UPL Ltd (UPL) Q3 FY22 Earnings Concall Transcript

UPL Limited (NSE: UPL) Q3 FY22 Earnings Concall dated Jan. 31, 2022

Corporate Participants:

Radhika Arora — Head of Investor Relations

Jai Shroff — Global Chief Executive Officer

Carlos Pellicer — Global Chief Operating Officer.

Anand Vora — Global Chief Financial Officer

Raj Tiwari — Global Chief Supply Chain Officer 

Presentation:

Radhika Arora — Head of Investor Relations

Joining us today for the results discussion for the quarter and nine months ended, 31st December 2021. On this call, we will be referring to a presentation that has been shared with you and is also available on our website. And we take it that you all have read the safe harbor statement. From the management team, we have with us today, Global CEO, Jai Shroff; Group CFO, Rajendra Darak; Global COO, Carlos Pellicer, Global CFO, Anand Vora; Global Chief Supply Chain Officer, Raj Tiwari; and Chief Commercial Officer, Farokh Hilloo.

As far as the agenda is concerned, we will start with a brief overview from Jai, followed by a business update from Carlos and a financial update from Anand. At the end of the presentation, people who are willing to ask a question can write the same in the chat box available on your webcast screen and we will take it over from there. With that let me now hand it over to Jai.

Jai Shroff — Global Chief Executive Officer

Thank you, Radhika. And good afternoon and a very warm welcome to everyone. Thank you for joining us today. On the onset, I hope you all and your loved ones are healthy and doing well in these very unprecedent times. Before moving on to discussion on our third quarter performance, I would like to welcome Mike Frank, he is taking over as the President and Chief Operating Officer of UPL crop protection business from 1st April onwards. Mike brings deep industry knowledge and expertise from his years at Monsanto and more recently at Nutrien.

I would like to thank Carlos for his tremendous contribution over the past year as Chief Operating Officer during which the company has delivered significant growth. Carlos assumed additional responsibilities and temporarily taken up the role of Chief Operating Officer last year and till we found a long-term replacement for the Group. With Mike now coming on board, Carlos will resume his original role as Group’s Strategy Head and continue to lead multiple projects under the OpenAg initiative including post-harvest business, carbon and digital projects.

Moving on to our financial performance now, over the past quarter and nine-months, the entire sector had to deal with multiple challenges including higher input costs, a sharp rise in freight, and intermittent logistics or supply chain issues. On the positive side, the demand has stayed strong, and we believe that it would stay strong for a while. I am very happy to say that with the perseverance and untiring efforts of the entire UPL team, we once again have been able to deliver a strong set of results surpassing our guidance. During the quarter, revenues grew by a robust 24% and EBITDA by 21% which demonstrates the resilience and the quality of our business model.

Our diversified global presence, in-house manufacturing of key API’s, effective supply chain management and strong innovation rate resulting in a gradual transition to a high margin differentiated and sustainable products enabling such strong performance, even in these inflationary markets. As announced last week on the — one of our associate companies in Brazil, Sinagro, which is engaged in the distribution of agrochemicals and inputs has recently brought on-board Bunge as a strategic partner. Bunge will acquire a 33% stake in Sinagro. Bunge is one of the global leaders in sourcing and processing and supplying of oil seeds and grain and ingredients. We will enable Sinagro to leverage the strong Bunge strong relationship with farmers thereby accelerating its growth plans in Brazil.

On our ongoing journey of reimagining sustainability, I am happy to share that our efforts have once again been recognized and UPL has been ranked 1 Agrochemical Company amongst its peers on sustainability performance by Sustainalytics, second time in a row in its 2021 ESG rankings. We successfully completed the first leg Of crop residue program covering 420,000 acres in North India through our digital platform, Nurture. With a very strong encouraging results, this pilot prevented 1 million tons of carbon dioxide emission from being released. We intend to expand this cover significantly to higher area next year and continue to invest in our digital platform. Finally, we look ahead to the fourth quarter. The demand for agrochemical continues to be healthy globally. We are confident of the year-end. This year on strong so being and already demonstrate — demonstrated and more than meeting our commitments. On that positive note, I will now hand over the floor to Carlos to take us through the business update and global operations. Over to you, Carlos.

