UPL LIMITED : UPLL’s FY16 annual report analysis highlights revenue growth of 10%

UPL LIMITED

UPLL’s FY16 annual report analysis highlights revenue growth of

10% (18% in constant currency) to INR133b in an otherwise

globally challenging year of steep forex fluctuations and erratic

weather. Forex volatility had an adverse impact of INR2.2b (14%

of PBT) on operations, offset by gains of INR2.4b (15% of PBT) on

buyback of shares by wholly owned subsidiaries. Translation

losses on cash of INR1.6b (10% of PBT) were adjusted through

the reserves. Tax rates remained low at ~17% as exports were

made via low-tax countries. Adjusted free cash flow remained

muted at INR0.7b. Debt rose to INR42b (borrowing cost: 12.4%)

v/s INR33b in FY15 as (a) loans & advances increased INR3.8b

and (b) investments in associates increased by INR3.3b. Cash and

investments stood at INR16b (23% of NW), generating yield of

5.9%. The Advanta merger (which is pending regulatory

approval) is yet to be incorporated in financials. However,

management’s estimate on Advanta’s expected profitability for

2016 looks aggressive.

The

ART

of annual report analysis



Gains of INR2.4b (15% of PBT)

recognized on buyback of shares

of wholly owned subsidiaries

NNUAL

EPORT

HREADBARE

15 June 2016



Translation losses on cash of

INR1.6b (10% of PBT) adjusted

through the reserves



Sale of receivables to UPL finance BV – an

unrelated party increased to INR10.8b

(FY15:INR8.3b)

Stock Info

Bloomberg

CMP (INR)

Equity Shares (m)

52-Week Range (INR)

M.Cap. (INR b)/(USD b)

1,6,12 Rel. Perf. (%)

UPLL IN

585

428.6

617/342

250.7/3.7

-5/33/13

Good operating performance in a weak environment



During FY16, UPLL's revenue grew 10% (18% in constant

currency) to INR133b (FY15: INR121b) in a globally challenging

environment of steep forex fluctuations and erratic weather.

Revenue growth was primarily driven by LATAM which grew

25% YoY.

EBITDA margins rose 90bp YoY to 20.4% due to a decline in

crude prices.

Exchange losses on operations stood at INR2.2b (14% of PBT).

Translation losses on cash stood at INR1.6b (10% of PBT),

which were charged through the reserves.

Further, INR0.7b of forex losses (incl. derivatives) on debt

were charged through the finance cost.

UPLL recognized gains of INR2.4b (15% of PBT) on buyback of

shares by wholly owned subsidiaries Biowin Corporation

(INR1.7b) and United Phosphorus Inc (INR0.7b).

Consolidated tax rate remained low at ~17%, primarily on its

continued practice of routing exports through subsidiaries

domiciled in countries having low tax rates.

Standalone financial summary (INR b)

Y/E Mar

Sa Sales

EBITDA

Adj EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Payout (%)

P/E (x)

P/BV (x)

E: MOSL Estimates

2016

133.0

27.2

13.6

31.8

18.1

158.4

21.6

23.0

18.7

18.4

3.7

2017E

151.4

32.0

16.5

38.6

21.4

193.0

22.0

23.1

10.8

15.2

3.0

2018E

170.7

37.1

19.6

45.8

18.5

234.6

21.4

23.9

9.1

12.8

2.5

Forex volatility impacts core earnings



Gains on subsidiary share buybacks boost other income



Shareholding pattern (%)

As on

Promoter

DII

FII

Others

Mar-16

29.7

10.6

46.5

13.2

Export via low-tax countries continues to keep tax rates low



Note: FII Includes depository receipts

Dec-15

29.8

10.7

45.9

13.5

Mar-15

29.8

10.1

46.4

13.8

Auditor’s name

S R B C & CO LLP, Chartered Accountants

ART will present a threadbare portrait of annual reports - statistical, strategic and structured. We believe ART's wide canvas - from accounting and auditing issues to

operating performance to management insights to governance matters - will help readers paint a clearer picture of the stock's investment worthiness.

