United Phosphorus charts Rs 1k-cr acquisition plan

United Phosphorus, the country’s largest agro- chemical company, could use close to Rs 1,000 crore for acquisitions by the end of current fiscal, according to Raju Shroff, chairman and managing director.

The company, which has interests in crop protection products and exports, is sitting on a Rs 2,100-crore cash pile as of September 2010. The global chemical industry is said to be witnessing a consolidation wave with the Chinese state-owned ChemChina bidding for MAIN, the largest agrochemical company based in Israel.

At one point, UPL was said to be talking to MAIN some time ago. When asked about MAIN, Mr Shroff said he did not wish to comment. However, Mr Shroff said the consolidation trend is expected to continue and UPL followed both inorganic and organic growth strategies.

"Day by day, the cost of R&D and bringing new molecules is becoming more expensive and therefore, companies find it difficult to survive,” he added.

Australia’s Nufarm, the second-biggest agrochem company, is also considered a takeover target. In December 2009, the company rejected an approach from Sinochem. Mr Shroff said Nufarm has been in the market for some time.

"Nufarm has investment in other companies. So, it becomes more complicated. That is why they have not been able to finalise any deal yet,” he told ET in a e-mail response to a query.

A banker tracking the agro-chemical space closely does not think UPL would make a big-ticket acquisition. The company is expected to acquire a niche company with registrations in developed markets. It could also look at a target to enter markets where it is not present, according to the Mumbai-based banker.

Mr Shroff agreed and said UPL is looking for companies which may make it easier to get a better market share. Analysts expect UPL to emerge as a stronger player from the consolidation wave.

"Consolidation in the sector is likely to happen and a player like UPL may look for expanding its global portfolio,” said Sageraj Bariya, senior sector analyst with Angel Broking . Chemical industry in India is largely unorganised with a market size of roughly Rs 12,000 crore.

UPL is currently the fourth-largest player in the global generic agrochemical space. Like pharmaceutical generics, agriculture generics are chemicals that go off-patent and witness competition from generic players. UPL shares have gained 12% since January 2010. The BSE Sensex gained 22% during the same period. Mr Shroff believes that the demand for crop protection will continue to remain high.

"Today, there is big pressure to produce more pesticide to meet requirements,” Mr Shroff added. United Phosphorus reported revenue of Rs 798 crore for the quarter ended September 2010. The market cap stands at Rs 8,977 crore.