Carlos Pellicer — Global Chief Operating Officer.

Thank you, Jai. And good evening everyone. The last three years have been truly special for me. We have been on an amazing journey and I have been so proud to be part of it. Since the integration of our Easter exactly three years ago, we have transformed UPL into a purpose led company through OpenAg and are now on the test to reimaging sustainability.

In addition to deliver upon our financial commitments year-after-year, we have become the leader in sustainability amongst our peers with a customer-centric approach. In the last year, I assume the responsibility of leading the global crop protection business in addition to my regional role of global COO we started in innovation. As shared by Jai, after the end of the financial year 2022, I will re-focus my full attention towards UPL Group’s growth strategy leading these strategic projects under OpenAg.

These have been possible since we have been able to fund our excellent candidate Mike to lead the global crop protection market. We are truly excited to have Mike in our team. Mike brings deep industry knowledge, a passion for environmental and economic sustainability and an extraordinary end-to-end expertise. We could not have been chosen a better person to dive our business forward in the next phase of our journey. I would like to once again extend a hurtful — a heartfelt welcome to Mike.

I am now pleased to share some highlights for the third quarter financial year 2022. We continue to operate in a highly volatile uncertain environment which keeps challenges us in new ways, every day. Whether these are in the form of supply chain or increasing input costs, we have been successful in providing solutions to address the pain points of farmers globally. While also delivering strong our financial commitments. We take immense pride in the agility of our team, a strong customer relationship, unique backward integration, and supply chain excellence. As part of our commitment to reimaging sustainability, we are excited about the announced collaboration of Sinagro with Bunge in Brazil, as highlighted by Jai.

This partnership is expected to strengthen Sinagro’s strength, origination strategy to leverage complementary capacity of both companies. Some examples include the ability to strength fertilizer offers, improve risk-management tools for farmers and become a preferred partner in sustainable, traceable and certifiable production for farmers and end users.

We would like to highlight some additional exciting new relating to our Open collaboration platform. Firstly, through our partnership with Meiji and Mitsui, we have obtained our first registration in India of our Flupyrimin based solution to address key pain points of rice farmers. Secondly, we continued our strong collaboration with Croda International and are pleased to announce that we will start commercializing the first solution in India after next few months. Furthermore, our registration have been applied in Brazil for our unique nematicide composed of three strengths addressing significant pain points of farmers. Lastly, we have initiated the commercialization of this solution derivate from blockbuster CGPR in multiple geographies as a result of our collaboration with the FMC.

Let us take a look moving now to the financial results. I am pleased to report that our revenue as well as our EBITDA for the quarter have been so very strong robust rose. The revenue has rose by 24% while EBITDA has increased by 21% versus Q3 financial year 2021. The growth in revenue was led by significantly improved price realizations, coupled with a high — a healthy volume increase. We have successfully achieved 43% gross margin enabled by 13% price realization largely offsetting the inflation achieve ingredients and increased freight cost. We have maintained our EBITDA margin versus last year, despite lower contribution to optimization of our overheads. Our net working capital have improved to 108 days from a 117 days versus last year. Additionally, our profit after tax have rose by 40% to INR1.218 crores versus last year.

Now let us look at the performance of our regions in the Q3. In Latin, we achieved 22% growth led by by our herbicide portfolio largely to improving — improved price. Additionally our Insecticides and our NPP biosolutions offering have also contribute to the revenue increase in the region. Brazil and Argentina have shown strong growth also driven by herbicides. Mexico have maintained its revenue versus previous years, despite the impact of drought, followed by a hurricane causing a high channel stocks. Other countries have also grew robustly over previous year.