Sandeep Ashok Gupta

(s.gupta@motilaloswal.com); +91 22 3982 5544

Somil Shah

(Somil.Shah@motilaloswal.com); +91 22 3312 4975 /

Mehul Parikh

(Mehul.Parikh@motilaloswal.com); +9122 3010 2492

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

ART

UPL FY16

Exceptional expenses impacts earnings



Recurring expenses on (a) restructuring businesses in LATAM and

Europe of INR194m (FY15: INR427m) and (b) diminution of value

in investment of INR100m (FY15:INR100m), together

with expenses on product contamination of INR128m and

inventory provision of INR217m, were classified as exceptional.

FCF improves; partially supported by sale of receivables



FCF post interest, adjusted for translation losses, improved on a

YoY basis, but remained weak at INR0.7b (FY15: INR -2.4b). This

was primarily on account of an increase in working capital

requirements and high capex at INR9.5b.

Improvement in cash flows is partially supported by the sale of

receivables of INR10.8b (FY15:8.3b) by United Phosphorus Inc, (a

subsidiary) to UPL Finance BV, an unrelated party on a non-

recourse basis.

Debt rises; loans & advances/investment in associates increase



In FY16, debt increased to INR 42.4b (FY15: INR 32.8b) with

average borrowing cost of 12.4% primarily to fund increase in

working capital, investments in associates by INR3.3b loans and

advances by INR3.8b (to INR13.8b). Of these, loans and advances

of INR1.8b pertain to related parties, while details for INR7.2b

are not available.

Cash and investments remain high



Cash and investments (including loans extended) were at

INR15.7b (23% of net worth; FY15: INR12.7b, 22% of net worth)

which generated an average yield of 5.9% (FY15:4.4%). Of this,

INR5.8b was in current account balances and INR4.2b was in

fixed deposits outside India.

Advanta merger yet to be effected



During FY16, UPLL announced a merger of Advanta with itself.

However, pending regulatory approvals, the merger is yet to be

effected in the financials. Based on Advanta’s PAT for CY15 at

INR1527m we believe management’s projection of 2016 PAT at

INR2.4b (implying a growth of 57% YoY) looks aggressive.

15 June 2016

ART

UPL FY16

ART #1

ACCOUNTING & KEY FINANCIAL INSIGHTS

Good operating performance in a weak environment



Revenue growth at 10%

primarily led by LATAM



Weak crude prices aid to

EBITDA margin expansion

by 90bp



On a consolidated basis, UPLL’s revenue grew 10% YoY (18% in constant

currency) to 133b in FY16 in a challenging environment of erratic weather and

currency devaluation across a number of countries.

Revenue growth was led by improved realizations, strategic product launches

and growth in key markets (primarily LATAM).

While revenues have increased in absolute amount in each of the geographies

during FY16, the revenue mix from LATAM has increased from 28% in FY15 to

32% in FY16.

EBITDA margin increased from 19.5% in FY15 to 20.4% in FY16, primarily on

gross margin expansion of 160 bp due to weak crude prices, partially offset by

an increase in personnel cost by 60 bp on account of annual increments and

fresh hiring.

Power cost declined from INR 4.3b in FY15 to INR3.5b in FY16, primarily as the

captive power plant remained fully operational during the year.

Commission paid increased steeply by 65% YoY to INR1.4b (1.1% of revenues;

FY15: INR0.9b, 0.7% of revenues), while advertisement expenses increased 42%

YoY to INR2b, (1.5% of revenues; FY15: INR1.4b, 1.1% of revenues).

