Ladies and gentlemen, good day, welcome to Sharda Cropchem Q3 FY 23 earnings conference call hosted by Antique Stock Broking. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. Thank you, over to you, sir.
Yes, thank you, Leezan. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of Sharda Cropchem. From the management, we have Mr. R.V. Bubna, Chairman and Managing Director, Mr. Ashok Vashisht, CFO, and Mr. Dinesh Nahar, GM Finance, on the call. Without further ado, I would like to hand over the call to Mr. Bubna for opening remark, post which we will open the floor for Q&A. Thank you. Over to you, Mr. Bubna.
Thank you, Mr. Manish. Good afternoon, and very warm welcome to everyone present on the call. I hope you all are keeping safe and healthy. Along with me, I have Mr. Ashok Vashisht, Chief Financial Officer, and Mr. Dinesh Nahar, General Manager Finance, and our investor relations advisors are also on the line. Hope you all have received our investor deck by now. For those who have not, you can view them on the stock exchanges and company website. We are a global agrochemical company engaged in the process of marketing and distribution of formulations and generic active ingredients, fungicides, herbicides and insecticides across the globe. We have also entered in the biocide segment to cater to the disinfectants market, leveraging our product registration capability.
We identify the generic molecules, prepare dosiers, seek registrations, and market them and distribute these products in wide range of agrochemical sector. Sharda Cropchem's total product registrations stood at 2,776 as on December 31, 2022. Additionally, 1,131 applications are in the pipeline at different stages of approval. The CapEx incurred by us in the first nine months of this year is around 300 crores. We maintain healthy relationship with multiple manufacturers in agrochemical industry, mainly in China and India. Sourcing from multiple manufacturers help company in getting quality products at optimal price, thereby de-risking our sourcing capabilities. Over the years, we have built a strong brand franchise within our global markets. For Q1 2023, revenues grew by 16% to 1,017 crores.
For the nine month of this year, the revenues grew by 19% to INR 2,563 crores. Growth was led by better product mix and price realization.
Sorry to interrupt. Sir, there's a lot of disturbance from your line.
Madam, there was a aircraft flying over our building.
Oh, okay, sir. You may proceed.
Now it has gone. Is it okay now?
much better. Thank you.
I was saying that the revenues grew by 19% in the first nine months to INR 2,563 crores, and the growth was led by better product mix and price realizations. Gross margins in nine months of this year have been impacted by weakening of EUR against the dollar, leading to increased input costs and the impact of general inflation across the geographies. Major currencies have depreciated against the dollar in the first six months of the financial year due to global macro environment. In Q3, we have seen a rebound of these currencies against the U.S. dollar. Over 43% of our sales in the first 9 months on the agrochemical sector has been in Europe, whereas the majority of the company's raw materials are sourced from China in U.S. dollars.
This has impacted the company's gross margins and overall profitability. EBITDA has remained flattish as we have seen margins decline. This was due to lower GP margins driven by weakening the US dollar/the euro, leading to increased input costs, general inflation, and strengthening of global ports. Profit after tax for nine months was also impacted by forex losses. We have taken various measures to reduce the impact of forex going ahead. We have increased our sales focus in the NAFTA region, which is sold which is being sold in US dollars. We are also optimally hedging our cross-currency, I mean, cross-currency, all the currencies against the US dollar. With this brief review overview, I would now like to hand over the call to our CFO, Mr. Ashok Vashisht, for discussing our financial performance. Thank you, everyone. Thank you so much.
Thank you, sir, and good afternoon, everyone over the call. I'll take you quickly through the, you know, Q3 FY23 financial performance and the YTD December for the nine months financial performance. Coming to Q3 FY23, revenues stood at INR 1,070 crores against INR 880 crores in Q3 FY22, registering a growth of 16% year-on-year basis. Revenue growth for Q3 was led by better prices, product mix, as well as volume growth, mainly in agrochemicals. Gross margins stood at 30.5%. Gross margin have been impacted by weakening of euro against dollar leading to an increase in input costs. It has improved from Q2 in FY23.
