Ladies and gentlemen, good day, and welcome to the UPL Limited Q1 FY 'twenty six Earnings Conference Call. Questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Anurag Gupta, Head of Investor Relations. Thank you and over to you sir.
Thank you, Yousaf. Good evening everyone. On behalf of the UPL management team, I thank you for joining us today for discussing the financial performance for Q1 FY twenty six. The investor presentation, press release and the financial statements have been made available on our website and we take it that you have read the Safe Harbor statement. From the management team, we have with us today chairman and group CEO, Jay Shah group chief financial officer, Ditash Prasad CEO of global crop protection business, Mike Frank CEO of India crop protection platform, Ashish Dohal CEO of Seed Business, Advanta, Bhupin, Dure CEO, Specialty Chemistry Platform, Raj Tiwari and other members of the leadership team.
Before we begin, I would like to introduce you all to Bikash, our new group chief financial officer. Bikash has joined UPL earlier this year in January and has officially taken over from the 06/01/2025. Ditash will be taking us through the overall performance for UPL Limited for the quarter. This will be followed by Mike, who will share his detailed remarks on UPL Corporation, followed again by Ditash, who will cover the other platforms in brief. We will have the Q and A session post that.
With that, I now hand it over to Ditash. Ditash, over to you.
Thank you, Anurag. Good evening, everyone, and a very warm welcome to UPN's Q1 FY twenty six earnings call. Thank you for taking the time to join us today.
Before presenting the financial highlights, I would like to take a moment to express my sincere gratitude for the opportunity provided to me to serve as the Group CFO of UPL. It is a privilege to join a company with such a distinguished legacy of growth, transformation and innovation, and I am committed to advancing UPL's mission of sustainable value creation for all shareholders. Q1 presented a challenging macroeconomic landscape, particularly across Brazil and broader Latin American markets, where lower commodity prices led farm income interest, higher interest rates and volatile currency continue to impact distributor performance. Additionally, ongoing geopolitical uncertainties, including concerns around The US tariffs continue to influence market sentiment and trade flows. Further, China oversupply related AI pricing pressure continues to exacerbate overall business climate.
Before we delve deeper into the financial performance, I would like to take and share key updates on our liquidity and rating development. The first being prepayment of scheduled $250,000,000 long term loan, due in September 2025, paid with a strong liquidity generation in Q4 FY twenty twenty five. Second, we exercised redemption of perpetual bonds at the first call, totaling dollar 400,000,000 in May 2025 earlier this year. The third update is the right issue committee approving payment of the second and final call of rupee $1.80 per partly paid equity share aggregating to $16.88 crores or dollar 200,000,000. This amount represents 50% of the total issue price of rupee $3.60 per share, comprising rupee 1 towards face value and rupee 179 towards share premium.
The record date has been set as today, that is Friday, 08/01/2025. We expect the proceeds to come in by September, subject to regulatory clearance. The final update is on the recent outlook upgrade by two global ratings agencies, Fitch and S and P from negative to stable. I'm pleased to add, this is a strong endorsement of our financial resilience, strategy clarity and commitment to sustainable value creation. Our actions reflect our continued focus on capital efficiency, deleveraging and long term stakeholder confidence.
Starting with the q one FY twenty six performance overview. We had a strong start to this financial year 2026, delivering a robust first quarter. Our EBITDA reported a double digit growth, led by significant improvement in contribution margin. Additionally, we also improved on our leverage ratios while lowering our working capital, underscoring our financial discipline and relentless execution towards operational excellence. In Q1 FY twenty six, we reported revenue of 9,216 crores, around 2% higher versus last year.
This was driven by 1% increase in pricing and favorably supported by exchange impact. At the platform level, we reported double digit growth in UPL SaaS, our India crop protection business, which grew by 13% versus last year, and Advantage, which was up by 20%. I'm pleased to share that the growth in both these platforms was driven by a mix of volume and pricing, indicating our strong market presence and good acceptability of our products. Supporting this growth was Superform, our newly rebranded super specialty chemicals platform, which was up by a robust 9% led by volume. Our global crop protection business, UPL CORP had some seasonality related challenges in Brazil, mainly in the insecticide volume, resulting in overall decline in the revenue by 3% versus last year.
My colleague, Mike, will cover this in detail in his remarks. Among key reasons, growth was driven by India, up 21% and was supported by North America and Europe, both of which grew by 8% each versus the previous year. This was partially offset by decline in Latin America, mainly Brazil, as highlighted earlier and rest of world, where we faced some challenges on seed and crop protection. Both these regions declined by 10% versus last year. Our contribution increased to 4,001 crore, a significant 12% jump versus last year.
The margin was over 43%, an improvement of around three ninety basis points versus previous year. This performance was driven by improved product mix, favorable pricing, apart from higher capacity utilization and lower input costs, mainly in the crop protection segment. This also reinforces our commitment to operational efficiency and a strategic sourcing, leading to favorable cost position. The SG and A expenses amounted to 2,698 crore, an 11% increase year on year. This was mainly due to one off Brazil distributor restructuring impact.
It is to be noted that this is non cash in nature and will subsequently unwind over the period of recovery horizon. Despite increase in SG and A, we delivered a strong EBITDA of 1,303 crore, up 14% year on year. I'm also pleased to share that EBITDA margin stood at over 14%, improved by 150 basis points versus last year, driven by improved contribution margin. Profit before tax or PBT at a loss of $1.90 crores, significantly lower versus a loss of 455 crores last year. This movement was driven by EBITDA at 1,303 crores, up from eleven forty five crore last year.
Depreciation and amortization expenses increased from $6.60 crore to $7.31 crore as planned. Significant reduction in net finance cost down from $7.40 crores to $6.31 crores this year, mainly driven by lower working capital requirements and debt prepayment. Increase in net exchange losses from $1.43 crores to $1.78 crores, mainly from higher cost of hedging in Brazil as a result of increasing local interest rates. Our hedging strategy continues to provide a risk mitigation tool against extreme currency fluctuations in key markets. Shares from associates and joint ventures increased from a loss of 32 crores to a gain of 18 crores in this period.
