RALLISNSEQ1 FY23July 26, 2022

Rallis India Limited

7,886words

59turns

13analyst exchanges

2executives

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Management on call

Sanjiv Lal

Managing

S. Nagarajan

Chief Operating Officer; and Ms. Subhra

Key numbers — 40 extracted

11%

monsoon till July first week. However, the monsoons have picked up with cumulative rainfall being 11% above normal till 13th July on an overall basis. For the season up to July 13th, 30 of the 36 subd

rs,

ess or normal rainfall with a cumulative range of 306 millimeters against a normal of 275 millimeters, which is 11% above normal. Uneven spatial distribution, however, is a concern with 53% of the dis

53%

millimeters, which is 11% above normal. Uneven spatial distribution, however, is a concern with 53% of the districts receiving deficient or large excess rainfall. Some key rice growing states like U

21%

received very scanty rainfall this season. Region wise, while east and northeast regions received 21% surplus rainfall, Northwest India, Central India, Southern peninsula were deficit during the week,

the remainder of the season. Delayed monsoon consequentially led to lower acreage across states, 5% down as a 1st July on a year-on-year basis. Acreage for major crops were mostly flattish or slight

16.5%

Rallis specific developments starting with our headline numbers. We have seen our Q1 revenue grow 16.5% over the previous year. EBITDA stood at around Rs. 113 crore with margins of 13.1% lower by about

Rs. 113 crore

ne numbers. We have seen our Q1 revenue grow 16.5% over the previous year. EBITDA stood at around Rs. 113 crore with margins of 13.1% lower by about 330 bps. Crop care growth and margin is on a healthy trajecto

13.1%

Q1 revenue grow 16.5% over the previous year. EBITDA stood at around Rs. 113 crore with margins of 13.1% lower by about 330 bps. Crop care growth and margin is on a healthy trajectory. Overall margins we

330 bps

over the previous year. EBITDA stood at around Rs. 113 crore with margins of 13.1% lower by about 330 bps. Crop care growth and margin is on a healthy trajectory. Overall margins were impacted due to lowe

Rs. 67 crore

ck liquidation and aging base provisions on seed stocks. Profit after tax for the quarter stood at Rs. 67 crore. Moving on to individual businesses starting with domestic business. We have seen a growth of 17

17.1%

re. Moving on to individual businesses starting with domestic business. We have seen a growth of 17.1% largely driven by better realization. We have undertaken median price hikes of 4% to 5% during the

a growth of 17.1% largely driven by better realization. We have undertaken median price hikes of 4% to 5% during the quarter to offset the impact of higher raw material prices. We have witnessed vol

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Guidance — 20 items

Sanjiv Lal

opening

“We expect the channel stocks to narrow down closer to last year's level by H1 end.”

Subhra Gourisaria

opening

“We continue to remain cautious in our seeds business and we are hopeful that we will be able to address the portfolio issues in the coming years.”

Subhra Gourisaria

opening

“We are awaiting final approval from the regulator, after which we hope to commence the trials in this financial year.”

Subhra Gourisaria

opening

“To conclude, while we have started the year on steady note, we expect business to pick up pace H1 onwards, especially on margin fronts on the back of new capacities, new product launches, better product mix, and a wider distribution network.”

Subhra Gourisaria

opening

“We expect the margin trajectory to start improving as several raw material prices cool off and our capacity utilization in the plant starts to improve.”

Subhra Gourisaria

opening

“And our efforts will ensure more resilient and profitable business going forward.”

Aditya Jhawar

“So should we expect the run rate that we saw in June will be further built on?”

S Nagarajan

“So, we expect to continue on a reasonably good trajectory as far as exports are concerned.”

S Nagarajan

“I would say that we will be fairly close to getting those kinds of numbers, but it cannot happen month-on-month as you would appreciate it also depends on the season and the phasing of the business at the customer end.”

S Nagarajan

“We expect that the situation to be fully normalized only towards the end of the calendar year.”

Risks & concerns — 11 flagged

Uneven spatial distribution, however, is a concern with 53% of the districts receiving deficient or large excess rainfall.

— Sanjiv Lal

We have undertaken median price hikes of 4% to 5% during the quarter to offset the impact of higher raw material prices.

— Sanjiv Lal

We continue to remain cautious in our seeds business and we are hopeful that we will be able to address the portfolio issues in the coming years.

