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

Thank you, Vikram. Good morning and good evening, ladies and gentlemen. Thanks for joining us today for the results for the quarter and 9 months ended 31st December, 2020. On this call, we will be referring to a presentation that has been shared with you and is also available on our website. And we take it as having read the safe harbor statement. From our management, we have with us our global CEO, Mr. Jai Shroff; Group CFO, Rajendra Darak; COO, Diego Casanello; Group CFO, Anand Vora; and other members of the global leadership team. We will start the presentation with an overview from Jai, followed by a business update from Diego and thereafter a financial updates for Anand. With that, let me now hand over to Jai.

Thank you, Radhika. Hello, everyone. This is Jai Shroff, and I thank you for joining us today for the third quarter earnings conference. I hope all of you are doing well and -- among these unprecedented times the world is facing. It is truly been a testing and challenging year for all of us during the disruption caused by what you can only truly come as once in a lifetime black swan event, the global pandemic. But despite many of these headwinds, I'm glad and pleased to inform you that the entire UPL family has been resilient during this time and that the learnings from this pandemic have made us stronger and more focused. As a company, we are proud to be part of the food value chain when the world needed it the most during these unprecedented lockdowns. We -- as we accelerate the transformation from an ag chem-centric company to one that is pioneering and developing a sustainable food system, we have a unique approach to the food value chain that puts sustainability front and center to doing everything. Our model of creating sustainable growth is unique, and we are pleased that some of these leading -- some of the leading ESG rating agencies like Sustainalytics, DJSI, FTSE Russell and others have acknowledged the same. Sustainability and CSR have always been the way we work and that is our DNA, much before the ESG world became a central theme for global corporations and many large enterprises. Lastly, the UPL family, including myself, are humbled that my [indiscernible] company who has been conferred India's highest civilian award, the Padma Bhushan, for his contribution in the field of trade and industry. This is a -- this distinction brings us immense pride and joy to all of us. Our founder, my father, has always believed in the purpose of science and technology is only achieved if the products are affordable and made available to the smallest farmer. We remain committed to his philosophy and we will charge a similar course, developing solutions that will benefit millions of farmers in India and across the world. Thank you very much, and I invite Diego to give a business update.

Thanks, Jai. Good afternoon, everyone. I am pleased to join you today and present our financial results for the third quarter. Let's move to the first slide. I am glad to report that we are on track to deliver our guidance for the year. Revenue for the quarter improved by 3% and EBITDA improved by 6%. The increase was supported by strong volume growth, favorable mix and price increases, which also led to an improvement in gross profit by 230 basis points. We achieved this despite currency headwinds and a significant delay of the season in Brazil. In addition, we continue to improve net working capital by 19 days, primarily driven by accounts payables. And earnings per share in the third quarter were 12% higher versus the prior year and amounted to INR 10.38 per share. We also reduced our debt by INR 3,980 crores. Now let's talk -- let's look at our overall performance highlights for the quarter. We're happy to report that 4 out of 5 regions delivered growth in the quarter. LatAm was the exception, which was impacted by both the delayed season due to dry weather in October and November and strong currency headwinds. A part of this impact was offset by price gains in local currencies. And overall, we achieved 7% volume gain and 1% price gain, which were partially offset by 5% currency headwind, mainly of the Brazilian real. Increased sales of differentiated products and sustainable solutions supported higher margins, which also benefited from cost savings and synergies. Fixed overheads were 11% higher than prior year, impacted by intra-quarter movement of costs and other provisions, as would be detailed in the financial summary by Anand. All these factors have led to 6% EBITDA growth versus prior year. Now let's look at the performance of our regions. In Latam, we saw volume growth in Argentina, South Cone and the Andean region. Despite the season delayed due to early droughts in Brazil and Argentina, the increase in grain commodity prices and recent rains are supporting a positive trend for Q4. In North America, combined favorable weather conditions and strong growth in differentiated and sustainable solutions have contributed to higher revenues and improved margins. In addition, we are also seeing increased demand for glufosinate due to the robust ramp-up of resistant trait acres. In Europe, UPL has been bringing alternative solutions to gaps created by banned products, including the recent launch of Argos, the biological sprout inhibitor for potatoes. Increased sales of differentiated and sustainable solutions in Europe have led to an improved mix, and we have also seen strong growth in Poland, Benelux, Ukraine, Italy and Spain. The rest of the world saw double-digit growth in Africa and Middle East, Australia and New Zealand, benefiting from a normalized season compared to last year. And strong growth was also achieved in Southeast Asia due to the expansion of our glufosinate business. Accelerated growth in China was driven by UPL's investments in people on the ground and a growing portfolio of branded products, thanks also to a recent acquisition of Yoloo Laoting Ltd. In Q3, the market in India has slowed down due to the excess rains in the south after a very strong 6 months of the year. The region experienced herbicide sales growth to [ herbicide-resistant ] Phalaris-infected wheat acres as well as other uses. Before I hand over to Anand, I would like to recognize our team for their resilience and dedication to the company and our customers. A great example is our recently announced state of the art clethodim manufacturing facility in Jhagadia, India. Clethodim is one of the largest [ selective ] post-emergence herbicides in the world. It was brought into the UPL portfolio through Arysta Lifescience. After only 20 months post integration, this investment allows us to meet increased demand requirements from growers and significantly improves our competitive position, strengthening our market leadership. So thanks, again, to everyone involved in these key project. To all employees and everyone, fantastic job. We will now move forward into Q4 with a sharp focus towards delivering a strong finish. Agronomic conditions in key markets remain positive and prices for grain commodities continue to increase. These trends indicate that we can expect healthy farmer margins. And at the same time, UPL has demonstrated a strong track record of increasing market share, introducing new and more differentiated products and increasing margins. Because of all this, we are confident to be well positioned to deliver on our guidance for the full year 2021. I will now turn the call over to our CFO, Anand Vora, to provide more details about our Q3 financial results. Anand?

