Agrochemical major UPL has posted a loss of ₹189 crore for the quarter ended September 2023 on a drop in revenues and elevated pricing pressure. The company had posted a profit of ₹813 crore in the same period last year.
Revenues for the September quarter were down 19 per cent at ₹10,170 crore against ₹12,506 crore a year ago. The revenue and EBITDA for Q2 were impacted by the global channel destocking and elevated pricing pressure. Liquidation of high-cost inventory, higher-than-usual sales returns and rebates to the support channel partners impacted the contribution margin, the company said. “The global agrochemical industry continues to go through a difficult phase with prices coming off significantly vis-à-vis the high base of the previous year amid the elevated channel inventory levels and intense price competition. Given this backdrop, the distributors prioritised destocking, and focused on purchases at lower prices to bring down their average inventory cost. In particular, destocking had a significant impact in the US and Brazil during the first half.
“Our revenue and profitability for Q2 were significantly impacted by these factors in line with rest of the industry. However, contribution margins improved by about 300 bps y-o-y in H1FY24 adjusted for the short-term impact of high-cost inventory liquidation, higher-than-usual sales returns, and rebates to channel partners. We also saw a pick-up in volumes (+1 per cent y-o-y) in the crop protection business (ex-India) led by the resilient performance of our differentiated and sustainable portfolio; revenue share of this portfolio increased to 38 per cent of crop protection revenue vs 30 per cent last year. Our cost reduction drive of $100 million over next two years is under implementation and we are on track to realise benefit of $50 million in FY24, bulk of which will be realised in H2FY24,” said Mike Frank, CEO, UPL Corporation Ltd.
Optimistic
“Going forward, we are optimistic of progressively improved performance in H2FY24 as key geographies of North America, LATAM and Europe enter major cropping season. The elevated inventory levels are expected to gradually subside with the farmgate demand continuing to be robust. In Europe, Asia, and LATAM (ex-Brazil), channel inventory levels have largely normalised; while in North America and Brazil, the scenario continues to gradually improve. On the pricing front, most post patent molecule prices seem to have bottomed in Q2 and are now stabilizing. Overall, we are executing well in this challenging market and making changes to our operating model that will further improve our business as the cycle normalises.”
The Latin America business was down 17 per cent, while North America saw a steep fall of 57 per cent during the quarter. The India business was down 23 per cent, while Europe and Rest of the world were down by 7 per cent and 4 per cent, respectively. The UPL scrip shed 3.64 per cent to end at ₹538.40 on the BSE on Monday.