UPL expects 100 bps margin improvement in FY14

Agro chemical firm United Phosphorus Limited (UPL) has guided for a 12-15 percent revenue growth in FY14 despite uncertainty about good monsoon this year. The generic crop protection, chemicals and seeds company had reported 17 percent year-on-year jump in income from operation to Rs 9,194.52 crore during the year gone by (FY13) and is confident of sustaining growth this year too.

Arun Ashar, director, finance at United Phosphorus said that despite drought situation in the US and in India in FY13, the firm reported robust growth in sales boosted by higher exports in Latin and North America and Europe.

This year, the firm is betting big on organic growth route and is hopeful of improving margins by 100 basis points.

The UPL’s analyst thinks that there are 6 takeaways to drive the revenue growth.

* The company expressed confidence in meeting targets of sales growth of 12-15% in FY2014 and margin improvement of 100 bps yoy,

* Brazil would be a key region driving growth

* Brands/IP(intellectual property) would be focus areas for the company versus a generic-led strategy in the past

* USD 7 bn of products going off-patent in the next few years presents growth opportunity for the generics business

* No big-ticket acquisitions in future; small ones would continue; China is a priority market for any inorganic move.

* Target is to maintain net debt to equity of one, which essentially means no commitment to use cash flows to reduce debt.

“Last year’12-13 the Latin America contributed about 27 percent of the revenue and there was a growth of about 28 percent. North America had growth of 31 percent and 20 percent revenue came from there. India had delayed monsoon, so growth was only 5 percent. 19 percent of the total revenue came from India.” said  Arun Ashar, director, finance at United Phosphorus.

Arun Ashar continued: “we expect margin improvement by over 100 bps in gross margins in FY14. Last year we had improved our gross margin by 2 percentage points from 37 to 39 percent so this year we are expecting around 1 percent improvement.

Arun Ashar commented : ” the margin improvement predicated mainly on better realizations. Last year the price realization was helped by export returns and the volume had also gone up by 5 percent. This year we have not taken any neutral exchange return, but mainly on price account and little bit of volume.”

Arun Ashar stated: ” We have no specific debt reduction plans, There was lot of improvement in working capital cycle last year. It has gone down to 89 days from about 108 days. So there was a considerable improvement in net working capital last year.”