Shares of UPL Ltd
were trading slightly higher on the BSE on Thursday after it issued a clarification tto a news article. The company was clarifying to an Economic Times article dated December 19 which claimed, “Europe Drought Negative for Agrochem Co UPL”. The news article quotes the source as the CGS-CIMB Company Note issued on UPL on December 17, 2018.
"Note carries certain inaccuracies that we would like to highlight. It has led to erroneous inferences being drawn in certain quarters. It has created avoidable anxiety amongst the investor/ analyst community,” UPL said in a release to the exchanges.
"There are three key matters in the Note that company address and comment upon on European drought negative for UPL, UPL faces volume as well as pricing risk for Mancozeb, and Increased adoption of Intacta," the release added.
The note refers to Bayer’s conference call wherein they ‘had highlighted that the European drought will likely impact fungicide and insecticide sales in the region’. These comments were made in the context of their Q32018 earnings call, and hence, were related to the European season that had already elapsed. Bayer was clearly referring to how the drought has impacted their fungicide business in Europe in the period that has already gone by.
The note further refers to NASA’s website article titled ‘Prolonged hot, dry conditions affect European crop prices'. This article too comments on how heatwave in northern Europe created havoc in the summer of 2018. Nowhere does the article provide any forecast or guidance on European drought going forward.
Based on Bayer’s comments and NASA’s news article, the note has drawn an inference that dry weather in Europe will be negative for UPL and Arysta going forward. We would like to stress that UPL revenues in Europe have grown 7% during H1FY19. This is despite dry weather conditions in Northern Europe. Unlike Bayer, UPL’s cereals' fungicide portfolio is very small, which meant it was not as severely impacted as Bayer, as per the BSE filing.
"UPL’s strength lies in copper and sulphur fungicides which are more prevalent in Southern Europe, where good rainfall had been recorded. Going forward, for UPL, as far as FY19 is concerned, Europe would be of relevance in Q4 (i.e. January to March 2019)," the company added in the filing.
"The note states that new competition to Mancozeb from innovators and other generic players is looming in Brazil, leading to reduced gains for UPL. We would like to highlight that, based on the regular feedback we get from our team in Brazil, the demand for UPL’s Unizeb Gold (Mancozeb), Glory (Manocozeb + mixture) continues to be robust. The triple mixtures of Mancozeb Tridium and Triziman — that UPL has launched have further bolstered its presence in this segment. Mancozeb’s multi-site mode of action makes it an extremely strong adversary to Asian Rust. Most of the existing fungicide players in Brazil recommend Unizeb as a tank mix along with their fungicides," the release added.
The note further mentions that Intacta adoption rate is increasing in Latam and the rate is even faster in Brazil leading to further pressure on agrochemical sales.
UPL Ltd share price is currently at Rs761.35, up Rs6, or 0.79%, from its previous close of Rs755.35 on the BSE. The scrip opened at Rs755 and has touched a high and low of Rs764.25 and Rs746.75, respectively.