Ladies and gentlemen, good day. Welcome to Rallis India Limited's Q4 FY 2021 earnings conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you. Over to you, sir.
Thank you. Good day, everyone. Thank you for joining us on Rallis India Limited's Q4 and FY 2021 earnings conference call. We have with us today Mr. Sanjiv Lal, the Managing Director and CEO; Mr. Nagarajan, Chief Operating Officer; Mr. Ashish Mehta, the Chief Financial Officer. Before we begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature. May involve risks and uncertainties. A detailed statement in this regard is available in the reserved presentation. I now invite Mr. Sanjiv Lal to begin proceedings with the call. Over to you, Sanjiv.
Thanks, Gavin. Good morning, everyone. Welcome to our quarterly call. I trust all of you are safe, along with your family members, in the current context of the pandemic. As mentioned by Gavin, I have with me on the call Mr. Nagarajan, our Chief Operating Officer, Mr. Ashish Mehta, our CFO. I will begin the call with a quick overview of the key trends in the sector, post which I will move on to Rallis specific developments. Amidst the rising COVID cases, one positive news has been the forecast of a normal monsoon by both IMD as well as Skymet. The quarter gone by marked about a 3% increase in rabi sowing area in India. Good credit growth in rural India kept sentiments buoyant. Globally also, the sentiment for pesticides remains positive. Moving on to Rallis specific developments, let me start with the headline numbers first.
For the quarter, we reported revenue growth of 36%. Profit of INR 8 crores compared to INR 0.68 crores in the previous year, driven by improved performance of domestic and international business. The growth rate was also aided in part by the lower base of the last year. For the full year as a whole as well, we have delivered a fairly steady revenue and profitability growth of 8% and 24% respectively. More than the headline numbers, we are pleased with the factors behind the numbers, which are driving the growth. As discussed earlier, we have invested in capacity expansion in some of our plants, which have been completed. Our new formulation facility is expected to be commissioned during the first half of FY 2022. The multipurpose plant later in the year.
Our newly launched products are getting good positive feedback from the customers, although demand generation effort was somewhat hampered through the year due to inability of our team members to engage directly with the farmers. Further, our revised credit terms as well have been well received, as can be seen by our cash flows, and Ashish will elaborate shortly on the same. Our international business is shaping up well with good demand for a majority of our key products. With regard to contract manufacturing business, while we are continuing to witness this at present, we are undertaking requisite steps towards reviving the business. I will talk about it in detail shortly. In the seeds business, we are undertaking steps to address the present toxicity in our product portfolio.
Let me now dwell a bit more in terms of our strategy for each of our business segments, starting with the domestic business first. As we have indicated in our previous calls, our efforts are directed towards delivering steady and consistent growth in the business. We have drawn a three-pronged strategy towards achieving that objective. First being to strengthen our product portfolio, and we have started that as we introduced at least two new products in each year as what we have stated. In FY 2020 itself, we introduced 6 new products, two of which were in-house, while the others were co-marketing. Continuing with the same trend, we introduced three products during the current year as well, and we expect to introduce new products in the coming year as well, which will help us drive the revenue run rate.
In addition to introducing new products, we have also undertaken a detailed analysis of our existing portfolio and have identified product gaps to plug to drive growth. Lastly, our credit terms have been well received by the market. Not only has our product offtake run rate improved, but so has our collection cycle and cash flow as well. We believe the combination of the above measures should help us maintain and drive the business momentum in the near to long term. Moving to the international business, we are witnessing steady demand for most of our key active ingredients. We have also selectively undertaken expansion and debottlenecking of capacities where we see significant growth. As most of you may be aware, we have completed the capacity expansion of metribuzin, wherein we have a significant presence globally. Further, we have also expanded capacities for hexaconazole and pendimethalin.
Further, we are also working towards improving our product mix in this business, registering our own product in key markets and increasing the share of formulation business in the overall product mix. I am pleased to report that we have already received registration for metribuzin technical in North America and for metribuzin formulation in Brazil. Secondly, we are also working towards augmenting the overall product portfolio for the business and are on track to add new products. Lastly, in terms of contract manufacturing, while we see near-term softness in the business, given our limited portfolio, we are undertaking steps towards developing the business to make it a key growth driver going forward. With that in mind, we have put in place a dedicated team for the business and aim to leverage our strengths to develop a partnership with global players.
Our portfolio approach of having multiple businesses provided us with stability when some parts of our portfolio are being challenged. Moving on to the seeds business. As mentioned earlier, our attempts have been directed towards building a comprehensive product portfolio to eliminate the cyclicity present in the business at present. We have a strong kharif portfolio at present, with a dominant position across two product categories. With regard to the rabi segment, we are exploring in-licensing opportunities to launch rabi maize and vegetable seeds till the time our own hybrid seeds get commercialized. Hybrid mustard launch recently has done well. We have also, during the year, launched a couple of new products, which have been well received. Two new products in maize, one in bajra, and one in chili.
We are also undertaking investments towards building a strong product pipeline for strategic crops like cotton, maize, and vegetables. We are hopeful that these efforts will help us address the existing gaps in the business and enable us to develop a comprehensive portfolio going forward. A quick word now on CapEx before I hand over to Ashish. Of the INR 800 odd crores CapEx plan approved by our board, we have firmed up plans for about INR 550 crores till date, of which, as mentioned earlier, we have completed expansion of a couple of our products and two more will be completed by June 2021. That is by the end of Q1, along with the annual shutdown of our Ankleshwar facility. We also expect the CapEx encompassing our multipurpose plant, pilot plant and automation, et cetera, to be completed during FY 2022.
To summarize, we believe we are well-placed to deliver stable and consistent growth over the coming years. All the businesses are shaping up well, strategically heading in the right direction. While some may be ahead of the others in terms of pace and the level of progress attained, broadly, as I mentioned earlier, all of them are heading in the right direction. With that, I now request Ashish to walk us through the financial performance before we open it up for Q&A. Over to you, Ashish.
