I would now like to hand the conference over to Mr. Anoop Poojari from CDR India. Thank you. Over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Godrej Agrovet's Q1 FY 2022 earnings conference call. We have with us Mr. Nadir Godrej, Chairman of the company, Mr. Balram S. Yadav, Managing Director, and Mr. S. Varadaraj, Chief Financial Officer of the company. We'll begin the call with opening remarks from the management, following which we'll have the forum open for an interactive question and answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Mr. Nadir Godrej to make the initial remarks.
Good afternoon, everyone. I welcome you all to the Godrej Agrovet conference call. I hope that you and your families are safe and healthy in these difficult times. The COVID second wave has severely impacted India in the first quarter, with daily cases touching a high of 4 lakh cases per day. Rural India was impacted more with nearly 50% of the cases and 50% of the deaths reported in rural India. Economic recovery, which was seen in the fourth quarter, was subdued from April 2021 onwards. All macroeconomic indicators such as the PMI index, GST collections, et cetera, started declining from April 2021. However, the situation has started improving from the 15th June onwards, with cases decreasing and lifting of the lockdown leading to a gradual recovery.
For the agricultural sector, the southwest monsoon started on a positive note, there was a large gap of 20-25 days of scanty and erratic rain, which lowered kharif sowing and the farmers' income. All input commodity prices were significantly higher due to an increase in demand in the domestic and international markets. On the other hand, output prices were lower in a few businesses due to subdued demand, especially from the HoReCa segment. Despite these situations, GAVL has been able to register a stable performance in the first quarter of the year. The financial highlights and key developments during the quarter are as follows. Consolidated total income was INR 2,003 crore for the quarter, compared to INR 1,562 crore in the same period of the previous year. Profit before tax was INR 137 crore compared to INR 134 crore in the previous year.
Now I will discuss the key highlights for each of our segments. The animal feed business had a very good quarter. Volumes were up 18%, driven by volume growth in cattle, broiler, and layer feed. This, coupled with price hikes taken, led to 34% growth in segment revenues. While raw material prices were at the peak, R&D benefit realization and strategic raw material stocking contributed to segment profitability, which grew by 32%. However, in the aquafeed business, shrimp feed margins declined as the raw material price increase could not be fully passed on to the farmer. In the vegetable oil segment, the oil prices were very remunerative and the oil extraction ratio was higher than the previous year. Crude palm oil prices increased by 76% year-on-year, and the oil extraction ratio was 16.95% compared to 16% in the previous year.
As a result, in quarter one fiscal year 2022, segment revenues grew by 84%, and segment results were 4x higher than quarter one fiscal year 2021. This is despite a marginal 1.6% increase in fresh fruit bunches arrival over the previous year. The standalone crop protection business posted sales growth of 15%, driven by higher sales of in-house products. Segment results grew by 6% as high raw material prices limited the growth in profit. It could have been higher, the good and early start of southwest monsoon was followed by a long gap of 20 to 25 days of low rain, which affected the sowing of major crops and thereby the demand for agrochemicals. Moving to the performance of our subsidiaries. In Astec LifeSciences, sales grew by 15% in quarter one, driven by higher sales in the domestic markets as exports declined.
Segment-wise, sales mainly consist of enterprise sales, and the first quarter is not a strong quarter for the contract manufacturing business, and a large part of orders are executed in quarter two to quarter four of every year. The EBITDA declined by 14% year-on-year due to high input cost inflation. Further, fixed expenses such as power costs, freight costs, and other fixed costs have increased due to normalization of business activities and the acute global container shortage. For our poultry subsidiary, Godrej Tyson Foods Limited, it was a very difficult quarter. End product prices declined sequentially as micro-lockdowns led to lower demand from the HoReCa segment. The raw material prices increased sharply over the last year due to higher commodity prices. As a result, while sales grew by 7.3%, the company reported a marginal loss at the EBITDA level compared to a profit in the previous year.
In our dairy subsidiary, Creamline Dairy Products Limited, sales recovery seen in the beginning of April o f 2021 was impacted by the decline in out-of-home consumption and the decline in demand from the HoReCa segment. Further, procurement costs increased over the previous year. As a result, while sales grew by 14% on a low base of quarter one of last year, the company reported an EBITDA loss of INR 3 crore. We believe that with the easing restrictions across states, volumes and sales will increase in our food businesses. GAVL's joint venture in Bangladesh, ACI Godrej Agrovet Limited, recorded strong revenue growth of 22% and PBT growth of 18% in quarter one fiscal year 2022. The growth is driven by strong volume growth in cattle and poultry feed. In these challenging times, we are ensuring business continuity along with maintaining employee safety. We are conducting a nationwide vaccination drive for company employees and families, contractual workforce, and our trade partners.
