UPL Ltd (UPL) Q2 FY23 Earnings Concall Transcript

UPL Limited (NSE:UPL) Q2 FY23 Earnings Concall dated Nov. 01, 2022

Corporate Participants:

Radhika Arora — Head of Investor Relations

Jai Shroff — Global Chief Executive Officer

Mike Frank — Chief Executive Officer-Global Crop Protection

Anand Vora — Global Chief Financial Officer

Raj Tiwari — Global Chief Supply Chain Officer 

Analysts:

S. Ramesh — Nirmal Bang Equities — Analyst

Abhijit Akella — Kotak Securities — Analyst

Nitin Agarwal — DAM Capital — Analyst

Jay Shah — Capital PMS — Analyst

Vishnu Kumar — Spark Capital — Analyst

Abhiram Iyer — Deutsche Bank — Analyst

Rohan Gupta — Nuvama Wealth ManagementA — Analyst

Aditya Jhawar — Investec Bank — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the UPL Limited Q2 FY’23 Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Radhika Arora. Thank you and over to you.

Radhika Arora — Head of Investor Relations

Thank you. Good day, everyone. Thanks for joining us today for the results for the quarter and half year ended 30 September 2022. On this call, we will be referring to a presentation that is available on our website and we take as you having read the safe harbor statement.

From the management team, we have with us today, Group CEO, Jai Shroff; Group CFO, Rajendra Darak; CEO of Global Crop Protection business, Mike Frank; Global CFO, Anand Vora; Chief Supply Chain Officer, Raj Tiwari; and our Global Chief Commercial Officer, Farokh Hilloo.

We will start with an overview from Jai and Mike followed by a financial update from Anand. With that, let me now hand it over to Jai. Over to you, Jai.

Jai Shroff — Group Chief Executive Officer

Thank you, Radhika, pleasure to talk to all of you and good evening and good morning. I’m delighted to share the excellent performance of our business. With all of you, we had a robust 18% growth in revenue and 35% growth in EBITDA. We are encouraged with the growth in all key markets except Europe and the 20% growth in all these markets, this shows the ability of our team to really focus on improving margins.

The EBITDA improvement is key focus area for us and the company is focusing on cash generation in the following quarters. We have committed to reduce our debt by $400 million through cash generation net — net debt reduction of $400 million. We also have announced a strategic realignment of our businesses, where we have separated our Advanta Seed business and our Agtech business in India to really ensure the true value of these businesses. We have got important shareholders like ADIA, TPG, Brookfield and KKR to invest in these businesses. And to show how valuable these platforms are.

Today, Advanta is one of the largest seed companies in India and in Asia and around the world and so is our Agtech platform, one of the largest platform. The net cash generated through these — this aligned as — strategic alliance will be about $260 million, which will go towards debt repayment. Altogether, including the share buyback we are talking about a net reduction of $650 million by end of 2023.

Looking at the second half of the year, we remain in position to continue our growth and continue to commit to price improvements and volume growth. Given the backdrop of the challenging year we had, we believe that UPL will continue to grow towards the rest of ’23. In-line with the global governance standards, we have had some long-serving Board Members, who have contributed significantly towards the growth of the company. Some of them will be retiring and making way for new Board Members. I want to thank each one of the Board Members to towards — contributing towards the growth of UPL and particularly with the introduction of new members also such as the Carlos Pellicer, Raj Tiwari, who will join the Board of UPL.

With that, I would like to hand over to Mike for his comments.

Mike Frank — Chief Executive Officer-Global Crop Protection

Thank you, Jai, and hello, everyone. I’m pleased to share our Q2 results, which I’ve seen strong improvement versus last year despite continued uncertainties and volatility in the current macro-economic environment. I’m really proud of the discipline of our sales process, led by our on the ground agile team, our strong customer relationships and supply chain excellence that have helped us deliver this performance, despite headwinds from global inflationary pressures, geopolitical uncertainties and unfavorable weather conditions in key markets.

So in Q2, we continued with our strong growth supported by improved price realizations in herbicides and tailwinds through strong Ag commodity prices. The key regions as Jai mentioned, that drove the growth in this quarter were Latin-America, North-America, India and our Rest of World region. In fact, each of these regions posted a growth of 20% or more versus the previous year. We have achieved very strong margin improvement in Latin America, which comprises over 50% of Q2 revenue, thus leading to overall margin accretion.

We also continued with our strong performance in North America, supported by our growing product offerings and through effective key account management with U.S. distributors. Europe had flat revenue due to euro devaluation and other macro challenges, however, given the current environment we believe our growth in the region has been impressive in euro terms, which has grown about 13% versus the previous year.

Moving to the financial results, I am pleased to report our strong performance-led by disciplined pricing with increases across most of our portfolio and that has led to significantly improved contribution margins. Our revenue has grown by 18% as Jai mentioned, and EBITDA is up by 35% on a year-on-year basis. Our contribution margins grew by 27% with margins now around 43%, which is an impressive 290 basis points higher than last year, again, driven by our multi-pronged approach of improved pricing, focused product mix and portfolio rationalization. This has all helped us in improving business quality specifically in Latin America and our major region — which was our major regions for the quarter.

We led by strong improvement in overall contribution margin. Our EBITDA margins improved by 278 basis points versus last year, helping in strong bottom line expansion of 28% year-on-year, despite higher finance and hedging-related costs. In terms of market access, we continue to build on our capabilities and continue to hold strong positions as a preferred partner. For example, with Origeo now approved in Brazil, we see the opportunity to expand our market penetration.

So year-to-date, as you can see, we’ve increased our overall inventory levels as we’ve — as we anticipate a strong second half. We’ve been very disciplined in our approach of timing our sales closer to the application season, working in partnership with our channel to ensure we meet the demand as it happens. We anticipate a significant reduction in our inventory levels as the second half of the year evolves.

