UPL to focus on debt as working capital jumps to 108 days in Apr-Jun

1 Aug 2022

A sharp rise in net working capital and number of working capital days in the quarter ended June has led to UPL Ltd to keep the working capital and debt management as key focus areas in the current financial year.

In an earnings conference call with investors and analysts today the company management said that it was actively working on the ground to rein in the net working capital and reduce the number of working capital days in order to reduce the net debt.

The net working capital is derived as inventory plus trade receivables minus trade payables.

UPL’s working capital rose sharply to 108 days in Apr-Jun from 91 days in the year ago quarter.

This resulted in the net working capital rising substantially by 56.1 bln rupees to 142.4 bln rupees as of June 30 from 86.3 bln rupees on March 31.

It further led to the company’s consolidated net debt, adjusted for foreign currency impact, rise sharply by 34% to 253.9 bln rupees as on June 30 from 189.1 bln rupees on March 31.

The company management told analysts in the call that the surge in working capital days was due to the 27% rise in sales, rising interest rates in all countries where it operated in, an increase in receivables in Latin America and a 10-day increase in inventory days.

The company claimed that the working capital days will normalise to 80 days by end of 2022-23 (Apr-Mar) with a significant release in the second half of the year, and this will lead to lower debt levels.

In Apr-Jun, the working capital build-up led to a jump of 71% on the year in interest costs on borrowings to 4.8 bln rupees.

The total finance costs in the June quarter, however, declined to 5.2 bln rupees from 6.1 bln rupees a year ago due to a foreign exchange gain of 880 mln rupees as against a foreign exchange loss of 2 bln rupees in the year ago quarter.

The foreign exchange gains resulted from hedges taken against advance orders, the company’s management said.

UPL’s consolidated revenue rose by 27% on the year to 108.2 bln rupees in Apr-Jun, while its consolidated net profit went up by 29% to 8.8 bln rupees.

The company saw strong sales in Latin America, North America and other parts of the world excluding Europe and India.

The Latin American sales jumped 38% on the year to 34.6 bln rupees, while North American sales rose substantially by 47% to 18 bln rupees