Ladies and gentlemen, good day and welcome to the Godrej Agrovet Q2 FY26 earnings call hosted by Anand Rathi. 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 touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nitesh Dhoot from Anand Rathi. Thank you, and over to you, sir.
Thank you, Sarthik. Good afternoon, everyone, and thank you for joining us on the Godrej Agrovet Q2 FY26 earnings conference call. From the company, we have with us Mr. Nadir Godrej, Chairman. Mr. Sunil Kataria, Chief Executive Officer and Managing Director. Mr. S. Varadaraj, Chief Financial Officer, and Mr. Arijit Mukherjee, Chief Operating Officer, Astec Life Sciences. We would like to begin the call with brief opening remarks from the management, following which we'll open the forum 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, 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. Over to you, sir.
Thank you. Good afternoon, everyone. I welcome you all to the Godrej Agrovet earnings call. Now I will comment on the business update for Q2 fiscal year 2026. For Q2 fiscal year 2026, revenues were INR 2,567 crore, 5% year-on-year growth, while the PBT was flat at INR 125 crore. When compared with Q2 fiscal year 2025 PBT, excluding non-recurring items. In half one fiscal year 2026, Godrej Agrovet Limited reported consolidated revenues of INR 5,182 crore, marking an 8% year-on-year growth. Profit before tax stood at INR 313 crore, up 14% year-on-year, excluding non-recurring items. Coming to the key financial and business highlights of each of our business segments. During Q2 fiscal year 2026, Animal Feed delivered strong volume growth, led by 18% year-on-year growth in cattle feed, though revenue remained flat due to lower realization on account of softening commodity prices. Underlying margins improved by 70 basis points year-on-year.
Vegetable oil posted stellar growth, with revenue up 41% year-on-year and margins expanding to 22.4%, driven by higher crude palm oil and palm kernel oil realizations and higher oil extraction ratio. Stand-alone crop protection segment faced a sharp revenue decline of 30% year-on-year and a 62% drop in segment results due to excessive rainfall and lower acreages, compressing margins to 23.3% from 43.1%. Astec LifeSciences saw revenue fall 25% year-on-year on cautious contract manufacturing demand, though the enterprise category grew 15% year-on-year, and the EBITDA improved on better volumes and margins. Creamline Dairy remained broadly flat on revenue and EBITDA, with value-added products growing 10% and salience rising to 36%, while EBITDA margins remained resilient despite higher milk procurement and marketing spends.
Godrej Foods Limited reported EBITDA growth of 28% year-on-year, driven by branded products, even as overall revenue declined 7% year-on-year due to weakness in the live bird segment. Branded salience rose to 86%, reinforcing the strategic shift towards value-added offerings. Thank you.
Just a moment. 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 touchstone 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. Our first question comes from the line of Probal Sen from ICICI Securities. Please go ahead.
Yeah, thank you for the opportunity. Very good afternoon, gentlemen. Two or three questions. Firstly, on the crop protection segment. I think this is something that was stated earlier as well, that the excess rainfall has caused damage in terms of the area covered. Just wanted to get your understanding on what H2 is shaping up. Can we actually see some reversal in these trends, or do you see the rainfall impact extending over the next couple of quarters as well in terms of the standalone crop protection business? That is my first question.
Okay. Hi, Probal. This is Sunil Kataria here. Thank you for the question. Very clearly, what we have seen in quarter two has been a very, very uneven in both time as well as geography kind of a rainfall panning out. That has definitely had a very pretty strong negative impact on the quarter two performance of the crop protection business. That is translating into the results that you're seeing. What has happened is, because of this excessive rain, obviously the window for spraying opportunities of the crop protection products, that got really narrowed down. That is one thing which happened. Secondly, what we have also seen is that some of our in-license products, which are dependent on crops like chili, etc., there has been a reduction in chili acreage due to lower chili prices this year over last year. That is the second factor which got.
Really impacted the second quarter numbers. Now, going forward, I would say it's a bit of a fingers crossed picture, which we'd like to take a look forward. One is the unseasonal rains in October. Have had its own share of challenges because this does not set the ball very well rolling for some of the other crops that come into play in October. That is something which is right now not looking positive. We are very hopeful that there are two, three factors which are going to play out, hopefully. One is that we have made entry into. We are diversifying our portfolio of crop protection, and which will pan out, obviously, over the pan year.
One thing which I would like to talk about is what has happened is that we have made a very strong foray into maize, which is beyond cotton and chili, which are otherwise our two primary segments of crops which we are pretty much cornered into. We have moved into maize through a product called Ashitaka. That is something which, given that the way maize acreage is increasing in India, I think that can be a very strong potential segment going for us in the future. The first cut response to this product is pretty, pretty positive. That is one area. Second is, we are also looking at, we have got extended label claims into some of our current products itself into further crops. That is the second pivot which we are trying to push forward.
One is to launch more and more new products, which take their own time. The other is that we are looking at some of the current products, can we get label claims registrations done? They are equally applicable to some of the other crops. That is an extension that we are also looking at, that we can diversify ourselves and extend usage of our current products to further crops, obviously getting it approved from the regulatory authorities. The third is, we are looking at possibly a new launch coming in quarter four. That could be another new segment which we will enter as part of our diversification. I would say it's a bit of a mixed bag, which is the way the second half is looking like.
