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UPL Limited Q3-FY14 Earnings Conference Call

January 24, 2014

MANAGEMENT: MR. RAJENDRA DARAKGROUP CFO, UPL MR. ANAND VORA CFO, UPL MR. NITIN KOLHATKAR VP, FINANCE, UPL

MODERATOR: MR. NITIN AGARWAL ANALYST, IDFC SECURITIES

UPLLimited January 24, 2014

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Moderator: Ladies and gentlemen good day and welcome to the UPL Earnings Conference Call hosted by

IDFC Securities. As a reminder, all participant lines will be in the listen-only mode. There will

be an opportunity for you to ask questions after the presentation concludes. Should you need

assistance during this conference call, please signal an operator by pressing * then 0 on your

touchtone phone. Please note that this conference is being recorded. I now hand the conference

over to Mr. Nitin Agarwal from IDFC Securities. Thank you and over to you Mr. Agarwal.

Nitin Agarwal: Thanks Mallika. Good afternoon everyone and a very warm welcome to UPL Limiteds Q3FY14

post results conference call hosted by IDFC Securities. On the call today, we have representing

UPL management Mr. Rajendra Darak Group CFO; Mr. Anand Vora CFO; Mr. Nitin

Kolhatkar VP, Finance and the management team. I hand over the call to the management team

to take it forward from hereon.

Management: Hello everybody, good afternoon and welcome to this 3rdQuarter Earnings Call. We will start

with the key numbers for the third quarter and take you through the 9 months ended December

2013 results and I will also share with you a few updates. I hope you had an opportunity to look

through the presentation which has been uploaded today on our website.

The gross revenue for the quarter ending December has grown by about 16% from Rs. 2,323

crores to Rs. 2,697 crores for the current year. Growth in gross margins has been 17% and gross

margin as a percentage to sale has improved by 30 basis points from 39.1% to 39.4%. EBITDA

has shown a growth of 19% from Rs. 433 crores to Rs. 515 crores. The EBITDA margin as a

percentage to sales has improved by 50 basis points from 18.6% to 19.1%. Profit before tax has

grown from Rs. 235 crores to Rs. 301 crores, an increase of 28% and profit after tax has shown a

growth of 47% from Rs. 177 crores to Rs. 261 crores.

The revenue breakup by geography is; India showing a growth of 21% from Rs. 401 crores to

Rs. 484 crores, Latin America is showing a growth of about 18% from Rs. 834 crores to Rs. 987

crores, Europe is showing a growth of 24% from 263 crores to 326 crores, rest of the world, a

growth of 5% from Rs. 365 crores to Rs. 382 crores and North America has shown a growth of

13% from Rs. 460 crores to Rs. 518 crores. The sales growth of about 15% essentially

constitutes a 10% growth in volumes, a 2% growth on account of price, and a favourable

exchange impact of about 3%.

Now moving onto the results for 9 months period ended 31st December from April to December

31st and I am comparing these with that of the same period for the last year. The revenue growth

has been 17% from Rs. 6,454 crores to Rs. 7,537 crores. Gross margins have grown by 17%

from Rs. 2,498 crores to Rs. 2,930 crores. The gross margin percentage has improved by about

20 basis points from 38.7% to 38.9%. EBITDA has grown by 20% from Rs. 1,207 crores to Rs.

1,452 crores and EBITDA margins have improved by 60 basis points from 18.7% to 19.3%.

Profit before tax has shown a growth of 22% from Rs. 656 crores to Rs. 798 crores and profit

after tax has shown a growth of 31% from Rs. 488 crores to Rs. 641 crores.


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Similar breakup for revenue by geography: India has shown a growth of 25% from Rs. 1,514

crores to Rs. 1,891 crores, Latin America has shown a growth of 19% from Rs. 1,830 crores to

Rs. 2,183 crores, Europe has shown a growth of 19% from Rs. 955 crores to Rs. 1,140 crores and

rest of the world has shown a growth of 10% from Rs. 887 to Rs. 972 crores, North America has

shown a growth of 7% from Rs. 1,268 crores to Rs. 1,351 crores. The YTD sales growth of 17%

constitutes a volume growth of 10%, price increases of 1% and favourable exchange impact of

about 6%.

Moving onto working capital performance as of December 2013 inventories have gone up from

106 days to 111 days. Receivables are down from 115 days to 108 days. Payables were at 95

days and are now at about 105 days and thereby the net working capital is 114 days as compared

to 126 days in December 2012. I will just provide an update on the debt and cash balance. Our

gross debt as of 31st December is Rs. 3,675 crores as against the gross debt of 31st March 2013 of

Rs. 4,203 crores. There is a reduction of Rs. 528 crores as compared to March 2013. However

the FX loans have been re-stated at Dec`13 exchange rate and have an impact of Rs. 279

crores. Considering this there is a reduction in gross debt by about Rs. 807 crores. The cash and

bank balance as on 31st December is Rs. 867 crores as compared to Rs. 1,688 crores as on 31st

March 2013. As a result, the net debt is at Rs. 2,808 crores as compared to Rs. 2,515 crores as of

31st March 2013.

For region-wise performance we are just checking if Mr. Sagar Kaushik has joined us on the

call. If not, I will take you through and provide you some updates on the region performance.

Unfortunately, Mr. Kaushik has been traveling and so he is unable to join us on the call, although

we are still trying to connect him. In the meantime, I will update you on some of the key

performance updates for respective regions. As mentioned earlier India, for the quarter, has

grown by 21% and for 9 months period has grown by 25% and this is essentially on back of

excellent and widespread monsoon which has resulted in an increase in treated area in India both

for Kharif as well as for Rabi crops. We are seeing an overall 10%-15% market growth. Our new

products Ulala and Atabron, two insecticides, continue to do well in the Rabi season. There has

been an increased focus on the power brands like Lancer Gold, Starthene Power, Saathi, Saaf and

Phoskill. Spike in growth of insecticides in cotton is due to high incidence of sucking pests. Also

we see price increases; the markets have accepted the price increases and this has helped us to

offset our increase in cost of goods. Wheat herbicide portfolio of Total, Vesta and Jhatka brands

have increased the treated area due to good wheat crop and consumption still continues in North

for the wheat herbicide.