Taking a quick look at regional performance for the quarter, in Latin America, we achieved a strong 20% growth led by our herbicide portfolio and improved pricing. Brazil was the key growth region, driven by robust demand for post emergent herbicides and strong price realizations. This was further supported by Evolution, which is our new product in the fungicide segment. We also had nice growth in Argentina and Andean countries to provide overall lift for the region this past quarter.

In North America, revenue grew by a strong 24% on the quarter, led by improved price realization in our herbicide segment and strong grower demand and channel support. All of this despite dry weather conditions in Western USA, impacting specialty crops and the waste market. As I mentioned, in Europe, our revenue was flat versus last year due to the euro devaluation, however in euro terms, we achieved impressive growth despite these challenges of unfavorable weather, product bans and the ongoing conflict in the region. Among key sub-regions in Europe, growth was strong in Germany and in many Central European countries.

In India, our Q2 growth of 22% was led by herbicides, primarily glufosinate products, new insecticides launches in paddy and cotton crops, NPP Biosolutions and the crop establishment segment. This was supported by improving pricing in key products. Going forward, in India, we expect the market to be supportive with favorable pricing of key crops such as rice and wheat. We are confident of our strong growth in the second half, driven by newly improved procurement in rice and three-way mix to herbicides for sugarcane along with NPP Biosolutions and seed treatment products in key variety crops of wheat, potato and cumin.

In the Rest of the World segment, we delivered 22% growth, driven by significant volume increases and improved price realizations. Strong growth was achieved in Southeast Asia and Australia as well as Southern Africa driven by our broad portfolio in those regions. Among other major markets there, Japan was flat despite significant devaluation of the Japanese yen against the INR.

We remain committed to our reimagining sustainability initiatives, under which we have launched the Gigaton Carbon Goal and this past quarter, we launched it in Rwanda, Kenya and other Western and South African countries in collaboration with the FIFA foundation, which was after our successful launch in Europe in Q1.

Before I hand it over to Anand, our Global CFO, I’d like to highlight that we are well-poised to deliver strong growth for the full year on the back of our strong order book. We therefore maintain our FY’23 guidance up 12% to 15% growth in revenue and 15% to 18% growth in EBITDA. Our strong first half performance along with anticipated robust demand for our solutions portfolio and product optimization in H2 will further support our guidance. We are confident of delivering our second half growth on the back of increased market share and improved realizations.

Further, we shall continue to be diligent with SG&A despite being in an inflationary environment across various expense items. Lastly, we’re also committed in the last part of year and we remain very focused on working capital management, which will help us in reducing net debt for the year, as Jai just mentioned. I’d like to further congratulate our team for their resilience, the dedication and unified focus in delivering such a strong performance in this quarter despite the challenges on several fronts.

I’ll now turn it over to Anand to take a deeper dive into the financial performance.

Anand Vora — Global Chief Financial Officer

Thank you. Thank you, Mike. A warm welcome to all of you, who have joined us today. I’ll begin by discussing the key financial highlights for the second quarter and first half of the year followed by an update on working capital and debt positions. At the outset, I’m very happy to share that we have delivered a strong all round operational performance in the first half of the financial year 2022-’23, marked by robust top-line growth and significant improvement in EBITDA margin.

On the performance of quarter two, our quarter two revenues were at INR12,500 crores, representing a healthy growth of 18% primarily led by better price realization as the key crop prices continued to remain strong. The price increase of 21%, exchange benefit of 4% was partly offset by the volume — negative volumes were around 7%. Most — more importantly, it is heartening to see that our contribution margins improved by 290 basis points to 42.6%, leading to a robust growth of 27% and contribution profit to INR5,324 crores.

As Jai alluded to earlier, the improvement in contribution margin was on account of a conscious focus on driving quality growth by shifting the product mix in favor of high margin products, rationalizing our product portfolio and negotiating better credit terms. Robust growth in contribution margin coupled with efficient opex management resulted in 35% growth in EBITDA to reach INR2,768 crore.

SG&A expenses as a percentage of sales remained steady. We continue to invest in-building teams and capabilities to grow our differentiated and sustainable portfolio and bolster our go-to-market and product innovation capability. Finance cost increased by 80% to INR644 crores, primarily due to significant increase in benchmark rates globally. Finance costs, the interest expense reduce to INR535 crores this quarter versus INR284 crores in Q2 of last year. The increase in benchmark rates by almost 400 to 800 basis points over different — in different geographies, over the same period last year, attributed to the sharp increase in interest costs.

Overall despite the increase in finance costs, hedging cost and FX impact, the strong growth in operating profitability coupled with lower tax rate helped us to deliver robust net profit of 28%, at INR813 crores.

Moving on to H1 results performance. Consolidated revenue grew north of 20% to INR23,300 crore. Improved product realization, which were higher by 20% and favorable forex has help led to this growth. Volumes are flattish in H1. As our emphasis on quality growth meant that we had to forgo certain orders of low margin products with extended credit terms. Having said that, we are confident of delivering healthy volume growth in the second half of the year, led by strong demand outlook.

On the operating profitability front, we delivered EBITDA growth of over 30% with margin expanding by 140 basis points to 21.9%. Improved realization and efficient cost management aided us in delivering a better margin profile despite various external factors. Effective tax rate for the first half of the year stood at 12.2% and we remain within the guided — we shall remain within the guided range of 15% to 18% for the full year as mentioned earlier. On the whole, our net profit during the first half grew robustly by 29% to INR INR1,690 crore, despite higher interest costs and hedging costs.

