Ladies and gentlemen, good day and welcome to Sharda Cropchem 2Q FY 2022 post-results conference call hosted by Antique Stock Broking. As a reminder, all participant lines will be in 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, please signal an operator by pressing star then zero on your touch-tone phone. Please note this conference is being recorded. I now hand the conference over to Mr. Himanshu Binani of Antique Stock Broking. Thank you, and over to you, sir.
Thank you. Thank you, Vikram. Good day, everyone. 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 of the company, Mr. Ashok Vashisht, the CFO of the company, and Mr. Dinesh Nahar, the General Manager Finance on the call. Without any further ado, I would like to hand over the call to Mr. Bubna for his opening remarks, post which we can open the floor for Q&A session. Thank you, and over to you, Bubna ji.
Thank you, Himanshu Binani ji. Good day, ladies and gentlemen. A very warm welcome to everyone present here for the earnings call of Sharda Cropchem Limited for the Q2 FY 2022. Sharda Cropchem is represented by myself, Ramprakash Bubna, Chairman and Managing Director, Mr. Ashok Kumar Vashisht, Chief Financial Officer, and Mr. Dinesh Nahar, General Manager Finance. Talking briefly about our Q2 results, revenue grew by 51.3% year-on-year from INR 425 crores in Q2 FY 2021 to INR 643 crores in Q2 FY 2022, led by strong volume growth across geographies. Europe grew by 7.3% year-on-year, NAFTA grew by 115% year-on-year, LATAM grew by 114% year-on-year, and rest of the world grew 75% year-on-year. During Q2 FY 2022, our agrochemical to non-agrochemical mix stood at 78% versus 32%.
The agrochemical business grew by 46% year-on-year. Among agrochemicals, Europe business was almost flat. NAFTA grew by 125% year-on-year. LATAM grew by 135% year-on-year, and rest of the world grew by 36% year-on-year. The formulations to AI mix stood at 94% versus 6% in Q2 FY 2022. The non-agrochemicals business grew by 74% year-on-year during Q2 FY 2022. NAFTA grew by 96%, Europe grew by 65%, rest of the world grew by 59%, and LATAM grew by 17% year-on-year. The company continues to strengthen its product portfolio by prudently investing in new product registrations. Sharda Cropchem's total product registrations stood at 2,610 on 30th September FY 2022. Additionally, 1,054 applications for product registrations globally are at different stages of approval.
The CapEx stood at INR 153 crores in H1 FY 2022 versus INR 130 crores in H1 FY 2021. With this brief overview, I would now like to hand over the call to our CFO, Mr. Ashok Vashisht, for discussing our financial performance. Over to you, Mr. Ashok.
Thank you, Mr. Bubna. Friends, a very good evening to all of you. I'll give you a brief overview of the Q2 FY 2022 financial performance of the company. During the quarter, our revenue surged by 51.3% on year-on-year basis, which was mainly driven by strong volume growth at 60.8% and favorable exchange gain of 1.1%. There was an adverse impact of the product mix, essentially because of the, you know, growing in the other geographies, NAFTA and Latin America, so to the tune of 10.6% during this quarter. In terms of gross margin, we grew by 36.3% year-on-year basis, from INR 132 crore in quarter two last year.
It was increased to INR 180 crore in quarter two FY 2022. Gross margins were at 28% in quarter two FY 2022, slightly lower in comparison to the FY 2021 quarter two, essentially because of the change in the product mix and some impact of inflation in the freight cost, particularly this quarter and half year.
On geographical mix, Europe continued to be the highest contributor, followed by NAFTA and Latin America. We could strengthen our footprints in NAFTA and Latin America during this quarter. EBITDA registered a very strong growth of 76.8% on year-on-year basis, from INR 59 crore in quarter two last year to INR 103 crore in quarter two FY 2022. The EBITDA margin expanded by 233 basis points to 16.1% in quarter two FY 2022, mainly driven by volume growth and better cost management, and partly impacted by change in product mix and increase in the freight costs. Profit after tax grew by nearly 68% on year-on-year basis, from INR 19 crore in quarter two last year to INR 32 crore in quarter two FY 2022.
In terms of cash profits, it stood at INR 93 crore in quarter two this year, FY 2022, in comparison to INR 61 crore last year. You know, significant improvement in terms of cash profits as well. Cash and cash equivalents stood at INR 370 crore in quarter two FY 2022, in comparison to INR 314 crore in quarter two last year. There is a slight focus on the working capital management, so that working capital days improved to 86 days as of 30 September 2022, in comparison to 98 days as at 30 September 2021. With this, we will open up now for your specific questions. Thank you.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone phone now. 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. To ask a question, ladies and gentlemen, please press star followed by one on your touchtone phone now. We have our first question from the line of Bharat Gupta from Edelweiss. Please go ahead.
Hi, Mr. Bubna. Congratulations for a good set of numbers. My question pertains to the recent issue of the China ban. What we have been hearing that there has been power crisis issue and that is definitely impacting the overall agrochemical industry. Just wanted to get a sense, because our business is primarily driven from China only, so how secure are we in terms of procuring the finished products? And what kind of inventory positions are we holding with respect to the coming quarter?
