UPL Ltd

NSE:UPL

Q2-2026 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to UPL Limited Q2 FY 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Anurag Gupta. Thank you, and over to you, Mr. Gupta.

[Anurag Gupta, executive]

Thank you, Randeep. Good evening, everyone. I am Anurag Gupta, Head of Investor Relations at UPL. On behalf of the UPL management team, I thank you for joining us today for discussing the financial performance for Q2 and H1 FY '26. The investor presentation, press release and the financial statements have been made available on our website, and we take it that you have read the safe harbor statement.

From the management team, we have with us today, Group Chief Operating Officer, Toshan Tamhane; Group Chief Financial Officer, Bikash Prasad; CEO of Global Crop Protection business, Mike Frank; CEO of India Crop Protection Platform, Ravi Cherukuri; CEO of seeds business Advanta, Bhupen Dubey; CEO of Specialty Chemicals Platform, SUPERFORM, Raj Tiwari; and other members of the leadership team.

Before we begin, I would like to introduce you all to Ravi, our new CEO for the UPL SAS platform. Ravi joined UPL in February 2025 and has taken over this leadership role in October. His predecessor, Ashish Dobhal, has transitioned into his new role as the Global Sales Head for UPL Corp. We thank Ashish for his outstanding leadership at UPL SAS, where he has played a pivotal role in strengthening the business, building high-performing teams and positioning us for future growth.

In this earnings call, Bikash will take us through the overall performance for UPL Limited for the quarter and half year. This will be followed by Mike, who will share his detailed remarks on UPL Corporation, followed again by Bikash, who will cover the other platforms in brief. We will have the Q&A session post that.

With that, I now hand it over to Bikash. Bikash, over to you.

[Bikash Prasad, executive]

Thank you, Anurag. Good evening, everyone, and a very warm welcome to UPL's Second Quarter and Half Yearly FY '26 Earnings Call. Thank you for taking the time to join us today.

Before presenting the financial highlights for Q2, I want to start by expressing my appreciation and gratitude for your continued interest and support. Since stepping into this role as Group CFO in June, I have had the opportunity to meet and interact with several of you from the investors and analyst community, who have shared their extremely valuable input and feedback in terms of market expectations and insights. This has helped us in looking at the business from an outside-in perspective, giving us a better view for evaluating and reporting our performance.

Also internally, we have been working closely, and I'm proud of the momentum we have built together. We delivered a strong first quarter, and I'm even thrilled to report an even a stronger second quarter, reflecting robust execution, disciplined financial management and the resilience of our business model. In today's call, we'll walk you through the key financial highlights of the quarter, provide some context on the drivers behind our performance and share our outlook for the full year FY '26.

The second quarter continued to witness a stable demand at farm gate level for crop protection products and seeds. Ongoing geopolitical uncertainties, including U.S. tariffs-related concerns continue to affect market conditions and trade flows. Further, lower commodity prices led farm income stress continue to influence overall agrochemical value chain. Additionally, there were some weather-related challenges in India Crop Protection business. On a positive side, reduction in sulfur rates have had a favorable impact on finance costs.

Before delving deeper into the financial performance, I would like to share key corporate updates from Q2. The first one is related to our corporate realignment. In September, we integrated our post-harvest business DECCO with our seeds business, Advanta. Both businesses share a strong service-led culture and a commitment to delivering sustainable science-based solutions to farmers and food producers worldwide.

The move is expected to bring potential upside driven by synergies in adjacent focus areas, guidance from experienced and proven Advanta leadership team, shared back-end infrastructure, overlapping presence in emerging markets and enhanced digitization.

The second update is on rights issue. Our final call of INR 180 per partly paid equity share aggregating to around INR 1,695 crores or $200 million was called for in September. This amount was 50% of the total issue price of INR 360 per share, comprising INR 1 towards face value and INR 179 towards share premium. I'm pleased to share that the proceeds from the same have been received in September.

The final update is on the recent outlook upgrade. As shared during our Q1 earnings call, 2 global ratings agencies, Fitch and S&P had upgraded their outlook from negative to a stable. I'm pleased to add that in August, Moody's upgraded their outlook as well from negative to a stable. This is a strong endorsement of our financial resilience, strategic clarity and commitment to sustainable value creation. Our actions reflect our continued focus on capital efficiency and long-term stakeholder confidence.

Now coming to Q2 FY '26 performance overview. We continued with our strong performance and improved further in this quarter. In Q2 FY '26, we reported revenue of INR 12,019 crores, a strong 8% growth versus last year. This was driven by 7% increase in volume and favorably supported by 3% exchange impact, partially offset by some pricing pressure. At the platform level, UPL Corp, our global crop protection business was up by 12%, supported by an even stronger 26% increase in Advanta.

I'm pleased to share that both these platforms were driven by volumes, indicating our strong market presence and good acceptability of our products. This also indicates a recovery in our global crop protection business from Q1. My colleague, Mike will cover this at length in his remarks.

While our SUPERFORM business remained largely steady, the Super Specialty Chemicals segment within it showed a remarkable 18% jump versus last year. This is a testimony of our focus on growing this emerging segment in a strong collaboration with global partners.

Our India Crop Protection business, or UPL SAS was impacted by unfavorable weather conditions in the quarter with its revenue declining by 10%. Among key reasons, growth was led mainly by the Americas. Latin America grew by 13%, driven by fungicides in Brazil and Argentinian recovery, while North America was up by 63%, led by herbicide volumes. Among others, India was up by 6%, led by seeds and Super Specialty Chemicals, offset by Crop Protection decline. Europe was steady, while there was some decline in rest of the world.

Our contribution increased to INR 5,041 crores, a significant 21% jump versus last year. The margin was around 42%, an improvement of 420 basis points. This was driven by improved product mix, higher capacity utilization and lower input costs, mainly in Crop Protection. This also reinforces our commitment to operational efficiency and strategic sourcing, leading to favorable cost position.

The SG&A expenses amounted to INR 2,836 crores, a 9% increase year-on-year, in line with our expectations. I would like to add here that the Q1 non-cash provision related to distributor restructuring for around $13 million in Brazil was reduced by around $4.2 million in Q2, facilitated by the recovery plan. As highlighted in Q1, this will subsequently unwind over the period of recovery horizon.

