Ladies and gentlemen, good day, and welcome to Dhanuka Agritech Limited Q1 FY 2024 Earnings Conference Call, hosted by Antique Stock Broking Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. Thank you, and over to you, sir.
Thank you, Seema. Warm welcome to all the participants on the Q1 FY24 Earnings Call of Dhanuka Agritech. From the management, we have Mr. M.K. Dhanuka, Vice Chairman and Managing Director; Mr. Rahul Dhanuka, Joint Managing Director; Mr. Harsh Dhanuka, Executive Director, Alliances and Supply Chain, and Mr. V.K. Bansal, CFO on the call. Without further ado, I would like to hand over the call to Mr. M.K. Dhanuka for opening remarks, post which we will open the floor for Q&A. Thank you, and over to you, Mr. M.K. Dhanuka.
Thank you, Mr. Manish. Good afternoon, ladies and gentlemen. Myself, M.K. Dhanuka, Vice Chairman and Managing Director of Dhanuka Agritech Limited. I hope all of you are doing well. Thank you for joining us in the conference call for results of Q1 FY 2023, 2024. I have with me Mr. Rahul Dhanuka, Joint Managing Director, Mr. Harsh Dhanuka, Executive Director, and Mr. V.K. Bansal, CFO of the company. Dhanuka Agritech is a leading agrochemical company in India, focusing on branded sales in the market. The company's strength lies in manufacturing and marketing of formulated products. The product portfolio is spread across insecticides, herbicides, fungicides, and plant growth promoters. Dhanuka Agritech is working with the vision of transforming India through agriculture.
Our belief is that when we transform the lives of farmers by enhancing their productivity and quality, and in turn enhancing their income, we are making a small contribution in transforming India. We work in all major crops in India and have implemented the best-in-class technology to ensure a smooth and efficient supply chain. Dhanuka have a pan-India presence through its marketing team and warehouses in all major states across India. With three manufacturing units and 41 warehouses across India, we cater to around 6,500 distributors and dealers and around 80,000 retailers. Through this extensive network, Dhanuka reaches out to approximately 10 million Indian farmers with its products and services. Dhanuka has more than 1,000 techno-commercial staff, supported by a strong sales and marketing team to promote and develop new products.
Dhanuka's strong R&D division has world-class NABL accredited laboratory, as well as an excellent team for new product registration and development. Dhanuka has international collaboration with 10 leading global agrochemical companies from the US, Japan, and Europe, which help us to introduce the latest technology in India. Recently, we have established a modern R&D facility with a research farm in Haryana for faster development and commercialization of new products. Delay in the arrival of the monsoon led to rain deficit up to mid-June and affected the performance of all agrochemical companies, including Dhanuka. The good news is that good rains since the last week of June have supported in catching up the demand of agrochemicals over last 5 weeks, especially in case of herbicides. The decline of Q1 has been converted into positive growth in July month.
The sowing of rice, cotton, and oilseeds has also gained momentum after a slow start. Planting is still lagging behind in pulses, which are down by about 10% in acreages. Moving on to financial performance for the last quarter, our revenue from operations stood at INR 369.07 crore in Q1 of FY2023-2024, versus INR 392.73 crore in Q1 of FY2022-2023. EBITDA stood at INR 43.61 crore in Q1 of FY2023-2024, versus INR 68.33 crore in Q1 of FY2022-2023. PAT stood at INR 32.94 crore in Q1 of FY2023-2024, versus INR 49.11 crore in Q1 of FY2022-2023.
Last year, Dhanuka had INR 12 crore other income from sale of real estate, due to which the PAT was higher in last year in comparison to the current financial year of Q1. The zone-wide percentage share of turnover for Q1 FY2022-2023 is North India, 30%; East India, 9%; West India, highest 41%, and South India, 20%. Product category-wise share of turnover for Q1 FY2023-2024: insecticides, 27%; fungicides, 10%; herbicides, highest, 54%. More than half sales is coming only from herbicides, because initially, the consumption is of herbicides, and other, 9%. The shareholders of the company in the 38th Annual General Meeting held today at 11:00 A.M., declared the final dividend of 100%, that is, INR 2 per equity share, having face value of INR 2 per share.
