Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking Limited. Thank you, and over to you, sir.
Yeah, thank you, Yashvi. 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 remarks, post which we will open the floor for Q&A. Thank you. Over to you, Mr. Bubna.
Thank you, Manish. Good evening, and very warm welcome to everyone present on the call. I hope all are keeping safe and healthy during these times. Along with me, I have Mr. Ashok Vashisht, Chief Financial Officer, and Mr. Dinesh Nahar, General Manager and SGA, our investment relations advisors. 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 fast-growing global agrochemical company with a premier position in generic crop protection chemical industry. Our vast and growing library of dossiers and IPRs provide us solid foundation for the growth in the global marketplace, especially in advanced markets such as Europe, North America, and Latin America. It equips us with the ability to operate in a diversified range of formula and generic active ingredients space globally.
The company continues to identify opportunities in the generic molecules and corresponding formulations and generic active ingredients, preparing dossiers and seeking registrations in the relevant jurisdictions. Sharda Cropchem's total product registrations stood at 2,719 as on 30th June, 2022. Additionally, 1,153 applications for the product registrations globally are at different stages of approval. The CapEx of Q1 FY 2023 stood at INR 102 crore. We are placing special focus on expanding its biocide registrations while scaling up its marketing and distribution capabilities across geographies. We maintain relationships with multiple manufacturers in the agrochemical industry, mainly in China and India. Sourcing from multiple manufacturers help us in getting quality products at optimal price, thereby de-risking its sourcing capabilities. Over the years, we have built a strong brand franchise within our global markets.
We are benefiting through the economies of scale in our portfolio and leveraging value of our supply chain to deliver value to our customers across geographies. For Q1 FY 2023, revenues grew by 32% at INR 825 crores. I'm referring to the same period last year, I mean, not on the previous quarter. Revenue growth was led by better price realizations and product mix. Gross margins were impacted by weakening of euro versus dollar, leading to an increased input cost and impact on higher freight costs. Major currencies have depreciated against U.S. dollar in the last quarter due to ongoing war between Russia and Ukraine.
Nearly 50% of our Q1 FY 2023 sales from agrochemical business has been to the European region, whereas majority of the company's raw material is imported from China and payments are made in U.S. dollar. This has impacted the company's gross margin and overall profitability as the euro had considerably depreciated against dollar during the quarter. PAT was impacted by higher depreciation and Forex losses of INR 43.2 crores in FY 2023 versus a gain of INR 11.5 crores in Q1 FY 2022, impacting to the tune of INR 54.7 crores. We are evaluating various measures to mitigate the adverse impact of Forex going forward. We have accelerated focus on revenue-generating investments and are continuously looking to improve the operational efficiencies, which will help us improve the margins.
With this brief overview, I would now like to hand over the call to our CFO, Mr. Ashok Vashisht, for discussing our financial performance. Thank you very much.
Thank you, sir. Good evening, everyone. Coming to the Q1 FY 2023 performance, revenue stood at INR 85 crore against INR 623 crore in quarter one last year, registering a thirty-two percent year-on-year. Our revenue growth was, you know, led by better price realization and, you know, product mix. We had a favorable price and product mix impact of nearly 38%, coupled with exchange loss of 3.3% during the quarter. During the quarter, there was a marginal degrowth in volume to the tune of 2.5%, mainly in LATAM and NAFTA. Our gross margins stood at 25.4%, marginally lower comparatively, essentially due to weakening of euro versus dollar and also due to slight increase in the freight cost.
EBITDA has grown by 4% in absolute terms to INR 111 crore. However, percentage EBITDA margins is lower due to lower gross margins and slight increase in the freight cost. PAT stood at INR 23 crore in Q1 FY 2023 versus INR 38 crore in quarter one FY 2023 last year. Our PAT has, as you might have seen in our presentation, PAT was mainly impacted by forex losses to the tune of INR 43.2 crore in quarter one FY 2023, driven by weakening of the euro versus gain of INR 11.5 crore in FY 2022, impacting to the tune of rupees INR 54.7 crore. The euro has weakened against the U.S. dollar by nearly 7% in the, you know, last three months from April to June 2022.