EBITDA has grown by around 2% to INR 197 crores, essentially driven by comparatively margin decline due to lower GP margin because of same issue, basically weakening of euro against dollar, as well as general inflation. Tax stood at INR 108 crores versus INR 102 crores in Q3 FY22. Tax was supported by volume growth and cost impact from forex. Coming to split, agrochemical business grew by a 16% year-on-year to INR 842 crores, whereas the non-agro business grew by 12% year-on-year basis to INR 175 crores. In agrochemical space, Europe grew 9%, NAFTA region grew by 27%, rest of the world grew by 17%, and LATAM, we registered a small de-growth of around 5%.
Europe contributes in quarter three, Europe contributes 39%, NAFTA contributes 47%, LATAM 6%, and rest of the world 6% of the agrochemical business for Q3 FY23. Coming to non-agro space in Q3, NAFTA region grew by 67%, LATAM grew by 102%, rest of the world grew by 9%, and there was a de-growth in Europe by nearly 57%. In non-agro, Europe contributes 14%, NAFTA 56%, LATAM 5%, and rest of the world 15%. Coming to the, you know, 9 months FY23 performance, revenue, we registered INR 2,560 crores against INR 2,145 crores in nine months FY22, registering a solid growth of 19% on year-on-year basis. Our revenue growth was led by better product mix and price revision.
Gross margin stood at 28% for YTD December 2022. YTD December 2022 margin are better by 170 basis over the first half of the year margins YTD September 2022. EBITDA has grown by 1% to INR 414 crores. Tax stood at INR 143 crores against INR 172 crores in nine months last year. As you're aware, tax was impacted by higher tax losses of nearly INR 69 crores in nine months FY 2023. Coming to the split, agrochemical business grew by 15% year-on-year basis to INR 2,032 crores, whereas non-agro business grew by 38% year-on-year basis to INR 531 crores.
In the agrochemical space, Europe grew by 15%, NAFTA grew by 23%, rest of the world grew by 18%, and we registered a, you know, de-growth in LATAM by 6%. Europe continues to be the number one region this is 9 months at 43%, NAFTA 40%, LATAM 10%, and rest of the world 7% of the agrochemical business for 9 months FY 2023. In the non-agrochemical space, NAFTA grew by 76%, LATAM grew by 86%, rest of the world grew 8%, and we registered a de-growth in Europe for around 7%. In non-agro, Europe contributes 22%, NAFTA contributes 39%, LATAM 6%, and rest of the world 13%.
We continue to have a very strong balance sheet and liquidity. Our cash and cash equivalents as on 31st December 2022 is at INR 303 crores. With this we, you know, open the, you know, floor for questions and we will be happy to answer. Thank you very much.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Varshit Shah from Veto Capital. Please go ahead.
Hi, sir. Good morning. Good afternoon. My first question is on the macro backdrop of Chinese supplies resuming and some overcapacity by Indian players in certain molecules. Do you see that whole, this, environment of falling prices kind of stabilizes? There could be actually a better days ahead for a company like Sharda who do not own manufacturing entities.
You are absolutely right, Mr. Varshit Shah. I mean, we are seeing better times in this quarter and the year ahead because Chinese prices are stabilizing and the products are available on the demand. The world is facing a lot of uncertainties, there is some shortage in the world situation which will help us to get better realizations also. Thank you.
Great. Great. Sir, there's one question on insecticides. I mean, in the presentation, you have reported a 42% decline in the insecticides segment. What is, sir, the reason for such a sharp drop? At the same time there's a very sharp uptick in herbicide sales at 38% despite Latam being weak for overall. What is the reason for such outperformance also in the herbicide sales despite a weak Latam?
Mr. Varshit, frankly we are not controlling these, distribution between herbicides and insecticides. We are only catering to the demands of various markets. If the market demands more herbicides, we supply them herbicides, but we don't miss, the loss of, insecticide, sector business. This purely happens because of the global environment and many factors, including the crop pattern in, consuming countries.
Sir, I understand that, obviously we supply, based on the opportunity. Just wanted to understand what is the end driver for such a sharp drop in the insecticides? I mean, I've been hearing this across the industry that the insecticide demand overall is very, very weak. Any idea you have from your end customers, is it related to weather with, you know, old inventory in system and any idea you have?
No, sir. We don't get this kind of ideas and feedback from our customers. We don't spend our energy trying to study these statistics. It is not impacting our business. We are happy with what is happening.
Sir, one last question.
Sorry to interrupt. Mr. Shah, may we request that you return to the question queue?
Sure. Sure, sure.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. If time permits, you can rejoin the question queue. The next question is on the line of Rishabh Shah from K R Choksey Shares and Securities. Please go ahead.
