RALLISNSEQ2 FY'23October 27, 2022

Rallis India Limited

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Key numbers — 40 extracted

onsoon is well publicized. But just to recap, while the overall monsoon during the season remained 7% in excess of normal compared to the 1% deficit of the previous year, distribution remained errati

recap, while the overall monsoon during the season remained 7% in excess of normal compared to the 1% deficit of the previous year, distribution remained erratic with 13 subdivisions experiencing exce

ng, which was 1% lower compared to the previous year. Sowing activities, notably rice was down by 4% year-on-year. Pulses was down 6%, Oilseeds down by 2%, while Coarse Cereals was up by 5% and Cotto

to the previous year. Sowing activities, notably rice was down by 4% year-on-year. Pulses was down 6%, Oilseeds down by 2%, while Coarse Cereals was up by 5% and Cotton sowing was higher by about 6%.

Sowing activities, notably rice was down by 4% year-on-year. Pulses was down 6%, Oilseeds down by 2%, while Coarse Cereals was up by 5% and Cotton sowing was higher by about 6%. Despite uneven distri

s down by 4% year-on-year. Pulses was down 6%, Oilseeds down by 2%, while Coarse Cereals was up by 5% and Cotton sowing was higher by about 6%. Despite uneven distribution during the monsoon season,

31%

Rallis specific developments, starting with our headline numbers. We reported a revenue growth of 31% over the previous year, driven largely by our international business. Performance of domestic bus

Rs.118 crore

spraying activities, in turn, leading to a lower volume growth. EBITDA for the quarter stood at Rs.118 crore, leading to a margin of 12.4%. Margins has improved versus last year due to the higher growth. PB

12.4%

to a lower volume growth. EBITDA for the quarter stood at Rs.118 crore, leading to a margin of 12.4%. Margins has improved versus last year due to the higher growth. PBT margins are lower with respec

Rs.71 crore

e able to maintain our margins through a focus on mix and pricing. Profit for the quarter stood at Rs.71 crore against Rs.56 crore during the corresponding period last year. Moving on to individual businesse

Rs.56 crore

ur margins through a focus on mix and pricing. Profit for the quarter stood at Rs.71 crore against Rs.56 crore during the corresponding period last year. Moving on to individual businesses, starting with dom

1.7 lakh

has seen a sharp pickup in volumes on a year-on-year basis. While the overall numbers are small, 1.7 lakh packets we sold versus 20,000 packets in the previous year. Another positive development is regul

Guidance — 20 items

Sanjiv Lal

opening

“Furthermore, we have started trials on Maize in Karnataka and hopeful of commencing trials on Cotton in the subsequent Kharif season next year.”

Sanjiv Lal

opening

“remain In terms of contract manufacturing segment, we expect PEKK shipments to commence from Q4 of FY2023, after a gap of 2 years.”

Sanjiv Lal

opening

“To conclude, we expect the business to pick up pace in the second half of the fiscal.”

Subhra Gourisaria

opening

“Despite external challenges, we continue to make steady progress in our attempts towards introducing new products, both 9(3) and 9(4), and expect the momentum to continue during the year.”

Subhra Gourisaria

opening

“We may see more of such effects coming during the course of the year, as we streamline the operations and recognize such provisions so that the business can become more focused on new portfolio going forward.”

Subhra Gourisaria

opening

“Going forward, growth could be largely volume-driven as realizations may trend lower with raw material prices cooling off.”

Subhra Gourisaria

opening

“However, the release of cash from operations, we expect the cash flow situation to gradually improve.”

Subhra Gourisaria

opening

“To conclude, I would like to reiterate that we are undertaking requisite steps towards growing both our business, domestic and international, new product launches, local sourcing of raw materials, scaling up of capacities and wider distribution reach positions us well to grow our business and improve overall profitability going forward.”

Aditya Jhawar

“But the one thing to add on that, do you expect that situation to start improving from this quarter and in second half of the year and going into the next few quarters into the next financial year?”

S. Nagarajan

“So to that extent, you would expect the crop economics to be quite favorable.”