Moving to Latin America the growth for the quarter has been 18% and growth for 9 months

period has been 19%. In Brazil, we see an increase in soybean and cotton prices due to high

commodity prices and also there is a higher consumption of Agchem due to higher Heliothis

infection in cotton, while sugarcane, coffee and citrus are under pressure due to softening prices.

In Colombia, the consumption of Agrochemicals faced certain disruptions as there was a strike

by the farmers; however, the impact has been restricted to just Colombia as a country. We see

dry weather prevailing in Argentina and Mexico and this has impacted the crops there. However,


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Mexico could still maintain a good growth in business. As far as Argentina is concerned, there

has been reduced glyphosate sales for us due to lower margins and we therefore expect that

overall the profitability would improve by sale of other products and there are new opportunities

emerging in Ecuador and in Costa Rica for our products on the Banana plantations.

Moving further from Latin America to Europe we are seeing a growth of about 24% in the

quarter and on YTD basis, 19% growth. However, there are concerns due to prolonged winters

and late spring which affects the herbicide sales in cereals and sugar beet. We see improved sales

in vineyards for our fungicide range. Our product, Mancozeb shares in both brands and

institutional sales continue to grow. CIS countries have now been combined as a part of

European geography. The sugar beet acreage is reduced by about 7% to 15% in different

countries and there are also higher inventories of herbicide in the channel and this could have an

impact on the sales in the coming season. Current winter season again has delayed which may

have an adverse impact for the next season.

Moving to rest of the world we have seen a revenue growth of 5% for this quarter and we have

seen an YTD growth of about 10%. South East Asia continues to grow as expected. However,

we see a degrowth in Australia due to dry weather. We have put in place an Africa growth

strategy and we expect strong revival in African markets over the coming years. As far as

Bangladesh is concerned, we see a revival for our fungicide business. In Pakistan, we have been

able to establish a new distribution platform which would see better sales in the coming years

and we see a higher growth market access through increased registrations in some of the African

countries. That is the update on rest of the world.

Moving onto North America we see a growth of about 13% in the quarter and a growth of

about 7% on a YTD basis. Delayed winter and much delayed spring has affected Q1 sales;

however, we have seen partial recovery in Q2 and Q3. Worst dry weather conditions in Western

region have affected Horticulture and this has impacted our business as we have presence in the

Horticulture segment. Good acceptance of UPL herbicides in soybean against resistant weeds has

helped us to improve our sales of herbicides. RiceCo, which specializes in rice herbicide, has

increased its treated area with the rice herbicide products and we see an excellent position reach

for Metribuzin which is a growing herbicide in the US market. That is all on the update from the

business side.

As always, we provide you certain other updates and I will update you on the open offer, the

share buyback which the company has announced. As most of you must be aware, that the

company announced a share buyback scheme for 140 lakhs shares at a price of 220 per share

with a total outflow of about 308 crores. As of today, the company has completed more than

50% of the buyback and the company has acquired close to 74 lakhs shares at an average price of

about Rs. 212. That pretty much sums up the update on the results for the third quarter and for

the 9 months and we thank you for your patience and welcome your questions. Thank you.


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Moderator: Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session.

The first question is from the line of Himanshu Nayyar from Quant Capital. Please go ahead.

Himanshu Nayyar: So starting with the margin number sir, last two or three quarters we had seen a strong traction on the

margin front where we saw 70-80 bps increase in the margin. I am talking about ex other income, but

this time we have seen the margins being flat year-on-year. So just wanted to know whether it is a

general deterioration of sales mix or the geographical mix or have you been spending significantly

higher on certain items?

Management: We consider margins including the other income from operations and therefore based on that as I

shared with you, our margins have improved for the quarter by about 30 basis points and on a YTD

basis by about 20 basis points and we have very little income coming from interest income. These are

mainly from exchange and other things. So we very much considered integral part of our business. So

when you consider revenues along with other income, we pretty much continue to improve our

margins.

Himanshu Nayyar: So second question was that only sir. Other income normally has trended in the range of Rs. 27-28

crores for a quarter, this time it is Rs. 50 crores. So any exceptional or nonrecurring items there this

time?

Management: It is basically exchange related thing and you would have seen the movements which are related to

volatility in the exchange and essentially it is an exchange income which is there. There is no one time

income which is coming in here.

Himanshu Nayyar: And sir normally we used to account for FOREX losses in the interest cost part. So you have changed

it this time. So no FOREX losses in the interest cost component.

Management: No, it does have both. I think this is on the operating side whatever exchange happens, it is above the

line and on the loan side or the financial side, it is in the finance cost.

Himanshu Nayyar: Can you quantify that sir, what is the FX impact in our interest this time?

Management: The FX impact in the finance cost is about 17 crores.

Himanshu Nayyar: That is loss right?

Management: Yes.

Himanshu Nayyar: Sir on the tax rate also, we have seen a significant change this time. So can you guide us on the tax

rate on an annual basis for FY14 now?

Management: We are looking at an effective tax rate of close to about 22%-23%.

Himanshu Nayyar: And for next year sir?


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Management: Around the same levels.

Himanshu Nayyar: And sir one more thing on the revenue side. We had a guidance of 12%-15% for the year excluding

exchange impact. So now for the 9 months, I think we are close to 10%. So are we looking to revise

this guidance downwards or we still are confident of a very strong Q4.

Management: Well I am glad we gave a band of 12-15. Well, I can say just now is that we would be more inching

towards 12.

Himanshu Nayyar: And sir finally on this extraordinary expense that we have about 40 crores, could you just give some

more details on to what exactly was that on account of and are we expecting to spend some more on

this going forward?

Management: As of now, let me share with you, this 40 crores extraordinary expense is some of the restructuring

exercise which we have undertaken in our international plant. We are sort of shutting down a few

lines in some plants and in some cases we are moving certain lines and consolidating at one particular

location. So these are expenses pertaining to those restructuring exercise. It is a onetime exercise and

we believe that we have pretty much accounted for all these at least for this year. We do not expect

any other thing unless something completely unforeseen comes.

Moderator: Thank you. The next question is from the line of Tejraj B from East India Securities. Please go ahead.

Tejraj B: Just wanted to know in your PPT, your PAT is given 261, but if I see it in the consol result, it shows

Rs. 222 crores. So any reason, I think it is extraordinary item which is not being taken that or?