See, Mr. Bharat, so far we have been doing fairly well in this financial year. China situation has been alarming for many months, but somehow we have been able to sail through very comfortably. This is a true fact that the situation in China is not normal. The government has become very conscious about pollution control and the incoming Olympics in the month of February. They are taking many strong measures to curtail pollution, like stoppage of mining of yellow phosphorus and controlling the waste disposal by the industries, both air as well as water pollution. Another serious impact is shortage of coal supply in China, which is impacting electricity generation, and electric supply is also being curtailed for the industries. They are giving more preference to the residential consumers than industries. Let us see. This will affect everybody.
You have very rightly said that we are mainly dependent upon our procurement from China. I want to tell you, sir, China has become a factory to the world, and everybody is directly or indirectly dependent upon China, if not the finished products, the semi products or the basic raw materials. Even multinational companies across the globe are dependent on China. Our impact will not be very much out of tune compared to the rest of the players in the field.
Right, sir. Sir, in terms of the inventory which we would be having, so primarily just wanted to get a sense because Q4 is one of the heaviest quarters for us. Like in terms of whatever supplies which we are having, so are they good enough to meet the rising demand which we are seeing from the European markets or to the North American markets?
Mr. Bharat, this is the period when we built up the inventory. We don't carry on the inventory for the complete year. We are finding in some constraints in getting the shipments because of the lack of production and other things. As on date, the level of inventory that we are holding is slightly better than what we were holding last year. Of course.
Right.
The businesses, orders are coming up also during this period of time. Our customers are also very careful because the prices have gone up, and they are not used to buying at higher prices. I would say that so far our business is moving normally, not a very serious impact, including the inventory levels.
Right, sir. Sir, like if you look on the pricing front, so definitely there has been some sort of an impact due to the change in the product mix. Going like what you have also been said in the opening remarks that there has been some issue in terms of the raw material price. Definitely there would have been some sort of an increase in the overall raw material prices. Have we taken the full price impact on the same? Are MNCs still resisting enough to pass on the increase in the raw material prices for the end products?
No, sir. The inventories have gone up not much to do with the prices. The prices have gone up and, the consumers are showing some resistance. At the end of the day, they do come around and absorb fairly good part of the increase in the prices.
Sir, have you taken any price increase for the Q3 month, for the Q3 quarter?
What was your question? Have we taken what? Prices increase.
Have we taken price increase or have we passed on the price increase in our raw materials to the end customers?
We do that for every transaction. See, as you may be knowing about our business, we don't have any long-term contract either with our suppliers nor with our customers. Most of the time every transaction is a fresh negotiation, so the prices that we are offering to our customers is by adding our normal margins to our cost prices. There is some
Excuse me, sir.
Yeah.
Yes, you can go on.
There is an increase in the prices which we are claiming from the customers, and they are giving us.
Right, sir. Sir, that's what we are seeing is, there has been some sort of pressure in our margins where it is gross margins have come back to a 20% kind of a range. Going forward, do you expect it to be a sustainable in the coming quarters, or there can be some sort of an improvement as you have taken some pricing increase, for the coming months, let's say?
See, Mr. Bharat, presently the margins are under stress, under pressure. Going forward, I would feel that the similar situation will continue unless China becomes all of a sudden very open and they start increasing their productions and dispatches in a full swing. Till then, it's going to be a little cautious game, and we are prepared for it.
Sir, if you look at it's just a bookkeeping question. Our other expenses as a percentage of sales have declined despite a spurt in the logistics costs around the globe. What is the key reason for the same?
Sir, [Foreign language]. Can you repeat this question with a little louder voice please?
Sure, sir. I was just asking, if you look at our other expenses as a percentage of sales, so that has declined a bit. I was just asking that there has been a spurt in the logistics costs. What do you think the key reason why we have been able to maintain our other expenses on a lower side?
See the other expenses are not impacted by the availability of raw materials or selling prices. They are more or less at a fixed level. Because the price levels are increasing, so proportionately they appear to be under, I mean, subdued. This is a relative equation. Our other expenses are fairly at the same level as last year.
If you want to better-
Yeah.
What basically? There may have been any material impact on the logistics front, like the freight costs which have increased a bit, so that may have impacted us.
Gupta ji, the logistics cost is a totally different game. It is nothing to do with our other expenses. This logistics is a direct expenditure, and there is a substantial increase in the cost of freight, sea freight as well as air freight. I mean, I don't think that the other expenses are connected with the logistics.
That will be a part of cost or, like cost of goods sold or it is taken like separately?
It is taken as cost of goods sold.
Okay, sir. Right. Sir, last question on the guidance front. Definitely we have delivered a 50% kind of a growth in the H1. You were earlier maintaining a conservative target of delivering a 15%-18% growth for the full year. Now can we expect that there should be some like from the conservatism to now do you want to increase the guidance on the full year front for the coming 16 months?
Sir, I would prefer to be on the conservative side. We should be able to grow at 15%-20%.
For the full year?
Yeah, for the rest of the year.
Right, sir. Thanks so much. I will come back in the question queue for any follow-ups. Thank you, sir.
Yes, you're welcome.
To ask a question, ladies and gentlemen, you may press star one on your touchtone phone now. We have next question from the line of Vishnu Kumar from Spark Capital. Please go ahead.