The company has already rewarded its equity shareholders with buyback of 1,000,000 equity shares at the rate of INR 850 per equity share, absorbing INR 85 crore, plus income tax. Dhanuka have introduced new molecules, Implode, a maize herbicide, Mesotrax, a herbicide for maize and sugarcane, Defend, a insecticide for paddy BPH, and six biological products. It is expected that these new introductions will add good volumes in the top line of the company. Next, I would like to share the progress on our technical plant at Dahej. While final production is delayed by one month and now expected in third week of August, I'm excited to share that we have entered the final phase of trials with commencement of extreme trials at the unit.
This was only possible with the continuous efforts of the team to obtain all necessary government approvals, leading to successful initiation of boiler operations last week. As shared earlier, we will start the production with Bifenthrin technical, and will soon add Lambda-Cyhalothrin technical as well. We are expecting a combined production of around 350 metric tons in the current financial year, with annual production capacity at around 600 metric tons. The new plant will support Dhanuka in our long-term business objective and revenue growth. There is huge potential for export from India, you must be aware that India has become now the second-largest country in agrochemical exports, leaving USA behind. After China, India exported $5.5 billion agrochemicals this year, while the US exports were $5.4 billion.
That's why India has become the second-largest exporter of agrochemicals. We consider ourselves responsible towards securing the farmers' welfare and preserving food security of the nation. We continue to strengthen our association with the Farmer Producer Organization, Krishi Vigyan Kendras, and other critical institutions, to increase our business expertise and boost our market presence. Thank you very much for your kind attention. We would now like to open the forum to take the questions. Thank you.
Thank you very much. We will now begin with the Q&A session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Thank you. We take the first question from the line of Preet Malde from Centra Insights. Please go ahead.
Yeah, thank you for taking my question. I just wanted to know our inventory levels for this quarter.
Inventory level is around INR 397 crore.
INR 395 crore, okay. What is our net working capital days right now?
Net working capital is generated by four days, as compared to the Q1 of the previous year. Excluding current investment, is 152 days.
Sorry?
152 days.
152 days. Okay. Have we seen sales returns in this quarter?
Sales return is general phenomena in the industry, and when the reduction in the prices trend continues, the distributors are having inventory of higher rates, and they have the tendency to return the products which they have purchased at higher rates, and then we buy back the product at the current market rates, which are lower. That's why the. It's a normal phenomena, and all the basically companies are taking back the goods from the dealers and distributors. In this quarter also, the goods return has increased because of the trend of reducing prices. We hope that this, the same should be normalized in the Q2, because now the trend is either increase in the prices or the prices are stagnant. Reduction has basically stopped now.
Okay, you're saying that the sales returns for this quarter has increased. Can you give me a number?
Yeah. You see, sales return has increased substantially, as against around INR 14 crore is around INR 24 crore.
Okay. I think that's it from my side. Thank you so much.
Thank you.
Thank you, sir. We take the next question from the line of Mr. Tarang Agarwal from Old Bridge Capital. Please go ahead.
Hello. good evening, sir. Just wanted to get your sense on the outlook as you see it today, for, for the rest of the year, particularly for Q2. Just wanted to also hear your perspective in terms of how did this quarter that just went by, how did it pan out for you? From what we understand is that there was significant, inventory lying in the, in the channel, and in that context, you guys have done relatively, far superior. Just wanted to get your thoughts on this.
Thank you so much for the compliment that we have done far superior. With -6%, like, we really don't feel so. So superiority is obviously subjective.
Yes.
Now, the outlook, till June was actually not very positive. At least till mid-June was not positive. IMD forecast, and the global forecast around El Niño was actually panning out the way it was. However, July gave us a turnaround, and July has been really good in terms of both volume and value. Volume has certainly shown a turnaround in July. Value is also, like MD sir said, is, now stabilizing. The outlook for August is looking really bright, and the groundwater is recharged, commodity prices are good. Channel inventory has eased out in the month of July. Prices have either stabilized or showing a upward trend. Supplies are strengthening. All these are positive signs for August to be performing really good.
Going forward with the groundwater and commodity prices being in tow, I think so we are looking at a great Q2, and that should prevail for rest of the year.
Sure, from what I could gauge is you're not expecting any significant returns, right? Whatever had to come in must have already been captured in the reported results, correct?
That's right. That's right.
Okay, thank you.