In North America, revenue grew by 57% this quarter as a result of a higher volume as well as improved price realization specifically due to upside in herbicides. Further, improved commodity price supplied for key products in a favorable channel stocks enabled strong performance. In Europe, we grew by a robust 26% versus previous year. This strong performance has been achieved through a mix of favorable volume growth and higher price realization. Poland and that region have delivered strong growth leaded by robust performance in mainly herbicide. Growth in France have been a led by herbicide and supported by NPP biosolutions. Italy grew to higher penetration of NPP biosolutions versus previous year. We also like to add this significant growth in Europe have been achieved despite having loss due to product mix.

In India, we have been able to maintain revenue versus previous years. Despite several adverse weather conditions. With this role — this results in the high credit sales, heavily rates post monsoon and the quarter led to the key target crops. The rest of the world delivered 15% growth in revenue versus last year, despite the ongoing external challenges, including supply chain constraints. Southeast Asia, Australia and New Zealand have grown through improved pricing, higher volumes, and favorable product mix. Southern Africa has delivered strong results while still recovering from their warehouse disruption in July last year. Growth in China has been achieved through improved sales in the fungicides, and insecticides categories. Japan revenues have been impacted by 10% depreciation of the Japanese Yen and lower sales in our H&NS segment.

As we anticipated in Q1, Q3 has been a very successful quarter for us. We will carry the momentum forward in Q4 and conclude our financial year with a strong performance that will outperform our guidance from a revenue and EBITDA growth perspective. Q4 performance will be supported by strong demand for our herbicide portfolio, and our continued pricing actions. In addition, we expect an accelerated growth from our NPP biosolutions, and a continued strong performance from our differentiated solutions. We are also confident that the success of our upcoming new product launches, including Evolution in Brazil, Triskele in India, Preview in North America, and CTPR based solutions in multiple countries.

Before I hand over to our Global CFO, Anand, to provide more details on our Q3 financial results, I would like to congratulate our team for their amazing resilience, dedication, and unified focus in delivering such a strong performance in this quarter, despite challenges on several fronts. Anand, please can you take over now?

Anand Vora — Global Chief Financial Officer

Thanks, Carlos. Good day to everybody. I will start by providing you with the key financial highlights for the third quarter and nine-months’ earnings and then take you through the financials in detail. I am extremely pleased to say that we reported a strong all-round performance during the third quarter, achieving robust growth in both revenues as well as profitability. Such a strong performance amidst a disruptive supply chain and inflationary environment is a true testament to the company’s resilient business model.

The Q3 performance highlights are as follows: talking specifically about our year-on-year performance for the key financial metrics in Q3, we ended the quarter with revenue of INR11,297 crores delivering a robust growth of 24%. This growth was driven by 13% increase in price realization and a healthy 11% rise in volumes. I must say here that the price realization growth this time has exceeded the volume growth, probably a first in many quarters.

It was also encouraging to see the company firing on all cylinders. The differentiated and sustainable segment continues to grow at a stronger pace than the post patent segment and we saw growth across most key geographies, except in India. Most importantly, improved realizations enabled us to cover the sharp rise in input costs and keep our gross margins largely intact at around 43%. Notwithstanding the 120 basis point increase in freight charges, our gross margins would have been above last year.

On the operating profitability front, we delivered a robust EBITDA growth of 21% on the back of higher contribution and improved operating efficiency, with our fixed overheads as a percentage of sales coming down by 100 basis points to 19% versus 20% in Q3 of last year. Our EBITDA margins for the quarter were stable, vis-a-vis that of the last year at 24%. Further, we continue to make long-term investments in our digitization platform and in Q3, the amount spent was INR75 crores. We continue to reduce the interest costs, and in Q3, the interest costs were lower by INR61 crores. The FX impact in the financial costs saw a decline of INR191 crores while there was a corresponding increase in FX loss sitting in other income — under the head of other income of Profit and Loss account at INR215 crores, resulting in a net loss of INR24 crores, which essentially is the cost of taking the hedges.

