Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar. Thank you, and over to you.
Yeah. Thank you, Mike. On behalf of Antique Stock Broking, I would like to welcome all the participants from the call of Dhanuka Agritech. From the management, we have Mr. M.K. Dhanuka, Managing Director, Mr. Harsh Dhanuka, Executive Director, and Mr. V.K. Bansal, CFO on the call. Without further ado, I would like to hand over the call to Mr. Dhanuka for opening remarks, post which we will open the floor for Q&A. Thank you, and over to you, Mr. Dhanuka.
Thank you, Manishji. Good afternoon, ladies and gentlemen. Myself, M.K. Dhanuka, Managing Director of Dhanuka Agritech Limited welcomes all of you. I hope all of you are doing well and keeping safe. Thank you very much for joining us in this Q3 FY 2021-22 results conference call of Dhanuka. I have with me Mr. Harsh Dhanuka, Executive Director of the company, 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 the manufacturing and marketing of formulated products. The product portfolio is spread across insecticides, herbicides, fungicides, and plant growth promoters. Dhanuka Agritech is working for transforming India through agriculture by working with farmers closely to improve their productivity and quality, in turn enhancing their income.
We work in all major crops in India and have implemented the best-in-class technology to ensure a smooth and efficient supply chain. To service the diversity of Indian crops and needs of the farmers, the company has a wide range of products in its portfolio, with over 80 brands in pack sizes ranging from two grams to 20 liters. These products are in various forms like liquids, powders, and granules. Dhanuka have a pan-India presence through its marketing team and warehouses in all major states across India. With three manufacturing units, 40 warehouses, and 14 branch offices 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 technocommercial staff, supported by a strong 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 8 leading global agrochemical companies from the U.S., Japan, and Europe, which helps us to introduce the latest technology in India. The Government of India is taking several initiatives to enhance the role of agriculture in the growth of the Indian economy, such as increasing MSPs, eNAM portal, direct benefit transfer, and PM Kisan Nidhi. This is helping to create a robust farm foundation to enhance farmers' income, encourage wider adoption of high-quality seeds, and judicious use of pesticides and fertilizers.
In the budget announced yesterday, the Government of India has given emphasis on promotion of drone for spray of insecticides in the farmer's fields, as well as for encouraging the pest attacks at particular place, so that the spray can happen only where the pest attack is there. Incidentally, Dhanuka has invested in a drone company, and this will basically help Dhanuka in times to come. In advance, we envisage that this drone business will flourish in India, and Dhanuka has invested in a drone company. There was an adverse impact of weather condition in the first half of the year, which has impacted the financials of H1 of the company. However, it was reversed from September, and the conditions became favorable for consumption of agrochemicals. This has helped the company to recover its performance.
Coming to the financial performance for Q3, revenues from operations stood at INR 356.86 crore in Q3 of FY 2021-22 versus INR 295.66 crore in Q3 of FY 2021, representing an increase of 20.70%. EBITDA stood at INR 61.74 crore in Q3 of FY 2021-22 versus INR 59.59 crore in Q3 of FY 2021, up 3.61%. Profit after tax was at INR 42.51 crore in Q3 of FY 2021-22 versus INR 40.04 crore in Q3 of FY 2021, up 6.17%. Coming to zone-wise share of turnover for quarter three of FY 2021-22, the North Zone contributed 21%, the East Zone contributed 11%, West Zone contributed 31%, and South Zone contributed 37%.
Regarding product category-wise share turnover for Q3 FY 2021-22, insecticides contributed 32%, fungicides contributed 19%, herbicides contributed 36%, and others, including PGR, contributed 13%. The board of directors have declared 400% interim dividend, that is INR 8 per equity share, having face value of INR two per share, which will absorb INR 37.28 crores. As discussed last time, the company is working on its greenfield project at Dahej, Gujarat, as per scheduled plan. Friends, I am happy to inform you that CIB&RC has approved 9(3) registration for a product thiophanate-methyl plus kasugamycin in its meeting held in December 2021. This product is developed jointly in partnership with Nippon Soda Co., Ltd., Japan and Meiji Seika Pharma Co., Ltd., Japan.