Coming to the split agrochemicals, you know, business grew by 15% year-on-year to INR 615 crores, whereas there is a growth of 137% in a non-agro business. We achieved the turnover INR 210 crores in non-agro business. In the agrochemical space, Europe grew by impressive 24%. NAFTA region grew by 10% in value sales. Latin America grew by 2% in terms of value sales. Whereas sales in the rest of the world grew by 18%. Europe continue to, you know, contribute at 51%, NAFTA region 31%, but Latin America 13%, and the rest of the world 5% of the agrochemical business for Q1 FY 2023.
In the non-agrochemical space, Europe grew by 143%, the NAFTA region grew by 196%, LATAM grew by 165%, and the rest of the world grew by 13%. In non-agro space, Europe contributes nearly 28%, NAFTA 55%, LATAM 6%, and the rest of the world 11%. With this, we now open the, you know, floor for questions. Thank you very much.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Chirag Setalvad from HDFC Mutual Fund. Please go ahead.
Good evening, sir.
Good evening.
You pointed out the pressures on profitability. If you could help us understand what is the company doing to mitigate that, and where do you see sustainable profitability, both gross margin and EBITDA margin, in the near term?
You see, this slide in euro versus dollar was not predictable in advance for us to plan a strategy. Even today, the experts say that the euro is going to go strengthen up. We are little bit handicapped in making a solid strategy towards this end. We are thinking of buying our supplies in euro from China. We are also afraid that if we buy them in euro and if the euro goes up, then we will lose the opportunity to make up for the loss that we have already incurred. We are keeping a close watch on the situation and we will slowly act.
Where do you see the near-term profitability settling at a gross margin level? Because you would have taken some price increases as well to take care of the freight cost changes. Where do you see sort of in the sort of second half of this year profitability at a gross margin and an operating margin level?
We feel we should be getting nearer to last year's gross margins in the course of time.
Sure. That's it. That is it from my side. Thank you.
Thank you, Mr. Setalvad. We have our next question from the line of Harsh Beria, Professional Investor. Please go ahead.
Hi. Thanks for the opportunity. My question is about the high growth in the non-agro business. What is contributing to such high growth in the non-agro business? It cannot be that the end market is growing at these rates. Can you expand a bit about it?
No. End market is not growing at the same rate, but we are able to get a better share in the existing market, mainly because of our strategies and providing service to the customers by delivering our products on time and with good quality.
Very okay.
Agro will also grow, so the proportion may not be so much different than what it is in this quarter. Both the businesses are expected to grow.
Can you elaborate on your marketing strategies? Was there a change that happened recently that has contributed to such high growth?
Mainly concentrating on our sourcing to get the goods manufactured because they are tailor-made products to get them manufactured in right time and probably Chinese suppliers were also a little bit free to help us in this matter. Also pushing on the shipments in spite of increased costs, are not waiting for the cost to come down or not negotiating much on this. Main thing was to deliver the goods on time to the customers.
Okay. I think last quarter you had highlighted that the margins have been hit in this division. Can you tell us, like, what were the margins this quarter in the non-agro business?
One minute. See, margins, region-wise, I'll tell you. The margins were about 22% in this quarter compared to the same about 14% in the last year.
Okay. That's it from my side. Thank you for taking my question.
Thank you.
Thank you.
We have our next question from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Sir. Hi, sir. Thanks for taking my question. Firstly, I wanted to understand a little bit on the business front. Would it be possible for you to explain, you know, some of the reasons why, you know, the generic penetration in the agrochemical is very small compared to, you know, something like a pharma industry?
Your voice is not very much audible. It's getting cut in between. Can you please-
Is it better now?
Please repeat.
Is it better now?
Can you please repeat one second, and speak with little slower speed?
Sir, what I wanted to understand was that, you know, what are the reasons because of which the penetration of generics is very low in the agrochemical space compared to something like a pharma industry when, you know, the generics command a very high market share compared to the, you know, innovators.
Sir, your question is not very clear. You are comparing the share of generics in the agrochemical business compared to the share of generics in the pharma? Are you trying-
Yes.
I mean, is that?
Yes. Yes. Yes.
Sir, I'm not able to comment on what is happening in the pharma.
No, I'm trying to understand, you know, what are the reasons why in the agrochemical generics contribution, market share is very small. You know, what are the reasons why, you know, generics has not been able to penetrate more in the agrochemical?