Management: The presentation does not have the exceptional items and therefore that is the difference of 40 crores.

Moderator: Thank you. The next question is from the line of Girish Achhipalia from Morgan Stanley. Please go

ahead.

Girish Achhipalia: Just wondering on the debt side, our working capital in rupee terms would have gone up by Rs. 400

odd crores?

Management: No, from where you are seeing from March or you are seeing from last quarter to this quarter?

Girish Achhipalia: September.

Management: Yes, from Sept`13 to Dec`13 there is a movement of about 438 crores.

Girish Achhipalia: And sir if you could just help on Q4 for Europe now and for rest of the world. What is the outlook in

those geographies?

Management: Europe should do well. We see the season coming in Q4 in Europe and US, we are quite hopeful. Of

course we have put in as I shared with you the performance. A lot depends on the weather and we are


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seeing delays, extended winter and other things. Hopefully if the weather remains good, we will

continue to perform well. We have built inventories like we do in the past. So we are ready for the

season.

Girish Achhipalia: Just wanted to understand slightly differently. So when we are looking from 11% growth in the 9

months, you are talking about around 12% for the full year on a constant currency basis. Which region

is that incremental growth would have come from?

Management: I think both Latin American and India have performed very well this year.

Girish Achhipalia: So next quarter also, you would expect strong performance.

Management: Next quarter, is quarter for Europe and US and Brazil.

Moderator: Thank you. The next question is from the line of Prateek Poddar from ICICI Prudential Asset

Management Company. Please go ahead.

Prateek Poddar: Could you just give me the CAPEX amount incurred during the 9 months and during the quarter?

Management: For the 9 months, we have incurred a CAPEX of Rs. 405 crores and for the quarter, it is Rs. 113

crores.

Prateek Poddar: And in terms of for the full year, what are your plans for FY14 I am saying?

Management: We have given a guidance of about Rs. 450 crores, 450-500 we will be in that region.

Prateek Poddar: So this would include all your inorganic and organic, everything right?

Management: CAPEXES, we generally have the tangibles and intangibles.

Prateek Poddar: So apart from this, any inorganic opportunities you would be evaluating?

Management: We keep evaluating, but we do not have anything planned as the CAPEX expense.

Prateek Poddar: And sir working capital in terms of, I believe you had given your guidance at the start of somewhere

between 90-100 days. Would you like to maintain that?

Management: It is about 90 to 110, but this is the time when we build up inventory. Therefore as I mentioned the

inventory days are higher because we typically build up around this time inventory for Europe and

US, but we hope to bring down to the levels of what we had indicated by March end.

Prateek Poddar: So you would be in that band of 90-100?

Management: Yes.


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Prateek Poddar: I am just trying to get a bit more clarity on this, would it be towards the higher end of 110 or?

Management: We will be closer to 100, but it is a bit difficult to predict. At the end of the day, one big delay and

weather and other things, I wish we could be able to project it so accurately, but that is why we

always prefer to give a band.

Prateek Poddar: And sir in the current quarter, you have paid around 400 odd crores of debt?

Management: yes.

Prateek Poddar: Any future plans in the next 3 months or in the next year also where do you see the debt levels coming

to?

Management: It is always our endeavor to reduce our debt and we have said that our ideal situation of debt-to-equity

is 0.3 which we will try to endeavor to reach over the next 2-3 years.

Prateek Poddar: So by debt-to-equity, you would mean gross debt-to-equity or net debt-to-equity?

Management: Net debt-to-equity.

Prateek Poddar: And as of now, what is your net debt-to-equity position sir?

Management: 0.45 to, rounded out to 0.5.

Management: Would be around 0.45 or something because March level, it was close to 0.5-0.55. Now considering

our increase in the net worth and the reduction in the debt, I guess it would be around that number.

Management: As of now, we are at about 0.46-.0.47, but once we have the buyback completed, we would come

down.

Prateek Poddar: Sir just one last question on the cash which you generate this year and any other plan because you will

be generating huge amount of cash and I believe some of it would have already, you would have put it

towards the buyback, what about the other cash. Will it sit on the balance sheet or again it would go

towards debt or what are your plans?

Management: Whatever are the cash we will generate, we will reduce the debt as much as possible.

Prateek Poddar: Apart from that CAPEX of Rs. 400-500 crores, incremental working capital, cash would go towards

that. Is that understanding correct sir?

Management: Yes and some towards working capital, growth coming in. The working capital demands also will go

up.


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Prateek Poddar: So you would use the cash which is generated in the business rather than piling up more debt from

somewhere else?

Management: Sure, absolutely.

Moderator: Thank you. The next question is from the line of Abhijit Akella from IIFL. Please go ahead.

Abhijit Akella: First on the other income, could you quantify how much was the FX gain within that 50 crores?

Management: Out of the 50, the interest income is just about Rs. 13 crores, the rest is all FX.

Abhijit Akella: So the FX would be then Rs. 37 crores.

Management: That is right, little bit of other operating income.

Abhijit Akella: Right and sir also just wanted to understand we have said that the FX gain this quarter was around 3%

points out of the revenue growth of 15 whereas when I look at the USD INR movement YoY, I think

for the quarter the rupee had depreciated by almost 14% year-over-year. So how come it was just 3%

points, I would have expected a little bit more.

Management: We have to also take the mixes between, when you are saying currency is only on account of dollar

business and euro business, when you do rupee to rupee is not really a currency impact there or if you

take Brazilian Real to Brazilian Real there would be no currency impact. So this 3% is the average for

the whole business, but region to region, it will be different.

Abhijit Akella: So I guess North America and Europe this quarter was almost around one-third of the total revenue

and both of these currencies would have depreciated 14%-20%. The euro was down, I think 20%

YoY, the dollar was..

Management: Then you are referring to YoY or?

Abhijit Akella: YoY only because I think your calculation also is YoY right, 3% point calculation?

Management: It is average versus you are looking may be just that point of time.

Abhijit Akella: No, I am looking at the quarterly average sir.

Management: Then it should not be the case.

Abhijit Akella: So I think the euro last year was Rs. 70 and this year in the third quarter was on average 84, so around

20% and USD last year it was 54 and this year it was 62.

Management: Yes. If you take that, yes in our number, you are right. The exchange for Europe was 16% in our

calculation for the quarter and the dollar was actually, US was only 6%.