Nearly 88% of our employees have received the first dose, and we will cover the entire employee base with both doses shortly. With this, I conclude our business and financial performance update for the quarter and the year. We will now be happy to take your questions. Thank you.
Thank you very much. Ladies and gentlemen, 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 handset while asking the question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Requesting all the participants to please limit your question to two per participant only. You may rejoin the question queue if you have a follow-up. Thank you. We take the first question from the line of Depesh from Equirus Securities. Please go ahead.
Hi, sir. Thank you for taking my questions. Sir, firstly, on the animal feed segment, it will be helpful if you can please give the category-wide volume growth numbers. Also, in the last call, you spoke about the price hike taken in the shrimp feed segment, and you also spoke that the industry was further contemplating to take a price hike. Just wanted to know what stopped that, and what is the outlook on this margin because the RM price has continued to rise.
Okay. Volume growth in Q1 over Q1 of 2021 is cattle feed about 9.5%, broiler feed about 17%, layer feed about 20%, and aqua feed about 4%. Definitely, price rise was required in shrimp feed, particularly where inclusion of soya meal is substantial. Soya meal prices were rising at the rate of 2, 3% every day in the months of April and May. If you ask me, our contributions, which used to be about 14%, 15% at one time in shrimp feed had dropped to 4%, 5% because of delayed price increases. Two reasons. One was that the shrimp prices were very low, so the farmer, the association, et cetera, were requesting for delaying price increase. The other thing is that if you are following the news articles, I think Andhra Pradesh government is implementing several price controls in several commodities linked to agriculture.
That has also led to delay in taking a price increase, and that is why contribution levels in shrimp feed came down significantly. However, in last two months, we have taken a price increase of almost INR 7,000 a ton, but it is nowhere near what is required. Another good piece of information I wanted to give you was the government is likely to allow import of soya meal. Soya meal prices, which had gone to almost INR 100 a kg in last two, three days, have come down to about INR 85 a kg. Let us see whether government notification comes out in the next few days and how markets react. My sense is that even if at INR 85,000 or INR 80,000 a ton of soya meal, one more price increase will be required in shrimp feed to get to the historical contribution margins.
Got it, sir. Great. Thank you. Secondly, sir, this week on the palm oil business, government announced a new initiative on the palm oil production, where they plan to increase area to 10 lakh hectares by FY 2026 and further by FY 2030. My question is that previously also such initiatives have been announced. What are your thoughts? How this time it is different, and will this actually work out?
I think earlier, most of the initiatives were unilaterally taken by the government, and which were inconsequential and insignificant. I must congratulate the government this time because for last about nine months, an intensive consultations with the private sector player and the state government concerned has been happening. I think government realizes that there is nothing better than oil palm to produce quantity of oil palm per hectare as compared to other oilseed, which produce between 300 kilos-700 kilos per hectare. It is only oil palm which can give 3.5 tons per hectare. We have been engaged, and I personally have been engaged with the government for last nine months. There have been recommendations made by us where support to the industry and support to the farmer should be given.
It is not that it is not given, but now it is routed through the state government. We said that whatever support has to be given, now the DBT system is there. Those vehicles should be used to transfer funds to the farmers as well as processors. That will only give the boost to oil palm, because through the state government, subsidies take years to be realized. Apart from that, there will be a formula which has been recommended which will be beneficial to us as well as the farmer. Gap between the formula price and the farmer price will be paid by the central government.
Modalities are still to be understood, but I think that if whatever we have recommended, and all our recommendations are taken on board by the government, I'm very sure that we can accelerate production of palm oil in the country. Apart from that, there'll be a separate section for northeastern states, where the benefits will be several times more than what they will be for rest of India. Let us wait. I am also eagerly waiting for the gazette, which should be out in next two, three days. My sense is, I think that the kind of consultation the government has done, lot of our issues and expectations will be taken on board.
Great. Thank you, and all the best.
Thank you. Before we take the next question, a reminder to the participants again, please limit your question to two per participant only. The next question is from the line of Abhijit Akella from IIFL Securities. Please go ahead.
Yeah. Good afternoon. Thank you so much for taking my questions. Sir, first, just a clarification on the animal feed segment. In case this import of soymeal is permitted by the government at significantly lower prices, would that be a benefit for margins of the entire animal feed industry? Will we have to pass it on to the farmers, and therefore, it's really margin neutral? In that context, how do you see Godrej Agrovet placed relative to the rest of the industry in terms of maybe being able to retain some of the benefits of the lower RM cost?
