United Phosphorusis a leading global producer of generic crop protection products, intermediates and other industrial chemicals. The company is one of the largest agrochemical producers in India and ranks 4th among the top eight generic agrochemical companies in the world. The agrochemical division has a wide range of products that include fumigants, fungicides, insecticides, rodenticides and herbicides. The company has a well established network of subsidiaries, affiliates and offices selling branded agrochemicals, bulk chemicals and industry chemicals. United Phosphorus has a dedicated registrations team, which works closely with customers and registration authorities around the world. Mr Jai Shroff age 34 years is a chemical graduate and has been associated with United Phosphorus since the last 10 years. He has been the driving force for United Phosphorus foray into the global markets. He strongly believes in applied research and shares a vision to make United Phosphorus a front runner in the global generic crop protection market. He met up with Atul Rastogi and Kinner Mehta of Indiainfoline to discuss the company?s strategy and growth plans.
Q Can you throw some light on your journey of becoming an established player in the global generic agrochemical market and a niche player in the specialized product patent market?
A: The company?s transition can be described in terms of different focus areas. The company started operations about 30 years ago with objective of making import substitution products. Thereafter it entered into manufacturing technicals and strengthening distribution network for making pesticides available across the country.
Around this time we decided to focus on exports. We decided to pursue the policy of " go where the markets lie". The company initially pursued exports by setting up a warehousing unit at Rotterdam. Thereafter, we acquired a manufacturing plant in UK. This stage was followed by company?s focus on building large capacities to service world markets.
As a consequence export markets drove business revenues. Thereafter we concentrated on building brands especially from the formulation segment to improve future revenue streams. Currently we are involved in increasingly strengthening the marketing activities. The company is planning to implement a long-term strategy of " emerging as a complete farm solution provider for the farmer ".
Q Now that the operations of the company have been fully integrated into three main businesses namely agrochemicals, industrial chemicals and specialty chemicals what will be the future businesses that will drive the growth of the company?
A: In future the company intends to offer two kinds of solutions for two different time periods:
(I) For the domestic farmers:
In the long term provide good quality products that enhance crop productivity.
In the Long term we want to be a one stop shop for the farmers by offering consultancy/products and services in farm management techniques.
(II) For the International Markets:
In the short term enter into business and strategic partnerships with leading global players of the world.
In the long run the company intends to emerge as a major "creditable supplier " of farm inputs, through its intellectual property of registrations patented delivery systems & formulations and complete array of user friendly and cost effective products.
Q What are the short term and medium term plans of the company? How do you plan to achieve the same?
A: United Phosphorus is focused on "building agrochemical business" by making available continuously value added products. This year the company plans to build synergies among different business operations and consolidate. This will involve the following three business areas as follows:
- Search Chem Industries will now look towards more value added products and segments
- Specialty business will develop and launch new products
- Agrochemicals will increasingly focus on international business
Q What will be the strategy for achieving high growth in international markets- strategic alliances or acquisition of companies overseas?
A: Overseas distributors play a big role in packaging a product and supplying a package of services by offering various products to the farmer and generally do not prefer the emergence of any company as a monopoly. Hence we want to emerge as a creditable second player in the international business. The company wants to emerge as a leading player in formulations segment. The market is so large that capturing even 2% to 3% share will amount to sizeable revenues for the company.
The company has set the following export growth from the 3 markets in the next four years as follows:
1999 (US $mn)
2003 (US $mn)
We aim to increase export revenues from $100mn to $250 mn over a period of four years.
Q What are the steps taken by the company to maintain and consolidate its market share both locally and globally?
A: The company currently plans to launch six new products every year. We plan to increase it to 8-10 in the forthcoming period. We are in favour of granting patent protection so that domestic players are protected .
We have taken the following steps with respect to different business areas for consolidating our market position:
- Debottlenecking current operations
- Achieve capacity expansion in key areas of growth
- Buying capacities
- Contract manufacturing to lower cost
Q The company has set a long-term goal of providing total farm solutions to the farmer. Can you elaborate the different measures undertaken for the same?
A: The company wants to be identified as a leading player in terms of application based products eg Fumigation processes which reduce the cost of crop storage to almost 1/3rd the earlier cost. We are working in collaboration with research institutes and other corporates to popularize this initiative.
Q What will be the focus areas for R&D in United Phosphorus?
A: We do not plan to invest in basic R&D. The company?s R & D focus areas are applied R&D and Registration. We are also investing in offering solutions like fumigating potatoes.
If you look at the global R&D scenario also, very few original products are coming up as the returns on R&D in agrochemical industry are low (vis a vis pharmaceuticals). Farming is a business where costs are important whereas in healthcare, costs are not a very important consideration. Thus, willingness to pay a premium for a new product is low in the agrochemical industry.
Q What are your growth expectations for the industry and your company in the next 2 years?
A: The pesticides industry has largely done well over a period of last five years. Competition has increased manifold in the last 3 years. Entry of small players has resulted in fierce competition among various players especially among unorganized and organized. This year has been exceptionally bad due to erratic monsoons. Small players have been marginalised. Next 1-2 years will see a shakeout and the industry will witness consolidation. Industry is expected to grow at the 8%-10% but attrition rate is high. We aim to grow at 20%. This will be achieved by new product launches and effect of consolidation.
Q How do global mergers and acquisitions have an impact on the company?
A: It provides a great opportunity for the company as it takes time for the merging companies to integrate. By this time, we can capture market share as the large size makes the merged entity complacent and gives us opportunities to fill the gaps.
Q. There has been concerns over banning of some pesticides by the government. What is your opinion on the issue?
A: Currently new players especially MNCs are lobbying the government to ban certain pesticides and implement / approve new formulations made by them. eg Existing Rice pesticides have a cost of Rs40 while new products having similar applications made by MNC?s are expected to cost Rs200.
Every five years the government reviews the progress and safety standards of pesticides consumed in the country. Currently a committee has been formed to undertake a review of 28 pesticides for their continued use. The committee had proposed to review 18 pesticides usage in the country as they were supposed to have undesirable effects on soil and bio-organisms. We have played an important role in giving information regarding the beneficial impact of these pesticides on public health. The ministry of chemicals has issued a clarification that among them only 2 pesticides are proposed to be banned.
Q What have been the principal reasons for the slowdown in growth in sales turnover for the current year?
A: The whole industry has been adversely affected by erratic monsoon this year. Also, the liquidity position in the rural economy is tight resulting in lower collections. In the month of November, collections had declined by 50% compared to same period last year. However, we expect the situation to improve in the near future and indications are positive for the ensuing Rabi crop.
Q What are the new product launches planned by the company?
A: Company plans to introduce a new Rice herbicide whose trials have given 200% better results compared to existing products. Already Punjab University has given favorable response for the same and the company plans to commercially launch it in next six months all over India.
Q Do you have any targeted Return on equity and return on capital which you would like to communicate to your investors?
A: The Return on capital of the company has declined from 30% in FY94 to 13% for FY 99. We aim to reach the earlier levels in next 3/4 years.
Q What are the prospects for Search Chem Industries? When is the company expected to break even ? Whether United Phosphorus will make future investments in the company ?
A: Search Chem Industries is expected to break even by making cash profits in the current year. Basically the company operates in a commodity business and faces competition from a number of players. The company expects better operating performance next year as large capacity additions especially in the chlorine and other user industry segments are coming up. This will result in better prospects for the companies operating in this sector during the next year.
Search Chem is also looking at improving its portfolio by introducing value added products, especially in the chlorine segment.
We do not foresee any further investments in Search Chem Industries in the next year.
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