Am I audible?
Sir, there's a lot of background disturbance in your line.
Am I audible now?
Yes, sir. Please proceed.
My question is, why do we call a business asset-light business when we spend more than 5% revenue on our new registrations? If we include CapEx in intangible, the free cash flow are not as good as they seem to be. How come we continue to invest in very heavy?
Madam, this question was totally inaudible. There's a lot of disturbance in the background.
Mr. Shah, can you move to a silent place?
Am I audible now?
No, sir. There's still disturbance in your line.
A lot of disturbance.
It is fine now?
No, sir. It's still the same. We request you to rejoin the question queue. Thank you. The next question is on the line of Somani from Spark Institutional Equities. Please go ahead.
Thanks for the opportunity, sir. First question is on the end market, both from NAFTA as well as Europe, on three fronts. One, any color on inventory in the system at this point in time? That's one. Second, I mean, in the recent, say, one year or so, Have you seen material market share shift into smaller players. That's the second part. Third, with respect to the price realization or improvement in price, this has been a function of supply chain disruption and RM price hike getting passed on. That's how has it been and how do you see this going forward?
You'll have to repeat, Mr. Somani, once again. What was your first question?
Sir, first question was in terms of inventory in the systems or currently. How do you see that?
We are very comfortable with the inventory. We have sufficient inventory to cater to our re-needs. There is no concern at all on the inventory front.
Understood. The second part was on market share shift into smaller players in the last one or one and half years. I mean, how is that been?
No, I don't think so. The market is not shifting to a smaller players. In fact, the process of registration is becoming more and more difficult and more and more expensive. This will also restrict the entry of the smaller players. We do not see any obvious trend of shifting the market to the smaller players.
In the last one or two years, for us, there has been incremental gains on market share, sir, with the BFC understanding.
Yes. There has been an incremental gain in the market share in the last 1 or 2 years. As and when we are moving forward, our products are finding better acceptability and our services are being appreciated by the customers.
Understood. The other part was on price realization. Generally, the industry has seen a lot of support from price realization last one and a half years or so. I mean, is this largely a function of the supply chain disruption that happened during COVID and also the raw material prices being higher? If both of these are now away, do you think the price increase could kind of either flatten or you could even see a decline from here?
It is difficult to comment on this, but I think the prices are fairly stable, and they'll continue at this level.
Okay. Got it, sir. One last question from my side.
Mr. Somani. Sir, may we request that you return to the question queue?
Sure.
Thank you. The next question is on the line of Sameer Deshpande from Fairdeal Investments. Please go ahead.
Hello. Good afternoon, Bubna.
Yes, sir.
Congratulations for the good numbers. Actually, the first six months were quite difficult for us due to the foreign exchange issues. Now it seems that the tide has turned in favor of EUR versus USD, and it seems the current ratio seems to be at around 1.0809. I think we had a foreign exchange income of INR 12.4 crores versus the losses. Now, if we compare overall our results for the year, normally the last quarter of the year, that is the coming quarter, will be the fourth quarter, which is the highest profit-making quarter for the company, historically also. Now, in the nine months, if you exclude the foreign exchange loss, our profits have been quite steady. Despite rise in turnover, there is some compression in gross margins.
Now we have reverted to 30.5% in this quarter over the gross margins. What is the scenario expected for the next quarter? We have a lot of the inventory pile up, I think. INR 1,427 crores is the inventory versus INR 893 crores. What is the reason for that? Whether we will the pricing, et cetera, affects us, the high inventory.
No, the pricing will not affect the higher inventory.
Okay.
I forgot your question because the question was very long. Can you repeat the first part of the question once again, Mr. Sameer?
Yes. Yes. Yes. It is with the. Now the EUR currently seems to be in quite better position, at around INR 89 versus the USD of INR 81.75 or so. The ratio is around 1.09 now. We were in trouble when we had the ratio at around 0.97, 0.98 in October, September, October. Now it has reverted. Now we have a foreign exchange income this time versus the losses. Last quarter, Q4 is the best quarter for the company historically. What is the outlook for the Q4 with the pre-present scenario of EUR/USD?
I'll ask Mr. Ashok to re-reply to this question.
Okay.