Higher revenue and improvement in contribution margins led to a strong growth in EBITDA to INR 2,205 crores, up by 40% versus last year. I'm pleased to share that EBITDA margin stood at 18.3%, up by 410 basis points versus last year. Profit before tax or PBT stood at INR 784 crores, up by over INR 1,200 crores versus last year. This movement was driven by EBITDA at INR 2,205 crores, up from INR 1,576 crores last year.

Depreciation and amortization expenses increased from INR 697 crores to INR 771 crores. Significant reduction in net finance costs down from INR 847 crores to INR 518 crores this year. This was driven by several factors, including debt repayment of $250 million in March 2025, favorable SOFR-linked interest rates, which have declined by around 125 basis points since last year, ratings upgrade-related interest rate reduction and our focused capital management.

Additionally, other factors that impacted PBT were lower net exchange losses down from INR 375 crores to INR 235 crores, lower losses from associates and joint ventures from INR 135 crores to INR 54 crores in this period as they have had improved performance during the current year. We'll continue to monitor the performance of these entities closely.

Finally, the exceptional items improved from a negative INR 8 crores to a positive INR 142 crore. This was as a result of favorable verdict from Brazilian Supreme Court on a VAT litigation. The gain was partially offset by the restructuring cost for one of our European manufacturing plants. We have also provided a detailed management P&L to better explain the numbers, including net interest and FX costs as discussed during the last Q1 earnings call. We have also included a management balance sheet, which is Slide 20, and the management cash flow on Slide 23 for better reference.

Profit after tax or PAT significantly improved from a loss of INR 585 crores last year to a profit of INR 612 crores this quarter. I'm pleased to share that our PATMI stood at INR 553 crores, up significantly by around INR 1,000 crores versus last year, driven by factors as explained earlier. Correspondingly, our operational PATMI that is adjusted for exceptional items rose from negative INR 434 crores to a positive INR 411 crores, up by INR 845 crores. For H1, PATMI was up by around significant INR 1,300 crores.

Moving on to the key balance sheet items. Our net working capital in September '25 stood at INR 1,463 crores or around 118 days, lower by around 5 days versus an already tightened last year. The amount is higher versus previous year due to improved sales in H1, especially in our seed business and overall inventory buildup in anticipation of our H2 plans.

Inventory days stood at 124 days, up by around 7 days, while payables were at 151 days, up from 127 days last year. Our receivables stood at 146 days, up from 133 days in the previous year. We also saw a flat non-recourse factoring at around $553 million versus $558 million in the previous year.

On the net debt, as of September 2025, it stood at INR 23,802 crores, that is approximately $2.7 billion, reflecting a reduction of INR 3,729 crores or $605 million compared to INR 27,531 crores, that is $3.3 billion in September 2024. However, the net debt increased versus March 2025 largely due to the impact of perpetual bond redemption of about $400 million in Q1 and higher working capital requirement in line with the historical seasonality.

I'm also happy to share that our key gearing ratio, that is net debt to EBITDA and net debt to equity have shown remarkable improvement compared to September last year. The net debt-to-EBITDA improved from 5.4x last year to 2.7x, driven by strong operational performance and capital efficiency. This ratio was at 1.7x in March '25 due to seasonality led higher collections in that period. Adjusted to perpetual bonds, this ratio last year March end would have stood at around 2.1x. Additionally, net debt to equity improved from 0.9x last year to 0.6x this year.

On H1, let me summarize the highlights briefly. Our revenue is up by 5% versus last year, with growth led by all platforms, mainly Advanta and UPL Corp. The total contribution grew by 16% at over INR 9,000 crores, driven by broad-based margin improvement of over 400 basis points versus last year. EBITDA is up by 29% at over INR 3,500 crores with robust performance across all platforms and led by contribution margin improvement.

PATMI improved by around INR 1,300 crores, up from a negative INR 827 crores last year to a positive INR 465 crores in H1 this year. Similarly, our operational PATMI improved by approximately INR 1,100 crores, up from a negative of INR 769 crores to INR 331 crores this time.

I will now hand over to Mike, who will take you through the details of UPL call. Mike, over to you.

[Michael Frank, executive]

Thank you, Bikash. Hello, everyone, and welcome to our second quarter FY '26 earnings call. Before we review the quarter, I would like to start by providing some insights [Technical Difficulty] channel inventories in all major countries are back to normalized levels. Global demand growth is in the low single digits and prices have largely stabilized.

With this backdrop, we are well placed to compete. We are sitting on fresh inventory that is at the right level and at a competitive cost, giving us the opportunity to compete aggressively to grow our market share and to expand margins simultaneously. Grower prices for row crops continue to remain low, pressuring farm margins, which in turn creates liquidity stress on retailers and distributors in some regions, especially in Latin America.

The breadth of our portfolio gives us optionality to serve farmers with post-patent, differentiated and biological solutions. The current environment in relation to farmer margins is driving greater interest in post-patent solutions within our portfolio. Looking ahead, we expect this trend to persist into 2025, creating opportunities to strengthen our position in the value-driven segments.

Turning to our Q2 performance. The quarterly performance of our business reflects the strength of our portfolio and the operational advantage of our supply chain. In Q2, our revenue grew 12% year-on-year, supported by strong volumes in North America and Latin America. Looking at the performance of our portfolio, herbicides delivered strong results across North America and Latin America, driven by s-metolachlor, metribuzin and triclopyr. Fungicides led by mancozeb continue to see strong demand in all regions.

Our insecticides portfolio was mainly impacted by increased competitive pressure, leading to price erosion of our premium Sperto brand in Brazil as well as lower volumes of acephate also in Brazil. However, this segment is showing a solid recovery driven primarily by our growing Feroce brand sales whose superior agronomic performance has strengthened its brand presence and demand with growers in Brazil.

Our sustainable solutions portfolio in Q2 saw slightly lower volumes. However, total contribution margin grew on the strength of improved mix. Impressively, our contribution margins overall expanded to 35.1%, growing by over 400 basis points year-on-year. This was mainly driven by improved mix, lower input costs and higher capacity utilization.

Turning to SG&A. We continue to demonstrate a disciplined SG&A approach while investing strategically in growth and transformation initiatives. Nevertheless, ECLs totaling approximately $9 million impacted our results, but to a lesser degree than Q2 last year. These impacts were mainly in Latin America. Finally, EBITDA for the quarter increased by 69% year-on-year, a margin expansion of nearly 500 basis points, demonstrating our ability and agility to compete and drive profitability in this market.

