UPL Limited (UPL.NS) Earnings Call Transcript & Summary

I would like to thank you all for making to this call at a very short notice. Let me introduce you to the management on the call. We have Mr. Jaidev Shroff, Global CEO and Promoter; Mr. Hardeep Singh, Independent Director and Chairman of Audit Committee; Mr. Anand Vora, CFO; and Ms. Radhika Arora, Head IR. With this, I will hand over the call to the management. Over to you, Mr. Shroff.

Thank you very much. Just to let you know, me and Hardeep are together in the car actually. And so if there is any disturbance, I apologize in that part. Just to update everyone. We've had a robust year. COVID has really created awareness of a pretty delicate environment in terms of food supply chain and most governments are focusing on self-sufficiency on food as much as possible. We have seen some very interesting development in the world. Commodity prices, which we were uncertain about at the end of March, at the peak of the uncertainty and the crisis, had moved up substantially. And my personal view is that a lot of countries are stocking up on food. The sentiment in the food systems across the world are pretty positive. The price of commodities are very, very strong. And the general view is pretty optimistic going into 2021. I -- even in countries like India, agriculture has been the mainstay and giving a lot of confidence to the government, et cetera. Even though we can see this whole pharma crisis, the food production has been good and the sentiment for even the Rabi planting is pretty good. Overall, there is a lot of excitement about sustainability, about food systems, about just the food security, even in Africa. We are discussing with many governments around self-sufficiency in rice growing and other crops. The food companies and the world is focusing on sustainable food supply -- supplies, and UPL, with its whole portfolio of biosolutions and other climate smart technologies are well positioned. We are very well positioned to capitalize on that. While we have been investing in these technologies between UPL and Arysta for the more than 7 to 8 years, and we are commercializing, that business segment for us is growing at double the rate of our regular business. And we believe that while being #1 in that category is also helping us to grow. Just to inform, we've just inaugurated a laboratory in Bangalore, which is doing all our biosolution research, in addition to our bio research going on in France, Mexico and in [ Kelly ] in the U.S. So we are excited about the prospects for our biosolutions business and our sustainable solutions. We are also very proud of being recognized by [ certain ] analysts as the #1 company in ESG. I would just emphasize for this call G, which means governance, I assume, and you guys know. So it's a very positive thing. And we believe that growth rates for UPL will continue to go on. In most markets around the world, we have gained market share this year. And in the past few years, we are gaining market share. We are very pleased with the performance in Southeast Asia. That market has grown a lot. Our best on expanding our production capacities for our herbicide segment on [indiscernible] and on glufosinate also had done really well. And we continue to be a market leader in terms of growth in these areas and really have been able to gain substantial market share in all the growing markets. And so even our whole strategy in Brazil has panned out very well, and we have been able to continuously gain market share in Brazil, which is one of the most important market for food production worldwide. Our -- while Argentina as a government is going through its own problem in currency and the agriculture system there is operating very well and is strong, cash flows are pretty strong, which we were surprised with but it's a very positive development. And because the underlying commodities are exported around the world and prices are good, that also sentiment is pretty good. On Advanta side, we've had a second year, very successful development of our [indiscernible] technologies. And that has also done really well, and we are quite optimistic about the market share growth in the sorghum segment. Even in India, Advanta has done well, and we are now the #1 company in corn in Maharashtra. And we are very proud of that because it's an important market for corn seed. Even on vegetables, today, UPL would be probably 1 or 2, #1, #2 -- #2, I would say, in the vegetable seed market, also growing very nicely. And we have a good prospect for continuing to grow, as situations like COVID, vegetable and fresh consumptions go up quite a lot. So we are quite optimistic about the prospects for UPL currently and in the next couple of years. We've also had some new plants commissioned our [indiscernible] plant, which is part of our integration strategy, has just commissioned. This was a product we inherited from our Arysta acquisition. That plant is commissioned. We also commissioned the [indiscernible] plant actually, it's in commissioning. But there, we're running very well, and we are very happy with that, that basic feedstock for a lot of our chemicals and for the basic chemical industry. So overall, things are good. Our intermediate and specialty chemicals business in India is also growing sort of mid-double digits, 20%, 30%. And I believe that, that will also continue to grow. So overall, quite optimistic about the effects for UPL. We have a very strong foundation, and we believe we'll continue to gain market share going forward worldwide. So with that, I can turn to the current situation. The -- I just want to mention that this issue was brought up, about 2017, to the Board, to the Audit Committee Chairman, and it was investigated by the Board in 2017. And we had the Audit Committee involved, the auditors, and reviewed the last 7 years of transactions between any of the family investment companies or any other companies, including the company mentioned here and found to be okay. All that report was discussed with the Board. The Board decided to get a legal opinion, and followed the due process, and the matter was closed. The complainant at that point was my estranged wife. And it [ applies ] for me to the right people. And so that is the update on that. I can hand over to Hardeep to make any comments on this process because he was very involved in the process at that time. Thank you.

