United Phosphorus: Agri Aggressor

Going global may be every other promoter’s favourite mantra these days, but Rajju Shroff is one entrepreneur who looked overseas way back in the mid-1950s. When India’s first industrial policy was announced in 1956, with a focus on selfsustainability, Shroff, then a sprightly 24, set his sights on venturing abroad. He set up a chemicals plant in the UK for his family business. It wasn’t until 1969 that Shroff founded agro-chemicals and seeds firm United Phosphorus (UPL). And it wasn’t until the early 1990s— when Indian businesses were finally opened up—that Shroff looked outbound again. Since 1994, UPL has made 26 acquisitions—of companies and products.

The buyouts have been across the world, right from developed countries like the US, the UK, Japan and France, to developing ones like Argentina and South Africa. “An entry into the US from India is very difficult, but with acquisitions, it is much easier,” explains Shroff, Chairman & Managing Director, UPL. Many of UPL’s purchases have been from leading global players like Syngenta, Bayer and DuPont.

The common triggers for most of these takeovers were access to geographies and addition of new products to the portfolio. Another key reason has been access to regulatory approvals. Often, an acquisition has helped UPL enter areas where it did not have a presence, and where creating one would have been time- and resourceconsuming. Jai Shroff, CEO, UPL, gives the example of the buyout of Dutch seed maker Advanta, which was triggered by the impact of biotechnology on the agrochemicals sector. 

The Buyout Edge Acquisitions: Advanta BV, the Netherlands (2006); Cerexagri, France (2007); altogether 26 acquisitions over the past 15 years Price tag: $500 million Financing: Internal accruals, debt, equity and FCCB proceeds Benefits derived: Entered seeds business; received regulatory approvals Integration achieved: Partly

Analysts point out that UPL’s acquisitions have helped it become a global major in generic crop protection, with a diversified geographical and crop presence. “Such a diversification helps UPL smoothen the volatility inherent in a business dependent on weather patterns,” says a Kotak Securities report.

The report adds that UPL’s low cost of manufacturing, the significant entry barriers it has built in developed markets, in the form of registrations, and an increasing global footprint are the company’s three distinct edges. UPL’s guiding principle when making acquisitions is that the investment needs to be recovered in three years. If it can’t, the acquisition does not make sense. Over the past five years, in which UPL has made 16 acquisitions, revenues have increased 4.3 times, to Rs 3,761 crore as of 2007-08. Net profit has jumped 6.7 times to Rs 281 crore. Profitability at its two largest acquisitions, Cerexagri and Advanta, has improved.

— Virendra Verma