As regards to working capital, as you are well aware, due to seasonality of our business, the working capital increases through the year and decreases substantially in the last quarter. Ending at H1 with higher working capital, especially the inventory levels, it’s a primary higher because of the following. We had robust sales in H1 and a strong demand outlook for H2, the uncertainties in supply chain and logistics and our decision to sell closer to the season and thereby offering lower credit terms on sales to improve the receivable days.

As a result of these factors, we have seen an increase in working capital of $962 million in INR terms about INR8,495 crores over the working capital at the beginning of the year. However, against this increase, the net debt adjusted for buyback and dividends which are money given to the shareholders by end of H1 was $734 million, in INR terms, INR7,500 crores implying a cash generation from operation of $228 million in H1.

Going into H2, we typically have seen 75% to 80% of cash conversion of the increase in working capital, which happens in H1. It should translate into cash flow of $750 million to $800 million, roughly about INR6,100 crores to INR6,500 crores in H2. Further in addition to the reduction in working capital, we received $75 million approximately INR600 crores in October on account of settlement of our insurance claim in Chile and South Africa. Taking these two factors, the release of working capital and the insurance claim plus the incremental profits of H2 will lead us to deliver the production in $400 million of net debt as we have guided at the beginning of the year.

Moreover, the net fund inflow of $260 million from the recently announced restructuring of business should facilitate a further debt reduction taking the total debt reduction for the year to $650 million. It’s worth noting that this stated debt reduction of $650 million is including the buyback of shares and of $150 million done at the beginning of the year.

So in summary, the debt position — the net debt position as of March ’22 of around $2.5 billion would be reduced by approximately $650 million less than about $150 million of share buybacks so roughly, about $500 million, thereby taking the total net debt to approximately $2 billion. With this expected reduction in net debt, the net debt to EBITDA ratio will stand below 1.4 times by the end of the financial year.

With that, I ask the Operator to begin the Q&A session. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have the first question is from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.

S. Ramesh — Nirmal Bang Equities — Analyst

Good evening and thank you very much. So the first question is, you mentioned about the improvements [Technical Issues] portfolio rationalization and the volume [Technical Issues]

Jai Shroff — Group Chief Executive Officer

We cannot hear you. We cannot hear you very well.

Operator

I understand. Mr. Ramesh, if you could close the speaker phone and come on the handset mode. It appears Mr. Ramesh dropped from the queue. We move on to the next question. We now invite Abhijit Akella from Kotak Securities. Please go ahead.

Abhijit Akella — Kotak Securities — Analyst

Yes, hi, good evening. Thanks for taking my question. So I just wanted to get some clarity on the net debt guidance for the end of the year. So we are talking about $650 million of debt reduction compared to the levels of last year’s March — March quarter, which I believe was about $2.5 million — $2.5 billion. So is $1.85 billion, the target that we should be looking at by the end of FY’23. And also just wanted to confirm if the guidance includes any significant increase in factoring that you might be looking forward to in the second half? Or you think you can more or less get there without taking recourse to any increase in factoring?

Anand Vora — Global Chief Financial Officer

So Abhijit, as I mentioned, yes, $650 million would be the gross debt reduction of that about $150 as you know we have used for buyback. So roughly, we are talking about $500 million reduction in debt from the $2.5 billion at the beginning of the year. So you should — we are targeting around $2 billion of — a little bit lower than $2 billion by end of the financial year.

On your second question, which was on factoring? As we have said at the beginning of the year, we would target to remain around the $1.6 billion level, which was what we did last year. If at all it — they could go up by about $50 million to $100 million more, but it will certainly be lower than the increase in sales or the growth in sales that we would have. In other words, our increase — growth in factoring will be lower than the growth in sales, but we are trying to work towards seeing that it will be at that $1.6 billion level, which is the same level as last year.

Abhijit Akella — Kotak Securities — Analyst

Okay. So just to understand, as of September, the receivables sold was INR6,671 crores, which is something like $800 odd million and that will increase to about $1.6 billion by the end of the year?

Anand Vora — Global Chief Financial Officer

That’s right.

Abhijit Akella — Kotak Securities — Analyst

Okay. And in terms of the cost of this factoring at this point in time, I mean, do you believe it is favorable enough for you to significantly increase the factoring in the second half? How do you see that situation?

Anand Vora — Global Chief Financial Officer

Yeah. So as we had mentioned at the beginning of the year, we will be curtailing our factoring in some of the geographies where the costs are higher, significantly higher weather. Benchmark rates have jumped significantly, for example, in Brazil, as the benchmark rates have gone up by almost 800 basis points over that of the last year. So certainly, we will reduce our factoring in those regions — those countries, but we will compensate by increasing our factoring in countries like U.S. or Europe, where are we still get money at LIBOR-plus 200 basis point — 150 basis points to 200 basis points and which is almost equal to the cost of borrowing, which we do otherwise on working capital. So actually, we are getting non-recourse risk free margin — money at the same price that we get out of working capital funding.

Abhijit Akella — Kotak Securities — Analyst

Sure. That’s helpful. Thanks, Anand. And then just one last question from me before I get back in the queue, just on the volume growth for this quarter, it was about minus 70%. I understand we’ve strategically decided to focus more on driving higher margin sales, the better quality of credit periods and everything, but is there some apprehension that we might be giving up a little bit of market share in some of our markets? Or how would Mike see that situation looking out for you?

Mike Frank — Chief Executive Officer-Global Crop Protection

Yeah. It’s Mike here, I’ll take the question. So, no, we’re still very focused on maintaining and growing our market share, in really all of our key geographies. Again, as we commented, we are tightening our sales to channel into customers, closer to the market. And so we are anticipating that we’ll see more volume growth in the second half. But our teams are very focused on ensuring that we maintain and grow market share, it’s one of the attributes, I think, as UPL, we’ve got a very strong portfolio, we’re launching over 80 new products this year, so all augurs well to, I think, where we will end the year from an overall market share perspective.

