Fundamental Research on

UPL LTD.
CMP:661.75 |Market Cap:50,022 cr. | Date:28/02/2022
About Company:
Mr. Rajnikant Shroff founded UPL Limited in 1969, and it has since grown to become
one of the world's largest agrochemical companies, having a global presence through
different subsidiaries and associates. Seeds, crop protection products, intermediates,
specialty chemicals, and other industrial chemicals are all supplied by the company.
India, France, the Netherlands, Argentina, the United Kingdom, Vietnam, Turkey, Brazil,
the United States, China, Thailand, Italy, Australia, and Columbia are among the
company's manufacturing units. UPL's expansion strategy is based on filing its global
registrations and acquiring products and companies to expand market access and
establish a strong and cost-effective supply chain.

Global Economy:
The unexpected COVID-19 crisis had a significant impact on the world economy, which
shrank by 3.3% in CY2020. As countries went into lockdown to fight the pandemic,
supply chains were disrupted, and many people lost their jobs. The pandemic had a
wide range of effects across the income scale, increasing inequality and undoing many
of the progress made in reducing global poverty over the past three decades. The
pandemic had a big impact on the global economy in the first half of the year, but there
was a fast recovery in the second half, helped by government stimulus across the board
and companies proactively responding to change. Despite the challenges posed by
emerging virus strains and outbreaks in some countries, major vaccination drives around
the world are giving hope. In CY 2022, the global economy is predicted to grow at a rate
of 4.9 percent, with the speed of recovery being determined by several macroeconomic
and demographic factors.

Indian Economy:
The Indian economy is already facing challenges, with growth falling to 4% in FY 2020
and GDP and GVA falling by 7.3 percent and 6.3 percent, respectively, in FY 2021.
Because they are essential services, the agriculture and utility industries rose by 3.6
percent and 1.9 percent, respectively, whereas the contact-intensive and informal
sectors of retail trade, hotels, transportation, communication, and services were badly
impacted. Once the limitations were lifted, the economy saw a V-shaped recovery, with
the growth rate returning to nearly pre-pandemic levels, driven by pent-up and festive
demand.

PAGE 1
Industry:

 Chemical:
 India is the world's third-largest polymer consumer, fourth-largest
producer of agrochemicals, and sixth-largest chemical manufacturer.
 India's chemicals sector accounted for 3.4 percent of global chemicals
output.
 The Indian chemicals industry was valued at US$ 178 billion in 2019 and is
expected to grow to US$ 304 billion by 2025.
 The Indian chemicals sector is extremely diverse, with over 80,000
products and over 2 million people employed.
 The Indian chemical sector has a strong foundation for innovation
because of a network of 200 national laboratories and 1,300 R&D
facilities.

Chemical industry Market size (US$ bil-

lion)
350.00
304.00
300.00 278.10
254.30
250.00 232.60
212.80
194.60
Market size

200.00 178.00
150.00
100.00
50.00
0.00
2019 2020 2021 2022 2023 2024 2025
Years

 Agrochemicals:
 Globally, India is the fourth-largest producer of agrochemicals after the
United States, Japan, and China
 India is the fourth net exporter of agrochemicals and the thirteenth-
largest exporter of pesticides and disinfectants.

PAGE 2
  The Indian agrochemicals market was worth ~US$ 4.5 billion in 2020,
Which is expected to increase at a CAGR of 8.6% between 2021 and 2026
to reach ~US$ 7.4 billion.

Pesticides and insecticides Production

('000MT)

6%

16%

18% 60%

Insecticides Fungicides Herbicides Others

Business Model:
UPL is principally engaged in the business of agrochemicals, industrial chemicals,
chemical intermediates, specialty chemicals, and the production and sale of field crops
and vegetable seeds.
 Multi locational Plants:
UPL has 44 Manufacturing facilities that spread across Europe (13 plants), Latin
America (10 Plants), North America (1 plant), and the remaining rest of the
world.

 R&D Capacity:
UPL has more than 25+ R&D facilities spread across the world and the company’s
R&D expenditure stands at 2.23% of the sales so far, the company has been
granted 1266 patents and has 1,283 product formulations.

 Wide Product offerings:

The company offers more than 13,600 products and the company offers seeds,
Crop protection, and offers a post-harvest solution, and has its presence across
the entire Agriculture Value chain.

 Branded products should be prioritized:

PAGE 3
 UPL generates 80% of its income from branded products, and it seeks to
establish itself as a branded generic manufacturing company rather than a
commoditized agriculture firm, allowing it to lower the share of high volume and
low volume items while focusing on products with high margins.