Dhanuka will market this product under brand name Genet, which will be mainly used in horticulture crops for control of powdery mildew. Further, CIB&RC has also approved a 9(3) registration for halosulfuron-methyl plus atrazine in its meeting held in January 2022. This product is developed in collaboration with Nissan Chemical Corporation, and Dhanuka will market this molecule under brand name Cornex. It is a herbicide to be used in maize crop. Friends, the third CIB&RC has also approved a 9(3) registration for etofenprox plus difenoconazole in its meeting held in January 2022. This product is developed in collaboration with Mitsui Chemicals Limited, Japan. We will market this molecule under the brand name Decide, which will be used for control of thrips in cotton and chili.
We are planning to launch all these three products in Q1 of FY 2022-23. As shared earlier, we have committed that Dhanuka will launch two 9(3) molecules every year, and this will be the first time that Dhanuka will be launching three 9(3) molecules in one quarter, which is a great achievement. The company has signed a MoU on 20 December 2021 with Govind Ballabh Pant University of Agriculture and Technology, Pantnagar, to jointly conduct research in crop protection chemicals. Also signed one MoU with Chaudhary Charan Singh Haryana Agricultural University, Hisar, for the same purpose. Dhanuka regularly organize various seminars, Krishak Goshtis, Sammelans, to educate our farmers about new innovative techniques of farming. Being India's leading agrochemical company, we are at the forefront of introducing digital solutions and innovations, streamlining policies, and collaborating with indigenous entities to boost the integration of technology across business segments.
In the same endeavor, we have tried to boost our reach through online farmer interactions and aggressive use of TV advertisements for our key products, such as Sempra, Targa Super, Mycore, et cetera. We are focused on expanding our market coverage through our network of distributors and our digital platforms, where we engage with the end consumer. We consider ourselves responsible towards securing the farmers' welfare and preserving food and nutrition security of the nation. We continue to strengthen our associations with the Farmers' Producer Organizations, Krishi Vigyan Kendras, and other critical institutions to increase our business expertise and boost our market presence. On this note, I would like to hand it over to the operator to enable us to take the question and answer session. Thank you very much.
Thank you very much. We will now begin the question and answer 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. We have the first question from the line of Varshit Shah from Veto Capital. Please go ahead.
Hi Dhanuka ji, hi Bansalji. Good evening, and thanks for the opportunity. First of all, congratulations that the good set of numbers given the environment in the market. Now, my first question is, if I look at your gross profit expansion of 14% and your ITI is actually lower YOY, so the reason the growth is coming from old molecules, but you've done much better volumes. Is that the right way to understand in terms of flavor of the improvement of the business?
You see the growth has come by virtue of both. One is our new introductions, that is Vankil and Tornado, and in Q3, largely growth is driven by herbicides.
Sure. Largely it's come from more of legacy products and hence, the ITI is lower. You've done better volumes in our legacy products. That's the right way to conclude.
Yeah. ITI is lower because of one or more reasons, because there was no new product introduction in the year 2018-2019. When we calculate ITI index, it is current year plus previous three years.
Okay. Okay.
Yeah.
Okay, I understand. Sir, second is my question on the Q4. If you see, there is some moderation in some technical prices, not across the board. From a kharif preparation perspective, channel filling might be tricky because prices may go down subsequently in Q1. How are you approaching this tricky situation? I think this is true for every player in the industry, but at least how do you plan to tackle this? Some update on the Dahej project when you plan to start phase I.
You see, you are right. It will place. Normally we are not replacing material aggressively in the Q4 for the next financial year. Yes, you are right, the prices are now basically up in some of the molecules are on very high stage. It is very difficult to sustain on that level. We are basically procuring few of the molecules very cautiously. I hope the price will basically improve in the beginning of March, basically start in the beginning of March.
Just to add to that, do you think that probably your Q4 wholesale sales might be lower than last year? Probably it might shift to Q1. Is there a possibility at least? Of course nobody knows it, but from a possibility perspective.
