UPL hit by government’s draft order

The agrochemicals maker UPL was among the big losers on Tuesday following the government’s decision to prohibit use of certain insecticides, citing risk to humans and animals.
It is believed that these products are some of the key products used by companies like UPL, Rallis India and Atul.
Shares of UPL fell as much as 8.77% to Rs 342.85 and it is also the worst performing stock on the Nifty 50 index.
Rallis shares too were under pressure, down 2% to Rs 203 per share, as it is a major producer of acephate, which figures in the draft order.
Atul shares were down 4% to Rs 4,333 per share. The company makes 2,4D, also part of the government list.
The government of India has issued a gazette notification of a draft order banning 27 new agro-chemical formulations manufactured and sold in India.

The industry and individual companies have been given 45 days to get back with their suggestions.
The development is negative for UPL as some of its major products such as acephate, monocroptophus fall in the list. The list also includes insecticides like chloropyrifos, mancozeb, which are part of UPL’s portfolio.
In the previous two Budgets, the government has focused on zero Budget farming, which means farming with no use of chemical fertilisers.

If the government bans such a large number of important affordable products, that too in this kind of a situation in the economy, then farmers will be hard -hit. However, this could be a good time to buy into UPL in this weakness.
Meanwhile, the agrochemicals company said its net debt stood at approximately $2.9 billion as of March 31, 2020 as compared to $4.2 billion as on December 31, 2019. Net debt stood at $3.8 billion as of March 31, 2019.
The same represents a reduction in net debt of approx. $900 million and $1.3 billion as compared to Q4FY19 and Q3FY20, respectively. The company has cash/cash equivalent of approximately $875 million (approx Rs 6,500 crore) as of March 31, 2020.

The company presently continues to see demand in line with the expectations as the farming season continues to be normal across the world.
Net net the stock having corrected sharply today may see a bounce back post clarification from the management on the status of the products banned by the government.

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