Let's now review the Q2 performance of our regions. In Latin America, we posted 10% higher revenues year-on-year. This growth is attributed mainly to Brazil's robust performance and partial recovery of our business in Argentina. As highlighted during our last investor call, the combination of disciplined execution, a resilient business model, enhanced customer focus and a robust portfolio has driven a strong revenue recovery in this region. We are confident that this positive momentum will continue through the second half of the year as farmers across much of the region are in the midst of planting their first crops for the first season.

In North America, we grew by an impressive 79% versus last year. While Q2 is a smaller quarter in North America, our performance demonstrates the momentum we are building in both Canada and the U.S. Growth in North America was boosted by a strong herbicide portfolio with notable upsides coming from the demand for our post-patent portfolio of key molecules such as metribuzin, s-metolachlor and glufosinate, which delivered significant year-on-year gains in both volume and revenue.

This performance was complemented by key fungicides such as mancozeb. While our post-patent portfolio is performing well in North America, we're also in the midst of launching and scaling several new products, primarily in the differentiated and sustainable categories of our portfolio. This all positions us well for sustained growth in this North America region.

In Europe, we recorded near flat revenues, which declined 1% compared to the same quarter last year. This was primarily due to fungicide sales normalizing after an exceptionally wet season last year. I'm pleased to highlight that we continue to see sustained growth across key markets such as in Germany, Italy, Spain and France.

Unfortunately, the market in Turkey has been impacted negatively by an early season frost, resulting in lower sales, especially in the fruits and vegetable market there. We are confident of strong volumes and revenue performance in Europe during the second half with overall growth projected for the full year.

In Africa and Asia Pacific geographies, we delivered good growth across key markets, especially in South Africa, Western Africa and Indonesia, resulting in a 12% revenue growth overall for this region compared to the same quarter last year.

Lastly, on our Q2 results, our commitment to disciplined cash management and operational efficiency remains strong. We continue to optimize our inventories, receivables and payables to achieve sustained and best-in-class working capital efficiency. To this end, I'm pleased to report that we've achieved a strong reduction in net working capital days compared to the same quarter last year.

Turning to our outlook for the third quarter and full year of FY '26. Based on our momentum, we are confident in accelerating our growth in the second half of the year. From an SG&A standpoint, we continue to leverage advanced tools and technologies to optimize operations across all functions, enhancing our operating model and driving an enterprise-wide transformation. At the same time, we're strategically focusing our SG&A investments to accelerate growth in key priority areas.

On the marketing excellence front, we continue to strengthen our new product pipeline, positioning ourselves to firmly surpass our target of $130 million revenue from new product launches this year. We are already seeing excellent results from products launched in the first half of the year, especially in Latin America, underscoring the growing acceptance and differentiation of our portfolio in the market. Looking ahead, we expect this momentum to accelerate in the coming quarters, further strengthening our market position and driving sustained growth.

In closing, I'd like to thank our team for their outstanding dedication and our channel customers for their continued partnership, which drove this quarter's successful results. With this solid momentum, I am confident we will deliver robust revenue and margin growth through the remainder of this year.

Thank you. And with that, I'll hand over to Bikash, who will take you through the performance of our other platforms.

[Bikash Prasad, executive]

Thank you, Mike. Let me now also provide a quick update on our other 3 platforms, which are our India Crop Protection business, or UPL SAS, Advanta, our seed platform and our specialty chemical focused platform, SUPERFORM.

UPL SAS revenue declined by around 10% due to lower volumes led by unfavorable weather conditions that prevailed in most part of the country. Herbicides was the segment that was particularly impacted. However, despite the above challenges, we improved our contribution margin by approximately 500 basis points, driven mainly by improved product mix and recent launches such as Centurion EZ and Canora EZ. The EBITDA margin improved from around 20% last year to 22.7%, an increase of nearly 270 basis points. This led to an absolute EBITDA growth of 2% despite revenue decline.

Advanta, now integrated between our seed and post-harvest platform delivered a strong 26% growth year-on-year, fueled by a robust volume expansion of 14% in the seed segment. Key contributors to this growth included corn in India, Latin American countries and Indonesia as well as sunflower in Argentina. Our platform EBITDA rose by a strong 57% driven by higher volumes.

SUPERFORM had a steady revenue versus last year. I'm happy to share that our Super Specialty business or SSC was up by 18%, driven mainly by volumes led by contract manufacturing. This strong growth has also helped us improve our non-agchem revenue share to around 25% compared to 20% last year Q2. The platform reported a contribution margin of around 25%, up by a strong 370 basis points. This was driven by improved mix and increased share of Super Specialty segment. EBITDA is up by a strong 24% versus last year with 250 basis points improvement led by increase in contribution.

Now on some non-financial updates I would like to talk about. In line with the previous quarter where we presented our ESG commitments, I'm pleased to add here that our robust financial and business performance are also enabled by our state-of-the-art backward integrated manufacturing and world-class R&D capabilities.

Our global manufacturing facilities spread across major continents enable effective catering to growing growers and customers' unique needs, offering bespoke solutions, enhancing agricultural results. Our strategically located facilities backed by advanced synthesis capabilities skillful and inspired team provide a favorable cost position versus most of our global peers. Our world-class R&D centers distributed across the globe fuel innovation for our customers, whether through synthesis and formulation or creating process IPs, quality improvement or otherwise. With a strong team within this function comprising PhDs and experienced professionals, we have received over 3,000 patents.

Now to summarize, Q2 has been an extremely positive quarter with several achievements. This quarter has been much stronger versus an already robust Q1 with broad-based EBITDA improvement and focus on overall quality of earnings led by financial discipline. Through this, our first half of the year looks strong as well on almost all indicators.

On the P&L front, in Q2, our revenue grew by a robust 8% versus last year, a strong contribution margin at around 42%, an improvement of 420 basis points, a strong EBITDA growth of 40% with margin improvement of 410 basis points, PATMI improvement of around INR 1,000 crores.

Similarly, on the balance sheet, our working capital days improved by 5 days from 123 days to 118 days. Improved net debt with a reduction of over $600 million. Adjusting for redemption of perpetual bonds of $400 million, the net debt reduction is $1 billion. This also resulted in further de-gearing our balance sheet.

