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United Phosphorus: A run down

Dec 5, 2003

United Phosphorus (UPL) is India's largest producer of crop protection products like fumigants, fungicides, insecticides, rodenticides and herbicides. It is the world's fourth largest generic agrochemical company and the largest producer of Aluminium Phosphide and Napropamide. The company has built a global network through acquisitions, strategic alliances and subsidiaries. It operates across seven manufacturing sites, six in India and one in Europe. UPL derives almost 55% of its revenues from exports. In view of its exports focus, the company is getting its products registered in different countries. UPL can leverage on its global subsidiary base and market its products. Some of the major products exported by the company are Aluminium Phosphide, Devrinol, Cypermenthrin, Permethrin and Aephate.

UPL's business can be classified into two major segments - Agro Chemicals (81%) and Industrial Chemicals (12%). Agro chemicals segment, which comprises mainly of agrochemicals technicals and formulations, was adversely affected by poor monsoons in FY03. However, good monsoon recorded by most parts of the country in the current year translates into good prospects for the company going forward. The company is also trying to mitigate the risks involved in the industry (heavily dependant on rainfall) by concentrating on exports and entering into long-term contracts with overseas parties for its products. The industrial chemicals segment comprises of industrial chemicals and speciality chemicals. The key users of industrial chemicals segment are rubber and paints industry.

UPL has adopted a strategy of continuous expansion and backward/forward integration. This strategy has helped the company secure reliable raw materials for multi-site manufacturing. UPL is one of the few companies in the world that manufactures complex organo-phosphorus compounds starting from the basic raw material, rock phosphate ore. The company has now started extending this strategy to other products.

The management of UPL has decided to demerge its manufacturing business and transfer the same to its 53% subsidiary, Search Chem Industries (SCIL). SCIL is in the business of manufacturing and marketing of caustic chlorine, white phosphorus, industrial chemicals and speciality chemicals. UPL also markets its products globally through SCIL. During 2QFY04, which was also UPL's first quarter as a pure trading company, the company has recorded net sales of Rs 130 m and net profits of Rs 5 m. At the operating profit level however, the company has reported a loss of Rs 9 m.

Latest quarterly results...
(Rs m) 2QFY04
Net Sales 130
Operating profit -9
Operating profit margin (%) -
Net Profit 5
Net profit margin (%) 3.7%
EPS 1

Though the growing exports business could improve UPL's performance in the future, its domestic performance continues to be dependent on the vagaries of monsoon and the large unorganized domestic market. Also, more clarity is needed on its subsidiaries and the way they contribute to the parent.

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