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Economic Performance

Management Approach

For an organization to fulfill the expectations of the shareholder, economic performance is essential i.e organizations proper growth. UPL's growth is directly influenced and dependent on farmers prosperity. With population and food demand growing, the need of the hour is to improve food productivity and security. At UPL, we are seized of this global priority. We have selected to address this need through seven priorities: Reduce dependence on third parties, Strengthen product portfolio, Diversify proactively, Scale capacities competitively, Optimize costs, Reduce carbon footprint, Enhance safety levels. Our mission is manufacturing and supplying crop protection and specialty chemicals worldwide, by providing solutions to optimize farm productivity for the farmer through innovative and cost-effective products, to provide the customer with better value for money. UPL is thoroughly planning for future needs and requirements for food in India and globally, by bringing in new agri-techniques, innovations and crop protection.

Priorities

Reduce dependence on third parties

Strengthen product portfolio

Diversify proactively

Scale capacities competitively

Optimize costs

Reduce carbon footprint

Enhance safety levels

19%

Increase in innovation rate of new products

7%

Growth reinforcing its position as one of the most exciting generic crop protection chemicals companies

2nd

Global ranking as a post-patent crop protection chemicals company

37,131

Market Capitalization (Cr. In INR)

14%

Improvement in EBIDTA to INR 3,920 Cr

17%

Increase in net profit to INR 2,022 Cr

0.2%

Growth in global crop protection chemicals industry 2017

25

Environmental sustainability related awards received by UPL in FY2017-18

Agriculture Sector In India

Agriculture is the primary source of livelihood for about 58% of India's population and the sector accounts for 16% of the overall economy. At 157.35 million hectares, India holds the second-largest agricultural land in the world. Ministry of Agriculture is targeting to achieve 274.55 million tonnes production of food grains, during 2017-18 as compared to 275.68 million tonnes in FY17. India's agriculture sector is pegged to grow at 2.1% in 2017-18. India is among the top15 exporters of agricultural products in the world. The Central Government has made doubling farm incomes as one of its priorities. To this end, it has taken a number of important policy actions to boost agriculture: instituting soil health cards, ensuring efficient irrigation, strengthening government procurement of pulses, introducing neem-coating of urea, building more assets under MGNREGS, expanding crop insurance for farmers and building a common agricultural e-market via e-NAM. (Source: CSO) Outlook The productivity of most crops in India is below the global productivity average. Farm productivity can be improved through better irrigation, technology improvement, crop diversification, increased value addition (fruits, vegetables, spices, condiments), and increasing crop intensity

Primary source of
livelihood for about
58%
of India's population

India is among the
top 15
exporters of agricultural
products in the world.

Agriculture in India
accounts for
16%
of the overall economy.

Global Crop Protection Chemicals

Modern agriculture is a USD 3 trillion industry and as the world population moves to a projected 9 billion people by 2050, investment in safe, effective agricultural chemicals will only continue to expand. The ever increasing need to grow more food on less land, with minimal impact on human health and the environment, creates a vast market for effective synthetic crop protection chemicals and fertilizers. Crop protection chemicals, in terms of revenue, are expected to grow at a CAGR of 5.5% from 2017 to 2025 due to rising occurrences of pest and rodent attacks damaging crops. On the production side, 90% of the growth in crop production globally (80% in developing countries) is expected to come from higher yields and increased cropping intensity, with the remainder coming from land expansion. Arable land would expand by ~70 million hectares (or < 5%), with the expansion in developing countries by about 120 million hectares (or 12%) being offset by a decline of some 50 million hectares (or 8%) in the developed countries. Almost all of the land expansion in developing countries would take place in sub-Saharan Africa and Latin America.

UPL ventured into crop protection chemicals and specialty chemicals 38 years ago and today the company is the 8th largest crop protection chemicals in the world.

Generic crop protection chemicals

A promising opportunity Generic crop protection chemicals account for ~60% of the global crop protection market, while proprietary off -patent and patented crop protection chemicals account for the remaining share. Of late, falling agricultural commodity prices, and in turn, falling profitability have been driving US and Latin American farmers towards less expensive generic products. The US and Latin American markets account for ~18% and ~27% of the global crop protection chemicals market, respectively, and the shift to generic crop protection chemicals coupled with multitude of products going off -patent is expected to open up attractive avenues of growth (estimated to be worth ~USD 3 billion between CY17 and CY20) for the generics industry. Products worth USD 3.7 billion have already gone off -patent between CY15 and CY17. While this would result in a contraction in the American and Latin American markets in value terms, it would widen opportunities for Indian crop protection chemicals companies.

Demand drivers

Growth in demand for food grains: India has ~16% of the world's population and <2% of the total landmass. Increasing population and high emphasis on achieving food grain self-sufficiency, is expected to drive growth.