Good evening, sir, and congrats for good numbers that you have got this time. Just help me understand this, sir. Normally, H1 is something that you report, like, say INR 300-INR 400 crore in your European business. This time you're about INR 250-INR 500 crore. H1, I'm saying, for six months. Similarly, in your U.S. business also you have done pretty well. Is it because of some molecules, or is it because of some real pricing that you've materially benefited? Normally, you used to say that MNCs are not taking price hikes. Or is it because inventory in the system has gone down? If you could just help us understand structurally, or let's say there are some near-term gains you're having.
Sir, I'll take up the second point of your suggested answer. In my opinion, the inventories in the system is getting drawn down. It's not so difficult to claim a better price from the customers than our costs are going up. At the same time, I think we are still more competitive compared to the competitors.
Mm.
multinationals are also increasing their prices.
Got it. Inventories are low in the system. That is helping you drive a disproportionate growth in the H1, generally this quarter or even the six months you're saying.
In absolute terms, our inventories are higher this year compared to last year.
Mm.
Relatively, compared to the volume-
Mm.
It could be slightly on the lower side.
Understood. This situation of low inventory that you're seeing in the market, do you think this will continue into the next year, sir? I mean, given that Chinese raw materials are not available, how do you see that?
It will be under strain. The availability is under strain. The Chinese are not able to ship the goods to us as per our requirements because of our contacts and relationship with most of the manufacturers.
Mm.
Somehow we have been, so far we've been able to get all the supplies sufficient enough, not enough to build up, a comfortable level of inventory. This effort and business strategy will continue.
Understood. Sir, for Q4 last year we did about close to 1,100 crore. I'm sure you have good visibility as to whether you have enough material available, or that is something that will go from China to U.S. and Europe by Q4. If you could broadly tell us whether you are at a favorable position that you'll be able to kind of whatever growth you think that can be done, all the material is available, or you think there will be some shortfall there.
Sir, I don't think we are favorably covered. The situation which is tough and difficult is for everybody, and we are a part of it. Even last year we had not anticipated that we'll do so well in the quarter four. This year, also we feel that we should be able to do comfortably well, but not as well as quarter four last year.
Sir, when you mean comfortably well, we'll still see growth by Q4, or you think it will be just about flat?
It could be lesser. There will be a growth, but not as much as we had last year, but lesser than that. Because the base is very big now.
Understood, sir. My second question on this is that you have been highlighting that for quite some time that the MNCs have not passed on prices. Now because of the low inventory situation, they have taken a price hike. Now, is the price hike commensurate for the technical prices that have gone up now? Do you think further price hikes are required because prices have gone up in the recent past? Let's say, once MNC increases the prices for generics, maybe if price is correct, they'll bring it down, or sustainably because it's a small product, they will not bring the prices down. What is your view on this? More from a medium and a short term, I'm asking.
See, multinational companies has a very big advantage of a fat inventory.
Mm.
I think their inventories are also shrinking now. They are also under pressure to increase their prices because they are paying higher prices for their sourcing. I think this situation also helps us to compete better in the market.
Got it. No, that's the point I was trying to ask is, if the price. Because for them, these products are not really big. You have highlighted that, in the past, if they take the price hikes, it more or less those prices can kind of hold on to. If prices come down, do you think they'll hold on to the prices because this is not a very big portfolio for them, which could be a sustainable benefit for us? That's the point I'm trying to understand. Let's say one year from now, will the prices come down again if they will. Will they drop the prices or they will not drop the prices, if the material prices comes down?
Vishnu, you think I'm the right person to comment on how the multinationals will behave in some imaginary situations. We can only predict, we can only make a guess. There is no reason for, I mean, they will not react so quickly to the fluctuations in the raw material prices or procurement prices. I have a feeling that this year they have been quick enough because their inventory levels are on the lower side. What will happen when the prices come down, I'm not the right person to comment. They may or may not.
Got it, sir. In your U.S. market, are we introducing or any new molecule that has given us some disproportionate benefit? Any specific molecules that you can possibly say or any product, any particular categories that has done really well for us in the last one year or so, U.S. and Europe, any particular category?
Sir, we have been getting more and more registrations, more and more product approvals. Our portfolio is enlarging and that is helping us to increase the volume.
Sir, any rough idea you can give us, let's say the local distributors have gone up, X percentage, more states, more touchpoints, anything that you can say that this is last two years, it is now better. Something for us to get a more of a grip on.
Our customer base is also increasing in U.S. With the increase of portfolio, the acceptability of our products is increasing. The recognition of Sharda Cropchem is increasing, and we are finding it easier to introduce our products in the market and getting it accepted by the customers.
When you mean customers, how many distributors would probably be having there, I mean, last two years to now?
I don't have the figure readily available, but the number of customers are maybe about 20%-25% more compared to last year in United States market.
Understood, sir. I'll come back in this case. Thank you.
Yeah.
Thank you, sir. To ask a question, participants may press star one on your touchtone phone now. Your next question from the line of Chetan Thackar from ASK Investment Managers. Please go ahead.
Good evening, sir.
Good evening, Chetan bhai.
How are you, sir?
Very well.
Sir, I just wanted the tonnage numbers by region.
Yes, one minute. Give me a second, please.
Sure.
Sir, for Q2, in Europe the tonnage is 3.61 million kilograms or liters. NAFTA it is 2.74 million. Latin America, 1.46 million. Rest of the world, 1.10 million. Total, 8.92 million compared to 5.54 million in Q2 FY 2021.
Sure.