Yes. Yes. I'll tell you. I have been answering this question repeatedly in the various calls, and I'll repeat it once again. The cost of registration in agrochemicals is very high.
Yes.
The time period is also much longer.
Okay.
Both these factors, I mean, it may take two years, four years, even seven years. These are the two factors which prevent normal investors or normal people in this line to plunge themselves into the registrations of agrochemical business.
Okay.
In pharma, the cost of registration is much lower.
What I'm trying to understand over here is the point that you're making is right. But since Sharda is a company, we have the registration, but how, why are we not able to penetrate, you know, because since we have the registration right?
We are not able to penetrate.
Yeah, that much. You know, the argument that you're making, you know, there are not a lot of players, is fine. That obviously there are not a lot of players. Even with one, two players that are there in the generic, why are they not able to penetrate?
Sir, the multinational companies have a name and reputation. People have much better trust on them than a generic company. It takes a lot of time for the generic company to establish itself and win the confidence of the customers that we are competent to provide them the quality and deliveries on time.
Yes.
It's a very slow process.
All right. Got it. Sir, secondly, you know.
Mr. Agrawal.
Yeah.
I'm sorry. Can you please come back in the queue?
That was just one question I believe, but either way, okay, I'll get back in the queue.
Thank you, sir. We have our next question from the line of Rohan Gupta from Edelweiss. Please go ahead. Participants are requested to restrict their questions to two at a time.
Good evening, R.V. Bubna.
Sir, good evening, sir.
First, good evening, sir. Sir, first question is on our gross margin. Though in the first question you tried to answer that we are still not sure that how we will be able to make sure that our margins are not impacted given the currency volatility. You mentioned that you also have an option to buy in euro from China and then sell it in euro as well. Given the volatile scenario in which we are, don't you think that it will be prudent for us to act fast and make sure that the business margins are not being impacted with the current volatility and take the decision accordingly rather than keeping it open and depending on how the currency's movement will be happening going forward, rather than focusing more on the business margin, sir?
Sir, we are not very sure. When the euro-dollar ratio went up to 1.05 to one, everybody was advising that is the bottom. From here, all the experts from the foreign exchange markets. If we had known that it will come down to 1.0 to one, we would have immediately acted.
Sir, we have seen that.
This has been going on, Rohan , all this time, week after week and month after month, you know. The scene was never clear to anybody. We do not want to speculate. We would like to be very careful that we do not lose the opportunity when the euro starts taking the about-turn.
sir, absolutely right. That's what you just mentioned, that we are not in the business of currency trading, sir. I mean, we could have option of hedging it with the currency hedge or rather than waiting and watching when the rupee dollar or, I mean euro- dollar will come back to this, the level what you are looking for. I mean, wouldn't it be prudent to have the sufficient hedge so that we can protect our margins in the current scenario? That's what my limited question was, sir. Nobody is expert of making the prediction on the currency. I understand.
Yes.
We don't know how and when it will come back, but at least we can take a sufficient hedge to protect ourselves from the currency volatility.
See, Mr. Rohan, the only hedge we do right now is to book forward contracts, where we also get some premium on this and protect it. Nobody was sure that it will go to the level of 1:1 . Every time we were advised that now it'll start moving up, this is right time. There's going to be this committee meeting in Europe or that committee meeting and all that, you know. Even today, nobody is able to say that it will go below 1: 1. If it starts doing that, then that is where we prove that we lost the opportunity. We are keeping a watch, sir, and very careful what we are doing, and we will take care as much as we can. We do not want to speculate.
Right, sir. Sir, second question on this. Definitely our business model is more dependent on China and which is based in a dollarized revenue, I mean dollarized purchases, while we will sell in Europe. I think the problem which we have faced, not many other innovators will be facing the same issue because they may be more or less dependent on China or more dependent on their local markets. Because we are completely dependent on China for the imports of raw material and selling in a European market, other innovators may not be facing the same issue. And that's what you see that it is difficult for us to increase the pricing or to pass it on to the end customers in European markets.
See, Mr. Rohan, I want to give you a general information. China is exporting huge quantity of agrochemicals, and all the exports is in U.S. dollars.
Okay.