Additionally, the exceptional items declined to 9 crores from 49 crores previous year. Profit after tax or TAT narrowed to a loss of 176 crores, a significant improvement from a loss of $5.28 crore last year. Reported ADMI or profit after tax and minority interest stood at a loss of 88 crore, an improvement of around 300 crore versus last year, driven mainly by improved EBITDA, lower net finance cost and exceptional items. Moving on to key balance sheet items. Our net working capital in June 2025 was 11,025 crore, a significant 3,300 crore lower versus the previous year same period.
This positive development was supported by continuous focus on inventory management and tighter credit controls led improved collections. In terms of days, net working capital was at eighty six days, lower from one twenty one days in the previous year, a reduction of thirty five days. Inventory days stood at hundred and ten days, a reduction of seven days, while payables were at hundred fifty two days, up from one thirty one days the previous year. The receivables were at one twenty nine days, lower by six days versus the previous year. We also saw a reduction in non core factoring by around $45,000,000 on year on year basis, equivalent to about three days lower in U.
S. Dollar terms. Moving on to the net debt. As of June 2025, net debt stood at 21,371 crore or 2,492 million dollars, reflecting a reduction of 6,129 crore or $8.00 $6,000,000 compared to 27,500 crore or 3,298,000.000 billion dollars in June 2024. However, net debt increased sequentially versus March 2025, largely due to the impact of perpetual bond redemption, 3,409 crore or $400,000,000 and higher working capital requirements in line with business seasonality.
I'm also happy to share that our key gearing ratios that is net debt to EBITDA and net debt to equity have shown remarkable improvement compared to q one last year. The net debt to EBITDA improved from 5.4 times last year to 2.6 times driven by strong operational performance and capital efficiency. This ratio was at 1.7 times in March 2025 due to seasonality led higher collections in that period. Simultaneously, the net debt to equity ratio improved from 0.9 times to 0.6 times versus last year. As I hand over to my colleague, Mike, who will take you through the performance of our global crop protection business or UPL Corp, I would like to highlight that our business has shown remarkable resilience in this quarter, underpinned by improved operational efficiency and prudent financial management.
Further, our effective capital management, significant reduction in net debt and improved gearing ratios reflect our continued focus on expanding the balance sheet and creating long term sustainable value. I now hand over to Mike, who will take you through the details of UPL's cost. Mike, I want thank you.
Yes. Thank you, Dakesh, and hello, everyone, and welcome to our first quarter earnings call. Before we review the quarter, I'd like to start by providing some color on the global crop protection market. We continue to see strong ag chem demand at the farm gate level, despite low commodity prices for row crops. Farmer margins are under pressure in most markets, and this is creating more demand on the post patent side of our business.
The financial health of our dealers and retailers is generally steady with the exception of parts of Brazil where a few retailers continue to have liquidity challenges. As we have previously indicated, channel inventory levels for UPL stock have returned to normal levels, and we are seeing restocking occur as expected and positively to meet growing demand. As a positive indicator, we currently have a stronger order book compared to this time last year. So turning to our Q1 performance. In the first quarter, we posted slightly lower revenue compared to a similar period last year.
However, our contribution margin and EBITDA growth showcases our resilience of our business model and the value of the productivity initiatives that we've implemented. While our Q1 revenue was down by approximately 3%, I'm pleased to report a 13% increase in our contribution margin versus Q1 of last year, expanding our margins by almost 500 basis points. We also posted 23% growth in EBITDA compared to Q1 of last year, reflecting a margin expansion of more than 135 basis points. Overall, margin expansion was a result of COGS improvement and higher capacity utilization, a proof point that our efforts focused on supply chain efficiency are paying off. The lower revenue versus last year is primarily due to product phasing, along with pricing pressure in the insecticide segment, specifically in the LatAm region.
Other major segments such as fungicides posted both volume and robust revenue growth led by Mancozeb in Brazil and North America. Herbicides benefited from volumes and revenue growth, resulting from strong in season demand for key products such as clethodim and metribuzin in Brazil, Europe and North America. Our insecticides portfolio in the first quarter faced seasonal headwinds due to pricing pressures, particularly in Brazil and some products phasing closer to use, as I mentioned earlier. Our NPP biosolutions business benefited from a mix of improved pricing as well as higher volumes led by Europe. Turning to our SG and A.
We continue our strong discipline on discretionary spend. However, as mentioned by Dikash, we had a key distributor in Brazil save their payment plan as part of an extrajudicial process, which created a $13,000,000 ECL accrual impacting this quarter's result. This is a non cash impact, and we do expect it to unwind over the recovery period. Let's now review the Q1 performance for our regions. In Latin America, our revenue declined by approximately 12%.
As already indicated, Brazil was impacted by pricing pressure on some molecules as well as a shift in phasing of some of our products from Q1 to Q2. We are optimistic that our focus on operational efficiencies through strong execution and adoption of a sellout model, coupled with our increased customer focus and strong product portfolio, we will see a recovery in Q2 in LatAm with good growth in the second half of the year. In North America, we grew by 6% versus last year. This region continues to experience strong in season demand for our products with normal to low levels of channel inventories. Our growth was driven by a robust herbicide portfolio with molecules like metribuzin, clostridum and ethmetulicor exceeding last year's Q1 sales.
We also posted higher revenue from key molecules such as Mancozeb and Acetate. Turning to Europe, our quarterly performance 4% over the previous year. Revenue growth was driven by higher volumes in key herbicides such as Flupheneset and supported by fungicides such as Kapton as well as growth in Thiopron, which is a biofungicide product that sits within our NPP portfolio. We continue to see high growth, specifically in Germany, Italy, Belgium and Spain. In Africa and Asia Pacific, we posted commendable growth in markets such as Indonesia, Japan and both Eastern And Western Africa.
However, this was offset with headwinds primarily related to pricing in China and a few other markets, resulting in a net 2% lower revenue compared to the same quarter last year. Turning to our outlook for the second quarter and the full year. We remain confident in our growth targets for FY 'twenty six. And as we indicated in our Capital Markets Day presentation in May, the growth this year will be weighted towards the second half of the year. From an SG and A perspective, we are continually leveraging tools and technology to transform how we operate across all functions, improving our operating model and driving efficiency throughout the enterprise.