Abhijit Akella — Kotak Securities — Analyst

Great. Thank you so much and wish you all the best.

Jai Shroff — Group Chief Executive Officer

Thank you.

Operator

Thank you. We have the next question from the line of Nitin Agarwal from DAM Capital. Please go ahead.

Nitin Agarwal — DAM Capital — Analyst

Hi, thanks for taking my question. Sir — Mike, on the gross margin improvement that we got in this quarter, if you can just probably spend some more time on what the major factors driving the improvement in the gross margins and our contribution margin is and how should we look at the contribution margin improvement for the second half of the year?

Mike Frank — Chief Executive Officer-Global Crop Protection

Yeah. So as I mentioned the gross margin improvement was really primarily — it was really across our portfolio, but from a meaningful standpoint, it was really in our herbicide segment and I would say, it’s underpinned by the strength of our supply chain and the efficiency of our supply chain, relative to the market we compete against. And so we saw the opportunity to take appropriate price increases, where we could, and overall that’s why we saw the incredibly strong margin improvement in Q2. Now going into Q3, we think the trend will continue, the growth on a year-over-year basis may not be as strong in Q3 and Q4. But we anticipate will continue to see margin expansion in both quarters ahead of us.

Nitin Agarwal — DAM Capital — Analyst

Thanks. And secondly on the overheads, any comment on how is the — has there been any easing-off on the inflationary pressure on freight and other expenses?

Mike Frank — Chief Executive Officer-Global Crop Protection

Yeah. So I’ll take part of overheads and I’ll ask Raj talked a little bit about freight and other logistic costs. So about half of our overheads, our employee costs, and so obviously, the inflation on employee costs have gone higher this year and that with inflation around the world that trend will likely continue. We’re very focused on managing overall headcount numbers, managing all of our controllable SG&A, where we can so. I think we are seeing strong discipline from an overall SG&A management perspective. But we will continue to see SG&A growth as we anticipate the second half of the year. Raj, if you could talk about freight.

Raj Tiwari — Global Chief Supply Chain Officer

Yeah. On logistics, actually the prices have come down significantly. However, when we talk about the prices, we talk about the landed price in the respective country and because of the currency depreciation that has taken a lot of savings out of our logistics, because of the currency depreciation. So yes, in U.S. dollar terms, there has been a lot of lowering of costs in freights.

Nitin Agarwal — DAM Capital — Analyst

Okay. And secondly, Anand, on the forex losses that we sort of report below — above the EBITDA line — below the EBITDA line, what is the nature of these forex losses? These are all realized losses or these are notional losses.

Anand Vora — Global Chief Financial Officer

Well, part would be the cost of taking the forward covers and but large part would be the mark-to-market.

Nitin Agarwal — DAM Capital — Analyst

Okay. And is there any particular currency gains which these — I mean because the amount of losses is pretty high this quarter. So is there any particular currency — any currency pair because of which the —

Anand Vora — Global Chief Financial Officer

We did see some impact coming because of the euro depreciating, the Japanese yen depreciating, Brazilian real, yes, there was additional cost because as you know we hedge our advance orders that we get. So there is the cost of hedging there. But largely, I think, otherwise, — okay, we did get some impact there also. But as I said some of these are mark-to-market. So there will be reverse as we move into the following quarters.

Nitin Agarwal — DAM Capital — Analyst

Thank you.

Operator

Thank you. We have the next question from the line of Jay Shah from Capital PMS. Please go ahead.

Jay Shah — Capital PMS — Analyst

Hello. Yeah, am I audible? Yeah, congratulations for a great set of numbers. I just wanted to understand that there is a lot of China Plus One tailwinds that are happening across the world. I just want to ask management in terms of de-risking the supply chain. How are we trying to de-risk our sales from these geographical uncertainties? Are you focusing more on procuring from say, countries like India, where you can have at least a visibility of the supply chain better, so that you can fulfill the contract? Are we doing something to de-risk the supply chain from our end?

Jai Shroff — Group Chief Executive Officer

Thanks. Yes. So UPL is probably the most backward integrated player in globally in the — in our sector. And over the years, that has been a continuous process. We also have built a very strong supply network in India over the last four or five years and one of the largest buyers from some of the specialty chemicals and manufacturing companies in India. So this is a constant process and if you look at it from a global platform of companies, who we compete with our peer group, we would be the least dependent on China from all of them. So while we are not completely independent, we don’t want to be completely independent. China has the strong manufacturing platform. So while we keep reducing our dependent as a single source out of China, we are constantly building capacity in India and also working with Chinese companies also to add capacity in specific partnerships. We think we are pretty balanced as far as our supply is concerned, but as UPL continues to grow we keep adding capacity and a lot of our capex does go towards backward integration on key raw materials for our industry. Well [indecipherable] — yeah, but not only for the [indecipherable] area, our specialty chemicals platform goes a lot into other sectors like pharma and other sectors, which are also growing in India a lot. So that whole sector is the — that’s a constant effort from our side.

Jay Shah — Capital PMS — Analyst

Okay. Got it. So just following-up on that. So when you say that you’re buying a lot from these Indian companies and you have a good base in India then how does the chemical synergy and technology works, does the R&D department of UPL work with these vendors or these are all generic in nature and the technologies available to everyone, like when you say specialty, so then how does the specialty technology — how do the vendors get access to it? Like do we have a — [Speech Overlap]

Jai Shroff — Group Chief Executive Officer

The vendor development activity doesn’t happen in one meeting, it is years of working. So we have years of partnership and almost into perpetuity. So UPL is one of the largest buyers of the specialty chemicals in India. And in fact if you look at the top 10 specialty chemical companies, UPL would be there, one of the leading customers. So and it’s ongoing very close relationship with them, where we work on technology improvement. We also look at their carbon emission, help them with their waste treatment, energy reduction. We work with them across the platform to help them to be more competitive and share the benefits of all the efficiency and technology development.