First and foremost, there'll be significant benefits only in broiler feed and shrimp feed, where the quantum of use of soya meal is much higher than other feeds. Point number one. Point number two, I think most of the poultry players have not been able to pass on all the cost increases. One of the reasons why there is so much of clamor for early imports and so much pressure was built on the government because all the other players were financially stretched. There was a limit to which what can be passed on with chicken prices lower because of COVID, et cetera. My sense is that immediately the price reductions will not happen. Eventually they will have to be done, because our domestic crop also is only about five to six weeks away. That definitely will have.
How much of it is passed on, we have seen in such situations that entire cost drop because of soybean will not be passed on because remember, the players have been very stretched as far as margins are concerned in the past. We are reasonably insulated because of our R&D initiatives. We have been able to use other raw materials instead of soybean and protect our margins. Let us see, but my sense is that this level of margins which we have got is sustainable. I must also tell you that even though the market has shrunk, both in layer feed, fish feed, and in broiler feed, I think this is our time to use the play we have in margins to grab more market share.
I must tell you that the 70% growth which has come in broiler feed, in spite of shrinking market, is a huge jump in our market share actually.
Got it. Thank you, sir. The second question was on the oil palm segment. In the context of sharply higher prices of CPO and related products, we see the margin expansion seems a little bit maybe below expectations this quarter. Any specific reasons that you might want to point out for that? Also, I just wanted to check when we could expect to see the benefit from the higher oil extraction ratio that we've been talking about, the 0.4%-0.6% benefit on the OER.
Yeah. Let me answer your first question first. You know the formula. As the price goes up, the payout to the farmers also goes up. That is point number one. Point number two, Andhra Pradesh government unilaterally increased the formula price, thereby eating into almost 2% of our gross margin. I think that is the second reason why the margins are not expanded in the line of price expansion. Third thing is that if you see, don't look at absolute also, but even if certain contribution is also not reflecting the kind of inflation which it should have. Apart from that, the FFB arrivals have been a little subdued because of some dry period in June and up to mid-July.
It is still picking up because this crop is very different year-on-year. We are seeing, depending on monsoon and depending on a lot of other reasons, the production pattern keeps on changing. Our expectation is that its season has started late, and it is going to end late, and probably towards the end of the season, we will make up the FFB volume. Lastly, you asked me about OER. Definitely all the initiatives we have taken have resulted in improvement in OER, and we have reported almost 0.95% in the first quarter. I think similar improvement of OER or around that will be reported in second quarter also. Not only our plant modifications, R&D initiative to improve oil extraction, efficiency improvement initiative, oil loss controlling initiative. We have also started massive grading exercise at our collection center.
We are taking over most of the collection center ourselves so that we can keep a tab on the quality of fruit. Because during these months of June and July and partly August, because of monsoon and because of dry season, normally we pay for wood and water also. I think that thing will be controlled. These measures we will keep on strengthening because we are paying substantially higher than last year to the farmer, and we are going to expect more stricter quality performance from the farmer. I think that state government is cooperating as far as quality improvement initiatives are concerned.
Right, sir. I'll come back in the queue for more, sir. Thank you so much.
Thank you. The next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, a couple of clarifications first. If I got you right, in the animal feed market, you did mention that our thrust will be gaining market share. Does that come at the cost of margin or probably one can expect the current margins to sustain and there could be an incremental volume growth?
Yeah. Current margin is likely to sustain. Even if you have a difference in this quarter, it will be in basis point only. My sense is that this momentum of 17%-18% growth will be sustained in the current quarter also. Most likely what we are aiming for, because the season will start only from October, November onward, we will push our system further to get more market share, more volume growth in Q3 and Q4 at a similar margin profile. According to me, since the margin is good, we will go for improved market share this year.
Sure, sir. That's helpful. Secondly, on the crop protection side, last year we were focusing on higher collections, even at the cost of growth, if that would be the case. How are our thoughts this year? I did go through the commentary wherein we mentioned that there were certain delays in monsoon and hence slightly lower offtake. Structurally, what is our thought in terms of will we go for growth here, obviously keeping balance sheet intact?
I'm saying that even quarter one numbers look respectable, but I must tell you that the herbicide segment in the industry has been very badly affected because of this dry spell between 10th-12th June to 7th-8th July, which was the herbicide period. Both Hitweed Maxx and Hitweed are early-stage herbicides and those sprays should have happened from 20th-30th of June, which where we have a big dent now. Now, if you really ask me, two of our star products, if the targets are not achieved, and I can definitely tell you that even though we registered growth, we will not achieve our growth target we had set for this year. I think that we will have to scramble, and plans are underway to focus on lot of other products which we have to make up for the lost margin and lost sale.