Thank you, Sanjiv. Welcome everybody to this earnings call. I hope you all are safe and keeping good health. Highlights for the Q4, as I am sure you must have gone through the numbers, as a custom I need to call out the numbers. Revenue at INR 471.26 crores was up by 36% compared to the same quarter in the previous year. Operating EBITDA at INR 17.17 crores, compared to negative INR 9.81 crores in the same quarter of the previous year. Profit before exceptional items stood at INR 9.88 crores compared to loss of INR 14.08 crores in the same quarter in previous year. There is an exceptional item of INR 1.68 crores which relate to profit on sale of assets during the quarter. Finally, profit after tax after exceptional items stood at INR 8.12 crores compared to a profit of INR 0.68 crores in the same quarter in the previous year.
For the year-end highlights, revenue of INR 2,429.44 crores grew by 8%. Operating EBITDA at INR 322.89 crores, a growth of 24.5% over previous year. EBITDA percentage at 13.3% compared to 11.5% of previous year, a growth of almost 170 basis points. Profit before exceptional items at INR 294.06 crores, a growth of 30% over previous year. Profit after tax exceptional item is at INR 228.58 crores, a growth of 24% over previous year. I'll give you the business-wise breakup for the Q4 as well as for the year-end. Domestic formulation business revenue at INR 172 crores registered a volume growth of 35% with a price correction of 10% downwards, resulting in net growth of 15% for the quarter.
For the full year, total revenue stood at INR 1,084 crores versus INR 949 crores in the previous year, registering a volume growth of 16% and a price correction downward of about 1%, resulting in a net growth of about 14%. International business registered a growth of INR 230 crores revenue for the quarter, a growth of 73% over the previous year, largely driven by volume across all active ingredients. For the full year, total international business clocked at INR 741 crores versus INR 722 crores in the previous year, registering an overall growth of 3%, a breakup of which is largely volume with a price correction mainly in metribuzin. While growth rate was seen across all major active ingredients, price correction as I said, was in the metribuzin, which pulled down the overall growth. Crop nutrition, this includes both GeoGreen and Plant Pro nutrients.
Net revenue for the quarter was INR 23 crores compared to INR 19 crores in the previous year, an overall growth of 21%, largely driven by volumes. For the full year, crop nutrition is at INR 120 crores compared to INR 98 crores in the previous year, registering a handsome growth of 24%, again, largely driven by volumes. Seeds for the quarter was at INR 26 crores versus INR 24 crores of the previous year, largely driven to better price realization. Revenue for the full year was at INR 401 crores compared to INR 364 crores in the previous year. EBITDA for the quarter is 3.76% versus -2.8% in the same quarter in previous year. For the full year, EBITDA stood at 13.3% versus 11.5%, registering an increase of 177 basis points. The earnings per share for the year FY 2021 is at INR 11.75 versus INR 9.51 in the previous year.
The company's working capital days were at 86 days versus 83 days in the previous year. Receivable days improved to 61 days from 73 days in the previous year. Cash from operating activities stood at INR 216 crores and total liquid investment as at 31st March 2021 stood at INR 321 crores after meeting CapEx outflow of roughly INR 160 crores. ROE for the year is 18% compared to 16% of the previous year. The board considering the result is pleased to announce an equity dividend of INR 3 per share compared to INR 2.50 per share in the previous year. That's all from my side, and I now hand over to Gavin.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets when asking questions. Also, in order that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have follow-up questions, we request you to rejoin the queue. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Rohit Nagaraj from Sunidhi Securities. Please go ahead.
Yeah. Thanks for the opportunity and congrats on good set of numbers. Sir, the first question is in terms of R&D. How does the new product pipeline look for the next three, four years? What would be our focus crops or focus areas from new product introduction point of view? Thank you.
Thanks, Rohit. In terms of our pipeline, we have already stated that we will be targeting introducing at least two new products from our R&D efforts. I would say pretty much we are in line with what we have stated, our pipeline also is looking reasonably healthy going forward. We have done a very detailed gap analysis of what we need to do in terms of our portfolio. We do have weaknesses in certain segments which we have identified for which the work is currently underway. Over a period of time, as you are aware, that it goes through a registration process, development process. We will be having these products getting introduced into our portfolio. Some of these are related with segments like wheat and soybean. We will be having products in that category as well.
Also herbicides, which is another area where we are also working on getting a couple of formulations to strengthen our overall product mix for the crop protection portfolio. Likewise, on the crop nutrition portfolio, we have also identified opportunities for introducing new products. We have seen a good traction for some of the products that we have introduced. Some of them which we introduced during FY 2021 included fertigation related products for vegetables and grapes. We also introduced neem-based products, again, for the segment looking at biologicals. We will be having a couple of additional biological products getting launched during the upcoming kharif season.
Specifically on the crop protection, certainly we are going to be two per year and on crop nutrition side as well there will be new products, as well as on the seed side, where a number of our hybrids have gone through the various testing stages, de-commercialization stages. We did introduce three new hybrids into our portfolio last year, and we look forward to introducing a couple more in each of the years. That will help in refreshing, renewing, and rejuvenating our portfolio in all our categories. Does that answer your question, Rohit?
Yeah. Thanks a lot. That's very helpful and a pretty comprehensive answer. Sir, the second question is in terms of geographical revenue target for FY 2025. Currently we had about 63% from domestic and 37% from international. The target suggests that about 50% domestic, 40% international. Is our focus still on the domestic market given that there is no material shift in terms of our geographical revenue breakup for the next four years? Thank you.