Yeah. See, as we have said to you earlier, we maintain, you know, 15%-20% growth year-over-year. You can do your math, you know, what it comes for quarter four. You have rightfully, you know, commented that, you know, the euro is now again recovering. Obviously, this will help the company.
That will help the company.
For now and for the whole year.
I would.
Uh.
This is the recovery is not, full.
Yeah.
We are still I mean, we were dealing at the time it was $1.2 to EUR 1.
Yeah.
Now we are only $1.0809. The experts are saying that Euro is going to strengthen further, and we wait and watch the situation.
Okay. The gross margins have reverted to 30.5%, which is a very encouraging thing this quarter. Do we expect the similar scenario to continue going forward in the Q4 also?
Yes, sir.
Okay, quite good. The guidance of our company of around 15% to 20% growth in terms of sales and profits continues?
Yes, sir.
Okay. Thank you very much, and all the best.
Thank you.
Thank you. The next question is from the line of Rohan Gupta from Nuvama. Please go ahead.
R.V. Bubna, hi, sir. Good afternoon.
Good afternoon, Rohan.
sir, a couple of questions. First is on this, can you provide the volume and price led broker breakup for the current quarter revenue growth, sir?
One minute. You want for the current quarter, no?
Yes, sir.
The volume in Europe was 3,590 units, roughly crores. LATAM was 411. NAFTA was 5,316. Rest of the world was about 970. Total 10,283 crores. Not crores.
In lakhs, sir. Okay.
Yeah.
Sir, I wanted more on this, overall volume and price led growth for the quarter, sir.
One minute. You said volume and?
Not the, not the region one. Not the region breakup. Just, I mean, the revenue growth which was roughly 16%, 17% of, for the quarter. How much was price-driven and how much was volume-driven?
One second. See, the growth was 6.7% on price and product mix, and 9% on volume growth. FX impact is more or less 0.
7% you mentioned is a price-led growth?
Price and product mix.
7% is price and product mix. Okay.
Yeah.
10% was the volume growth.
9%.
9% was volume growth. Okay. Right, sir. Right. Thank you. Sir, the second question is on this, we moving more towards NAFTA market. I don't know, sir, how easy it had been to, for you because you very quickly moved towards NAFTA market as sensing the pressure in the European market. Quite commendable job by you and your team, sir. Just wanted to understand that how do you see this NAFTA market keeps moving and growth in the NAFTA area? Now when the euro dollar sanity is coming back, we'll be back to again to European market because those are the highest margin market, and what kind of a margin difference is there between European market and NAFTA market?
European market, the margins are much better. 1 minute, I'll give you the figures. See, in quarter 3, European gross margin was about 35.5%. NAFTA was around 28%. LATAM was 24%. Rest of the world, 27%. For all, 30.5%.
Fine, sir. The gross margin which you indicated is, which is 30%, despite lower share of Europe and you expect this gross margin are going to be maintained at 30% level even in the next quarter as well. Once we go back once again to the European market, do you see that the overall margin can improve further? What is the.
It would to some extent.
Okay. Okay. Just last question from my side and I'll come back if you-
Mr. Gupta, may we request that you return to the question queue.
Okay, no problem.
Thank you so much. The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead.
Hello, sir. Thank you so much. Sir, first question is on the belting business, the, sorry, the non-agrochemical business. That seems to be doing very well, both on revenue and margins. Seems the margins are also best ever. If you can, sir, throw some light what's driving this, how sustainable this is, and is there any one-off there?
No, this is sustainable. The growth and the margins are improved mainly because of the service and quality. Timely delivery of the goods in spite of hassles in the logistics and international crates and shipping crates. We are still able to achieve timely delivery of the goods to the customers and better price realization.
This is primarily what, belting or this is something more that you have started something additional there?
Mainly belting.
The belts go primarily into what, is it mining? What, what are the categories? What is the category that it goes into? And what is-
See the general term is for material handling. This can be in the mining, mainly in the mining, also in the ports or even heavy industries, where the goods have to be transported from one point to the other point.
Okay. Okay. Here also margins are very strong, and I'm not very sure if there is, this is also a registration-based business, like your agrochemical business. I'm just trying to understand how sustainable these margins are.
I think you have understood or I should explain, this is not registration based at all. This is purely a service and quality, factors which drive this business.