Our focus on cash generation continues, and we are optimizing our inventories and driving best in class working capital management, as you can see in the results. On the marketing excellence front, we continue to strengthen our new product pipeline, positioning ourselves firmly to deliver on our commitment of $130,000,000 of new revenue from product launches this year, mostly coming in the second half of the year. In closing, I want to thank our team for their unwavering dedication and our value channel partners for this year's for this quarter's performance. I'm confident that we will achieve robust growth in both revenue and margin as the year progresses. With that, I'll now hand it back to Bikash, who will take you through the performance of our other platforms.
Thank you, Mike. Let me now also provide a quick update on our other three platforms, which are our India crop protection business or UPSTAT. Second, Advantum, our seed platform. And third, our specialty chemicals focused platform, Superform. At UPL SaaS, we posted a strong quarter with revenue growing by a robust 13% versus last year, led by a strong 9% growth in volume and supported by 4% improved pricing.
This was driven by service side and supported by favorable seasons. Further, our successful new launches such as Centurion Easy and Canora Easy also supported improvement in product mix. Our contribution margin was 32.7%, up by around four fifty basis points and led by a favorable mix. This also drove EBITDA margin to 22.3%, an improvement of five forty basis points. Advanta, our seed platform, delivered double digit revenue growth year on year, fueled by robust volume expansion of 12%.
Key contributors to this growth included corn in India and Thailand as well as rain sorghum and sunflower in Argentina. A strong price increase helps mitigate the impact of higher production costs and lower recoveries in Thailand. Despite overall margin pressure and increased investments for new market entries and product launches, our platform EBITDA rose by 5%. SuperForm growth was primarily driven by higher volume. Our super specialty chemicals or SSCs segment grew by a strong 21% versus last year.
The platform reported 50 basis point improvement in contribution margin at 24.9%, driving its EBITDA up by a strong 7% versus last year. I would also like to take this opportunity to highlight that our robust financials and business performance have been enabled by our continued focus on the sustainable initiatives and actions. We have strongly delivered on our five year ESG commitment for FY '25, helping create long term stakeholder value. Further, we are now setting up an ambitious target for FY '30, in which we target to reduce water consumption, carbon dioxide and waste generation by 60%. We also remain committed to empower our communities through institutions of excellence built over the decades and create sustainable livelihood in rural areas.
Whether it is endangered species preservation, forestry initiatives or water saving, we remain committed to protect and uphold our biodiversity. UPL takes pride in its exemplary governance driven by strong and experienced board, both at group level as well as platform and every supplemented by a passionate and experienced global leadership team. I'm also pleased to share that this is reflected in creating a highly motivated and productive workforce as evidenced from our superior engagement score, well above the industry benchmark. Our strong practices have also led to several international accolades, including global accreditation by FTSE and BJSI and other awards and recognition. To summarize, Q1 has been a positive quarter with broad based improvement in the overall quality of earnings.
On the P and L front, our revenue grew by 2%, a strong contribution margin at over 43% and improvement by three ninety basis points, double digit EBITDA growth with margin improvement of 150 basis points and lower interest expense and exceptional cost, led reported profit after tax and monetary interest improvement of around 300 crores. Similarly, on the balance sheet, our working capital days improved by 35 from one hundred twenty one days to eighty six days with a reduction of 3,300 crore. Improved net debt with a reduction of over $800,000,000 post redemption of perpetual bond in May 2025 amounting to $400,000,000. To conclude, we remain cautiously optimistic on Q two and for the rest of the year, which we broadly expect to be margin accretion rate growth. We maintain FY twenty six guidance as already shared during our Capital Markets Day earlier this year at four to 8% growth in revenue and 10 to 14% EBITDA growth versus last year.
Finally, I would like to thank our team for their effort and our valuable stakeholders around the world for their trust and support. I'm confident on delivering our financial commitment in FY twenty six. Thank you and I look forward to your questions. With this, we are now open for Q and A.
Thank you very much, sir. We will now begin the question and answer session. Please go ahead.
Yeah. Thank you, gentlemen, for the opportunity. Good performance, I would say, in most of the businesses.
I have a few questions relating to the recent industry development. The first thing, we recently, China has kind of looking been looking to introduce certain measures in terms of trying to support the chemical prices, wherein they wish to kind of, you know, take some old capacities out of the system. Given that you also have a fair presence in China, what would be your take on the situation? How these measures you see? Can they create create a meaningful impact on the pricing? And any views over there would be helpful.
Yeah.
Hello, Saurabh. Thank you for the question. It's Mike here. Look, we are continuing to experience from China, I would say, overcapacity continues. And the pricing that we've seen over the last eighteen months is also quite similar.
There's a few products where we're starting to see, I would say, some green shoots where either there's been some reduction in capacity or some consolidation. And so we are seeing a few products where prices are starting to increase. But generally speaking, at this point in time, we're not seeing a significant movement in pricing. Our base plan this year assumes that pricing remains consistent out of China. Obviously, if there is further actions, that would be upside to our business case.
As you can see from the growth in our contribution margins, we are very competitive with our manufacturing capability to compete even at these low prices. And if there is any improvement going forward, that will be constructive to our margins.
Can you share some more details over here, which products you are noticing price increase? And if possible, have you taken any price increase in any of your key molecules in China or globally?
Yes.
I would say there's a couple of key molecules in our portfolio where we've seen some increase in price. One would be plastidom. Another one would be Mancozeb, where we are starting to see some prices increase out of China, which is giving us the opportunity to also review our prices in the marketplace around the world, which we are doing. So those would be a couple of examples that are important to our portfolio. Maybe the third one would be esthmetulacore, which is also a significant product for us.
We're also seeing prices out of China start to increase in S material core. So those would be a couple of examples of where we're seeing, again, somewhat I would call green what we're seeing from China.
Okay. So the price increases, is it already a part of your 1Q results or it has been more of a decent action, which will be expected in 2Q?
Yes, I would say a little bit of both.
Obviously, Q1 for our global crop protection is a small quarter. It only represents about 15% or 16% of our full year. So that is one aspect to consider. I would say throughout Q1, specifically with Essimatulacor and with Mancozeb, the prices have strengthened as we've gone through Q1. So I would say the opportunity on pricing is is presenting itself as we go through the rest of the year more so than q one.