It is our stated position that we want to expand our international business, and this comprises both the B2B sales as well as the contract manufacturing opportunities. We do see a lot of opportunities in contract manufacturing and for which we have already put in place a team to work with various innovators across the globe to see what are the opportunities that we can take forward for partnering on the supply chain of some of the innovators and other users of agrochemicals, including intermediates
We do see a growth in that segment both for actives as well as intermediates, and also on the formulations because we have won a couple of registrations in Africa. We have got one for formulation for metribuzin during FY 2021. We also have got the approval for insecticide formulation. We are waiting for getting the state level registration within Brazil for us to commence our sales with the insecticide. We do expect good traction from our exports business. That is not to say that As a percentage, it is looking like as if we are reducing our intensity on the domestic side. I would just like to re-emphasize that domestic market is a key growth area for us. It is the largest part of our portfolio.
We are expanding our portfolio beyond crop protection to crop nutrition to biologicals and, of course, seeds, which is an important part. There is a good pipeline of work which is happening, especially on some of the problem areas which we have in our portfolio related with the rabi crops in our seed portfolio. The work is very much on. We will be growing that. The 60/40, I would just like to clarify, is related with the crop protection side.
Understood. Thanks a lot, sir, best of luck. Thanks.
Thank you. The next question is from the line of Varshit Shah from Emkay Global. Please go ahead.
Thanks for the opportunity and congratulations on a great show, especially on the export side. My question is first on the reach. I think if I were to just I'm doing simple math that you currently have a reach of 48,000 distributors, retailers, 50,700 distributors. That's roughly around 13 retailers per distributor. The target which you have set out for FY 2022 is 65,000 retailers on 4,000 distributors. That's roughly a ratio of 16 retailers per distributor. Are you expanding the area of coverage for distribution, or is there a change in alignment strategy at the distributor level? That's my first question.
Okay. Naga, would you like to take a go and respond to Varshit? Yeah.
Yeah. No, actually, what we have done, Varshit, is that we had actually done a pilot exercise trying to sort of assess the coverage that we are getting at the retail level. What we find is that there is certainly a scope for us to increase the retail coverage. While we are referring to the numbers at this point in time, what we also feel is that it is important to look at the throughput that some of these retailers are carrying. In terms of numbers, certainly, I think we would have to increase, more importantly, we would have to increase in the relevant set of retailers who are having high throughput. The intention is to increase the retail footprint, certainly we will be leveraging the existing distribution channel to achieve it.
Of course, wherever we find that there are pockets where we need to add distributors, that will also be done. That is why we are expecting an increase in both. We do expect the retailers to, what we call them, SSPD ratio, to increase in the manner that you articulated. More coverage per distributor as well as more distributors.
Sure. Thanks. Second question is on the new active which you are looking to add in the coming year. Will that come up in the new MPP or do you have some capacity in existing MPP as well to start? If you could give a broader timeline as in H1 or H2 when you plan to start the new active intent for the international segment.
Varshit, this is what will go into the new multipurpose plant, and that plant is getting constructed. We are expecting that we should be able to commission that plant during this year. Things may change because of the kind of difficulties that the country is going through with a lot of the labor which works on the project site having moved away for their own reasons. We are seeing that even at our SEZ formulation plant, where the number of people who we really need for completing the project has also decreased. That being said, our intention is to commission the multipurpose plant during this financial year where the new product will go. We don't have appropriate capacity available for us in the existing plants because most of them are dedicated plants.
Sure. That answers my question. Just one last question. Could you just call out the CapEx as per today's plan for FY 2022 in terms of spends?
We have an overall plan of, in terms of cash flow, we have done about INR 158 crores, INR 160 crores during FY 2021. We are outlooking cash flow about INR 250 odd crores for FY 2022.
Got it. Thank you. All the best, I'll get back in the queue. Thanks.
Thank you. Before we take the next question, a reminder to participants to please limit your questions to two per participant. The next question is from the line of Chintan Modi from Haitong Securities. Please go ahead.
Yeah. Thank you for the opportunity, sir. One, if you could discuss a little bit more about this new product launch, that is EV. What is the kind of market size that you are looking at? How are we planning to scale that up? That is one thing. Also from this gap analysis perspective where you mentioned wheat and soybean will be our focus. Could you help us understand what will be the current portfolio in terms of wheat and soybean, and any potential launches in this scene in next year?
Naga, would you like to go?
Yeah, I'll take that. You wanted details about EV. EV is actually a combination of a strobilurin and a diamide. It is a fungicide plus an insecticide combination. It is in that sense, a unique product, boscalid plus flubendiamide. This product, the formulation is aimed at a couple of crops. One is paddy, and the second one is vegetables, and particularly vegetables, tomato. In the case of both these crops, it would be utilized or useful in the middle stage of the crop. For example, in the case of paddy, between 45 to 60 days, and in the case of vegetables, in the flowering and fruiting stage. Not in the early stage of the crop, not in the end stage, but in the middle stage of the crop. It is aimed at a combination of sheath blight and leaf folder.
These are the problems of the farmer that this particular combination is expected to address. It is a product where the cost of application is a little bit on the premium side. It is closer to about INR 4,800 per acre. It is a bit of a premium product. Therefore, it would be found attractive for farmers facing specific kind of, let's say, difficult problems in some of the premium geographies. For example, in the case of paddy, we would expect that places like Punjab, Haryana, Uttar Pradesh. Maybe in the case of tomato, it would probably be places like Maharashtra. These are the kind of places where we would expect this product to be of appeal. We must remember that there are also lower cost products that are available.
Of course, this one is having a utility in a more difficult situation, more stressed situation. The overall market size for this product for paddy and tomato, for sheath blight and leaf folder, maybe is about INR 700 crores-INR 800 crores overall market. I think this would be in the premium end of it. Maybe the addressable market, what we can think of is maybe INR 150 crores-INR 200 crores. This is some detail about EV. We have introduced this product, and this would be the first year effectively of seeing the ramp up and so on. As far as soybean is concerned, last year we had introduced a product called Enzip. It was a co-marketed product. Towards the end of the previous year, that is FY 2020, we had introduced Impida, which was for the wheat segment.
We have a few introductions that have gone in. Of course, there are many more which are in the pipeline, which our R&D is working on. Parallelly, we are looking to strengthen our distribution infrastructure, like we already spoke about in the previous question, in specific geographies, Madhya Pradesh and also parts of North India, where wheat is grown, to take advantage of these product introductions. Does that cover your questions?