Jay Shah — Capital PMS — Analyst

Okay. Okay. Thank you so much for answers and all the best for the future quarters.

Operator

Thank you. We have the next question from the line of Vishnu Kumar from Spark Capital. Please go ahead.

Vishnu Kumar — Spark Capital — Analyst

Yeah, thanks for your time. My first question is on the price increases in the fourth quarter of double-digit numbers, where you have been doing. Have we reached an end to the price increases or is there some more still pending?

Mike Frank — Chief Executive Officer-Global Crop Protection

Well. Yes, so I think if you look at — firstly, if you step back and look at the broad Ag marketplace, because of a number of reasons including lots of weather challenges in North America and Central Europe this past year with heat and lack of rains and then too much moisture in parts of Southeast Asia and other regions, as well as the conflict in Ukraine, mainly anticipation right now is ending stocks for key grains are going to be near record lows, which is why we’re seeing very strong prices for grains and food products and we believe that that’s going to continue. It’s going to take more than one normal crop to rebalance those ending stocks. And so grain prices are high, feedstocks to produce AgChem products has also been high. And so that’s led to the inflationary nature of our business and our ability to price into the marketplace. Whether we’re at the peak of the price, it all depends on how things evolve from here. I would say right now, we believe we’re in a stable environment, where most of our feedstocks have stabilized from a cost standpoint over the last several months. Again, I think from a pricing perspective if you do it just on a year-over-Year basis, we can anticipate price increase for sure in Q3 over last year’s Q3, and again, we would expect that in Q4. Now whether there is additional upside in pricing, I think that will depend on what happens to grain prices and also what happens to feedstocks from this point forward.

Vishnu Kumar — Spark Capital — Analyst

Okay. At least on feedstocks, are there softness that has already started? And would that mean we will keep it as for a margin or we will start passing it on to the customers, let’s say, if the market probably becomes a little soft?

Raj Tiwari — Global Chief Supply Chain Officer

This is Raj here. Of course, there is some softening on the feedstock, but actually when we talk about the prices on the ground in the respective countries, this softening will — is not reflecting, because of the currency — because of the currency depreciation largely. I mean, except for U.S., right, because it’s dollar-to-dollar. But otherwise whatever softening we see — actually there is a softening, but reality is on-ground it has not been able to convert and therefore the customer doesn’t get the benefit of a lower cost because of the depreciation in the currency.

So that’s one and also the interest costs in the — the cost of capital has actually gone up, and that is also impacting. So that’s where the status is.

Vishnu Kumar — Spark Capital — Analyst

Got it, sir. In terms of the volume decline of 7%, is this more to do with Brazil, were — as you were highlighting that we are taking some corrective steps? Or is it across the — all the regions, if you could just give some, a bit more understanding on this minus 7% decline?

Mike Frank — Chief Executive Officer-Global Crop Protection

Yes. So it’s not across all regions, it’s primarily in Latin America and even more specifically it’s in Brazil, again where we’re timing the movement of our products into the channel close to the season. Again we’ll see the impact of that benefit Q3. If you look outside of the Americas, our volume growth was in the mid single-digit range and so we did see volume growth outside of the Americas, but in the Americas we — that drove the minus 7% across our portfolio.

Vishnu Kumar — Spark Capital — Analyst

Got it. One final question on the working capital again. My question on the pricing was essentially was trying to ask that a lot of the working capital demand this year has been because of the price growth and we have to fund for that. So if we are more or less done say, in terms of price increases and let’s say if the current commodity prices sustains, then a lot of working capital could get released next year and you will may not require so much in terms of the working capital. Is that right understanding for next year?

Also additional question on this, any incremental changes that we have done in Brazil like what we understand on the volume low-margin, high working capital days you’re giving off. Anything that we can anticipate as a positive surprise next year or anything that is currently ongoing in terms of reducing the working capital load that we are currently taking in this region?

Anand Vora — Global Chief Financial Officer

So Vishnu, I mean, I thought this results itself is a positive surprise with the margins that we have made. But having said that looking into the future, I think we are very conscious the entire leadership team, business, finance everybody is conscious that this sort of working capital is unsustainable and we are taking several measures to reduce the working capital like you saw that you have seen a bit of inventory buildup which has happened in by end of H1, but that’s basically because we are going to supply closer to the usage.

You have — we have shared with you our joint venture with Bunge, where that’s another step where we will see a reduction in working capital. So several measures have been taken, and different — I will say in almost all regions to see how we can bring down our working capital. So while price, of course, if it comes down there will be a less, but then I guess it would be also the volume will continue to grow as we grow our business. So there are measures being taken and we are working towards seeing how we can bring down our overall working capital as we move forward.

Vishnu Kumar — Spark Capital — Analyst

Got it, sir. Thank you.

Anand Vora — Global Chief Financial Officer

Thank you.

Operator

Thank you. We have the next question from the line of Abhiram Iyer from Deutsche Bank. Please go ahead.

Abhiram Iyer — Deutsche Bank — Analyst

Hi, thank you for taking my call. I just wanted a bit of clarification on the net debt reduction. You mentioned that basically the target is $650 million, and whereas from the perspective or factoring this is going to increase from the current levels of $800 million to around $1.6 billion. So, I mean, I’m just trying to figure it out from say the rating agencies perspective which includes factoring as debt, one way or the other, I know it’s non-recourse. But would this mean that effectively the combined levels should actually be higher than what they are currently?

Mike Frank — Chief Executive Officer-Global Crop Protection

Combined levels will be higher, I mean and factoring no, will be a no. The year-to-year, it will be the same, last year we were at $1.6 billion and this year also we’ll be at $1.6 billion. Yes, so there’ll be no incremental factoring. Yes, for the — if one has to look at from March-to-March, no incremental factoring.