In terms of tonnage, we have grown about 61% in Q2 as compared to Q2 last year.
Great, sir. This is very helpful. Thank you so much and all the best, and wishing you a very happy Diwali. Thank you so much, sir.
Thank you, Chetan bhai.
Thank you, sir. We have next question from the line of Dhruv from HDFC AMC. Please go ahead.
Thank you. Bubna. Sir, one question was, in the previous call, earlier call, you had mentioned about that, there is some pre-stocking that also you are seeing at least for the last three, six months or nine odd months. Sir, where are we now in that pre-stocking cycle?
Excuse me. Your voice is getting mixed up by some small disturbances.
Is this okay now?
Louder and, slower.
Hello. Is this okay now, sir?
Yeah, now it is okay.
Yeah. Yeah, sir. Sir, I was saying that in the last call you had mentioned about some pre-stocking that you're seeing in the market for the last three, six odd months. Sir, where are we now in this pre-stocking cycle? I mean, is that largely now behind or that still continues?
You mean pre-season stocking?
Yeah, sir.
I don't know whether I have mentioned, but we don't have strategy of having a very big stress on the pre-season stocking.
Not you, sir. Your customers are stocking ahead of time because of expectation of rate issue or non-availability issue, that way.
Sir, I think the customers are also not doing much of pre-stocking because they are very much uncomfortable with the increase in the freight cost and the total increase in the cost. In some of the products, the prices that they are paying us is almost 80%-90% more compared to the same product last year. They are also not very comfortable and happy to stock, they feel that the prices are already very high. This is my impression.
There's not much of pre-stocking that has happened in the last.
In my opinion, no. Because of the level of prices that are happening today.
Mm-hmm. Got it. Sir, in that context, the growth that we have, including the volume growth, if you can help us understand what's driving this growth. Is it,
As I mentioned in my previous statements, this is probably because of the drying of the inventories with the competition and our pipeline.
Okay. We are able to source the material much better than the competition and hence they are seeking to buy it from us, not the-
Probably, yes.
Okay. Sir, do you look at it this way? Say, for example, how much of the sales growth over a two-year basis or a three-year basis has come because of new product registration? Do you have that kind of data? Say, for example, this year you have grown, say 50%, 51%. How much of this growth is coming from new registrations that you have got, say, three years back? Three years back you got this registration and today the sales is, say, X percentage of the total sales. Just trying to understand how much is driven by new sales, new product sales.
Yeah, I'll ask Mr. Ashok to reply this.
Yeah, yeah. No, actually, you know, there is a few products which are gone off and few new products come in. It's a rolling. We do that, but we are not insisting, you know, clearly, you know, we can say that this is because of the new product because it's a change. It's a regular change. Few products going off, few new products are coming in. There is a focus, but, you know, measuring that and, you know, when giving that in a sense, this is my new business, may not be the right way to see.
Okay.
Sir, you've not done any detailed analysis on this front. We are so much occupied with the normal, this thing. We've not done a very serious analysis on this front.
Yes. What I'm trying to understand, you have done superbly well in terms of growth in the last, you know, three, four quarters. I understand part of this is because of the, people stocking it ahead, because your competitors don't have. I'm just trying to understand how much of this can be dissected between the normal growth that you would have anyways achieved because of new products are getting registered and stuff like that, and new penetration happening. How much is, you know, if there is some qualitative way we can, you know, try to dissect that.
If you see, Dhruv, you know, the focus earlier was only Europe. With this now, you know, we have putting more focus, equal focus on NAFTA and Latin America region. We see growth in half year. If we, you know, apart from Europe, in fact, Europe is at number three in terms of growth. We are getting a good growth in NAFTA region and Latin America region. Which we are, you know, we are extending.
Got it. Okay. Is this growth coming because of new registrations as such, particularly, I mean, large part of the growth or is it because of penetration increase? I mean, I understand it will be everything, but the bigger part is because of what?
Mr. Dhruv, it is both penetration as well as expansion of the portfolio.
Sure, sir. Because, I mean, your portfolio is expanding for quite some time, but the acceleration in growth has happened in the last three, four months. Sorry, three, four quarters. I was just wondering what has happened now that this growth is happening. I mean, what's the
We are more proactive, more nimble-footed.
If you see half-yearly growth, the growth in NAFTA region is 110%, as was given in the opening remarks by Mr. Bubna. Latin America is 120%, half year.
Mm-hmm.
You know, this is actually helping us in terms of, you know, giving this, you know, significant growth for 50% growth.
Mm-hmm.
Europe is 35%. Even the rest of the world is 45%. Basically, you know, penetration of the existing, you know, portfolio and new volumes both are, you know, helping us in terms of getting this growth.
Got it, sir. Sir, if I understand correctly, your growth will be higher in NAFTA and LATAM going forward also. Sir, you have historically used to give us GM margins split, and in that, if I understand correctly, Europe was the highest margin, then followed by NAFTA and then LATAM. Can there be some impact on margins as the share of NAFTA and LATAM continues to grow in our portfolio?
See, Europe will still continue to be having the highest margins. The margins in NAFTA region has also improved considerably. Earlier it was very normal, nominal. This year it is respectable. Margins is comparatively growing in NAFTA, but Europe still continues to be a region of best margins.
Just from an incremental basis, if the growth is higher from NAFTA and LATAM.
I can give you a comparison.