Robust growth in EBITDA, combined with lower finance costs helped to drive 41% increase in profit before tax at INR1,385 crores. On the income tax front, effective tax rate for the quarter was marginally higher at 12% as compared to 11%, last year. As we have guided earlier, for the full year, we expect the tax rate to be at the lower end of our guidance of 15% to 18%. Overall, the net profit for the quarter stood 18% higher at INR937 crores versus INR793 crores in Q3 of last year. Further, Q3 had exceptional items of about INR52 crores on account of costs associated with restructuring, litigation and provisions for certain expenses relating to warehouse fire in South Africa.

Moving on to the-nine months performance, the financial highlights were as follows: during our performance for the first nine-months of the year, we delivered a healthy revenue growth of 17% over that of last year led by 6% higher price realization and 11% increase in volumes. As stated earlier, the improved margins in Q3 enabled us to catch up on the nine-months margin, and we expect to end the full year with better contribution margin than that of last year. EBITDA for the first nine-months continued to be robust and grew by 15% over that of the previous year, while our EBITDA margins were flat at 22%, in spite of the inflationary pressures on costs, freight that was faced since the beginning of this year.

We reduced the interest costs in nine-months by INR116 crores. The FX impact in finance costs saw a decline of INR103 crores while there was a corresponding increase in FX loss, which was sitting in other income head of the P&L of INR405 crores resulting in a net impact of INR302 crores. On the whole, during the first nine-months of the year, we saw a strong year-on-your expansion of 24% in the net profit and we ended the net profit at INR2,247 crores for the nine-months.

Moving on to working capital, on working capital front, though the working capital went up in line with the sales, but we reduced our net working capital cycle by nine days to 108 days as of December 2021, reflecting the efficiencies in managing working capital cycle. Inventories were higher by three days, receivables were lower by seven days and payables were higher by five days. We expect the net working capital days to be around 90 days by the end of the financial year.

On the cash flows and debt position. On the debt side, we continued to deleverage our balance sheet in line with our commitment. Our gross debt and net debt stood at INR405 crores and INR478 crores respectively, at — sorry, our gross debt and net debt stood lower by INR405 crores and INR478 crores at INR27,433 crores and INR23,768 crores, as of December 2021. We remain confident of meeting our guidance and bringing down the net debt to EBITDA to below 2x by end of Q4. In fact, I am happy to share that in January 2022, we have prepaid gross debt of USD125 million, that’s approximately INR940 crores.

Overall, as Jai and Carlos, alluded to earlier, we continue to be well placed on the demand front and are confident to end the financial year with robust growth, exceeding the earlier guidance. With this, we open the floor for questions. Back to you, Radhika.

Questions and Answers:

Radhika Arora — Head of Investor Relations

Yeah. So, there are questions on the chat now and I will sort of readout those questions. The first question in the line is, can you please help us understand the debt repayment schedule and what is the quantum of the debt repayment UPL is planning to achieve during Q4?

Anand Vora — Global Chief Financial Officer

So, as you would have noticed most of our debt are long-term debts and we don’t have any obligation to repay that until May of 2024 and but we will continue to repay the debt and this year we are targeting around USD350 to USD400 million of debt repayment of which as I mentioned earlier USD125 million debt has been repaid as of January 2022.

Radhika Arora — Head of Investor Relations

The next question is, were there disruptions in the supply chain of a competitor that the reason for market share gains of UPL in North America? How much of the supply chain disruption is still visible going into Q4? And can UPL’s resilient supply chain, allow it to continue gaining market share in Q4 as well?

Carlos Pellicer — Global Chief Operating Officer.

Yes. So, we are really focused in the price realizations and have able to manage the volatility because the volatility will be there. Now, we know that this 2021 and 2022 we believe the volatility will be there and what we have done to really be able to improve price in the level that we have will be consistent there and we will be able to relate in North America and in South America the price of the commodities were so strong, and the farmers are really capturing value from their crops and they will be willing to absorb the difference as they have had during the last few months. I don’t know Jai, if you want to compliment any point on that?