Yes. That was very helpful. My second question is with respect to the international business, where we have seen volume growth. Wanted to understand more from a price recovery perspective. Last quarter also, we had seen raw material prices increasing, and that has kind of intensified further. Have we seen any price increase because at least in the domestic market, in metribuzin, pendimethalin, we have seen some good amount of price uptick. From that perspective.
If you take the full year perspective, FY 2021 over FY 2020, we do find that metribuzin, international prices of metribuzin, what we have been able to notice is that there is an average drop of about 40%. That is the Y-o-Y drop. However, something which has been picking up from having hit a low point in Q3. Through Q4, we have witnessed some improvement. Certainly, if you still take the annual comparison, it is definitely low. We do think that it will improve progressively over a period of time. In fact, that is the reason why that although we had volumetric growth in metribuzin, I think Ashish already mentioned about the increase in revenue of the B2B business. It has moved up this year to INR 740 crores compared to INR 722 crores in the previous year.
Meaning a growth of about 3%. That is in spite of having volume growth in all the active ingredients. Really this 40% drop, including metribuzin, volume growth including in metribuzin. This 40% drop in prices has actually contributed to the revenue actually growing by only about 3%.
Thank you
The next question is from the line of Amar Maurya from AlphaAccurate. Please go ahead.
Yeah. Thanks a lot for the opportunity, sir, and congratulations for a very good revenue growth. Sir, I have two questions. Hello, am I audible?
Yes. Go ahead.
Yes, please go ahead.
First question, sir. After consecutively three years of EBITDA margin contraction in FY 2021, we had reported a 1.6%, 170 basis points expansion in the margin. Do we see this trend to continue from here on?
Yeah. I think maybe we can talk about some of the initiatives that we have taken and in terms of going forward, what are the things that could influence it. One is, certainly, I think we have looked at our portfolio and tried to sort of prioritize certain products where our margin profile is a little better in the domestic business, domestic crop protection business. That is one of the initiatives we have taken. We had also adopted what you can call as a high frequency pricing approach this year, that is FY 2021, consequent to the volatility that we anticipated in the, and of course, later witnessed as well in terms of our procurement prices.
Of course, we also had to contend with the kind of price changes on certain products like metribuzin, which we spoke about in the international market which of course, went in the opposite direction. As we look ahead, we think that some of these approaches we will certainly continue. We will continue to have a focus on the product portfolio. As far as possible, try and emphasize the better margin products. We will certainly have a very close pricing approach because we do expect the volatility to continue. I mean, if not, actually increase really. On the international prices, certainly we do expect some improvement in the metribuzin prices, but like it was mentioned in the earlier call, there are a couple of active ingredients where perhaps the international prices are a little bit higher than what we would expect them to settle down at.
Pendimethalin was one of the examples that was cited. Maybe there could be a little bit of moderation there. Overall, we do think that this approach and this kind of an outlook, and of course, the monsoons in India are predicted to be good. The unknown factor is, of course, the extent of COVID impact. If you keep that aside, we would be actually positive about the evolution on this front, on the margin front.
Okay. Thank you, sir. Second question is on the CapEx. If I see currently out of the INR 436 crores kind of a CapEx, at least INR 230 crores kind of a CapEx would be a kind of a revenue generating CapEx. I am eliminating the formulation pilot plant and the R&D facility CapEx. I mean, in that, historically, we had generated kind of two and a half kind of fixed asset turnover ratio. Even if we consider two times kind of fixed asset ratio, then also it's around about INR 450 crores kind of a revenue. Remaining INR 364 crores kind of a CapEx, which is yet to be planned, which will also have a potential revenue of around about INR 700 crores.
Is it fair to assume that in next three to four years, we are building a base for something around INR 1,200 crores kind of a CapEx additional on top of whatever is there in the business? This will be materialized in this three to four years timeframe.
Can you
I just had a point, Amar. Sorry. Amar, you said
Yeah, go ahead.
You mentioned that I'm removing three parts, which includes the formulation parts and-
I'll just repeat again.
Yes.
Out of the total INR 436 crores of CapEx, which is outlined. What I'm doing is the formulation plant basically is the shift from the It was a shift. Basically-
No, it's not a shift, Amar. I don't think it's a shift. It's a new formulation plant where new products will be produced. Nothing to be done from the existing plant where we have a formulation.
Fantastic. The revenue growth will be I mean, I'm just assuming that the revenue potential would be higher than the INR 1,200 crores. The idea is that can we address this kind of revenue potential in next three to four years?
Look, clearly our CapEx program is intended to expand our manufacturing capacity. While you have got your math, Amar, we are looking at investments which are value creating. We use internal rate of return to determine whether we should make the investment or not. While you have sort of carved out what looks like value creating through volume growth, I would also like to add that things like pilot facilities and all these are all part of the value creating process only.
Correct.
Without that, we cannot commercialize some of the things that we are doing in R&D.
Sir, basically what I'm trying to understand, out of this total CapEx of INR 800 crores, whichever we have planned, is it fair to assume what kind of revenue potential it can generate?
It's a little difficult to answer that question in a straight way, Amar, because the volumes don't come out in the first year of commissioning these kind of assets. They build up over time.
Yeah.
Ultimately, they may reach the numbers that you are proposing, maybe even more. That is the approach which we have to take. Unless we build the asset, we will not be able to get the volume.
Also, Amar, just to add, the way we have done it, every single one of these CapEx proposals, actually, we evaluate as part of our investment process. Some of them may involve products which are, let's say, of slightly lesser margin, and therefore higher revenues, that the combination of the two kind of justifies the business case. In some cases, it may be a higher margin product, at lower revenue build-up. The third thing is that when you have debottlenecking investments, like for example, when we have talked about expansion of metribuzin or debottlenecking of hexaconazole, the additional revenue that you may get for a particular level of investment or the marginal investment may be quite a bit different compared to the average investment.