— Subhra Gourisaria

Domestic business had a growth of 17.1%, primarily due to price hikes taken last year and during the quarter to partially offset the impact of rising raw material prices.

— Subhra Gourisaria

Price growth may come under pressure with raw material prices cooling off in some products.

— Subhra Gourisaria

So once the prices soften, while the volumes may still be there, the revenues may start looking lower because of the price changes.

— S Nagarajan

So this broad basing on the international business, in my opinion, should diversify the risk emanating from a particular molecule going haywire in terms of margins.

— Sanjiv Lal

With the margin pressure in the current quarter, do you see that the current year seed business profitability will be impacted, and the chances of having losses or maybe almost nil profit in the current year?

— Sanjiv Lal

So just wondering if there might be some reasons for concern for the domestic season for the rest of the Kharif season remaining.

— S Nagarajan

We will see how it goes, because, as you know, it's always quite difficult to predict how the weather conditions turn.

— S Nagarajan

In Maize, we have a challenge in terms of the portfolio that we have for the Rabi Maize.

— S Nagarajan

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Q&A — 13 exchanges

My first question is on export business. You highlighted that in June month, we did a record month of Rs. 100 crore. So was there a lumpiness because of some season? Secondly, you also mentioned that Metribuzin the capacity will come in Q2. So should we expect the run rate that we saw in June will be further built on? And if you can elaborate on what has been the trend in Metribuzin prices and raw material? And last question on export is that in the last call you had mentioned that Pendimethalin was facing some issue of raw material shortage, has that been sorted out? So these were the questio

Sanjiv Lal

Yes, in fact, I would say that the exports business has been doing well for the last couple of quarters. And there has been a volume increase as well as we've been able to take some price increases. So, we expect to continue on a reasonably good trajectory as far as exports are concerned. While the Rs. 100 crore in the month of June is a good milestone to achieve. I would say that we will be fairly close to getting those kinds of numbers, but it cannot happen month-on-month as you would appreciate it also depends on the season and the phasing of the business at the customer end. So, we will se

Just continuing the earlier question, I mean, I think Naga mentioned that roughly Y- o-Y increase is 10% in the domestic crop care segment and you have delivered 17% so actually volume growth is in the range of 6%, 7% that’s the implication from these numbers. So actually it is the very healthy growth, I mean, considering that because the challenging weather I mean and I know that a lot of is placement, but still it seems like a very healthy growth on your part and the placement is slightly higher compared to industry. So is it true to assume that you're looking to kind of improve your market

Sanjiv Lal

is very important, but also we are getting reasonably good traction from the smaller markets as well. Naga, would you like to add something? I think, what you said is what I just want to reiterate, yes, I think we will be increasing the portfolio. We will be increasing the markets that we will be selling to and we will be increasing the proportion of formulations in the overall international or exports revenue. All of these are part of our strategy what we articulated also some time back to stabilize the margins and even improve them. And on Metri just to clarify, we have built a capacity whic

My first question is, again on the international business. So, one, in terms of the supply chain challenges are those alleviating? And will that have an impact from the supplies coming from competitor? And what gives us the confidence that second half or rather Q2 onwards international business will certainly perform well? Is it some POs that we have or customer commitments that we’re currently having? On the supply chain front, I think, if you compare between, let's say, December end, December ‘21 end and June ‘22 end certainly we could say that things are looking a lot more sanguine than wha

Management

A couple of questions from my side, first on the high-cost inventory which we are mentioning about Metribuzin or the high-cost RM. In March, the total inventory was around approximately Rs. 900 crore out of that how much would be the high-cost inventory which is currently sitting in the balance sheet? That is number one question. Number two in the international business, what would be the CRAMS contribution in this particular quarter and specifically in the June quarter? I mean, in the June month, what would be the CRAMS contribution? That is number two question. And third question is what wou

Sanjiv Lal

So, we would not like to specifically call out the CRAMS business from the exports business. And as far as the cost of inventory is concerned, Subhra, you like to add something on that? So the cost of inventory will progressively as we said, by the end of Q2 start unwinding and what we're talking about at a weighted average level, we should be by the end of Q2 be in a much more comfortable position in terms of margins are concerned. Okay. But sir, why I am asking this CRAMS business specifically, because I believe last year, majority of the CRAMS business contribution was diminished significan

Sir, first question on the June export, so was the jump from because of any specific geography or specific molecules are being exported in this month?

