FINANCIAL MANAGEMENT PRACTICES OF UPL LIMITED
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Transcript of FINANCIAL MANAGEMENT PRACTICES OF UPL LIMITED
FINANCIAL MANAGEMENT PRACTICES OF UNITED PHOSPHORUS LIMITED
STRATEGIC FINANCIAL MANAGEMENT PROJECT Presentation by:
SAURABH - 14PGDMBFS17
ABOUT UPL
UPL Limited (formerly known as United Phosphorus Limited) is a global generic crop protection, chemicals and seeds company, headquartered in India (Mumbai).
The revenue of the Company has grown at a CAGR of 26% over the last 5 years.
UPL Limited is engaged in the business of not only manufacturing and marketing crop protection chemicals but also offering crop protection solutions.
The Company’s market capitalisation as on 31st March, 2015 stood at Rs. 18,953 crore.
The Company is listed on the National Stock Exchange and Bombay Stock Exchange in India.
UPL Limited has entrenched its presence in 122 countries across six continents.
UPL operates 13 manufacturing units within India and 15 units outside India, enhancing its operational flexibility.
UPL has a team of 3,827 employees, each with specialised domain skills and experience.
FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-150.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
REVENUELinear (REVENUE)
Source: http://www.uplonline.com/about/index.php
CONTINUED…
96%
4%
SEGMENT WISE PERFORMANCE
AGRO ACTIVITYNON - AGRO ACTIV-ITY
Source: Management Discussion & Analysis
INDIAN AGRICULTURE SECTOR
The agriculture sector contributed just 15% of India's GDP.
But over 50% of the population was still dependent on it.
India emerged as a significant agricultural exporter in commodities like cotton, rice, meat, oil meals, pepper and sugar.
The agricultural and allied sectors registered a growth of 1.1% during the current financial year.
Despite the monsoon rainfall falling 12% short of expectations during 2014-15, the loss in production was contained at ~3.0% over 2013-14.
Agricultural credit flow target for 2014-15 was fixed at Rs. 8,00,000 crore against which Rs. 3,70,828.6 crore has already been achieved.
Source: KPMG
CAPITAL EXPENDITURE
FY 2014-15 During 2014-15, the Company commissioned a new herbicide plant and a 50-
MW equivalent coal-fired boiler in Jhagadia. UPL commissioned two herbicide manufacturing plants at Jhagadia within
nine months.
FY 2013-14 UPL erected its UPH-203 plant in a record 83 days against the global
benchmark of 240 days. The company invested in environmental management infrastructure across
manufacturing units. The company made a forward looking investment in environment
management assets. Invested 193 crore in building capacity for the manufacture of Carbon
Disulphide, the key raw material for the manufacture of Mancozeb (largest product for the Company).
FY 2012-13 Invested Rs.175 crore to enhance the yield of Mancozeb.
FY 2015 FY 2014 FY 2013 FY 2012 FY 2011 FY 2010
26% 24% 23% 24% 17% 20%
2.64 2.942.48 2.23
2.97 2.74
FIXED ASSET TREND
FIXED ASSET AS % OF TOTAL ASSETS FIXED ASSET TURNOVER RATIO
FY 2011 FY 2012 FY 2013 FY 2014 FY 20150
0.51
1.52
2.53
3.54
3.593.15 3.08 3.24
2.18
2.97
2.23 2.482.94
2.64
INDUSTRY COMPARASION
INDUSTRY FIXED ASSET TURNOVER RATIO FIXED ASSET TURNOVER RATIO
TIM
ES
Source: Management Discussion & Analysis
CRITICAL EVALUATION OF CAPITAL EXPENDITURE POLICY
Fixed asset as percentage of total assets has increased from 20% in FY 2010-11 to 26% in FY 2014-15.
Fixed asset turnover ratio is almost same i.e. around the 2.6. This is so because fixed assets have increased in the same proportion as the sales.
Purchase of assets has increased from 88.1 crore in FY 2010-11 to 358.08 crore in FY 2014-15.
Investments in fixed assets have increased because of the commissioning of the new coal-fired plant jhagadia, Gujarat and other reasons mentioned above.