Exhibit 2: Earnings growth remained muted (INR b)

Particulars

Net Revenue (Operations)

Raw Materials Consumed

FY15

INR b

121

100

49.8

50.2

22.1

8.6

19.5

FY16

INR b

133

100

48.2

51.8

22.2

9.2

20.4

Exhibit 1: LATAM drives revenue growth in FY16

24.8%

10.3%

3.5%

0.1%

India

Europe

North

America

Latin

America

2.2%

ROW

Gross Margin

Operating and Administrative Expenses

Personnel Cost

EBITDA

Source: Company, MOSL

Exhibit 3: LATAM: Highest revenue contributor in FY15

FY15

revenue:

INR121b

ROW, 15%

Exhibit 4: Revenue share of LATAM increases to 32% in FY16

FY16

revenue:

INR133b

ROW, 14%

India, 22%

India, 20%

Latin

America,

28%

North

America,

19%

Europe,

17%

Latin

America,

32%

Europe,

15%

North

America,

19%

Source: Company Annual Report, MOSL

15 June 2016

ART

UPL FY16

Forex volatility impacts core earnings



In FY16, the INR appreciated ~6.1% against the BRL, and declined by ~12.2%

against the Euro and ~6.0% versus the USD.

UPLL has operations across the globe and has also availed foreign exchange

debt. In FY16, the company incurred foreign exchange losses of INR2.7b (FY15:

INR3.2b). Of this:



INR2.2b (13.5% of PBT; FY15: INR 0.9b, 6.4% of PBT) was recognized on

operations (including loss of INR1.7b on LATAM) as part of other income,

and



INR 0.5b (3% of PBT; FY15: INR 2.3b, 16% of PBT) on debt was recognized as

part of finance cost.

The company has availed derivatives to hedge foreign exchange positions. It

reported net foreign exchange loss of INR0.2b in FY16 (FY15: gain of INR1.1b),

which was recognized as part of finance cost.

Exhibit 6: Losses recognized on derivatives in FY16 (INR b)

Particulars

Loss / (gains)

Total

FY15

-1.1

FY16

0.2

Exhibit 5: Forex losses continued to impact earnings (INR b)

Particulars

On operation

On debt

Total

FY15

0.9

2.3

3.2

FY16

2.2

0.5

2.7

Source: MOSL, Company

Gains on share buyback by wholly owned subsidiaries boost other income



15% of PBT contributed by

gains on buyback of shares

by 100% subsidiaries



UPLL recognized gain of INR 2.4b (14.8% of PBT) derived from the buyback of

shares by wholly owned subsidiaries: (a) Biowin Corporation of INR1.7b, and (b)

United Phosphorus Inc of INR0.7b.

The above gains were netted of against the exchange loss on operations and

included under the head of other income.

Exhibit 7: Gains on buyback of shares of 100% subsidiaries (INRb)

Particulars

Bio-win Corporation

United Phosphorus Inc.

Total

FY15

0.0

FY16

1.7

0.7

2.4

Source: Company Annual Report, MOSL

High forex cash balances led to significant translation losses



UPLL has cash and cash equivalents of INR9.6b (FY15: INR8.3b) in foreign

currency.

Currency fluctuation v/s the INR led to translation losses on cash of INR1.6b,

9.8% of PBT (FY15: INR1.3b, 9.2% of PBT) being adjusted through the foreign

currency translation reserves.

In FY16, UPLL had net foreign exchange translation losses of INR1.9b, which

were adjusted through the reserves.

15 June 2016

ART

UPL FY16

Exhibit 8: Forex translation loss dampens net worth (INR b)

Particulars

Opening net worth

Add: Profit for the year

Less: Dividend (incl. tax)

Forex adj. in capital reserve

Securities Premium Account

Foreign Currency Translation Reserve

General Reserve

FY15

52.5

11.4

(2.6)

0.3

0.0

(3.1)

0.1

58.6

FY16

58.6

13.0

(2.6)

0.1

0.5

(1.9)

0.0

(0.2)

0.4

67.9

Exhibit 9: Translation losses on cash increases (INR b)

Exch. Diff. debited to FCTR

% to Increase in FCTR

42%

-12%

-11%

83%

-158%

0.5

FY12

0.1

FY13

0.1

FY14

1.3

FY15

1.6

FY16

Deemed Dilution Loss

Surplus in the Cons. Statement of Profit & Loss

Closing net worth

Source: Company Annual Report, MOSL

Exceptional losses impacts earnings



Exceptional/ prior-period losses increased from INR79m in FY15 to INR781m in

FY16. Exceptional losses (net) were lower in FY15, primarily on account of gain

of INR568m recognized on the sale of stake in Sipcam UPL Brazil—an associate.