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Risks & concerns — 15 flagged

Key Paddy growing states in Eastern India, UP, Bihar, Jharkhand and West Bengal received deficit rains, leading to a decline in sown area.

— Sanjiv Lal

Given the overall challenge of delay in monsoon and poor cash flow in the market, our collection days have gone up.

— Subhra Gourisaria

Inventory has albeit been controlled, several actions, including optimizing production basis dynamic sales requirements, reduction of lead time across key materials and also lower impact of prices sitting in the inventory now.

— Subhra Gourisaria

So the impact of the high-cost inventory like what was mentioned, we have whittled down that inventory.

— S. Nagarajan

Prashant, the other thing which impact us when the raw material hikes are high, your percentage margin will always come under pressure because your pricing goes and sits in the denominator.

— S. Nagarajan

And lastly ma'am, internationally in which geographies are we seeing pricing pressure?

— S. Nagarajan

There is certainly some pricing pressure which we are seeing in Brazil.

— S. Nagarajan

But there has been pricing pressure for us at least in Brazil.

— S. Nagarajan

So what could be the impact of expected pricing?

— S. Nagarajan

So the pressure that we have seen is over and above the positive impact of currency depreciation or the currency depreciation impact is yet to come into our numbers.

— S. Nagarajan

So that makes it that much more difficult in terms of affordability of the farmers in those countries.

— S. Nagarajan

Otherwise, since our exposure to other currencies is almost negligible, except for dollars, it's almost negligible, we don't foresee any big concern there.

— Sanjiv Lal

If I just combine those two factors, the on-ground situation seems extremely difficult.

— S. Nagarajan

There are certainly pockets in the market where we are finding stress in terms of collections.

— S. Nagarajan

However, like it was mentioned in the opening remarks, we think that it is not something which is bound to create a risk from our point of view.

— S. Nagarajan

Q&A — 5 exchanges

Sir, can you bifurcate top line growth between value and volume?

Sanjiv Lal

So as we said, international business is largely split between both volume and value,. But domestic business, it was more price-led with volumes being in low single-digit. And, sir, for the Rabi season, cost-wise, do we have high-cost inventory vis-a-vis prevailing prices? Or we would be competitive enough vis-a-vis the current prices because prices have been trending downwards in China? So traders might have an upper hand if there's high-cost inventory. No. More or less, we have tried to work down our high-cost inventory,. So I think we are in a much better position today than what we were ma

So, how are we doing on the bio stimulants, bio fertilizers and bio seeds front where the next ESG environment, there is so much emphasis on the clean and carbon-free environment coming is our percentage revenue and in 5 years time, what do you see this being as a percentage of total revenue? in. What So actually, we are looking at biologicals as part of our Crop Nutrition portfolio within our Crop Care category. And this category has been growing quite nicely over the last 2 years for us. Even this year, the growth has been fairly decent. Almost 30% growth has come from this category of Crop

Faisal Zubair Hawa

And sir, how fast could we have higher teen ROE, ROCE metrics in Rallis? See, our ROCE in the short-term, obviously, is under pressure for the fact that we are investing in newer capacities, which will take some time to start delivering the full returns and also we spoke about that the working capital is at an elevated level. However, if you ask us our ambition, our ambition is definitely to be in high double-digit in terms of ROCE. Would it be possible like 3.5 years then? It's difficult to give a time horizon, but as the capacities start getting used up, the ROCEs will progressively keep imp

My first question is basically on the Brazilian market. If you can give me list of the product mix between herbicides and an approximate insecticides for the Brazilian market? So for us, the biggest product that we export into the Brazil market is Acephate and we have got registration for our Metribuzin formulated product in the Brazilian market. So Acephate is moving fairly well and our formulated herbicide formulation has also started picking up quite nicely. We see expansion of that in the next few years. We've also got registration of a formulated Acephate product where we will be starting

