Best Agrolife Limited (539660) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Best Agrolife Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Today from the management side, we have with us Mr. Vimal Kumar, Managing Director; Mr. Surendra Sai, Director; and Mr. Vikas Jain, Chief Financial Officer. I would now like to hand the conference over to Mr. Vimal Kumar for his opening remarks. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. Thank you for joining us on the quarter 1 financial year '26 earnings call for Best Agrolife Limited. This monsoon, we observed a mixed season with most parts of India witnessing normal to above normal rainfall with the expectation of Telangana and Maharashtra. In certain regions, this variability impacted sowing activity. Despite these regular climatic variations, which is a fair year for agriculture. We are pleased to report that our newly launched patented product are performing well in their debut season. This quarter, we have a convertible steps to strengthen our sales performance from the group, given our path to the disciplined approach in sales, we are reducing inventories and improving margins. As per our expectations, we have seen a margin improvement on a lower base of quarter 1 revenue numbers when compared with year-on-year, quarter-on-quarter. We view this in alignment with our strategic decision to implement revised share policies with the aim to increase profitability, reduce excess placement and reduce inventory levels across the value chain and focusing on our patented molecules. We made a deliberate shift from early product placement to focus on more sales during this season. This, we believe, be a critical step toward building, a learner and more sustainable business model. While this has resulted in a dip in Q1 revenues, we see this approach towards positive outcome in terms of lower sales returns and lower inventories. In addition to that, this year's season is a little bit late, because of the monsoon delays in various states. Our patented formulations Shot Down, Potakin, Bestman, along with Hustler, Shiffler, and [indiscernible] under the Sudarshan Farm brand have received positive feedback from the field. Channel partners and farmers have found our products to be excellent. Over 5 lakh acres, coverage was achieved by Shot Down and Hustler in their very first season, which is again our patented molecule for the soybeans herbicides. Farmers are trusting our products and our innovation-based approach. Overall market feedback and sentiment to work the best and Sudarshan brands is positive. We received two new patents in quarter 1 both of which are novel insecticide plus fungicide combinations. One patent is for a novel formulation combining [indiscernible] by [indiscernible] or Dinotefuran and [indiscernible]. This combination offers a broad spectrum pest and disease control across key crops such as paddy, cotton, brinjal, groundnut, soybean. This formulation is designed to target multiple major pests like [indiscernible] and this is including blast and powdery substance. This second patent granted this quarter was for a unique combination of [indiscernible] tebuconazole. This combination can provide comprehensive management of white crops [indiscernible] and fungal infections like lead spots and blast. This product will be applicable approach a wide spectrum of crops such as chilly, soybean, maize, mango, pea and grapes. This quarter, we received new CRIM registration, which we call [ 93 ] CRIM registration for [indiscernible] which is 3-way formulation containing Spiromesifen, hexythiazox, abamectin. This product is useful against black flies and yellow mites. Our products Ronfen, which is an advanced combination of [indiscernible] Pyriproxyfen, and [indiscernible] is now approved for crop like chilly and cotton. This product targets aphids, black thrips, whiteflies, and jassids. Looking ahead, we remain optimistic about the kharif season. I'm confident in our ability to sustain momentum through a combination of product innovation, margin improvement and operational efficiency. Now I will hand over the floor to our CFO, Mr. Vikas Jain, who will take you through the financial highlights. Thank you very much.