Abhiram Iyer — Deutsche Bank — Analyst

Got it. Sir, and there’ll be no currency effects there because of the shift in geographical segments for factoring that you mentioned.

Mike Frank — Chief Executive Officer-Global Crop Protection

No. We’ll look at in dollar terms only.

Abhiram Iyer — Deutsche Bank — Analyst

Got it. Yes, that was my question, I’ll get back in queue.

Mike Frank — Chief Executive Officer-Global Crop Protection

Thank you.

Operator

Thank you. We have the next question from the line of Rohan Gupta from Nuvama Wealth Management. Please go ahead.

Rohan Gupta — Nuvama Wealth ManagementA — Analyst

Yes, hi sir, good evening and thanks for the opportunity. Sir, first question is on our volume decline, especially current quarter and we have seen almost flat volume growth in such comp by the entire growth in top line has been driven by the price increase. But despite that, we have been able to improve EBITDA margins by almost 140 basis point, that — if my understanding is right that is mainly driven by the improved product mix, and when we see the prices stabilizing or declining, raw material prices, we’ll start declining. We see higher margin growth and EBITDA margins will be much higher than the current level.

Mike Frank — Chief Executive Officer-Global Crop Protection

Yes. Hi, Rohan, this is Mike here. So yes your understanding is right, I mean we, obviously on a first half basis our volumes are about flat maybe down 1%. And so the growth in our business and the growth in EBITDA is attributed to the price increases. I think on the second part of your question with regard to, if we see raw materials decreasing in cost, will that have a margin — positive margin impact on our business, like I — again, I think it depends on the timing and it depends on the product.

Some products which are extremely competitive, and are priced on a cost plus basis. Today and in the future, if the cost come down then prices will come down and margin — percent margins will be maintained, but absolute margins will kind of fall in line. As we sell more and more of our product portfolio in differentiated and sustainable products, those products are less likely to be cost plus and they’re really priced on the value that they generate, and so there’ll be less price sensitive.

So it will be a bit of a mixed bag, but I would say if feedstocks come down or raw material costs come down, I wouldn’t anticipate that, that would be a long-term opportunity for margin expansion, maybe in the short-term as the market adjusts there could be some benefit but not in the mid to longer-term.

Rohan Gupta — Nuvama Wealth ManagementA — Analyst

Okay. Got it. Sir, secondly in terms of our guidance, once again flat volume growth in first half, while you had mentioned that the company is doing with the rationalization of total basket and focusing more on the upstream product and high value added products. So does it mean that when we started giving the guidance for the — I mean in Q1, we were looking at 7% to 8% kind of volume growth, how will the pricing growth has been separate and that has been tracking the top line growth.

So do we still look at full year volume growth in the range of 7% to 8%, or do you see that the rationalization of product basket will continue in second half as well.

Mike Frank — Chief Executive Officer-Global Crop Protection

Yes, good question. Look I think on the full year, we would anticipate volume growth in the mid single-digits. So that would be more where I would expect to see volumes. Again, if you look at the first half, there is really only one country, where we’ve seen volume decline, which is in Brazil. And so — and again, we believe that a lot of that is going to be made up in the second half. So yes, I think don’t misread into the volume story, you really need to look at the whole year picture.

Again, I think from a total market perspective globally, if you think about the product that gets applied on the ground, which is really — that really matters. We’re likely going to see maybe 3% to 4% increase in the total global marketplace from a volume perspective, at most. Again, there’s been many markets that got impacted because of the weather conditions. And so it may not even be that high overall. And so we would anticipate it to have volume growth in excess of the global market.

Rohan Gupta — Nuvama Wealth ManagementA — Analyst

So we can safely expect that full year volume growth should be mid single-digit irrespective of the Brazil going down?

Mike Frank — Chief Executive Officer-Global Crop Protection

Yes. So again, we would expect to see overall volume growth across our entire year in the mid single-digit range.

Rohan Gupta — Nuvama Wealth ManagementA — Analyst

Got it. Sir, the third question is on this debt level and cash level. So post — which you have just mentioned, I mean, across the various business verticals which you have credited now, how the debt and cash will be positioned, sir? And the net-debt level which you are talking about, I understand you are talking about the UPL level. So how the debt level and cash will be distributed among entities which we will be creating now?

Anand Vora — Global Chief Financial Officer

No, sir. We are looking at an overall group at this stage, and we are committing based on the overall group level. If you see we have just — while we have segregated, UPL Corp was always a separate company and where UPL Limited on 78%, ’22 was with ADIA and TPG, which as you know in the restructuring, we have now pushed it down to UPL Cayman. Advanta and those were well separate divisions, they were not separate entities and UPL assets, which is the sustainable agri solution is our India business was again a division. But again, we will look at overall at the group level and our commitment to rating agencies is at the overall group level.

Rohan Gupta — Nuvama Wealth ManagementA — Analyst

So Advanta and UPL SAS will be having no debt and no cash? Should we understand like that?

Anand Vora — Global Chief Financial Officer

They will have some debt, some cash, but this all would be consolidated at UPL Limited level because, as you know, we will continue to own 91% of UPL assets and 86.7% of Advanta Enterprises.

Rohan Gupta — Nuvama Wealth ManagementA — Analyst

Okay. Sir, just last on my side, and I’ll come back in queue. There’s an acquisition of Kudos Chemie, the INR237 crores kind of spend a little bit more on this, what kind of revenue on this and it is a specialty chemical part of the business. So do we see that in your restructuring con call, you have mentioned that Specialty Chemicals business also will get a trust from the management. So it is something in line with that and this acquisition of Kudos Chemie, which is primarily in, I think that in specialty chemical caterings, beverages and pharma ingredients, not related to our agrochemical intermediate business. So are we looking in that direction that a lot of more investment can happen in these kind of opportunities?