Okay. Okay. Probably I will try to understand this better later. The second thing was on the margins for the agrochemical business. If I remove the FX impact, the margins lead seems to be a bit lower versus the last year. They have improved versus 1H levels, but still a bit lower. How do you see this trend? I mean, any signals in terms of the improvement, what can drive the improvement and some color on that, please, sir.
Mr. Dhruv, there will be, and we look forward to some improvement in this.
Sure.
Hello.
Sir, the line for the current participant has dropped off. We'll move on to the next question. That is from the line of Akshat Mehta from Pioneer Investcorp. Please go ahead.
Hello. Good afternoon, sir, and thank you for the opportunity. Sir, I would like to know that within our agrochemical business, could you provide the break, as in what would be the mix between sale of formulations and sale of AIs, and the margins for the same?
Listen, the formulations gives us a much better realization and much better margins. In the AIs, there is not so much of value addition, so the margins in the AIs are definitely lesser.
Margins in AI are better?
Margins in AI are not better.
Okay.
as you compare them with formulations.
Okay. Sir, any number you could provide, as in what % mix or something like that?
See, if you break that around 97% for the quarter was formulations, 3% AIs.
Okay.
For 9 months, 93% formulations, 7% AIs.
7% AIs. Okay. Thank you, sir.
Yeah.
Thank you. The next question is from the line of Sachin Kasera from Svan Investment. Please go ahead.
Good afternoon, sir, and congrats for a good set of numbers. Sir, on slide number 18 in the presentation, you have given some key you know, initiatives the company has taken basically to offset the impact of this weak euro. If you could, you know, which is basically higher focus on NAFTA, sourcing in euro currency, optimal hedging and seeking price increase. If you could give us some more insight or little more granular details about all these four initiatives that will help us appreciate the numbers much better.
Just one minute. You said slide number 18. Okay. The measures we have mentioned here are increased sales focus on the NAFTA region. I think this doesn't require any further clarification.
Yes.
Spending more time, and pushing the customers. Optimal hedging of currencies. See, we do not like to speculate or take positions in the case of currencies also. Now, if we do a little common sense based hedging, it is helping us and giving us good rewards.
Sir, can you tell us, say, before you took these measures, what percentage of your exposure you were hedging and how much increase now you have taken in? For example, if you were earlier hedging 0 or 10%, 20% only, are you now like hedging 50%, 60% of exposure? If you could give us some numbers, that would be helpful.
The numbers are difficult to give, but I want to tell you that when the euro was going down, we were not seeing an opportunity to hedge.
Mm-hmm.
If it was 1.05, we were thinking that when it starts going up, we will sell. On the contrary, it used to go to 1.04 or 1.03. The hedging was much lesser. Now when it is going up, we feel more motivated, and encouraged to sell it forward. This is the strategy that we are applying now. It is also dependent upon the trend of the exchange rates, not just our desire.
Sir, the sourcing in Euro currency. Before this Euro crisis, what type of sourcing you were able to do in Euro? Currently, what % of our sourcing would be happening in Euro?
I would say almost zero or very negligible in euros.
Mm-hmm.
When euro was going down, we would try to source it in euros, but the suppliers were also very conservative. If the rate is 0.96 euros to a dollar, they will try to give a price based on 0.94, which was not very comfortable for us. The sourcing in euro was very negligible, and we are happy that we did not source much in the euros. No, mainly the sourcing is in dollars.
Sure. Sir, just one last question.
Sorry to interrupt, Mr. Kasera. May we request that you return to the question queue? Thank you. The next question is on the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead.
Yeah. Sorry, I got disconnected. My question was that, if I adjust for the FX gains this quarter and also the previous year quarter, the margins for the agri business are still a bit low. The adjusted is 17% last year, which is currently 10% this year. Sir, what is driving this impact? Is it just the EUR and USD issue where you have still not been able to pass on the full price, the cost impact? Or is there something else? Any trend on the improvement, sir?
Mr. Dhruv, there is no other trend. Mainly it is the exchange rates. Only and only that, Dhruv.
Okay. Which is getting reflected in your gross margins.
Yeah.
The exchange rate which you put separately, that's separate. I mean, that's.
That's on the, you know, quadrant commission exchange gain loss. If you go through the gross margin as well, you know.
Got it. Perfect. The second question was, now we see some of your peers, you know, some of your global large peers are talking about high system inventory across the globe, even in North America and Latin America for the agrochemicals. We also see the agrochemical prices, the technical prices out of China are also declining.