I think we are in a little bit of a scramble right now. I will be honest with you that I think it will require us some effort to probably focus on some other high margin products to make up the shortfall of herbicide. Having said that, definitely market hygiene has always been our focus, and that will continue to be our focus. The start is not as we expected.
Sure, sir. That's helpful. Lastly, on the dairy segment. If I go by history, our performance has not been as great in this segment, and it has been probably almost five, six years now. What are our thoughts in terms of either ramping up this business because in between also we had changed the product profile, the quality of the products were changed, we had introduced new products. Somehow things are not clicking here. Any thought there? Where I'm coming from is, there has been a pretty impressive performance in a couple of segments, but that in a way gets overshadowed by sort of suboptimal performance by certain other sectors. This dairy segment has been a problem area for quite a while. Your thoughts there.
Let me just tell you that over last several years, we had made lot of changes. One of the big, I would say, structural issue with our business, which was not such a big issue pre-COVID, was the overdependence on institutional segment in milk and short shelf-life products. About 1/3 of our turnover in milk, in curd, and in ice cream bulk used to come from the institutional segment, which just vanished in COVID. The second thing was that over the last few years, we have been focusing on value-added products, and they had almost touched 30% salience at a very, very fast clip for us. Unfortunately, particularly in second wave, which was more severe in Southern India where most of our markets are, our value-added product sale, which is a very high contributor to our profit margin, just collapsed.
Coupled with that, definitely we had this spike of milk prices also, and buffalo prices are also all-time high in the history of milk industry right now also. I'm saying that all the benefits and all the changes and all the structural changes we had made there, the effect could not be, or the benefits could not be realized because of these disturbances. Having said that, let me just tell you a few more things. One is that I think we have stabilized a lot of things right now. We have brought back focus of retail in milk. Value-added products is just a matter of time. As the markets open up, which they have started opening up in last few weeks, the trend has been very encouraging.
I would say that, if you really ask me, our big question and our big effort is to get scale now. If we register a 15%, 20% growth for two consecutive years, I am telling you, as far as other parameters of the business are concerned and efficiencies of business are concerned, we are there. Now, if you ask me strategically, definitely, I would like to give myself a little bit of discount because of COVID, because several of our initiatives which should have worked have not worked. I would say we will still wait and watch. I am very sure that quarter on quarter, we will start seeing improved performance by whatever correction we have done.
In case there is another COVID wave or some other new mutation comes, we may come back to square one. I think that we know what is to be improved, and we will improve in future.
Sure, sir. That's helpful, sir. That's it from my side and off the page. Thanks.
Thank you. The next question is from the line of Madhav Marda from Fidelity International. Please go ahead.
Good afternoon. Thank you for your time once again. I was just wanting to continue on Ankur's question on the dairy business. This is a question I've just tried to understand from you in the past as well, that dairy consumes almost 20% of the business' capital employed, but it's not generating EBIT for the last two, three years since the IPO. The business of Godrej Agrovet, the ROICs are actually much higher, but it's getting masked because of the dairy capital employed that's sitting on the balance sheet.
Just wanted to understand that. It could be maybe a three, four-year outlook on how the margins can scale up for the dairy business internally, how you all are thinking. So you know, we can include the entire—
Hello. Hello. Hello.
Yes, we can hear you. Please go ahead.
I did not hear the question, the second part.
Yeah, sorry. Can you hear me now?
Yeah.
I was just saying that, for Godrej Agrovet, for the entire business except for dairy, the ROIC profile on a post-tax basis, I think it's upwards of 20%. Because of the dairy business, the capital employed sitting, it's bringing down the entire ROIC profile of the company. If you could just give us some sense in terms of three, four years out, how you see the margin profile picking up, obviously, in a situation where COVID doesn't impact us, hopefully. That would be really helpful because that helps the entire company's return actually.
I fully agree with you. I also personally am disappointed at our performance in dairy business in last few years. As I have conveyed already that we have taken a lot of steps to improve the business, and we are very optimistic that whatever we have done is most likely start giving us results in the coming quarter. Considering that we have shared our optimism earlier also and not delivered on that, I would abstain from giving a three, four-year outlook. I must tell you that all efforts are there to improve the business. I think the proof of the pudding will be meeting and once that comes, you will all see whatever steps we have taken have yielded desired results or not. Today, if you really ask me, I think huge amount of efficiency improvements have happened. It is just a question of scale.