Thanks, Diego. Good afternoon, good morning, good evening, where people have joined us on this call. And thanks once again for joining us on this call. I hope all of you are safe. I'll deep dive into the financial highlights for Q3 and 9 months ended December 2020. We saw robust volume growth during quarter 3, volume growth of 7%. And this is the first quarter in this financial year where we saw a price -- positive price ramp. So we have been -- the team has been working hard to increase the prices, and we did see that Q3 started bearing some results on that. And we do expect that Q4 also, we should be expecting some positive price variance. So a 7% volume variance, a 1% price variance. However, we had some very strong headwinds in -- FX headwinds, particularly in Latin America, and that impacted our overall revenue growth by 5%. And therefore, the net revenue growth for the quarter was 3% or that of the same quarter in the previous year. If you look at the 9 months results, our overall growth is about 5%. But again, if you look at the volume growth, we saw a volume growth for 9-month period of 9%. As I mentioned, the first 2 quarters we had a negative price impact. And therefore, for the 9 months, we still have the price impact of negative 1%. We hope to correct this, as I said, in Q4. And FX impact for 9 months was minus 3%. And therefore, the overall growth in revenue for 9 months has been 5% in revenues. As for EBITDA, we -- for the quarter -- third quarter, the EBITDA rose by 6%. And overall for the 9 months period, we had an EBITDA growth of 8%. Therefore, we are pretty much on track to deliver both the revenue guidance of 6% to 8% growth for the full financial year and the EBITDA guidance of 8% to 10% for the full financial year. Based on what we are seeing, the forecast and the pricing improvements for Q4, we hope to be on the high end of the -- both the guidance -- or the revenue guidance and the EBITDA guidance. Talking about key financial metrics. For the -- revenues for the quarter were INR 9,125 crores as -- an increase of 3%. And for the 9 months, we had INR 25,898 crores, an increase of 5%. EBITDA was at INR 2,209 crores for the quarter, an increase of 6%; and INR 5,720 crores for 9 months, an increase of 8%. The net profit for the quarter was INR 793 crores, a growth of 12%. And for the 9-month period, the net profit stood at INR 1,807 crores, a growth of 56% over that of the 9 months of the previous year. Gross margins were up by 230 basis points and stood at 44% to sales against 42% in Q3 of the previous year. The margins expanded due to price increases in local currency; cost savings, savings in the cost of goods; and synergies. This was also driven by a favorable mix -- favorable product mix. Gross margin stayed strong for the 9-month period at 42%. For the quarter, the fixed costs were higher by 11% as compared to the corresponding period, the corresponding quarter. The increase was largely on account of some intra-quarter movement of costs and also includes INR 39.5 crore on account of unfavorable court order for the entire industry pertaining to excise duty for a period of April 2008 to December 2013 in the state of Jammu. As you are aware, we have a manufacturing plant in Jammu, and the industry divested and benefits given. However, there were there was some misinterpretation, and the matter was with the High Court. We got a favorable response in the High Court, the industry, but in the Supreme Court, this was turned down. And therefore, we had to make this provision of INR 39.5 crores. As I mentioned earlier, this pertains to period of December -- from December -- from April 2008 to December 2013. Without considering this liability, the fixed cost, actual increase is only 9%. Overall, for the 9 months period, fixed costs were higher by 3% as compared to the 9 months period over -- of the last year. Finance costs, I think I would spend some time on the finance costs as the way we publish it, the finance costs not only includes the interest cost but also includes the mark-to-market on hedges that we take. And as you know, with our global business, we do take -- to protect us -- to protect any adverse impact arising out of currency fluctuations, we do take forward contracts and hedges. So getting deeper -- deep diving into the interest cost, the interest for the quarter was INR 745 crores. And this -- as compared to the same quarter in the previous year was INR 515 crores, thereby showing an increase of INR 230 crores. Of the INR 745 crores finance cost, interest and financial charges were INR 460 crores compared to INR 388 crores of the previous year, an increase of INR 72 crores. However, the increase is on account of a onetime interest cost of INR 75 crores pertaining to prepayment of October 2021 maturity bonds of USD 410 million. As you are aware, we did what is