Considering our strong H1 and positive outlook for H2, I'm pleased to share our upgraded FY '26 guidance as follows: 4% to 8% growth in revenues on similar lines to what we presented in Capital Markets Day in May and 12% to 16% EBITDA growth versus last year, up from 10% to 14% as indicated earlier.

Finally, I would like to thank our team for their efforts and our valuable stakeholders for their trust and support. I'm confident of delivering our financial commitments in FY '26. Thank you, and I look forward to your questions.

With this, we are now open for Q&A.

[Operator]

[Operator Instructions] The first question comes from the line of Saurabh Jain with HSBC.

[Saurabh Jain, analyst]

Congratulations on a stupendous set of results. First thing I wanted to clarify on your ECL in Brazil. So how much is the total ECL in first half? Because there was some commentary about 1Q, you booked $13 million and then some of it got reversed. What is the total ECL in the first half for you?

[Michael Frank, executive]

Saurabh, maybe I'll take that from a UPL Corp. standpoint. And Bikash, you can add any commentary you want from an overall UPL perspective. In UPL Corp., our ECL in the first half was USD 30 million, and that compares to $23 million last year, so up $7 million versus the same half last year. And you mentioned Brazil, that's total. So that's not only Brazil, that's our global ECL for the half.

[Saurabh Jain, analyst]

So can you split it out into the first quarter and second quarter also? Just trying to understand how much was the amount in the second half because you also mentioned about some reversal that is where I'm coming from.

[Michael Frank, executive]

Yes. So, the net in Q2 is $9 million. And the total in H1 is $30 million. So you can say net in the first quarter of '21.

[Saurabh Jain, analyst]

Yes. Okay. Also, there has been a bit of pricing decline in the second quarter amid some reports suggesting some of the products have seen price increases. What would be your assumptions and expectations in the second half? Whatever growth that you're going to deliver, can you split it out in terms of how much would be volume, pricing and ForEx?

[Michael Frank, executive]

Yes. So, as I mentioned, for the most part, we're seeing prices have stabilized. So now on the price side, it's primarily a mix impact. Now we did see, as I mentioned, with Sperto, which is one of our high-value branded insecticides in Brazil. This year, we have seen some clones and generics come into the marketplace. And so, we have seen some price declines specifically on that product, which is a large product for us. But on the rest of our portfolio, we've seen very consistent pricing.

So, as we think about the H2, our growth in H2 will be almost exclusively volume-driven. We expect prices to be roughly flat, maybe down like, again, 1% or so in Q3. But overall, in the second half, we expect pricing to be very flat, but volumes to lead the growth for our second half business.

[Saurabh Jain, analyst]

Okay. That is useful. One last question I would ask, and then I'll join back the queue. Given already we have seen 2 quarters and there is good debt repayment that UPL has delivered, there is also a debt repayment obligation, which is coming up in March 2026. I think it would be about $0.5 billion or so. Can you also explain to us what is your potential expectations of your debt by when you end this year?

[Bikash Prasad, executive]

Yes, sure, Saurabh. Thanks for the question. And as you know that we have an opening cash balance of about $550 million as on 1st of October. We also have unutilized working capital lines of about $1.7 billion. And significant cash release happens during H2. And the last 2 years, if you look at it, the cash release has been in the range of $900 million to $1.1 billion. So, we feel very comfortable with our opening cash that we have. And during the H2, the cash release that will happen. So, we are confident to meet any repayment obligations for this year. So, I think that is not a challenge.

The second question is about what is our expectations for rest of the year and the end of the year. Like last year, we had ended at 1.7x net debt-to-EBITDA ratio and adjusting for -- it was about 2.1x. Post repayment of the perpetual bond, we had made the second and final call on the rights issue for the balance amount of approximately $200 million, which is also received in September. And our focus is to continue to drive cash generation from operations which is supported by the disciplined working capital management, as you can see it in our H1 results as well.

So, we will be significantly lower than the last year at 2.1x on a business as usual basis. And our short to medium-term priority is to deleverage our balance sheet, probably, I would say, between 18 to 24 months' time. So compared to last year of 2.1x, we are expecting somewhere between 1.6x to 1.8x of gearing. But still, we have H2 to deliver, and we'll see how things evolve. But as of now, we are quite comfortable with our cash position, quite comfortable on our net debt and the leverage ratios.

[Saurabh Jain, analyst]

So does that imply a net debt reduction of about INR 1,500 crores to INR 2,000-odd crores? Is that the way we should look at it?

[Bikash Prasad, executive]

Yes. So, we'll see that how the working capital pans out in Q4. Q4 is our key quarter from working capital cash flows and net debt perspective. But as of now, we are planning somewhere between 1.6x to 1.8x.

[Saurabh Jain, analyst]

Yes. So, a related question is that the working capital on a Y-o-Y basis has seen an increase, right? There is a drawdown on the working capital. Would you still believe for the full year basis, there would still be some release in working capital or you would believe that there would be some cash absorption in your working capital needs?

[Bikash Prasad, executive]

So last year, we had really squeezed on the working capital. And you know that from 86 days, we had reduced our working capital to 53 days. And during Capital Market Days, Mike and others have also commented that our cycle time between, say, 65 to 70 days is what probably is sustainable. And we will be comfortable with that.

So, there might be some increase, although as of now, we are trying our best to see how do we keep optimizing our working capital. But the season is starting now in Americas, and we'll see that how does it go. And still there are many global uncertainties and challenges we have to navigate. And then probably Q3 will be a better quarter to give a better update on this.

[Operator]

Next question comes from the line of Siddharth Gadekar with Equirus.

[Siddharth Gadekar, analyst]

So my first question is on the strong performance on the EBITDA side in 2Q and the guidance increase. So, what do we attribute the guidance increase to? And also, for the 2Q, the beat on EBITDA, the strong growth that we have seen, is it largely driven by the differentiated products? Or there is something else also that is driving our EBITDA and the guidance for the full year?

[Michael Frank, executive]

Yes, Siddharth, maybe I'll take that first just from a Global Crop Protection standpoint. Look, so I would say the tailwinds that were experienced in in the first half and are going to persist, we believe, into the second half is, again, inventory levels are normalized. And so, we're able to restock.