It is a combination of all this, a formulation plant, obviously, as you know, is quite a bit different in terms of the asset turns. If that is what you are trying to sort of make a judgment on. It's a little bit hard to sort of quantify in that way. All these investments, including pilot plant, for example, these are all value-creating and are required in order to bring some of the active ingredients that we are developing in our laboratory into the market. They are all value-creating is what we would say.
Got it. Sir, this typical two and a half times kind of asset turn, normally it takes how much time to reach to that kind of a levels?
See, in the case of some, that's what again like hexaconazole debottlenecking, we have already started reaching. We implemented the project last year, FY 2021, and as of March, we are almost hitting close to 100% of the utilization. That way it is very quick. If it is a newer product, it will also depend on the uptake of the product. Newer from our point of view, I'm saying. We have to, let's say, secure the customers or get the kind of confidence in terms of the volume build-up. It will vary whether it is a debottlenecking or whether it is a new active ingredient.
Formulations also, it will move at a particular pace, because in the first year we would be doing introduction of the product, demand creation, and after that, we would also have to follow it up with multiplying the original set of users. It will depend on whether it's a debottlenecking, new AI or a new formulation.
Just to take an example, Amar, to make it more clear, like in case of metribuzin when we expanded in two phases, each equal to 500 tons. The total investment was around INR 35 crores-INR 40 crores. If I were to generate the revenue, and considering that the capacity is being used fully, 1,000 tons would roughly give a revenue of almost INR 130 crores-INR 140 crores. In that case, if you see the asset turnover will be looking much, much higher. In case of a formulation plant, the plant is always built at a very high capacity. Again, it depends on what type of product you are doing. Whether it's a low margin and a high value or vice versa. There it will be difficult to say that whether the asset turnover will be 1.5 or two.
yes, over a period of three to five years, it will be reasonable to expect a minimum asset turnover ratio of one. Minimum.
Thank you. The next question is from the line of Nitin Gosar from Invesco. Please go ahead. Mr. Nitin Gosar of Invesco, you may go ahead with the questions.
Yeah, thanks. two questions. One, if you can help on some update on CRAMS. I think I missed out on probably on the updates. second is, if I were to look at the numbers, after seven years, we have crossed the earlier reported high numbers on EBIT and PAT. I recollect when you took the charge two years back, you highlighted revenue will flow earlier and margin will have its own journey to play out over a period of time. Where are we in that journey? Where revenue has started to flow in. Are we closer to the mark where margins can respond at a faster pace incrementally from here on, or we are still in the investment phase? Thanks.
Nitin, I would say that the margins and all are function of the portfolio. we are in the process of relooking and renewing and rejuvenating our portfolio. that will happen over a period of time. therefore, we have prioritized our growth to say that we need to build scale, and that is what we are doing. I would say largely, we are moving in that right direction.
As far as the contract manufacturing is concerned, you're aware that we do have a limited portfolio, and as part of this portfolio, one of the products is linked with the airline industry. It is a polymer. That has had a certain significant setback on account of the difficulties that sector is facing. We are expecting that maybe towards end of FY 2022, that will also revive, then we will be back to a good trajectory as far as the polymer is also concerned. What is more important from our perspective is to expand this portfolio and look for newer opportunities. As we had mentioned in earlier calls, if you had been part of that, relative to some of the other players who have become fairly big in contract manufacturing, we are in a much, I would say, weaker position in this particular category.
It is a category that we have to build over time, for which we have put a team in place who is now engaging with both international players who are doing formulation work, who are doing the B2F, the pharma-related engagements. Both for active ingredients, for formulation exports, we are looking at an entire portfolio, including intermediates. That is the work which is currently underway, and it will take time for it to build up. We have resourced it, we expect that over a period of time, we will start getting a couple of contracts to build up this portfolio. As of now, I would say it is a work in progress.
Got it, sure. Perfect. This was very helpful. Thank you.
Thank you. The next question is from the line of Abhijit Akella from IIFL Securities. Please go ahead.
Yes, sir. Good morning. Thank you so much for taking my questions. First, just a clarification on the margins this quarter, the expense lines rather. Both other expenses and employee costs seem to have increased quite sharply compared to the run rates we were running at in the previous three quarters of the year. Just trying to understand what might have driven that and what we should expect for these lines going forward in succeeding quarters.
Ashish, would you like to take that?
Yes, sir. Abhijit, on the employee cost, you see there's always an impact of actuarial valuation which comes at the quarter end. That is one impact which we have. Certainly, another impact is on the increase in headcount, which we generally do for replacement of the people going around and also for filling up the important portfolio gaps, or rather territory gaps and all that. That is more of an investment. Other expenses for the quarter looks high because if you see in the first six months, nine months, the intensity of the field activity was very low. Right? As the COVID relaxations were there, the travels started happening. More of field activity started happening. We've seen number of field force were deployed more, or rather more means in terms of the previous quarter. The sales promotion activities were also being done aggressively.
Hence the expenses were there in the fourth quarter. That is why the other expenses looks a little higher. That is the explanation for it.
Okay, sir. Thank you. The other question I had was just with regard to this CapEx and the sweating out of the assets that you've commissioned. Metribuzin, while you mentioned Hexaconazole, you're already doing 100% of what you've commissioned. How does it look like in the other products where we've expanded capacities over the past year? Yeah, that's it. Thank you.
Yeah. Last year, in addition, we had the Carfentrazone-ethyl plant also commissioned, debottlenecking again, and that is also running at almost full capacity. As far as metribuzin is concerned, we are also in the process of resiting our equipment from their present location to a consolidated location, so that we are able to better drive efficiencies in operations. That's something which is expected to take till the end of the quarter Q1. April, May, June. In anticipation of that disruption, we had planned to take the production right up to March at full levels of capacity, even though the demand side has been somewhat soft. Therefore, in a way, you could say that we have been running at full capacity utilization on the metribuzin as well.