called as a make-whole, where we bought back these bonds of $410 million. And as for the offer document, we have to pay interest until maturity and the INR 75 crores onetime cost, which I'm referring to, is nothing but the interest that we paid from the -- from 20th of December through the maturity date, which is October 2021. What is important here to note is that on this prepayment, and the interest outflow of net outflow -- additional outflow of INR 75 crores, which we charge to P&L, we actually -- the company has gained an overall INR 32 crores reduction in the finance cost on account of prepaying these bonds. So net-net, if one has to look at the finance charges for the quarter against INR 388 crores on the previous year, they were actually around INR 382 crores for this quarter. The balance INR 285 crores which is -- which I mentioned, pertains to net exchange difference on account of profit and loss arising on foreign currency loans, mark-to-market losses on ForEx contracts related to advanced orders, borrowings, loans and advances. This, as compared to previous year number, was INR 127 crores. And again, needless to mention, due to the pandemic, we saw [ right ] fluctuation in currency and we therefore have taken significant hedges to ensure that our profitability at the business level is well protected. Moving on to exceptional items. Exceptional items for the quarter was an income of INR 78 crores versus an expense of INR 75 crores in the previous year for the same quarter. This was on account of the favorable verdict on Agrofresh case which resulted in reversal of INR 115 crores. For those of you who have been following the company, you are aware that based on the court verdict earlier, we had made a provision of $31 million and we represented or we contested this court verdict and we saw a reduction of almost -- the verdict was in our favor and was -- just penalties and others are reduced, and the overall hit was only $13 million. We had an $18 million of reversal. We had to pay some interest on the $13 million. So the overall reversal was INR 115 crores in the exceptional cost for this quarter. Net profit for the quarter stood at INR 793 crores versus INR 707 crores, showing a growth of 12% over that of the previous year. And for the 9 months, we saw net profits were at INR 1,807 crores versus INR 1,158 crores, an increase of 56%. As a result, we saw the EPS for 9 months jump to INR 23.65 per share versus INR 15.16 per share for the 9 months period in the previous year. Moving on to cost and revenue synergy. In terms of synergies, we have targeted cost synergies of USD 200 million for financial year 2021, and we are well in course to achieve that. We achieved cost synergies of USD 35 million in Q3. We have already reached cumulative cost synergies of USD 188 million. On the revenue synergy front, revenue synergies in q3 stood at USD 55 million, while cumulative revenue synergies were a USD 354 million as of December 2020 against the target of $350-plus million of cost -- of synergies by FY 2022. Working capital, in line with the seasonality of business when the working capital peaks in Q3, the net working capital base stood at 117 days. They were lower by 19 days as compared to last year. Payables for the quarter increased by 20 days, while the inventory increased by 8 days and receivables were reduced by 6 days. This is in line with the guidance that we had given at the beginning of the year that we will work towards reduction of working capital of 3 to 5 days, largely through increase in payables by end of the financial year, that is by March 2021. So in line with that guidance, I think we are moving in the right direction. And we have increased the payables as of December by 20 days, and we are confident of delivering a 3 to 5 days reduction in working capital by March 2021. Debt position. As informed earlier, our debt obligation is being serviced efficiently, demonstrating our commitment towards our bankers and stakeholders at large. We have brought down the gross debt, it's INR 27,837 crores as of 31st December, a reduction of INR 4,000 crores from the previous quarter. Net debt stood at INR 24,244 crores, and we maintain our commitment to maintain the investment-grade rating, which means that we will be delivering a net debt-to-EBITDA of 2x by March 2021. Finally, summarizing, we do believe, with the strong demand growth following favorable economics in core markets, cost and revenue synergies and favorable product mix with higher proportion of differentiated and sustainable products and optimization of fixed costs, we'll be able to deliver our guidance of 6% to 8% revenue growth and 10% to 12% EBITDA growth for the year. With this, allow me to end the presentation from my side and hand over to Diego for a quick update on sustainability highlights. Diego, over to you.