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Management: US was 6%, Europe was 16%. Actually the dollar exchange rate just for your benefit, we are looking

at 9 months, you are seeing for the quarter.

Management: So for the quarter it is 16% for euro what you are saying.

Abhijit Akella: Right. So I think maybe the Latin America and..

Management: Yes, but others also have been impacted, so there could have been different numbers.

Abhijit Akella: Would it be possible to give us what the North America and Europe growth rates could have been,

adjusted for the currency benefit?

Management: Actually we do not give that, we do not have the disclosures for the period.

Abhijit Akella: We have a slightly cautious commentary for Europe given the delayed winter and also in North

America, we have been seeing that there has been a severe winter out there as well. So would we be a

little bit cautious in terms of the outlook for 4Q and 1Q?

Management: That is why I mentioned; that fortunately we give a band of 12%-15% and we will be more towards

12 is what we indicated.

Abhijit Akella: Fine, also just the Brazil margins, could you give us some sense of where those stand now sir?

Management: No, there is an improvement of 200 basis points that is all we can tell you. We do not have a

disclosure for the standalone numbers.

Abhijit Akella: Improvement year-over-year?

Management: Year-on-year basis.

Abhijit Akella: And are we expecting any further improvement, is this restructuring charge related to further

improving the margins out there?

Management: There was no charge for that; in Brazil we didnt have anything. What you saw the charges are really

related to Argentina manufacturing and European manufacturing.

Abhijit Akella: And any reduction in operating expenses that we can expect going forward because of this shutdown?

Management: Yes that is the idea of doing that is to cut down some of our manufacturing fixed costs in these two

locations. So we believe that there will be a cost saving which we will give you the guidance in our

fourth quarter numbers.


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Abhijit Akella: Okay fine, fair enough and just one last thing sir. In your opening remarks, you had mentioned that

adjusted for the FX impact on the loans of Rs. 279 crores, the borrowings would have been down 528

crores. I did not catch the exact number so if you could just repeat that for me?

Management: You are right; Rs. 528 crores was the reduction in gross debt. We said Rs. 3,675 crores was gross debt

as of 31st December and as of 31st March, it was Rs. 4,203 crores.

Moderator: Thank you. The next question is from the line of Atul Rastogi from CIMB. Please go ahead.

Atul Rastogi: First thing on more macro since we have seen crop prices especially wheat, corn and sugar really

crash over the last 2-3 months. Do you think going forward there could be some impact on acreages

and historically how you are seeing that?

Management: I think there will be changes in acreages. You will always see people shifting, like in US, I am sure

some acreage of corn will shift to soybean or something else will happen. That much we will

definitely have that shift. The only thing certainty, they will plant some crop. That much I can tell you

and the question for us is like for us it is not a single crop dominance of 20% or 15% or 30% of our

revenue. So to some extent that is the reality for every season to season for us that people change crop

pattern. As far as we have a broader portfolio, it helps us to achieve compensate from one crop to

other crop in such.

Atul Rastogi: And sir secondly on the working capital side, if I look at number of days December versus March, it is

up by 25 days. So in terms of rupee, then it will be up by almost around Rs. 800-1000 crores.

Management: You are right, Rs. 819 crores to be precise. Of which, Rs. 125 crores is the exchange impact.

Atul Rastogi: Rs. 450 crores is the CAPEX roughly and Rs. 800 crores is the working capital investments for the

year this far. So I am just trying to calculate the free cash flow would have been roughly how much

this 9 months?

Management: But you have to also take there are other movements also happening on loans and advances. CAPEX

is when we said there are CAPEXex which could have been paid through loans and advances.

Atul Rastogi: So cash CAPEX is much lower, is it?

Management: It could have happened because also it is a funding timing.

Atul Rastogi: So can you give some idea what will be the free cash flow in 9 months?

Management: Offhand we do not have the number, we will be happy to do that for you.

Atul Rastogi: And sir one last thing on again more macro thing that we have seen Argentine Peso and Brazilian

Real also especially last one or two weeks have been quite weak. So you have significant receivables

also there. So are you covered to that extent or how does it work there?


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Management: The Brazilian market, you know there is almost close to 50%-60% of the market is dollar

denominated. So yes, we have covered, but as you see our revenues are spread evenly across the

world and by looking at the economic scenario, you will always see some country having currency

impact, but our dependence on single country is pretty I would say within the manageable limits and

what we do is we have a close monitoring system. So wherever we get early warning on some of the

countries or the currencies depreciating, we make sure that we will cover our receivables well in time.

Moderator: Thank you. The next question is from the line of Balvinder Singh from Prabhudas Liladher. Please go

ahead.

Balvinder Singh: I joined in late, so pardon me for if I ask something repetitive, but I was just trying to understand your

guidance on EBITDA including other income is 100 basis points improvement in FY14 and if I am

correct, the 9 months EBITDA margin including other income is up by around 60 bps right. So that

means the asking rate for the fourth quarter is quite high. So essentially you will have to do something

like more than 100 bps of margin improvement in Q4 to achieve that 100 bps margin improvement for

FY14?

Management: I think we said we are hoping to achieve 100%, but we may be between 80 and 90 bps possibly by the

end of the year.

Balvinder Singh: So essentially you are scaling that down by 10-20bps.

Management: Yes, it also a function, because we have a strong European, US business, if they really go strong then

we can even beat 1%. What we are looking at and also function of two geography because they are

one of the most profitable geographies for us.

Balvinder Singh: So would not it make sense to guide something lower at the beginning of the year and then achieve

higher than that, rather than guiding for something higher and being on the lower side?

Management: We get conversation on both ways Balvinder. We keep on getting this conversation that we should

guide as realistic as possible and we get conversation, then we should guide lower. So I think when

we gave the guidance that was the best guesstimate of the organization and the management team

which was presenting at that time because it is also a function of the management team what we

would like to also push for. That was the realistic estimate at that time.

Balvinder Singh: And on the working capital side, on a quarter-on-quarter basis, if I see your working capital has

deteriorated from 101 days in Q2 to around 113-114 days currently and if I go through the

presentation, it has been primarily due to your reduction in creditors days on a quarter-on-quarter

basis?