Jai Shroff — Global Chief Executive Officer

I think basically UPL has a very integrated business model with a lot of the raw materials and finished product manufacturing in-house, and that has helped us to continue to gain market share, because there is a self-reliance in that, as far as supply is concerned. And that has enabled us to gain market share across the board, and we have had less volatility on our supply chain cost increase than maybe some of our competitors.

Raj Tiwari — Global Chief Supply Chain Officer.

As far as some of the challenges are concerned, we don’t see any big supply chain concerns for Q4, except for the ocean freight, where things are still historically high. And the biggest challenge for the companies has been on getting spaces on the ship and the haskem containers. So, that we have been able to even in this tough situations, for the first nine-months we had a fantastic, we have been able to garner a very large share of space on various lines and that we are confident that even in Q4 we would be able to have that kind of growth.

Carlos Pellicer — Global Chief Operating Officer.

And the demonstration of that is that we grew 11% in volume and 13% in price in Q3. 11% in volume demonstrating that we are gaining share, and we have been able to manage that in a very focused way.

Radhika Arora — Head of Investor Relations

The next question is, there the any upward revision in the Revenue, EBITDA forecast? How is the cost inflation expected to impact UPL? Can you also give details on your conversations with the rating agencies? And what has been the reason for the Q-on-Q increase in receivables sold?

Anand Vora — Global Chief Financial Officer

Carlos, you want to address the first two questions and I will take care of the interaction with rating agency as well as receivables sold.

Carlos Pellicer — Global Chief Operating Officer.

Yes. Let us say, we have been able to work with amazing connection between supply and sales and we have been able to connect very well the ability to pricing. We have developed a work where the team in the field are completely connected with what is happening in the market, so that connection give us the possibility to really arrive where we are today that we are able to manage this volatility and as Jai mentioned this backward integration that we have gives us the possibility to be completely updated with what is happening in the cost base, in a cost perspective. And the agility side of UPL give us the possibility to really connect that end-to-end. Say, we have been to strengthen our relationships with our customers even more in this moment because it’s a situation that’s impacting everyone and we have been able to use these relationships to manage that. Anand, can you compliment how we are working that with the next question?

Anand Vora — Global Chief Financial Officer

Sure. Thanks, Carlos. On the specific question on the engagement with the rating agencies, we continue to engage with the rating agencies and as committed to them at the time of taking the acquisition loan on conclusion of Arysta acquisition in 2019, we have — we are on target to bring down our net debt to EBITDA to below two levels. And we share with them on a regular basis, the performance as well as the cash flows of the company. So, at this stage, we don’t see any apprehensions from the rating agencies on our performance. In fact, we are already engaged with them on seeing if we can get a rating upgrade. As regards the receivable factoring, we have been engaging in this program of receivable factoring on non-recourse basis for the last at least a decade. And as we have shared in the past, this program is largely taken to de-risk the organization; that’s the way we look at it. Of course, in the last three years, when we did the — and we took on the loan for Arysta acquisition, it did help us to reduce our debt. But largely this program has been undertaken in order to de-risk our business as when we sell the receivables on a non-recourse basis to the banks, the credit evaluation of our customers or our receivables is done not only by us, that is the UPL credit team but also done by the banks before they take it on their balance sheet. So, it just gives us reassurance and it’s one of the ways of de-risking our business. We expect this year to have close to about USD1.3 billion of receivables securitization being done by end of March 2022.

Radhika Arora — Head of Investor Relations

Is there any preponement of sales in North America, LATAM or are these say, one-off sales that have happened in North America, LATAM because of the other competitors not being able to fulfill the demand due to supply chain issues?

Carlos Pellicer — Global Chief Operating Officer.

Let us see. When we see the demand for herbicides, we have many incremental factors. One of the this factors and this impact LATAM and North America in a big way. One of the factors is weed resistance. So, there has been a shift in the weeds, the change in the types of the weeds in the fields are really transforming the demand. It’s transforming what the farmer needs to manage their crops. And the second factor is that glyphosate price has increased price by 4.5x. So, these two factors together have come in the same time, and we have able to read that, to understand that many years ago, let us say, when we choose the product line that we have today, have been actually chose five, seven years ago and we were already looking for what could happen and nowadays is not by points to that we are having the possibility to supply and some of our competitors are not able to do that because we have read that much earlier, to be able to back integration our production, to be able to be more independent in the supply chain side, say our ability to serve the pain points of our customers coming from these ability to anticipate farmers pain points.