 Market Share:

Historical Market Share

12.00%

10.00% 9.70%

8.00%
6.20%
6.00% 5.40%
4.90%
4.20%
4.00% 3.50%

2.00%

0.00%
2015 2016 2017 2018 2019 2020

Management:

Director
Mr. Rajnikant Shroff
(Chairman and Managing
Director)
Mr. Jaidev Rajnikant
Shroff (Global CEO of the
Group)
Background
Mr. Rajnikant Shroff, the CMD of UPL, pioneered Red
Phosphorus manufacturing in 1969, giving an impetus to
the indigenous chemical industry. Has been honored with
the highest civilian award in India and several
international awards
He is a well-recognized global leader in the Chemical and
Agri Inputs industry with over 30 years of experience in
India and internationally

UPL’s Director of Finance blends knowledge and love for

Mr. Arun Ashar nature. Apart from being a highly successful Chartered
(Director - Finance) Accountant with a rich experience of 42 years, he is also a
member of the National Society of Friends of Trees and
GiriVihar, a well-known mountaineering club

PAGE 4
Revenue Model:

Growth in Revenue(In crores)

45,000
40,000 38,694
35,756
35,000
31,616
30,000
25,000
20,000 16,680 17,506
14,660
15,000
10,000
5,000
-
2016 2017 2018 2019 2020 2021

 Revenue Breakout:

Revenue Breakout (In crores)

7044

14863

4677

6422
5691

Latin America North America Europe India Rest of world

PAGE 5
 Revenue Breakout(in %)

18%

38%

12%

17%
15%

Latin America North America Europe India Rest of world

Porter’s Five Forces:

 Bargaining Power of Suppliers:

With thousands of suppliers to choose from, chemical buyers have a wide range
of options. Agricultural chemical companies buy their raw materials from a
variety of sources. Suppliers with a strong position in the market can reduce
chemical companies’ market margins. Suppliers with power in the Basic
Materials sector utilize their position to extract higher rates from Agricultural
Chemicals companies. The overall impact of higher supplier bargaining power is
that it lowers the overall profitability of Agricultural Chemicals.

 Threat of Substitute:
Chemical suppliers can develop possible for chemical suppliers to develop
substitute chemicals to offer to customers, although doing so can be difficult. It
requires a solid R&D department as well as a deep understanding of the client's
operations.

A supplier that can develop a new low-cost product that is a viable option for the
consumer, on the other hand, can acquire a competitive advantage.

PAGE 6
  Bargaining Power of Buyers:
Chemical buyers have a lot of options because there are thousands of suppliers
to pick from. While pricing is one of the most important concerns for a
consumer, other aspects influence the purchasing decision. Is the provider
reliable in terms of delivery? Have there been any issues with quality in the past?
Is the supplier complying with regulatory requirements?

Online portals are increasingly being used by buyers to research suppliers and
locate those who best fit their requirements. A corporation that requires
chemicals can benefit greatly from a website that provides access to vendors. A
pesticide internet portal can provide a great deal of information about a
supplier's capabilities and track record. These portals can help to significantly
increase the bargaining power of buyers.

 Threat of New Entrants:

Traditionally, the chemical industry has been dominated by players in Europe,
the US, and Japan. But the rise of manufacturers in hydrocarbon-producing areas
is changing the pattern of global chemical production.

New entrants in Agricultural Chemicals bring innovation, and new ways of doing
things and put pressure on the company through lower pricing strategy, reducing
costs, and providing new value propositions to the customers. Syngenta AG has
to manage all these challenges and build effective barriers to safeguard its
competitive edge.

 Competitive Rivalry:
The chemical industry is intensely competitive. There are large numbers of
manufacturers, each vying for a share of the market. In India alone, over 11,000+
firms are producing more than 80,000 products. It is extremely difficult for a
manufacturer to differentiate itself from its rivals.

If the rivalry among the existing players in an industry is intense then it will drive
down prices and decrease the overall profitability of the industry. UPL operates
in a very competitive Agricultural Chemicals industry. This competition does take
a toll on the overall long-term profitability of the organization.

Future Plan:

PAGE 7
  Research and Development Centers will be expanded with infrastructure
improvement and enhanced capabilities.
 Process development of active ingredients becoming off-patent in 3-8 years,
using non-infringing, cost-effective, eco-friendly, safe, and economically viable
processes, which will be based on Green Chemistry Principles.
 Development of innovative, safe, cost-effective, non-toxic, and environmentally
friendly formulations.
 Continual Quality improvement and cost-reduction for existing products and
processes.
 protect the inventions and innovations by capturing the inventions at an early
stage of R&D and applying for a patent.
 Data generation for product registration globally.

Financial summary:

 Profit and Loss Statement:

Narration Mar-18 Mar-19 Mar-20 Mar-21

Sales 17,378.00 21,837.00 35,756.00 38,694.00

Expenses 13,966.00 18,024.00 28,984.00 30,342.00

Operating Profit 3,412.00 3,813.00 6,772.00 8,352.00

Other Income 351.00 -197.00 -515.00 62.00

Depreciation 675.00 880.00 2,012.00 2,173.00

Interest 783.00 963.00 1,481.00 2,060.00

Profit before tax 2,305.00 1,773.00 2,764.00 4,181.00

Tax 275.00 198.00 586.00 686.00

Net profit 2,022.00 1,491.00 1,776.00 2,871.00

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  Balance Sheet:

Narration Mar-18 Mar-19 Mar-20 Mar-21

Equity Share Capital 102.00 102.00 153.00 153.00

Reserves 9,067.00 14,613.00 19,129.00 20,734.00

Borrowings 6,638.00 29,139.00 29,388.00 24,413.00

Other Liabilities 7,148.00 18,581.00 19,758.00 23,465.00

Total 22,955.00 62,435.00 68,428.00 68,765.00

Net Block 4,437.00 32,149.00 35,321.00 34,765.00

Capital Work in Progress 1,319.00 1,855.00 2,073.00 2,117.00

Investments 1,034.00 708.00 558.00 618.00

Other Assets 16,165.00 27,723.00 30,476.00 31,265.00

Total 22,955.00 62,435.00 68,428.00 68,765.00

 Cash flow Statement:

Narration Mar-18 Mar-19 Mar-20 Mar-21

Cash from Operating Activity 2,839.00 2,356.00 8,739.00 7,212.00

Cash from Investing Activity -2,059.00 -31,282.00 -2,666.00 -2,426.00

Cash from Financing Activity -801.00 28,893.00 -2,175.00 -6,713.00

Net Cash Flow -21.00 -33.00 3,898.00 -1,927.00

PAGE 9
Track Record of financial performance:

EBITDA (In crore)

9,000 8,352
8,000 CAGR: 24%
7,000 6,772

6,000
5,000
4,000 3,813
3,412
2,966
3,000 2,348
2,000
1,000
0
2016 2017 2018 2019 2020 2021

PAT (In crore)

3,500

3,000 2,871

2,500
2,022
2,000 1,776
1,727
1,491
1,500

940
1,000

500

0
2016 2017 2018 2019 2020 2021

PAGE 10
 Net Debt (In crore)
Red
30,000 29% uced b
26,466 y
25,000
22,061

20,000 18,922

15,000

10,000

5,000 4,069 3,466 3,737

0
2016 2017 2018 2019 2020 2021

Ratios:

Margins
Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
Gross Margins 50% 53% 50% 48% 51%

EBITDA Margins 18% 20% 17% 19% 22%

Net Margins 11% 12% 7% 5% 7%

Growth
Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
Sales Growth 16.12% 6.54% 25.66% 63.74% 8.22%

EBITDA Growth 21.11% 20.92% 21.94% 31.01% 23.36%

117.08
PAT Growth 183.72% % 73.74% 119.11% 161.66%

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 109.83
OCF Growth 185.17% % 82.99% 370.93% 82.53%

Du Pont ROE
  Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
Asset Turnover Ratio 0.88 0.81 0.51 0.55 0.56
 
PAT Margin 11% 12% 7% 5% 7%
 
Leverage Ratio 2.53 2.35 2.90 3.39 3.28
 
ROE (%) 24.53% 22.74% 10.39% 9.27% 12.97%

Capital Efficiency
  Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
ROCE 25.49% 20.58% 30.91% 33.78% 37.22%
           
Adjusted CFO/EBITDA 0.87 0.83 0.62 1.29 0.86
           
Working Capital as a % of sales 30.27% 28.31% 50.21% 26.52% 24.52%
           
Cash conversion cycle (In days) 100.57 81.24 117.24 90.02 62.93
           
Return on Assets 9.31% 9.37% 3.49% 2.71% 4.19%

Working Capital
  Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
Days of receivables 120.34 123.00 148.22 120.18 115.36
           
Days of payables 197.03 237.35 259.79 195.52 217.50
           
Days of inventory 177.26 195.59 228.81 165.36 165.07

Debt Situation
  Mar-17 Mar-18 Mar-19 Mar-20 Mar-21
Debt equity 0.87 0.72 1.98 1.52 1.17

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Interest coverage 3.61 3.93 2.75 2.59 2.73

SWOT:

 Strengths:

 23 manufacturing sites across the world with world-class technology and quality
control facilities
 Year-on-year growth of revenue with a CAGR of 21%
 Year-on-year growth EBITDA with a CAGR of 24% and PAT with a CAGR of 20%
 Customer base in more than 123 countries
 Strong applied R&D capabilities in every continent they operate in.

 Weaknesses:

 Poor ROE (12.97%) and ROA (4.19%)

 Net Margin is too low (7%)
 The company has been unable to pass on the benefits of costs to the end-users
due to fluctuations in the raw material prices.
 Seasonal agricultural demand is affecting revenue growth and cash flow

 Opportunities:

 Emerging economies in South America and China are proving to be a great

prospect for revenue growth and expansion.
 Innovative technologies in the agricultural sector are aiding the company’s R&D
efforts as it brings out newer methods and scenarios of fertilizer products.
 Seed development has received a big boost due to WTO and UN approvals across
the world.

 Threats:
 Weather patterns may be unpredictable and hence, will negatively impact the
prospects of the company & the agrochemical industry.
 Currency Fluctuations
 Inflation in Raw Material Prices: A rise in prices will affect UPL’s financial
statements and will result in low profits & revenues.
 Competitors are working equally close with customers to provide long-lasting
solutions.

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 The company might be capitalizing on the interest cost

PAGE 14