Understood. My second question is regarding your seed business. So the last transition, the contract transition, we had, you know, raised about $100,000,000, which was supposed to be funding the future growth of Advanta. So, you know, keeping that in mind and also thinking about some of the recent news reports wherein one of the global ad major New Farm, we have explicitly highlighted. They are looking to, you know, divest their seed businesses, which is branded as New Seeds. So, know, can you can you give some color? Because there were some chatter that UPN has shown interest in terms of looking to acquire the seed business of New Farm. So any clarity on that side will be very helpful. Bhuqin, would you want to answer that question?
Yes. Sure. Thank you so much. Thank you for the question. We also heard the same the checker on the media.
At one time, very similar to our balance, UPL continues to explore inorganic options as part of our core strategy. You are very much aware about it. Hence, we diligently cloud for FX that are great seats for our portfolio as a rooting part of our business. Now that you mentioned it, the new seat is an interesting asset, given its geographic spread and portfolio offering. Moreover, it also fits well with Advanta in terms of revenue and cost synergies.
However, there is a significant mitigation ongoing between two companies, which centers around the enforcement of the license agreement and some critical intellectual property. Advanta remains committed to protecting its IP and commercial rights and are pursuing all necessary legal avenues to protect its assets. The matter is ultimately set for trial, scheduled for next year in Federal Court of Australia. Lastly, since the matter is currently sub duty, we are restricted in terms of selling our further information in this regard. What we can confirm is that we are
Sorry to interrupt, sir.
Your voice is not coming. You are not audible, sir. We have lost the connection for Bhupan, sir.
Oh, Bhupan, can you just, you know, provide some color to that as you know, Bhupan was mentioning. Could you just conclude that as well, your thoughts?
Sure, Anwar. As Bhupan was saying that the matter is ultimately set for trial. It is scheduled for next year in the Federal Court of Australia.
Since the matter is currently subjugated, we are restricted in terms of sharing any further information with regard. What we can confirm is that we are unable to explore this specific opportunity until the litigation is finalized. Over to you Anurag.
Next question please.
Yeah. So so I had a follow-up over here. So what is the future, you know, growth track of Advanta? How we should see this business going? And you will be 100,000,000 where, you know, you see an appropriate use of that money?
Bhutan, are you there?
No, sir. His line is not connected.
No problem. I'll I'll take it later then. Thank you so much, and I'll join back with you.
Thanks. Thanks, Ara. Thanks.
Thank you. Next question is from the line of Aditi Dharan from Investec. Please go ahead.
Just wanted some sense on the recent tariff announcement that how is UPL positioned from exporting from India to The US market, which are the, you know, categories of our product which will be exempted and for which category, what percentage of revenue would be impacted? And how is our competition placed, whether in China or in the domestic US manufacturing on specifically on those products where we are exposed to tariffs?
Mike, could you answer that, please?
Yes. Sure. Thanks, Adip. So firstly, I would say, obviously, this is pretty fresh news of the 25% tariff. If you go back to April timeframe, the original announcement with 26% tariffs on India.
And so this was definitely part of our planning scenario. I would say, firstly, most important, we don't expect it to have a material impact on our business, either positive or negative. We continue to have a, at this point in time, a beneficial comparative tariff rate versus the Chinese competitors and producers, you know, at 25 in India versus, you know, roughly 55% from China. The other thing to take into consideration, as you mentioned, is is The line for mister Mike got disconnected.
We
Mikash, I think Mike got disconnected. Could you share your thoughts on this, please?
Yeah. So what I think Mike explained before he got disconnected was that last year, the duty differential was 25% between China and India. And after the new duty announcement, the duty differential is 30%.
So, still we are better off compared to the last year. However, as an organization, we always anticipated and planned for this scenario. And therefore, this recent announcement doesn't change our financial outcome expectation for this year. For our Western market, the new crop year prices will be announced in the coming weeks, and this tariff will be a consideration in our pricing decisions.
Yeah.
So because just but what percentage of our portfolio of North America And is there competition outside China where possibly there is a lower tariff, whether it's Vietnam or the domestic supply?
I think our exposure will be less than 10%.
Total turnover in North America Yeah.
Total North America, if you look at our turnover, between 600 to $700,000,000.
And out of that, what is getting exposed to this tariff will be less than 10%.
Fair enough. Fair enough. And we will take a follow-up offline. Second question is on impairment on Brazil.
So we have taken an impairment of about INR 112 crores in this quarter. So looking into the subsequent quarters, how is the situation? Are we, you know, should we anticipate more impairment that could potentially come in subsequent quarter as well?
Sir, we, I spoke during my initial briefing that this impairment was a noncash transaction and this will get reversed over the over the recovery horizon. There was a reestroxy that was done for a distributor in Brazil and where many lenders and major suppliers, including UPL, were involved and they supported.
And UPL remains the preferred partner for this distributor. Various actions have been planned to recover the outstanding amount. There are some discussions and some agreements we have agreed into with this distributor, which will not be able to share as it is very commercially sensitive information. But what we can tell you is that our exposure compared to what it was earlier have reduced. Only from the accounting perspective and accounting standard perspective, we had to recognize this.
But overall, our net credit exposure has been reduced. We have taken this impact and accounting noncash impact, but we feel that with over the period of recovery, this entire amount will get reversed.
So on the question, I'll add another comment on top of that, just with respect to any other issues. Firstly, from a concentration standpoint, there's not a significant concentration of customers. So and when we look at our the financial strength of the rest of our customers in Brazil, we wouldn't anticipate any further ECL issues as we go throughout the rest of this year.
Next question is from the line of Taran Agarwal from Old Bridge. Please go ahead.
Hi. Good evening. Quite a few questions. First on the financials, Prakash. You know, We've been consistently seeing reduction in debt, but it's not translating into a reduction in interest cost.
So I understand there are multiple factors. Historically, you used to give us a more granular disclosure. So if you could please comment how should we see the interest cost number moving from here on? And a follow-up on that, if you could just give us some sense on how is it costing when it comes to your payables versus your cost of factory?
Sure.