Radhika Arora — Head of Investor Relations

Okay, thanks Carlos. How much investment have you made in the digital platform so far? How much investment do we require and how do we plan to monetize that?

Jai Shroff — Global Chief Executive Officer

So, the digitization of the agriculture is an ongoing process. UPL has invested about USD50 million on the digital platform. The interface of farmers with using digitization is the only way to go forward in the future. This also brings us really close to understand the farmers challenges. UPL is moving away from being a product company to a solution provider. And this is a journey which will be continuously there. The business will generate its return so and as technology develops this will be a continuous investment. Monetization as we all know that the — it’s an exciting space for investment as and when there is obviously a lot of interest in investment because we believe that our platform is the world’s largest platform in Ag tech and — but we are continuously discussing and evaluating options and as and when there is a good development, we would let the investment community know.

Radhika Arora — Head of Investor Relations

Thanks, Jai. Given the recent induction of Mike, acquisition in Indonesia, extending partnerships like Bunge further to Chris Hansen in Q2, one gets a feeling that going forward market access and distribution would garner precedence over creating manufacturing infrastructure, is that the right inference?

Jai Shroff — Global Chief Executive Officer

Yes and no. UPL has over invested relative to all its peers in manufacturing. This gives us a very strong supply chain platform and ability to manage costs and supply chain disruptions. We believe that we will continue to invest there, and we will continue to partner. We have developed a lot of indigenous suppliers in India, who are large companies now and are key strategic raw material suppliers for UPL. We will continue to invest and — continue to invest at both ends as far as building a strong supply chain and enhancing access to farmers and to our distributors.

Radhika Arora — Head of Investor Relations

Thanks Jai. Southern Brazil is facing a lot of weather issues leading to weed losses. Northern Brazil is also facing flooding we hear, what will be the impact on Q4?

Carlos Pellicer — Global Chief Operating Officer.

We are not seeing impact in quarter 4 because of that. They — what’s happening is that there are hotspot areas in Brazil, Paraguay, and Argentina that is having these severe drought, but the farmers are able to harvest. Basically 50% of their yield at least and that level of harvest will give them a possibility to at least breakeven except some very specific region, and that is compared to the rest of the Brazil, parts of Paraguay and parts of Argentina say, we don’t see impact in our Q4 because of that. And the other parts of the region are moving in a very good way. Let us say the results in the northern part of Brazil are exceptional. The yield is very, very high. Say, we are expecting a very strong Q4 and and in other parts of the words like North America, Europe, Asia, we are seeing a robust Q4 perspective too. So we don’t see a impact for Q4.

Radhika Arora — Head of Investor Relations

What’s the update on the FMC collaboration? When do we expect the first product rollout and when are we expected to start supplying the AI to FMC?

Jai Shroff — Global Chief Executive Officer

Raj, would you like to answer?

Raj Tiwari — Global Chief Supply Chain Officer.

Yeah. Our plant will go into operations towards end of Q4, and therefore in Q1, we expect the supplies to start.

Anand Vora — Global Chief Financial Officer

Maybe Carlos you can provide an update on, I think in some geographies where we have already launched?

Carlos Pellicer — Global Chief Operating Officer.

Yes, we have already launched the product in different geographies like Brazil, that we are starting our sales now in January and the perspective is excellent and we have the first launches in the stand-alone products, but we have many mixtures coming and a very, very interesting perspective because CTPR plus our solutions, actual solutions like Perito, Sperto and other products have an exceptional combination together with our NPP solutions. Say we will offer a very broad portfolio and we can solve the caterpillar problems, we can solve the bugs problems. We will have completed portfolio, this is very important addition to our portfolio in the next months, and we have several countries that will come step by step during the next months.

