Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Negative/CRISIL A1+’ ratings on the bank facilities and commercial paper programme of UPL Limited (UPL).

 

UPL’s revenue grew 5% on-year in the first half of fiscal 2025, driven by volume growth across key geographies, majorly Brazil, India and the US. Production realisation remained under pressure owing to higher supply from China, impacting the operating profitability which slipped by 140 basis points (bps) to 12.2% in the first half of fiscal 2025. Furthermore, the operating profitability was also impacted by provisions for expected credit loss of Rs 134 crore ($ 13 million). The company’s performance is expected to be better in the second half of fiscal 2025 with the onset of cropping season in the US and Latin America (LatAm) supporting demand, and no further material decline anticipated in product realisation. Rationalization of channel stock in LatAm and the US markets, benefits of cost saving measures taken in the previous fiscal and new product launches (primarily differentiated products) will support the recovery in performance. UPL’s revenue is expected to grow by low to mid-single digits in fiscal 2025, while its operating profitability is expected at 14-15%, much lower than the 18-20% registered by the company up to fiscal 2023. An improvement to the earlier growth trajectory, in terms of revenue and operating profitability, is expected only from fiscal 2026.

 

In November 2023, the board’s approval was obtained for raising funds up to $ 500 million. In November 2024, UPL’s board finalized the fundraise of $ 400 million by equity rights issue. Out of the $ 400 million, $ 100 million of funds had been raised in December 2024 by way of partially paid rights shares. UPL will call the remaining $ 300 million in one or more tranches based on board approval. Furthermore, UPL’s board also approved divestment of 12.5% stake in Advanta Enterprise Ltd (AEL, rated ‘CRISIL AA+/Negative’) to the US-based private equity firm, Alpha Wave Ventures, for a total consideration of $ 350 million, which includes $ 250 million for secondary sale of shares by UPL and $ 100 million primary infusion in AEL. Post the divestment, UPL will hold 74.7% stake in AEL. Majority of the proceeds from the rights issue and divestment of stake in AEL will be deployed towards debt reduction.

 

Gross debt declined to Rs 31,843 crore as on September 30, 2024 (from Rs 33,934 crore as on September 30, 2023) despite lower factoring in the first half of fiscal 2025, due to tight control over working capital supported by inventory optimisation and tightened credit period with UPL realigning its strategy to place the products closer to application. The debt increased in fiscal 2024 owing to industry headwinds with ratio of net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) increasing to 5.3 times in fiscal 2024 compared with less than 2 times till fiscal 2023. The capital expenditure (capex) will be moderate at Rs 2,000-2,500 crore per annum, over the medium term, which will be met by cash accruals. With the improvement in profitability, tight control over working capital, proceeds from rights issue and divestment of stake in AEL, the net debt to Ebitda ratio is expected to be below 3 times in fiscal 2025, considering the $ 100 million to be raised in December 2024 through rights issue and the $ 250 million of divestment proceeds to be deployed towards debt reduction. With further improvement in performance and raising of the balance $ 300 million rights issue proceeds, the net debt to Ebitda ratio will improve to 2.0-2.2 times over the medium term.

 

Delay in the recovery of operating performance, stretch in the working capital cycle or lower-than-expected fundraise, and consequent high debt will result in a rating downgrade.

 

UPL does not have principal repayment obligations until August 2025. However, it has sizeable debt obligation of Rs 6,255 crore in the second half of fiscal 2026, and Rs 7,506 crore in fiscal 2027 which will require part refinancing. Besides, the company’s perpetual bonds will also come up for repricing at prevalent market rates in May 2025 and UPL will have an option to call the bonds starting from February 2025. Refinancing of these bonds will push up interest costs, as current rates are much higher than interest rates prevalent about five years ago, when these bonds were raised. Timely refinancing of debt obligation, including raising new debt with extended maturity, will remain critical.

 

The ratings continue to reflect the UPL’s strong business risk profile supported by robust market position, wide product portfolio, geographical diversification in revenue and adequate operating efficiencies. These strengths are partially offset by the average financial risk profile, which has moderated from its strong position owing to moderation in operational performance but is expected to gradually improve in the near to medium term; the company’s large working capital requirement and susceptibility to risks inherent in the agrochemical sector.

Analytical Approach

To arrive at its ratings, CRISIL Ratings has combined the business and financial risk profiles of UPL and its subsidiaries, collectively known as UPL. This is because all these companies are under a common management and have close operational linkages and fungible cash flows. CRISIL Ratings follows a moderate integration approach for investment in associates and joint ventures in which UPL has significant influence but not a controlling interest—specifically, CRISIL Ratings factored in UPL's share in the profit of these entities and any incremental investment required.

 

Goodwill on the acquisition of Arysta which as acquired in fiscal 2019 is being amortised over a period of 15 years commencing from fiscal 2019. Consequently, reported profit after tax (PAT), networth and ratio computations are adjusted.

 

USD-denominated Perpetual Subordinated Capital Securities (bonds) of $ 400 million (interest coupon rate of 5.25% per annum) raised by UPL Corporation Ltd (subsidiary of UPL) has been treated as 50% debt and 50% equity.