Sanjiv Lal

Yes, we've had a good off take for most of our products, including acephate. So I would say it's balanced. The only product where we have not really had the kind of traction is on Hexaconzole, this is also not the season for the key market in which it goes. We expect Hexaconzole volumes to also look good towards Q2, Q3. Sir, my second question on this export only you mentioned, you are focusing on the formulation side. So what is the current mix of formulation in the export? And what's the target maybe by next year you want to achieve? Well, I think in terms of the mix it may be around 20% So

Sir, my question is on our seed business, because it's a very seasonal and Q1 is a very heavy and a lot of profit is loaded in the current quarter itself in Q1. With the margin pressure in the current quarter, do you see that the current year seed business profitability will be impacted, and the chances of having losses or maybe almost nil profit in the current year? Or you see that Q2 can pick up in terms of some of the improvement in EBITDA and margin wise? I think it is going to be a challenging year for us. Normally, Q1 is the quarter where most of the heavy lifting is done. And based on t

Rohan Gupta

So, sir, would it be possible for you to quantify the kind of write downs we have factored in the current quarterly in seed business inventory write downs? It's Rs. 13 crore for the quarter and this is not a write down this is a provision. So we've taken a provision of Rs. 13 crore. Sir coming on our export business definitely you mentioned that one of the best month ever seen in the history of the company with Rs. 100 crore kind of turnover. Still, we see that our export business in terms of the utilization level and in both in formulation as well as technical plant, can you just give some nu

Just a couple, you alluded to the flooding and excess rainfall in our large part of the country, especially in Southern India. So just wondering if there might be some reasons for concern for the domestic season for the rest of the Kharif season remaining. If you could please just share your perspective on that? Actually, we were referring to some parts of the country where there has been excess rainfall, as you know Northeast was quite badly affected. But at this stage, it is very much looking positive. Certainly the last 15 days of rainfall has been good. There have been places where the rai

Management

Broadly on your export and international strategy, if you could help us understand how you're thinking on this space in the next two to three years? You did mention that you are taking registrations in Brazil for acephate. The next couple of years, if you could give us some idea, how should we think you will be adding more capacity here or also you will be focusing more in terms of registration directly in that sense, if you could help us understand that? Yes, , actually what we have mentioned in the past also, currently, if you look at a crop care business, both domestic and international, ab

Sanjiv Lal

And apart from that, I had also alluded to our formulations that we are applying for registration in many more countries, some of the products that we have are good for other countries as well. So we are working on that as well. So we will be looking at 60-40, 60 domestic, 40 exports portfolio, maybe three, four years down the line. Okay. The domestic business is obviously erratic and rains play a bigger role in it, but wanted to understand specifically would we deploy more capital in terms of adding more capacities, any CAPEX number that you can probably, at least, in ballpark that you will b

Sir, my question is related to seed business, we were working on developing multiple new seeds since our largely dependent was on the Cotton seeds and now we have already started Paddy. So can you give some more color on the seed business how we are looking from two three year's perspective? So actually if you look at our portfolio, we've got largely our business coming from field crops and amongst the field crops the biggest revenue is coming from Paddy only. And we have Millet, we've got Cotton, and we've got Maize. So, these are our key field crops we of course do small amount of Sunflower

S Nagarajan

So, this has done better than our expectations in terms of off take from about 20,000 packet which we sold last year, this year we are looking to close at about 1.75 lakh packets. This is small, but for us it is big. Small in the sense of the total industry, which sells close to about 400 lakh packets. So out of 400 lakh packets, 1.75 lakh packets is very small, but for us it is very good development, because it's giving acceptance to the segment in which we have positioned this particular hybrid. Do you like to add something more Naga? Yes, I think you commented, Sanjiv, maybe just I would sa

Yes, I just had two questions, first is on the RM part, so post the price increase which we have taken in the domestic business and you also kind of alluded that the raw material prices easing. So the under recovery in terms of raw material cost is by and large through in domestic business or any perspective, you can share that? And second is, earlier to one of the questions of one of the participants, you said something on 20% I just couldn't quite get it. What was it related to?

