Agro-chemicals firm UPL Ltd reported a healthy performance for the June quarter. Revenues increased 11% from the year ago quarter, in line with the Street estimates. Aided by strong growth in Brazil, volumes surged 16%. That’s much better than the first quarter of the previous three fiscal years, when volumes increased 3%, 7% and 4%, respectively.

The company bucked the slowdown in India. Boosted by strong growth in focus brands, revenues increased 15%, more than what Rallis India Ltd and PI Industries Ltd reported for India.

The strong performance helped the company grow its Ebitda or operating profit by 12%. Margins improved slightly. Even as the double-digit revenue growth in India is surprising, the June quarter results reflect some pressures the company is facing.

Weak agriculture commodity prices, adverse weather conditions and the resultant impact on demand conditions took away pricing power. Pricing has remained flat. The five percentage-point difference between volume and revenue growth in the last quarter has been due to exchange rate pressures. In contrast, in the first quarter of the previous fiscal year, pricing contributed a significant part of the revenue growth. Also inventories rose sharply in the June 2015 quarter.

The company maintained the revenue growth guidance at 12-15% for the full year. While that should comfort investors, the scope for outperformance remains challenging, at least for now. The long gap between monsoon showers is creating dry weather conditions in Maharashtra, a key market for UPL. Also, weak cash flows at the trade level are a concern, as that can weigh on product off-take.

UPL expects to continue the revenue momentum in Latin America, thanks to the distribution arms in which it increased its stake recently. But the region is beset with currency problems. Continuous devaluation of currencies is making distributors delay purchases, the company said.

The other troubled area is North America. Like in India, the outlook for the region, which generates almost one fifth of UPL’s revenues, is clouded by weak product prices and sluggish cash flows. Planting of the soya crop has been delayed more than a month. Dry weather conditions in western parts of the US are impacting fungicide usage.

Overall, despite the challenges, UPL registered a healthy performance in the June quarter. Though the results also point to market pressures, continuation of revenue momentum would be crucial for outperformance of the stock, which is up 62% in the last one year.

The writer does not own shares in the above-mentioned companies.

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