No, I think because we are not placing the material of generics in the Q4 every year, therefore there is no change, to our understanding. There should be a reasonable growth in Q4 as well.
Okay, sir. Lastly, sir, update on the Dahej project. I mean in terms of timelines, is there any change in timelines?
There is no significant change in timelines. As we have seen, given our estimate, our production will start in the FY 2022-2023 in the end, but normally revenue will come in the 2023-2024.
Sure. I think I'll get back to you. I have more follow-ups.
Right. Thank you.
Thank you. We have the next question from the line of Bharat Gupta from Edelweiss Securities. Please go ahead.
Hi, Dhanuka Ji. Hi, Bansalji. Good evening. Sir, couple of questions from my side. First, definitely in the Q3 performance, so definitely a strong top-line growth. I just want to get a sense, what has been the volumetric growth during the quarter?
During the quarter our volume growth was 18%.
Right. Sir, subsequently, we have taken pricing hikes, right? During the middle of the quarter itself.
Yeah, partly, not fully.
Sir, secondly, like we are introducing 3, 9, 3 products. What kind of a growth potential are we envisaging? These are our exclusive products for which we have a 9(3) registration, right?
Yeah. All these three products are 9(3) products we have the exclusivity with us. We are expecting a revenue of about INR 50 crores from these products in next three to four years.
Okay, sir. Sir, like just wanted to get more sense on the drone business, particularly, what kind of investments we have made in this business and like can you share some colors about how we are trying to differentiate with respect to the other competitors who are already present out there in this particular field?
No, we have, we see basically invested in a startup. To begin with, we have made a commitment of investment of INR 30 crore. Out of that, we have invested already INR 20 crore.
Right, sir. Sir, like, earlier also some couple of players who entered into this business. Like in terms of a differentiation, like, how are you seeing this kind of opportunity coming in place and what kind of a growth potential are you looking at in terms of the drone? Like what kind of outlook you have in mind with respect to this business?
You see, globally the pesticide spray are happening through drones. While in India, the sprays are being done manually, by keeping the drum on the back of the labor. So that is not good for the health of the labor who is doing the spray in the field manually. So now the drone technology, which is used world over, will come to India gradually, and the drones will take the sizable business of spraying in the field. Apart from this, the drone has the facility of camera being installed in the drones, and it takes the photographs of the field, and there is computerized programming from which it can be known that exactly at which place in the farm the pest attack is there, and the spray can happen at that particular place.
That way, the labor cost will be basically saved by using drones, and there will be uniform spray throughout the field, and we will save the cost of the pesticide also, because only spray will happen where the problem is there, not on the whole field. These will be the saving on the part of the farmers, which will help in increasing his income.
Right, sir. This is last question from my side, like pertaining to the unseasonal rains which we have seen in most parts of the country, particularly towards the end of December and first week of January. Just to get a sense, is there any, like, disruption in terms of the demand which we are getting out from the rabi or how do you see Q4 panning out for us?
Yes, of course, the late rains and the cyclones towards the end of November and beginning of December did impact the business, especially in the south and the east zones. There was a lot of crop damage in south zone with respect to paddy and chili, and in east zone with respect to potato, which are the important rabi crops for these regions. The business did get impacted in Q3 for these crops. In Q4 also there might be some impact in these regions.
Right, sir. We are confident in delivering the volumetric growth during the quarter.
Yeah, we are definitely expecting double-digit growth even in the fourth quarter.
Great to hear, sir. Thank you, sir. Wish you all the best.
Thank you.
We have the next question from the line of Prashant Biyani from Elara Capital. Please go ahead.
Yeah, thanks for the opportunity. Sir, how has been the liquidation in Q3 and in January month?
The liquidation, because we are not making any placement in the market, so whatever supplies are made by Dhanuka, they are liquidated in the market and, because the distributor does not keep the inventory with themselves. If the season is over and the product remains unsold, that is being returned back to the company. There is no inventory piled up in the market. In January, due to some unseasonal rains, definitely the consumption has impacted to some extent. We are confident to deliver double-digit growth in quarter four also. We do hope that, the February and March will be good months for rabi season, and we will be able to get the desired volumes.