Thank you, Vimal ji, and good afternoon to all the participants. Let me walk you through the key financial and operational performance for Q1 FY '26. As mentioned, coming to the first point with respect to dip in the sales, there were various reasons. So the most important will be shaped by our strategic shifting sales policy, which deferred a portion of our order placements closer to the season along with the details mentioned by Vimal ji wherein there was a considerable delay in season, especially in the South and also our strategy to place less Ronfen during June and mostly to do it in cash sales closer to the season in the month of July and August. So these were the reasons that we will -- even explained in our earlier calls as well that were result in much lesser sales in June, but also that this will give a good benefit and a good quarter for Q2. So coming to -- despite this, the overall reduction in the sale was 25%, 27% year-on-year from INR 519 crores in Q1 FY '25 to INR 382 crores this quarter. We were able to maintain profitability and improve margin metrics a significant validation of our margin focused execution strategy for this year. Even though we believe that we will have much lesser sales returns this year, we have done provision for sales returns on a higher side on a conservative basis. So for this quarter, we have made close to INR 50 crores plus sales return provision which is there, even though we believe that this actual sales return will be much, much lesser than this. Despite the year-on-year dip in revenue, the company's profitability improved driven by a richer product mix and disciplined pricing. Gross margin stood at INR 111 crores with a margin percentage improving to 30% from 24% year-on-year. EBITDA for the quarter came in at INR 46 crores compared to INR 55 crores in the same period last year with EBITDA margin expanding by 140 basis points to 12%. Profit after tax remained stable at INR 20 crores, resulting in a PAT margin of 5%, up from 4% in Q1 FY '25. On a sequential basis, operating efficiency improved significantly with EBITDA margin expanding by 960 basis points and PAT margin improving by 1,300 basis points, highlighting a strong turnaround from Q4 FY '25. We believe the implementation of our revised sales policies will yield clear benefits with a significant reduction in sales return in the upcoming quarters, contributing to improved inventory hygiene and enhanced profitability. Strategic restructuring across regional operations have also led to reduced operating expenses and tighter cost control. Our pivot towards in-season execution continues to prove effective, enabling us to respond more accurately to real-time demand, minimize exposure to excess placements and enhance working capital efficiency. This has resulted in much lower sales return in this quarter itself. So last year similar quarter, we had close to INR 35 crores to INR 40 crores return whereas during this quarter, it was only INR 13 crores. Looking ahead, we anticipate a revenue pickup in Q2, aligned with seasonal trends and delay kharif sowing. We are targeting a conservative annual revenue for FY '26, '27, which can be in the range of INR 1,600 crores to INR 1,700 crores with an annual EBITDA margin expected to exceed 15% plus. We expect our strong margin profile to be supported by the growing contribution of patented high-margin formulations. So for this quarter, our patented portfolio within the brand sales was close to 45% as compared to 29% last year. Accordingly, we see -- we foresee continued improvement in the operating leverage as a result of optimized fleet operations and more efficient marketing spend. These factors collectively position us for sustained growth and profitability in the coming quarters. In closing Q1 results underscore our ability to deliver profitability and margin expansion, even in a transitional phase, we are confident that the operational foundation late this quarter will translate into stronger performance in the coming quarters. I will now hand over the call to Mr. Sai, who will take you through the international business highlights.

Thank you, Mr. Vikas for the update. We thank you for your efforts to improve margins through financial discipline. We continue to work on developing the international business segment. We have successfully completed 3 assignments to an African nation with advanced payment terms. And we are expecting repeat business based on our service and quality. We have received interest in registration of patented products in African countries, which is including for us Ronfen, and we will be pursuing registration with our customers. Looking ahead, we are looking to register nano urea as well as biofertilizers and biostimulants in Mauritius, which happens to be a gateway for the neighboring African countries. The registration process for our patented products has been initiated in Srilanka while the export registration for nano urea is underway in Australia, where we have an approved label. Customer and field demonstrations are ongoing as we speak. We have ongoing trials of our products in countries like Thailand and Cambodia. Additionally, we are commencing the registration process for our patented formulations in South America, starting with Bolivia and Brazil. Our active ingredient and formulations are also progressing through the registration in multiple countries, including Taiwan, Mexico, Thailand, Srilanka as well as other global regions. We have made global filings for patents during this quarter in jurisdictions, such as U.S. EU, UAE, Brazil, Vietnam, Egypt, Indonesia and others, reinforcing the company's focus on innovation like the international growth. The technical manufacturing unit strategy is aligned with these global potential markets. With this, I will conclude this short update. We thank you all for your participation and time to attend this quarterly earnings call. We now welcome your questions. Thank you.

[Operator Instructions] The first question is from the line of Hemant and individual investor.

Sir, my first question is related to just sales for this quarter. I understand that we are trying to stabilize our branded sales. But in this space, why aren't we not concentrating on technical sales to be on par with our business. This point, I'm not understanding.