Secondly, because we have such a broad portfolio of post-patent differentiated and biological products, depending on the country and the farmer economics, we are seeing -- while we're still seeing strong demand for our high-value differentiated and sustainable products, we're also seeing really strong demand and accelerated demand with low grower margins for our post-patent products. So, I would say that's giving us the opportunity to simultaneously grow market share and expand margins.

Maybe lastly, our supply chain is really performing well. As we're running with lower levels of inventory as we manage working capital, we're also able to replace inventory with fresh inventory at the market lowest cost. And we're seeing as the year plays out, because we're running the plants harder, we're absorbing fixed costs through a larger volume, and that is also helping our cost of goods, which is expanding our margins. So, there's -- I'd say there's multiple pieces that are driving both our volume gains and our margin expansion.

[Bikash Prasad, executive]

And let me just add it from other 3 businesses also. So, Advanta also, we have a strong FY '26 outlook, which will be volume-led growth with EBITDA accretion. SUPERFORM with continued strong prospect for our Super Specialty Chemicals segment with again, the margin expansion. And our India Crop Protection business with our improved product mix will also drive the outlook for the second half.

[Siddharth Gadekar, analyst]

Got it. Sir secondly, on the India business, how should we think about the inventory levels? And do we expect any large sales return in 2H?

[Ravi Cherukuri, executive]

Yes. I hope you can hear me. This is Ravi. So normal sales and returns is a feature of the business, and you know this very well. Last year, we had abnormally large returns because like we had -- we were turning a corner from very high sales to a more subdued sales environment. But this year, we have been very calibrated in placement of inventories into the channel.

Other than for early season herbicides, which we have to place, you cannot see what the season will be like, where we went ahead and placed, and we had -- we took back most of the returns already in Q2. We have been extremely calibrated in placement of other stock, other inventories based on the season. So, we do not expect returns to be very high in the future. However, there will be some returns, and they will be well within our normal estimates.

[Siddharth Gadekar, analyst]

Lastly, just on SUPERFORM. This quarter, we have seen the share of non-agchem going up to 25%. How should we think about the share over the next 2, 3 years? And where do we see SUPERFORM eventually being by FY '29, '30 in terms of non-agchem and agchem share?

[Raj Tiwari, executive]

This is Raj Tiwari. So of course, our ag business will also grow, but the growth of our Specialty Chemicals business will be far higher than our ag growth. And therefore, this share -- overall share of business of super specialty will keep on growing. Now I mean, how next couple of years pans out would be a matter of estimates. But if we just -- I mean, the pace at which we are going now, if we just look at that, then in next 24 to 36 months, it would be somewhere around 30% to 35% of our overall business share should be super specialty.

[Siddharth Gadekar, analyst]

Sir, any color you want to give that incrementally, what are we doing to increase the share in the super specialty products?

[Raj Tiwari, executive]

Well, it's -- as you know, we have 4 or 5 key technology platforms. We have cyanation, we have phosgenation, we have phosphorus, we have sulfur-based chemistries. Those would anyway excel the growth. But apart from that, also our contract manufacturing business, which is -- which will propel the growth in next 36 months' time.

[Operator]

Next question comes from the line of Ankur Periwal with Axis Capital.

[Ankur Periwal, analyst]

Congratulations on a good set of numbers. Mike, first question for you. You did alluded towards Brazil market wherein there is some bit of pricing pressure in specific products. Your thoughts on the overall competitive intensity and especially given the weakening farm economics, is there a shift from branded or premium products to more on the generic side? Your thoughts there, please.

[Michael Frank, executive]

Yes. Thanks, Ankur, for the question. Look, I mean, over the last week or so, most of our peers have reported. And so, you can see from the industry-wide results that the industry is still very competitive. And volume growth is still in the low single digits. Obviously, we're outperforming that, which we're pleased about. And we think it's largely based on our broad portfolio and on our operational excellence in terms of how we're managing inventory and managing our supply chain.

The pricing pressure in Brazil, I would say, is mostly focused on our one large brand, which is Sperto. Outside of that, we're seeing some price opportunity on some of our portfolio, but most of the portfolio is remaining flat on prices, while our cost of goods continue to improve, which is giving us the margin expansion. So, I would say that's how it's playing out, not just in Brazil, but in the rest of the markets.

And then finally, to your point just on grower margins, as I mentioned, I do think we are seeing some additional demand in what we would call the value segment of our portfolio as farmers are looking for high-quality, low-cost products to solve their pain points. And so, I think that's giving us some additional momentum because of the breadth of our portfolio.

[Ankur Periwal, analyst]

Sure. That's helpful and clear. And second question to Bikash, on the losses from associates. We have seen a sharp decline there. So just wanted to understand how should one look at these numbers? Is this INR 54-odd crores loss sustainable now? Because we were at INR 130-odd crores last year. Q1 was a profit and now there is again a loss. So how should one look at this number on a sustainable basis?

[Bikash Prasad, executive]

Yes. Thanks for the question. I think during this year, we have seen that our associates and JV have improved their performance. It's still not there where we want to see them. But almost like 9 out of our 10 of our associates and joint ventures have improved their performance in Q2. There is one still there is an issue, and we are trying to turn it around as well. But going forward, I do see that at least on the 9 out of the 10 JV associates that we have, will have the speedy performance.

[Ankur Periwal, analyst]

Sure. Just a follow-up here. So, if I look at from a full year perspective, this year, this number should still be negative and possibly positive next year onwards or probably the turnaround will take slightly higher time?

[Bikash Prasad, executive]

So next year, our target will be that it should be positive. This is our -- as per how we are planning and working on.

[Operator]

Next question comes from the line of Tarang Agarwal with Old Ridge.

[Tarang Agrawal, analyst]

Congrats on a strong set of numbers. I would just like to take this forum to basically call out that considering how UPL was one of the first ones to call out the stress in the environment, taking the write-offs, I think life seems to have come to full circle, especially given the context in which some of the global peers have reported. Also sincerely appreciate the improvement in the financial reporting quality and the earnings quality. We really hope this momentum both on reporting as well as business, this momentum continues.

Now coming on to the questions, I actually have 3. Firstly, on UPL Corp, what should be the steady-state contribution margins for this business? And where I'm coming from is I'm not trying to look at it on a quarterly basis, but say, what is the target that you are hoping to achieve, say, in FY '27, maybe '28?

