UPL 2020 Annual Report Highlights and Analysis
UPL is an India based organization that, at least in North America, does not receive a ton of attention. Part of the reason is their business is not as large in North America:
Only about 15% of their business is in North America. Europe is also only around 15% of their business, meaning 70% of their business is in Asia, Australia, Latin America and Africa.
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These geographic sales numbers makes sense when you consider UPL in one light:
They have traditionally been a generic company, however, recently acquired Arysta Lifescience which had some intellectual property.
What I have incorrectly stated in the past is that FMC is the 5th largest seed/chemistry manufacturer, when I did their numbers and noted the below image it’s easy to confirm I was incorrect for 2020; UPL is the 5th biggest with around $5 billion USD in revenue. FMC comes in at around $4.6 billion.
There are a lot of number worth noting on the above image, many I will touch on later on.
UPL really has a strong presence in herbicides, with 40% of their business being derived from herbicide products.
We can see that even from their primary post-patent AI’s:
Azoxystrobin is one of the most used fungicide actives around the world and glufosinate is an ever growing active, specifically in North America where crops like corn, canola, cotton and soybean that have bread glufosinate resistant traits are growing.
Here are their North America specific numbers, working out to under $1 billion USD:
Their global revenue is presented in crore, Indian denomination, but converts to approx $5 billion USD:
With their EBITDA converting to ~$1billion USD thanks to relatively strong EBITDA margins:
In comparison to larger discovery companies, they are improving relatively rapidly.
For comparison here are their 4 biggest competitors from the Bayer Cropscience Annual Report:
FMC, their closest competitor in revenue, comes in at ~27% EBITDA margin. As UPL continues to grow, I would expect their upward trending margins to continue as well, specifically as they move into higher margin product lines like biologicals, proprietary synthetic products and digital service offerings.
UPL has long been considered a generic company, but they are aiming to move beyond this. And quite frankly, as I have stated before in the FMC analysis, a strategic combination is a good place to be in the future:
This is the difference between a true discovery company and a company that has a more generic focus. Generic companies can innovate, and do innovate, they just innovate at a different level in the chemistry stack than an active ingredient company. You can innovate on actives, or on formulation and delivery or combinations of actives applied. This is still innovation, but tends to be a less expensive form of innovation. We may see some of the smaller players, like UPL and Nufarm, do more of a combination approach in the future along with collaborations.
Discovery, post patent along with new products like biological in combination with synthetics and with digital systems and services creates a robust offering where they can find their niche, which is one of the benefits of being their size.
Here is their proprietary pipeline:
Note the numbers of non-herbicides. More insecticides, fungicides and a decent depth of biostimulants. This is a very similar ratio as other companies, more insecticides and fungicides than herbicides.
Bayer, BASF, Syngenta and Corteva have less emphasis of biologicals in their annual reports. It’s apparent companies like UPL and FMC see biological shifts as their opportunity to gain disproportionate share and influence in the coming decades. We have seen JV’s started with some organizations like Bayer, strategic partnerships like Corteva emphasizes and acquisitions like BASF and Syngenta have done.
Again, for comparison purposes because UPL is similar in size, FMC currently has 35 active ingredients in their pipeline, so very consistent with UPL at their 38.
What will be interesting to see is how this progresses though:
UPL has a disproportionately low expenditure of their revenue on R&D at about 2%.
For a company that uses innovation so often in their report (35 times in the report), they spend a surprisingly small percentage of their revenue on R&D.
Biologicals are notorious for taking less time to market, 3-5 years instead of ~10 years and much less from a monetary perspective (10% of the cost). That could be part of why they have lower numbers. They want to emphasize their culture as part of that innovation even though UPL is not a traditional discovery company. In the future I think this is less important because of the influence that digital and biological products can have on the business, but innovation is still needed and UPL is approaching it different.
UPL has a unique approach compared to the other biggest companies in the space, they want to create a more open approach. Almost like creating their own accelerator and network of innovators to be able to work with, learn from and support which will drive their understanding, and even give them the opportunity to acquire companies that might be a fit within their business.
A quote about their Open Ag initiative:
We are creating a network with our partners to be able to touch and transform farming practices across our wide geographic reach.