Yes. Thanks, Anand. In our last call, we shared with you the progress that we have done to achieve a top-tier position in key sustainability ranking. We talked specifically about sustainability and the #1 position among our peer groups. Today, we would like to provide an update against our established targets. In alignment with our environmental objectives, we have achieved year-to-date a reduction of 12% in CO2 emissions, 30% in water consumption, 34% in wastewater discharge and 1% wastewater -- in waste disposal over our full-year 2020 numbers. Water consumption and wastewater discharge have benefited from the closure of our Rotterdam plant. From a health and safety standpoint, we had a total recordable incident rate year-to-date of 1.22, an increase from 1.18 in the first half mainly on account of some first aid incidents and a total recordable frequency rate of 0.31. Very importantly, we are in line to reach our goals of positively impacting 500,000 live with initiatives across more than 10 countries in more than 70 communities. Now let me take an opportunity to talk to you about some good news in the third quarter. I couldn't be more proud to announce that UPL received the Agrow Award in the category of Best Company From an Emerging Region. For those who are not familiar with the award, with this award, the Agrow Award, a premier global competition that honors top advancements in agriculture. This prestigious awards recognized UPL as a company that has made the greatest contribution to the crop production industry with headquarters in an emerging country. UPL was also recognized as the finalist during the 2020 awards in 5 additional categories of stewardship programs, industry collaborations, marketing programs and product development. Another great achievement for the quarter relates to our intellectual property, UPL won the consideration of Indian Industry Intellectual Property Awards for best Patent Portfolio in life science and pharma. The award, aimed at recognizing and celebrating companies which have embraced IP generation and IP protection to fuel their business growth. In this case, winners were evaluated by a jury of academics, consultants and experts with established credentials in the field. Our commitment to innovation enabled the launch of more than 100 products in the last few years that address pharma pain points around the world, and I'm very excited for the team and know a lot of efforts went into achieving these important recognitions. This brings us to the end of the presentation today. I'd like now to open up the call for Q&A. Thank you. Thank you very much.