And secondly, what's the share of D&S business? I think these disclosures used to be given out. I think for the last 2 quarters, these disclosures are missing. So, it will help if you could incorporate it going forward. And the rest are relating to Bikash and SUPERFORM.

[Michael Frank, executive]

Tarang, it's Mike here. Firstly, thank you for the comments on the overall performance. So, the way I would think about kind of what you're calling steady-state contribution margins at least in the near term, it would be in that mid-30s. And so there will be quarterly deviations from that, probably up and down a little bit. But on a full year basis, we would expect our margins to be in that mid-30% range.

Obviously, in the post-patent segment, and this kind of gets to your second question, in the post-patent segment, the margins are lower than they are in our differentiated and sustainable segment. We will disclose those numbers at the end of the year. So, we'll continue to report them. We think it makes more sense to report them on an annual basis just because there can be quarterly variations that I think will send the -- maybe not the right message if we report them quarter-by-quarter.

For the year, we would expect that we'll be somewhere in the range give or take a little bit of 60-40. So, 60% of our revenue will be from the post-patent segment, about 40% from the differentiated and sustainable segment. Over time, that will continue to move towards more and more share in the differentiated and sustainable segment. About 80% of our new products that we're launching are in that high-value segment.

And as I mentioned earlier, we've got a strong class that we're launching this year with what we've guided to be at least $130 million of revenue. And now it looks like we're going to be able to overdeliver on that target. And we have another really strong class coming in front of us. And so those are the things that are going to continue to drive the growth of our high value differentiated and sustainable segment. And again, we'll disclose that specifically at the end of the year.

[Tarang Agrawal, analyst]

Bikash, how confident are you in continuing to yield the supply payment terms that you're currently yielding?

[Bikash Prasad, executive]

No, I think with our strong performance, it is giving much more comfort to our suppliers. It should continue. I do not see any concerns as of now on getting the similar terms.

[Tarang Agrawal, analyst]

Okay. And last one on SUPERFORM. We've seen a stark expansion in margins for the business. What's driven this? I mean, quite stark.

[Raj Tiwari, executive]

Yes, Tarang, Raj here. Of course, this is because the Super Specialty business growth has been phenomenal. And there, the margin expansion has been there. And it's a mix -- naturally, when the super specialty growth is much higher as compared to ag, the margin expansions will keep on happening. So, it's a mix issue.

[Tarang Agrawal, analyst]

Got it. So as long as the mix keeps improving, that's the trend that we should look at. There's nothing out of the ordinary. I mean, just to get a sense, whether it's your Super Specialty business or your ag business, there isn't anything out of the ordinary in terms of the margins that you've reported for this quarter?

[Raj Tiwari, executive]

No, it is. I mean -- and that will keep on happening because super specialty will keep on growing upwards of, let's say, 20% around and ag will anyway grow 10%. So, till the time super specialty growth is more than the ag, the margin expansion will keep on happening.

[Operator]

Next question comes from the line of Love Sharma with JPMorgan.

[Love Sharma, analyst]

Just a couple of questions from me. I think, Bikash, you mentioned earlier in the call about your net leverage target of about 1.6x, 1.8x by end of this year. Just wanted to understand given where we are currently and the rating improvement we have seen, and I know that the company has come a little bit of a long way from the IG ratings previously. Is it fair to say that you would like to achieve those IG ratings back given these deleveraging targets?

And secondly, I think you also talked about this the $500 million loan coming due next year in March. Also, then there is also, I guess, a September payment due as well next year. Any thoughts on refinancing them? Or are you looking to just repay them, reduce debt overall using cash flows?

[Bikash Prasad, executive]

So definitely, first on the $500 million, I think, is immediate now in the next couple of months. We are quite comfortable with our opening cash flows. There's cash release that happens during H2. As I indicated earlier, $900 million to $1 billion. So, if you are sitting with $1.5 billion, meeting this $500 million repayment obligation is not an issue.

Now your second question is about Q3 and Q4 next year obligations total is about $900 million. I think it's still -- we have some distance to cover. But we will first focus on how do we look at generating operational cash flow. As we had indicated during Q1 earnings call and press release as well that we are looking at various options to unlock shareholders' value. And if some of those things we decide to take, that would also help in terms of deleveraging the balance sheet.

So, we'll see that how things are progressing in the next 3 to 6 months' time. But as of now, on the immediate repayment obligation of $500 million, we are well prepared and planned. There are no concerns on that. But we'll update on the Q3, Q4 next year repayment probably in the subsequent earnings calls.

[Love Sharma, analyst]

Sure. And on the rating side, if you could just share any views there? I know you have improved a lot. We have seen some decent improvement on the rating side. Are we looking to have more of those coming along? I think our first focus is to deliver a strong year this year, right?

[Bikash Prasad, executive]

Once we have a strong result, we have a better chance. And we have been in discussion with the rating agencies. We are continuously engaged with them. But besides our financial performance and liquidity, you know that the rating agency also consider overall industry outlook and other factors, which also influence the rating action. So, what we have in our control, definitely we will try to deliver that, but there are markets conditions as well, which will impact the rating action. But we are focusing on delivering a strong financial, enhance our capital productivity, operational efficiencies, cash flow and strengthen our balance sheet.

[Operator]

Next question comes from the line of Naushad [indiscernible] Chaudhary with Aditya Birla Mutual Funds.

[Unknown Analyst]

A few clarifications. Firstly, congrats on a very good set of numbers. On the seed business side, we have done wonderfully great if I look at the global peers versus us, I was just wondering if you can be very specific and share what grades we have done in the past that is yielding this kind of growth to us? And what are we doing currently to keep that growth and market share momentum?

[Bikash Prasad, executive]

Thanks, Naushad. I'll request Bhupen to respond to that question.

[Bhupen Dubey, executive]

Thank you so much for this question and this observation. As you may know, seed business is a very long-term business. So normal really good product from our R&D takes 8 to 10 years to come out of it. So that is a long pipeline. So, your question is right, what did you do good in past, which is yielding results. So, what we have done is we have a very strategic identification of the segment and subsegment within the global seed market where we believe that we have a very strong germplasm. That is a starting point.