They want to learn at a macro level and then apply their geographic specific understanding of the farmer and the practices in order to win, with a focus on agility.
Here is how they define it:
For us innovation starts in the field and ends in the lab, instead of the other way around. Listening to farmers and distribution partners, we are developing products and solutions that have far-reaching impact. We’re building an OpenInnovation concept, which creates a network with thousands of partners, focusing on our core competencies and letting others focus on their core competencies. We have 38 new active ingredients in early stage and 14 in late stage of development, with a potential sales value of US$ 1–1.5 billion for the next five to eight years. We also innovate to reconfigure and differentiate existing off-patent active ingredient, creating new mixtures and formulations. This pipeline is well positioned to yield US$ 2–2.5 billion in the same time frame.
They have some significant assets to work with too:
They actually do have a strong number of patents and significantly more than a competitor like FMC, but lag behind a company like Corteva by a factor of 10x!
Some of their current proprietary active ingredients include:
Digital agriculture is talked about often by these companies, except normally you have a significant emphasis of what they are doing in the space. UPL talks quite frequently about innovation and digital capabilities, but they don’t really have anything currently!
See the quote below:
Moreover, we are scaling up our digital service offerings.
They do have a drone fleet solution. This can be to help support agronomic data acquisition, but may also be something that helps them from a drone application perspective where they can deploy their biological products in a way that are preventative.
In my opinion, we will see a less talked about space heat up in agtech, specifically among retailers and crop input manufacturers of Proactive Prediction and Intervention (PPI).
This is essentially the focus of modelling pests (disease, insects), abiotic stresses (heat, wind, drought, flood etc), nutrient deficiencies or even quality concerns to ensure the yield reduction or quality loss does not come to fruition and instead of acting once an issue arises, you proactively predict and take action (intervention).
There are other companies like FMC modelling insects via their Arc tool, but then we will see it come to fruition from companies like Nutrien, Yara and Mosaic where they are focusing on mitigating deficiencies and stress with biostimulants and nutrients.
I would expect UPL to invest in this space, likely outside North America to begin with to support their core business. But this could be something we see come to fruition in North America from them too, whether it’s more internal R&D, launching their own proprietary product or looking to acquire one of the many companies out there that may be doing remote PCR on spores and then coupling that with modelling. They have significant fungicide active ingredients in their pipeline and disease modelling would be a great fit for them.
Second, they have no portal or touch point with their customers. Their core business is in a part of the world where it may make sense to go more direct to the farmer. Even in other developed parts of the world, they do not have a portal access to their customer; no way to interact and engage with farm customers, or retailers. This could come from the modelling tools, but from reading their report they have quotes like this (and others):
Digital technologies are driving the creation of an ecosystem that feeds into sustainable growth.
That lead me to believe they want to have their own ecosystem and platform to be able to build upon with these modelling tools. There was also an emphasis towards traceability and food system involvement, which helps to have a data repository for field level data. Whether this is the right approach or not could be argued though. We may see them look at various platform players via acquisition or investment to be able to gain entry into this space.
Today, they talk about innovation but have been on the sidelines of one of the fastest moving areas of innovation in agriculture! Caveat to this is news from earlier this year:
India’s UPL partners with grain monitoring startup TeleSense to reduce food waste - AgFunder News
It seems strange to me to begin there for them, but if you look at where there is opportunity it is to start further down the value chain rather than compete purely upstream like their biggest competitors do. So while I do think it makes sense for them to obtain tools to support their core business, there is an interesting aspect of beginning downstream and then moving back up, especially with their food focus in the report it is obviously a priority. I will be watching how this initiatives progresses.
One area it can’t be argued that they are innovating is in the biological space. Especially with their ProNutiva line:
Combining synthetic and biological solutions is the next frontier in my opinion. We are seeing organizations like Vive and Marrone Bio move in this direction and where UPL has a benefit is that they are integrated together with biological actives and synthetic actives.
There is still the need to improve on the front of these products:
We are investing in dedicated sales, marketing and technical personnel, as well as training and BioSolutions talent development. We will ramp up our R&D efforts in at least four key platforms (plant extracts, seaweed, pheromones and micro-biologicals)
I have talked about it often in Upstream, but specifically about UPL in North America here:
UPL's OHM Biostimulant Receives Registration in Canada - AgroPages
OHM is a highly advanced and highly concentrated liquid form of Ascophyllum nodosum seaweed extract that optimizes nutrient use efficiency for enhanced plant growth and development.