We take the next question from the line of Mr. Viraj from SiMPL. Please go ahead, sir.
Yeah, hi, two questions. First is, if you could just give some perspective on the inventory for us in the channel, and how does it compare for the industry? If we have to compare it to a normal environment.
Right. Inventory in the channel in the year beginning was high, and the channel was wary of taking any more inventory in Q1. That's how I believe Q1 results would have gone down for the rest of the industry also. For us, it was -6%. However, July gave a real big bump to liquidation and consumption at the farmer end, so the inventory at the end of Q1 would have been reasonably there. However, by end of July, the inventory levels have come down significantly.
When you say significantly, would it be compared to what a normal environment would be, say, you know, at the end of March, typically what we.
Normal environment, because Q1, the uptake from the channel was pretty low.
Okay, because the reason I'm asking is that, it's not just as a Q4, but even before that, there was already a build-up, considerable build-up in the channel, and the consumption at the farmer level either way was very low in Kharif last year and then Rabi, because the infestation itself was not that high. Hence, I was just trying to understand, you know, where are we when compared to a normal? Second question was largely on the gross margin. I understand there is some return back increase of INR 10 crore. If I have to just understand our gross margin, if I have to compare versus what we used to do earlier, the margins are still at, you know, at the lower end. Other than this high-cost inventory impact, is there any other factor which is driving this?
You see, large factor was the return, goods return. The high value inventory was liquidated in the Q1. Some impact was because of product mix. However, as we shared earlier in the, our May month call, we are very much hopeful giving this year our gross margin should see a good improvement. From July, the things have changed, and we are sure that in Q2 we will see a good improvement in our gross margins.
If I were just on the portfolio mix part, you know, earlier, many years back, our share of portfolio, specialty portfolio used to be 2/3 of the mix. Now, if I look at 23 or even say for Q1, what would that be like?
It is almost similar, you see, within the same portfolio, there is a shift of products. Some products are having good margin, some are less. Because of the inventory prices at one particular year, the margin is less and more. Within the same category, there is a change in the basically in the product mix. The high margin product volume is not great in Q1 of this year as compared to the previous year.
Sir, you know, if you, just a last follow-up on this. If you look at the ITI index, it's close to 20%. It's the highest been for last many years, and typically, the new generation products, you know, they give you the best contribution margins. Despite that, the gross margin is at the lower end. Hence, I was just trying to understand, is the erosion in base business or base molecule, is that quite significant or, you know, Just try to understand the reasons behind it.
Because of that, we are, we were able to maintain the gross margin as compared to the previous year. Otherwise, there could be a case of little hit in the gross margins. That, that, see, ITI index, the product which is having the good margin in that category has really helped us.
Okay. Okay, I'll come back. Thank you. Thank you.
Okay.
Thank you, sir. Before we move on to the next question, a reminder to all the participants. If you wish to ask a question, you may press star and one on your touchtone phone. We take the next question from the line of Mr. Siddharth Gadekar from Equirus. Please go ahead, sir.
Hi, sir. Just one clarification on in terms of this quarter, how, how would you relate the performance to the farmers' income, and how do you see that shaping up going ahead, given that we have seen a significant drop in input prices also now in the domestic market? Secondly, in terms of the realization declines, do we expect any significant declines even in the Q2?
Actually, your both the questions are not clear to me. Could you repeat the first one in reference to farmer income?
The performance in this quarter, was it mainly related to the weather-related issues and high channel inventory, or was it more to do with the farmer income? One. Secondly, in the Q2, if we will see even further price declines, or how should we look at the realizations going ahead?
Let me take the second one first. Price decline is appearing to be, you know, stabilizing now. Price decline appears to getting arrested. Maybe few products are showing a uptick also. That's about price decline expectations in Q2. Talking about farmer income, we saw tomato prices rocking the parliament and various other assemblies all over the country. Various other commodity prices have also been on a high. Government had to come in and ban the export of all non-basmati rice, which is again an indicator of how the food availability and commodity prices in general would. Commodity availability in general would be behaving. Farm income is dependent upon various factors. One is, of course, the input cost. Another is the commodity prices and commodity availability.