Sure. Secondly, sir, the extended and colder winter, is it good from agrochemical consumption point of view, or it would be adverse for us as an industry?
I don't see any adverse or positive impact of this extended cold spell. Although from the farmer perspective, especially for the wheat farmers, it is very helpful to increase their output and the yield. Whatever the losses might have been there because of the rains in December, wheat farmers in north and central India, I think they would be able to recover with this extended cold spell, and they will have good money in their pocket for the coming next kharif season, which will help consumption in the next financial year.
Right. Sir, the initial rains in south that has delayed the season or that has made some sort of permanent damage for this rabi season? I mean, could that sale be spilled over in Q4?
No, we don't foresee much of the sales of Q3 moving into Q4 because of the rains. Besides the rain, there was a pest outbreak in South India in chili crop of blackthrips, which impacted the application of several products in the crop. Chili is a very important export-oriented crop, which is a good sales for Dhanuka products and for the industry in general. That got impacted severely in the Q3, and we don't see this being recovered in Q4.
Okay. That's it from my side. Thanks.
Thank you. We have the next question from the line of Dhruv Muchhal from HDFC AMC. Please go ahead.
Yeah, sir. Thank you so much. The question was, we see some margin pressure, EBITDA margin pressure, from year-on-year or quarter-on-quarter basis. This is despite your volume growth is quite strong, 18% volume growth. Earlier, I thought it's because of pricing, so that absolute number is more relevant. It seems despite the volume growth, the margin has come down a bit. If we understand correctly, larger portion of your business is more of specialty, where the global raw material price fluctuation does not impact you much because the technical suppliers are generally fixed in nature. The impact on margins then, is it because the generic portfolio which is getting significantly impacted or probably you are focusing more on markets again and hence the margin pressure?
No, it is mainly because of generic. You see, increase was very steep in Q3, and we could not pass on because a lot of inventory was available in the system because of the bad season in Q2. Because of which the margin is impacted and because of the impact on the gross margin, EBITDA is impacted.
Got it. It's time to. The understanding is right. The generic is primarily.
Yeah. That's right.
The specialty should broadly be similar.
Yeah. Absolutely.
Okay. Sir, if you can probably comment on, say for example, if the price increase for cost for the generics the cost increase for you is say X, how much of say 10 is 10. How much of the price increase have you already taken and how much is remaining for the remaining for the next quarters?
Yeah. You see.
Broadly.
There are two parts of it. One, there is a delay in the passing over of the increase. Secondly, if the increase is INR 10, we couldn't pass on first stage at, say, INR 2, and the second stage, again INR 2-INR 3. So in few molecules is still 50% is pending, and few of the molecules is around 70% is passed on, 25% is pending. In few molecules we have been able to pass on 100%.
Okay. Got it. The next quarter should be relatively better as you pass on the remaining portion. There's still some
It appears more difficult because, you see, now we are sitting in the month of February. Even in January, because you see this time the problem is that there's still a lot of inventory available in the system. Fully passing on appears to be very difficult because the increase is so steep that you see farmers looking for a change. For example, glyphosate prices have increased like anything. So you see we cannot procure the new raw material for supplying the glyphosate when LaNevo under the brand name of LaNevo. So there is a big problem in few of the molecules.
Got it. Sure, sir. Perfect. Thank you so much, sir. Thanks.
Thank you. We have the next question from the line of Rohit Nagraj from Emkay Global. Please go ahead.
Yeah. Thanks for the opportunity and congrats on good Q3. Sir, what was the volume growth for 9 months? For this quarter you indicated 18%.
Yeah.
For nine months.
9 months is around 1.85%.
Hardly a couple of percent.
Yeah, that's right.
I mean half by volume growth and half by pricing growth. Yeah.
Lower than half even.
Right. Fair enough. Sir, the second question is on the channel inventory. You indicated that the channel inventories are currently higher, and that's predominantly, I suppose, is for the other manufacturers and not for Dhanuka.