The buying, purchasing in Europe is mainly in euros or European currencies. All those operations are impacted adversely in this situation. In fact, I had mentioned last time that now I'm told that even the European manufacturers, multinational manufacturers, are shifting their manufacturing into China because of various issues of fuel and energy in Europe. All these businesses will be adversely impacted with this euro or U.S. dollar uncomfortable exchange rate. Only those people who are exporting from other regions, like in India, where the dollar has become stronger than the Indian rupee, these people are getting benefited. The rest of the world, most of the people are sourcing in U.S. dollars and selling in their currencies in the countries where they are selling.
Sir, with this, other European players are also facing the same issue what we have. Are we seeing that we also have pricing power and we are able to pass it on to the end customers? I mean, when you are selling the materials now in the market, do you see that you are able to pass it on completely to the end customers even including the currency depreciation?
We are making efforts and in fairly good proportion, we are also successful, but it will take time. Because we cannot, we don't want to lose our market share for some percentage of margins. We also want to keep rapport with our customers and keep on increasing the share. Both the things are contradictory, but we are trying to control both of them.
Fair enough, sir. Last question from my side. I'll come back in queue. Sir, on the.
Thank you.
On the current quarter, the.
I request you to come back in the queue, please.
In the queue, Rohan. In the queue. Okay, sir. Thanks.
Thank you.
I'll come back in queue.
Participants are requested to restrict their questions to two at a time. We have our next question from Sonal from Prescient Capital. Please go ahead.
Sonal from?
Prescient.
Hi, sir. This is Sonal. This is Sonal from Prescient Capital. I hope I'm audible.
Yes, you are. Please go ahead.
Yes. First question is more around the numbers. For the agrochemical business, we've seen 15% revenue growth. Can you split this into value and volume? That's just the first bookkeeping question.
Yes, please.
Is my question clear?
Your question is clear.
Okay.
I need to get hold of some documents.
Sure. Okay.
Now, you mean, you want to know the volumes?
The volume and the value split of the 15% top line growth for the agrochemical business.
Oh, 15%. Sir, volume-wise, volume growth has been - 2.5%. Forex impact is - 3.3%, and the product and price mix have been positive by almost 38%.
Okay.
It is thirty-two point four percent.
That is for the whole company, if I'm not wrong, right?
Yes. Yes, please.
Okay. I was specifically asking for the agrochemical business. If you could, if you have those numbers.
I think I'll check.
Otherwise. Yeah.
Yes, sir.
If you have it, that would be helpful, sir.
Sir, agrochemicals have grew by 15%.
Okay.
Now you want segment-wise. Do you have that detail with you?
How much price rise have you taken roughly in agri chem?
In Europe.
Okay.
In Europe, agrochemicals have grown by 24%. NAFTA region, 10%. LATAM is degrowth of 2%.
Okay.
Rest of the world is 18%. Overall, 15%.
Got it, sir. Sir, how much price rise would we have taken in agri chem roughly? In this quarter.
This is price and product mix. Sir, I have total basis. That chart is not yet ready with me.
Sure, sir. I'll check on that later. I have a second question, sir, also, which I wanted to get an understanding of. Wanted to understand the demand scenario in Europe and NAFTA as we speak right now. You seeing any kind of softening or inventory being built up too much because of which the demand is tapering? I just wanted to understand a subjective commentary from your side on this basically. If you have numbers.
Yes, sure.
on the market. Yeah. Yeah.
Sir, demands in the European region are fairly good and there's no cause of worry at all. In NAFTA region, there has been a pressure on the demand, mainly because of the weather, and weather has been very arbitrary in NAFTA region. Some were very heavy snow and storms and some were totally dry.
Okay.
That has put a pretty adverse pressure on the demand in NAFTA region.
Okay.
I need you to come back in the queue, please.
Okay. I was just asking on this one only, ma'am, but I can come back in the queue. It's okay. Yeah. That's it.
Thank you. We have our next question from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.
Good evening, sir. Just wanted to get agrochemical volumes, regional agrochemical volumes and regional gross margins?
Yes, please. Regional agrochemicals volume. In Europe, it is three, almost 4 million units versus 3.5 million last year. How much is it?
INR 3 million.
3 million, no? 4 million and 3.5 million.
Approximately.
Approximately. Four million versus INR 3.5 million in the same period last year. NAFTA region, it is INR 2 million versus INR 2.4 million. Degrowth of about 17%. LATAM, Latin America, it is INR 1.1 million versus INR 1.5 million, about minus 28%. Rest of the world, INR 300 thousand versus INR 340 thousand.