Yeah.
In Q2 last year, Europe was 36.7%. It is 33.2% this year.
Mm-hmm.
In NAFTA, it was 20.2%. This year it is 28.3%. LATAM was 27%. This year it is 15%. Rest of the world was 32.5%, and this year 20.7%. Margins in LATAM and rest of the world has come down considerably. NAFTA has increased considerably, and Europe has also subdued slightly.
Got it.
Overall, our margins have come down from 31% to 28%.
Got it. My next question was more from understanding the near-term dynamics of our business. Sir, we understand quite fairly, well now that the Chinese technical prices are rising because of all the disruptions. If I understand correctly, we don't contract either the supplier or the customer, but some of the MNCs I believe do contract their suppliers, so their costing will not probably change as much as your costing will change. Sir, from a purely near-term perspective, is this negative from the structure that we are in? I understand this will all normalize, say six months or 12 months down the line, but just to understand the dynamics from a near-term perspective.
Sir, I feel that you said that no. I'll tell you one more very surprising thing. Now we are suppliers to many of the multinational companies also. They do have their offices in China, but I don't know why they send the inquiries to us and buy from us in spite of all these things. I'm not able to get into the details why it's happening, but it is happening. Multinationals are paying us much better margins than the normal customers.
Oh, that's interesting. They source it from you rather than directly reaching the-
Some products. I don't, I won't say that it is great, but it is starting from more or less zero base to some small numbers, and it is very encouraging for us.
Mm-hmm. Got it.
Sometimes we are shipping by air to the multinational company from China.
Mm-hmm. Mm-hmm. Is it possible to share what percentage of the sales will be that today?
It'll be very small percentage.
Okay.
Very significant.
Okay.
Even a few transactions is very encouraging for us.
Yeah, true. Sir, one last question before I join the queue. Now, given that the China issue that we see today, I mean, if you see the last four, five years, it has been happening regularly, some or the other event, because of emission, because of you know, some issues, production issues or something else. Sir, how do you see this situation now in terms of your business trend? Are you thinking of diversifying more away from China in your sourcing to probably more of India just to hedge yourself better? Or, I mean, how are you looking at this situation?
Mr. Dhruv, that situation has not come to this level so far. Even today, China happens to be the most reliable and most economical source. There could be some small sources available in India, but again, the Indian suppliers are also dependent upon China for the basic raw materials. Indian suppliers also try to keep pace with the Chinese. It is not that if the Chinese are expensive, Indians will be cheaper. Indians will also come at the level to take advantage of the situation. Our preference is still with China, unless we don't have availability of a particular product and it is available in India.
Mm-hmm. Sure. I understand that's where that they will also price it to China level, but at least the volumes will be available. Are you looking at that way? Because from, for example, in the current situation, China is not even able to supply volumes, irrespective of the price that way. That is what I was coming to.
In terms of volume, Indians are not very large volume manufacturers and suppliers.
Okay.
The volume of Chinese factories, I mean, all the Indian suppliers put together will not match more than 25%-30% of Chinese production.
Mm-hmm. Got it. Great, sir. Great. Thank you so much, sir. Thank you for your time. Thanks.
Thank you, sir.
Thank you. We have next question from the line of Resham Jain from DSP Investment Managers. Please go ahead.
Yeah, good evening, Bhupat sir. I have just a question on the growth part because you mentioned that the full year growth looks like 15%-20% only. If I take that, it seems like the H2 could be flat. Whatever you have said in your commentary, given the price increases and significantly lower inventory at the retailer level, it seems that the full year number 15%-20% seems to be quite conservative, significantly conservative.
Resham bhai, I think I have not been able to explain myself, or you have not understood me properly. I said that for the rest of the year, I'm not increasing my expectations to more than 15%-20%. It may happen.
Okay.
That does not mean the full year.
H2. This is only the H2 that I'm talking about.
Okay.
Today we are almost end of the October month. Even October month for us has been much better than October last year. I'm left with only five months. Five months, I mean, in the first seven months we achieved more than around 50% growth. I'm not so optimistic to maintain the same pace in the next five months. Next five months only 15%-20%. It may happen more.
From conservative basis basically what you implemented.
Yes, sir.
Correct. Got it, sir. I understood it incorrectly. Got it right.
Okay.
Thank you. Sir, the second question is on depreciation. Is that run rate which you are, or will you be able to guide for the rest of the year and going forward, in terms of CapEx also? What will be your CapEx for this year and for next year?
As we see, up to 30th of September, our CapEx has been higher compared to last year for six months only. This CapEx is going to increase at the same pace. Our CapEx at the end of March 2022 will be higher by about maybe INR 40 crores-INR 50 crores. Last year we might have been INR 250 crores to INR 300 crores. This year also it will be in the range of INR 300 crores, you know, INR 275 crores-INR 300 crores.
Okay.
It could be even higher.
Okay. Understood, sir. Sir, lastly, in terms of, we have this line item which comes sometimes the impairment of some of the intangible assets. Is there anything which has come during H1 this year and anything which you are expecting in the H2?
Sir, I think Ashok will reply to this question more. This impairment forms a very small part of the total CapEx. Yes.
Yeah, during the, you know, Q2 this year, the impairment is INR 8.7 million. Half year is 44, basically INR 4.2 crores. Last year's comparative Q2 was INR 1.92 crores. Half year last year was INR 2.96 crores. We are not foreseeing significant impairment in the, you know, H2, but yes, there will be.