Limited farmland availability and growing exports: India has 157 million hectares of gross cultivated area and the scope for bringing new areas under cultivation is severely limited. Available arable land per capita has been reducing globally and is expected to reduce further. The pressure is therefore to increase yield per hectare which can be achieved through increased usage of crop protection chemicals.

Increasing awareness: ~15-25% of potential crop production is lost due to non-usage of crop protection chemicals. Companies are increasingly training farmers regarding the right use of crop protection chemicals in terms of quantity to be used, the right application methodology and appropriate chemicals to be used for identified pest problems. With increasing awareness, the use of crop protection chemicals is expected to increase.

Opportunities

Scope for increase in usage: With lower proportion of the total farmland under the coverage of crop protection chemicals, there is a significant unserved market that can be tapped into. By educating farmers and conducting special training Programmes regarding the need to use crop protection chemicals, Indian companies can hope to increase crop protection chemicals consumption

Huge export potential: The excess production capacity is a perfect opportunity to increase exports by utilizing India's low-cost manufacturing capabilities.

Product portfolio expansion: Threats like genetically-modified seeds, integrated pest management and organic farming, among others, can be turned into opportunities if the industry reorients itself to better address the needs of its consumers and broadens its product offering to include a range of inputs instead of only crop protection chemicals.

Off -patent products: A multitude of products going off -patent would unleash a generics opportunity worth ~USD 3 billion between CY17 and CY20. By leveraging the strength of top-notch R&D and integrated manufacturing facilities, sectorial players can grab this imminent opportunity in the generics market.

Challenges

High research costs: Research activities to develop a new crop protection chemicals molecule takes an average of nine years and Indian companies typically have not focused on developing newer molecules and will face challenges in building these capabilities, while continuing to remain cost competitive

Threat from genetically-modified seeds: Genetically-modified seeds possess immunity against natural adversaries and thus adversely impact the business of crop protection chemicals

Need for efficient distribution systems: Since the number of end users is large and widespread, effective distribution via retailers is essential to ensure product availability. Lately, companies have been directly dealing with retailers by cutting the distributor from the value chain thereby reducing distribution costs, educating retailers on product usage and offering competitive prices to farmers.

Support for integrated pest management and rising demand for organic farming: Promotion of integrated pest management, zero budget farming and usage of bio pesticides by the Indian Government and NGOs has hampered crop protection chemicals demand growth. As such, crop protection chemicals companies will have to address concerns pertaining to the negative impact of crop protection chemicals usage.

UPL ventured into crop protection chemicals and specialty chemicals 38 years ago and today the company is the 8th largest crop protection chemicals in the world. At present company's marketing presence is in 130+ countries through 88 subsidiaries. Our vision is to be a world-class organization by enhancing value for customers and other stakeholders, by caring for employees to inspire their engagement as a motivated team in an open and learning environment, by setting new performance standards and by focusing on total quality control, innovation and responsive care towards the environment. Keeping the above vision our primary goal, we reported a topline growth of 7% during the year under review. This year Indian market grew slower than expected due to a number of reasons: the lingering impact of demonetization affected off take; the 2017 monsoon was less than adequate; GST implementation led to destocking in the first quarter and slowed business during the first half of the year. World Bank has projected India's economic growth to accelerate to 7.3% in 2018-19 and 7.5% in 2019-20. As a future-facing company and to cross the hurdles, we continue to strengthen registration, patent filing and market widening exercises. During the year under review, we filed 169 patents and registered 247 new products across markets. The Company launched 101 products during the year under review.

Company's performance was striking as consolidated revenues improved 5% from INR 17,124 crore in FY17 to INR 17,920 crore in FY18, EBIDTA reported a 14% growth from INR 3,429 crore in FY17 to INR 3,920 crore in FY18 and PAT grew 17% from INR 1,727 crore in FY17 to INR 2,022 crore in FY18 profitable growth for the Company. We have continued to strengthen our margins; EBIDTA margin strengthened 185 bps over FY17 and net profit margin improved 121 bps over FY17.

The Company is member of various trade associations and chambers which helps UPL to identify and understand the common concerns of the business and its impacts on the communities.

We also have an internal audit team with well-established internal control and risk management processes both at the business and corporate levels, which ensures the adequacy of incumbent monitoring systems and evaluation systems. The voluntary appointment of professional consultants is done to check the shortcomings of the systems and thus, improve on the same. We have defined in detail, various policies and procedures for conduct of the business to safeguard the assets of the Company, maintenance of accurate and complete accounting records, making available from time to time management information and prevention and detection of fraud and errors.

169 patents filed

247 new products registered

Reported a topline
growth of 7%
during the year under review

economic_performance