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 20150.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
0.00
500.00
1000.00
1500.00
2000.00
2500.00
FIXED ASSETSSALES
SALES
FIXED ASSETS
Source: Management Discussion & Analysis
CAPITAL STRUCTURE
TRENDS IN DEBT-EQUITY RATIO & INTEREST COVERAGE RATIO
In FY 2010-11, their debt-equity ratio was around 1.12. It has gradually reduced to .39 in the FY 2014-15.
This is largely owing to a decline of 25% in long-term borrowings along with an increase in 12% in the reserve & surplus.
The reason for this is less dependence on debt which ultimately leads to lower interest cost.
Earlier their debt-equity ratio was higher than industry average, but with time they have reduced their leverage and now it is similar to the industry average.
Their interest coverage ratio as compared to industry is better.
RIGHTS The last rights shares that UPL had issued were in 1995 in the ratio of 127:1 at a premium
of Rs 10 per share. The share has been quoting ex-rights from November 13, 1995.
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 20150.000.200.400.600.801.001.201.40
1.12091926745874
1.16
0.450.61
0.43 0.39
DEBT-EQUITY RATIOINDUSTRY DEBT-EQUITY RATIO
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 20150
4
8
12
16
20
3.081.72 2.87 3.93 3.28
17.47
ICRINDUSTRY ICR
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 20150.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
02468101214161820
DEBT-EQUITY RATIOICR
DEBT-EQUITY RATIO
ICR
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 20150.00
500.00
1000.00
1500.00
2000.00
2500.00
LONGTERM BORROWINGS
LONGTERM BORROWINGSLinear (LONGTERM BORROWINGS)
CRORES
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 20150
50100150200250300350400
DEBUNTURE REDEMPTION RESERVE
DEBUNTURE REDEMPTION RESERVELinear (DEBUNTURE REDEMPTION RESERVE)23%
6%
3%
2%
2%
1%1
%
62%
Holding Pattern
Nerka Chemicals Pvt Ltd Promoters
Uniphos Enterprises Ltd Promoters
Government Pension Fund Global Non - Promoters
Skagen Kon Tiki Verdipapirfond Non - Promoters
Invesco Asian Equity Fund Non - Promoters
ICICI Prudential Life Insurance Company Ltd Non - Promoters
Government of Singapore Non - Promoters
Public Non - Promoters
CONTINUED…
CAPITAL STRUCTURE
BONUS HISTORY The last bonus that UPL had announced was in 2008 in the ratio of 1:1. The share has been quoting ex-bonus from October 29, 2008.
SPLIT UPL had last split the face value of its shares from Rs 10 to Rs 2 in 2005. The share has been quoting on an ex-split basis from September 27, 2005.
PERIOD
INSTRUMENT AUTHORIZED CAPITAL
ISSUED CAPITAL SHARES FACE
VALUE CAPITAL
FROM TO2014 2015 Equity Share 255 85.72 428604274 2 85.722013 2014 Equity Share 255 85.72 428604274 2 85.722012 2013 Equity Share 255 88.52 442604274 2 88.522011 2012 Equity Share 255 92.36 461804274 2 92.362010 2011 Equity Share 255 92.36 461804274 2 92.362009 2010 Equity Share 255 87.91 439563568 2 87.912008 2009 Equity Share 155 87.91 439563568 2 87.912007 2008 Equity Share 155 43.93 219645756 2 43.932006 2007 Equity Share 55 37.5 187522068 2 37.52005 2006 Equity Share 55 37.43 187134807 2 37.432004 2005 Equity Share 55 33.12 33123220 10 33.12
YEAR RATIO SHARE BEFORE SHARES AFTER2008 1:1 219781784 4395635681995 1:1 245000 4900001992 1:1 122500 245000
DATE NO OF SHARES EQUITY CAPITAL FACE VALUE27-Sep-05 169879840 33.98 226-Sep-05 33975968 33.98 10
Source: Management Discussion & Analysis
CONTINUED…
BUY BACK SHARES 1,40,00,000 cumulative number of shares bough
back – 3rd Feb 2014. COST OF FUNDING
Beta (β) of UPL Limited = 1.11 Risk free rate (91 –day T-bill rate as on 4/9/2015) = 7.43% Market return = 14% Cost of equity = 7.43% + (14% - 7.43%)*1.11 = 14.72% Cost of debt = 8.52% ( CARE AA+ RATED) = 6% (After tax) Debt = 1376.59 crore Equity = 3524.08 crore WACC = 12.35 %
-10.00% -5.00% 0.00% 5.00% 10.00%
-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%
f(x) = 0.20952104000285 x − 0.00138667079767344R² = 0.234138497714099
Source: https://www.rbi.org.in/ & http://www.spacapital.com/debtmorning.aspx
WORKING CAPITAL
INVENTORY HOLDING PERIOD (Days)
Companies face challenges due to the seasonal nature of demand, unpredictability of pest attacks and high monsoon dependence. Month-end skews and high inventory across the channel remain perennial industry problems.