Okay.
Yeah, because that is every quarter we do that impairment exercise. Whatever, you know, has been impaired, so that has been provided for.
Okay. Right, sir.
We are not forcing any significant new impairment.
Got it, sir. Thank you.
Yeah.
All the best, sir. Thank you.
Thank you.
Thank you, Resham .
Thank you. We have next question from the line of Sonal Minhas from Prescient Capital. Please go ahead.
Hi, sir. This is Sonal. I hope I'm audible. I have two questions. One was on the longer-term margin outlook for the NAFTA region. I'm assuming you, as you're gaining scale, you've doubled your top line in the region. I think you spoke about the NAFTA margin going up from 20%-28% H1 to H1. I just want to understand, like if you zoom out one year, two years, and compare you to your competition there, do you see these margins converting to 30%-32% or this is what typically the margin profile for that particular region? The second question is, you've spoken about Europe being the better margin profile business.
If we were to again look at Europe from a 2-3-year perspective, do you see these margins recovering in Europe?
Sir, I do see margins recovering in Europe. As far as NAFTA region is concerned, we have been able to understand the market better. We feel that we'll be able to maintain or improve on the margins also in the NAFTA region.
Got it, sir. The second question, just want to understand the success matrix of your filings in each geography. Just want to understand how do you qualify some filing molecule or let's say a product a success, and what gets defined as basically. Is there like an internal matrix of return on capital or let's say expectation of so much top line in so much time for product to be successful or the product to be retired? Just want to understand how do you work? Because this is kind of a treadmill. Would be, as you increase your CapEx, it's important to understand the capital allocation discipline around this expense. Just if you can help us a little bit with that will be helpful to understand the business.
Mr. Sonal, we do not do so much of an analysis from the feasibility front or return on capital because the final pricing that we will get from the market or we will sell at are never defined and they're never fixed. The moment we as a generic enter that market, the prices start going down. Multinationals also in order to maintain their share, sometimes they also start reducing the prices to maintain their share. These things are not very firm. It is difficult to calculate the return on investment. Return on investment initially, before we venture into the products are all very attractive and very lucrative.
As we go, we select the product, we're getting a feedback from our customers or distributors and the market as to which product has better future, which is a product of future and which will have a longer life in the market. We also see if the product is available in China and whether the quality is maintainable in China. If we have those, these factors, then we take a plunge into the product.
Understand that. Sir, assuming all your products have basic assumption that they are available in China and there is a sustainable quality which you can meet. This is a follow-on on what I'm just asking that, and you would not be the only generic player in the market. I'm assuming there'll be more who will enter price erosion will happen. If you see a product, margins deteriorating over, let's say one year, two year, three years, is there a cutoff point in this, where you say, "I can't do this business." Because margin erosion can be factored in roughly, but it can't be exact. Where do you say that I will not sell this product going further? I just want to understand that.
Well, we haven't come across any situation where we find that the product is not giving us any margin or discouraging margin. You understand initially when we introduce our product, probably we are the second or third generic. Another thing I want to let you know that there are not many generics who are competing with us in these markets. They can be counted on fingertips. On that front, we are not so much worried. Every generic which comes and if they are limited in number, every generic has comfortable place in the market to introduce their products and sell their products.
Sir, if I am an analyst who's trying to understand your business from outside, from margin point that you enter a geography, do I see that your margins, you model, let's say, X margin, these margins will squeeze down as the competition intensifies, others also reduce their pricing. Then over time, the indiscipline with whatever market share is taken by them, the margins tend to expand a little bit. It's kind of a U-curve on margin with maturity coming, your maturity coming in that particular market. Is that how I should model it or mentally align it to understand the business?
What is your name?
Sonal.
Sonal.
Yes, sir.
Mr. Sonal, please understand that the process of registration requires a lot of patience and heavy amount of capital and lot of time.
Sure.
These three factors reduce the competition very considerably. Most of the businessmen want to invest in tangible assets which they feel are very secure and, I mean, easily they can get out of it by selling them out.
Mm-hmm.
The risk involved in the intangible asset registration is very high and uncertainty of getting any value if they want to get out. This gives us a very good room, and we have got used to this kind of investments, and we have seen the fruits of these kind of investments, which many people don't. Most of the manufacturers should be the right people to enter into the market with registration, but they do not.
Do not. Yes.
Because when we buy something from them, we sell at a handsome margin, but still it doesn't attract them into this business.
Mm-hmm. Got it. Sir, don't get me wrong. I'm just trying to, I think, understand the business from margin perspective over a 3-5-year period, especially your geographies where you've entered. That's why I was trying to, like, I think, ask.
Our rough estimate is that the return on investment in the new registrations, you can recover in a period of 1-3 years.
Okay. Got it, sir. This helps. Thank you a lot, sir. Thank you.
Thank you.
Thank you. Ladies and gentlemen, in the interest of time, kindly restrict questions to two per participant. We have next question from the line of Chirag from ASSPL. Please go ahead.
Hello.
Yes.
Uh.
Please go ahead.
Yes. Sir, I’m tracking your company since last few years. I just want to understand exactly how we different from the other agrochemicals and fertilizer business. Also, we are mostly patent driven, and we outsource our manufacturing. Is my understanding correct, sir?