Restructuring and reorganization cost of Latam and European businesses

continued for yet another year and stood at INR194m (v/s INR427m in FY15).

During FY16, UPLL incurred loss of INR345m (2.1% of PBT) on account of

inventory provision and product contamination and counterfeiting, which was

recognized as exceptional.

FY12

184.5

11.5

185.9

4.4

201.8

386.3

FY13

150.4

65.5

144.9

11.3

221.7

372.1

FY14

554.4

198.6

100.0

853.0

126.0

29.5

155.5

1,008.5

FY15

427.1

100.0

70.9

(568.1)

29.9

43.3

5.5

48.8

78.7

FY16

193.6

100.0

128.0

217.3

638.9

86.4

28.5

27.4

142.3

781.2

Exhibit 10: Exceptional losses continued (INR m)

Particulars

Restructuring/reorganization Cost

Compounding fees

Prov. for diminution in value of Investment

Product contamination and counterfeiting

Inventory provision

Fraudulent withdrawal

Profit on sale of Associates

Sub-Total (A)

Prior Period Items

Rebate of earlier years

Custom duty and charges of earlier years

Amortization of intangible assets

Goodwill written off

Material cost pertaining to earlier years

Others (net)

Sub-Total (B)

Total (A+B)

Exceptional/ prior-period

losses increased from

INR79m in FY15 to INR781m

in FY16

Source: Company Annual Report, MOSL

Exports through low-tax countries continue; keeps tax rates under check



UPLL’s consolidated tax rate remained low at 17.4% (FY15: 17.3%) due to (a)

investment-based tax incentives and dividend income from subsidiaries

available at the standalone level, leading to an effective tax rate of 16.6%, and

(b) routing of exports sales through subsidiaries domiciled in countries with low

tax rates.

15 June 2016

ART

UPL FY16

Exhibit 11: Effective Tax rate remains low

21.5%

Exports through countries

having low tax rates keep

effective tax rate low.

17.6%

19.2%

17.3%

17.4%

FY12

FY13

FY14

FY15

FY16

Source: Company Annual Report, MOSL

Exhibit 12: Exports routed through subsidiaries under low tax regime (INR b)

Subsidiary

Upl do Brasil Industria e Comércio de Insumos Agropecuários

S.A.Brazil

United Phosphorus Inc.,USA

UPL Limited,Gibraltor (formerly known as Uniphos Limited )

Bio-win Corporation Limited,Mauritius

UPL Limited,Mauritius (formerly known as Uniphos Limited )

UPL Europe Limited,United Kingdom (formerly known as

United Phosphorus Limited)

UPL Limited Hong Kong (formerly known as United

Phosphorus Limited Hong Kong)

SWAL Corporation Limited

Cerexagri S.A.S.,France

Cerexagri B.V.,Netherlands

UPL Agro S.A. de C.V.,Mexico (formerly known as United

Phosphorus de Mexico, S.A. de C.V.)

UPL France (formerly known as Aspen SAS)

RiceCo LLC,USA

Riceco International, Inc. Bhamas

UPL Italia S.R.L. (formerly known as Cerexagri Italia S.R.L.)

