UPL feels the heat of turbulence in global agrochemical market1 min read . Updated: 01 Aug 2019, 08:45 AM IST
- Delayed monsoon impacted India revenues, which dropped 8% in the quarter.
- Also those in Europe are down 3%
UPL Ltd confirmed market fears by reporting a subdued beginning to FY20 with revenue growth of 7% in the June quarter. The revenue includes the contribution from its recent acquisition Arysta LifeScience Inc., whose revenues are accounted for in the year-ago quarter too.
The reported growth is slower than what UPL delivered in earlier quarters or the 8-10% expansion the company guided for FY20.
The subdued growth underscores the tough business environment. A delayed onset of the monsoon impacted revenues in India, which dropped 8% last quarter. Similarly revenues in Europe are down 3%.
North America fared relatively better despite the floods which impacted demand. Revenue in this region is up 6%. As expected, Latin America fared well, clocking a 25% growth in revenue.
Tough market conditions notwithstanding, UPL gained market share, the management told analysts. The disruption to soya and corn planting is pushing up crop prices. This can have a rub-off effect on farmer sentiments and help improve demand for soya crop products, where UPL has a strong presence. Similarly, the disruption in raw material supplies from China is making global users diversify their sourcing, helping UPL.
Demand in India is recovering post the revival in the monsoon. As a consequence, management expects India to return to the growth path. It maintained the 8-10% revenue growth guidance and $500 million of debt reduction in FY20.
The adherence to guidance provides comfort. “The results are decent given the challenges," said Aditya Jhawar, an analyst at Investec Capital Services (India) Pvt. Ltd.
Even so, concerns persist. UPL has the burden of debt from the Arysta acquisition. Reported profits for Q1 were impacted by inventory write-off and rise in finance cost due to the Arysta purchase.
UPL has begun seeing the synergies from the Arysta acquisition. However, there are fears that the global market slowdown can impact the benefits, derailing the debt reduction plan. The management says the inventory write-off is largely done and is refinancing debt at lower rates. This should help stabilize earnings in the coming quarters. But much depends on the revenue momentum, especially the recovery in Europe and India. More clarity on this will help address investor concerns at UPL.