So, as I discussed earlier that we have done the prepayment of our September maturity and the tightening working capital, reducing working capital that has really actually led to a reduction in the net finance cost. If you just look at the finance cost, which is on the borrowings on the different limits on the working capital and adjusted for the financial income, in dollar terms, our finance cost has gone down by 17% from $89,000,000 during the last year to $74,000,000 during the last year. What do you see that in our published financial? That includes the some impact of the exchange losses as well. But the right way to look at it would be to just look at the interest cost, excluding the impact from the exchange losses.
But Okay.
On interest cost on the borrowing, it has gone down by 17% compared to last year same period.
So, Dikash, I mean, because we don't have these disclosures. Right? It's difficult for us to probably evaluate what portion of interest cost is on borrowings and what portion is otherwise.
So would request for you to properly disclose this going forward. That will be very helpful. Second, the number is ballpark of about INR 1,000 crores, okay? INR 74,000,000 translates to roughly INR $6.50 crores. So what is this balance, INR $3.50 crores?
Yes. So as I said that the net interest cost was INR 74,000,000 crores. In INR $6.31 crores. In addition to that, we had about exchange loss of INR $2.71 crores, which is total to INR 2,007 crores adjusting for the interest income of INR 105 crores.
Got it.
Got it. And we've seen a sharp rise in payables, and we've seen a reasonable reduction in factoring. So from a financial standpoint, which is better? And how do you decide when to increase payables and when to take more factoring?
Sure.
Thanks for the question. Have a very pertinent question in the current economic environment. So first, I will talk on the factoring part. If you look at considering the market volatility, like, depressed stock commodity prices, geopolitical conflicts, tariff uncertainties, and still elevated interest cost, continued credit concerns, we consider factoring to be a strong risk mitigation tool, as it as it is on a non recourse basis. We expect our factoring number to be in a similar range like last year, subject to seasonality.
This should be in the range of say billion dollar that we have guided earlier. This particular quarter, the secretations number or the factoring number has gone down by $45,000,000, but it is in line with the seasonality. What happens? The number goes up during q four, and then from q four, the reduction starts happening. So once we will get into the q three and q four, you will see that this number will start increasing, and from q one, the numbers will start going down.
So this quarter, will see on a like to like basis, 45,000,000 reduction compared to say March, you will see a reduction of about $350,000,000 That's on the securitization program. The second, I think, again, question you asked on the payables, like, how do we look at and what is the pricing that additionally we are paying on the payables front. I mean, looking at our strong performance in the last few quarters, last year and continued strong performance in Q1, now the suppliers are willing to give us much better terms. And the number of days they are giving higher terms as well as the pricing, we are able to get better from them. So I'm not sure that we are getting any additional impact because of the higher stable days.
It's more commercial discussions and the comfort of the suppliers on our balance sheet.
Got it. That helps. Mike, in your opening address, you did call out that you're looking at a stronger order book at this time of the year versus the same time last year. Was it specifically for your Latin America business? Or is it pervasive across geographies?
Yes. Good question. So yes, primarily, the order book concept is a Latin America concept, specifically in Brazil, where typically the dealers and retailers at this point in time of the year are negotiating terms for the upcoming season and then placing orders. So that's where we carry a significant order book. And so yes, it would be geared towards that specific region.
Okay. In Europe, Mike, if I adjust for the currency depreciation because rupees depreciated materially this quarter, The European business in euro terms has been broadly flattish. While I understand Q4 of financial year and Q1 of financial year, these are really the March and the June are the bigger quarters. But if I just look at the June in euro terms, it's broadly flat. So how should I look at it? Should I just look at the June? Or is it more prudent to look at it on those two quarters together?
Yes. Look, think as you think about the crop year in Europe, it really is more on the calendar basis that products are serving the crop year that's currently being grown. Overall, again, we feel good about our performance in Europe this quarter in our Q1.
In U. S. Dollars, we are up slightly. And as you may know, there's been a lot of hot weather across many parts of Europe, impacting a little bit the fungicide business. But our portfolio performed very strong.
And so I think on balance, our performance in Europe, both in Q4 of last year and Q1 of this year, has been really good.
Sure. Just a couple of more on Advanta. Were there any exceptional spends done this year? Because the clip from the gross profit to EBITDA has been relatively narrow.
So would just wanted to get a sense on that. And one on SuperForm, just wanted to understand what proportion of SuperForm revenues are within UPL and what proportion are outside of UPL?
Bhutan, are you there?
Very much here.
Thanks, Bhutan. Could you take the follow-up question, please?
Yes. Yes.
Sure. Sure. So thank you again for your question. I think there are two important elements contributed to this phenomenon. Number one is the cost of procurement of ROCE has gone up. You must have seen in this couple of countries, we have bought prices are quite faster, the non GM tropical yellow corn segment. And second was the recovery from raw corn to the trade, PAC-one. The recovery also has declined because time of type of the time of hike with the higher risk, there was some rain in some countries and that had impacted our yield recovery.
So that phenomena is reflected in that difference. Going forward, I think that things are likely to be improving significantly in quarter two.
Yes. Bhuvan, that gets captured in gross margin, right? But if you see your gross profit increased by 15%, but your EBITDA growth has been about 5%. So to give some numbers, your gross profit increased about INR 90 crores, EBITDA increased about INR 12 crores. So there's about INR 78 crores that got spent in between, which is what I was coming to.
These two major elements, third would be overhead, which you see if you see that line item there for the new year, now recruitment has started. So there is four element which comes to my mind.
Okay. So would it be more onetime in nature in your view? I mean, how should we see it, I mean, for the full year if one were to look at it?
So this the element which I indicated is this onetime in nature because already taken care of in terms of the finished goods inventory, which are already in our factory. So that's part of it. The overhead part of it, there are two components in terms of the permanent employees and the seasonal employees. Since the permanent employees are part of our capacity building for next three, four quarters, which is regular activity which happens in quarter one. But seasonal employees, which are there for its time of harvesting, packaging, etcetera, in the plant, that will now come down.
And in a month or so, it will start that element will come down.
Sure. Bhavan. Last one on SuperPharm.
Raj, could you please take that question?
Yeah. Sure. So on on SuperPharm, I think your question was related to how much is the UPL part of the business and how much. So our our anchor customer business, you know, share as a part of the total business is about 7525% is all super share rating.
Okay. Super. Thanks, Sachi. You. That's it from me.