Yes.
We will be keeping inventories only to the tune of what we find that will be placed in the market, and will not flood the market with inventory in future.
Yeah. Yeah, absolutely. In our case, distributors are having a normal inventory which normally we are having every year.
Correct. Sir, in Q3, was there any impact due to unavailability of materials from China?
No, the availability was not an issue, but the prices was the issue, where the increase in the prices was to the extent of even more than 100%. For example, glyphosate, for example, atrazine, paraquat, Pendimethalin, Dimethenamid-P. All these products, the price increase was to the extent of more than 100%, which is not acceptable to the farmers. The farmers are shifting to other products instead of using these products. Because of the price increase, the sales volumes of these molecules has impacted. The availability was in one or two products it may be, but in general there was no availability question.
Right, sir. Got that. Sir, given that, in nine months, we have done top line growth of about 4% and, EBITDA is actually, a 3% decline. Given the Q4, volume growth that we are looking at in double digits, would our FY 2022 EBITDA will be flattish on a YOY basis, or we still may have some decline on YOY basis?
Definitely there would be decline in bio VBS, you see.
Oh.
2021 was an exceptional year and gross margin was, you see, highest in Q4 of the last year. This year there is a change, so I'm expecting EBITDA should be range of around 18% in the FY 2022.
All right. FY 2023, what are we expecting in terms of the volume growth and EBITDA margin?
It is slightly early to comment because you see, we are dependent on monsoon. If the monsoon is good, we are very much sure our growth must be in double digit. The growth in double digit, then EBITDA must be improved upon the next financial year.
Right. Got it. On the Dahej expansion, if I'm right, we have indicated that our formulation plant in phase I will be ready by March 2022, and then the rest of the plants will be coming by March 2023. Is the understanding right or is there
Yeah, your understanding is absolutely right, but we got an extension of one year, so therefore, we'll start the production by March 2023.
Effectively, in FY 2023, there will not be any contribution from Dahej project. However
That's right.
In terms of CapEx, by March 2022, we will be investing about INR 80 crores and by March 2023, another INR 130 crores. That particular CapEx outlook remains the same, right?
You see, overall CapEx will remain the same, but in the year FY 2022, the CapEx would be in the range of around INR 50 crore, right? Next year-
Right.
It should be around 130.
Sure, sure. Thank you so much, sir, and best of luck.
Thank you.
Thank you. We have the next question from the line of Varshit Shah from Veto Capital. Please go ahead.
Hi. Thanks for the follow-up. Sir, given that we have the revised CapEx plan which you just alluded to, and we have already declared the interim dividend of INR 8, could we envisage just in terms of where our cash payout to shareholders might further increase in the next year given that we have strong cash flows already in place?
You see Dhanuka is having the dividend payout policy of minimum 25%. It depends on the board. We may consider if the board approves a higher payout to the shareholders in the next board meeting.
That's very helpful. Sir, my last question is, given that we have actually survived the bad year of 2022 in terms of growth because of the high base, do you expect that given that the generic prices have gone up significantly, our specialty portfolio should have more slip at least for going into FY 2023 because the price differentials in some of the alternatives actually have reduced by more than 25%. Is it something which you can actually push more of specialty products in 2023? My second, I have one follow-up also on that.
Actually, farmers use both kind of products, specialty as well as generics. There are small landholdings and the small farmers, they use the generic products and the progressive farmers use the specialty molecule. We have more than 13 crore farmers, so both generics will be prevailing as well as the specialty will continue to prevail in the market. Definitely generics prices are higher at present, but we do hope that after the Winter Olympics in China is over, the situation will change and the prices will start reducing. I don't foresee that they will come to the previous level, but definitely there will be correction in the generic prices after the Winter Olympics in China.