There are some of the pieces that we are putting forward, which I think will pan out starting quarter four later towards definitely next year very well. There are certain pieces which we are already trying to do through our own internal exchanges. Having said this, in a nutshell, I would say the picture for the second half of CPB may be still moderate to soft is where I would put it. The diversification and the long-term steps that we're taking, I think, is very clearly. We are very positive over it on the business. Another piece I want to put on the table is that we are very particular, given that the way seasons are pointing out, we do not want anywhere the efficiency and the hygiene of the business to get compromised. That's something we are being very, very cautious.
We are not going to do things which later on come to haunt the business from its health point of view.
Got it. That is very clear. The second question was with respect to the animal feed business. Just your thoughts on what has, because forgive my understanding that there is some correlation between the fortunes of the farm industry versus what happens to animal feed. This quarter, despite whatever is happening on crop protection and general sowing and all, animal feed seems to have delivered a decent quarter. Just your thoughts on what has driven that and how should we look at this business going forward?
Okay. Honestly, Probal, on this, I do not think any of us, I do not think that there is any correlation which we are aware of, which has got between oil palm and animal feed, really. Honestly, that correlation does not exist. There does tend at times to be some correlation between milk prices, which a farmer can get out of cattle, and the compound feed they end up using. That is a reasonable correlation because as the milk prices, which is the income per farmer, goes up, especially in cattle feed, right, there is obviously an upgrade which starts happening towards more compound feed from the unbranded feed part. That is the only correlation which, at least I have understood in my early days here. Now, coming to animal feed performance, I think animal feed performance is coming on the back of some very strong operational performance.
I think that's something which I would like to put on the table, that there has been very clearly strong on-ground work which has happened in terms of geographic expansion on ground, in terms of our footprint. There is very strong execution happening in terms of the quality of our feed and some of the value additions that we are doing to our products. The third part, very clearly, which is happening is that we believe we are gaining market share. Although this industry, obviously, doesn't have Nielsen's of the world and we can't get syndicated market share, from whatever we are getting sense on the ground is that this is also coming on back of some of the market share gains across some of our key markets.
I think on the back of this, this is not only this quarter, actually, if you see, this performance now is a consistent first half performance that, especially in the area of cattle feed, the overall animal feed has gone at strong double-digit volume growth. We have cattle feed, which is 50% of our business, right? We are very, very focused on cattle feed, which is actually going really in the mid-teens kind of a volume growth. I would put it to some good work happening. I guess the maybe only piece I would say maybe there is a bit of a support which may be coming is that, yeah, market, when milk prices go up, there is a good, the farmers tend to look more towards adopting more and more branded products so the yields go up. That is something we keep pushing for.
All right. Sir, one last question, if I may. Just to clarify. The share of branded products in dairy was at 36%, and in the foods business, it is now at 86%. Just wanted to clarify that that was stated.
Yeah. Actually, all the dairy products are branded. What we call is, what you're referring to is value-added product. Because even milk is a branded milk product, right? Yeah, the share of value-added product has moved up to 36% from 32%. The branded business of GFL is now 85%. Yeah, that's right.
Sir, sorry, one last question on Astec. Just your thoughts quickly on what has driven the CDMO decline and how do you see the outlook? Because this year was supposed to be the year that we were going to be turning around, at least to a certain extent. While the losses have reduced, how are you looking at H2?
I will ask Arijit, my colleague, to question, and then I'll also come in and give my thoughts as well. Arijit, go ahead.
Sure. Like any agrochemical, CDMO also follows a little bit difference in terms of the demand situation. Sometimes the demands are prepost, sometimes it is postpost. In this financial year, generally, the demand has shifted towards H2 because this will be changed in the cropping pattern. Overall, annually, the resellers remain here at 55%. That way, we just only see a temporary shift, but overall, animal demand, everything is normal.
Got it.
In fact, I would say our focus towards building a CDMO business stays on course. There are some very critical investments that we are doing right now, which we may have talked in the earlier calls as well. One very big piece is that we are very clear that we need to build a strong go-to-market B2B strategy here, which is in terms of how do we get a strong pipeline of products. For that, we need a very strong business development team. I think happy to share that we have obviously invested behind that team right now. We have started getting people on board whose sole job would be to ensure that we have a future pipeline which becomes stronger and stronger in the CDMO business. There are some early green shoots which are looking reasonably okay to us.
It's maybe a little too premature to talk about it at this stage, but we'll keep briefing you as we come closer to fruition of some of those funnels. Secondly, as Arijit pointed out, that we are very well on course. This is a bit of a phasing issue. We are very well on course to having maybe around a 55-odd % kind of a number of CDMO as part of salience of our business. And we are still gunning for and working towards, hopefully, breaking even on EBITDA in our Astec business this year.
Thank you so much, sir, for your time and all your patience in answering questions. All the best.
Thank you. Our next question comes from the line of Abhijit Akela from KIE. Please go ahead.
Yeah. Good afternoon. Thank you so much for taking my questions. When we started the year, we had kind of guided to revenue and earnings growth of about 16%-18% for fiscal 2026. Just in the context of how the first half has panned out and how we see things at this point in time, would you like to share any thoughts regarding what sort of numbers we could actually expect from an updated perspective?