Thank you gentleman for your question. Yes, definitely, your question is relevant when we have brand, we are changing some positive in the brand business and we are doing some big change in the brand business. So because that is mainly -- because last year and last to last year, we have learned, because each 4 quarter, the first 2 quarters is very strong, the next 2 quarters sometime, because of sales return, because of many things. But definitely, we have changed that policy. And now come to your question like why we are not into the technical sales. Definitely, technicals we have, we are also selling some technical -- but the main thing, technical doesn't have that much of margins. If you see our total margins is around 29%, 30% as a gross margin. We talk about the technical sales, their margin will be very less. So we are now moving towards a profitable organization rather than to keep it only the sales revenues. That is our idea for this year.

And sir, we were supplying this Ronfen to other B2C players, right? 5 to 6 B2C players and they were selling this product with their brand name. So when will you start supplying other patented products to other B2C players.

Definitely because any new product, either we have very great product. If you see in the agrochemical industry, there is any of the company, whatever they bring either in MNC, an Indian company or any of the companies, when they bring any molecule, it need tested, trial with the commercial use of that product, then only farmer have confidence, dealer distributor have confidence. So of course, in last 4, 5 years, we have many, many new products, which is really, really commercially very good for the farmers as well as for the distributor dealer, a good margin they are having on this. And they have, of course monopolies, because of our patented products. So in this way, if you see to give to any B2C, B2B plan for this [indiscernible] principle to principle sales, which we are talking. In that way, we are not in very hurry, because first, we have to establish and make it as a big brand in the farmer and distributor, then only we will give to some of the co-partners like big companies, because many small companies, many midsized companies asking us, but we are always aiming for the MNC company like that. That is the only reason.

But this will happen in coming years, sir?

Definitely. Definitely it will come.

Sir, and most of the patents, whatever we have today, those were mostly used in chilly and cotton, right? So if we see the cotton acreage in Q1, it was down 3% year-on-year and sentiment for chilly is also very, very bad this year, particularly in South India. So how do you see Q3 and Q4 this year?

Definitely, your question is relevant, of course, and you have good knowledge about the agriculture. Happy to answer you. This is quarter 1 generally don't have any kind of sales in South India. That, of course, because we are aware about some right information. Quarter 1 doesn't have any kind of good sales in the South India. Definitely, it will go in Q2 and mainly in Q3 and that we are balancing. And in my commentary also I said we are not doing any kind of dumping. We are not giving any material to any distributor dealer for sale, just we are selling whatever we are selling. So that is where we have changed. And definitely, chilly prices have some issues in the market and cotton acreage is less, but that doesn't make any big difference because market still has a big scope for both the product and change.

Is this the main reason, sir, for decreased target of our top line this year or any other?

Not at all Mr. Hemant. This is not like that way because our total market share, not that big, that will influence directly not at all.

Sir, whatever sales return number you told for Q1, can you repeat that, sir? I could not understand in your commentary.

Just to add on the previous point, our sales are down by close to 27%, our patented portfolio compared to Q1 '25 is higher by 14%. So you can understand the patented portfolio keeps on growing. The other material, the other differentiated [indiscernible] product, which we used to place it earlier, those we are doing now in Q2. Otherwise, the patented product has gone up by 14% this quarter compared to previous quarter. And for the sales return, last year, we had sales return of close to INR 35 crores to INR 40 crores in Q1. And this quarter in Q1, we have only INR 13 crores.

INR 13 crores. And there is a provision of INR 15 crores, right?

The provision what we are making...

INR 50 crores. We are hoping that that will not come and that provision will have to reverse.

What happens is the auditors have to have averages of whatever has happened in the previous history. Now since we have changed the policies this year, the history doesn't support to say that, okay, we are going to get lesser. So we have been forced to keep a little higher sales provision, but we are confident that our lesser placements and sales closer to season will help us to have much, much lesser [indiscernible].

Sir, one last question from my side. If you compare your B2C revenues for your distributors with competitor, it seems to be very less on year-on-year basis if they compare to other companies like Dhanuka Insecticides. So where do you see this number moving towards maybe in the next 2, 3 years?

What was your first sentence what you mentioned?

Whatever sales you are doing per distributor per year, if we compare that with other listed players like Dhanuka Insecticides they were doing more than INR 20 lakhs per dealer per distributor per year. If we see our branded revenues, we were doing only INR 10 lakhs to INR 12 lakhs per distributor per year. So where do you see this revenue going towards maybe in the next 2, 3 years?