Good afternoon. This is Hardeep Singh. At the time of this campaign in 2017, I was, I believe, a member of the Audit Committee, I was still not the Chairman of Audit Committee. [indiscernible] part of it [indiscernible] is the Chair of Audit Committee at that time. We went through the complaint with the complete details of the complaint. We investigated this internally. And to verify the internal investigation, we turned to get [indiscernible] and associates, they are the leading law firm in the country, to investigate independently and cross verify the validation and validate what our own Audit Committee had verified. Both those validations came out clean. And based on that, we issued a certification to the Board and also wrote to the complainant that there was no cause that we found or any issue or any intent or any malafide or any breach of process or systems. Anything -- so that's really about this complaint. We are, as usual. So if there's anything that you'd like to ask, please go ahead.

Thanks, Hardeep.

We would also, I would also like to make to -- make an important point that this morning, when this when this complaint, when this has surfaced on the media, the electronic media, we have made calls and verified with each member of the Board, existing and past, recently past, over the last 5, 6 years, and confirm with each person that none of them has made a complaint. So this -- the allegation made in the complaint that this is whistleblower complaint from a member of the Board appears to be malafide and with bad intent. Because no member of the Board, and I can confirm that to you on this call, no member of the Board, we verified it globally from every member individually, no member of the Board has made the complaint or member of the Audit committee has made a complaint. As a [indiscernible] India [indiscernible] in the article.

Thanks, Hardeep, and thanks, Jai. Now we'll open up the session for question and answers.

[Operator Instructions] The first question is from the line of Eric Liu from Nomura. .

I agree that this kind of event seems like an old issue back to 2017. But I just want to have a quick catch up like, how is the existing, this kind of lease and license agreement like? I understand in the past fiscal 2012 to 2019 is incurred around INR 25.9 crore. But like can you let me know how is the remaining lease term [indiscernible] Sorry. Could you -- let me know the remaining lease term that UPL Limited entered with so doubtfully the kind of shell company, like how many remaining lease term and a further remaining amount?

Yes. I answer. It is a rental property. It was rented for my day during my visit to India. And so I was staying there when I was in India, and it was a rent paid over the period of time. If that's what you're asking, it was a rented property, real estate rented home.

Just to add to that, the agreement is the agreement was completed -- I mean, it expired as of 31st March 2019. And since then, it is not renewed with UPL.

Okay. 31st March 2019 has been ended. And then also, there isn't anything, that's all they leased? Got it. Maybe just another question. I just want to get a sense to know how has the common shareholding structure for the Sadafuli, is it still owned by like some kind of [ 10 no meg ] kind of stuff reported by news?

It's not owned by any of the UPL -- it's not a UPL subsidiary, and it's unrelated party as far as UPL is concerned.

So it's no longer owned by any relevant employee, for example, in the news it named like [indiscernible] are they still owning this shell company?

If the shell companies own -- the holding company, I assume -- I don't know what is a shell company, everything is a shell company. The holding company is owned by Sameer Mehta who leases it to -- who used to lease it to UPL.

The next question is from the line of Matías Vammalle from BlueBay Asset Management.

And by the way, I think it's commendable that you're carrying out this call. It's -- I think it's very positive and it helps us, analysts and investors, to get information and to have access and really shows that you're trying to stay in front of this. My questions are the following. The first one is, you commented that none of the current board members seem to be involved in this. Could this maybe be a previous or a prior board member? And I think it may have been suggested that it was a prior board member. Secondly, could you give us a sense of the potential amounts that are involved in this allegation? And then thirdly, I think that was part of the previous question is do the allegations with -- or have any relation to UPL Corp.? Or are they mostly at the UPL Limited level? I'm just trying to understand since there was a change of auditors to UPL Corp. Thank you very much.

Thank you to your first question, and this is our Hardeep Singh. I'm the Chairman of Audit Committee. To your first question, this is to confirm that we have verified today with all directors who, including those who have retired over the last 7 years, and confirm globally with them that none of them have made this complaint. So we have gone as far back as we possibly could to check with all directors who were past and present. And even past directors, we have confirmed our belief in that. And nobody has made the complaint. Number two, the total amount involved is $3 million, give or take over the same year period.

Perfect. And then I'm sorry, but were the allegations involving UPL Corp. or Limited?

No, this is...

This is all about UPL Limited.

The next question is from the line of Amar Gill from BlackRock.