Yeah. Abhijit, obviously, one of the biggest changes, I guess, maybe since I have not been in the background of the first quarter, but that is what the guidance which you would have got, obviously, because that is something I think the team set out to do. I think the biggest change event in this whole scheme of things as we set out at the middle of the year, I think, is the big one is the changes in the external factors of the crop production business. Because I think nobody in the industry, what I understand, forget us, or across the entire industry, would have anticipated this kind of a weather pattern panning out across with such disruptions of seasonality, both temporally and spatially, of rain. That is one big ticket item which is going to deviate from our initial forecast.
That is what in my earlier answer, I said, that is going to look softer in the second half, moderate to softer. I think that really waters down from the earlier guidance that we gave. What is looking good, obviously, is animal feed looking very, very strong at a volume level. The piece there panning out is that the sales revenue part of animal feed obviously depends a lot on the raw material prices because that becomes a bit of a pass-through, right? A very strong volume performance is what I would look at in animal feed and not look at purely a revenue piece. That is the robust consumption piece, really. That stays put forward. Oil palm production business will come to, I am sure some questions come on that, looking very, very healthy right now.
In fact, with very, very strong future pillars of growth also panning out. That is going to give us some upsides. In a nutshell, I would say maybe that 16% is there because of some of these factors of crop production, et cetera. That may not pan out, but we are still gunning for a strong, healthy growth to be delivered in this year. That is something which I will still go for because there are some positives happening, some negatives, but we will still try to make sure that we have a strong, healthy revenue growth. Having said that, our bottom line growth looks healthy. We are at 14% growth YTD in first half. We have put in a lot of cost initiatives in place also. We are investing behind our value-added businesses.
We still think we will be able to deliver a pretty decent bottom line growth as well.
Got it. Yeah, thank you. That's helpful. Just a couple of questions on the expenses, expense items. This quarter, there's quite a significant increase in the unallocated expenses under those segments. On the P&L, we see that the employee cost is up also quite sharply. What might the reasons be for these, and what should we expect going forward?
Hi, Abhijit. This is Varadaraj. On the expense side. When we look at the unallocated expenses, one of the primary reasons why unallocated expenses have gone up is in the base, there was a one-time reversal of the long-term incentive plan provision. Last year, we had called it out separately as an extraordinary item. The one-time reversal. That kind of sort of impacted the growth in the unallocated expense. The second reason, as you rightly said, is also the manpower cost. Manpower cost has gone up also because of the provision required for the variable remuneration, given that our profitability is seeing a good growth. Okay. These are the two primary reasons for the increase in the unallocated expenses. Yeah.
Okay. So, on a sequential basis as well, unallocated is up from about INR 57 crore to INR 70 crore. So, that is largely because of the employee cost increase itself? Is that how we should interpret it?
In the Q2, the reason is, yeah, it is because of the employee cost. Yeah.
Yeah, it is because of the provision of the variable remuneration that we are doing because given that our profitability numbers are looking pretty healthy.
Okay. Just one last thing from me, if you'll allow me, and I'll get back in the queue. Just two quick ones over here, actually. One is the effective tax rate seems to be a bit on the higher side. What should we expect from a full-year perspective? The debt number seems to be up in the first half. Should we expect that there is usually a seasonal unwinding of debt in the second half? Does working capital get unwound? What is the closing debt number we should expect at year-end?
Sure. First, let me address the tax point. Tax definitely is on the higher side in this quarter. That is primarily because of the accounting standards which are there, which stipulate a particular treatment of tax on dividends in the consolidated financial statements. That results in spikes in certain quarters and a drop in quarters other than that. On an overall annual basis, we expect the tax rate to be slightly lower than last year. That is what our expectation is on an annual basis for the full year. Okay. That is on the tax piece. Coming to the borrowings and the working capital, you are right. In the second half of the year, our working capital will come down, and that will result in our borrowings coming down as well. That is what we are expecting in the second half.
Yeah. On a year-on-year basis, the closing debt, should we expect it to be stable year-on-year, or it will be higher?
Yeah, it should be stable, reasonably stable. Yeah, despite the investments. As you would have noticed, in the first half also, we have sort of. We had investments which we did. Despite the investment, the increase in debt is not in line with that. We have sort of reduced our working capital in the first half as well. We will continue that in the second half and sort of ensure that the borrowings do not increase significantly.
Yeah. That's a very, very clear focus. I think, I mean, this being my early few months here, but I would like to maybe put on record here, actually. So, I think what I have seen of the way the working capitals are being managed, I think there's a very, very tight focus in the organization. I think that focus would definitely like continuing forward. We have done a very good job despite investments in the working capital management till now. I don't see any reason why that lacks out.
Okay. Thank you so much. I'll get back in the queue for any more.
Thank you. Our next question comes from the line of Hardik Solanki from ICICI Securities. Please go ahead.
Thank you for the opportunity. I have two questions. First, coming towards the palm oil segment. What was the oil extraction ratio for this quarter? Secondly, if you look at the volume, we have seen a healthy volume of 9% growth on year-on-year basis. I just want to understand how the second half would look like. Basically, if you talk about the second half of last year, the growth has slowed down. Can a similar pattern be seen for this second half as well?