Mr. Dhruv, can I interrupt? Can you speak little louder?
Yes. I think this should be better.
Now it's better.
Yeah. I was saying that some of your global peers are talking about high system inventory across some of the major regions. Also the second part was that the agrochemical prices out of China, the technical prices out of China have started to decline. We see most of the molecules, the prices are declining. Sir, in that context, do you still believe that 15%-20% growth guidance can be achieved for the next year? Do you think that could be a downward revision?
What was the last part of your question?
The agrochemical prices, the technical prices from China are also declining. We see glyphosate has declined.
Yes, yes.
The molecules have declined. As you pass that on to your customers, I'm not sure, I mean, fully pass on will happen, not happen. Just wanting to understand, will it have any implication on your growth guidance and the margin guidance, or that should be assumed?
Not significant. Not significant. Even for the passing on, we have, we have to first dispose of the inventories that we have. It will be very slow process.
Okay. Okay. Perfect, sir. Great. All the best and thank you, sir.
Thank you.
Thank you. The next question is on the line of Rohit Nagraj from Centrum Broking. Please go ahead.
Yeah. Thanks for the opportunity. Sir, as you understand, Latam is one of the largest markets globally, and our market share in terms of the geography, is relatively more. How are we going to tackle or how are we focusing on this market? Is there any room for generic products that we are marketing across other geographies in the Latam market and what is the re-registration pipeline that we are looking at? Thank you.
Mr. Rohit, I think this is news to us that Latam is the largest market. Latam is not the largest market share. In my opinion, Latam comes at the second or third level, and the Latam market is driven mainly by the economies of each individual country and the exchange rates of their local currency versus dollars. All the transactions that happen with these countries are mainly US dollars. If their currencies are depreciating, then the players there feel very much hurt by the drop in the currency and they have to send, they have to, I mean, take out more local currency to meet the same demand of for dollars. Because of this factor, the Latam market is still declining and going down.
Sure, sure. Thank you. Apologies, maybe my assumption was wrong. Second question in terms of the operating, you know, OpEx which has come down and we have started getting those benefits of, you know, lower transportation cost or freight cost. Do we expect incremental benefit during, I mean, right from Q4? Because last quarter also it was probably transitory in nature where the freight costs and other costs were declining and now probably they have stabilized. We will see a little more impact or favorable impact from the OpEx point of view.
Yes. Marginally, yes.
Sure. That's all from my side and back to you, sir. Thank you.
Thank you. The next question is on the line of Bhavya Gandhi from Dalal & Broacha Stock Broking. Please go ahead.
Yeah. Can you hear me?
Yes, sir. Please proceed.
Yes. Yeah. I just wanted to understand on the gross margin front, because since now Euro has already appreciated, like one year back, two quarters back you were at 1.1 and now again we are at 1.09. Gross margin on YOY seems to be on lower side. Is it high cost inventory or what is it if we remove the Forex impact?
Mr. Gandhi, please understand that currency rate does not have a instant impact on the business. You understand?
Okay. Right.
The benefit will come in the forward, going forward, when we will start getting better realizations.
Okay. As of now, we don't have any forward contracts or hedging of euro currency, right?
Sir, we do have forward contracts. We do have forward contracts for 1.04, 1.05, 1.06. You understand?
Okay.
We were very happy at those rates when we had seen the earlier rates of 0.99 and 0.96. Today they look so, but then we have to live with them.
Okay. How much would be our forward contracts in terms of NAFTA, in terms of euro sales? Is it possible to quantify?
No difficult to quantify. Overall I can tell you that in the overall it's getting benefit, I mean, the company is getting benefited.
Okay, fair enough, sir. Thank you so much. Thank you so much. Yeah. That's it from my end.
Thank you. The next question is from the line of Rushabh Shah from KRChoksey Shares and Securities. Please go ahead.
Am I audible, ma'am?
Yes, sir.
Yes.
Go ahead.
My question is, why do we call our business an asset-light business when we spend more than 5% revenue on new registration? If we include the CapEx on intangible, the free cash flow is not-
There is some disturbance on the background. You have to speak little slowly and more loudly.
Why do we call our business an asset-light business when we spend more than 5% revenue on new registration? If we include the CapEx on intangible, the free cash flow are not as good as seem to be. For growth, we need to invest very heavily in the business.