Radhika Arora — Head of Investor Relations

Thanks Carlos. The expected net debt reduction from FY2021?

Anand Vora — Global Chief Financial Officer

About USD350 million to USD400 million as I shared with you of which USD125 million was paid in this month.

Radhika Arora — Head of Investor Relations

Can you give some sense on exporters of agrochemicals from China? We believe they got impacted because of dual control in the third quarter. But how are things playing out now? And do you expect any fall in AI prices?

Raj Tiwari — Global Chief Supply Chain Officer.

Yes. So, I mean if you see still there are some more molecules, which are still at a very, very elevated price levels. There has been some softening, but if you see the commodities, whether it is coal or crude or solvents, they are still 2x nine-months back levels. So, they — with a cautious optimism I can say that we still see for next two quarters some softening, but largely some of the key intermediates and products from China would still largely be at a high level. It will not go back to nine-months back level, that’s for sure.

Radhika Arora — Head of Investor Relations

Thanks, Raj. So, the core interest on borrowings is down to INR361 crore versus Q3 cost of INR393 crore down Q-on-Q.. Is it because of the low interest rates or the net reduction in the debt?

Anand Vora — Global Chief Financial Officer

It’s a combination of both. We have been reducing our debt as you see it last year also we reduced our debt by INR500 million. This year from the beginning of the year till date, we have done two tranches of sustainability loan. Actually this loans were taken and repaid with the acquisition loan and the loans were taken at about 35 — anywhere between 25 basis points to 35 basis point lower cost of borrowing. So, It’s a combination of both. Reduction of debt out of last year, at the same time reduction in interest cost on the fresh loans taken which were used to Up the acquisition loan.

Radhika Arora — Head of Investor Relations

Can you let us know in how many countries, have you deployed biosolutions?

Carlos Pellicer — Global Chief Operating Officer.

We have deployed in the 138 countries that we are present with our sales force in the field and we are now on the NPP perspective for every country in region, we are defining special team that is working focus on that. And we have been able to really transform some of our products in our global blockbuster that was more localized and now we are expanding that for all over the countries that we are present and to answer a little bit about your question before about the importance of the go-to-market perspective, I would say our go-to-market perspective like this, Sinagro approach, like the approach that we have in many other countries to be closer to the farmer is to really being able to demonstrate our technology, because our technology of NPP combined with our chemistry gives this sustainable solution what we need to ProNutiva and we are applying ProNutiva approach all over these 138 countries that we are present in the field.

Radhika Arora — Head of Investor Relations

Could you elaborate on the INR500 crore receivable of insurance claims in South Africa? What is the delay? When is it expected? And does the company have any forecast on the timing when this should be expected?

Anand Vora — Global Chief Financial Officer

Well, we are engaging with the insurance company, and we have filed the claims. And we are expect probably — we are working towards getting it by Q4 within this financial year. However, you know, I cannot say with any certainty, but efforts are being made to recover — get the claims before the end of this year.

Radhika Arora — Head of Investor Relations

What is the expected revenue from the new product launches in quarter four and the year coming, FY23?

Carlos Pellicer — Global Chief Operating Officer.

Let us say, we are really focus in transform our business in value-added more and more, differentiated portfolio and sustainable portfolio. Our goal to reach 50% sustainable and differentiated 50% and post patent 50% by 2026 full year. It’s it’s going on, potentially we will achieve that earlier than that. And the new launches that we are having now, is giving us the possibility to grow disproportionately higher the differentiated products since most of our growth is coming from the differentiated products instead of our post patent products and in our biosolution products is growing very well. And another very important point to say we have a brand that’s our patents related today the platform that we have developed, we have in the max and our partners have been granted during 2021 and we have many order patents supplied for that that platform. Our drive to really sell differentiated solutions is there and we are combining the differentiated solution with our biosolution that is giving us the possibility to really differentiate us in the OpenAg approach from the orders. Now to reimagine sustainability, selling that ProNutiva approach.