Okay. Thank you for the call. I think this is one business of ours which obviously is the star performer of the year. Along with, obviously, animal feed business as well. We are seeing a lot of offshoots happening which are paying off now for us, I think, over the years of work, which could turn out to be pretty strong multiple pillars of growth going forward for us. First, as of now, the oil extraction ratio is, our first half oil extraction ratio is 19%, which is an all-time high that we have seen over the last so many years. That is a mix, I would say, of a couple of things. I think, first and foremost, full credit to the team for doing some exceptional operational efficiencies on the ground.
This is a business which requires a lot of micro-operational execution on the ground on a daily basis, whether it be in terms of the right time of harvesting, the way you go about doing the harvesting and supporting the farmers in harvesting, right from taking care of the plantations. And then finally, once the fruit bunches come into your own business, how do you manage the process losses and the efficiencies in the factory? I think in all the parameters, there's a very large focus happening. This is translating, along with, obviously, a good monsoon which has led to a lot of FFBs, fruit bunches coming in. I think a good mix of 19% is leading to this kind of extraction ratio. That is why I talked of this as a first half and not only quarter two, because the right way to see this is beyond quarters. The first half, which is roughly around 60%-63% of our total FFB.
Ladies and gentlemen, kindly stay on the line. The management has disconnected, and we will reconnect them shortly. Please stay on hold. Ladies and gentlemen, the management is back online with us. Thank you for your patience, and you can continue with the questions.
We'd like to know where would we drop out if you can tell us that. We are talking about the oil palm operational efficiencies. Maybe just to recap, I think there's a lot of groundwork that has happened in terms of all operational parameters of our Oil Palm business. I think the good operational work, while there's definitely been a support of good monsoons leading to a very good harvesting of the fruit bunches, but I think a lot of work and credit would go to the operational work on the ground. I see that operational efficiency is going forward, also continuing. I think our OER ratios, OER would be in the similar zone across the year.
Sorry, sir. The first, if you talk about the Q1 FY26, the OER ratio was 20.8, and you said the average is around 19, right? The OER for the Q2 has dropped sharply, is it?
No, no, no. It was not 20.8 in the first quarter. No, no, no. In fact, the second quarter has improved for us.
Yeah. So, this is what? Q2 is 19.8%.
No, Q1 was actually Q1 FY26 was 18.3.
Okay. Okay. In terms of the volume, does the second half might see a degrowth or basically a decline, not a degrowth? Would it see a decline versus H1?
No, no, no. Okay. See, first of all, what happens is the ratio is broadly 65-35, broadly. That is where the tree behaves. That is where the plantation behaves. So, the yield on any year, give or take a few percentage points, is two-thirds, one-third, right? That is the way it is. That pattern is not going to change. Now, the question is, on a like-to-like basis between H2 this year versus H2 last year, I think that is the right way to see. Is there going to be degrowth? No. We are going to continue the growth. By the end of the year, we believe that we will end up in our overall food bunches coming in. We believe that we will end up in mid-teens kind of a growth.
Okay. Okay. That's really helpful. In terms of the animal feed, just want to understand, our earlier guidance was around between INR 1,900-2,000 per ton EBIT. So, now in first half, considering the discounting and all which we have seen, the blended EBIT per ton is below around INR 1,750 odd. Do we see any downward revision in the EBITDA per ton?
No. What we also mentioned is the underlying EBIT post the adjustment of the supplier credit, etc. That for Q2 is around INR 2,000 per metric ton. As against a similar number in Q1. We expect to continue with the earlier guidance of INR 1,900-2,000 per metric ton of underlying EBIT.
Yeah. In fact, if you see the underlying EBIT, what we just tried to explain to you right now is really the good operational metric. Because what we've done is, since we have been doing this vendor discounting, this comes at an input cost into our P&L. And hence, at EBIT per metric ton, in reported numbers, it is looking lower. But the underlying operational EBIT per metric ton actually is better only. In fact, last year, quarter two, it was in the range of around INR 1,950. And this year, we are in the range of around INR 2,006. We would be holding ourselves into that guidance that we gave.
Okay. Okay. The bill discounting expenses would continue going forward as well?
Yes. They will continue that going forward as well.
Okay. Okay. That's it. Thank you.
Thank you. Our next question comes from the line of Shubham Jain from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. My first question is about Astec LifeSciences. Since Astec operates two segments, Enterprise and CDMO, could you provide a sense of the margin differential between the two? Could you walk through the major drivers of margin expansion in the business in the upcoming quarters?
Generally, if you see CDMO margin, generally varies between 30%-31%. Enterprise this year is coming to around 15%. To a larger extent, margin is driven, one, is in terms of process efficiencies which we are bringing in, some process controls in terms of cost controls, those. In general, overall, there is a price revision because of most of the old inventories moving out. Both the demand and the overall prices are slowly increasing in the market. At least this year, we are seeing till now the H1 Enterprise businesses, both the margin and the demand position has become stable. CDMO's margin, because it is formula-based, is more or less constant. It does not increase or decrease too much.
Okay. I think there was another question on how do we improve our margins and margin expansion journey. I think I would like to point out that there is an organization-wide work that we have kickstarted, which we're calling as Project Pi. Okay. And it's a project work which was started around two months back. It's something that all the leadership team members, the CEOs of the businesses, including me, are championing across the organization. It's something where each and every function has got involved. We have identified projects across businesses where we would like to drive cost initiatives to drive out inefficiencies. That applies to every business, including Astec. As that takes more and more shape, we would like the margins expansion riding cost inefficiency treatment.