 

Non-recourse factoring of receivables has not been treated as debt.

 

Please refer to Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Large scale with diverse geographical presence: UPL is among the top five players in the global agrochemicals industry. The revenue base is well diversified, with ~70% generated from LatAm, Europe and North America. Wider geographical reach reduces susceptibility to cyclicality in demand from any one region. The company is also the largest agrochemical player in the domestic market, which contributed less than 15% to its turnover in fiscal 2024. UPL has grown through inorganic acquisitions over the years, the largest being that of Arysta, which strengthened its position as a leading global agrochemical player.

 

Wide product portfolio: UPL is also present across the crop lifecycle, from seeds, seed-treatment products, pre- and post-harvest products to storage-treatment products. This ensures lower business volatility compared to peers with a less diversified portfolio. The business risk profile remains healthy, aided by a portfolio of ~14,326 registrations, 1,552 product formulations and 1,500 patents. UPL is present in 138 countries with 42 manufacturing locations, employing more than 13,000 people across the globe.

 

Adequate operating efficiencies, supporting profitability: Backward integration and supply-chain management have strengthened operating efficiencies, which along with steady revenue growth translated into healthy operating profitability of 19-21% between fiscals 2018 and 2023. As a sizeable portion of raw material and power requirement is met in-house, the group is assured a steady supply, with less price volatility. Flexible and multi-product manufacturing facilities, and robust supply chain and distribution network support its profitability.

 

However, sluggish offtake and pricing pressure exacerbated by cheap Chinese supplies, have forced most industry players, including UPL, to offer rebates, impacting realisations and operating profitability in fiscal 2024. With the write-down of inventories, lower rebates with selling closer to season, and demand picking up gradually, the operating profitability of UPL is expected to increase to 14-15% in fiscal 2025, from 10.5% in fiscal 2024. Further improvement in the operating profitability is expected over the medium term, due to better demand and the intrinsic strength of UPL’s established product.

 

Weaknesses:

Large working capital requirement: The crop protection business is seasonal in nature. Sales occur at the start of the season, but payment is realised post-harvest, resulting in stretched receivables cycle. Furthermore, as goods are manufactured in one place and distributed to other locations, a sizeable stock of finished goods needs to be maintained. The large credit required by customers in key LatAm markets also leads to a stretch in the working capital cycle. However, UPL will contain the exposure to markets with long credit cycle to less than one-third of its revenue and utilize securitization benefits (without recourse) wherever available, thereby mitigating the impact of a stretched cycle on the overall credit profile.

 

Average financial risk profile: UPL’s financial risk profile is supported by sizeable estimated networth of over Rs 25,500 crore as on March 31, 2025. The acquisition of Arysta in fiscal 2019 was funded through substantial debt (~$ 3 billion), which led to gross debt of ~Rs 29,000 crore as on March 31, 2019, and resulted in moderation in the debt protection metrics. Debt peaked at ~Rs 30,200 crore as on March 31, 2020, and thereafter reduced by ~Rs 5,000 crore in fiscal 2021, supported by strong operational cash generation and partial pre-payment. The gross debt then increased by ~Rs 2,500 crore in fiscal 2022, mainly on account of higher working capital requirement and then declined by Rs 2,880 crore to Rs 24,379 crore at the end of fiscal 2023, supported by cash flow from stake sale in some of its businesses, and increase in non- recourse factoring.

 

While the debt was expected to reduce further due to prudent capex spend, gross debt increased to Rs 29,331 crore at end of fiscal 2024 due to modest cash generation, stretched working capital cycle and reduced non-recourse factoring. Due to modest performance in fiscal 2024, net debt to Ebitda and interest coverage ratios were 5.3 times and 1.2 times, respectively, compared to below 2 times and 3.6 times, respectively, in fiscal 2023. With improved cash generation due to better performance and improvement in the working capital cycle, and proceeds from the rights issue and divestment, the net debt to Ebitda ratio is expected to decline below 3 times in fiscal 2025. With improvement in performance and further raising of remaining funds through rights issue, the net debt to Ebitda ratio is expected to decline to 2.00–2.25 times by fiscal 2026.

 

UPL Corporation’s minority investors, ADIA and TPG, each with ~11% stake, who had invested in UPL Corporation to support the acquisition of Arysta have the option to sell their stakes, to which UPL has the right of first refusal. These stakes have now moved to UPL Ltd, Cayman under the recent restructuring. While the stake sale is unlikely in the next 1-2 years, any material debt addition by UPL to buy back these stakes in UPL Ltd, Cayman from these investors, and consequent increase in its leverage will be monitorable.

 

Susceptibility to risks inherent in the agrochemicals sector: The crop protection sector remains susceptible to specific and separate registration processes in different countries, and to various environmental rules and regulations. Changes in regulatory requirements such as export and import policies, and environmental and safety requirements in countries where the company has significant exposure, could weaken the growth prospects. Furthermore, the sector is highly dependent on monsoon and the level of farm income. Hence, timing and distribution of rainfall during a year plays a crucial role. This is somewhat mitigated by the geographically diverse base of UPL.