So wherever you have a strong germplasm, marry with that crop and the geography market and start investing in those areas, right, from R&D, technology development, marketing and testing and then GTM. So that is how it goes. So that thinking, if you see last 1 decade actually, year-on-year on quality of business, health of the business, quality of the portfolio, which is contribution to our innovation is going up and up and up.

So that is how the results we see it. Of course, there is internal things which is under our control, but that has to marry with the market opportunities up and down. That may reflect in the quarter-on-quarter, year-on-year, but broadly, it's quite robust movement.

Going forward, same thing will continues for us, which are the market which we need to enter in and where we start acquiring our -- either develop in-house or acquire the germplasm. That is our first area. Whichever segment we want to see ourselves growing in 8 to 10 years' time. We are strengthening our germplasm at this point in time, put our R&D resources because that gives us the moat, that gives us seeking ability and sustainability.

[Unknown Analyst]

But on a lower base when we started competing with the global giant who has this multibillion-dollar size in terms of the seed business their germplasm inventory versus our germplasm how it got us – how this differentiation that led to this market share gain. They would also be sitting on a similar kind of germplasm inventory.

[Bhupen Dubey, executive]

So, the beauty of our business is -- we have a lot of IP capability. So, germplasm is a unique proprietary asset of a given company who are R&D-based company. So big organizations are there. If you see their history, they are 130, 140 years of history they have. Advanta also is more than 65, 70-year-old history we have. So that kind of big germplasm we have, which have our own proprietary, which nobody has in the marketplace.

Our own and also, we keep innovating on those, let's say, with facilities and branches we have, unique combination of genomics, which is ours, which we marry with the environment we want to target. So that is the beauty of the seed business based on the R&D compared to the rest of the, let's say, chemical business, which we see here.

[Unknown Analyst]

Okay. And last, on this Super Specialty business, what exactly is this business? And how much -- in terms of value, how much do we do the business through external sales in this piece of business? And how much capital we have deployed so far here? And what is the capital deployment plan in this business?

[Bikash Prasad, executive]

So, this business is basically the manufacturing part of the business, wherein we serve ag and we have 2 anchor customers, what is UPL Corporation and UPL SAS, that contributes almost like 75% of our revenue comes from the ag business, wherein we manufacture active ingredients for these 2 anchor customers.

Apart from that, we have the Super Specialty business, wherein we do contract manufacturing, but we also have products which goes into pharma intermediates, into lubricant space, into personal care, into flame retardants and mainly 5 key technology platforms, what we call it as, your phosgenation, your cyanation, then your sulfur NH2S chemistry, your phosphorus chemistries and others. We are backward integrated, and that's where we drive value for our customers, and that's where we are able to also drive growth there. So that's the basic outlook, how the business is structured.

[Unknown Analyst]

What is the size of this business in terms of absolute number through external sales only?

[Bikash Prasad, executive]

So, if you look at -- I mean, last year -- last full year number would be around INR 10,000 crores. Out of that, last year, 80% of the revenue came from ag and about 20% came from super specialty. So that's the size of the company.

[Unknown Analyst]

I'm asking external sales, sir. You eliminate the...

[Bikash Prasad, executive]

Rest is all -- so let's say, about INR 2,500 crores of sales comes from external customers.

[Unknown Analyst]

Okay. And any capital deployment plan, if you want to share here, how you want to take this forward?

[Bikash Prasad, executive]

Well, it all depends on the opportunity what we see. Of course, we keep on investing. I mean, last year, if you see at a UPL level on the tangible asset side, our investment would have been about $150 million or $140 million. And that's the range which we keep on investing for growing the business.

[Unknown Executive]

I may also add here. Now if you look at this business, super -- I mean, entire SUPERFORM business, so fantastic from a working capital deployment or productivity perspective. Whatever credit terms that SUPERFORM offers to its customer, whether it's a third party or our crop business or India Crop Protection business, we get a similar like credit terms from our suppliers. So, it's largely, you will see that the working capital neutral business.

On the fixed capital side, it will be between, say, $500 million to $600 million between specialty and ag. So, it's a very working capital efficient business and fixed capital will be in the range of $500 million to $600 million.

[Operator]

Next question comes from the line of Somaiah V with Avendus Spark.

[Somaiah Valliyappan, analyst]

A few questions for Mike. First, in terms of low-cost inventory replacement, is the cycle -- you have come to the full cycle there or there is further headroom based on current raw material prices or utilization levels for second half of this year?

[Michael Frank, executive]

Yes. So, I'd say we've come full cycle. There's no further headroom. Obviously, as our volumes grow and we continue to run our plants and utilize them at a higher rate, I mean, there is a marginal benefit from fixed cost absorption. But we've liquidated what we've previously referred to as high-cost inventory. We came into the year with about 100 days of forward coverage. So that got liquidated for the most part in the first quarter. And so we are really now selling refreshed inventory.

[Somaiah Valliyappan, analyst]

That's helpful. Second question is on Brazil. Considering the growth rate that we have had last quarter, would it be right to think that we have gained market share? That's the first part. Second, in terms of the season, current season in terms of rainfall being in terms of planting, the progress there? And also, any concerns in terms of farm economics that can impact offtake at the later part of the quarter?

[Michael Frank, executive]

Yes. So, look, obviously, market share is -- we measure it on the annual cycle. So, I would say it's too early to declare any market share gains in Brazil on a year-to-date basis. The farmers are in the field right now planting. For the most part, they finished planting their first season corn, but there's still lots of soybeans to be planted and cotton.

But we are pleased with the revenue we've achieved this last quarter. Our order book in Brazil right now is up about 20% versus this time last year. And again, I think the market in Brazil is going to likely be up in the low single digits. And so, indications are strong that we're poised to gain market share. Obviously, as I said though, there's a long season to play out there.

From a weather standpoint, it's been a good start to the season. It was unusually wet in the early spring, which is really good. So, farmers were planting into moist soils, which always gets the crop off to a good start. So, I would say that's good for farmers. Also, kind of tees up well for the products that we're selling there in terms of herbicides and insecticides and fungicides. We're expecting strong demand. And so, I would say it's setting up well for a good market.

Lastly, on your question with respect to farmer liquidity. Last year, the way I think about it is farmers in most of Brazil grew a very strong crop. So even though prices were down, they commercialized it at lower prices, but at higher volumes. And so most farmers have liquidity coming into this year. Again, it's -- you can't say that for every single farmer. But generally speaking, farmers, I would say, there are optimistic about this season. It's off to a good start. Prices are where they're at. And so, we'll see how this unfolds.