Mr. Rishabh, you can call it any way. What we are saying is that we are not investing into tangible assets and the business is very much, we are nimble-footed. You can use any other technology. Nobody is stopping you.
Sir, because if you look at registration.
Asset light comes when we spend on the tangible assets or fixed assets, which we are not doing. Registrations are considered to be intellectual property, and nobody calls them tangible.
Sir, if you look at registrations, we have from 2019 when we were at 2,300. Now we are nearly at 2,700. Pipeline has increased from 1,000 to 1,100.
Yes.
Despite us spending, despite us increasing our spending on registration materially from INR 200 crores to INR 400 crores, what should we understand from this data?
You understand from the data as it is given. You can give any term to the business. We have no objection. People call it as a asset light, and we agree with them.
Okay. My last question, if, for two to three years the profitability is less and we spend less on the registrations, can it materially impact our business growth and profitability in the future?
In the future, yes, it will. We have to be in line with what is happening at with the global trend. More and more new products are coming into this business. We have to stay with them. Otherwise, we'll lose the business market share in future.
Okay, sir. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Darshita from Antique Stock Broking. Please go ahead.
Hello. Hi. Am I audible?
Yes, please.
Hello, Bubna Ji. Thank you for the opportunity. My first question was regarding the price hikes. Have you taken any price hikes on sequential basis?
What is it? I'm not able to catch that word. Type height. It looks like type height.
Price hike. Have you taken any price increase on sequential basis?
Madam, I think I have explained in the past, we cannot decide the price on our own. The price is set by the multinational companies who are having a major share of the market. The innovators are still controlling more than 75% of the market share. We try to tag our price, little behind them, at a maybe 5%-10% discount.
Right.
We can, but, this is the trend.
No, no. My question was, as compared to second quarter, in the third quarter, have we taken price increase? Why I'm trying to understand this is that, after China has resumed operations, we have seen that the raw material prices have started to come off. What I'm trying to understand is that this benefit that we have from pricing, for how long will it continue? Be it for MNCs or for us, how long will it continue?
Madam, to answer your question, we have not taken any conscious price increase.
Okay.
We are maintaining the same prices. If there's a small drop in the sourcing prices, that is a benefit. If it is, better exchange rate, that's a benefit to us.
Okay. Okay. Looking at the current situation from China, I think who would be the best person to, you know, answer that? That looking at the current situation in China, given that the prices are coming off, in any time in FY 2024, like, you know, is there any kind of guidance that we get as to when will the benefit of price increase start flowing into? Like, you know, will stop flowing into the top line growth? I think the 7% number that we have seen in third quarter, will it start reducing as we go forward?
Have you understood the question? Madam, I'll ask Mr. Ashok Vashisht to answer this question.
7% is not only price hike, it's a product mix and price. It's major, I would say, is the product mix.
Okay.
Which is leading to 7%.
Okay. All right.
Yeah, yeah.
My second question was regarding the tax rate expectation for FY23. Where do we see the tax rate being for the year?
25%-27%, around that, because we are into new tax regime now.
Okay.
between 25%-27%.
All right. Okay, sure. Thank you.
Yeah.
The last question was regarding the registration and the pipeline breakup. If you could provide the region-wide registration and pipeline breakup.
I'll give first the registrations. In Europe, 1,490. LATAM, 750. NAFTA, 290. The rest of the world, 243. Total, 2,776. What was the next question?
The pipeline breakup.
Pipeline. Europe, 700. LATAM, 175. NAFTA, 150. Rest of the world, 105.
Okay. Thank you so much for the opportunity. Thank you.
Thank you.
Thank you. The next question is from the line of Chintan from Prudent Corporate. Please go ahead.
Thanks for the opportunity, sir. Sir, I have a question that how we build our inventory, for example, on what basis, like what demand is in which region or any statistical data we know?
You see, we have to take a judgment after talking to our customers. We are in regular touch with our customers. They give us feedback that this product is having better demand and this is the situation. We design our strategy mainly based upon the feedback that we receive from our customers.
Okay.
We take indicative forecast, basically, you can say. That's what it means.
Sorry, sir. If you can repeat.
We make indicative forecasts based on those, you know, feedback from our various customers.
Okay. Okay. sir, can't we make a hedging strategy, a discipline process for the future? It look like, we are doing hedging on a human bias.