Note: Only material subsidiaries have been highlighted

Net

Worth

4.8

5.1

11.9

6.8

4.9

0.8

0.6

2.0

1.7

0.0

0.3

1.7

0.2

FY15

Turnover

PAT

(net)

Margin

14.7

21.1

18.5

6.3

8.9

3.4

4.9

4.2

2.5

3.2

3.4

2.5

2.3

18%

56%

10%

22%

ETR

41%

35%

22%

34%

-11%

11%

69%

-19%

75%

Net

Worth

9.5

2.1

14.7

3.6

7.1

6.1

1.5

0.7

2.4

2.0

(0.0)

0.5

0.8

1.8

0.3

FY16

Turnover

PAT

(net)

Margin

27.1

23.1

16.9

12.1

11.1

8.4

5.4

5.3

4.8

4.5

3.8

3.6

3.4

3.1

13%

27%

35%

13%

-2%

20%

ETR

33%

24%

22%

35%

24%

-10%

39%

Source: Company Annual Report, MOSL

Free cash flow improves



FCF post interest, adjusted for translation losses, improved on a YoY basis, but

remained weak at INR0.7b (FY15: INR-2.4b)

Net cash from operating activities increased from INR14.1b in FY15 to INR17.5b

in FY16, primarily on account of the improved operating performance. Earnings

to cash conversion inched up to 74% (FY15: 66%)

Debtors continue to increase steeply, which were, however, offset by (a) an

increase in payables, and lower fresh outflows for loans and

advances/provisions.

15 June 2016

ART

UPL FY16

Exhibit 13: Earnings-to-cash conversion improves

Pre Tax CFO / EBITDA

110%

79%

66%

74%

17%

FY12

FY13

FY14

FY15

FY16

Source: Company Annual Report, MOSL

Exhibit 14: Free cash flow generation remained muted (INR b)

Particulars

PBT

Add/(Less): Non-cash adjustments

Add/(Less): Non-Operating adjustments

Less: Direct taxes paid

Operating profit before w/cap changes

Inventories

Trade receivables

Other current assets

Loans and advances

Trade payables

Long term & Short term provisions

Current liabilities and provisions

Cash generated from operations before exceptional Items

Exceptional Items

Prior Period Adjustments

Net Cash from Operating Activities

Less: Financial cost

Cash generated from operations post interest

Less: Capital expenditure

Reported Free cash flows post interest

Adjustment

Exchange difference Adjusted to FCTR

Adjusted Free cash flows post interest

FY15

14.2

4.3

4.4

(2.8)

20.2

(4.7)

(5.0)

(0.4)

(2.1)

5.6

(0.3)

1.3

14.6

(0.5)

(0.0)

14.1

(7.4)

6.7

(7.8)

(1.1)

(1.3)

(2.4)

FY16

17.0

5.1

5.2

(4.1)

23.3

(3.2)

(10.0)

0.1

(0.7)

6.6

0.1

1.6

17.9

(0.3)

(0.1)

17.5

(5.7)

11.8

(9.5)

2.3

(1.6)

0.7

Source: Company, MOSL

Rising payable days lead to improvement in cash conversion cycle



Cash flows supported by

sale of receivables of

INR10.8b to UPL Finance BV

– an unrelated party



Over the last five years, the improvement in the cash conversion cycle from 139

days in FY12 to 95 days in FY16 is primarily on account of (a) an increase in

payable days from 100 days in FY12 to 158 days in FY16, which was partially

offset by an increase in (a) receivable days – due to higher sales in LATAM where

the payment terms are longer, and (b) inventory days.

Further, United Phosphorus Inc (a subsidiary) sells receivables to UPL Finance

BV—an unrelated party on a non-recourse basis. Consequently, the receivables

have been derecognized and also do not form part of contingent liabilities. Sale

of receivable increased from INR8.3b in FY15 to INR10.8b in FY16.

15 June 2016

ART

UPL FY16

Exhibit 15: Sale of receivables on a rise (INR b)

10.8

8.3

6.2

Exhibit 16: Rising payable days improves cash conversion

cycle (days)

Particulars

Inventory Days

Receivable Days

Advances from customers

Payable Days

Cash conversion cycle

FY12

125

119

100

FY13

117

107

119

FY14

120

109

131

FY15

129

115

141

FY16

132

158

139

101

Source: Company Annual Report, MOSL

Investments in associates on a rise



UPLL’s share of loss in

associates stood at INR0.3b

v/s gain of INR0.2b in FY15.