In general, commodities are expected to be on a positive side, and, agriculture, agrochemical as a cost of input is a significantly lower percentage. That is not going to impact the farm income, significantly. At Dhanuka, our specialized products actually help the farmers save on labor cost, save on, upgrade their productivity, and also upgrade the quality of their produce. That way, our products are not about the cost centricity, they are about the value centricity for the farmer. At Dhanuka, we are committed to increase the value for the farmer significantly.
Okay, sir. Got it. Thank you.
Thank you, sir. We take the next question from the line of Mr. Rohit Nagraj from Centrum Broking. Please go ahead.
Yeah, thanks for the opportunity. First question is on our new project for synthetic pyrethroids. We have mentioned that it's gonna start commercial production from August, and about 350 metric tons of order for production is what we are looking for this year. Based on the current pricing environment, what will it translate to in terms of revenues? When we are saying that our growth guidance for this year is about 10%, does it include the income from the exports as well, this project as well? Thank you.
Right. Thank you, Rohit. The revenue objective from this production from the synthetic pyrethroid plant is about INR 50 crore for this year. When we talk about the annual forecast, it does not include the revenue from the Dahej unit.
Got it. Got it. That's clear. Second question is, in terms of Q1 performance, what was the volume growth and value probably decrease on a YOY basis?
Yeah, the volume growth, it was around negative 3.5%. you see, the difference between volume and value is around 2.5%.
Okay. The value was down by about 2.5%, and volume was about 3.5%?
Yeah.
Right. Just one last clarification. During last quarter, in Q4, we had mentioned that we had done some placements, you know, probably slightly prior to the period. Was there any impact because of those placement, instead of coming in Q1, were shifted to Q4 of last quarter?
I think there is no such impact.
Okay. All right. Got it. Thanks a lot. I will come back in the question queue. Thank you.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, you may please press star and one on your touchtone telephone. Ladies and gentlemen, if you wish to ask a question, you may press star and one on your touchtone telephone. We take the next question from the line of Mr. Ramesh Sankaranarayanan from Nirmal Bang Equities. Please go ahead, sir.
Thank you and good evening. We would like to understand, in terms of the inventory impact, what would be the inventory loss you would have taken in Q1?
You see, I think that could be in the range of around, 1%, sort of 1%-1.5%, approximately.
Okay, 1.5% of the decline is from that. Okay. If you're looking at the Q2, in terms of the placement with channel and the actual consumption, from farmers, what is the trend you saw in the Q1, and how do you see the actual consumption from farmers, increasing in the Q2? Can you give us some, you know, color on that? Because there's a lot of concern about the placements not happening because of the reluctance of farmers to buy. Are we behind? Is that phase behind us? Do we see the consumption by farmers encouraging the trade to lift material? How do we see that, you know, in terms of the placement as well as the consumption?
Q1, we witnessed a lower consumption from the farmer, and that's why a lower uptake by the channel also. However, in Q2, beginning in July, with good rains, there has been huge uptake from the farmer across the country and across all the crops and across all the geographies. The consumption level has really gone up in the month of July. We hope to see this trend continue for almost entire Q2. With good rainfalls and good groundwater, good reservoir waters, the agriculture is going to be on a rebound in Q2 as compared to Q1. We have also witnessed this in terms of the sowing data all over India. Sowing data was lagging far behind. By the end of Q1, whereas in the month of July, we have seen sowing not only catching up, but actually exceeding.
All those are positive indicators for agri-input consumption.
In terms of your gross margins and financial performance, based on this improvement in consumption, how do you see that compared to Q1? Will there be an improvement in margins? Obviously, the top line will grow, but is there any sacrifice in margins in Q2 because of the large effect of, you know, the ability to pass on prices and input costs? Will the margins improve?
Yes, definitely, we are absolutely hopeful that in Q2, margins will improve.
Okay. A broader question in terms of the concern about China dumping material and the overall supply chain for the industry, both in India and overseas. We, are we, at the bottom in terms of price correction, and have you seen the worst in terms of the inventory and supply unloading from China, or will that continue for some time?
Well, it seems that we touched a bottom in many products where concerned about price correction. I don't know, this dumping of finished products from China is practically not possible because that is a significantly regulated industry. Central Insecticides Board and the registration process really controls who is able to bring that, which also acts as an economic barrier for any dumping in the country. Having said that, there could be a scope of price correction for few more products, but mostly we are seeing price stabilization, and some products are even demonstrating some price increase. Some products are getting challenged on the availability side. All those indicators are positive and favorable when it comes to the price and probably the gross margin going up.