Gross margins?
Gross margins. Gross margins in agro business. In Europe it is 31% versus 42%. NAFTA, 24% versus 25%. Latin America, 17% versus 17%, almost flat. Rest of the world, 23% versus 31%.
Okay. Thank you.
Overall, 26.3% versus 31.9%.
Mr. Agrawal?
Yes, that's what I mean. Thank you.
Okay, thank you. We move on to the next question from the line of Alisha Mahawala from Envision Capital. Please go ahead.
Hi, sir. Good evening. Thank you for taking my question. Firstly, I'd like to understand with respect to gross margins, the sharp decline we've seen, is that completely and only because of, the Forex? Can you clarify?
Madam, you have to raise your voice.
Mahawala, yeah.
And-
Please increase your voice. The volume.
Am I audible? Sir, am I audible now?
A little better, but it can be more better.
Very much better.
Am I audible now?
Can you speak in a sentence, please?
Sure. I hope I'm audible now.
Yes.
Sir, I wanted to understand with respect to gross margins the sharp decline that we have seen. Is this only because of the Forex impact?
Mainly, yes.
Sure. Considering the kind of weak volume growth that we've seen in Q1, do we want to continue with our guidance of 1500% top line growth for the full year?
Yes. Hopefully, yes.
Sure. Just lastly, the kind of CapEx spend which is largely R&D or registration related, INR 100 crores, could we expect that to continue for the remaining quarters, or are we expecting any spike in that?
We expect to be continuing the same range, maybe a slight increase.
Sure. Thank you.
Thank you. We have our next question from the line of Bhavya Gandhi from Dalal & Broacha. Please go ahead.
Yeah. Thank you so much for taking my question. Sir, did we have any one-off effect in last quarter maybe because our competitors were not functioning or, we had, you know, sort of good relations with China and we got one-off benefit?
It is not clear. Again, I'm not able to grasp it.
Uh-
Speak a little slowly and louder.
Okay. Can you hear me now?
I can hear you, but you have to speak little slow. I mean, by speed.
Okay. Last quarter, did we have any one-off benefit because our competitors were not functional and we had good relations in China and we were able to supply, you know, to the customers?
See, the first part was not true. The second part is true. We have good relations with the suppliers in China, and we were able to get good support from them.
Okay. There was no one-off impact in last quarter, right?
No, not at all.
Sir, can you just provide revenue, EBITDA and PAT guidance for FY 2023 and 2024?
2023 and 2024?
Yeah. Hello?
Sir, I can provide for 2023.
Okay.
We hope to maintain our growth about 15%-20% and EBITDA at the range of 18%-20%.
Okay. Fair enough. Sir, you mentioned about European companies shifting their manufacturing to China. Will that lead to some sort of demand softening?
Demand softening?
For our company.
Because then procurement from China would become easier.
Will become easier?
Directly procuring from China would become easier and sort of, will it be some revenue loss to us?
No, sir. No such thing.
Okay. Any specific reason for shifting to-
I ask you to come back in the queue.
Okay, thank you.
We have our next question from the line of Anubhav from Prescient Capital. Please go ahead.
Am I audible?
Yes, sir, you are.
Yes, please.
I just have one question, sir. Have you seen any pressure or fall in product realization from last quarter to this quarter?
Have you seen what? A pressure?
Any pressure or fall in, like, your average realization from last quarter to this quarter, like sequentially?
No. No such things. We have increased the volume.
No, sir, I'm not talking about volume, sir.
I'm saying I'm talking about the last quarter, the same quarter. I'm not talking about the last calendar quarter. I mean compared to April, June last year and April, June this year.
Yes, sir. My question was like from Q4 FY 2022 to this quarter, like sequentially, have you seen any fall in product realizations or realization has held up like.
Mr. Anubhav, we are not comparing with Q4 last year with this quarter, you know. Ours is a seasonal business and every quarter has a specific role to play. Our Q4 or every financial year is the best quarter. You cannot compare Q4 of last year with Q1 of this year.
Sir, I'm not talking about comparing.
There is Q1 of last year and Q1 of this year.
Sir, I get that, and I'm not talking about product volume, sir. I'm talking about the pricing, product pricing realization. Like, is there any pressure on the final realization that you're getting?