Sanjiv Lal

Yes, this 20% was related with the proportion of our formulation business in the export portfolio, And you had alluded to this question on under recovery and RM prices, what we mentioned is that we would see this getting corrected towards the latter part of Q2. Okay. So this 20% is as of today as we speak, the formulation. Yes. International and as the registrations, which you have got in Brazil this will over a period of time should increase? Yes, 20%, 22%, 24% that could be okay, because our overall export portfolio will also grow. So, having a reasonable proportion of formulations will be a

The first question is on the cost side, your other expenses have gone up pretty sharply. So what is the kind of trend we should see for your other expenses for the year?

S Ramesh

See, other expenses is composed of various elements. One big part of it is freight and ocean freight and inland freight, which is both volume linked and also for the steep inflation we have seen both on diesel hikes and also ocean freight that will continue to see an increase. The rest of it is because other expenses it's a semi variable cost some components of it will be variable, some are fixed. So to that extent, there may be a reduction going forward. But it all depends on how the external factors in terms of freight etc., play out. And the second thought is on the target for exports and t

My question is, currently crop nutrition businesses contribute around 5% to 6% of our revenue. So, anything is coming from the export market or is completely from domestic market?

Sanjiv Lal

Crop Nutrition is presently entirely domestic. But there are some opportunities in the neighboring countries that we are exploring. So there could be some export, but very small in the near future.

Thank you. As we had started on a positive note, I must also end on a positive note. The overall sentiment for monsoons is good and agriculture has started showing progress during July. We are in the midst of the liquidation season for our crop protection portfolio. And all efforts are on to ensure successful liquidation of our products, including our seeds business, and we are working to expand our business in the international markets as well. Agrochemical industry witnessing significant volatility in prices and we will continue to work in agile manner to navigate the same by taking market b

Management

Speaking time

Sanjiv Lal

Moderator

Subhra Gourisaria

S Nagarajan

Viraj Kacharia

Saurabh Kapadia

Amar Mourya

S Ramesh

Gavin Desa

Aditya Jhawar

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Opening remarks

Gavin Desa

Thank you. Good day everyone and thank you for joining us on Rallis India Limited’s Q1 FY23 earnings call. We have with us today Mr. Sanjiv Lal - Managing Director and CEO; Mr. S. Nagarajan - Chief Operating Officer; and Ms. Subhra Gourisaria, Chief Financial Officer. Before we begin, I would like to mention that some of the statements made in today's discussions may be forward looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation. I now invite Mr. Lal to begin proceedings of the call. Over to you, Sanjiv.

Sanjiv Lal

Thanks, Gavin, and good morning, everyone. Thank you for joining us on our Q1 FY23 earnings call. I have along with me, Mr. Nagarajan, our Chief Operating Officer, and Ms. Subhra Gourisaria, our CFO. I will begin the discussion with a brief overview of the industry before I move to Rallis specific developments. On a sectorial level, as most of you are aware we had a slow start to the monsoon till July first week. However, the monsoons have picked up with cumulative rainfall being 11% above normal till 13th July on an overall basis. For the season up to July 13th, 30 of the 36 subdivisions have received excess or normal rainfall with a cumulative range of 306 millimeters against a normal of 275 millimeters, which is 11% above normal. Uneven spatial distribution, however, is a concern with 53% of the districts receiving deficient or large excess rainfall. Some key rice growing states like UP, Bihar, West Bengal have received very scanty rainfall this season. Region wise, while east and n

Subhra Gourisaria

impacted liquidation. We also witnessed segment shift patterns in the Paddy crop, demand for Cotton seeds was impacted due to delayed monsoon in Maharashtra affecting sowing activities and increased usage of illegal HT cotton seeds. However, we are pleased with the growth of our new Cotton hybrid Diggaz in the markets of Punjab and Rajasthan, where we have increased our volume to 1.75 lakh packets, from about 20,000 packets last year. Notwithstanding the growth we saw in Diggaz, the seeds environment was challenging due to segment shifts. We have revised the strategy for the business with a greater focus on liquidation, cost optimization, and more robust evaluation of new product pipeline advancements. Work towards building our Rabi portfolio and scaling our presence in vegetable business is also progressing as per schedule. We continue to remain cautious in our seeds business and we are hopeful that we will be able to address the portfolio issues in the coming years. On the biotech fr

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