I think with the understanding that the demand side is certainly not running at the full capacity utilization levels. The demand is still continuing to be soft, but that is actually a planned capacity, I mean, inventory buildup. Acetamiprid and Lambda are projects which are under execution now. I guess once they are executed, we will come to the utilization levels. In the first year, we have not planned 100% utilization for both these products. These are as far as the active ingredients are concerned.
Thank you so much. Very helpful. Thanks. All the best.
Thank you. The next question is from the line of Tarang from Old Bridge Capital. Please go ahead.
Hey sir, good morning. Now the placement season is commenced and IMD has come up with a positive forecast for monsoons. The spread of COVID seems extensive through the country. In this backdrop, I have a couple of questions. One. How are you seeing the demand of your products in the domestic market, and what are the bottlenecks that you're seeing in placements? Is it logistics, availability of manpower, so on and so forth? That's one. The second. Are you witnessing any change in cropping patterns in case of maybe May, especially because domestic trends appear to be decoupled from what's happening globally?
Coming to the COVID impact, I think without sounding overly negative, I think it is to be acknowledged that the challenges posed by COVID are significant on multiple dimensions. We have had some of our staff, for example, COVID positive in many of our factories. We have had challenges on the raw material and packing material front. We have had challenges in terms of getting the required labor for our formulation plants, as well as in our third-party formulators for them to be able to get the labor. Certainly, transportation, either inbound as well as outbound, both arrival of raw materials into our plant as well as dispatches from the plant to the markets.
We also have challenges in importation of materials because of various kinds of lockdowns, lesser percentage of people permitted to work, leading to delays in being able to clear the materials which may have arrived at the port. I would say that the challenges are on multiple dimensions. Some of the actions that we are taking, I guess the most important and the first one that we are prioritizing is the personal health and safety of our staff. That we have very clearly communicated is the number 1 priority. Secondly. We are also prioritizing the operational safety in our plants, because as you know, some of these things, even in the last year, learning from the last year, have led to a lot of mishaps in a number of plants across the country, whether in this industry or in other industries.
We are constrained to prioritize the areas which we will take up during our annual maintenance shutdown, which is presently underway in couple of our plants. We are certainly prioritizing the high-risk areas, you can say. For raw materials, we are focusing on stocking up wherever possible, even if it means a higher level of inventory. In fact, last year also, we had adopted a similar kind of approach. I think we will deploy a certain amount of capital in raw material stock-up, and perhaps even in finished goods production and stock-up, like in the case of metribuzin that we alluded to earlier. For packing materials, we are trying to sort of bring them in as much as possible, but we are sort of, to a great extent, dependent on a number of our suppliers. We have obviously tried to have a diversified base of suppliers.
Certainly, I think that is one very important area, that, in fact, has also delayed, to some extent, our new brand architecture rollout, because we are finding that it is a little bit hard to get the required complement of packing materials for all of our products. I think that is something which we are living with, and we will probably focus on getting the material out, even if it is in the old brand architecture, but parallelly try to get the new brand architecture going. On the logistics front, yes, I think there are challenges. We are trying to sort of prioritize as much of stocking in the tail end of our supply chain rather than in the fountainhead of our supply chain. We have a couple of hubs in our domestic formulation, and we got a number of depots, 25 depots across the country.
The more efficient way would obviously be to stock up at the hub and then move it to the depot as and when the demand kind of rises. I think that is a more conventional route. We are now trying to be a little bit unconventional there, trying to actually stock up at the depots to overcome the logistics. Whenever we are able to get the trucks and all of that, we are trying to prioritize that. These are some of the actions that we are taking, there is no prescribed formula that we are able to sort of identify. We're just trying to sort of do the best under the circumstances, and I think that is what we tried last year. We are encouraged by the success that we got last year. We'll continue to do that this year as well.
How are you seeing demand for placements?
Demand for placements is positive. Like you said, IMD, Skymet, everything is giving a positive picture. One of the things that we also learnt last year, which I think we have called out in our investor deck also, is that we found that because we were constrained in terms of physical demand generation, we were forced to rely on digital means. The digital means are useful as a reminder medium, not necessarily to position a new product. We were, in a sense, challenged in terms of scaling up some of the new products where the benefits had to be kind of demonstrated to the farmers. The share of the legacy products, the brands which were strong in our portfolio, that has actually increased last year. This year we were hoping that if COVID had abated, we would have had a better chance.
Looking at the way things were in Q4 when mobility was possible, we thought that we will really be able to ramp up our demand generation for the newly introduced products of last year and the year before. However, I think that is something which may now prove to be a little bit more difficult. We would expect, therefore, the trend of last year to continue, which is that the legacy products might acquire a larger share of our sales mix rather than the new products. That, in fact, influenced our ITI achievement last year as well.
Thank you. The next question is from the line of Ramesh Sankaranarayanan from Nirmal Bang. Please go ahead.
Yeah. Good morning, and thank you very much. The first thought is, if you looked at this year first half versus last year, we had a similar situation in terms of COVID and the impact. If you can help us understand on a Y-o-Y basis, assuming that monsoon is normal and the placement is normal, on the base we saw last year, would we be just about maintaining the numbers, or is it possible to see some volume growth for the domestic formulation market?
Without providing some kind of guidance on this, we could say that the environment is certainly from the standpoint of demand outlook and from the standpoint of the good monsoons, things are looking positive. We already said, COVID is definitely one factor which we cannot wish away. We are trying to take the actions that I mentioned to you in terms of coping with that. At the moment, things are looking certainly, simply because of the experience of last year, we are a little bit prepared in some dimensions, but some other dimensions may be completely new this year.
Okay. The second part is you mentioned biologicals. In terms of the opportunity size and the kind of investment and as a share of business, do you have any goalposts? Can you share some thoughts on that?
