UPL to hive off its specialty chemical business

UPL , one of the world's largest agrochemical companies, has announced that it would hive off its specialty chemicals business to a wholly-owned subsidiary. The specialty business, valued at Rs 3,572 crore, will be transferred to UPL Specialty Chemicals (USCL) on a slump sale basis. The company has stated that the transfer will take place in three to four months, subject to approval from shareholders.

UPL Specialty Chemicals - a glance
With a revenue of Rs 16,090 crore in FY23, USCL is one of India's largest specialty chemical companies. It manufactures ingredients used in crop protection, pharma, paints, and various other industries. Although it does supply to other companies, around 86 per cent of revenue is derived from UPL group companies: UPL Corporation and UPL SAS.

USCL has over 15 technical and formulation plants and a dedicated R&D centre. Given that its facilities are vertically integrated, it also possesses a cost advantage. Moreover, it is one of the few Indian businesses with the experience to manufacture complex and hazardous chemicals. This business has been growing rapidly in the last three years, both in terms of revenue and profit.

Rationale behind the restructuring
UPL has stated that the primary reason behind this move is to unlock the business's potential and capitalise on the present sectoral tailwinds. Between 2015-20, India's specialty chemical industry has grown 10 per cent annually (as per company officials). Furthermore, Frost & Sullivan (a consultancy) forecasts double-digit growth to continue over FY22-25, driven by China plus one framework and favourable policies.

While it derives more than two-thirds of its revenue from supplying to UPL group companies, the management intends to take advantage of the B2B segment (i.e., partnerships) in the coming years. Given the company's experience and expertise, the management is optimistic that this segment will continue its phenomenal growth while improving efficiency.

Apart from this, the consideration that UPL would receive will help with its debt situation. It can transfer a portion of its Rs 22,999 crore debt and pay some of it, reducing its interest costs.