UPL reported disappointing Q2FY24 results on October 30, 2023. Revenue fell 19% YoY to Rs 10,170 crore in Q2FY24 compared to Rs 12,506 crore in the same period previous year. According to the management, revenue was impacted by global channel destocking and elevated pricing pressure. Operating margins came in at 15.5% in Q2FY24, contracting 666 basis points (bps) YoY impacted by higher than usual sales returns and rebates to support channel partners. UPL reported net loss of Rs 189 crore in Q2FY24 against net profit of Rs 813 crore in the same previous year.
UPL is a global provider of sustainable agriculture products & solutions, with annual revenue exceeding $6 billion. The company provides a comprehensive range of solutions for various row and speciality crops across the globe, covering the entire crop lifecycle. Its product portfolio includes patented and post-patent agricultural solutions such as crop protection, bioSolutions and seed treatment. UPL’s offerings also include post-harvest products and agronomic services for farmers. UPL is present in more than 138 countries, represented by more than 10,000 colleagues globally.
Speaking on Q2FY24 results, Mike Frank, CEO at UPL 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 prioritized 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.”
He further added that UPL’s revenue and profitability in Q2FY24 were significantly impacted by de-stocking, in line with the rest of the industry. Speaking on margins, Frank said, “However, contribution margins improved by 300 bps YoY 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% YoY) 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% of crop protection revenue vs 30% last year.”
According to the management, the cost reduction drive of $100 million over next two years is under implementation and the company is on track to realize a benefit of $50 million in FY24, bulk of which will be realized in H2FY24. Going forward, UPL is 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 normalized and in North America and Brazil, the scenario continues to gradually improve. Speaking on pricing, Frank said, “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 normalizes.”