One last related question. In terms of supply chain for intermediates and AIs, you are well placed in terms of availability, and Chinese situation is not going to impact the supply of materials for the growth of the industry?
Yeah, I think so. India is well placed on that front.
Thank you very much, and wish you all the best. I'll join the queue.
Thank you. Thank you.
Thank you, sir. We take the next question from the line of Richa Agarwal from Equitymaster. Please go ahead.
Sir, thank you for the opportunity. My question is regarding Dahesh plant. You, I think you said INR 50 crore kind of revenue we expect this year. Just wanted to know, will it contribute to margins positively this year? Do you expect utilization by next year? If yes, then what kind of revenue potential do we expect there? Revenue and margin on full utilization.
Yes. If you look at the gross margins from the Dahej technical plant in this year, we'll expect some contribution at the gross profit level. If we talk about the next year, we can see anywhere we are expecting the plant to be at 80% capacity in next year. That would lead us in the revenue around INR 80-100 crore from the existing plant.
Okay. Let's say it takes two more years to come to. I mean, is it a fair assumption for us to, let's, let's say it takes two more years, what kind of margins do you expect from this? I know some part is the captive consumption, you know, whatever incremental revenues that we get, any, any guidance or idea on that?
See, over two years, we are looking at some further CapEx on the plant for establishing more production capacity. It will depend on the market forces at the time. Currently, the market forces are completely unfavorable. Over the next two years, as the prices are now already stabilizing and we expect the prices to improve over the next two years, definitely the margin profile will improve.
Okay. Sir, every quarter, your mix, you know, between herbicide and fungicide, et cetera, keeps changing. I just wanted to understand that is there any particular category that has high margins that you would like to contribute more? If you could just give us a, you know, ascending order of margin profile of the mix that you have.
India is predominantly a insecticide market, in terms of the generics offerings from Dhanuka and from the industry is significantly higher on the insecticide front. However, Dhanuka has been able to create a niche over the last few years with our various Japanese collaboration, we have introduced many specialty herbicides and its variants. For example, Targa Super, Sakura, Chempa, Terminal, Dozo, Max-Soy, and so on. We introduced Sempra. Last year we introduced Cornex, we have introduced Tizom this year, which is another herbicide for sugarcane. Our entire portfolio on the front of herbicides has become extremely strong, specialized, targeting specific crops and specific problems, which gives us a very different leverage in the market vis-a-vis competition. In general, I don't think so, we can categorize margins based on insecticide, fungicide, or herbicide as categories.
These margins are dependent more about individual products and the competition therein, rather than the category itself.
Okay. Sir, there's a significant increase in, you know, ITI index. Do you expect to maintain it at these levels, like it's up from around 13%-19%? Assuming that, you know, you didn't have the challenges related to inventory, what kind of margin expansion do you expect because of this, if, if this can be sustained?
ITI index is outcome of years of effort in terms of trying getting original registrations and good products, sustainable products from our principal companies from Japan. It is this outcome which is playing out favorably in the interest of the farmer and for the organization also. We really hope that our efforts will be playing colorfully with our new products coming in back to back and commercializing faster, which will also give a boost to the margins overall.
Okay. Okay, thank you so much.
Thank you. We take the next question from the line of Darshita from Antique Stock Broking. Please go ahead.
Thank you for the opportunity. I just have one question regarding the export business. What kind of revenue did we see in the Q1 from export, if any? What kind of contribution are we seeing for the full year from export business?
In the Q1. Sorry. Yes, Darshita, continue. Okay. In Q4, I think, you asked first. In Q4, the contribution was less. In Q1, there has been demand challenges in the international market for our products. For the entire financial year 2023-2024, we are expecting revenue of about INR 30 crore, but that is already included in the revenue guidance given earlier. All right. This will largely be of the formulation portfolio that we have, or would it also consider the Bifenthrin and Lambda that you plan on manufacturing? This is a part of the formulated products. The Bifenthrin and Lambda technical export opportunity is over and above this.
All right. Are we expecting any of that in FY 2024, or it would largely the electric would be in FY 2025?