Subhra Gourisaria

It is hard to, call out that what is a specific margin difference because it depends on the products that we're selling. But overall, yes, the margins are slightly lower in the international market versus domestic market. But as and when we start improving our share of formulation business, we expect the margins to gradually improve. Okay, and secondly, in the international business, what is the current split of revenues between our own branded formulations, the contract manufacturing that we have recently started developing and the legacy business? On the contract manufacturing, we will not g

So, I just had one question regarding the EBITDA of the Seeds business. I wanted to understand what would the provisioning look like for the second half of the year for FY'23? And also what kind of EBITDA or the EBITDA loss that we have currently? What is the quantum of loss? If you could provide some range or some take for the years coming, as in for FY'26 or FY'25, if you could provide some range? And for the second half of the year, what is the kind of provisioning are we seeing? See, firstly, we do not give forward-looking estimates. It's difficult to give what the EBITDA would be. But Q3

Darshita Shah

Is there any number in mind? I guess the first half it was about Rs.25 crore. So is there any guidance that you can give me from this number? No, we are working towards it, because we have taken whatever was required at this point of time as part of Q2. So, we've already absorbed that hit, but we are working through the numbers and we'll come back maybe, say, sometime later. The next question is from the line of S. Ramesh from Nirmal Bang. So, we heard in Metribuzin at 60% and Pendimethalin at 20%, and you are having a plan to set up an MPP. So the growth numbers in terms of the international

How is it that we can create better value for the shareholder because we are now being quoted at a market cap to sales of almost 1.4x, which is like a commodity valuation, whereas what we are doing is clearly not a commodity? And secondly, as far as patents are concerned, how many patents do we feel that will come in our favor in the next 1 or 2 years? And how is the Metahelix acquisition really helping us in gaining more patents over the last 2 to 3 years? So in terms of the first question, I think from an operational standpoint, we are focused on trying to improve the performance metrics and

Faisal Zubair Hawa

And sir, this new Rs.850 crore Capex, will it yield to around Rs.1,000 crore revenue 2 years in? See, some of this has already got commissioned out of this Rs.850 crore and as Sanjiv mentioned, some of the bottlenecking had happened at lower cost, which has already started yielding in terms of returns. But Rs.850 crore to Rs.1,000 crore correlation is difficult to establish because the investments are across in different pockets. And what is our capacity utilization in this quarter 2 at all the plants combined? the utilization for example, our Acephate plant, Well, is 100%. Pendimethalin has b

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Speaking time

Sanjiv Lal

Subhra Gourisaria

Moderator

S. Nagarajan

Faisal Zubair Hawa

S. Ramesh

Prashant Biyani

Aditya Jhawar

Somaiah V

Darshita Shah

Opening remarks

Sanjiv Lal

I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir. Thank you. Good day, everyone and thank you for joining us on Rallis India Limited's Q2 FY'23 Earnings Conference Call. We have with us today, Mr. Sanjiv Lal, Managing Director and CEO; Mr. 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 result presentation shared with you earlier. I now invite Mr. Lal to begin proceedings of the call. Over to you, Sanjiv. Thanks, Gavin. Good morning, everyone. I have alongside with me Mr. Nagarajan, our Chief Operating Officer and Ms. Subhra Gourisaria, our CFO. We will start with a brief overview of the industry, before I move to Rallis' specific developments. On an industry level, Q2 was a c

Subhra Gourisaria

positions us well to meet the requirements of our customers, both locally and globally. With that, I'll now request Subhra to give us the detailed financials. Over to you, Subhra. Thank you, Sanjiv. Good morning, everyone, and thank you for joining us today for our Q2 earnings call. Let me quickly walk you through our financial performance for the quarter, post which we shall commence the Q&A session. Starting with the top line, our revenues for the quarter stood at Rs. 951 crore as against Rs.728 crore generated during Q2 FY'22, which is a growth of 31%. The growth was largely driven by the strong performance of our Crop Care business. Domestic business registered revenue of Rs.608 crore, higher by 18.2%, primarily due to the price hikes undertaken earlier during the year. Volumes during the quarter were largely benign as far as domestic business was concerned, as erratic monsoon resulted in lower spraying. International business reported a growth of 67.4%, led by both volume and valu

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Rallis India Limited

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