We'd like to pull back some part of that money back into some of our businesses where we want to grow further, and some we hope to see back into margin expansion. We are also in Astec kind of business. There's a very big role which R&D plays in, which is also in terms of lifecycle management of our current projects. That's a very ongoing work which is happening as part of this Project Pi as well, where on our current molecule itself, we keep on doing what, I mean, if I have to call anything, which is renovation or something like that, where we keep on extending and doing a better lifecycle management in terms of improving cost efficiencies, improving margins of the current products as well.
Thanks, sir. Thank you for this answer. My next question is about the CDMO business. Since the CDMO revenue has declined sharply to around INR 13 crore in Q2, do you expect this to normalize in the next couple of quarters? Are the clients indicating any pickup timelines? Are the existing CDMO projects still active or deferred or have been discontinued or scaled down by clients?
All the CDMO businesses are intact. All the clients have given us the indication of the volume. It is generally the shifting from Q2 to Q3 and Q4. This is a normal shift. It happens annually. Overall, the demand, the indications from the buyers have been normal.
Okay. Thanks. My another question is about the, I would just broadly like to add here is that given that what Arijit mentioned, that it's a bit of a phasing issue. We expect the year-end salience between our enterprise and CDMO businesses to be held as per the way we had last year as well. Right now, while in the first half, if I were to compare the enterprise CDMO saliences of the business, it looks more lopsided in terms of enterprise, which is the point you are also pointing out. By the end of the year, since this phasing, hopefully, it should get corrected. We expect it to land at the similar levels as last year in terms of salience breakup. Okay. One more question about the enterprise segments.
How much of the movement in the revenue this quarter was driven by volume versus pricing? And how do you see volume growth trending in the second half given the current demand environment?
Just give us some time to have the numbers ready. But overall, huh?
Overall, I.
Versus last quarter, right?
Just give us a minute.
I think I have the, so if it's about a 15% overall revenue growth, a large part, I mean, more than most of it has actually come from volume.
Yeah.
Yes.
Yeah.
What is happening now, if you have seen it in the last two quarters, we were focusing on mostly the destocking. Because some of the geographies, destocking was not happening or it was very slow. Overall, now it has happened. Most of the destocking has happened. The demand is back to almost normal. Now the volume growth, if you see, it has volume.
Yeah. Actually, if you see, what the point Arijit is trying to make is that there's a very clear focus on driving volume growth. Because the pricing pattern can change. We have seen in the past from whatever history I've seen is what happened a couple of years back, that some of these enterprise pricing can be so volatile that it cannot be in our hands. I think our focus very clearly is to build a volume-led business. Because volume is what we can focus on. Obviously, we'll do better negotiations, and we'll have better capabilities coming in, which can give us some pricing power in the enterprise business. This growth, as you said, of 50-odd % is primarily volume-driven.
With higher enterprise volume, have you seen an improvement in plant utilization and fixed cost absorption? What is the current capacity utilization across units, and what is the target utilization to drive profitable growth? I want to know more about that.
Generally, we do not disclose the capacity utilization, but I can say if you compare to the last three quarters before, we have doubled the utilization of the plant. We are very near to the break-even utilization where positivity can show in all sides.
Okay. One last question. What proportion of revenue do you expect from the CDMO side would be needed to achieve a positive EBITDA in the upcoming quarters? In the upcoming years?
We are targeting overall to break even on EBITDA by the end of the year. I think, again, one piece which has happened, as you would understand this business as well, is that the CDMO order books also pan out not exactly as per our quarters. It is better to see it in a six-month horizon. What Arijit pointed out is that we believe that by the end of the year, we will have our CDMO saliency as per the last year. I think the way we are seeing it, by the numbers that we are planning out in the CDMO in the second half, if we are able to achieve that, we will be EBITDA break-even or very, very close to almost EBITDA break-even on the overall business. Thanks, sir. Thanks for the answers.
Thank you. Our next question comes from the line of Shravan Vohra from Premier Capital. Please go ahead.
Hello. I'm audible?
Yes, you are audible.
Okay.
Please go ahead with your question.
Hi. First of all, I would like to welcome Mr. Kataria, as this is the first time we are interacting with him. So, welcome, sir.
Thank you.
I would just
Thank you. Thank you.
I'll just move to my questions quickly. I'll start with Astec. Just continuing to the previous participant's question. Broadly, as far as I understand, our guidance as per last quarter was that we do. This year, we'll try to cross INR 500 crore turnover and EBITDA break-even on a full-year basis. We are maintaining that guidance, right, sir?
Yeah, we are maintaining that.
Yeah. I think we should be very close to that number on top line, and we are working towards breaking even on EBITDA. I mean, we do not see, I mean, give or take a little bit on revenue here and there, but I mean, not too large a guidance change right now at this moment.
Right. Sir, this quarter, we did about 44% gross margins, which is almost like a four, five-year high, if I talk. I know because the revenue was slow, that's why the fixed cost could not be absorbed, and EBITDA was a loss. Gross margins were quite good. As Mr. Mukherjee was mentioning, the EBITDA margins for enterprise and CDMO, as we are seeing currently, and with gross margins being back. Is EBITDA break-even? Is there a possibility we do better than EBITDA break-even? If you meet first half is about INR 160 crore turnover, if we do about INR 220-230 crore turnover in the second half, and with the margins that have played out in the second quarter, it should be better than EBITDA break-even. Is my understanding correct, sir?