UPLL’s investments in equity shares of associate companies increased from

INR5.3b in FY15 to INR8.6b in FY16. The increase was primarily driven by:

a) Acquiring additional equity in Advanta for INR1.8b. However, the stake

holding declined from 49.8% in FY15 to 46.6% in FY16 due to the conversion

of Advanta’s FCCBs.

b) Acquisition of a stake in two new associate companies for INR1.5b.

UPLL’s share of loss in associates stood at INR0.3b v/s gain of INR0.2b in FY15.

The loss in FY16 was primarily on account of Sinagro Produtos Agropecuarios SA

which stood at INR0.6b (UPLL’s share).

We note that Singagro is a negative net worth company as the value of goodwill

recognized for the company stands at INR1.2b, with the total investment in the

company standing at INR0.5b. Further, UPLL has extended loan of INR1.7b to

the company.

FY15

% of holding

49.8%

FY16

% of holding

46.6%

40%

Exhibit 17: Investment in associates rises (INRb)

Particulars

Advanta

3SB Produlos Agricolas SA

Singagro Produtos Agropecuarios SA

Total

INR b

5.3

INR b

7.1

1.0

0.5

8.6

Source: Company Annual Report, MOSL

Loans and advances increase



Loans and advances increased to INR13.8b (FY15: INR10.0b), primarily driven by

a rise in loans extended to related parties (Singagro – associate) and other

sundry loans (details of which are not available).

Further, advances extended in cash of kind remained elevated at INR 5.8b (FY15:

IN5.6b). Details of which are not available.

15 June 2016

ART

UPL FY16

Exhibit 18: Loans and advances on a rise (INR b)

Particulars

Loans and Advances to related parties

Capital advances

Sundry deposit

Advances recoverable in cash or kind

Sundry Loans

Other loans and advances:

Advance income-tax/wealth tax (net of provision for taxation)

Minimum alternative tax credit entitlement

Loans to employees

Deposits with the Collectorate of Central Excise and Customs

Total

FY15

0.4

0.3

0.8

5.6

0.1

0.6

0.9

0.1

1.2

10.0

FY16

1.8

0.2

0.9

5.8

1.2

0.7

1.5

0.1

1.6

13.8

Source: Company Annual Report, MOSL

Intangible asset at 38% of net worth



Intangible assets increased marginally to INR26.0b, 38% of the net worth in FY16

(FY15: INR25.1b, 43% of the net worth). Of this, ~56% comprises of goodwill on

consolidation which is subject to annual impairment test.

Exhibit 19: Significant proportion of net worth invested in intangibles (INR b)

Particulars

Intangible Assets-Acquired

ITUD

Goodwill on Consolidation

Total

Intangibles % of Net Worth

FY15

8.2

2.4

14.5

25.1

FY16

9.7

1.7

14.6

26.0

43%

38%

Source: Company Annual Report, MOSL

Debt increases steeply to INR42b



Borrowing cost increased

from 10.2% in FY15 to

12.4% in FY16



Debt increased significantly from INR32.8b in FY15 to INR42.4b in FY16.

Long-term debt (including current maturities) increased from INR22.0b in FY15

to INR25.6b in FY16. Meanwhile, short-term loans increased from INR10.9b in

FY15 to INR16.7b in FY16.

Borrowing cost (excluding forex) charged to P&L increased from 10.2% in FY15

to 12.4% in FY16, while borrowing cost including forex increased from 13.6% to

14.3%. Part of the high borrowing cost can be attributed to seasonality of the

business and the reported debt position being as of a certain date.

Exhibit 20: Borrowing cost continues to rise (INR b)

Long Term Borrowings

Short Term Borrowings

Borrowing Cost excluding forex

42.4

33.9

9.7%

7.7

42.0

11.1

8.1%

30.9

FY13

33.5

6.1

8.9%

27.4

FY14

32.8

10.2%

10.9

12.4%

16.7

26.2

FY12

22.0

FY15

25.6

FY16

Source: Company Annual Report, MOSL

15 June 2016

ART

UPL FY16

Yield on cash & investment

stood at 5.9% (FY15: 4.4%).