We have introduced biologicals last year, FY 2021, with the new products that we mentioned, and we will be having more products coming in as part of our pipeline. Because it is a new category for us, It is also an asset-light model, which we are following, which is in terms of sourcing the products from a number of partners. I think we said that we need to stabilize our business model in the course of this year before we put down specific goalposts in terms of revenue targets for this category.
Thank you. The next question is from the line of Rohan Gupta from Edelweiss. Please go ahead.
Yeah. Hi, sir. Good afternoon. Sir, question is more on the long-term strategy of the company and the vision which you have shared for FY 2025. The international business should be roughly 40% of the total revenues. Sir, there, I just wanted to understand a little bit more. Right now, even in the current mix also, you have roughly 37% of business is coming from the international business. Even if after three years also, you are looking at roughly 40% contribution from the international business. That alludes that domestic growth probably cannot be, sir, more than 15%, 12%-15%, even in the best of the case and in the best of the year. Do we understand that even the international business also cannot grow probably just more than that 12%-15%, or maybe just a percentage higher in next two to three years?
Where we are seeing the limitation, because you have mentioned some very selected points here in your presentation and the slide number 10, that how you want to grow the international business. My question is more on the, sir, over the next three years, why the revenue contribution from the international business still will remain at 40%? I mean, that's what we are targeting right now. Just want to understand more on that.
Rohan, you will be aware that we have an existing portfolio, which we will continue to invest in for adding capacity as the opportunity keeps emerging. Of course, you are also aware that we are going to be introducing new active ingredients into the international market. The challenge with introducing anything new is it has to go through a registration process, so it will take some time to build up in terms of value and volumes. Right? We are also looking at intermediates as part of our overall portfolio of exports as an opportunity. Because intermediates, we do not need the kind of time required for registration and all of that because it goes in for making an active. Those could be some slightly shorter cycle time opportunities. All these we are looking at.
This is an intention that we would like the shape of the business to be in this proportion. While you have put some numbers on domestic growth, we are also looking at seeing how we are expanding our portfolio also to see whether there are other levers that we can look at. I am not saying that we will continue to grow at 22%, 23% growth for the crop nutrition portfolio. It will be nice to be there, but we are adding products which are relevant for the crops that we serve to see how that part of our portfolio can also create traction for the volume growth.
Okay. I get your point, sir. On the same presentation slide where you have mentioned that you aim to be part of an innovator supply chain in the form of exclusive business agreement for the manufacturing of any AI. Sir, there we understand that when you are talking about to be part of an innovator supply chain. It means that right now our clients business is more focused on a generic product, but there you want to move ahead and helping the innovators in terms of launching the products or manufacturing the products which have yet not been commercialized. That's what we understand so far. Now, this business, I mean, where probably the companies are like PI and Deccan and all are there.
Is that understanding right, that you are in talks with some of these innovators and want to be the part of their supply chain where you are planning to help them or will be helping them in the product innovations and will be associated with them at the early stage of product development? Is there any breakthrough on that, sir?
Rohan, I think you are going into very specific areas, but I would like to just keep it more at a general area. When you talk about supply chain, it is both actives as well as intermediates. Right?
Okay.
We are also competitors to many of the innovators, right? We need to keep that in mind when we are looking at our contract manufacturing portfolio. Therefore it may be generics, it may be newer technology, newer patented molecules, or it may even be intermediates. We have to leverage what is our skill. Our skill is what? R&D and our skill is manufacturing, where we have lot of competencies. These are the skills that we will leverage for partnering with innovators, partnering with international players for expanding this category beyond the active ingredients, which we are selling as part of what you may call a catalog sale. These are the off-patented molecules that we can sell to multiple customers. Sir, does that clarify your question?
Definitely. Exactly. You hit the nail, sir. We are planning to expand our catalog and over the next two to three years, that is the kind of service we are planning to go ahead with and planning to offer that catalog to the global players. Is that something that you are-
Yeah. Catalog is basically a pendimethalin, metribuzin, acephate, hexaconazole. These are existing active ingredients which you may call as part of our catalog. We can sell it to anyone. Wherever we have registrations available in which country, we can sell it to anyone. Contract manufacturing means it is peer-to-peer. That means we will work only exclusively for a particular product with a particular partner. There's a difference between what may I call a catalog sale or a contract manufacturing sale.
Thank you. The next question is from the line of Viraj from Securities Investment Management. Please go ahead.
Yeah, hi. Thanks for the opportunity. I just have two questions on the international business. First is, you talked about us getting registration for metribuzin in Brazil and in U.S. If you look at last year and a half, we saw a good amount of pricing pressure in metribuzin, and part of the reason was the inventory build-up in North American markets. How is the situation now there? With these registrations now in place, what kind of a market potential is open to us now?
Yeah, I think that is correct. The market situation was tight last year. Therefore, we were carrying stock in metribuzin. What this allows us to do is to increase the number of clients. Number of customers with whom we could engage because we now have our own registration. Which is what we have started doing. We are in the process of expanding our customer base. The external conditions are also likely to be better. That is what we think. Therefore, we are hoping that metribuzin will pick up in the course of this financial year, FY 2022.
Okay. Second question is, broadly in terms of existing products which we cater to in the international business, we are almost at close to full capacity in most of these products, and we have a good capacity share, compared on a global basis. Based on your understanding of the market, are we seeing any other major capacity expansion elsewhere happening for these products? In that sense, how should we understand the overall pricing environment for these products?
Well, I think if you take it product by product, yes. In some products, as you know, in hexaconazole or in metribuzin or even in pendimethalin, we have a significant share of the market. In terms of capacity increases in some of them, like for example, hexaconazole, in our understanding last year, there has actually been a contraction of capacity. Partly also explaining the price advantage or the price improvement that we witnessed on hexaconazole. Of course, it is a product which is largely confined to the Asian markets, mainly targeted towards paddy crop. Metribuzin on the other hand, there was a demand-side challenge. I think that we should expect reasonably stable capacity levels in pendimethalin and metribuzin. Acephate, there is a significant amount of capacity which is getting built up. That is not a new development.
