UPL Buying Corteva's Fungicide Business To Strengthen Key Market Position, Says HSBC

UPL Ltd. plans to acquire Corteva Agriscience's Mancozeb fungicide business would help strengthen the company's position in key markets, especially in Latin America, according to HSBC Global Research.

Mancozeb is a generic fungicide that is used to prevent fungal diseases on vegetables and has been proven effective in preventing soybean rust.

The agriscience major plans to acquire Corteva Agriscience’s global mancozeb fungicide business outside of China, Japan, South Korea, and EU member countries, HSBC said quoting media reports.

This will give ownership of the Dithane brand and RainShield technology, the brokerage said in the note.

The size of the acquisition is small, taking into account the fact that India is a major exporter of Mancozeb, HSBC Global Research said. "We estimate the acquired portfolio to be less than 2% of UPL’s overall revenues."

Though small, it will help UPL bridge the gaps in markets like Latin American countries, where the brokerage sees 40% demand for Mancozeb. It will also decrease the competitive intensity in a tough market, subsequently supporting the profitability of the UPL.

Through this acquisition, UPL may also acquire customers who the company can leverage to 'cross-sell' other products.

HSBC also said that the European Commission refusal to renew authorisation for the S- Metolachlor molecule in December 2020, leading to non-usage of the fungicide in the region, is overdone.

"We estimate the EU could be close to 10% of the global S- Metolachlor market. UPL is one of the key companies in this molecule, but UPL’s Europe exposure could be non-material. Global sales of S-Metolachlor could be close to 3% of UPL’s total global revenues and the majority of sales are in the Americas, thus minimising any impact, in our view," HSBC said.

The brokerage has maintained a 'buy' on the stock, with a target price of Rs 730 apiece.