Cash and investment at 23% of net worth; yields improve



Cash and investments (including loans extended) stood at INR15.7b, 23% of net

worth (FY15: INR 12.7b, 22% of net worth). Yield on investment stood at 5.9%

(FY15: 4.4%).



The low yield on cash and investments is primarily on account of (a) high current

account balance of INR5.8b (FY15: INR4.4b), which may be on account of

seasonality in business, and the reported cash position being as of a certain

date, and (b) INR4.2b (FY15: INR4.7b) of fixed deposits made outside India.

Exhibit 22: Borrowing cost higher than investment yields

Borrowing Cost

Borrowing cost excluding forex

Yield

12.3%

12.7

0.5

12.2

15.7

3.1

12.6

9.7%

2.9%

FY12

1.9%

11.3%

8.9%

2.8%

FY14

4.4%

FY15

13.6%

10.2%

5.9%

FY16

14.3%

12.4%

Loans

Yield

5.9%

Exhibit 21: Cash yields improved during FY16 (INR b)

Cash & Investments

49.9

23.1

2.9%

1.9

21.2

4.0

1.9%

45.9

16.0

2.8%

3.8

12.2

4.4%

9.9%

8.1%

FY13

Source: Company Annual Report, MOSL

Contingent liabilities at 15% of net worth



In FY16, contingent liabilities declined to INR10.3b (FY15: INR11.2b) on the back of (a)

corporate guarantees withdrawn on behalf of third parties. Further contingent liability

on matters related to excise duty and service tax liability has increased in FY15 from

INR1.5b to INR1.7b in FY16.

FY15

1.5

0.1

0.3

0.4

0.3

0.0

2.5

0.9

1.6

0.2

0.1

3.1

0.1

0.0

11.2

19%

FY16

1.7

0.1

0.5

0.4

0.3

0.0

2.5

0.6

0.0

0.2

0.1

3.3

0.1

0.0

0.1

0.2

10.3

15%

Exhibit 23: Contingent Liability declines (INR b)

Particulars

Disputed Excise Duty / Service Tax Liability (excluding

interest)

Disputed Income-tax Liability (excluding interest)

Disputed Sales-tax Liability

Disputed Custom duty Liability

Disputed Fiscal Penalty for cancellation of licenses

Disputed penalty on water tax

Disputed penalty levied by Competition Commission of

India for Cartelization of prices*

Bills discounted remaining unpaid as at the date of the

Balance Sheet

Guarantees given by the Group on behalf of third parties

Claims against the Group not acknowledged as debts

Earn out fees

Corporate guarantees given on behalf of associate

companies: Advanta Limited

Group's share of contingent liabilities of associates:-

a) Disputed Income tax matters

b) Disputed Service Tax matters

c) Aggregate maximum amount payable to growers.

d) Claims against the Associates not acknowledged as

debts.

Total

% to Net worth

Source: Company Annual Report, MOSL

15 June 2016

ART

UPL FY16

Advanta merger announced; awaiting regulatory approval



UPLL announced its merger with Advanta in November 2015 (effective April1, 2015); the

merger is yet to be incorporated in the financials due to pending regulatory approvals.

Under the merger, the company will issue

equity share and 3 convertible preference

shares (compulsory convertible for non-resident Indians) against every equity share of

Advanta.

As at end-FY16, UPLL held 46.6% of Advanta, resulting in it being classified as an

associate and consolidated using equity method.

Under the equity method, a single line of investment is shown in the balance sheet and

only the share of profits is shown in the profit and loss account.

With the merger of Advanta, revenues of UPLL (the merged entity) are likely to increase

due to the addition of Advanta’s revenue, while the PAT margins will optically decline.