Thank you, sir.
Next question is from the line of Siddharth Garekhan from Equiris. My
question is for Ashish first. Yesterday, one of the larger competitors in India have decided to exit the Indian market. Can you give us some color in terms of what kind of opportunities this could open for the Indian market? And how do we see growth going into next year? Because FCC was one of the largest players in the market in India?
May I request Mike? Mike, if you could take that question instead.
Sure. No. Happy to. Yeah. So, obviously, we read the same information just yesterday, so it's early days.
Look, I think there's a couple of ways to think about it. Obviously, it indicates the how highly competitive the India market is. And when you look at our results this quarter and over time, it really shows the durability of our business model and our portfolio and our team. So I think that's kind of one takeaway. Specifically, with respect to this asset, like any development in the industry, we'll evaluate, I'd say, purely on its merits. We'll look at our strategic priorities in terms of deleveraging as well as opportunities in terms of asset additions in terms of how it would impact the long term shareholders. And so I would just say it's it's so early, you know, that we don't have a specific point of view, but it's something, of course, that we're we're gonna look at and and and see how it unfolds.
So the second question is on the pricing side. We had last last in the last two, three calls, we had alluded that the pricing decline will start getting restricted in UPL Corp. But going ahead now, how should we see that in the next two, three quarters? Will it entirely be volume growth or will it have some positive pricing impact also going ahead?
Yes. That's a that's a great question. Look, I think in this quarter, as you saw in our results, we did have a 1% decline in in pricing, which is quite modest. Specifically, as we think about growth in Q2 through Q4, we are expecting growth to come almost exclusively from volume. Again, there's going to be some parts of our portfolio where we will see some price and margin expansion, as I talked about earlier.
But for the most part, I think on a blended average basis, the price is going to be relatively flat to to pricing that we experienced last year.
So just one last question on this quarter and the pricing impact. Was it largely to do with the product mix or we have seen a substantial decline in any of the product pricing?
Yeah. Again, the pricing decline was quite modest at at negative 1%. And, yeah, when we look at where the pricing was impacted, there was a couple products in China and The Philippines that had some impact from pricing. But primarily, it was in the insecticide portfolio in Brazil, where there's a couple of categories of products that have gotten a bit more competitive. And retailers and dealers are negotiating very hard on those products.
And so we did adjust some pricing, specifically in our insecticide portfolio in Brazil. You know, we're we're gonna wait to see how that unfolds through the year, but it did have some negative impact in Q1 on us.
Okay, sir. Thank you so much.
Thank you. Next question is from the line of S Ramesh from Nirban Bank Equities. Please go ahead.
Good evening, and thank you very much. So if you look at the UPL Corp P and L, your COGS has come down. So how do you explain that? Is that something which is sustainable over the next few quarters?
Yes. Very much so. One of the benefits that we've seen by reducing our inventory and relatively holding, as we think about it now, about a three month forward look in terms of inventory, we came into the year with really fresh inventory. And our replacement inventory is at a lower cost than the inventory that we came into last year with. So the benefit that we experienced in Q1, we would expect it to carry over through the rest of the year.
And so this margin expansion that we saw in Q1, largely on cost reduction, will carry as we go into the rest of the year.
Okay. So in terms of the utilization rate, can you share what is the benefit you've got in terms of the operating leverage on EBITDA margin? Is that also something that will sustain over the next three quarters this year? Yes.
So the specific benefit of the COGS improvement in Q1 in U. S. Dollars was about $58,000,000 Approximately $30,000,000 of that was a result of lower cost of goods, again, being new or fresh inventory. The rest of it, approximately $20,000,000 was as a result of utilization rates. Again, if you think about last year, as we really managed our inventory down, we were reducing our production throughout the year, but especially in the first half of the year.
And so as we've now started to ramp up our production and our plants back to normal levels, we're seeing the benefit of that come come through the income statement.
And now on the housekeeping, you look at the reversal of the mark to market on receivables and payables, that's a positive of 93 crores or $930,000,000 rupees. So is that something which is sustainable, or will it again go back to a negative number? The trend there?
The cash, I'll turn that to you.
Yeah. Sure. So then the FX has two components. The first is evaluation on the balance sheet, evaluation of the balance sheet, which is mainly the trade receivables, trade receivables that we have to do end of each month, each quarter. The second component is realized and realized and unrealized losses on all our borrowings or any other loans or intercompany loans that is there.
So there are two components. From the numbers perspective, what appears in the P and L is splitted. Part of it on the balance sheet part, you can see it on the face of the P and L, which is minus INR 93 crores compared to say INR 45 crores of last year. And the second component, which is the realized and unrealized losses on the borrowings and the loan, which I just briefed earlier is included in part of in under finance cost. Almost $2.71 crores is included under finance cost.
So if we want to look at it, we have to combine the two to understand the net impact. So while the $2.71 is included under finance cost, 93 crores credit is sitting on a separate line item. So my, I mean, recommendation would be that we should look at combining the two and then looking at it. From a asset policy point of view, it clearly says that we have a very robust FX policy in place and we cover our short term FX exposure, the working capital exposure regularly through the various structures that we have either foreign exchange covers or NDF where we are not able to get covers in a country. And the cost of hedging is the cost of doing business in this geographies, which is effectively passed on to the market.
So one leg is kicking, say, on the FX, the corresponding leg or the adjustment has to happen through the pricing. But our the the way our Indian accounting standard is that we have to look at these two separately. From generally a presentation point of view and all that, most of your other organizations will look at it in line with the with the turnover and the EBITDA that we are making. But just to answer your question, there is a is a debit balance sitting under the finance cost amounting to $2.71 crore. And this is going to be always there.
So, FX impact will always be there. It's not there one time. It will always be there. We operate in different jurisdictions. Depending upon the jurisdiction, the volatility can be different.
So we are, say, presenting all the francophone countries in Africa. The euros are the local currency, c five, is peg to euro. There is no volatility between the local currency and euro, and then euro dollar recover separately. If you go to Europe, again, it's a very stable, and we do take cover between euro and dollars. And when it comes to some of the emerging markets, like LatAm or the Anglophone part of Africa or some of the countries in the other Southeast Africa, when we, say, export stocks to those markets against those inventory, we will have our intercompany payable or third party dollar payable.