Sir, you'll have to repeat your question. Your voice was getting mixed up.
Now it's proper?
Yeah. Please speak little slowly so that it can be understood better and there are no mixing up between two words.
I want to understand your business model that how we different from other agrochemicals and fertilizer players. Also, what different products you do. Because what I have seen that we outsource our manufacturing, right? How we do business on this model exactly? The value chain I want to understand.
Sir, the biggest difference between us and other players is that most of the players start first as a manufacturing and then go into the marketing. We do not have any manufacturing. We straightaway introduce ourselves into the marketing, and we continue that, and we find it very lucrative and very attractive. We outsource 100% manufacturing. So particularly these agrochemical products or most of the agricultural products are seasonal products. On the off-season, the manufacturers find it very painful to keep their plant running, either to build up their inventories or sell it at a very attractive prices. We are not affected by these adversities or these minus points of the manufacturers. We are very nimble-footed.
If for some reason, in some season, we find that a particular product is in abundance and the prices are dropping down, leaving little margins, we do not deal in that product for that particular season or that period. A manufacturer does not have that choice.
O-okay.
You understand me, sir? This is the big difference.
Yes, yes, sir.
Most of them are not. There's hardly anybody. I think we have a unique business model in India, and there are no other company in the world who is not doing any manufacturing. There are some companies which are in similar business model who may be manufacturing 20%, 30% of their market. We have zero manufacturing of our market compared to what we market.
Okay.
We don't find it very interesting to go into manufacturing because fortunately, whenever there's a good product giving good margins, there are many manufacturers which come up at a very short notice. That helps us to sort of de-risk our business.
Okay. For the product development, we in-house do R&D or that also we outsource?
We outsource the R&D also.
In comparison to the traditional manufacturer of this agrochemical and vis-à-vis ourselves, what is any, you know, margin reduction which we earn compared to the traditional manufacturer?
I have not understood your question, sir.
Okay, sir. What I'm asking is like, most of the manufacturer do in-house R&D, similar to what pharma players do, plus they do their own manufacturing, okay? To protect our business model comparison to them, what extra edge we have?
Sir, we do not have any patent. The products that we are dealing in, the patents are held only by the multinational companies who have invested huge amount of capital to invent these products. They enjoy ten-year patent protection. Our role comes only when the product goes off patenting. I also have not, I mean, any manufacturer holding patent for their new product are only multinational companies having billions of dollars of turnover and big volume, big purchasing.
Okay. We purchase those going to off-patent, right?
Pardon me.
We purchase those rights of patents which are expired or not used by the MNC after certain period of time.
I'll explain to you, Chirag . Actually, you know, we are a different company, as explained by Mr. Budhma. We are, you know, an intangible assets-driven company. And agrochemicals, like pharmaceuticals, is a controlled industry. You know, its drugs cannot be sold freely. To enter into any country, you have to register your product in that respective country. The expertise of Sharda is that, you know, we have that capability and expertise. And you know, our cash flows allows us to, you know, register products, which involves enormous capital and time. Yeah. We get those, you know, licenses in the respective countries. And only, you know, any company who, you know, can sell the product if they have a license from the respective government.
That is, you know, big differentiator and, you know, entry barriers. It is possible that, you know, there is a manufacturer from whom I get my product manufactured, that manufacturer cannot sell directly in that country.
Okay.
There is a big entry barrier. It is a, you know, looks to be simple, but it is a, you know, highly dynamic and complex, you know, business model, but it is highly flexible. As you know, explained by Mr. Bubna, we work majorly on the variable cost, which is our strength.
Okay.
Like in, you know, other businesses which differentiates, you know, us from them. Our major part of the cost is variable cost, whereas for manufacturers, major component is the fixed cost, which is our strength.
Okay. Sir,
Sir, I'm sorry to interrupt. Kindly come back in the question queue. Chirag .
Thank you.
Thank you. Ladies and gentlemen, please restrict questions to per participant. We have next question from the line of Somaiah V from Spark Capital. Please go ahead.
Thanks for the opportunity, sir. Sir, can you just help us with the registration split across the regions, which you generally used to give, both from what is in pipeline and what we have?
See, the number of registrations we have is 2,610 registrations. Out of that, in Europe we have 1,370 registrations. NAFTA, 252. LATAM, 750. Rest of the world, 238. Total, I repeat, 2,610. We have about 1,054 registrations in the pipeline, which are at different stage of the registration in process.
Got it, sir. The split for that would be
Please, spend for the registrations in pipeline. Hello?
Yes, sir. The breakup of INR 1,054. Yeah.
Europe INR 738. NAFTA INR 88. LATAM INR 138. Rest of the world INR 90. Total INR 1,054.
Thank you, sir. Sir, if you could also give us both volume and gross margin you have given for Q2 FY 2022, if you can give the same for Q1 FY 2022, it would be helpful.
One minute. No, you want Q1 FY 2022 or?
The previous quarter. Yes, sir. Q1 FY 2022. Yeah.
Q1 FY 2022. He wants margin, not volume. Sir, your question was about margin, no?
Yeah. Both volumes and margin, sir, Q1 FY 2022.
Okay. The volume in Q1 FY 2022 was Europe, 3,696,000. NAFTA, 2,666,000. LATAM, 1,599,000. Rest of the world, 434,000. Total 8,395,000 volume.