It's been under construction for the last, let's say, some time, one year plus.
Product by product, there are different dynamics. What we think is that in terms of our capacity utilization, the actions that we are focused on is trying to increase the number of registrations, self-owned registrations , thereby increasing the markets and the number of partners that we could potentially sell to. Apart from, of course, focusing on the domestic market.
Thank you. The next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead.
Good afternoon. Thanks for your time, sir. Just want to understand, this year we will have a new MPP plant come up and the formulation facility as well. Please correct me if I am right.
Yeah, that is correct.
Got it, sir. Second, I wanted to understand the margins. For the first nine months, if you see Y-o-Y, you had almost 200 basis points margin expansion. For the fourth quarter, it's almost a 200 basis point dip. If I see incremental margins and incremental revenue, I actually see that your gross margins for that is only 36% as given the 41% that is reported. Where is the pressure that is coming if I compare on a Y-o-Y basis only specifically for fourth quarter?
When you refer to the margins, you're referring to-
The gross margin, sir.
Because we have not given out the gross margin.
Yeah, we have calculated.
Okay. Here's the way we are thinking about it. Actually, if you look at it on an annualized basis, year-on-year basis, we feel that the margins have actually been quite stable. In fact, you could say a little bit better this year. When I say margin, we are referring to the gross margins, gross contributions, and that is after knocking out all the variable expenses from the revenue. Of course, there has been a change in the mix, and there are changes in terms of product level margins. For example, in the case of exports, contract manufacturing and domestic formulation, there is a change in mix between these three compared to last year. Within each of these, if you take exports, metribuzin margins have significantly reduced Y-o-Y compared to the previous year.
However, the margins on some other products, like for example, epoxiconazole, acephate, what we talked about, have increased. The point I'm making is there have been variations at the granular level, but at the aggregate level, we feel that the margins have actually improved a little bit. When you subtract only the cost of material and the change in working capital, a change in stock, and compute the margin, what you are referring to, the variable costs are not fully captured in that. If you actually capture it and calculate the way we do at the internal MIS level, you can say the margins have actually improved.
Okay. Would it be fair to say, sir, between the domestic and the exports, I'm just asking a ballpark number here, which would have a higher gross margin on an average, I'm saying, considering everything put together on FY 2020 on overall basis, which segment would have a higher gross margin?
Both domestic formulation and international B2B are similar in terms of margin, same range, at the gross contribution level. Of course, if you look at the fixed costs that go below the gross contribution level in the exports business, because it is largely B2B and has a much thinner sales and distribution infrastructure, you would find below the GC level, if you calculate at EBITDA level or something like that, it will probably be higher compared to the domestic business.
Thank you. We'll be able to take one last question. We take the last question from the line of Alok Ranjan from L&T Investment Management Limited. Please go ahead.
Hi. Good morning, sir. Sir, just one clarification on the two herbicides that we have, metribuzin and pendimethalin. What I see is that, of course, with global market size of pendimethalin is more than the double of metribuzin. In terms of the applications like gram per hectare, if you see, also pendimethalin is widely used. Apart from that, metribuzin, the usage that is in the crops, pendimethalin is already there. When I came to the company, the efforts that we have taken, either in terms of the registration or in terms of the manufacturing capacity building compared to pendimethalin, where we have increased by 20%. The efforts are more towards the metribuzin side. What I infer is that the metribuzin looks to be a more mature across the spectrum herbicides compared to pendimethalin, which is a more broader spectrum and it has more usage.
First of all, is it like pendimethalin a competitor to metribuzin? Is it true that the pendimethalin opportunity to grow is much better than metribuzin? Why we are more focused toward the metribuzin?
No, I think if you look at our capacities for pendimethalin are larger compared to metribuzin. The reason why we had upgraded the capacity or debottlenecked the metribuzin capacity, we had felt that there is an opportunity to increase the metribuzin. Parallelly, we have also increased the pendimethalin capacity as well. Pendimethalin is an important product, and it has its own place. Even in the Indian market, we have strong brands. You probably-
Right
are aware we've got Tata Panida and Panida Grande. These are strong brands which we have for the domestic market as well, apart from the international market. In metribuzin also, we have Tata Metri, which is also a strong brand.
It's not that we are feeling that metribuzin is to be emphasized more. Even pendimethalin capacities have increased, and it's much higher to start with compared to metribuzin.
In terms of the global growth curve, do you believe that the pendimethalin growth curve potential is higher compared to the metribuzin, and it's a quite mature product, metribuzin? Is it in terms of the combination metribuzin has also equally good potential? How do you see the global growth of the metribuzin compared to pendimethalin?
Pendimethalin certainly is bigger, in our share also pendimethalin international revenues, you can say absolute revenues coming from international business is higher compared to metribuzin. Metribuzin can also go into new formulations with other active ingredients, it is being worked upon in a number of geographies. We can supply metribuzin AI to such formulators as well for combination products.
Thank you very much. We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you all for participating in today's call. There were a number of questions that had been asked. We trust that we've been able to give clarity on that. We are now looking forward to FY 2022, starting with the kharif season, which is just picking up. There are certain challenges that are already being faced by the agrochemical industries. Like the way we dealt with the challenges during the previous year, about the same time when the lockdown was announced towards end of March. I'm sure that working closely with the government, the state governments as well, the central government, we should be able to find a workaround to many of the challenges that are being faced, whether it is at the port for clearing products and materials, or whether it is logistics.
Since agriculture continues to remain a focus for the country, I'm sure that the government will also take that extra step in supporting the farmers, the agriculture, to make sure that the seeds, the fertilizers, the crop care products are all available in a timely manner. As we'd already mentioned that the monsoon forecast looks good. It still needs to play out, we are looking forward for a good season ahead. Thank you very much. We'll again reconvene in July for the Q1 results for FY 2022. Back to you, Gavin, and thank you.
Thank you.
Thank you very much. On behalf of Rallis India Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.