UPL Ltd - global agrochemical company

Surprised to not see a discussion on this company.
I guess that perceptions matter.
Anyway, UPL is one of the largest generic agrochemical companies in the world but more importantly, also one of the most profitable and most capital efficient.
Competitors are Adama, FMC, Cheminova, and all the IP-owning agrochemical companies such as Bayer, Sumitomo, Syngenta, etc.

The portfolio of products ranges from seed, seed care to pesticides, biological and organic chemicals and also post harvest crop care.
The company has one of the largest supply chains and manufacturing capabilities in the world- selling in all the major continents to 122 countries.

Unlike Indian formulation players (that are essentially asset-light and focused on the Indian market only) UPL’s key advantage is the diversified nature of earnings. So, 2 poor monsoons did not have a big impact on the company’s ops; then again, a great monsoon might also not impact the company much.

The biggest hurdles with the company are the asset heavy nature of its operations, scant disclosure of its global manufacturing footprint and also its reliance on a global supply chain (which the company actually believes to be a strong suit, since other global companies have either scaled back on their global supply and manufacturing abilities).

The key risks are from increasing global use of GM seeds which reduce depends on pesticides, bad debts in Latin America where receivables typically go to 190 days or so (as is the nature of that market), and an inability to match production & supply with global demand.
In addition to this, the company keeps spending on global product registrations which are expensive and time consuming.

EPS has grown from 13.01 in FY12 to 30.31 in FY16
M Cap from 6000 cr to 25000 cr odd (Price: 130 to 590 odd)
ROE has moved from 19% to 22% over the last 4 years
In the process, it bought back about 7% of the o/s shares
The company is currently trading at 20 PE odd
Good focus on managing working capital and debt
And soon, it will complete its merger with its associate company, Advanta Ltd.
The concall transcript for that can be downloaded here: uplonline.com/Transcripts-Kotak-UPLAdvanta-23-Nov-2015.pdf

Post-merger, it will be a truly global company with global branding strategy and serving the entire agricultural chain.

Numbers are difficult to predict, but the management has proven itself to be very focused on profitability, stability, and risk management. They did give some sort of indirect guidance for the merged organization - PAT of 1800 cr for FY17 if the merger is complete by then.

And attached is a transcript of the recently held annual investor meet for FY16. This is a transcript that I commissioned, the video is available on youtube: UPL Capital Markets Day 2016 - Webcast recording - YouTube

UPL CMD 2016.docx (59.2 KB)

Best wishes doing your research!
Hope this begins an interesting discussion…

Discl: I am a shareholder of the company


Thanks for starting an exclusive thread on UPL. I am a newbie in investing. I was looking at the Yearly results and the Cash Flow statement and was hoping if some of the gurus could help me understand a couple of things.

The Net sales from operations for Mar 16 has increased and the Expenditure has also increased proportionally. PBT stands at 580 Cr v 375 Cr last year.

However, why is this not reflected in the Cash flow statement?

Cash flow from operating activities show -47 Cr. What could be the reason for the negative Cash flow from Operating Activities?

Edit: This is the standalone results that I obtained from MoneyControl. Screener.in consolidated results paints a different picture.

Disc : Invested

consol operating cf is +1749cr

Why are people not interested in UPL ? What are the risks involved because of which this is being ignored and PI ind is preferred ?

Disc: Highest holding in my portoflio

The business looks very promising and a long term contender but I’ve not been able to understand their high and growing debt and at the same time huge cash on the books.


Disc : No Holding

Debt in general is not an issue if you can use the debt effectively.

UPL set to acquire Arysta at a valuation of $4.3 bn. As per reports the deal would be financed by $1 bn funding from ADIA and the rest from debt (as per some reports from consortium of Japanese banks, which I think would offer low-cost debt which should be good for the earnings). But the market doesn’t seem to be liking this as the scrip ended at 581 today and made a new 52w low of Rs 577.65

Disclosure : Invested

I have read one of the article in which it was stated that UPL is paying higher amount for this acquisition as compared to past deals by UPL. I think it was mentioned 5-6 times EBDITA and current deal at 10 times EBDITA(Pl.check again)

Can you please the article link. Thanks

Seems the PR is putting all the efforts to hype the deal. The company already has US $ 1 billion debt and real struggle in growth in last few years. Now other 3 billion dollars debt . A company with 4 billion market cap having 4 billion debt.

Have seen one-up-man-ship sort of race in steel, infrastructure and real estate sectors , most of them have not ended well.

It seems to be a big gamble. Hope they are not trying to chew more than they can bite.


Does this look like struggle in growth?

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It seems to be a big gamble

It may seem to be a big gamble if you don’t gather enough knowledge. And not only for this company, every other investment will be a gamble if you don’t have sufficient knowledge and conviction.
I suggest you read more about the past acquisitions made by the UPL and learn more about the current acquisition by starting with answering the following questions:

  • At what interest UPL is able to get most of the debt ??
  • Is it a good debt vs bad debt ??
  • Annual expected revenue from arysta life science for next 5 years ??
  • Will there be any free cash flow from arysta life science for next 5 years ??
  • Expected EPS growth ??
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Forces me to think, the company is biting more than it can chew at one go! Arysta ,Kaveri!

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