> Both companies have a direct presence in overseas markets, exposing them to disruptions in demand
> Companies focussed on the domestic market such as Rallis India and Dhanuka Agritech fared relatively better
Shares of UPL Ltd have been popular with investors in recent years with the company’s overseas markets ensuring growth.
However, with the covid-19 outbreak disrupting global trade, UPL’s exposure overseas is making investors worried. The stock has halved from its highs in February. Peer Sharda Cropchem Ltd has lost 55% in value.
In comparison, stocks of companies focused on the domestic market such as Rallis India Ltd and Dhanuka Agritech Ltd have fallen 31-36%.
“Our channel checks suggest that shipments have halted due to logistics issues in India and respective import countries. The trade channels in importing countries are unsure whether they will be able to unload chemicals at the ports and transport them to the end-customer. Hence, new orders have dried up and payments for existing orders are also delayed," said Emkay Global Financial Services Ltd in a note.
Firms such as Rallis India also derive notable revenue from exports. PI Industries Ltd is another large exporter. But these firms export largely to innovator companies that hedges them from the demand slowdown to some extent.
UPL and Sharda Cropchem have a direct presence in overseas markets, exposing them to disruptions in demand.
Faced with virus disruptions, farm inputs providers rushed to accelerate shipments to dealers and distributors in the US, reports Reuters. But logistics and shortages of packing materials have emerged as major obstacles.
Curbs on people movement are accentuating labour shortages as well. “Europe and US markets are witnessing pressure (peak crop season in these regions currently)...UPL highlighted that the company is likely to see revenue impact of $50 million in 4Q...," said analysts at Antique Stock Broking Ltd in a recent note after an interaction with the UPL management.
If covid-19 disruption lasts longer, then it can spell bigger problems for UPL.
The Arysta LifeScience Corp. acquisition has loaded the company’s balance sheet with debt. A prolonged slowdown in global markets can slow acquisition benefits such as synergies and cross-selling opportunities. This can delay the company’s balance-sheet deleveraging plan.