No, of course, we are expecting, good revenue from exports from, the technical plant itself.
All right. I, I mean, we've had any, so a-are we looking at just Nepal, Bangladesh, these regions, or are we looking at any others? I mean, have we received registrations from any other regions for Bifenthrin, firstly? Secondly, I mean, do we have any discussions going on with any of the counterparts in those regions for sending Bifenthrin over there?
As of now, I cannot share any specific geographies, but we are looking beyond the neighboring countries, and we are looking at opportunities in different countries across the world.
All right. Okay. Thank you so much.
Thank you. The next question is from the line of Mr. Himanshu Binani from Prabhudas Lilladher. Please go ahead, sir.
Yeah, hi. Sir, thank you for taking my question. My question was largely on the commentary which you made in terms of a better growth, which you witnessed during the month of July. Just wanted to have a sense in terms of which zone has been contributing to this sort of growth. Because the reason basically behind asking this is when I actually look into the last five years, Q2 performance, it is the West India, which has contributed to a high chunk of the overall revenues. What we have been seeing in the recent past is that the West India has been going through some sort of adverse climatic condition in terms of heavy rains, et cetera.
How, how should actually one look into the Q2 and the performance, particularly from the Western India during the Q2? Yes. Thank you.
Actually, you know, good rainfall is mostly appreciated in agriculture because it contributes to the upgradation of groundwater, it upgrades the irrigation system, it upgrades the wells, reservoirs, and it substitutes for the irrigation by the farmer in its field. Heavy rains do cause damage to life and property, but mostly in urban and marginalized areas in urban communities. These damages are mostly caused by, you know, uprooting of trees and such. Agriculture relatively is not so damaged because the water gets absorbed in the soil and is also drained out relatively faster. This rainfall, actually, the way we look at it is, as the water recedes, is going to be favorable for kharif, which is the Q2, as well as for rabi, which is the Q3 and the Q4.
This is going to play out favorably in entire West India, Central India, and also in the Southern Peninsula and north, where it has rained favorably for almost all the crops.
Got it. Because, sir, one follow-up basically regarding this only. What, what we have been like reading in terms of like the government recently banning the non-basmati exports also, and the reason behind that was we have, like, witnessed some sort of, like, crop losses, particularly in the Western India, due to the higher rainfall. Maybe.
Sorry, I, I didn't come across this news.
The.
West India does not contribute towards paddy production in the country. Madhya Pradesh is the largest paddy producer, and that's basmati.
Because, the news, news article, what it was stating is that there has been, like, some sort of, like, heavy rains into the eastern belt, eastern UP belt, and then there has been, like, rainfall into Punjab, Haryana, which in turn has, like, resulted into this sort of action from the government.
Yeah, Haryana, right. Let me link up all these dots together. The ban on non-basmati paddy is because government expects global food constraint. Global food constraint coming out of the grains embargo being broken between Russia and Ukraine. If you would have followed that news, Russia had allowed grains export from Ukraine, and there was that treaty, which has now been broken. That treaty no longer exists, and Ukraine is not able to ship out wheat and other agriculture produce, which will lead to food shortage globally, sooner or later. Now, we don't want our country to be falling in the trap of food shortage, and that's the reason government has put a embargo, a ban on non-basmati export. That's one. North India saw some good rainfall.
You are aware that good rainfall is actually beneficial for paddy crop, unless it damages with its high speed and flow. That has not happened in Punjab, that has not happened in Haryana, so that rainfall has actually been good for paddy. When we talk about the western part, the western part, the heavy rainfall has caused some damage to cotton, soybean, and groundnut in the parts of Gujarat and Maharashtra. That losses actually are recoverable and are going to turn out to be favorable for the farmers in Gujarat and Maharashtra. Maharashtra is also the catchment area for dams and rivers in Karnataka, so this is going to be favorable, significantly favorable for Karnataka agriculture also. Overall, these rainfalls are going to give a boost to the agriculture production in the country. The crop damages are there.
They are relatively in smaller pockets. The impacted farmer is certainly there, and government should be creating a mechanism to reach out and support such impacted farmers. Agriculture in general, country in general, stands to benefit.
Got it, sir. So one last question, basically, from my side, and that would be largely regarding the inventory position. Maybe you can comment anything on the zone-wise inventory position in the country as on, like, July end?