No, there's no such thing.
Okay.
The prices are more or less at the same level.
Okay. That's all from my side. Thanks.
Thank you. We have our next question from the line of Harsh Beria, Professional Investor. Please go ahead.
Hi. Thanks for the opportunity again. You had previously shared volume numbers across markets. Was this overall volume that Sharda shipped, or was this agrochemical volume?
I think the question was for agrochemical, and what we have shared was for agrochemical.
Okay. My final question is about the price increase of 38% on the entire sales for this quarter. Was this mostly attributed to increasing raw material prices of your non-agrochemical division?
You're talking about, I mean, the question is related to non-agrochemicals.
Yes.
Am I right?
You had. Yes.
Yeah. There has been increase in the prices with efforts that we are putting in. We had not realized the impact of freight. Now we are taking the freight into very serious consideration, and we are putting pressures on our customers to give us a better price, and they are yielding.
Okay. Perfect. Thanks for the clarification. That's it from my side.
Thank you.
Thank you. We have our next question from the line of Harsh Shah from L&T Mutual Fund. Please go ahead.
Yeah. Thank you. Mr. Bubna, hi. Hope everything is all good at your end.
Yes, sir.
Yes, sir. Just two questions, sir. You have answered all of the questions very, very thoroughly. Just two questions from my end. First is, apart from Forex management, is there any other way where we can increase our gross margin, or is it purely, you know, we have to try to manage our Forex only?
Forex is one thing. Second is being in constant touch with our customers. If they can somehow realize our situation and give us a better prices. They also have limited freedom on that account because they are also facing competition with their customers.
Yes.
Forex is the main thing.
Understood. Assuming, let's say from now to next quarter, there is no major movement in Forex, our gross margin should remain similar to what we have reported in Q1, or how should we look at it?
No, sir. It should be better because we are thinking of other means, as I just mentioned in the beginning of this conference call. We are trying to source our products from India. Chinese are also resisting. You know, China also knows that, euro, I mean, what's the fate of euro. They may be having some ways of hedging their losses. They are in some of the cases when we have tried, they'll agree to give us a price in euros, and we will increase that share of buying in euros.
Okay. Understood, sir. Sir, with so many issues that we are currently hearing in overall macroeconomy of Europe, earlier you had already mentioned that licensing has already got very complex and is taking a bit more time. If it is taking a bit more money, has that timeline and that expenditure further increased now, or has it remained similar to what it was last quarter or say last year?
It is constantly increasing.
Okay.
Harsh Shah.
Since all those expenses are in euros, if you compare it with dollar, then it may not be increasing. In terms of euros, it is increasing.
Okay, sir. Understood, sir. That's it, sir. Those are the two questions from my side, sir. Thank you and all the very best.
Thank you. Thank you.
We have our next question from the line of Gagan Thareja from ASK Investment Managers. Please go ahead.
Yeah, good evening. Am I audible?
Sir, your volume is a little low.
Yeah. Is it better now? Can you hear me?
Yes, sir.
Now it is better.
Yeah. My first question is around your depreciation. The depreciation amount is down from Q4 to Q1, and the depreciation varies across quarters in any given year. Could you explain the reason for that?
Because we are constantly getting registrations throughout the year. As we receive the registration, all the investment made on that registration which was earlier bracketed under a capital work in progress is getting capitalized.
Okay.
That is why there's a variation from quarter to quarter, and it's a continuous process for us.
Right. I understand that, but from Q4 of last year to Q1 of this year, why should the depreciation fall?
Sir, again, as I explained you, we get many registrations in the last quarter or end of the third quarter, and they get capitalized in the fourth quarter.
Okay. Right. Second question, sir. In Europe, what is your exposure to Eastern Europe in sales?
It is much lesser compared to Western Europe.
Any number you could give us? Small part number, approximate.
We have not segregated this because the agriculture in the Eastern Europe is much lesser. The population in Eastern Europe is much lesser. The demand in Eastern Europe is much lesser.
Okay. Okay, sir. Thank you. I'll get back in the queue.
Thank you. We have our next question from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Yeah. Hi, sir. Thank you for the follow-up. Again, on the business front, what I wanted to understand is that, say if we launch a new product, how does that product performs over the years? Does it start at, say, you know, a small amount in year one and then gradually scales up over next three, four, five years? Or we start big and then it's, you know, kind of, stays the same over medium term.