No, I would say there are other factors which will also come into play for us. Because I would still hold on while your question has. There is a possibility of upside which could pan out. Honestly, at this stage, if I have to give a guidance, I would say our first goal is to still make sure that we are pretty much targeting the EBITDA break-even. If there are some things that you say, maybe we get a little bit more operating leverage because scale, if that happens, fingers crossed. I would not maybe comment on that honestly right now, Shravan.
Got it, sir. Just one last thing on the CDMO part. As you highlighted at the beginning of the call, a lot of initiatives that we are making on the go-to-market strategy. It has been about two and a half years since we launched the R&D center, sir. Here, the ramp-up has been quite underwhelming, to say the least. Last year, also, we were targeting about INR 400 crore revenue on the CDMO side for FY25, but we ended up achieving almost half of that. What strategy can you highlight to us for the next three years on the CDMO business? That is something that has been the focus for us, at least for the last three or four years.
Okay, Shravan, you have to think of the R&D initiative in two sides, right? First, once we build the R&D, we told that the number of molecules which we'll be handling will increase. Second is now we'll be working more with the innovators. The first thing, challenge of ability to handle more molecules have increased. If you see, currently, also, we are handling around 12 molecules. We are in different stages of development. Where we used to commercialize one molecule, now we are planning at least two new molecules every year. Plus, because of the R&D, the backend support in terms of the new development. Executive, the other talents that we have added. The other side is because we are currently working more with the innovators. What has happened with working with the innovation in the early stage of development, gestation period includes a little bit. A molecule which is generally commercialized within three years is now taking four years.
That, in one side, the introduction takes time, but it is a long, sticky business. This is, I think, the double-edged advantage we have. Only thing, initiation will take a little bit of time, but then, I think, next year onwards, when the businesses start onwards, then you will see the rapid change in number of molecules which has been commercialized every year.
Right. Right. Got that, sir. Got that. Maybe FY26 would be stabilizing there, and FY27, we start seeing a breakout in terms of the CDMO business. Is that right, sir?
That's very clear. Yeah, that's very clear. Because we are seeing, as you said, we started investing behind building a pipeline. And as you know, the order book and the pipeline in these areas, on the CDMO front, takes a little bit of time. That has very clearly started happening. In fact, you see, while it's still data which is still panning out, but in 2023, our CDMO business was 26% of the total Astec revenue. Today, despite all the journey that we've taken, we are 54%, right? We will hold that 54% broadly this year as well. We hope to break this out further and further into coming years. What Arijit said, just to repeat it, we've got invested. The R&D is in pink of health. In fact, whenever we have had any partners who have, potential partners who have come from outside the world.
There is one thing which stands out in their mind is the kind of R&D center and R&D capability that we have. It is very clearly being seen as world-class right now, that we are in line with any other centers in the West. Second, we had a gap till now of the front line of CDMO, which is business development. We are still work in progress, but we have started putting those in place. We have got people coming in place. That should give us offshoots. Third, while agrochemical will remain our focus, but we are also now making entries and forays into maybe something else like specialty chemicals. Some project may happen there as well.
Right. Got that, sir. That's very clear and glad to hear. Just one last question on.
Shravan, sir. Shravan, sir, extremely sorry to interrupt you, but I will have to request you to rejoin the question.
I will. Yeah. Thank you. Thank you.
Thank you so much. Our next question comes from the line of Rajan Shah, who is an investor. Please go ahead.
Yeah. Am I audible?
Yes, sir. You are audible.
Yeah. My question is to Mr. Nadir Godrej. Is Mr. Godrej on the line?
Yes, I'm on the line.
Sir, I am a big fan of the Godrej Group, actually, and I have held on to many shares of your company. I also was an initial investor in Godrej Agrovet when it came out with IPO about eight years back, sir. Eight years back, our company reported a top line of INR 5,000 crore and a profit of about INR 250 crore. Net profit margin was 5%. Now, we are eighth year after the IPO. Sir, our revenue has just doubled. Normally, I have seen over the past 20-25 years, Godrej Group normally grows at about 15% plus, whether it is Godrej Consumer in the initial years, Godrej Properties, Godrej Industries also did exceptionally well. Godrej Agrovet, sir, the net profit has grown at less than 7.5% over the last eight years.
Right.
In this period, we should have actually more than doubled our profit, but our profit has gone up at a CAGR of just about 7% or so, sir. That is one thing, sir. Secondly, Astec also, sir, we came out with rights at a price of INR 890. Currently, the stock is at about INR 625 or INR 630. Sir, we need to know where exactly both these companies are headed. No doubt, we are very confident that it is Godrej Group, so ultimately, shareholders will be rewarded. We need to know, as shareholders, where exactly are these companies headed by 2030? Can we expect INR 15,000 crore of top line for Godrej Agrovet or maybe INR 1,000 crore of top line for Astec? If it comes from you, sir, it has a lot of value.