Sure. Sir, another question is on the plant growth nutrients, the PGR category. We had done very well in actually Q2 because of the shortage of fertilizers and high prices of fertilizers. That seems like a very interesting portfolio. My channel checks indicate that you have done well even in Q3 as well. Can you just throw some light on exactly, I think Rahulji was alluding in the previous quarter, how aggressive we are on that space? Do you see that growth sustainable going into FY 2023 as well, assuming that fertilizer prices and supply normalize to sustain these levels?
One of the molecule Mycore, we have introduced in technical collaboration with Agrinos, which is a multinational company. This product is doing very well and we have doubled our turnover in this year in comparison to the last year for Mycore. We do hope that in next year also we will be increasing our volumes for Mycore. The other PGR, they are stable. We are not able to have much growth in the other PGRs like enzyme, et cetera.
To add to that.
Just like to inform that the government has come up with new guidelines where all these products like our brand Dhanvarsha, Dhanzyme, they will be covered under the FCO. We have already invested in this year a substantial amount to do all the efficacy trials along with agricultural universities and generating all the data so that our all these products, Dhanzyme, Granule, Dhanzyme Gold, Dhanvarsha, they will be covered under the FCO. In future, we will not face much problem in selling these products as right now they face certain issues in some of the states.
Sure. My question was specifically more on Mycore because they've done exceedingly well. You think you can sustain or even grow in FY 2023, specifically to Mycore at least?
Yeah, absolutely.
Oh, great. All the best. I'll get back in the queue.
Thank you.
Thank you. We have the next question from the line of Prashant Biyani from Elara Capital. Please go ahead.
Yeah. Sir, what would be the share of generic, or sorry, specialty molecule revenue in quarter three?
Quarter three is around 60% specialty, 40% generic.
How much would be the growth in specialty molecules in Q3?
Growth in specialty molecule and generic not a significant difference. It's almost similar.
Sir, is it that generic molecule portfolio would broadly be loss-making in this quarter? I mean, even though we're going to bifurcate segment-wise, but just an observation.
No, it is not loss-making because you see we are having the, you see, inventory, old inventory in the system as well. Yes, there was a, you see, margin has reduced significantly. Margins are eroded, but not a loss-making provision at all.
Okay. Okay, sir. Thanks.
Welcome.
Thank you. We have the next question from the line of Saurabh Kapadia from Amsec. Please go ahead.
Thank you for the opportunity. Sir, just from your three new products, launch, next year. You mentioned the peak potential revenue of INR 50 crore?
not the peak potential. This is the potential that we are talking in next three to four years. Of course, for a new products, it takes some time to take the message to the farmers across India. In future, the peak potential may be double of this.
For all the three combined products, right?
Yes, yes.
All the-
Of course, all three combined.
Okay. What is the period of exclusivity for all these products?
Minimum five years.
Okay. Sir, just one more, you know, question on this, your investment in IoTechWorld. You know, by when you are planning to, you know, use the drone technology, you know, to provide services to farmer? How we should look in terms of, you know, your investment in this company?
You see, it is just an investment in a start-up company.
At least for next one and a half year, we don't see any meaningful, you know, tie-up with that and, you know, using our providing services to farmer for spraying the pesticides?
That is altogether a different question. We can definitely use drones for providing services to the farmers. It is very early to comment. It is under consideration. It is nothing to do with the drone investment. Investment is a start-up. For now the government has allowed the spray of insecticide through drones. Now that opportunity has arisen. It is before us, in front of us and every company. Government is giving subsidy on purchase of drones to the societies. This will help in basically increasing the usage of drones by the societies and FPOs.
Do you see the possibility of, you know, using more mechanization then there'll be more demand for the specialized product and your generic products, you know, volume will maybe stagnate and the specialized product demand will go up?
Possibility is there.
Okay. Sir, last one. Is there any cost escalation in your, you know, new projects? Because we have heard many companies are talking about cost escalation because of the logistics issues and also is there anything with Dhanuka?
Could you repeat your question? I could not get you.
The CapEx-related, any cost escalation, you know, as compared to our earlier estimates?
Cost escalation in the Dahej project you are talking?
Yeah. Yes, yes.