Well, July end would be a tricky place because it's just ended. We have not even breathed in that part. However, across the country, the consumption has been on a high in the month of July. I think so whatever inventory the channel was inventory shy in Q1, but in July it has been a fast movement coming in and getting consumed. I think so the inventory levels in the channel shouldn't be very high by July end. Actually, channel is asking for more material and a speed with which industry cannot service.
Maybe any color on the zone-wise inventory level?
I don't think so we have that now. Not now.
Sure. Sure, sir. Thank you. Thanks a lot.
Thank you. We take the next question from the line of Mr. Prashant Biyani from Elara Securities. Please go ahead, sir.
Yeah, thanks for the opportunity. I had one question. We have been looking for some tie-up with Japanese companies for our technical plant, if we can share any update on that, where are we on that?
Not now. Not now. We can't share any update now. At the right time, we will.
Okay, okay, without, I mean, without, any update, but, what sort of a association are we looking with, from them, if something on that front can be shared?
See, I think so this would be a larger question in terms of how the chemical industry globally is behaving. If you'll be aware, you know, few European countries have given out a mandate to their chemical and other industries to necessarily establish a China plus one supply chain. That directive is going to be really favorable for chemical industry in general in the country, supported by various government initiatives, including PLI. I think so this question of yours in terms of Japan, Europe, America, looking at India as a chemical manufacturing hub is a more bigger opportunity rather than the kind of opportunity of we classifying the type of opportunity that we are working on. That classification would probably just be very limiting.
Sure. Is it possible that, you know, many of those multinationals are already operating in India, so rather than, asking the Indian entity of those multinationals to expand the business, they associate, incrementally from here on with, companies like us or any other company?
Yes and no, because, yes, many entities are existing in India, but you would be following the various other chemical companies' prices and yields, the way they are behaving on the share market and otherwise. Anybody's guess on what side this is headed.
Sure. Any outer timeline which you can share for this?
Not on this one. Not on this one. I think so this would also be restricted in terms of what we can share.
Right. Thank you from my, that's it from my side.
Thank you. The next question is from the line of Mr. Rohit Nagraj from Centrum Broking. Please go ahead, sir.
Yeah, thanks for the follow-up. Just one clarification on the China front. We've been hearing from competitors as well as from the industry, that in the last few months, the ingress of Chinese agrochemicals is also significant. What is your perspective in the recent times, whether that particular phenomena has stopped in the month of July or whether it has reduced significantly? An allied question to that, we also hear that in the last one, 1.5 years, there have been a good amount of capacity additions in the generic market in China. Does that have any threat to any of our products in the portfolio? Thank you.
May I ask you which companies are giving this news?
You will have to answer that one.
Yeah. Yeah, China is global chemical factory. China is the largest manufacturer of all.
Sorry, one. Yeah, sorry.
China is the largest manufacturers of dyes, pigments, chemicals, pharmaceuticals, agrochemicals, and in, in all domains and directions. Which is, and the import and consumption in India for agrochemicals has been pretty high and has been growing. China has become an important supplier of agrochemicals and intermediates for India. That is how it is in the current context. Agrochemical import is a licensed business and is regulated by, through registrations by Central Insecticide Board. Only registered entities can bring in their products in the country, which takes about 6-7 years to get one registration on that front also. That continues unabated. That opens up the opportunity for us when we are setting up the Dahej plant, that we can be producing various intermediates and technical grade products to substitute that import. That's actually an opportunity.
China capacities on the brand side are only favorable because that offers us competitive edge in terms of pricing, and with the brand footing that we have in the market, we are able to create that value for the farmer.
All right. Got it, sir. Just one question on the exports business. On the synthetic pyrethroids, on a steady state basis, what is the margins that we are looking at? I mean, when the pricing normalizes, when we reach, say, optimal utilization for the plant, what are the operating margins that we are, you know, penciling in? Thank you.
Dipesh?
Yeah, I believe, once the prices are stabilized and with the current portfolio only, we can expect a gross margin in the range of 20%-25%.
At the EBITDA level?
EBITDA level for the current financial year would be negative. Over a period of time, definitely the EBITDA should be positive in next couple, 2-3 years.
Sure, sure. That's helpful. Thank you so much, and best of luck.