ACCOUNTS RECEIVABLE PERIOD (Days)
ACCOUNTS PAYABLE PERIOD (Days)
YEAR FY 2015 FY 2014 FY 2013 FY 2012 FY 2011 FY 2010INVENTORY HOLDING PERIOD 66.19 52.04 51.65 50.27 41.54 53.90
INDUSTRY INVENTORY HOLDING PERIOD 103.06 68.14 70.22 71.9 59.39 65.66
YEAR FY 2015 FY 2014 FY 2013 FY 2012 FY 2011 FY 2010
ACCOUNTS RECEIVABLE PERIOD 91.69 112.14 140.96 126.59 105.74 94.68
INDUSTRY ACCOUNTS RECEIVABLE PERIOD 93.8 71.76 77.37 74.67 64.28 75.13
YEAR FY 2015 FY 2014 FY 2013 FY 2012 FY 2011 FY 2010
ACCOUNTS PAYABLE PERIOD 116.76 98.39 83.70 75.49 77.08 69.14
INDUSTRY ACCOUNTS PAYABLE PERIOD 104.33 79.11 78.53 72.73 62.29 86.08
CONTINUED…
OPERATING CYCLE & CASH CYCLE
CURRENT & QUICK RATIO
Current ratio has decreased 4.46 times in FY 2010-11 to 1.22 in FY 2014-15.
Current ratio of UCL Limited has declined more as compared to other player in the same industry.
In FY 2014-15, their quick ratio is less than 1, which means that the company cannot currently fully pay back its current liabilities.
YEAR FY 2015 FY 2014 FY 2013 FY 2012 FY 2011 FY 2010OPERATING CYCLE 157.88 164.18 192.61 176.86 147.29 148.58
INDUSTRY OPERATING CYCLE 196.86 139.90 147.59 146.57 123.67 140.79CASH CYCLE 41.12 65.79 108.91 101.37 70.21 79.43
INDUSTRY CASH CYCLE 92.53 60.79 69.06 73.84 61.38 54.71
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 20150.000.501.001.502.002.503.003.504.004.505.00
QUICK RATIOINDUSTRY QUICK RATIOCURRENT RATIOINDUSTRY CURRENT RATIO
TIM
ES
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 20150%2%4%6%8%
10%12%14%16%18%
INVENTORIES AS % TOTAL ASSETLinear (INVENTORIES AS % TOTAL ASSET)
CONTINUED…
COMPETITORS OPERATING CYCLE
FUNDING OF WORKING CAPITAL FY 2014-15: Unsecured working capital loan of Rs. 25,285
lacks carrying interest rate varying from 2.45% to 14.13% per annum and base rate/LIBOR plus 0.70% to 4% p.a.
FY 2013-14: Working capital loan of Rs. 21,016 lacks carrying an interest rate of base rate / LIBOR plus margin ranging from 70 bps to 400 bps.
FY 2012-13: Working capital loan of Rs. 22,470 lacks carrying an interest rate of base rate / LIBOR plus margin ranging from 70 bps to 400 bps.
FY 2011-12: Working capital loan of Rs. 25,886 lacks carrying an interest rate of base rate / LIBOR plus margin ranging from 175 bps to 400 bps.