Sir, I have not understood your question. The words are getting mixed up. Please repeat it. Just little slowly.
Yes. I'll be slow. Yeah. What I am trying to understand is that, say Sharda launches a product, right? How does it perform over the years? Like, in year one, do we start small and then over the years, next three, four, five years, really scales up? Or we start with a decent share and then over the years stay kind of similar or, some small growth for individual products.
We start at a, say, this moderate level.
Okay.
Gradually we increase it because the customers have to get used to our product.
Right.
They must get convinced that our product will perform, and they have a test on the quality. Even a customer, if he needs 100 L of product, he'll start with maybe 10 L, 15 L or 20 L from us, you know.
Okay.
Only if he is convinced, then he'll increase it to 40 L, 50 L.
Right. The old products for us are growing, right?
Yes.
Okay.
At the same time products, if they become commodity, then they start going down in the proportion.
Okay. When does that happen? If a product goes generic in, say, this year, so over next three, four, five years, how long does it take for the product to, you know, become such that it will start falling like the overall market?
Sir, again, I'll have to request you to please. Your questions are not very well comprehensible. Can you repeat the question once again, little slowly?
I'll take that off and I think that will need some explanation. Lastly, just a clarification. When we sell our pro-
Sir, I request you to come back in the queue, please.
Okay, fine.
Sorry.
Thank you.
Thank you. We have our next question from the line of Sameer Deshpande from Fairdeal Investments. Please go ahead.
Good evening, sir. We have been performing very well throughout the last year or almost two year. After COVID also, we have done very well. This quarter seems to be an aberration, and mainly due to the things beyond control. No one really could predict that type of currency movements. It is understandable that this will be an aberration, I hope. From Q2 onward, as you mentioned, if the euro-dollar parity continues at the same level 29, 30 levels, which we used to attain.
Sir, this last sentence is not very clear. Understood, most of the question. Last sentence you have to repeat.
Yeah. I will repeat it. I think you mentioned if the euro-to-dollar parity currently, which was there in
Yes.
If it remains the same, do we hope to return to the gross margin levels of 29%-30%, which we were achieving over the last year?
This is a very hypothetical. If the euro-dollar exchange rate improves, then our profitability and gross margins will improve. That's the only thing I can say in general. To what extent and other things, it is a pure guess, which is very easy to guess, you know, for anybody.
Okay. Now, the second question is regarding, you mentioned about a guidance which was around 15%-20% for the year, and the operating margins as the EBITDA of around 18%-20%. Is it correct if I heard?
Yes, please.
Okay. The other income for this year has gone up from INR 6 crore to around INR 20 crore.
Deshpande, I request you to come back in the queue, please.
Okay, thank you.
Thank you. We have our next question from the line of Ramesh Sankaranarayanan from Nirmal Bang Equities. Please go ahead.
Good evening, Bubna . Thank you very much.
Good evening, sir.
Yeah. My first thought is, in terms of your strategy on new products, can you share how many products you are launching this year? How many you plan to launch next year? And how do you see your ability to possibly, you know, going for higher margin products as you launch new products?
See, every new product that we launch commands a higher margin compared to the products which are already being marketed, mainly because of the competition factor in. This process will continue.
Okay. The second thing is, okay, looking at the European market, the regulators are trying to discourage the use of chemical pesticides and, you know, pushing the industry to move for sustainable and biological products. What is the challenge you are facing? How do you plan to overcome this given that you have a large exposure to Europe?
Sir, this is not a very serious challenge for us. I feel that the current trend will continue. There could be a marginal desire to go for, of course, bioproducts. The availability and it's in practice that alternative is not very challenging.
Sir, one final thought. In terms of the trend in the container freight and the availability of chemicals from China, how is the situation now? Do you see the container freight rate coming down, and do you see the supply from China easing in terms of the volume of material available?
There is an improvement. The freight rates are softening and availability of the shipping space is also improving. It is not as bad as it was about two, three months back.
How about availability of chemical raw materials?
That is also improving.
Thank you very much, sir. Wish you all the best.
Thank you.
Thank you. We have our next question from the line of Anurag Dinkar Patil from Roha Asset Managers. Please go ahead.