Yes, Mr Hemant ji. you have right information. Definitely, this company have little generic product, which is accepted by farmers long back like 40, 50 years. And what we are doing that is mostly patented molecule and which is different kind of product and kind of revolution, I would say, which some Indian companies are doing like us and definitely, I will not say the name, of course, all companies have their USP and they are doing well in the area. But if we talk about the Best Agro, definitely where our total sale is INR 10 lakhs, INR 12 lakhs per distributor average is coming, definitely it will grow too much. Because if you talk about total number of customers, we have hundreds of customers which they are doing more than INR 1 crore sales per distributor. That level we have as of now. But definitely, gradually it will grow in the next 2, 3 years, definitely it will grow.

Okay. Sir, there is a lot of commentary about international business also. So where do you see Best Agro maybe next 5 years in terms of revenues?

Thank you for this question. I really appreciate. I'll just give a little background on this. While we see that the Indian internal consumption business is great, we also see that there is a potential that needs to be exploited across the world. And the reason is that there are good products that we are doing, a, in terms of the patented formulations. And b, also to be able to support our patented formulations, what we have been doing is to be able to align the technical manufacturing for these products. And to be able to do that, we have been identifying new processes for off-patent molecules and to be able to create a portfolio of technicals, which will be useful for our patented molecules as well as across the world. So for this, as you know, this is a heavily regulated field where multiple registrations are required. Registrations are required for both patented molecules, which come under the category of new molecules as well as the technicals, which these are just off patented and very new. Some of the technicals that we are working on are right now yet to be registered in large geographies such as EU. So over the next 4 to 5 years, we do feel that there is a great potential for this. In terms of an absolute number, it would be a little premature to be able to make any prediction. But we do hope to see that this will be our strategy and it will contribute to a percentage of our revenue in the next 4 to 5 years. We are very hopeful on that, and we are taking all the relevant and reasonable steps to be able to meet this particular goal and achieve.

The next question is from the line of Nishant Bhat from Equity Works Limited.

First of all, I want to congratulate the management on the improvement in margins. And if I understand right, sir, we have actually recalibrated our business model from a push to pull model. And that's why we have been -- there has been a decrease in revenues, right? because of the focus on patented, it takes a little bit of time to have a ramp-up -- and if I just wanted to ask this question that in the coming next quarter, I think even in that quarter, we should see a little bit of reduced revenue compared to previous year, because of this recalibration, which we have done in the business. Is my understanding right, sir?

Yes, Mr. Nishant, yes, [indiscernible] your question is relevant. When you see there is a Q1 decrease in sales, so you can say another quarter how it will be. But in our understanding, what we understand from the market that we learn like how we change because earlier, any company, if you talk about Best Agro of any company, generally, they took placement in quarter 1. Directly, if you talk about insecticide and fungicide, there is no direct sale in Q1 in entire India, only except some vegetable [indiscernible]. If you talk about there is no direct consumption at the farmer end in Q1. But if you talk about all fungicide, insecticide and of course, some of the herbicide like I told you, Shot Down, that also [indiscernible] in the July only. Again, it will be the quarter 2. So if we delay and we are not placing that material in quarter 1, it doesn't -- in my understanding, it doesn't make that much of difference and that sale has to come in the quarter 2, which is not coming in quarter 1. That is my understanding. .

No, I understood sir, because see this was a management's decision, right, to -- because the first model we were kind of pushing sales and now we are going into improving the quality of earnings -- that's why we have been focusing on patented products and everything. Like I think the rewards of what we are doing should be actually visible in FY '27 onwards, if I think that's where the business is going. This particular year should be a little bit muted compared to the previous year because of the change in the model. Even though quarter-on-quarter, there might be some improvement, but the actual growth will start coming onwards of FY '27. Is that understanding right, sir?

So for this year, what will happen is one, there will be a recalibration of our top line over the quarters. For example, as we just mentioned, Q1 was heavy because of placements, which we are not doing. So there will be recalibration because in Q3 and Q4, there used to be huge sales returns, which used to reduce our sales drastically. So you might see different numbers coming. So it might be possible that Q2, we might be similar or a little lesser than previous Q2. But still for full year, even though we will not have the growth, but what we will have is a drastic increase in our gross margins and a huge improvement in our profitability. So the impact will start seeing this year itself, because once we have much lesser sales return, it will give an immediate impact on the cash flows as well by way of lesser inventory where we can manage our inventory as well. Otherwise to push much heavy inventory, we had to bring a lot of inventory earlier and then wait for the season to happen. But now we are buying just closer, not even buying, but selling closer to the season. So sales return also expected to be lesser. So there will be a huge improvement in the gross margin and the profitability. This is what will happen. And with respect to top line, there will be recalibration of the top line throughout the quarters.