And when we sell, support during this period, if the currency has moved from the historical rate to say a new rate, that will go to the FX line item. However, as the business, we always look at what is the currency appreciation or depreciation that has happened and that corresponding impact ideally should be passed on to to the market through the sales price. There might be a lag and we might not be able to sometimes fully pass on to the impact to the market all also. But then we will look at it between how we do our pricing decisions and what is the impact coming at the FX line item. Only just looking at the FX line item will not give you a true picture because the corresponding impact is also sitting it through the increased EBITDA line item.
And it is just to combine the two line items of FX cost in this particular quarter, it has slightly gone up compared to the last year from $17,000,000 to $21,000,000. And this cost has gone up because the cost of borrowing in Brazil has slightly gone up and similarly in some of the other emerging markets, the local borrowing costs have gone up considering the volatility and still higher inflation rate in some of these markets. And this is nothing but reflecting the local cost of financing. Today, when we say export our product to those countries, the payables are in dollar. Now we have two options, either we continue our exposure in dollar at 67% dollar rate or we move to the local borrowing rate.
And different countries will have a different rate. Like, say, Brazil will have now 1516%. It's always a choice between your interest arbitrage, between the dollar rate and the local financing rate and the currency devaluation. In these emerging markets, we don't want to take any exposure, and hence, we remain fully hedged. And for remaining fully hedged, we have to pay for the cost of hedging, which is nothing but the interest rate differential between the dollar financing rate and the local financing rate.
And then obviously, it is consideration while taking the pricing decisions, which will reflect in the EBITDA. I know it's a it's a complex topic, but probably sometimes we can take it offline and we can discuss it much more in detail.
Thank you, sir. Sir, the line for the current participant has disconnected. So, we'll move to the next participant. The next question is from the line of Abhijit Akhila from Kotak Securities. Please go ahead.
Yeah. Good evening. Thank you so much. Just a couple from my side. One is within the cost of goods sold line, it seems like there's been a significant increase in the inventory buildup.
You know, it seems to be about 2,200 crores. This is footnote number eight I'm looking at. So, yep, just what exactly was the thought process there? And then should we expect that the production rate at our plants will actually, you know, come down a little bit, slow down a little bit in in the next quarter or two as we digest this inventory?
Raj, do you wanna take that question?
Yes, Mike. So Raj here. So, you know, if you look at our our business, you know, quarter one, quarter two is is where and, you know, part of quarter three as well where we have an inventory buildup. And then then then over December, January, February, March, you'll find that, you know, the because because that's where some of the biggest geography, you know, that even are there when everything gets sold. So this is nothing unusual.
This is part of, you know, normal business. Also, if you look at our capacity utilization perspective, the best capacity utilizations are in quarter one, quarter two, quarter three. And quarter four, generally depending upon the demand aspect at that point in time, we adjust our plant output in quarter four. So this is nothing unusual. We and we don't have a very large inventory buildup like it used to happen.
I mean, it it it used to be, you know, earlier. The forward cover is only about ninety days.
Got it. Thank you. The second thing was just on the impairment loss item. So $1.92 crores is shown on the case of the p and l. We've described this 112 crore item pertaining to the Brazilian distributor.
What would the remaining 80 crores have been attributable to?
Yeah. So $13,000,000 or 112 crores, we explained, which was for a distributor in Brazil. The remaining is, I would say, broadly similar to what we had last year. We had some issue provisions in Africa in LatAm.
Okay. Understood. Thank you. And just one last thing on the debt balance. Is there any guidance that we can sort of hold out?
I know last quarter we did not for this year, but any thoughts on that front.
No. I was just clearly, I mean, we had last year, we had not given any guidance on cash flow and the net debt or leverage ratio because we are quite comfortable. A year ago, the market was concerned about our liquidity ratios when we exceeded four times last year. After all the initiatives, our leverage ratio reduced to 1.7 times.
So we said that now we are within the comfortable range and hence, we have not given any specific guidance to the market. But as you look at it now, what we have done, we have repaid the $400,000,000 of out of the strong cash position that we had at the beginning of the year. Second, $250,000,000 of September obligation also has been repaid. Additionally, we are getting going to get $200,000,000 from rights by September. And we continue to drive cash generation from operations, supported by our disciplined working capital management.
And as it is evident in our Q1 financial results as well, you can clearly see that. So considering these factors for the current year, we are quite comfortable with our cash position and definitely see that our gearing will be at a lower level than last year, even after repayment of the perpetual bond. However, as we continue to evaluate various strategic options on unlocking value across platform, our focus would be to significantly deleverage our balance sheet in the next year or two. So we are clearly focused on further deleveraging, while we are comfortable with the leverage now as of now on a business as usual basis. But on a on a next one to two years' time, I can say that we are extremely focused on further deleverage our balance sheet.
And we are evaluating various strategic options. At this point in time, we do not have anything material to share with you, but as and when there is something material, we'll definitely share with you.
Got it. Thank you so much. All the best.
Thank you. Next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Hi, sir. Thanks. You know, sir, just taking off from the point that you mentioned, I just, you know, dressing back to the press release comments from mister Rajeshwaf regarding the restructuring that the performance you're to pursue. If you can share some thoughts around what are we, you know, if there's any thoughts around the options that you're considering on that account?
This is too early. As as we would have read it in the press release that we are engaging advisers now and there are various discussions, various options, which will be evaluated. So as of now, there is no firm decision on any structures, but the idea of engaging the adviser is to look at unlocking value for all the platforms. And when there is again, as I said, there is any material development, we'll let all of you know.
Is there a time frame to to in your assessment right now, Marvin, we have some clarity on this way forward on this account? No, I will depends upon how the advisers are guiding us and what are the options that we are selecting. The time will depend upon the choices that we make. I think it will be too early for us to comment on this.
Okay. Thank you so much.
Thank you. Next question is from the line of Sumayya Adi from Aventis Park. Please go ahead.
Thanks for the opportunity. I hope I'm audible.
Yes. You are. Please go ahead.
Yeah. Thanks. Mike, just want to understand in terms of the season progress, both in US and LatAm, Your thoughts on that, how it's kind of progressing? That's one. And second question is on the farm economics.