Management: We give you a comparison for quarter as compared to the last year quarter at the same time. You

have to take the seasonality into account of each of the market place. So if you look at last year also,

similar situation would be there in our numbers if you look at the time horizon. There are some


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payouts which happened like in this. One of the reasons why you saw the creditors dropping is that

the huge payout happens in December for e.g. Rebates in US. So that is why you see the creditors

falling in that quarter.

BalvinderSingh: And just a clarification, you had earlier guided for 90-100 days of working capital while if I am

correct, I heard on the call today that it was around 90-110 days.

Management: So I think we are still guiding, we will be closer to 100 days what we believe in.

Balvinder Singh: It was the higher side.

Management: Our intention would be to go closer to the 90, but as you said we rather be conservative as you said

now.

Balvinder Singh: If you could just help me with the gross debt and net debt number, I missed that.

Management: The gross debt number as of 31st December is Rs. 3,675 crores and the net debt number is Rs. 2,808

crores.

Balvinder Singh: So there has been a gross debt reduction of how much?

Management: About Rs. 528 crores.

Moderator: Thank you. The next question is from the line of Amar Morya from India Nivesh. Please go ahead.

Amar Morya: Sir firstly on the US geography since it is a key geography for the fourth quarter. So what I have seen

is that like corn production is very high in US this time and corn prices are also at risk. So we do not

see that going ahead the corn acreages are likely to reduce for US and Brazil and since these are the

key geographies, so I wanted to know what is our dependency on corn as a crop?

Management: In US, we have less than 10% could be on corn as a business for us, but again as we said instead of

corn farmers may go back to soybean or cotton or something. So that acreage will be in play. It is the

matter of which crop it may come for play and one of the reasons this year we have suffered in

because of biggest business in Europe is on Horticulture on fruits and vegetables and that has been

like if you know the western part of the US is still in drought. That is why we have had some bigger

impact than others.

Amar Morya: So sir in terms of the US, as you have said like in US your biggest dependence is on the Horticulture

that is fruits and all like other than that in terms of the Europe, what is the key crop kind of which

contributes around 20% or 30% of the revenue?

Management: For us, the big crops are really the sugar beet. Then we have oilseed rape. They are the big crops for

us other than other crops which we obviously sell lots of them on, a lot of fungicides goes on

vineyards and fruits and vegetables and all the other things that come in.


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Amar Morya: And sir lastly in terms of the revenue mix, can we share the currency wise revenue mix if you have

some offhand.

Management: Not offhand with me.

Moderator: The next question is from the line of Chetan Wadia from JHP Securities. Please go ahead.

Chetan Wadia: My question is your analysis of the current performance of the 9 months and what is the outlook for

them for the year as a whole?

Management: I think we believe they will end whatever they were at the year-end last year for us. We do not believe

any major change.

Chetan Wadia: So the kind of Rs. 36 crores of gain which is there last, I think that should be there for this year as

well.

Management: More or less in that range from Rs. (+/-25) crores may happen, but not really any change.

Moderator: Thank you. The next question is from the line of Dixit Mittal from Shubhkam Growth Fund. Please go

ahead.

Dixit Mittal: Sir can you give the number for working capital YoY in terms of increase in working capital vis--vis

you said quarter-on-quarter it has increased of 173 crores. So YoY if you can give some sort of

indication.

Management: From 31st March till 31st December, we have an increase of Rs. 800 crores, of which Rs. 125 crores is

from currency.

Dixit Mittal: No sir, if you can compare with December.

Management: I will give you from last December also. As of December 2012, we had net working capital of 2,861

minus 3,034, so it is roughly Rs. 200 crores, Rs. 173 crores.

Dixit Mittal: Rs. 173 crores YoY?

Management: If you take 31stDecember, 2012, to 31st December, 2013.

Dixit Mittal: Sir this includes loans and advances as well.

Management: It is purely inventory receivables and payables.

Dixit Mittal: Sir if you can give some indication of loans also because in terms of..

Management: We do not have the numbers offhand.


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Management: We do not really look at that because that is not really a working capital movement.

Dixit Mittal: Sir basically your loans and advances, they rise in like proportionate to sales or not yet.

Management: No, they change. They fluctuate but they do not have correlation to sales.

Dixit Mittal: Sir in terms of cash, you said right now it is around Rs. 867 crores. Sir what was the position in last

quarter-on-quarter?

Management: 30th September, the cash was Rs. 1300 crores.

Dixit Mittal: So most of the debt you have paid is out of the existing cash balance.

Management: That is right.

Moderator: The next question is from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead.

Jinesh Gandhi: Sir, my question pertains to your other income, the EBITDA, other income of Rs. 50 crores. You have

indicated Rs. 13 crores is from treasury income, can you give breakup of balance Rs. 37 crores, how

much would be FOREX and how much would be operating out of it?

Management: Other income. Vast majority is FOREX out of it.

Jinesh Gandhi: Balance about Rs. 35-37 crores is.

Management: Yes, it is FX.

Jinesh Gandhi: And this would be FX pertaining to what?

Management: FX on basically anything. Even if it is our receivables, FX will goes as if it is an income, it goes

above the line. If it is an expense, it goes in expenses. It is an accounting rule more than anything else

honestly.

Jinesh Gandhi: So what I am trying to understand is there will be some FX income in other operating income as well.

Management: No, the other operating income would not have FX at all.

Management: It would not have FX; there would not be any FX.

Management: Because that is the way the accounting happens now. That is our operating income and in our case

would be our excise refund, job work charges, export benefits, things like that.

Jinesh Gandhi: And second question pertains to our restructuring exercise in Argentina and European businesses

while we are closing down operations, which manufacturing locations are we shutting it to?


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Management: We are shutting the one manufacturing site which is the Agrichem which we had acquired about last

year. So we are shutting the manufacturing for formulation in one of that sites and one of the

Mancozeb manufacturing technical capacity, we are rationalizing in Rotterdam. That is one thing we

are doing in Europe and in Argentina, we are rationalizing the manpower in one of our sites.

Jinesh Gandhi: Okay and sir would it mean that Mancozeb manufacturing will further shift to India?

Management: Yes, the technical side of it will shift more of it to India.

Moderator: Thank you. The next question is from the line of Ritesh Poladia. He is an individual investor. Please

go ahead.

Ritesh Poladia: My question again pertains to Argentina. With the Economic problems over there, what would be the

impact on the company?