If it is coming directly from you, we have a lot of trust in the Godrej Group. When you say something, we would certainly respect that word. I would like to hear from you, sir, exactly where are these companies headed, Godrej Agrovet and Astec, over the next four or five years, sir?
Right. Now, there have been challenges because of climate change, and you saw how the monsoon behaved this year. There have been similar challenges in agricultural products for Astec as well in other countries because there were problems in Brazil and some other countries. This is going to be a little bit of a challenge in the future. Astec is working on a lot of new products, including non-agrochemicals. That is definitely bound to give release. We expect that our animal feed business is going to continue to grow very well. As Sunil said, the oil palm business is on a growth track, and we have been doing a very high level of planting this year. The benefits will be seen only after four or five years, but the benefits will definitely be there.
Yeah. Mr. Godrej, may I also come in at this stage?
Yes, please.
Sir, one question, sir. In numbers, sir, where do we see both the companies, sir? By 2030, if you can give some internal projections which internally the board would have—
We are working on those projections just now, especially on oil palm. Because on oil palm, a lot will follow the planting pattern, and the planting pattern is good. It will take us a little bit of time to fine-tune it, but maybe Sunil would like to say something.
Yeah. Mr. Shah, thank you so much for putting this question. I will be able to try to take this question on. I'm just two months into the system. I've just taken two months back, and I'm seeing this business. I think the points which you've put on the table are pretty valid concerns. I'm looking at this business with a very fresh lens right now. I also come from the background which is very consumer-focused, FMCG kind of background. I'm pretty much looking at it from a very outsider lens. What we are doing right now is that we are in the middle of getting into a strategy refresh exercise. That's something which I would like to address all the partners on the call as well right now. There are four or five things that we will do on this business.
One is, very clearly, we are going to make overall portfolio choices because we have seven businesses, right? They are seven businesses which have a large amount of diversity within them. We are going to look at how to manage the entire portfolio of Godrej Agrovet. That is the choice that we'll make. This is an exercise which will pan out over the next 70-90 days. By the end of this exercise, we'd like to simplify our business, we'll make portfolio choices, and the role of each of our businesses should be very clear in our minds in terms of investments, in terms of returns. That is something which we'll put on the table. Second is, one second pattern which I see is that in each of our businesses.
There are maybe single or one or two points of success that we've built in, which invariably tend to get sometimes or other hit by some external factors. Like what we have seen in crop protection, for example, we are pretty much right now skewed towards, let's say, cotton and herbicide. That is one segment primarily. Then come this kind of odd weather pattern, the window is so short, we get hit there. The second point which we'll try to build in this strategy refresh is how do we convert some of these single points of our business, of each business, into multiple pillars of growth? That is the second point that will come back. Third, very clearly, our journey is moving towards value-added portfolio, and that will happen across every of our businesses, right from animal feed to food businesses to Astec business.
The fourth, my external point of view right now is that our businesses will try to build a more market outward lens in our businesses than maybe purely commodity inward lens. That is another strategic piece which we'd like to build in. For example, we'd like to build a lot of consumer inward thinking into our business, as well as I think we can do some really cutting-edge work on go-to-market. The last piece is to do all this, we have already rolled out this project five, which is a cost initiative. We will root out inefficiencies very, very hard. We would like to throw back money back into growth and into fueling growth, which is the concern that you're putting on the table. We'd like to take some very hard calls on some of the cost parameters.
All this exercise, over the next 70-80-90 days, should be over, and then we'll actually come back to the street with our vision of what we see is the Godrej Agrovet potential of the future. Because we are very clearly building a FY2030, which is the question you've raised. We are clearly building a FY2030 GAL unleash model in place. I would like to, I would come back to you, all of you, with that model towards the end of March.
Fine. That was fine, sir. Just when you come out with this thing 90 days from now, sir, I would request you to come out also with numbers. Where do we look at Godrej Agrovet and Astec three, four years down the line? So we'll really appreciate that if you come out with those in terms of numbers, sir.
Yeah. We'll come back to all the best. We'll come back to the FY30 plan.
Yeah. We have to look carefully at the legal requirements on forward-looking statements.
Obviously.
Yeah. Fine. All the best, sir. Thank you so much.
Thank you.
Thank you. Our next question comes from the line of Jignesh Kamani from Nippon India Mutual Fund. Please go ahead.
Yes. Hi. Just to know more qualitative aspect on the Astec R&D center. So how many scientists are working right now? If you take about how many clients have visited in the last one, one and a half year? Kind of how many inquiries? Because when I visited the center almost one and a half years ago, when I interacted with your team, I was told that almost 30 plus global companies have visited. Flow of inquiry was very healthy. When you talk about right now, we are working on 12 number of molecules. It looks very low despite R&D center started in April 2023. Despite two and a half years of operation, just 12 molecules under pipeline looks slightly weak.
Right. Let me first put in the infrastructure there. If you see the infrastructure, we have almost 60 fume hoods. So 60 fume hoods means almost in a normal scale, you can do 100 reactions at any time in the R&D center. Other than that, it is supported by other process safety labs, other QA labs. Infrastructure-wise, if you roughly say that it will be 100 steps, and currently, for any of the chemistries worldwide, a reaction normally takes around eight steps. If we are doing around, say, 12 molecules, it means we are involving around 96 steps in the reaction. Occupancy-wise, we will be in terms of capacity utilization somewhere between 90% of the capacity utilization. Today's chemistries are much more complex than the normal, say, 15 years, 20 years back chemistry. In terms of.