Again, the Chicago Board of Trade price just in the last 10 days has increased by about 10% on soybeans. And so that will also put a little wind into the sales of soybean growers in terms of how they're looking at future prices.

[Somaiah Valliyappan, analyst]

Got it. One last question on the tariff part. I just want to understand in terms of value chain, how is this getting addressed, whether it's the producer who's taking it or the retailer distributor. It doesn't seem like there is a price increase at the end consumer. If you could just help us understand that part.

And second, also what it means for us, whether we benefit because there used to be a price differential or tariff differential that used to help us maybe 10 percentage points. Does that still exist?

[Michael Frank, executive]

Yes. No, thank you for that question. Look, at the start of the year, we probably had about a 20% lower tariff of India imports into the U.S. versus Chinese. So -- and that now has turned around where there's a small disadvantage where there's a higher tariff on imports coming from India. Obviously, as you all know, the tariff rates for imports into the U.S. have been incredibly dynamic like since April. They've gone up 10%, then to 25% and now to 50% on India.

And so, we're not going to give a specific dollar amount because it's still dynamic, and we do expect that the rates could still shift as the year plays out. But our supply chain, our global supply chain team and our local U.S. team have been playing through a lot of scenarios to really determine how do we best operate in this environment.

So, the way I think about it in the first half of the year, most of our U.S. sales were made with inventory that was already in the country prior to the increase in tariff rates. So, there was a small impact from higher tariffs in H1, and that would be approximately a negative $3 million at the EBITDA line. But in H2, our imports into the U.S. since the higher tariff rates started, obviously, that will have some negative impact on H2 results, just as you said. That being said, all of that impact is figured into our increase in guidance that Bikash talked about earlier on the call today.

So maybe lastly, just on your point in terms of what are we doing with pricing and supply chain. So, I would say there's probably 3 areas that we're focused on. Firstly, we're holding inventory that we're currently shipping to the U.S. in bonded warehouses, and we're holding it there as long as we can until we have to release it and pay the tariffs.

And so, for the most part, right now in the U.S., there's not a lot of product going on the ground. And so, we still have, I would say, a month to 2 months in most of the U.S. before we need to start shipping products to our retail and distribution channel. So, we're staging that product in bonded warehouses in anticipation that there could be a change in the tariff rate between now and when we need to ship it. So that would be number one.

Secondly, our product prices for the new crop year do reflect some of the additional tariff costs. Obviously, this is unfortunate for farmers as they're going to be paying higher prices for inputs at the same time that their margins are being squeezed. But of course, it's -- I would say it's on an active-by-active basis in terms of what our pricing approach has been.

And then lastly, we are exploring all options to minimize the tariff impact through alternative supply options as well as formulating more product in the U.S. and adding more value there before we ship the products to our customers. So that's kind of the overall picture right now and the scenario that we're working through with tariffs in the U.S.

[Somaiah Valliyappan, analyst]

Thanks, Mike. Bikash, would you want to add some color with respect to other business as well?

[Bikash Prasad, executive]

So, I think other businesses are not very material, whether it's Advanta or our post-harvest business from the U.S. tariff perspective, it's not material. Our Corp business is material, and Mike has given a detailed response on that. And from the finance and from the year-end guidance perspective, I will also say that the discussions are ongoing between U.S. and India. And some of those outcomes are still uncertain, unclear. But as an organization, we are better prepared and plan for this scenario, including like onshore manufacturing, strategic partnership or supply chain optimization, pricing action that we can take.

And therefore, I will say that this doesn't materially change our financial outcome expectation for the rest of the year. And I will say that as of now, as of now, as the duty stands, it doesn't change our financial outcome expectation. And those things have been baked into our numbers and the plans.

[Somaiah Valliyappan, analyst]

Just one small clarification, if I can. So, we did mention $3 million was the impact in H1, and we did also say that we have factored that into our full year number. Would it be possible to give a -- quantify this number, a very ballpark number what we have considered in the second half?

[Michael Frank, executive]

Yes. Look, I think it's too dynamic to put a number out there. I mean it will be larger than the impact in H1 if things don't change. Obviously, again, it's super dynamic. And so, if things change, then the impact will change. Again, from a pricing perspective, we're currently pricing our products based on the current tariff rate and replacement cost. But if that changes, whether it's from competitors in China or from our own imports from India, then the whole dynamic in the market changes. So, it's very fluid, which I think we want to be cautious about putting a number out there.

[Operator]

Next question comes from the line of Imtiaz with Barclays.

[Imtiaz Shefuddin, analyst]

I just have 2 quick questions. One is with regards to your CapEx. If you could provide some guidance in terms of what you think CapEx for the current FY '26 might be and also for FY '27? And what -- how will you be using those numbers? And secondly, if you have had any further thoughts on IP listing your Advanta and other platforms, if you could just share some thoughts on that?

[Bikash Prasad, executive]

Yes. So, I think from the group perspective, if you look at it, usually our organic CapEx is in the range of say, $200 million to $225 million and which is largely split equally between our tangible CapEx and intangible CapEx, mainly the product registration. So that is our plan for this year.

On the IP for Advanta, probably, I will request Bhupen to add further.

[Operator]

We have lost the line of Mr. Bhupen I'll reconnect Mr. Bhupen. Speakers, do you want to continue answering or I connect Mr. Bhupen?

[Bikash Prasad, executive]

Okay. I think the question was on the IPO. I think we had indicated in our Q1 press release and subsequently also during the earnings call that UPL continues to evaluate various strategic opportunities to unlock shareholders' value across platforms, including restructuring or strategic fundraising, potential liquidity events like IPO. And you have seen that recently, we have the integration of post-harvest business with Advanta. And if there is something material to share, we will do so in line with our disclosure obligations. But as of now, not to share anything.

[Operator]

Mr. Bhupen is connected. Please go ahead.

[Bhupen Dubey, executive]

I think Bikash has responded to the question which Imtiaz had on the potential liquidity event that Imtiaz referred to.

So, I think this was the last query that we had. So, thank you all. And on behalf of UPL Limited, that concludes this conference. Thank you for joining us, and now you can please disconnect.