Anand Vora — Global Chief Financial Officer

Yes. So if you think — so exactly — so when we look at our manufacturing platform, part of UPL, it’s about a $2 billion manufacturing platform, which caters to crop protection and specialty chemicals. Over the last two or three years, we’ve been investing in building the specialty chemical platform, which has many users, which will be used as intermediate for our traditional crop protection business, but also in the other areas for pharma and for other areas, which we have seen a huge demand for intermediates. Kudos is a very — we bought it for maybe $0.15 in the dollar. [Phonetic] It’s a huge infrastructure with a 100 acre site in the industrial park.

So today, to set up a new plant costs a lot of money. So we got already made site. And we will add in about a year’s time, we will see a lot of production, moving new products coming out of there, which will cater to maybe the non-ag sector, but mainly in the specialty chemical, which get us to so many years. Based on critical raw materials, which UPL is already making, so value-added products and others. And this segment, we expect continued to grow. So it’s already a INR14,000 crores, INR15,000 crores business, and we believe that will continue to grow.

So when you look at the segment valuations, then you can realize how big that business is, like we talked about Advanta and the UPL SAS. So we are unlocking value for shareholders and looking at different ways to make sure that the market understands the value of some of the assets within some of the very exciting businesses which exist within the UPL Group.

Rohan Gupta — Nuvama Wealth ManagementA — Analyst

And the revenue potential of this investment of INR237 crores, can you give some — like Anand you mentioned that definitely you got this deal — at a very…

Anand Vora — Global Chief Financial Officer

And it will continue to grow for many, many years. I mean, right now, we don’t have — we are not giving out any numbers because we will have — I mean it will be — it could go to a few 1,000 crores in a few years.

Rohan Gupta — Nuvama Wealth ManagementA — Analyst

Okay. Thanks sir. Thank you so much for answering the questions.

Operator

Thank you. We have the next question from the line of Aditya Jhawar from Investec. Please go ahead.

Aditya Jhawar — Investec Bank — Analyst

Yes, hi. Thanks for the opportunity. My first question is, Anand, is there a scope to increase the proportion of sustainability loan to lower the interest cost? Or are you evaluating some refinancing options to lower the interest cost?

Anand Vora — Global Chief Financial Officer

We, in fact, just concluded about two weeks back, a $750 million loan at about 30 — 20 basis point to 25 basis point lower than what was the cost of acquisition loan. But the challenge is not in terms of our spreads keep coming down, the issue is really the speed at which the benchmark rates that so for or LIBOR rates have gone up. And that’s what has created this sort of increase. The good part is this is applicable to everyone. And therefore, you will see everybody increasing the prices in order to recover the extra cost of borrowing.

Aditya Jhawar — Investec Bank — Analyst

So as of March end, it was — sustainability loan was about 42% of the total loan. What is the number right now?

Anand Vora — Global Chief Financial Officer

So we — the $750 million we took wasn’t the sustainability loan, but we took a plain vanilla loan with again a five year, and we took part of it into three years just to reduce our cost of borrowing, but we could borrow at about — the acquisition loan was at about 165 basis point, 170 basis point plus LIBOR. We got this loan at about 145 plus — LIBOR plus 145. And the three year, we got it at LIBOR plus 125.

Aditya Jhawar — Investec Bank — Analyst

Okay. So out of the total debt, what — so 30% is a fixed rate. Is that right?

Anand Vora — Global Chief Financial Officer

Yes. The bonds are at the fixed rate.

Aditya Jhawar — Investec Bank — Analyst

Fixed rates. Okay. Now the second question is on the volume decline of 7%. So as Mike mentioned that on a full year basis, we might see a mid single-digit volume growth and we are talking about already higher teens price increase. So is there a possibility of raising the revenue guidance upwards? Currently, we are at 12% to 15%. But big factoring in these two things, the price increase and a mid single-digit volume growth. And so far, we have delivered over 22% kind of a growth.

Anand Vora — Global Chief Financial Officer

Aditya, I mean it’s simple math, but generally, we refrain from changing the guidance. As you know, we did this time at the end of first quarter where we opted, and I think we would like to retain it at the same level.

Aditya Jhawar — Investec Bank — Analyst

Okay, perfect. That’s it from me. All the best.

Anand Vora — Global Chief Financial Officer

Thank you, Aditya.

Operator

Thank you. We have the next question from the line of [Indecipherable]. Please go ahead.

Unidentified Participant — — Analyst

Hello. Hi, good evening, everyone. Hope you are doing well. And congratulations on a good set of numbers. I just have one question regarding your debt reduction. So I just want to know what exactly would be the plan of the company going forward to curtail the debt? Would it just be on the reducing the factoring? Or is there any other thing?

Anand Vora — Global Chief Financial Officer

There are a lot of initiatives that we have taken, as I was saying earlier to answering one of the questions. What we are doing is we are reducing the credit terms, which we offer to our customers, one. Two, we are trying to sell closer to the season or the time of consumption, which thereby also helps us to reduce the cost, reduce the credit terms, but it also helps the distributor as he has to invest less as far as working — his working capital is concerned. So it’s a win-win for both.

Besides this, we are, of course, seeing how we can bring down our cost, our SG&A expenses. And we are also — we have taken up internally a project on improving our forecasting, what we call forecast accuracy, which should help us to plan our inventories better. So these are some of the initiatives that we have taken. I did also mention that in Brazil, we have a joint venture now with Pragya, where whatever we sell to that joint venture company, we get paid within 180 days, which is — while in absolute, it does sounds it’s a big number, but otherwise, we have been selling at about 200, 220 basis plus. Because in Brazil, we generally sell on crop terms, which means that depending upon the crops’ life cycle, we have to offer that level of credit days to the customer.