[Operator Instructions] We have a first question from the line of Tarang from Old Bridge Capital.

I have 3 questions from my side. The first one to Diego. Diego, can you give us a deeper insight on what happened in LatAm in Q3? And do you think you lost market share? Or was it an industry-pervasive situation? And what gives you the confidence that these sales were more of a deferral than a permanent loss or maybe later deferral to next year?

Yes. So no LatAm situation, as we mentioned, we -- there was a drought period in Brazil. We're talking about Brazil, in particular, between October-November, and that has delayed the planting of soybeans in Brazil. So this has affected the entire industry. I think you will see very consistent messages from other peers. So we have not actually -- in fact, we're gaining market share in Brazil, and we are very confident that in Q4 we will have a great performance in Brazil overall and we have already a significant amount of orders in hand for the Brazilian business. If you think about it, I mean, with the current commodity prices in Brazil, soybean prices being at a 4 years high. Pharma margins are expected to be very, very solid. So this delay, it's just that, it's a delay. I think that answers your question. I don't know if there's anything...

Yes, it does. Yes, it does. Mr. Vora, just your sense on what your working capital days could be by the end of the year? Because last year, you were at about 98 days. So would we see that coming down to about 93, 94 days? Or would it be in the same range?

That's where we are working towards, 3 to 5 days reduction.

Okay. And the last, the factoring that you do wherein you sell your receivables, could you give us a sense on what your cost of selling those receivables would be?

Around LIBOR plus 200. We have very competitive pricing.

We have next question from the line of Matías Vammalle from BlueBay Asset Management.

Two questions from my side. The first one is if you can comment what was the amount of receivables that you sold, the amount outstanding by the end of the quarter. And as you know and as we've discussed, the agencies always look to add these back. So if you can give us a sense of, again, the amount outstanding of receivables. And then looking into the end of the fourth quarter, in fiscal year '21, if you can walk us through a little bit the how you think you're going to get to deleveraging because the growth in EBITDA has been quite remarkable, as we said, at 9% for the 9 months, but in dollar terms it's been lagging a bit at at 2.5x. Of course, that's the FX headwinds that we're all aware of. But net debt is also unchanged the third quarter versus the second quarter. So if you can give us a bit more sense and comfort as to what the levers are going to be in the fourth quarter, whether that's going to come from working capital inflows that we're normally used to seeing. But also, if you think that there could be a spurt in EBITDA to really get you to [ compensate ] on the leverage front.

Sure Matías. Matías, our factoring as of December '20 is INR 4,570 crores, roughly about $600-odd million, and we expect this to go up as the Q4, as has been the case in the previous years also in the same -- for the full financial year. As you know, Q3 is typically the peak working capital. And there is a fair significant amount of working capital increase you see in -- happening in quarter 3 and then the quarter 4 is when most of that gets converted into cash. And it's the same trend that is being followed. So we do believe that the reduction in working capital from almost 122 days to around the 90 days is what is going to bring in the cash inflows. Besides that, yes, quarter 4 is always one of the profitable. H2 is typically more profitable, more sales and more profitable as compared to H1, and we are on track to deliver those numbers. So these are the 2 factors which would bring in the -- which would help us to bring down the debt to the levels which we had guided for, which is at net debt-to-EBITDA of 2x.

We have next question from the line of Aditya Jhawar from Investec Capital.

A couple of questions from me. Firstly, I wanted to understand actually what happened in Europe in terms of driving focus on growth especially in the December quarter and how sustainable is it? Because next 6 months or the first 6 months of the calendar year are typically more stronger for Europe. So do you expect that the strong momentum that you have created in Europe should continue? Or is there a specific product-related genes that you experienced in this quarter?

So maybe -- I will ask if you can repeat a little bit, I couldn't understand acoustically here. You were talking about Europe, right?

Yes. Yes. Sorry, let me repeat the question. So Europe reported pretty strong number in terms of overall growth and absolute dollar number, especially in the December quarter, it's pretty encouraging. Now since first half of the year, calendar year is relatively bigger in Europe, should we expect that the strong momentum generated in Europe should continue in first half of the next calendar year as well?