If we get to that scale which we want to get to in Q4 of this year, I am very sure we will not disappoint you in the coming years. That is point number one. Point number two is strategically, one thing you must realize is that world works on animal protein value chains. A disintegrated industry is not something which exists in several developed countries. If you see, broiler industry was almost integrated. Shrimp is also on way. I think similar things will start happening, particularly in private sector, in the milk industry to secure supply chains. People will go back and get into feed business also. Milk companies will get into feed and feed companies will get into milk. I think that you will see roll out in next 5 - 10 years in this country. Some of the signs are already seen.
I'm saying we don't have our eyes on next three, four years only, but we have our eyes on next 5- 10 years, where we see an opportunity of building a good milk business, supported by our Maxximilk, where we produce cutting-edge genetics and our cattle feed business, where we are number one in the country.
Understood. If I can just ask one more question on the dairy business. Given that all the efficiency improvements, value-added product mix, scale-up, et cetera, that we have done, in your understanding, in a steady-state basis, what would be the steady-state margin profile, EBIT margin profile for the dairy business in your view, as these things play out? If you could just give us an understanding there, that would be helpful.
Yeah. Steady-state margin.
It is, let me see. Hold on for a minute. Let me answer your question like this. Look, the liquid milk business, we are price takers. Most of the effort in our milk business is focused on quality improvement, smarter distribution, lowering cost of logistics, and procurement of high quality milk at reasonable price. I think that is the focus which has been there, and that is why we went directly to the farmers also for procurement. That thing got really, I would say, discontinued because of COVID, because nobody would allow us in the villages, et cetera, at that time. I'm saying that we are price takers, but come what may, a 9%-10% contribution margin in milk is something which we should get to. Right now, we would be at about 6%-7%, but I think that is possible.
After that, it is a scale game. Some year we will get 8%, some year we'll get 10%, but we need to probably grow the milk business by 10%, 12%, 15% at the base we have to become even relevant. In the value-added segment, I think we are operating at close to 20% contribution margin. I am very sure that the opportunity is only 1%-2% here and there. There again, on a small base, if we grow 30%-40% per annum, in two years, I think we would have utilized all our capacity. I'm very glad to say that I used to talk about ghee generation because the kind of products we sell require a lot of buffalo milk. We used to have surplus ghee generation, and we used to take a lot of provisions and hits because of low prices of bulk ghee .
I'm very glad to say that one of the initiatives which we have undertaken a year ago was to make sure that we developed a ghee market. I must tell you that growth in ghee is almost 70%-80% over last year in first quarter. Today, we have no provisions on ghee. We are not taking any provision, and actually, the ghee sale has increased so much that for the first time after taking over, we are buying buffalo ghee from outside. I'm saying that is the biggest correction in the model which we have made. Otherwise, there was a leakage of 2%-3% of gross margin because of this provisioning we used to make on ghee. I think several improvements are in pipeline, several improvements we have made, but I think we need to get to scale now.
In case we improve the business by 20% or so in a year's time, I would definitely say then a lot of these volatilities will not be seen so clearly later.
Understood. Thank you.
Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio. Please go ahead.
Thanks. My questions have been answered. Thank you.
Thank you. The next question is from the line of Suman Kumar from Motilal Oswal AMC. Please go ahead.
Yeah, hi, sir. My question is, the crop protection margin I saw sharp correction. You mentioned in the PPT raw material prices increased sharply. Can you talk more about what are the key raw material price increase in this quarter?
Yeah.
Which one?
Raw material prices.
Yeah.
Why have the raw material prices increased?
I will have to answer this question offline if you want specific raw materials where the prices have increased. Pardon me, I think there are some of the technicals which we import, particularly for Hitweed and Oryzostar. Exact names and kind of deltas which have happened, I will let you know. Do you have some information?
Mostly generics. If the cost has gone up, it's hardly two names.
I have some details here. Thank you, Chhavi. Mostly generics and pretilachlor , pendimethalin, emamectin benzoate, thiobencarb, carbendazim, mancozeb. These are some of the products which are costlier than what they were last year.
My question is, when the price was increasing and how much we have passed on and why we are unable to pass on is because of weak demand and what?
In some of the products which we use in kharif, because of this lull, let me just also tell you that the dry period of 10th June to 5th, 6th of July is again getting repeated in last few days again, because August rains are very important for Indian agriculture. I think some dry period has already set in several parts of the country. I really do not know how well or how badly the sector will do, I can definitely tell you that pesticide industry will be in little bit of stress. I'm not talking about companies which have got proprietary chemicals, they may still do better. Plenty of us who have growth regulator and herbicide-focused businesses are going to find it a little challenging.