Radhika Arora — Head of Investor Relations

Are we looking for more tie-ups with innovators like FMC? There has been a lot of disruption which has happened in the supply chain. So, how are we evaluating the outsourcing opportunities?

Jai Shroff — Global Chief Executive Officer

The whole OpenAg platform is about open collaboration. As we go further towards the solution based approach, we believe that collaboration is the right way forward because we are moving away from a products company to a solutions company and we will provide the best solutions to our farmers across the world. So, that’s a continuous process. Today, we have more than 70 projects under evaluation with different organizations.

Radhika Arora — Head of Investor Relations

Anand, there’s a question on the capex guidance for the coming year.

Anand Vora — Global Chief Financial Officer

Yeah. We have spent about — this year we have budgeted for about USD330 million. I think we will be lower — our spend would be lower than that and we will continue in that range, about USD300 million to USD325 million. This is both capex for tangible that’s setting up, manufacturing, capacities, as well as for product registration.

Radhika Arora — Head of Investor Relations

Can you provide the contribution of price increase in Glufosinate to the overall gross margins during the quarter? That won’t really be possible to do it for one of the products. I think some of the people could not hear the factoring numbers. Can you repeat the factoring numbers?

Anand Vora — Global Chief Financial Officer

I will repeat the factoring number. We ended this year, as of December, the total factoring that we have done is about USD945 million, in rupees it’s about INR7,175 crores, as against this last year December, we did factoring of INR4,570 crores, in million dollars it was roughly about USD625 million.

Radhika Arora — Head of Investor Relations

Thanks. How are the channel inventories across various geographies? Can this be an overhang for FY23?

Anand Vora — Global Chief Financial Officer

Carlos?

Carlos Pellicer — Global Chief Operating Officer.

Please can you repeat Radhika the question, sorry.

Radhika Arora — Head of Investor Relations

Yeah sure. So, it’s how are the channel inventories across various geographies? Can this be overhang for FY23?

Carlos Pellicer — Global Chief Operating Officer.

I would say the channel inventory this year is one of the lowest in most of the geographies. Because of this disruption that have happened. Mainly herbicide, the inventory is quite low except on this situation where we have these severe drought, there potentially we will — the market will face some inventory and these Southern Cone — south cone region like Argentina, Paraguay, a little bit the south of Brazil. In the overall market globally, the inventory at the end of the of the year will be a very, very much below than last year.

Radhika Arora — Head of Investor Relations

So, I think, we will take one last question. It seems that the Quarter three actually had an inflow of working capital, which is remarkable given it’s normally a high working capital usage quarter. Can you please explain? And do you still expect as usual, a large working capital release in the fourth quarter?

Anand Vora — Global Chief Financial Officer

Okay, well, for the fourth quarter, certainly. We expect a release of working capital, as has been the case for the last few years, that’s been the trend. And I think as I mentioned in my earlier comments, we are bringing in a lot of efficiencies in working capital management, there has been a focus on reducing inventories, there’s been a focus on collections, especially the overdues. Almost at every monthly management review, we spend — the leadership spends time on what is the status of overdue collections. So, with this increased focus as well as on payable side, we keep pushing our vendors to give us longer credit terms, as we are one of their larger customers, we keep pushing for getting better terms. So this focus on working capital continues. And we will continue to do this as we move forward. So that’s something which is ongoing. We have taken also several projects on what we call as S&OP projects, which are planning and — demand planning and distribution of products. So, some of these projects also help us to keep bring in more efficiencies in our working capital. Carlos, you want to add something here on the inventory side?

Carlos Pellicer — Global Chief Operating Officer.

No, that’s okay.

Anand Vora — Global Chief Financial Officer

Thanks.

Radhika Arora — Head of Investor Relations

So, that was the last question. Any closing remarks?

Anand Vora — Global Chief Financial Officer

Thanks. Thanks, everybody for joining us on this call. And in case you have any further questions, you can reach out to Radhika or myself Anand Vora and we will be happy to answer the questions. Thank you once again for joining.