Source: Management & Discussion Analysis
YEAR FY 2015 FY 2014 FY 2013 FY 2012 FY 2011 FY 2010
BAYER CROPSCIENCE 97.97 95.67 101.44 113.91 103.66 108.98
TATA CHEMICALS 132.58 135.60 130.51 93.19 73.84 103.28
PI INDUSTIRES LIMITED 111.39 106.68 118.83 121.51 113.87 118.59
RALLIS INDIA LIMITED 96.71 79.4 82.39 87.6 83.02 94.9
DIVIDEND POLICY
TREND IN DIVIDEND – DIVIDEND RATE, PAYOUT, YIELD
The company does not have a defined way of paying dividend. In some of the years it pays an interim dividend and in some of the years it only pays the final dividend.
However the company has never defaulted in payment of a dividend throughout its history which shows the financial stability of the company
There is a difference between the dividend and the adjusted dividend as the company has undergone a capital restructuring very often. So a closer look at the adjusted dividend instead of dividend per share was desired.
All along, the Company rewarded its shareholders with attractive dividends and increased value. The original allot tee's shareholding of 100 shares had grown to Rs.7,03,200 by the end of the financial year under review.
The Company went public in 1986 with an issue of 14,50,000 shares. Over the years, the Company emerged as one of the most attractive wealth
creators within its industry space. Hundred shares allotted in 1986 had grown to 6,000 shares at the end of
2012-13.
Year End Dividend % Dividend Yield % Dividend per Share(Rs) Face Value(Rs)
Mar-2015 250.00 1.13 5.00 2.00Mar-2014 200.00 2.17 4.00 2.00Mar-2013 125.00 2.13 2.50 2.00Mar-2012 125.00 1.92 2.50 2.00Mar-2011 100.00 1.33 2.00 2.00Mar-2010 100.00 1.34 2.00 2.00Mar-2009 75.00 1.53 1.50 2.00Mar-2008 100.00 0.76 2.00 2.00Mar-2007 60.00 0.37 1.20 2.00Mar-2006 50.00 0.38 1.00 2.00Mar-2005 40.00 0.55 4.00 10.00
CONTINUED...
DIVIDEND PAYOUT RATIO
The company has had a fairly steady pay-out ratio since the past decade in the range of 45%-50%.
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 20150%
10%20%30%40%50%60%70%
DIVIDEND PAYOUT RATIOLinear (DIVIDEND PAYOUT RATIO)
OVERALL IMPACT
ROE / ROCE / ROA TREND
ROE has increased from 10% in FY 2010-11 to 14$ in FY 2014-15. Crop prices started strongly in the year 2013-14 & 2013-15. Improving glyphosate prices. With increasing population, demand of food grain is also increasing. India is second largest manufacturer of pesticides in Asia, second only to
Japan. Government initiatives to provide credit facilities to the farmers has
benefited the agriculture Industry as a whole.
DuPont ANALYSIS
DuPont Analysis is a useful technique to break down the ROE into its constituent elements.
Though financial leverage has decreased over the time, but ROE has increased due to increase in the net margin ratio and total asset turnover ratio over the same period.
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 20150%2%4%6%8%
10%12%14%16%18%
ROEROCELinear (ROCE)ROA
DESCRIPTION Mar-15 Mar-14 Mar-13 Mar-12 Mar-11 Mar-10NET MARGIN (%) 8.21 7.94 5.03 6.52 5.15 6.38TOTAL ASSET TURNOVER RATIO(x) 0.77 0.74 0.62 0.57 0.57 0.58FINANCIAL LEVERAGE (x) 2.15 2.12 1.93 2.10 2.58 2.62ROE (%) 13.56 12.47 6.06 7.88 7.54 9.70
RISK MANAGEMENT POLICY
R & D: Risks relating to the immunity developed against company’s products by insects/pests and innovative products are not introduced to counter
such immunity.
GEOGRAPHY: Risks relating to excessive dependence on one or two geographies, which can impact
revenues in case of localized downturn.
RECEIVABLES: Risks relating to high receivables at certain times of seasons, impacting the working
capital negatively.
Regulations: Risks relating to inadequate compliance to regulations worldwide and non-compliance arising
out of failure to address changes in government policies from time to time, resulting in cancellation of
registration of some products.
FOREIGN EXCHANGE RISK: Risks relating to fluctuations in the foreign currency, that can severely
hamper the profits of the Company.
Source: Management Discussion & Analysis
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