Yeah. Can you talk about the palm oil volume in this quarter and what's the volume growth?
Hold on. Yeah. The revenue growth was about 83.5% and segment growth was last year we made INR 6.5 crore, we have made INR 32.6 crore profit. Volume of CPO sold has grown by almost 6.5%. FFB processed is only about 2% more than last year. Last year the delay was because of COVID lockdown. This year, I think there is a little bit of shift in the season. What we are seeing is that at least four-to-five-week delay in the season is expected, in case it rains, well from now on. My sense is that, on an overall basis, I think because of price increase and because of OER improvement, we will see a significant improvement in profitability in this business.
I am very sure that last year's numbers for volume of FFB, CPO and PKO all will be surpassed.
Thank you so much.
Thank you. The next question is from the line of Ritesh Gupta from Kotak Securities. Please go ahead.
Thanks for taking my question. Just one on the palm oil side. What was the reason you told for the margins to be weak this quarter? I think palm oil prices have increased from, so that should have driven the margins.
I would say there are two things, but entire increase in the palm oil prices has not come to us. Let me tell you that, what has happened. Palm oil prices have increased, and we pay farmers as a percentage of oil price. Last year that is 2019-2020, no, 2020-2021. 2019-2020 because oil year is from October to September. We were paying farmers in the formula at about 16.8% or 16.85% of oil price. This year, unilaterally, both Telangana government and Andhra government have made it 18.62%. It is almost about 1.9% increase. Definitely the quantum we should have gained because of increased price, that quantum is very less.
One good thing is that a lot of our initiatives, including some R&D initiatives, particularly because of this high price, government has allowed us to implement a lot of quality improvement initiatives in farms also. We are doing a lot of grading. Today, if you ask me earlier, we used to reject about 0.5% to 1% of the fruit, but now that rejection rate has come to 4%, 5%. That is showing in higher OER of almost 1% in the first quarter. Similar improvement you will see in the second and the third quarter also. I am extremely confident. I need to tell you that higher OER is direct injection into our PAT. PBT, sorry. Direct injection into our PBT because we pay the farmers on weight of FFB, not on oil recovery.
Understood, sir. Just on the crop protection side, now that you have reached a certain scale in the business and you have historically grown faster than the industry as the overall last three-year period. What is the unique thing that you're doing in the crop protection business? Honestly, in this industry, it's easy to get up to INR 1,000 crore or INR 1,800 crore top line base. Then I've seen many companies are starting to kind of, I mean, stagnating a bit. In terms of next three to five years, let's say, what is unique that you are doing in terms of in-licensing partnerships or something else or maybe in terms of distribution, et cetera, how are you looking at it over next three, five years?
Let me tell you that, one of the great things we were doing in this particular business was very good execution because our big strength was sales and distribution. We were getting about 7%, 8% organic growth from existing molecules. We were able to launch one or two new molecules every two years, which will give us another 4%, 5%, 6% increase. We maintained 13%-15% growth in this business for several years, post 2007, 2008. The other reason was that our EBIT margins were always very high because our new products would be either coming from our stable or will be in-licensing products where our gross margins will be significantly higher than the existing product we had. I think this was the combination of these three things were giving us very good results but for 2019, 2020, 2021.
I think 2019-2020 is one time when we took a breather and probably set a lot of things right in this business. Of course, that continued, but unfortunately because of COVID, again, be it collection, be it inventory management, be it sales or production of certain products. In last one year we have seen some disruption. Mind you, the opportunity for us is very small. Certain chemicals like I'm telling you, if you don't sell Hitweed from 20th of June to 10th of July, in 20 days we have to dispose off INR 200 crore worth of herbicides. I'm saying if we miss that opportunity, it is very difficult to recover and very difficult to come back. I think it is a combination of events which have been hurting us and definitely we are committed, so we will just come back to the earlier levels very quickly.
Just to give you another flavor, I think six products are in pipeline already in next three to five years and at different stages of registration. These are all products which are coming from our own system. four are herbicides, one is a fungicide, and one is a growth regulator and biofertilizer. Most of them have got usage in paddy and cotton. The in-licensing products which are already signed up and are in process of registration, there are five of them: two insecticides, one herbicide, and two fungicides. I'm sure that in case we roll out these 10 products in next three to five years, we will get back to the growth rates which we have done earlier in profitability as well as top line.
Awesome. Thank you so much. It's very clear.
Thank you. The next question is from the line of Nitin Awasthi from InCred Research. Please go ahead.