So this has been a bit subdued almost now, almost a year after from February 2223 coming off. Is it because the producers so high, the increases have been doing well? Or is it because of demand? What is our expectation maybe six months out? Can this reverse the print?
Can pharma start getting better, which is a little bit of a pricing problem?
Yes. Thank you for the question. So in terms of the the Latin America and US crop progress, I would say, the most part, as you would know, in Brazil, the the crops have been harvested from this year. They had both a strong soybean and a strong corn crop.
So from a supply demand standpoint, there was additional supply, was impacted, I think, some of the pricing that we're seeing now in the marketplace. In The U. S, again, the corn and soybean crop, for the most part, is looking quite strong. And the anticipation is it's going to be a very large corn crop. So what we're seeing right now is the current Chicago border trade prices on both corn and soybeans and wheat are subdued.
It's a little bit of a mixed signal. Ending stocks, I would say, high in soybeans, but relatively still short from both the corn and wheat, I think this is the lowest stock to use ratio that we've seen in over a decade. That being said, the entire segment right now is looking soft. If we look forward six months, we are seeing some strengthening in future prices, but still in a range that I would say would keep growers somewhat cautious in terms of investment and well below the peak that we saw a few years ago in commodity prices. And so, unless there's a real catalyst in the next six months, we would expect the current crop prices or the future indications to likely you know, be close to what we're gonna be experiencing as as the year plays out.
Thanks, Mike. Just one follow-up. I think you did mention that there is bit of a a movement from q one to q two in phases. I mean, what would be the reason, I mean, for the shift from Q1 to Q2?
Yes.
Again, as we've talked about for us, it's not about destocking. For the most part, our channel partners have the right amount of stock. I would say in Brazil, there's additional negotiating going on, specifically in the insect portfolio. Again, if you think about the upcoming season, it's the soybean season that's going to get planted in, say, forty five to sixty days. So a lot of the herbicides have been committed.
The insecticides that get used a little bit later in the season, they're still being negotiated, whereas this time last year, was less, I would say, delay in being able to fill that demand. So that is part of it. I would say that's kind of a market back perspective. Then the other side of it is just our phasing of when we're shipping some of our inventory into the channel. Again, we've got a strong order book, in particular, in Brazil.
And so we are purposely phasing just to manage our working capital. We're phasing some of the business into Q2. And so that's what gives us a lot of confidence as we look forward to Q2 and beyond, where we can see a good growth opportunity in some of these markets that had a little bit of degrowth in Q1 for it, specifically in Latin America.
Next follow-up question is from the line of Ash Ramesh from Dirmal Bank Equities. Please go ahead.
Thank you very much for the fraud. So if you look at your segment numbers across the various platforms, the EBITDA adds up to a number which is lower than the consolidated EBITDA of 13 o three. I get a number of twelve thirty eight, whether the consolidated reported EBITDA of 1,303. So if you can reconcile that, that will be useful. So that, you know, if somebody wants to do a valuation across these verticals, you know, it helps them.
And secondly, if you look at your segment numbers, there is a non accrual revenue of $6.39 crores. Is that part of the external business that you do in Superform or what exactly is that?
Yeah. So, yes, it's a Superform. Coming back to your first question on reconciling the EBITDA number, you you would have noticed that in the press release and other documents also, have given, we have tried to reconcile that and whatever the other part is there or the corporate eliminations are there, we have clearly called out and reconciled with the final turnover for the group, plus each platform.
Second, in terms of the EBITDA, if you look at it, we gave the EBITDA number for the four pure play platform. However, in addition to the four pure play platforms, we also have other businesses. One is like, say, UP limited as a stand alone company, which also had some plans. So there are certain EBITDA number that's booked under UPL Limited. We have a deco business, which is a post harvest business.
So those numbers are also consolidated, but since the focus was more on the four pure play platform, we have included that and we have called out. And the others numbers adjusting for any corporate eliminations are any which way included in the group numbers.
Okay. So that is a crore difference is mainly coming from the UPL stand alone. Right?
UPL stand alone, yes, which includes UPL stand alone plus other businesses which is under UPL, like, say, majority of that is, say, you can say, Deco business, which is also included under other.
Yeah. So, one last note on the deferred tax credit, you've been showing that for some time now. So, how much of deferred tax credit you have still left with you for the next few quarters on vendor's end?
No, it's not like that, it's been lender end, it's, it will be regular.
Like, there will be new details, which will get created, there will be deferred tax liability details, which will get amount. So this is irregular. So we cannot say that this balance will become zero. This balance, the old balances will be cleared, the new balances will come up, but these balances will never be zero. How do we get just to call out the the big details or adjusting for detail that we have compared to last year, these numbers have gone down for Brazil, it has gone down for USA.
So for the key reasons where we have these balances, the numbers have gone down. And another difference that can come up, I think we need to understand from the accounting expense that the if the inventory is more, if our business growth is more on the inventory, which is, say, due to the or because of the intercompany, the unrealized margins are eliminated. So when those unrealized margins are eliminated, that time you also create a deferred tax in the books, which will get again unwind when you sell the inventory. Right? So some of these balances while accounting will need to come, but it's not really impact commercially.
But I can have a separate conversation on this and take you through. And in Q1, our inventory balance was significantly higher by almost 4,000 crores compared to, say, March. And because of the higher inventory balance, there is about 120 crores of DDA that was that was created, largely due to the unrealized margin on the additional inventory balance.
Sir, what would be the effective tax rate when you, you know, start generating more moving towards more profitable operations?
Yeah.
So the effective tax rate is for the group. If you look at it, there are multiple factors. And first is the geographical mix. There are geographies where you'll have a zero to low single digit tax rate. There are geographies where we'll be tax rate ranging up to say 40% as well.
So it's a geographical mix that we have to look at it. And each quarter or each year, this mix can slightly change. And hence our, this profit and the effective tax rate can change from that perspective. But our always guidance to the market is, I would say, on a sustainable basis between 15% to 17% for the group. When you are modeling it, you do consider between 15 to 17% for the for the group.
But these numbers can change, I mean, quarter on quarter, but we have to look at it as a 15 to 17% if there are no anomalies in the market.
Thank you very much, and wish you all the best. Thank you.