Okay. Yes. And thank you for repeating the question, now I understood. Yes, we had a strong performance in Europe, I would say, primarily driven by the launch of new products, in particular we had a great success with a product called ARGOS, which is a biological product that allows us to replace a product that was banned in Europe called -- but there was actually anti-sprout -- a sprout inhibitor for potatoes. And this product has a very good margin profile. So we're very happy with the success. We also were benefited by exchange rates because, obviously, the euro has appreciated, so that helped part of the revenue growth. But we expect, let's say, the momentum to continue also in the first half of next year. So we are very confident, with respect to the market share gains and the investments that we're also doing in Europe. And we're investing on people on the ground in several Western European countries, including Germany, where we have -- historically have a -- where we underrepresented compared to the potential that our portfolio has. So you can expect more growth coming from that region.

Diego, second, you commented that UPL is gaining market share in Brazil. So if you want to discuss a little bit detail like, in a sense, what is driving this market share gain? Is it product-specific? Because what we understand is that one of your large competitors is having some supply side issues. And again, we are pulling back a little bit from the Brazilian market. So the market share gain, is it more sustainable? Or what is driving this market share gain in Brazil?

Yes. So it's sustainable. I mean we have been observing this already for several quarters. What -- I mean, what is driving the gains is that the combined portfolio now of legacy UPL and legacy Arysta, where we have complete portfolios in soybeans, corn, sugarcane, cotton, right? So key crops in Brazil that allows us now to offer total solutions, to have significantly more presence in our distributors. And that, together with the launch of new products over the last 3 years, is actually helping us gain and traction in that period. Also the fact that there were significant synergies from our market footprint in Brazil. UPL legacy was very strong on the, call it, the Mato Grosso and the Cerrado region. And Arysta was very strong on south, especially with cooperatives. So both businesses together now has the possibility to expand the presence with cross-selling activity. So these things are helping us gain market share. And this is a sustainable trend you will see also in the future.

That's very interesting. And my final question to Anand. Anand, then, if you see 9-month number of working capital, where the receivable number seems to have increased by 5%. But if you see LatAm contribution has come down. So is this a change in our target crop? Is it that we are more getting inclined towards higher working capital, higher receivable crops like sugarcane? Does it affect that?

I think it's in line with the growth because if you see number of days, the working capital -- I mean, receivables have come down from 126 to 120 days. Yes, this year, sugarcane has been -- we have seen a good increase in sales towards sugarcane. There has been some extended receivables there because sugarcane as we [ deal ] on crop per terms that are larger than that on soybean and corn. But nothing significant to impact the overall working -- number of days, in fact, it is reduced on 126 to 120 days.

We have next question from the line of Vishnu from Spark Capital.

My first question is on the cost and revenue synergy targets. We seem to have hit the revenue number already. So is it the number that we kind of already achieved? Will there be an update in the guidance for this for both the revenue and cost?

Vishnu, I mean, while we had given this, and these are targets which we set at the time of announcing the acquisition and the integration, today, we work as one company. I mean, in fact, it's becoming more and more difficult for us to keep tracking the synergies because both the companies have integrated and they are almost -- I mean, we don't even look at it -- it's just one UPL. So we have no intentions of changing or coming up with a revised guideline. We are committed to track it for 2 years in terms of cost synergies and in terms of revenue synergies. So we will track them and we will share these details on a quarterly basis. But there is no intentions of changing guidance or anything. Because as an integrated company now, we have already started our growth trajectory, pushing the sales more of -- I mean, introducing a lot more sustainable and differentiated products and the focus is in that direction.

Got it. A connected question to this, in the EBITDA margin from a 9-month standpoint, we are actually more or less flat. Excluding synergy, obviously the number is down. So from a 2-year perspective, how should we see your EBITDA margin trajectory if you could probably could say?

I think our business, the way it is and the business model that we operate, we do believe that we can deliver on this business model EBITDA margins in the range of 24% to 25% over the next 2 to 3 years. And then this focus on differentiated and sustainable products will help us to move in that direction. We always work towards cost reduction. In fact, our supply chain always takes up this challenge of bringing down the cost of manufacturing by 2% year-on-year. So that's something we take pride and we focus on. So these would help us, both these factors should help us to deliver these sort of margins for the next 2 to 3 years.

Got it. And the final one thing is for Mr. Diego. This Europe growth, is it more like a onetime? Or should we see the growth continuing into next year or next year also the growth should continue? And some guidance on the fourth quarter, how is the current revenue season going?