So several of these initiatives have been taken both in — I mean, in most of our regions, and therefore, this would help us to bring down our working capital.

Aditya Jhawar — Investec Bank — Analyst

Thank you so much. Have a lovely days ahead.

Anand Vora — Global Chief Financial Officer

Thank you.

Operator

Thank you. We have the next question from the line of Ramesh from Nirmal Bang Equities. Please go ahead.

S. Ramesh — Nirmal Bang Equities — Analyst

Thank you, and good evening. The first question is Mike mentioned in his opening remarks about product-mix improvement and portfolio rationalization. So can you put it in point of in terms of some specific product segments, including BioSolutions and Sustainable? And secondary, you mentioned about the improved performance in LATAM in terms of EBITDA margins being higher, so if you can put it in the context of what was the differential in the better margin compared to your blended margin, and what is the improvement in there, it will be helpful.

Mike Frank — Chief Executive Officer-Global Crop Protection

Yes. So as I mentioned, from a product-mix standpoint, we really geared our supply chain and our sales organization to really focus on higher-margin products, and this will be an ongoing effort. And so I think it’s part of the discipline that we need in our business. And so we’re — I think we’re starting to see some of the green shoots based on that focus. And so I would say that, that’s going to continue. I mean the — we aren’t exiting complete segments or specific AI.

And so we’re just really looking across our portfolio, where can we rationalize SKUs, where can we combine formulations and how can you become more efficient to really serve our customers. Because at the end of the day, our objective is to provide solutions, whole acre solutions to our customers. And so we really like our broad portfolio strategy. So we’re going to continue to have that strategy, including with BioSolutions, but we will gear things more towards higher-margin products.

In terms of margins, we don’t provide that on a region-by-region basis. I would say, additionally, the LATAM region has had lower margins, including this year, on average, they would be a bit lower, but we saw a significant improvement. In fact, the biggest improvement we saw across our global business this past quarter was the margin performance from our Latin America region. So it’s not quite at the global average, but it’s getting closer into really good.

S. Ramesh — Nirmal Bang Equities — Analyst

So the second part is if you’re looking at the global average volume growth of 3% to 4%, you said UPL will possibly be able to grow faster. So how would you do that? Is there an increase in market share? Or are you creating new segments? Can you explain that?

Mike Frank — Chief Executive Officer-Global Crop Protection

Yes. So I mean it’s really focused on penetrating with the products that we have across our portfolio as well as the 80 new product launches that we’re bringing to the marketplace this year. And so some of the products — just to give you a couple of examples. We have a new three way fungicide, Evolution in Brazil that is going to be a significant product for us. We’re going to gain like significant share in that entire marketplace this year. And I think we have a multi-year opportunity to gain share with Evolution.

Likewise, we’re just now entering, for the first time, the soybean herbicide market in the U.S. with a really good two way herbicide that’s called PREVIEW. That’s also patented. And again, that’s a whole new segment for us that will participate in for the first time. And I think based on product performance, that will be a very strong product, starting with Q4 sales as it gets positioned for next spring in the U.S.

The third and final product I’ll highlight is a new bionematicide called Numaxa. [Phonetic] This is from our collaboration with Christian Hansen. We just actually, in the last two weeks, got regulatory approval in Brazil for this product, and we’re expecting it shortly in North America. So these are three examples of where we’re entering in a big way with some new products and technologies that will help us grow market share. In addition, there’s our traditional markets where we are expanding capacity and have growing positions from products, glufosinate to [Indecipherable]. So these are some of our largest AIs where we continue to debottleneck our plants, invest in capacity and continue to grow our market share with AI such as that as well.

S. Ramesh — Nirmal Bang Equities — Analyst

Okay. So is it possible to throw some light on the target market size for Evolution and the new soybean [Indecipherable]?

Mike Frank — Chief Executive Officer-Global Crop Protection

Well, yes, so the soybean rust market is one of the largest markets in Brazil. And we believe with our product Evolution, we’ve got the premier product in the marketplace now. So yes, we don’t — we’re not breaking out kind of product market shares by country, but this will be one of our significant growth drivers throughout the rest of this year and into the next couple of years.

S. Ramesh — Nirmal Bang Equities — Analyst

And then one last thing that you mentioned introducing new products and reading out some old products. FMC typically talks about 3% attrition and then additional products on top of that. So you have to look at the 20%, 21% innovation rate, what is the kind of attrition in all products? And what are the kind of growth in new products this year based on your current number?

Mike Frank — Chief Executive Officer-Global Crop Protection

Yes. It all depends on the market segment. I would say, based on the product portfolio that we’re introducing this year, it’s probably around 70% of our new product sales would be incremental sales. And so — and again, taking the Evolution as an example, that will cannibalize some of our older products in the marketplace, whereas a product like PREVIEW is a brand-new segment for us. And so, on average, I would say, with our current product launches this year, about 70% of their sales are incremental sales. So about a 30% cannibalization rate.

S. Ramesh — Nirmal Bang Equities — Analyst

Okay. Thank you very much, that was very useful. Wish you all the best.

Mike Frank — Chief Executive Officer-Global Crop Protection

Thank you.

Operator

Thank you. That was the last question. I now hand it over to Mr. Anand Vora for closing comments.

Anand Vora — Global Chief Financial Officer

Thank you, everyone, for joining us today on this quarter — the results quarter and first half results call. If you have any follow-up questions, please reach out to Radhika Arora or Mandar Kapse or you can also reach out to myself, and we’ll be happy to take for questions and provide you whatever data and information you require. Thanks once again, on behalf of all of us here at UPL for joining us on this call. Thank you.

Operator

[Operator Closing Remarks]