Yeah. Other income has increased significantly to INR 20 crore in Q1. Can you explain what is the reason behind it?
One minute.
Hello.
Hello.
Yeah, this is Ashok Vashisht. On other income, this is a purely, you know, accounting, you know, presentation. There are two components. Profit on sale of mutual fund, INR 11.4 crore has come in other income. There is a loss on some of the investment which we sold mutual fund. There is a loss of, you know, INR 12.15 crore, which is forming part of other expenses. This is a purely, you know, as per the accounting presentation. You have to net it off to see the net impact.
Okay. Sir, you have maintained the guidance of around 18%-20% EBITDA margins for the year and current quarter, they are significantly lower. Can we say the second half-
I think.
Yeah. In the second half, are you expecting significant improvement in the margins?
Yeah, we are expecting increase, yes. The guidance is for the, you know, on yearly basis, which we are maintaining, 18%-20%.
Okay. That's it from my side. Thank you very much.
Thank you. We'll take our last question from the line of Himanshu Binani from Prabhudas Lilladher. Please go ahead.
Yes, thank you. Thank you for taking my question, sir. Again, the question is on the gross margin side of the business. I was actually trying to understand one thing. You have taken a hit into the gross margin, and that was largely towards the Forex side. While you have taken a Forex loss of somewhere around INR 43 crore. I was just trying to understand the impact basically. Despite taking a 38% increase in the price, we had a 400 basis point decline into the gross margin. Can you please quantify what has been the overall impact basically into the gross margin, which was led by the Forex?
I will, I'll ask Mr. Ashok Vashisht to answer that question.
Sure, sir.
There are two things basically. One is realized and the other one is unrealized. The INR 43 crore which you are seeing is basically that is a notional loss and not actual loss. The quarter end positions of accounts payable. In terms of which basically is impacting us in the gross margin is wherein you know I have already you know made the payment for that in U.S. dollars and you know our liability is in euros. So the impact could be to the tune of 4%-4.5%, basically, which is already you know forming part of the P&L.
Okay. Okay, sir.
Yeah.
And so-
Yeah.
One more thing basically on the other expenditure. After excluding that INR 12 crore-
Yeah.
Number also, our other expenses on an absolute number is coming way higher. Last year it was somewhere around INR 65 crore-INR 66 crore.
Yeah, it is higher for three specific reasons. One is freight, because we did, you know, the revenue growth is 32%. Secondly, you know, there is a increase in the legal and professional fee. Basically, you know, we are increasing, you know, building base for our professionals across the globe to, you know, ensure the growth, you know, going forward. There are the two key reasons, freight and increase in the legal and professional fee.
Sir, any numbers to quantify on that side?
The freight, you know, which was increased by 31% and which was INR 12.6 crores last year, same quarter. Now it is INR 16.5 crores.
This year it is INR 6.5 crore.
INR 16.5 crores.
INR 16.5 crores. Okay.
Yeah.
Sir, on the legal and professional fee?
Legal and professional, which you can see in the annual report also. I mean, the results also, it's INR 32 crore versus now INR 49 crores now.
Okay. Okay, sir.
Yeah.
Sir, one last question basically on the registration breakup, if you can provide us with the numbers region-wide.
Yeah, sure. Total is INR 2,719 as of 30 June.
Right.
Out of that, 1,445 Europe.
Right.
INR 280 NAFTA. INR 753, Latin America, and INR 241, rest of the world.
INR 241. Sir, on the pipeline numbers also.
On the pipeline 761 Europe.
Right.
135 NAFTA.
Mm-hmm.
INR 162 Latin America and rest of the world INR 95. INR 115 the total.
INR 115. Okay. Sure, sir. Thank you.
Yeah. Yeah.
Thank you, sir.
Thank you, Mr. Binani. As there are no further questions, I would now like to hand the conference over to Mr. Manish Mahawar from Antique Stock Broking Limited. Over to you, sir.
Yeah, thank you, Yashvi. On behalf of Antique Stock Broking, I would like to thank the team of Sharda Cropchem for providing us an opportunity to host the call. Bubna, would you like to make closing comments?
No, Manish, I think we have spoken enough.
Thanks, sir. Yeah, Yashvi, we can close the call, please.
Sure. On behalf of
Thank you.
Antique Stock Broking Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.