It will be too early because right now we have not made much investment and we don't foresee. We have kept 10%-15% in contingencies. We do hope that we will be able to manage within the contingency plan. If any escalation will happen, we will come to know after certain period of time once the project takes more shape. Just to add that, you see, as per our current estimates, I think we are, we must be able to manage within our budget because we have already planned such contingencies.
Okay, sir. That was very helpful. Thank you.
Thank you. We have the next question from the line of Rohit Nagraj from Emkay Global. Please go ahead.
Yeah, thanks for the follow-up. Sir, did we see any working capital stress during the quarter?
Yeah, definitely. NWC has increased by 6 days, excluding the current investment. It has increased from 102 days to 108 days.
We don't foresee any, you know, bad debts from this. It's just a delay.
Yeah. Routine.
All right.
Yeah.
Correct. Sir, the second question is, in terms of the collaborations or MOUs that we have signed, any specific projects that we will be working on with those universities or any particular area of the agrochemicals that we will be working on?
These MOUs that we are signing with the universities, several of them are focused around application of pesticides through drones. We are trying to do a lot of research on drone application because the water volume is less, so we need to be very careful about any crop damage with drone application. These are the areas where we are tying up with the universities, as well as for the trial of new products of Dhanuka for various crops and diseases.
Right. Got it. Just one last clarification on the biologicals. We had indicated that we will also be given the traction that is seen, not only in the Western world, but in India as well. What are the steps that we will be taking, say, in FY 2023 to tap this particular opportunity?
We have already done some market research and we are looking at appointing a separate team for biological division. It appears to be a very positive opportunity going in the future. However, the initial growth is quite slow in India due to a lot of biological products in India we marketed are actually spurious products. It's a very challenging space to enter in the market. Definitely the two biologicals, microbials, this is a very exciting space for the future and we are looking at market entry strategy for this segment.
Right. Got it. Sir, just one last clarification. Given that, Dhanuka Ji has been very vocal on the spurious products, anything that has been coming from the government in terms of how to tackle this issue or any material steps that are being taken by the government? Thank you.
You know, Mr. R.G. Agarwal, who is the chairman of the company, is also chairman of the committee of FICCI on agrochemicals. As he is the chairman of the committee, he happens to meet the government officials at senior level, secretary level, joint secretary level, et cetera, in the government on FICCI platform. He is taking up this issue because the farmers are being impacted because they don't know what is genuine and what is spurious. They pay for the genuine product and get the spurious material. Which is basically very harmful for our poor farming community. They are being cheated by some of these unwanted, basically, people. He is taking up this issue and some action has been taken by the government, like this.
QR code.
QR code is made mandatory on every product so that it will be easy to identify whether the product is genuine or not. That QR code is making mandatory by the government. This is one initiative taken by the government to stop this menace of the spurious pesticides.
Thanks, sir. Got it. Thank you so much and best of luck, sir.
Thank you. We have the next question from the line of Bhavya Gandhi from Dalal & Broacha. Please go ahead.
Yeah. Thank you for taking the question. Sir, as I understand, we are more of a domestic player, and right now you see there's a resurgence in global demand for agrochemicals. We don't want to tap this market. Like, are we focusing on exports?
You see, Dhanuka is purely a brand sales company. We are in formulations only. We are not manufacturing technicals. Now we have started work on our Dahej project where we will be going for backward integration, that is manufacturing of technical grade pesticides. The exports are mainly happening for technical grade pesticides, not for the formulation. So there was very little opportunity available for formulation for export. While once we will enter into technical manufacturing, definitely there will be opportunity available for export. And you are absolutely right that exports are increasing much more in comparison to the domestic consumption. Because of this China issue, the companies want to have one more reliable source, and India seems to be more reliable in comparison to China.
The eyes are on India, and the government is also supporting Make in India concept, and lot of investments are happening in India. We do hope that the capacities for technical manufacturing will increase in next two to three years. Dhanuka will be also in exports once we enter into the technicals.
Right. For technical also we need lot of registrations globally, right? Any registrations in pipeline for export market?