Exhibit 24: Swap Ratio per share of Advanta

3 Optionally/

1 Share of UPLL

Compulsorily convertible

5% Preference shares ,

convertible into 0.06 equity

Note: Management has assumed conversion of Advanta’s FCCB and exercise of outstanding ESOPs

Source: Company, MOSL

Management’s estimate of Advanta’s profitability looks aggressive



Management guides for

Advanta’s 2016 PAT of

INR2.4b and synergy

benefits on merger of

INR0.9b



Management believes that the merger will be EPS accretive. On the con-call,

management has guided for PAT of INR2400m in 2016 and a synergy benefit of

INR900m, resulting in EPS of Advanta at INR44.

UPL’s FY16 basic EPS stood at INR30.3 (reported), whereas Advanta’s FY16 basic EPS

stood at INR13 (reported).

Advanta reported PAT of INR1527m for CY15. It reported loss of INR291.7m in the

quarter ended March’16 (including exceptional loss of INR571m).

Advanta will have to report profit of INR2692m over nine months (ending on Dec’ 2016)

to meet management’s guidance.

Based on implied earnings growth of ~57% YoY for advanta and the required run rate ,

the management’s guidance looks aggressive.

15 June 2016

ART

UPL FY16

Exhibit 26: Management guidance of PAT after growth and

synergies

Profit IN CY14

Management estimate of Growth

Growth in Sales if ~10-12% and margin expansion of ~2%

Savings in financial Costs

Manpower savings

Total

Others

Estimated profit by management

Particulars

INR m

835

400

750

230

2,215

185

2,400

Exhibit 25: Synergies from merger (Units in m)

Synergies from the merger

Higher GM of seeds business to support UPL’s gross

margins

Integration of administrative and back office

functions (G&A cost)

Better working capital management and improved

terms of credit

Savings in taxes outside India

Goodwill recognition on merger & tax optimization

on its amortization

Total

USD

INR

386

257

900

Source: Company, MOSL

Exhibit 27: EPS estimate by management based on growth and synergies

Particulars

Management Estimate of PAT in 2016

Synergy Benefit

Total

Number of shares to be issued (m)

Expected EPS (INR)

INR m

2400

900

3300

Source: Company, MOSL

Exhibit 28: Huge gap to be filled over next nine months to meet management’s estimates

Particulars

CY14

CY15

3 months ended March 2016*

CY16 (Estimated by management)

Required profit in 9 months of 2016

Note : * includes exceptional loss as mentioned below

INR m

835

1,527

(292)

2,400

2,692

Source: Company, MOSL

Exhibit 29: Write-off a huge drag on profitability for quarter ended March 16.

Particulars

Inventory write off (A)

Receivables write off (B)

Restructuring cost: Severance paid (C)

Sub-total (A+B+C)

Others – (Details not provided provided)

Exceptional loss in P&L

INR m

161.9

306.8

283.4

752.1

(180.8)

571.3

Source: Company, MOSL

15 June 2016

ART

UPL FY16

ART #2

GOVERNANCE MATTERS

Directors regular in attending board meetings



UPLL’s board comprises 12 directors, out of which 4 are promoter directors, 2 are non-

promoter executive directors and 6 are independent directors.



Of the 6 independent directors, 4 members have been on the board for more than 10

years.



UPLL is regular in calling board meetings as per the prescribed laws. Five board meetings

were held in FY16.



All directors are generally regular in attending the board meetings.

Exhibit 30: Directors regular in attending board meeting

Name of the Director

Mr. R. D. Shroff

Mrs. S. R. Shroff

Mr. J. R. Shroff

Mr. V. R. Shroff

Mr. A. C. Ashar

Mr. K. Banerjee

Mr. Pradeep Goyal

Dr. Reena Ramachandran

Mr. Pradip Madhavji

Mr. VinodSethi

Dr. P. V. Krishna

Mr. Hardeep Singh

Mr. Vasant Prakash Gandhi

Category

Promoter and Executive Chairman and MD

Promoter and non Executive vice Chairman

Promoter and non Executive Director

Non- Promoter and Executive Director

Independent and non executive director

No. of Meetings

Held

Attended

Source: Company Annual Report, MOSL

15 June 2016

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ART

UPL FY16

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