Liquidity: Strong

Cash and equivalents were at Rs 4,312 crore as on September 30, 2024. The utilisation of domestic fund-based working capital limits was moderate at 70% (of total drawing power) on average for the six months through November 2024. The annual capex of Rs 2,000-2,500 crore is expected to be funded by internal accrual and no long-term debt addition is expected. Cash accrual will be Rs 3,500-4,000 crore in fiscal 2025 and increase to Rs 4,000-5,000 crore per annum over the medium term.

 

UPL does not have any material long-term debt obligation till August 2025. However, the company has debt obligation of Rs 6,000–7,000 crore in the second half of fiscal 2026 and in fiscal 2027, which will necessitate partial refinancing. Besides, the company’s perpetual bonds will come up for repricing at prevalent market rates in May 2025, which are much higher at present, and can result in slightly higher interest outgo on these bonds. UPL will also have the option to call the perpetual bonds in February 2025.

 

CRISIL Ratings expects UPL to be able to refinance the required portion of their obligation, given past instances of successfully arranging for similar refinancing, ahead of actual repayment.

 

ESG profile of UPL

CRISIL Ratings believes that UPL’s ESG profile supports its already strong credit risk profile.

The agrochemical sector has a high impact on the environment because of high greenhouse gas (GHG) emissions, water use and high hazardous waste generation by its core operations. The sector has a social impact because of its large workforce and has an impact on the health and well-being of its workers and local community on account of the nature of operations.

 

UPL has undertaken various initiatives and efforts towards mitigating its environmental and social impact and strengthening its ESG profile. 

 

Key ESG highlights:

• UPL has consistently invested in reducing GHG, with focus on reducing carbon footprint in manufacturing and decarbonising through sustainable products. Investing in renewable energy is helping UPL to reduce carbon dioxide (CO2) equivalent emissions by 1.25 lakh tonne per year.
• UPL has reduced its water consumption in its plants by 40% over the past three years, driven by active investments to reduce its water footprint. UPL became the first agrochemical company to make its technical manufacturing facility zero liquid discharge (ZLD). Now ~60% of UPL’s plants have achieved ZLD.
• UPL has significantly increased its renewable energy usage, accounting for 30% of total global power consumption. The solar-wind hybrid farm has an impressive capacity of 61 megawatt (MW), comprising 33 MW of wind and 28 MW of solar, which will be set up in collaboration with CleanMax.
• UPL targets to achieve at least 60% of sustainable sourcing by 2025, compared with 30% at present.
• UPL’s governance structure is characterised by the majority of its board comprising independent directors, and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. The commitment of UPL to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowing in its overall debt and access to both domestic and foreign capital markets.

Outlook: Negative

CRISIL Ratings believes that the performance of UPL will improve gradually over the medium term, with the revival in demand for agrochemicals in the domestic and international markets benefitting the operating profitability and cash generation, which will remain below earlier expectations. Progressive debt reduction, including through proposed rights issue of equity, will be critical to improve the debt protection metrics, which are at elevated levels.

Rating sensitivity factors

Upward factors

• Better-than-expected growth in revenue, with operating profitability at 21-22%, ensuring strong cash generation
• Net debt to Ebitda ratio sustaining at 1.00-1.25 times, due to strong cash generation and lower debt due to prudent working capital management or equity infusion

 

Downward factors

• Continued demand sluggishness due to delay in revival of demand for agrochemicals, and operating profitability remaining below 15%, further impacting cash generation
• Net debt to Ebitda ratio remaining at 2.35-2.50 times on sustained basis and interest coverage ratio remaining sub-par, due to delay in equity raise, more-than-anticipated capex, material acquisitions and stretched working capital cycle, or due to increased stake in UPL Ltd, Cayman, leading to high debt

About the Company

Incorporated in 1969 and promoted by Mr Rajnikant Shroff, UPL manufactures, markets and distributes crop protection products, intermediates, speciality chemicals and other industrial chemicals; and undertakes research in these segments. Over time, UPL has made several acquisitions and entered strategic alliances to diversify its product profile and increase geographical reach. UPL now includes over 200 entities. Apart from UPL, the other key operating companies in the group are UPL NA Inc (US), UPL Europe Ltd (UK), UPL Agro SA DE CV (Mexico), UPL Argentina SA (Argentina), UPL France, UPL Italia SRL, UPL South Africa PTY Ltd and UPL do Brasil Industria e Comercio de SA (Brazil). UPL group has manufacturing units in India, France, Argentina, the UK, Vietnam, Turkey, Brazil, the USA, China, Thailand, Italy, Australia and Columbia.

Key Financial Indicators

Particulars for year ending March 31	Unit	2024	2023
Revenue	Rs crore	42,915	53,520
Adjusted PAT^	Rs crore	(2988)	3304
PAT margin^	%	-7.0	6.2
Adjusted debt/adjusted networth^	Times	1.24	0.93
Adjusted interest coverage	Times	1.21	3.61

^CRISIL Ratings-adjusted numbers for treatment of goodwill

Any other information: Not Applicable