Yes. So Europe, I mean, we are confident on our ability to continue to grow in Europe. And in fact, we have one of the best pipelines to say, comparing a region to region, focus on growth in Europe. It's a great region to grow because it's a high-margin region. So we like doing business in Europe. It's a stable business. I mean provided weather conditions help, right, we are confident to continue the growth momentum that we are seeing. And with respect to the Q4, I think one very encouraging trend that we announced it in Q1, if you remember, that we had some challenges on margins in Q1. And we said at that time that we are increasing prices, we're moving towards pushing the right products and that we were expecting margins in U.S. dollar terms, let's say, to increase. And this is what we are seeing quarter-to-quarter. And in fact, in Q3, you can see that we have to deliver a very healthy margin. And that, we are expecting to continue in Q4. And so that, combined with a very healthy demand, market share gains in our order book that is filling up as we speak, that gives us the confidence that we can deliver a strong Q4 and that's why we are confirming the guidance. And as Anand said, we're hoping rather to end up in the upper end of the guidance. And yes, so I mean bringing the full year to success. And if you think about it 2 years in a row of growing double digit, that would be a fantastic milestone for UPL.

My question is actually on Europe was could we do a double-digit growth next year also? That was only -- that was the question I was asking.

Well, I mean, I don't want to give a specific guidance on the region, right. But I think what I can tell you is that we are we are happy with the progress and we are pretty confident on our growth momentum in Europe.

We have next question from the line of Ritesh Gupta from AMBIT Capital.

Just 2 on the P&L side. When I see the P&L given on the slide #8, interest cost goes up from INR 515 crores last year to INR 745 crores this year. Now there will be some big -- some exceptions here and there. But overall basis, given that the debt has overall reduced or probably has remained the same in terms of gross debt, it looks much higher on a Y-o-Y basis. So if you could just explain that part? And even on the overhead side, despite the synergies, et cetera, I see a decent amount of growth and -- or double digit growth in the fixed overhead side. So if you could just give me something there?

Sure, Ritesh. Thanks for joining us. So Ritesh, the INR 745 crores of interest cost for the Q3 versus INR 515 crores, of the INR 745 crores, INR 460 crores is towards the interest cost. And in this INR 460 crores, there is INR 75 crores, which is the interest which we have paid for -- we did the early payment of the bonds maturing in October. But as per the terms of the bond, we have to pay interest up to the maturity date, discounted for the LIBOR plus, whatever, about 50 bps discount rate. So effectively, that INR 75 crore interest, which we would have paid every quarter until the next -- for the next 2, 3 quarters until October '21, we paid it in this quarter. Now if you were to back that off, then our interest is about INR 385 crores versus INR 388 crores in the previous year. So actually, there is a small reduction despite the increase in working capital, which we -- as you know, we generally borrow in local currency just to avoid any FX impact, and which is slightly at the higher rate than the normal -- the term loans or the acquisition loan and the bonds which we borrow at. So that's on the interest. The balance portion of the INR 765 crores minus INR 460 crores, the INR 285 crores, is all pertaining to mark-to-market on various hedges and forward contracts, which are outstanding on our foreign currency loans or on our contracts which are against the advanced orders or the loans in advance. So these mark-to-market, obviously, as you know, would get reversed. And the benefit of this is sitting on some of the assets, asset type would be in the receivables or in other things which will get knocked off as we move forward.

Understood. And on the fixed overhead side?

Yes, fixed overhead I think, as I shared, it's a quarter-to-quarter intra-quarter issue. There were some bonus provisions, et cetera, which were reversed last quarter. And it was in the previous year, whereas this year we have been doing on -- properly on a quarter-to-quarter basis. So if you look at for the full year, they are only about 3% higher. And therefore, if you see there is a -- I mean, that INR 40 crores which I said is a onetime hit will not move the needle much, but nonetheless INR 40 crores is INR 40 crores which has hit us. That pertains to excise duty, which are pertaining from April 2008 to December 2013. So those are, again, onetime hits which have come. But otherwise, we are on track and we do believe that we will end well within what we have budgeted or -- which is less than 3% increase in our fixed overhead costs by the end of the year.