Management: We do not really have a challenge because the business there really, yes you have a tough time

because you as part of the normal operating life, but from a currency side, the whole business runs on

USD there.

Ritesh Poladia: And if you can give how much Argentina contributes to the revenue?

Management: It is not really significant in terms of overall numbers.

Moderator: The next question is from the line of Jasdeep Walia from Kotak Institutional Equities. Please go

ahead.

Jasdeep Walia: Sir in the 9 months, we do not see any improvement as far as your LATAM business is concerned in

terms of profits whatever we could calculate in a reverse manner from the minority interest income

and the profit from associates. So why is that sir?

Management: No, I think we believe there has been an improvement. I have no idea how that works from your

calculation, but internally we know that there is an improvement.

Jasdeep Walia: So if I calculate SIPCAMS profit, then first nine months of FY13 in rupee terms they made

something like.

Management: That was an associate.

Jasdeep Walia: Correct, so they made a loss of around Rs. 13.5 crores and this year it has been a profit of Rs. 2.3

crores of marginal improvement. In case of DVA, it has been absolutely flat at around Rs. 16 crores of

loss.

Management: I do not know where you are getting this? We do not have these things.


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Jasdeep Walia: Sir basically I deduct Advanta contribution from your associate profits whatever is remaining is

SIPCAM and I get your DVA profits from your minority interest which is reported.

Management: From other geographies also, we have minority.

Jasdeep Walia: As per you in nine months, what has been the improvement in LATAM?

Management: I think the question was from Brazil, I think. We said there has been 200 basis point improvement in

terms of operating margins in Brazil.

Jasdeep Walia: So if you assume 200 basis point improvement in margins in Brazil, I believe your topline has been

close to Rs. 2,200 crores, so there would be approximately Rs. 40-50 crores of incremental EBITDA

which has come in. In your line items, can you point out where do we see that improvement?

Management: It could have come through, but it does mean that some of the other business may not have even

performed. It is not really that every business only does well. So to some extent we would have lost in

some other geography also.

Jasdeep Walia: Sir in the North American geography if I calculate your sales in US dollar terms, in the first nine

months the sales have actually declined if I use average rupee-dollar rate for all the three quarters and

actually they have been declining since the last two years.

Management: I do not think, we disagree with you I think you should look at it more carefully what you are looking

at. I think we had a very good growth last year. We had a growth of 25%.

Jasdeep Walia: I am talking in dollar terms sir.

Management: Even dollar terms, I have no idea how you calculate, but we know from our numbers that it has grown

quite substantially last year. This year in dollar terms it could be flat closer to that.

Jasdeep Walia: No, I basically whatever rupee number you give, I divide it by the average rupee-dollar rate for that

quarter?

Management: I have no idea, but we can tell you that much what we think.

Jasdeep Walia: So on my numbers, this nine month sales are coming at around $226 million for US and last year this

number was $234 million.

Management: Possibly. We believe it is more or less close to flat, but you could have some actual average may be

different than our average also.

Jasdeep Walia: Sir, what is the reason for subdued growth even in FY13, it was like that. So how should we


Page 18 of 25

Management: FY13, I think you are wrong. I think we have had a growth of nearly 22% even in dollar terms. So I

do not know what statement you are looking at. So what you are saying is not correct as far as FY13

is concerned.

Jasdeep Walia: Got it sir, I will may be take this question offline with you.

Management: We are more than happy to give more data.

Jasdeep Walia: Sir in your presentation in the slide on Europe, there is one point which is mentioned which says that

CIS countries combined with Europe, what does that mean sir?

Management: Now we have re-organized that, where we have now brought CIS counties as part of European region

as reorganizing from focus point of view.

Jasdeep Walia: So earlier that sales would have gone in the Rest of World classification?

Management: Yes, that is right.

Jasdeep Walia: You mentioned that you recognized FOREX gains in other income. So this quarter it is a large

number. Could you give us an example how these FOREX gain arise?

Management: There is a revaluation of your receivables comes as gain.

Jasdeep Walia: Can you take an example sir?

Management: For example your receivable is $1 and last time it was Rs. 50 and it became Rs. 60, so there is a Rs.

10 gain on that $1. So that comes as an exchange gain because that is not in your sales. Sales were

booked at Rs. 50 to start with.

Moderator: The next question is from the line of Amit Murarka from Deutsche Bank. Please go ahead.

Amit Murarka: Regarding the Brazilian operations, in my earlier interactions I was told that UPL Brazil is not doing

the barter trade, but will look at it once it grows to a certain size. So have you now started considering

the barter trade as part of your operating sales?

Management: Yes, we have started doing in a small way, one particular type of trade, but we do not take the grain

and things like that. We just take an assignment from the farmer to a trader, the receivables getting

assigned to us.

Management There are certain barters where you take positions on grain, we do not do that yet.

Amit Murarka: But will you consider it in the future, are you trying to understand?

Management: We are understanding the business first, the barter trade itself and then we will take a call.


Page 19 of 25

Moderator: The next question is from the line of Rohan Gupta from Emkay Global. Please go ahead.

Rohan Gupta: Sir I was talking about India sales that we have shown almost very good growth of almost (+22%) in

the current year and very close to achieve even Rs. 2,200 crores plus turnover from the India business.

That is very encouraging growth of this year and would like to understand little bit more about it that

how much is from the brand sales and how much will be the technical sales in this?

Management: As I said, we normally do not disclose that, but approximately you can take 60% of it is branded sales

and the balance 40% comprises of our tech sales and our industrial chemicals sales.

Rohan Gupta: So this 60% sales is a branded sales which is directly going through the normal distribution channel,

we do not have any institutional sales there?

Management: No, that would not have. That would be going through distributors or dealers.

Rohan Gupta: But we are talking about roughly Rs. 1300 crores sales through our brand sales, probably that will

make you the largest Company in country in terms of.

Management: Only question is because we operate through two different channels which is under the brand name of

SWAL Corporation and UPL. Combined together, yes we are. That is why we always say we are the

number one company.

Moderator: Thank you. The next question is from the line of Girish Achhipalia from Morgan Stanley. Please go

ahead.

