms globally.

“Going ahead, however, chemical-based crop protection will lose currency and genetically modified seeds with in-built disease resistance will continue to gain market share. Acquisition of Kaveri Seeds is likely to help them enhance their GMO seed portfolio at an affordable valuation," the first person cited above said on condition of anonymity. The person said that “the discussions are at a very nascent stage." Mint could not immediately ascertain the valuation of Kaveri Seeds that is being discussed.

The person said targeting a global seeds company with high R&D cost will not suit UPL’s strategy as its debt has risen significantly. As of 31 March 2018, UPL’s had a total debt of 6,638 crore.

UPL in July announced the $4.2 billion acquisition of US-based crop solutions providers Arysta LifeScience Inc. and its subsidiaries from Platform Specialty Products Corp. The acquisition is backed by $1.2 billion equity infusion by Abu Dhabi Investment Authority and TPG into UPL Corp.

Kaveri Seeds has a 15.5% market share in cotton, followed by maize where it holds a market share of 10.3%-

In the last one year, Kaveri Seeds lost 10% to a closing price of 593.15 on Wednesday. Its market value eroded by 435.74 crore during the period. The benchmark Sensex gained 18.3% to 37,887.56 points in the same period. An email, phone calls, and messages sent to UPL’s chief financial officer Anand Vora did not elicit any response. A spokesperson for Kaveri Seeds didn’t respond to an email seeking comment.

“Cotton seeds have been the mainstay for Kaveri Seeds. With falling acreage and government capping cotton seed prices, the firm has been looking to diversify its seeds portfolio. UPL can bring in the necessary expertise. Moreover, Kaveri Seeds is debt-free and will be a cash generating proposition for UPL immediately," the second person said.

The seeds portfolio of Kaveri Seeds includes cotton, maize, hybrid rice, pearl millet, sunflower, mustard, tomatoes, okra and chillies among others. The company has a 15.5% market share in cotton followed by maize where it holds a market share of 10.3%.

Meanwhile, UPL has been trying to grow its seeds business, which constitutes 10% of its overall bouquet of crop solutions products. Its seed portfolio includes sorghum, sunflower, canola and corn among others. Overall, its offerings include herbicides, insecticides, fungicides, fumigants, seeds and post-harvest solutions.

UPL entered the seeds business through its acquisition of Advanta. The main markets for its seeds business include the US, Australia and Latin America. The company, however, is yet to make a strong mark in the seeds business in India.

“The government has hiked the minimum support price for cotton which is likely to help arrest fall in acreage. UPL already has a strong distribution network, but acquisition of Kaveri Seeds is likely to bolster its distribution network further within India as well as make complete its product offerings," the second person said. In July, the government increased MSP of cotton (medium staple) 28% to 5,150 per quintal and that of cotton (long staple) 26% to 5,450 per quintal.

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