Hedging on?
I mean, a standard process for our hedging. I mean, we are doing hedging just on human bias currently. It's look like. Or we have any risk team who are running something?
No, we are evaluating this and we may take some, you know, course on that shortly. We are evaluating. We have already, you know, started, you know, taking few positions, which is already implemented.
Okay, okay. Sir, there is so much inventory in terms of registration. Can't we slowly increase our receivables or, I mean, improve our life cycle of the business?
We can, but you know, this sector is worse like that. In fact, we are one of the, you know, best performing company in terms of working capital. Even innovators take credit period of, say, for a year. We are still, we try to maintain as less as possible. Yes, there is a, there is a scope, and we are very mindful of that and we are improving on that. The numbers which basically, which you are seeing for quarter three, especially inventory, as you guys are aware, you know, quarter four for the company is the biggest quarter. So mainly because of that, our, you know, inventory is on high side. Towards, you know, end of this year, it will be significantly lower.
Okay. Sir, is there any number against our current trade receivable, how much we have hedged?
For previous year %?
Against our current trade receivable, how much % of we have hedged?
We are actually, you know, generally, you know, it's the trend is going on. There's a natural hedge. You know, we do not actually, you know, go by, you know, very specifics. You know, we take a general hedge and no customer specifics.
Okay. Okay. Thank you so much, sir.
Thank you. The next question is from the line of Archit Joshi from BNK Securities. Please go ahead.
Good afternoon, sir, and thanks for the opportunity. I might be asking this question again. I missed a point that you made earlier, about the sourcing strategy that we have had. You've mentioned in the presentation that we have, moved on to, buying in euro currency. You earlier mentioned that we were not doing it earlier. Just one question here. How much % of our COGS will now be, denominated in euro currency? Is there, is there something more that is left, for us to completely start buying into euro?
I-
Yeah. Yes, sir.
Yeah. I think, you know, when we, you know, implemented this, you know, interim strategy, you know, buying in EUR, this was essentially because of the, you know, weakening of EUR. We have reached, you know, in the, if you go by first half of the year, around, you know, around 10, 8%-10%. Now with the, you know, EUR coming back towards normal, still, you know, EUR has been too low. We have, we are not now looking in EUR. Majorly now, again, I will say, mainly the buying sourcing is in USD only. We had done that in the interim period. If, if again, if some situation similar to that, you know, which happened till end of September happens, so we may again start that.
as of now we are, you know, have started doing all the sourcing in USD only.
Understood, sir. Sir, how easy or difficult it is to, you know, have these ad hoc decisions whether or not to buy in EUR or in USD? Is it easy to switch?
It can be implemented instantly. I mean, instantly, I mean, in a, you know, in a month's time. When you are doing... When we are negotiating prices, we do not have long-term contracts. We have short-term contracts with our sourcing partners. At that time, you know, we can implement if need arises. It can be implemented in a short period.
Understood, sir. Understood. That clarifies a lot. Thank you. Have a good day. Thanks.
Thank you. The next question is from the line of Yogesh Tiwari from Arihant Capital. Please go ahead.
Good afternoon, sir. My first question is, if you can share the gross margins for your herbicide, fungicide, and insecticide portfolio for Q3?
Sir, we do not have that kind of analysis, and we don't go into those details. We look at the overall picture.
Sure, sir. Directionally, can we say that herbicide is has more margins compared to insecticides and fungicides? Any direction view?
No, it's difficult to comment. It depends from individual product to product.
Oh, sure, sir. Sir, the second question is if you can share some details on the demand and pricing environment of metribuzin in the U.S. market.
No, sir. We cannot comment on individual product. We do not have that information.
Sure, sir. Thank you, sir.
Thank you. Ladies and gentlemen, that's the last question. I now hand the conference over to Mr. Bubna for his closing comments.
I want to thank all of our investors who have taken so much of time to attend this call. It has been a good experience. We also learned from the questions. I want to thank everyone else for joining us. I hope we have been able to answer all your queries. We look forward to have such interactions in future as well. We hope to meet your expectations in the future. In case you require any further details, you may contact us or our Investor Relations firm, SV, Mr. Dhruva. Thank you so much once again.
Thank you. Ladies and gentlemen, on behalf of Antique Stock Broking, that concludes this conference call. We thank you for joining us. You may now disconnect your lines. Thank you.