Got it. Margins?
Margin Europe 38.6%, NAFTA 22.8%, LATAM 17%, and Rest of the World 27.8%. Total 29.3%.
Thank you, sir. Just one last question from my side, sir. Based on the volume numbers that you have given for this quarter and also your total revenue growth, this kind of suggests that, both in LATAM and Europe, there has been an impact on either price or product mix. Specifically on LATAM front, I mean, can you just help us with some color on there? I mean, is it you have seen a price increase in North America, whereas, that has not been the case in Europe or LATAM, or is it purely a function of product mix?
Product mix, mainly product mix. It's mainly a function of product mix.
From a pricing standpoint, there has been increased growth in Europe and LATAM. Would that be a right understanding, sir?
No, maybe, it is mainly product mix and, you know, some impact of freight margin. There is increase in the freight cost, so which is also impacting us a bit.
Okay. Got it, sir. Thank you.
Thank you.
Thank you. We have next question from the line of Dhruv from HDFC AMC. Please go ahead.
Yes, sir. Thank you, sir. Just one question. In case you share this data, so what would be the top three technicals for you on a overall basis? If you can name them, and also if you can probably share what is the highest percentage of sales, if top five or top three is available. Also similar for last year in quarter.
Sir, I'm sorry, but this is considered confidential information.
Okay.
I cannot share that.
Okay. Broadly, what would be share of sales for top three? Would you share that or not even that?
Sir, sure I can give you not top three, but maybe top. One minute.
Top five or top three?
For the year, I mean, half year for FY 2022, the top three molecules share is 24%. Top five molecules is 31%, and top ten molecules is 46%.
This is H1. Sir, similarly, last year?
Last year the top three was 18%, top five was 25%, and top ten was 40.3%.
This is H1 last year and H1 current year?
Yes, sir.
Got it. Thank you so much, sir. Thank you.
Thank you.
Thank you. We have next question from the line of Harsh Beria, an investor. Please go ahead.
Hi. I have a question on the unit economics of the business. If I just look at a longer time of sales per registration, that has grown, let's say from INR 60 lakh per registration in FY 2015 to about INR 80 lakhs now. Whereas the registration cost per registration has really increased a lot. I think it's somewhere from INR 6 lakhs to INR 20 lakhs now. This is in line with your previous commentary on the increasing registration cost by governments. First question is: Is this the right way of looking at the business?
Sir, I have not understood your question very honestly. You'll have to repeat it.
Okay. If I look at all your agrochemical registrations and the sales that you do from the agrochemical division, I'll get a sales number per registration. At the same time, if I look at your intangible assets in your balance sheet, and I normalize it by the number of registration, I'll get a proxy to registration cost that you are paying, which you are putting in your intangible asset. If I look at the difference of these two, it seems that this has gone down a lot in the last few years.
Sir, what has gone down?
The difference of revenue per registration, minus registration cost per registration. This has gone down over a period of time. Is this a right way of looking at it, or am I looking at it in a completely incorrect way?
Sir, it is not a right way of looking at it, because the process of registration and the cost of registration varies from country to country and product to product. In some countries, I may get a registration in $100,000. In other countries, I will have to spend EUR 5 million to get a registration. It varies so widely between product to product and country to country. You cannot make any such comparison or ratio evaluation. Also the time.
Okay.
Suppose I am to get a registration in a developing country or, say, Latin America or Far East, the time is much smaller and the cost is much lesser. With registering the same product, same concentration in Europe, the cost can be 10 times or 20 times more. You cannot give any such conclusions from the number of registrations.
We have next question from the line of Jagdish, an investor. Please go ahead.
Uh, Mr.-
Can you hear me, sir?
Yes, please go ahead.
Sir, company is having cash on books of INR 300 crores. Why don't they reward the shareholder by buying back the shares?
I mean, please repeat your question, Mr. Jagdish, a little more slowly. The company?
The company is having cash on books of more than INR 300 crores.
Yes.
Why don't the company rewarding the shareholders by giving dividend or buy-backing the shares from market?
Mr. Jagdish, you have not studied our company's finances very deeply. We cannot do any buyback. We are already holding the maximum amount that we allowed as per the law. Please understand. We do not want to overload our shares to the market because that will give a wrong signal to the market, and we don't play into the prices of the shares. As far as the results are concerned, you have, if you have seen our company's financial structure, we are a debt-free company. We have not borrowed anything from the banks.
Um, company-
Yeah.
Company can do buyback, and promoter can also surrender shares. The shareholding pattern will be same.
No, sir. We do not like to look into those things. We like to concentrate on our business rather than playing with the shares and market capitalization of the shares.
Sir, you can reward the shareholders with special dividend.
Mr. Jagdish, we will consider. We'll look into this.
Okay. Thank you, sir.
Thank you.
Thank you, sir. Ladies and gentlemen, that was the last question, and I'll hand the conference over to the management for closing comments. Over to you, sir.
Well, ladies and gentlemen, it has been a pleasure to receive your questions, and I hope we've been able to answer them to your satisfaction. One minute. The business is full of challenges, and we've been spending a lot of time and efforts to stabilize our business and get the best out of the situation rather than complaining and giving up. Thank you very much.
Thank you very much, sir. Ladies and gentlemen, on behalf of Antique Stock Broking, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.
Thank you, everybody.