Girish Achhipalia: Just couple of follow-ups. Firstly congrats on getting the cash balance down and paying down the

debt. So is this more optimum number going forward or how do you look at it, are the low-hanging

fruits, in terms of optimizing it across geographies, are over now?

Management: I think we would still like to see some more optimization, but we do not believe it will be much

significant. We may have another Rs. 100-150 crores of optimization, but between Rs. 500 and Rs.

600 crores, we will keep on having this floating cash at different times of requirement.

Girish Achhipalia: Right sir. Sir then secondly in terms of, I know it is early days, but if we look at FY15 and FY16,

would you say that 10%-12% constant currency growth is something that is achievable in the

business?

Management: I think our intention is to do better than that, but I think we will give you much better guidance when

we come on next call.

Management: We are doing our budgeting exercise.

Management: So as we complete it, we will come and give you better guidance.


Page 20 of 25

Girish Achhipalia: If you could give me some guidance on payout, what is the strategy here on the dividend side? We

have done buyback, etc., this year, I agree with that. Is the strategy more linked to buybacks, than

dividends or what is the game plan going ahead?

Management: We are open to both. We are not kind of looking at only one option or the best. Also it is an

opportunity based strategy because it has to give optimum results for the shareholders and the

company. It will depend on timing because if the stock as you said it can perform too much may not

make sense to do the buyback. It may make sense to just do the dividend.

Moderator: Thank you. The next question is from the line of Dheeresh Pathak from Goldman Sachs. Please go

ahead.

Dheeresh Pathak: Can you please explain this barter trade; I am getting it for the first time.

Management: It is a trade in which basically if you are selling to the soybean growers or corn growers instead of

they paying you in cash or in currency, the deal is done in sacks of soybean or sacks of corn and then

typically you go and sell the sacks of soybean and corn to the traders, the traders would be like the

Cargills or the Bunges of the world, you sell it to them and these guys are expert traders. So they

based on future price, they may commit you a payment. So that is all about barter.

Dheeresh Pathak: But when you said you are doing it, but you do not take positions on grain, what do you mean by that?

Management: What we do that is we take something called as CPR, that is the farmer gives us his crop receipt and

basically he gives that to traders and the traders then assign it to us. So we do not take position on the

crop or on the pricing of the crop.

Management: I think simply he sells the crop to the trader and he has that receivable receipt which assigns it to us,

that is all.

Dheeresh Pathak: No, so but when he given it to this, then we have a position on the crop right?

Management: We get the cash value of that thing because he is already locked in the price, he is locked in

everything. He is agreed with the trader what price he is selling the grain at.

Dheeresh Pathak: So the trader gives us the money even before the crop is harvested.

Management: The trader then gives you on a due date whenever the crop gets delivered to him.

Dheeresh Pathak: And if the crop is failed and the trader does not get the money, then how does it work?

Management: Then technically you have that exposure on the growers.


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Management: But typically they keep a margin. As I said, the traders are the Cargills and Bunges of the world who

pretty much understand the cropping and the weather and other things. So basically they keep a

certain amount of margin.

Dheeresh Pathak: And in India to an earlier question, you said you have operated through two different channels. Can

you elaborate that more?

Management: We are under the name of United Phosphorus, (UPL) that is one brand channel and second is our

subsidiary called SWAL. So between the two, both of them operate under two different brands in the

domestic market.

Dheeresh Pathak: In the brands, what is the mix of these two channels, how much is UPL and how much is SWAL?

Management: No, we do not have that disclosure. We do not give out that. As such, we do not have the exact

numbers for the formulation.

Dheeresh Pathak: Not exact, are they two equally. What is the difference in the two?

Management: UPL is the much dominant player.

Dheeresh Pathak: What is the main difference why we have two channels?

Management: Because one is meant as a fighting brand and one is meant as a premium brand.

Dheeresh Pathak: UPL is premium and this one is low cost.

Management: Yes, low cost.

Moderator: Thank you. The next question is from the line of Manish Mahawar from Edelweiss. Please go ahead.

Manish Mahawar: Just one thing. In your PPT I think you also mentioned in your opening remarks like some African

countries there is very good opportunity and you have some Africa strategy. I would like to know how

big is the opportunity and what is our strategy to grow actually?

Management: The market is about closer to nearly $1.8-$2 billion and our intention is to target about 8 to 10

countries which are the good countries within that market place and really over the period of 5 to 7

years, try to gain at least 10% to 12% market share in that market.

Manish Mahawar: In next 3 to 4 years right sir?

Management: Yes, 10% to 12% over 3-5 years we believe we should target to get market share.

Manish Mahawar: And sir just in this quarter primarily if you look at the Rest of the World, RoW geographies, you have

single digit growth 5% growth. So can you give us the reason basically?


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Management: We had some challenges. As we said, we have had degrowth in Australia, that is because of the

drought and dry weather. Some of our industrial business which we do institutional business that we

have been much more selective because of the margins. So we have not tried to grow that business. So

it is a combination of some of that two, three different events which have happened.

Manish Mahawar: So primarily is Australia and conscious effort of our.


Manish Mahawar: And sir just you have already, this year you have given CAPEX of Rs. 500 crores. Just wanted to

know within next 2-3 years, what type of per annum basically CAPEX you looks after for the

company?

Management: In a similar range, somewhat Rs. 50-100 crores plus minus we would be within similar range.

Manish Mahawar: Similar range would be there and the last question if we look at in the next 2-3 years perspective,

generally I believe we have roughly single digit growth organically, basically we are growing

organically. So what type of growth you see in next 2-3 years in a company organically, I am not

talking about basically FOREX, any impact or any acquisition?

Management: I think we have been mentioning that we would love to grow at 12%-15% is that what is our

expectation is ,but I think we have already said that we would come with better guidance to you in our

fourth quarter call.

Manish Mahawar: What I understand basically you are saying basically next quarter you will give a guidance for FY15

basically. If you look at 3-year perspective, what type of growth you looks after basically you have

some strategy.

Management: We have said 12%-15% annualized we believe is our possibility.

Moderator: Thank you. The next question is from the line of KashyapPujara from Axis Capital. Please go ahead.

Kashyap Pujara: I had joined slightly late, so I am sorry if I might sound repetitive, but just wanted to understand from

you what is the gross debt and cash on the balance sheet currently?

Management: The gross debt as of 31st December, 2013, is Rs. 3,675 crores. Cash is Rs. 867 crores.