Hello, sir. Couple of questions from my side. Firstly, on this investment of the company in a company called KSE. Why I ask this is, if I look at the other shareholders of KSE, it would be the promoters of Godrej Agrovet would be the largest shareholders in that company along with Godrej Agrovet. If you could just explain, is this an acquisition candidate that the company is looking at because of similar lines of business, or what is it?
Sir, let me just tell you something about KSE, then Mr. Varadaraj will talk about the financial questions you have asked. KSE is a company which is into cattle feed and some solvent extraction business in Irinjalakuda in Kerala. They are the dominant player for cattle feed in Kerala, and they do a lot of copra extraction also. Company is very closely held and the float is very low. If you really ask me, definitely it is a very good company to acquire. We don't see any opportunity like that in near future. At one time when we saw this opportunity, we went for acquisition of some shares. Mr. Varadaraj.
Since we are in the same business, as we intend to sort of make a financial investment, we have sort of made an investment of around INR 26 crore in this company. Anything else you'd like to know on this?
No, sir. That's all on the KSE front. Second question would be on the import allowed of GM soya meal by the government. Now, the landed cost of imports, given the taxes and the cess that has to be paid on the imported GM soya meal, would come close to INR 60. Wouldn't that mean that in some segments, you could actually retain the margins and take a price cut, helping the segment grow? Or is that too far-fetched?
Look, I'll tell you that there'll be two phases of import. One phase of import will be from Nepal and Bangladesh. That will not come at the number you are mentioning, because we have already gone in for contracts with Nepal and Bangladesh and landed soya, which is domestic today is at about 90,000, and this will come between 70,000- 75,000 in different factories. We have contracted some quantity in the hope that the notification of the Government of India will come in next few days. The second thing is that the big soya meal import from South Africa and America can only hit in six weeks' time in case the containers are available. That can definitely come between, after paying the duty, et cetera, between INR 50 and INR 55. That math we are still doing because number is fluctuating.
That definitely will be a very big blessing in disguise. That will also stabilize the new soya meal prices. In case the soya meal price in October, when our domestic production also starts and imports start hitting Indian ports, at INR 55, we can pass the benefit significantly and retain a decent margin for us also. You will see a big spike in our contribution margin if that happens.
Okay, sir. Understood. Thank you, sir. That's all from my side.
Thank you. The next question is from the line of Utsav Mehta from Edelweiss AMC. Please go ahead.
Hi, sir. Thank you for taking my question. My first question is on the acceptances. Last quarter, we had seen a sharp drop in acceptances because of the differential interest rate. Could you provide some update as to when that will normalize?
This is Varadaraj here. The acceptances, as you rightly said, we reduced the acceptances, the supplier financing piece because of the differential in interest rate. Even now, the gap between acceptances, the cost of acceptances and cost of borrowings is close to 2.5%-3%. With those kind of a differential, it is still not appropriate for us to resort to supplier financing as a tool. Hence we are continuing to focus more on borrowing on the books of the company. As and when this sort of gap reduces in future, that is when we will sort of re-look at it. At the time being, definitely we don't have any strong intent to do that.
My second question is sort of hopping back again on dairy and even the poultry business. After many years, last year, we're probably seeing a positive EBIT in both these businesses to the tune of INR 11 crore and INR 25 crore. I know it's not been a very good start to the year, but do you believe that you can at least reach back to that absolute number, at least for this year in FY 2022? Do you think that's probably going to be unlikely given how we've started the year?
The answer is that, in chicken business, I think the industry has been badly hit, and chicken population is even lower than last year, this year. As in when India starts opening up big time, because this is Shravan. Shravan is a subdued month, particularly in west and central and parts of North India. My sense is that in a month's time, we will start seeing shortages in chicken and eggs, and the prices will become remunerative. I am very optimistic. I think we still have to see what will happen. I'm very optimistic that we will probably improve our number significantly in the chicken business. I must also tell you that July was just the opposite of June. July, the shortages had set in, and suddenly we had seen prices giving us about 20% PBT on sales.
I'm saying this is a cyclical business, seasonal business, and I'm very sure that there is no way the country can come back to the same production level as pre-COVID. The consumption will go up in case there is no third wave, and the industry will benefit. Coming back to the dairy business. Yes, I think we have, in our current best estimates for the year, factored in improved volumes in milk at a reasonably good percentage per quarter. The reason is that once things open up, definitely some of our institutional sales which we have lost are going to come back. My sense is that will definitely come back, and that has started happening week on week. In last few weeks, we have seen that.