Not right now. There are some countries where export registrations are not required, undeveloped nations, like African countries, et cetera. But developed nation, definitely the registrations are required. Once we have the technical factory plant ready, only then it will be basically we will be able to get the registration for export in those countries.
Right. Sir, you mentioned that glyphosate pricing has risen, has skyrocketed, so farmers have started having substitutes. What are those substitute products or compounds? If you could name them?
Your voice was breaking. Question is not clear to me.
Substitute was, say for example, in glyphosate, paraquat, one substitute.
Another substitute for glyphosate was glufosinate, which is being sold by only one or two companies in India, as of now. They got good advantage because of that.
Okay.
Fair enough, sir. I'll get back.
This is the operator. Sir, are you connected with us?
Yeah.
Yes, sir. You may proceed.
I think we have answered the question.
Sure, sir. We'll move on to the next participant.
Yeah, of course.
We have the next question from the line of Anandha Padmanabhan from PGIM India Mutual Fund. Please go ahead.
Thanks for taking my question. Sir, government has been quite vocal about chemical-free farm, chemical-free farming and organic farming, zero budget farming, and even in yesterday's budget, they had spoken about taking five-kilometer wide corridor along Ganga at first stage for promotion of chemical-free farming. Over a medium to longer- term, do you think that could be a big risk to this sector? Could this particular focus of government be a big risk to the sector?
I think government has been talking about natural farming or chemical-free farming for long time. If we see the bigger picture, it is definitely not a sustainable agriculture on large scale. Example, you know, Sri Lanka last year, we know, went suddenly overnight to completely chemical-free farming.
Right
They had severe impact on their economy, where the crop prices shot up very sharply. They had to revert their decision within I think three months or four months after taking such a decision. It is definitely not a long-term prospect to completely shift all the agriculture. However, definitely there will be space for organic farming or, as they say, zero budget farming or natural farming. It will create its space, but we don't see it becoming a mainstream form of agriculture.
Could it hamper the longer- term growth prospects for the sector? Sorry.
If someone is ill, he has the option to go to homeopathy doctor, allopathic doctor and Ayurvedic. Most of the people are basically opting the allopathic medicine. Because the treatment from the Ayurvedic and allopathic is slow. It takes time. When there is pest attack in the field, farmer go for the insecticide to spray to safeguard the crops from pests and disease. Globally, less than 1% area is under organic farming. We are not against organic farming, but the cost of the farming goes very high. The Indian population, they will not be able to afford. Only the elite class in the big cities, they will be able to afford such organic farming. Otherwise, the general public cannot afford.
Definitely, organic farming, government wants to promote, but ultimately without the uses of chemical fertilizer and pesticides, sustainable agriculture and growth is not possible. We are adding one Australia in our population every year. Our agriculture land is shrinking because of the industrialization and urbanization. The biggest challenge is how to feed this increasing population with the lesser land. The only alternative is to increase the productivity, and for increasing the productivity, we need chemical fertilizer and pesticides. In India, we are consuming one of the lowest pesticides in the world. There is huge opportunity for this industry to grow by more usage of pesticides.
Thank you for that answer. That was my question.
Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Manish Mahawar for closing comments.
Yeah. Thank you, Mike. On behalf of Antique Stock Broking, I would like to thank the team of Dhanuka Agritech for providing us an opportunity to host the call. Dhanuka, would you like to make a closing comment?
To summarize at last, Dhanuka continues to demonstrate our ability to overcome challenges and emerge stronger despite uncertain business environment. We will aggressively roll out new formulations in the upcoming quarters and would ensure that it reaches to the consumers. I reassure our shareholders that we are committed to the task of transforming India, the landscape of agriculture in India, and will play an integral role in rewriting the future of a better and new India. We do hope that in fourth quarter also, we will have minimum double-digit growth, and Rabi is expected to be good because of the moisture in the soil and the reservoirs are full of water, so irrigation is not a challenge for the farmer. When irrigation is certain, farmer basically opts for the sowing.
We are confident that we will be able to deliver double-digit growth in quarter four. Thank you very much.
Thank you, sir. On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.