Understood. And the second one from a broader picture point of view, historically, UPL has grown the double-digit growth rates. And with Arysta's acquisition, you doubled your size. And in a way, for the first [ quarter ] of the year, you usually grew well because there were a lot of revenue synergies you were still driving. Now as systems come to stability and some of the early parts or the low-hanging fruit on the synergy side are well consumed. And then like when I compare you to, let's say, peers, with growing, let's say, high single digit, I mean, with to, let's say, low single digits, should we not assume that UPL also with, let's say, about 10% market share globally now and 1 of the top 5 companies, will start growing in mid-single digits to high single digits, let's say -- I mean, probably mid-single digits going forward?

I have Mr. Shroff on the line, let him answer this. I dare not answer that as I would have -- may not be on the next call.

No, I don't believe that. I think we are still forecasting market share growth. Our India business is doing well. We are increasing our presence in China and Southeast Asia. Those businesses are going well. I believe our Brazil business, though this quarter was pushed over because of the delayed season, is growing very well. We've become the #1 company in Mexico, Colombia, Chile. And we are just beginning, right? I think this first 2 years of synergy is, by no means, it's just initial period. I believe that we are seeing a good amount of traction, and I'll be surprised if we don't continue to grow double-digit at least for the next 3 to 4 years.

I hope Ritesh that...

Understood. Yes. Yes, it's helpful.

Thanks, Ritesh, for joining us.

We have next question from the line of Madhav Marda from Fidelity Investments.

I just had a quick question. I think just wanted to get your outlook for the agri market for 2021. I think you've partly already highlighted it, but given that crop prices -- or some of them are at like 3, 4-year high, and probably in some markets you also have a weaker base from last year, I think, like in North America. So would it be fair to say FY '22 could be a much stronger year for the company? Just like an initial outlook would be great.

Diego?

Yes. I think -- I mean, obviously, it is difficult to make a more specific forecast, but we are very confident -- we're positive about next year's outlook of -- in terms of the market, the economic conditions in the market overall. I mean, it's just looking at commodity prices, right? And this is an industry that is very crisis robust, right, so it doesn't get affected as much from financial and/or crisis like the one we saw with COVID. And in fact, actually, we saw after the 2008, 2009 financial crisis that commodity prices went up and it was the start of a super cycle, right, for commodity prices that ended only in 2014, 2015. So I don't want to say with that, that this is going to happen in the next -- but we are confident that certainly next year, these prices that we are seeing right now are going to drive demand for technology in crop protection. That, combined with hopefully normal weather conditions, should be a very good starting point. And I mean you have -- please don't never forget the fact that world food consumption continues to increase. And agriculture needs to increase productivity every year, every single year. So there is a need for technology. There is a need for continuing to invest. Because the crop area, right, or the area planted is limited, it's in fact actually even declining, overall, globally. So there is a need for more technology and that drives, call it, the market growth, right, overall. So I think we can be positive about the outlook for next years.

And just one other question from my side. On the raw material prices, is it broadly stable? Or are you seeing any inflation/deflation given that a lot of the commodity costs in general have also spiked up?

So we have our Head of Supply Chain, Raj, here with us. Raj, go ahead, on the commodity raw material prices.

Yes. So what we have seen currently is that commodity price is basic building blocks of chemical industry like methanol, acetic acid, ethanol, sulfur, [ UPL ] has seen quite a sharp increase. This is going to sustain for at least quarter 4 unless that we see refineries across the world going to capacities, and therefore some of the commodities, the availability becoming more distinct. So at least going forward for Q4, which is Jan-March now and Q1, part of Q1, we can see that this will remain stronger. And then we see -- we expect things to get slightly softer from Q2 of next year onwards.

And then do we have like...

Sorry, just to add to what Raj said. I mean I think, obviously, we are increasing prices, right, and the scale that we have at UPL globally is a great position to be able to maintain or even increase the margins, right, in an environment like that.

We have next question from the line of Prashant Biyani from Prabhudas Lilladher.