Ascophyllum nodosum is one of the most common algae’s used for biostimulants world wide.
I wrote an article in 2014 suggesting that by 2020 we would begin seeing co-formulations of micronutrients and biostimulants with synthetic products. I was wrong. However, directionally I think it is still a valid thought that will come to fruition.
The most interesting part of this area to me is the future tie between biostimulants and crop protection products. Not just from a programming perspective, but from a formulation perspective, or all in one jug. Whether it is used as a product differentiator to have a biostimulant in the jug or to sell as a premium product. These products can be used to help manage the metabolism of herbicide molecules or work in tandem with products like fungicide to increase plant health.
The overlap between pesticides, micronutrients and biostimulants from both a crop production perspective, but then a logistical perspective with sprayers going across the field today shows a very natural partnership: whether that is in house products being brought in like UPL or partnerships between more traditional biostimulant/ nutrition companies and crop protection companies (or acquire them like Syngenta with Valagro).
To get to the point of formulation though will still take some time. Organizations like UPL need to begin to understand how to sell the biostimulant itself to farmers and the channel.
The challenge with biostimulants for an organization like UPL in Canada is that their core competency is selling herbicides, and now they are going to have to sell something less tangible.
Herbicides have a tight feedback loop where an action provides a very tangible outcome: spray the weeds, see the dead weeds and then have a clean field.
Even products like seed treatments are closer to this: Get a seed test, understand the disease level, see the coloured treatment on my seed and feel comfortable knowing the disease is being held back.
Biostimulants are less tangible, even though they elicit specific responses in the plant, and sometimes do achieve visual effects, it can be more of a challenge to obtain consistent results. This leads to inconsistencies in messaging and positioning. Different types and strains of ascophylum nodosum can provide varying strengths of different plant responses too. Understanding the crops, areas, situations, timings, other product uses to decipher a very specific use case for biostimulants in my opinion is important. This is important in things like herbicides as well, but it’s easier to stay consistent with: weeds come every year.
Abiotic stresses come in different shapes and forms year in and year out, plus when it comes to supporting nutrient uptake messaging you must also have nutritional background to talk about soil chemistry, plant physiology and the interaction between them. This isn’t necessarily a core competency of a crop protection company.
This means you end up with different angles, depth, emphasis points and more in the market. Being consistent in what the product does and the value proposition communicated is of the utmost importance to really drive the adoption of these products.
They will need to really build up this area of understanding and I think we will see partnerships from them in the future globally to help enable this progression and their core competency in positioning their products to the farmer with companies that specialize in the space.
Other interesting pieces
This product fascinates me and is something I think has a lot of potential in the future, especially as we hear more about water utilization that will inevitably become a bigger and bigger talking point in the coming years:
We are committed to driving our innovation engine faster to offer a comprehensive solutions portfolio to growers and other supply chain partners to protect and enhance crop yield in all phases of the crop cycle, combining BioSolutions and Crop Protection
Zeba is our patented starch-based smart climate technology, a ground-breaking innovation that absorbs water and releases it back to plants when they need it, creating healthier plants, more uniform crops and higher yields.
They even developed this product in collaboration with PepsiCo.
UPL does not talk extensively about seed in their report, but they do briefly highlight Advanta Seeds:
Their seed company does have some presence in 66 countries, focusing on tropical and subtropical corn and has leading positions in many regions in corn, forage and grain sorghum, sunflower, canola, rice and vegetables.
A highlight of the crop protection market sales over the last 6 years:
Innovation showed up 35 times
“bio” based words (biological, biotech, biostimulant etc) 148
Learning more about UPL was fascinating for me as their foot print in Canada is small, and my interaction with them is significantly lower than any other crop input company in the top 6.
They are positioned well with post patent and proprietary products to identify niche product opportunities as well as work to become a global leader in the evolving biological space, especially when doing so in conjunction with their synthetic line business.
On the digital front they seemingly will be making moves in the coming years to make themselves relevant globally on the digital front.
As they continue to grow they will be a fun company to watch.
UPL 2020 Report - UPL