Say going before the R&D, there are a number of stages a CDMO passes through. It passes through the inquiry stages. It passes through a negotiation, NDA. That's why when we are telling that we are working with them innovators, one year actually takes before a project even comes in a tech platform. Today's 12 projects might have taken more than two years to reach a stage where the R&D will be flowing. Each year to get in, that's where the importance of the pipeline. Each year we'll be getting 12 projects which are in the R&D stage will require to satisfy at least 120 inquiries. What currently we are doing is we are getting larger number of inquiries.
Because what we have seen over the experience in the industry, from an inquiry to an R&D, it is around 10% of the projects which goes to the R&D. If you are doing around 12 projects today, there are around 120 projects that have already come and different stages of inquiries, right? You have to think of the flow will take around two, three years. Currently, with the pipeline almost full, capability to be used around 90%, I think within one year or two years, you will see more numbers of products being commercialized. Back of the mind, you need to remember last two years has not been very positive for agrochemicals. Shifting the supply chain, building up new supplies also has been a little bit slow from the innovator side. There has been a combination of a little bit of outside.
Unfavorable atmosphere that also has reduced a little bit of, say, movement through R&D. But overall, we see as per occupancy and as per the normal scale of operations, we are fully occupied. Could I answer your question?
Yeah. That address got helpful. Just on the R&D team size, number of scientists?
We are around 100 people working in R&D. That includes from synthesis to the pilot.
Scale-up in the last two years because two years ago also it was around 120-130.
Currently, we are not doing any scale-up in the R&D center. Currently, all the occupancies, all the units we are occupying right now.
Yeah. I think it doesn't have to do with the number. I think the.
Hello?
Yes, sir. Please continue with your question.
Yeah. Second question on the crop protection. So if you take about the first-half segment, we declined by around 7%, while if you take about the entire majority of the industry, grew by around 10-12%. You alluded that some of the product where we were enjoying monopoly has two or three more, I can say, partner available. In that context, how hopeful of your growth in the entire year? What are the drivers using? Because a number of new products introduced in first half. Hello.
Ladies and gentlemen, please stay on hold while we reconnect the management. Ladies and gentlemen, the management is back online with us. Sir, please continue with the question.
Yeah. Just on the crop protection side, so if you take about the first half, we declined by around 7%. Majority of the industry witnessed double-digit growth in the first half. You alluded to the first one quarter, some of the products witnessed two or three more new competitors, and hence our market share has declined. In that context, how hopeful are you of growth in the crop protection, and how many products did you introduce in the first half? Can you give some color about the opportunity size in the new product launch?
Just a second. The question is, how many products have we rolled out in the first half?
Yeah. In the crop protection. And.
Okay. Yeah. Sorry. Carry on.
I can say reason for the 7% kind of decline in the first half, where the industry has grown by around double digit.
Okay. I think first of all, I mean, I wouldn't be able to comment on the industry, but whatever results that we are seeing on the agri chem industry across, I think the pattern is pretty similar across because everybody seems to have got impacted.
I'm not taking over. Second. Second quarter, I completely agree.
I think it also depends a lot on which segment each competitor plays in, right? It is such a large, wide segment portfolio, as I said, that we have a product portfolio which has got more cotton, herbicide, chili kind of a portfolio. That is where our journey is towards diversifying this over the next two, three years. That is, in fact, one of the biggest initiatives that we are going to undertake right now. Coming back to, as part of that, I think the first product that we rolled out, which was rolled out actually towards the end of August or rather early September in the first half, was Ashitaka, which is our first large foray into a new crop, which is maize herbicide. That is something which has just gone into the market around a month back. Early results looking positive.
We are very hopeful of building this into a very, very large product for us within the maize segment. As I talked about earlier, there is another product that we are likely to get into a new segment completely. I will not be able to share that because of competitive reasons right now. If everything goes right, we will get it in quarter four early. That product is Pan Crop. That product is a new segment for us, which will, again, de-risk and diversify us a little more because it will not depend only on one crop. Apart from this, we have got another three odd products lined up, which should hit us anywhere between April to August next year. Beyond this, there is more work happening. We are in very, very early stages of closures on very inline-fitting products.
As I said, the journey has just started with Ashitaka. There will be a spate of launches happening in the next six-seven months, followed by FY2027, FY2028, and FY2029. The product profile will be very different.
Sure. How is the performance over some legacy product like Headway and everything? Because we developed two or three more variants. At the same time, one will get overturned. Are you seeing any competition in the pricing or margin?
In fact, I would say that the Headway impact, which is the impact that we are seeing in our business, is primarily led because of this entire weather pattern which happened, which really shut down or narrowed down the whole window of spraying opportunity to such a small level that it is more a category issue than anything else. By all standards, Headway continues to command a premium over any other product in the market. We still command a premium because the brand power is very strong. We don't have. Our understanding is very clear that we have not lost any market shares. It is completely a category issue which has panned out in the cotton herbicide market, which has led to this impact.
Understood. Sure. Thanks.
Thank you. Ladies and gentlemen, that was our last question for this conference. I would now like to hand the conference over 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 would 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.
On behalf of Anand Rathi, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.