Thank you. The next question is from the line of Mr. Rohan Gupta from Nuvama. Please go ahead, sir.
Yeah, hi, sir, good evening, thanks for the opportunity. Sir, question is on procurement of some of the raw materials which you were earlier also doing from China or also you buy lot of material from the Indian players as well. With the significant dumping done by the Chinese player, I think that even domestic market has also been under pressure. I mean, I'm talking about the material supplier for you. Have we resumed to increasing our sourcing from China, or the pricing there is right now still better than the Indian sources, or Indian sources are still matching up the prices of the Chinese manufacturers? If you can just give some sense on them.
I heard this before also in the call about dumping from China. This is something not understood by me. What is this dumping by China?
Okay. I mean, sir, definitely they're selling the product at a much below cost or, just because of the inventory liquidation, they have offered the many product at a much below prices, what Indian players probably could match, and that's what the Chinese player have been able to push the inventory into the system.
Right. That's certainly been an advantage on that front, that we get competitive products from China most of the times. Indian capacities for various products are actually now coming up in a very strategic way. Our procurement from India has only grown, and also our procurement from China remains the way it is.
Okay. My question was basically, yes, over a period of time, we have increased our sourcing from India, but we are a asset-light business model, and we depend more on the raw material suppliers, supplies from others. Just wanted to understand, in last six months, have we increased our sourcing from China more, or is the Chinese prices are still at a discounted rate than the Indian players could otherwise have provided you?
Chinese prices are now increasing gradually, so we have seen an uptick on the Chinese prices also. Last six months, our procurement has been balanced in terms of what we procure from Japan, from China, and from the domestic markets. We would have hardly done any substitution.
Okay, there has been actually no change in the sourcing, arrangement, I mean?
No change.
Okay. When you say, sir, that you have already started witnessing the increasing or reversal in the pricing trend, this is across the generic or in some products, and we see that, that the probably the bottom for most of the product line is made?
Yeah, I think so the bottom for most of the products is hit. It's now only going to look up is a feeling we have.
Okay.
Those are in debt also coming out because of the global consumption being in place.
Sir, in that case, like how we were impacted negatively by the falling raw mat prices, now, when the prices are reversing and we must be in a preparation of solid Q2, we must be sitting on a huge inventory, which we would have bought in month of maybe, actually June, which would have been low-cost inventory. Is there any fair amount of chances that now that we should be benefiting from the pricing gain or the low-cost inventory should help us in terms of gaining more market or at least improving some margin in a subsequent quarter if the demand scenario in the industry remains robust, which you have just indicated?
We largely have an outlook on the demand scenario being positive, and we are looking forward to upgrading our margin by about 200 bits.
So for the full year, you are saying that we are looking at gross margin expansion by 200 base?
Yeah, that's right.
Okay. Sir, in general, the prices still are lower on Y and Y, right? Compared to on a price-led decline, still will be there in our revenue. It will be only probably volume growth, which will be having a positive impact, but the price impact still will be negative only for the full year basis, right?
Far it has been negative. Now, Q2 consumption will decide the journey forward.
Yes, I think, the full year, I see price difference will be around 1.5%-2%, maybe. Yeah.
Okay, only percent to 2%. sir, Rahul sir,
Manzar, you were saying something, sorry.
No, no, I'm, I'm done.
Okay. Rahul sir, just only one sense on the industry growth for the current year. I mean, definitely Q1 was bad, but that was for everybody. What is your sense for the industry growth in volume term for this year?
My forecast on this front has mostly gone wrong, so you really need that?
Sir, you are, you are dealing with the farmers and the market in day in, day out, so definitely your sense on that will be really helpful.
If agriculture is doing good, I think so everyone associated with agriculture will be doing good. You can see this as a matter of trend in fertilizer consumption, in DAP consumption, in tractors movement, and also in agri import. I, I think so industry will witness a double-digit growth.
Okay, Rahul. That's it. That's very helpful. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.
In the end, I would like to thank all the participants for joining us today. We are looking forward to a great Q2. Dhanuka is committed to transforming India through agriculture. Our purpose is to strengthen the nation by providing sustainable agricultural solutions and bring honor, pride, and abundance for the farmer and farming. "...India ka pranam har kisan ke naam." Thank you.
Thank you. On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.