Second thing is that we need to get to the volumes which we have talked about in the value-added business, which we will. My sense is that what the profit numbers will look like, whether we will reach last year or cross it, the big question will be how much milk prices and milk costs will drop in the flush. In case it drops, like they normally drop between 15%-20% year. Every year we have seen that off-season and in-season price drops to this level. In case it drops to this level, definitely we will get to those numbers. There is very little we can do on price. We have pushed the volumes also in our current best estimates, and we are getting that volume. In last almost eight, nine weeks, we have been on track.
The only thing is that if the cost of milk comes down, we can definitely get back to those levels.
Understood. Just to summarize from what you're saying, you're basically from all the segments, you're just circumspect on the dairy business and the crop protection businesses. In the other segments, you believe that segmental profits can absolutely–
Yeah
can easily grow.
Crop protection business, I can definitely tell you that we still have four, five months to go, and we still have products which we can sell and up the game for ourselves. I'm very sure that even if we missed, we will definitely grow our last year's CP business. That goes without saying. Point is that will we grow 10% or will we grow 20%? That is still a matter of conjecture. I would say that growth will be there. It will be a profitable growth. We will be able to put up a much better show in spite of a erratic monsoon. Definitely last year numbers will be crossed.
So, growth in all businesses except dairy. Understood.
I will keep my fingers crossed for milk.
Understood. Thank you so much for your time.
Thank you. We take the last question from the line of Senthil from ithought Financial. Please go ahead.
Hello, sir. I have a couple of questions. First question is on the top line. The last five years, actually, like we have acquired Astec and also, we've increased stake in dairy and Tyson Foods JV. The growth carrying was around 11% on the top line. The earlier call you mentioned that a lot of activities or initiatives are taken on the dairy business. Considering this, in the next five years, what could be the medium-term growth guidance that the company is eyeing?
Let me tell you that why whatever I will say will not make sense in two, three quarters also. Let me just give you an example. Let me tell you that the volume increase in feed was 18.33%. The value increase was 34%. What kind of inflation, if you tell me, will prevail in the next five years, I will tell you what will be the forecast for the company. Similarly, I'll tell you one plant number. In palm, the revenue has increased by 83.5%. The oil sold over last year increased by about 6%, 7%. My sense is that a lot of things are dependent on the commodity inflation. That is why during budgeting actually, top line is just a derived number. Most of it is focused on volume. We always talk in volume terms.
Second thing is that the targets of contributions and profit on all our businesses, barring one or two, are fixed on rupees per kilo, rupees per ton, et cetera, or rupees per liter. My thing is that top line, definitely we will surprise you some year. On the positive side, we may surprise you on the negative side, but what we are more focused is a steady growth in PAT, not even PBT, year-on-year. That is what we will drive.
Okay, sir. Second question is on the capital allocation side. In any new projects, what is the internal target that the company eyes? Can be IRR range also.
Let me just tell you that fish feed is growing in the country, and fish production will continue to grow. We are already committed to a fish feed plant in Barabanki in UP at the cost of close to INR 88 crore, which will be commissioned by February, March next year. We are already in the completing stages of this herbicide plant in Astec LifeSciences, and we have already made plans for further investments in Astec LifeSciences. That R&D we have been talking about and doing nothing for about two quarters. All permissions are in place and most likely in the beginning of next month, we will start that project also and try to complete that in 12 months' time. However, having said that, Astec also hired a laboratory, so their R&D initiatives are not affected.
It will be just moving from a leased building to our own building in a year or a year and two months' time. I think those investments will continue. All this will add up to INR 250 crore or so in the next, say, three or four quarters.
Okay. The IRR range that you'll be looking into these products, projects?
We have a capital investment committee which looks at these businesses, and all of them are I'm saying that you can always come and meet me because our businesses are such that we can make very good IRR at 1.5x asset turns in Astec LifeSciences and make a very bad IRR in four asset turns in our feed business. Point is that definitely we take all these things into consideration. A standard IRR is something which we cannot work out. The other reason is that all businesses also borrow at different interest rates. If you ask me, in animal feed business, anybody is ready to give us money at 3.5%. Isn't it?
Yes.
I'm saying in case you want some more insights, more than glad to engage with you.
Sure, sir. Yeah, that was it. Thanks.
Thank you, ladies and gentlemen. That was the last question for today. I would now like to hand the conference back to the management for closing comments.
Thank you. I hope we have been able to answer all your questions. If you have any further questions or would like to know more about the company, we will be happy to be of assistance. Stay safe and stay healthy. Thank you once again for taking the time to join us on this call. Bye.
Thank you. On behalf of Godrej Agrovet Limited, this concludes this conference. Thank you all for joining. You may now disconnect.