Okay. Okay. So basically, the thing is like -- in Q3, usually, there was the seasonality in Q3 usually is a little bit subdued. But going forward, that will change if I'm getting it right. And plus, there will be -- obviously, there will be improvement in gross margins. But even on a listing basis, revenue basis going forward, there shouldn't be significant dip in Q3.

Absolutely, you are watching us study [indiscernible]. Thank you for time. And subsidiary, what your observation is, I would say, it will be really, really, I would say, you are saying correct because in other sense, if you'll see, generally, what we sold in quarter 1, we got some sell it in the quarter 2, what we sold in quarter 1 and quarter 2 or quarter 3, you can see that last year was badly impacted because of all the reasons. So this year, we are just keeping it for the -- again and again, our [indiscernible] mention that inventory management and our cycle of the payment cycle debt side, that we are improving. And for that, somehow for 1 quarter, we have to do that. But according to the seasonality and the demand of our products, that has increased a lot, and that will impact you can see in quarter 2, quarter 3, and of course, in quarter 4 also. So we are balancing this year rather than two quarters very good and two quarters bad. So definitely, this year would be better for the company that we can see.

Okay. Okay. Now, that clears a lot of questions. Another point I wanted to ask is you have received an award also this year in that chemical synthesis, right? Congratulation on that front because your focus on R&D is improving. Currently, how many scientists do we have in our R&D team.

As of now, if you talk about scientist, there are two kind of scientist like one, we talk about the synthesis and the technical or maybe backward integration, then we talk about N minus 1 [indiscernible] in that area, we have around 45 number which are really highly qualified and most of are PhD. And if you talk about that level of -- and we talk about the formulation where the patented molecule, there are more than 26 people which are working for the formulation of this. There is 2 different kind of R&D.

The next question is from the line of Saket Kapoor from Kapoor & Co.

So my first question is for Mr. Jain. When you are referring to the number of turnover at INR 1,600 crores to INR 1,700 crores what are you factoring in -- in terms of the actual money sales returns for the year, how do we arrive, come to this number?

See, last year, one, we are expecting that our new products, which has already shown that there is a good acceptance, so for our other products, which are differential or generic products, where our sales will be a little lesser. Why? Because we are not pushing too much of those products. So we believe our patented product -- portfolio will go up. The other portfolio because we are expecting our sales team not to push too much and not to take sales return, they might be a little hesitant in placing full fledged, but there will be a little lesser sales return. So we believe even though our patented portfolio will go up, the other generic portfolio will go down a little bit. So we might be similar revenue or a little lesser. That's why we are giving a guidance of INR 1,600 crores to INR 1,700 crores. And for sales return since last 2 years, we have been facing this issue of anywhere between 20% to 24% of sales return. So this year, our target is not to have more than 10% to 12%. So we want to just about how far sales return from previous years. And that is why the huge change in policies is what we have done this year to correct the issues from last year.

Okay. So 10% of it, that means we are closer to, say, INR 1,700 crores, INR 1,800 crores that is factoring in 10% comes down to INR 1,600. That could be a fair assumption that you are factoring in?

INR 1,700 crores is after reduction of all those taking considering the sales returns. The previous we have INR 1,800 crores is after reducing almost 20% plus sales returns. So this year, we are seeing a INR 1,700, which is after reducing the 10% sales, but this will be much better because we have much better control over the inventory and profitability.

Jain you maintained EBITDA margin of 15%, whereas for the first quarter, we are at 12%. So do you think that overall on the remaining 9 months, our margins will improve higher than 15%, so that the average comes out at 15%. Is that understanding correct?

Yes, yes. So an example, as we said Ronfen, we didn't place much. So in Ronfen and other patented products, there are potentially is much higher. We were conservative in placing this in June. We're not placing much in June. So now all these sales happened this quarter. So this quarter, we'll see a huge jump in the gross margin as well as EBITDA much higher than 17%, 18%. So this will take care of the 15% plus for the year.