Kashyap Pujara: So you have actually paid down close to 500 crores of debt and plus you have a buyback of Rs. 300

crores which is ongoing.


Kashyap Pujara: That is good and considering that, we are incrementally allocating more capital to our free cash to buy

back, I suppose that there are no immediate acquisition targets identified in the near term.


Page 23 of 25

Management: That would be a derivative answer I would say, yes.

Kashyap Pujara: One more aspect is about your working capital and wanted to understand from you, how much more

room do we have to increase payables because as I understand the nature of the business would be

that you will have a certain level of inventory and debtors which you would be beyond a point you

would not be able to do much improvement there, but how much room do we have to increase

payables further from where we are right now.

Management: We do not believe it will improve much more in number of days we think we will be very close to

what we were.

Kashyap Pujara: So you would remain more or less at 100 days in terms of net working capital cycle?


Kashyap Pujara: Fair and just one more aspect was while the business is really global and there are lot of exposures

and I do not want to get into individual country and crop and what patterns we are facing where, but

from a broader perspective if you can just articulate how is the mix changing to more premium

products and what are the new initiatives that are being taken to improve the mix wherein we can

probably get better margins?

Management: I think you have seen our launch of Ulala last 2 years in India which is becoming a bigger contributor

to our overall numbers in India. If you look at the 5 big brands in India, Lancer Gold, Ulala, Atabron,

and Saathi and other 3 or 4 of them are really proprietary assets. So some of them, we do not have

competition there and so similar exercises are going across for more geographies as we get more and

more these product registered and we are doing lot of more patenting, lot more other mixtures and

other products and also the new chemistries which we are bringing in some of the geographies like

Brazil and all. So that obviously allows us to bring uniqueness to the farmers and the distributors. So

it need not be just our new product, but it could be something unique to the market place.

Kashyap Pujara: Overall, if I were to look at your overall revenue growth from the next 2-3 years perspective, what is

the kind of guidance like while you have shared that you would be growing at close to 12%-15% in

FY14 which you had articulated before the start of the year, how would you place yourself over the

next 2-3 years in terms of what kind of realistic revenue growth guidance you would be at?

Management: I think we have mentioned that we will be in a better position to give you that at the end of the fourth

quarter and as a general trend, we would still like to maintain that 12%-15% on a longer base.

Kashyap Pujara: Fair enough and in terms of margins, obviously one is about the initiatives that you are doing and

second is about the restructuring that you are shifting facilities and rationalizing them. So what kind

of margin improvement we can look at in terms of following year which is the coming year FY15?


Page 24 of 25

Management: I think we were just advised by one of your colleagues that we should be more conservative in what

we tell you. So I think we would love to give you better sense in the fourth quarter for the next year.

Moderator: Thank you. The next question is from the line of Devesh Dokwal from Reliance Life Insurance.

Please go ahead.

Devesh Dokwal: Sir what is the CAPEX guidance for FY15?

Management: Our initial number, we are still maintaining close to Rs. 450-500 crore range. I think we will give you

a better sense as we close the year, but I think that would be the range.

Devesh Dokwal: And you also mentioned that you are looking at debt reduction. So any bond buybacks you are

planning to do?

Management: Whatever we could do, we did in the last quarter, we could get opportunity to buy back some of our

debentures, we bought it.

Devesh Dokwal: Sir something similar we could expect in the current quarter or next quarter?

Management: If we get an opportunity, we will do it again we are not saying. As far as it should make sense to us.

Moderator: The next question is from the line of Rohit Malhotra from DCM Sriram. Please go ahead.

Rohit Malhtora: I just want to know why our employee benefit expenses are higher in this quarter as compared to last

quarter.

Management: Timing issue.

Management: Look at it on annualized basis; we are well within the range.

Rohit Malhotra: And the same case is happening with other expenses also, it is also higher by Rs. 90 crores.

Management: We just explained that the sundry creditors are down because some of the expenses get expensed out

in US during this last quarter December end. So therefore you might see some spike in expenses, but

typically on an annualized basis, we are on track.

Rohit Malhotra: And my last question is related to CAPEX, as you were mentioning that you have expenditure of 400

crores in CAPEX. I just wanted to know in which countries you are spending these CAPEX.

Management: One part is really in India and second big country from our registrations, we spend in Europe.

Moderator: Thank you. The last question is from the line of Krishna Agarwal from Ashika Stock Broking

Limited. Please go ahead.


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Krishna Agarwal: Actually I have joined the con-call late, so please do not mind if I repeat the question. My query is

pertaining the exceptional item that you have incurred in this quarter that is Rs. 39 crores and this is

due to restructuring of Europe and Latin America manufacturing facilities. So I just wanted to know

sir what type of restructuring do you have in this manufacturing facility?

Management: As we said in Europe, one of the acquisitions last year we did was Agrichem that is a formulation

facility which we are now consolidating with our existing formulation facilities in Europe and some

technical manufacturing of Mancozeb from Rotterdam is being shifted to our India and in Argentina,

we are rationalizing manpower in one of our manufacturing sites again.

Krishna Agarwal: What will be its impact on net margin?

Management: I think we have mentioned that we will give you this guidance when we come at the end of the fourth

quarter call.

Krishna Agarwal: Sir my next question is what is your capacity utilization during this third quarter of FY14?

Management: It is a very difficult question to answer because as we said capacity is very difficult because it depends

on the product mix from each plant to plant. It is not a single plant that we have capacity utilization.

Krishna Agarwal: In consolidated basis, your other income is Rs. 50 crores. So can I have that breakup, other income?

Management: Rs. 14-15 crores out of that was really the interest income and the balance is really exchange and

other operating items.

Moderator: Thank you very much. I now hand the conference over to Mr. Nitin Agarwal from IDFC Securities for

his closing comments.

Nitin Agarwal: Sir you want to make any final comments sir, we will wrap it up.

Rajendra Darak: Thank you very much everybody for joining the call.

Nitin Agarwal: Thanks everyone for participating in the call and thank the management team also.

Rajendra Darak: Thanks Nitin, thank you very much.

Moderator: Thank you. Ladies and gentlemen on behalf of IDFC Securities that concludes this conference call.

Thank you for joining us and you may now disconnect your lines.

united phosphorus ltd

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