Yes. So my question is just to clarify on what was the arrangement until March 2019. You've mentioned that the holding company was previously -- the lessor for the property was Mr. Mehta, if I got the name correctly. Was it -- was Mr. Mehta, in some way, related party to the promoters of the group? Or before March 2019, was this -- was the lease for a property that was related to the group or completely an independent, or no, he was leasing it to Mr. Shroff?

Anand, would you like to answer that?

Sure. So Amar, this -- prior to 2019, the property was rented to UPL and UPL used to pay the rent. And whenever Mr. Shroff was in town, he would stay at this property. So that was the arrangement. There is -- this person who has the company and the person who has rented that property to UPL is no way related to the Shroff family.

So I'm going to also add that it is quite usual in India to rent accommodation for the CEO as [indiscernible] Not just the CEO, but also for other senior management.

The next question is from the line of Diwakar Vijayvergia from AllianceBernstein.

Thank you so mush for this call. It's -- like one of the participants mentioned, it's really timely and it helps. I understand the business is doing well. Year 2021 should be better than 2020, the growth should be better. But what is the -- I'm a credit investor, so I can talk about credit. But even the equity markets don't seem to be rewarding the company. And even in the credit markets, the UPL bonds trade probably at the wider end of spectrum. And the reason probably is related to the headline noise, which comes around the management. If I just go back 6 to 7 months, the tax rates [indiscernible]

Can you speak up a bit. It's not a very clear line. It may be my line, I'd appreciate if you can speak up a bit.

Can you hear me now...

Yes. Better.

Sorry about that. So what I was trying to get to is like with the equity markets and credit markets are not rewarding the company for the performance that they have been delivering in the last couple of years, a little bit more, right? And probably the reason is because of the headline noise disputes within the company. I mean it is unfortunate, but it is what it is, right? But I just wanted to understand, like tax rate, I understand. But auditor resignation, even though it -- results have come out and said that it's a commercial decision and stuff like that. But the audit are not responding to the stock exchange or not responding to revision is something which I still want to understand. And even though this -- well, I completely understand that this is like an old case and something -- someone is just digging this up to just not the best of intentions. But I just want to understand like what's going on with efforts with the auditor, just to get more sense in terms of, yes, it was a commercial vision, but why is the auditor not coming out and making the statements, which is proposed to make to the exchanges?

Jai, you want me to take it or you want to answer it?

I mean what can you -- I mean, can I be very honest? What can you reask all KPMG India and ask the auditor to resign because they were not able to complete their work. What do you expect them to say? They are not -- nobody is going to admit that they are not competent, but they just couldn't finish their work on time. And every quarter, we were going into a board meeting whether we would -- we'll be able to get our papers -- our balance sheet done on time because they just did not have resources. So nobody is going to admit to their own incompetence. We just ask them that please now enough is enough. If you do not add enough resources and put more people on the job, we cannot work with you. I have the right -- we have the right to fire somebody if he's incompetent. And so that's what we did. We just politely said that they resign. There was a mistake, we should have said they were fired, that would have been better, just to put it bluntly. I'm not expected to put up with incompetent people around us.

No. I understand that part, but there is a process to do that, right? I mean there's an annual meeting. There's an annual review, right? [indiscernible]

KPMG is still our auditor, it's not a problem. KPMG is still our auditor and all our main subsidiaries. Obviously, it's not a KPMG problem. It's not an audit problem. It's just their problem there. There was a problem, KPMG [indiscernible] in India, not been in the main parent company where they monitor the audit any case. I mean let me ask, it's about the logic, right? If you cannot have one arm of a company staying on if they have a problem. It's very logical. I hope that it's clear. I don't know where the ambiguity is coming from.

The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance.

Thanks, for the [indiscernible] and thanks for the timely call. Appreciate that. Second on -- so whatever the entities have been mentioned in the media, what did related party said during that period that DSO was a part of books of accounts annual report and sooner, related party transaction? That is the question.

Yes. I mean sorry, can you repeat that?

Okay. Okay. So what the article mentioned that they were related parties, the lessors. So if -- whether that was the case or not, that is first. And second, if that was the case, what part of our annual reports as -- hello?

So to answer to your first question is they were not a related party.

Okay. Okay. So then they are not required to be part of related party transaction disclosures in the annual reports?

That's right.

Okay. So just a clarification, does that mean that as earlier mentioned in the article that it was either that later entities was owned by the employees or the promoters. Is that wrong or that was -- or technically, they were not forming part of related parties despite the employee or the promoters owning them, to some extent?

So the -- they are not employees, and they are not promoters. That's correct.

Okay. Okay. Perfect. So none of the entries mentioned were wholly or partially owned by the employee or the promoters?

Yes. They are not owned by employees or by promoters, yes.