Dhanuka Agritech Limited (507717) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Dhanuka Agritech Q4 FY '20 Earnings Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Manish Mahawar from Antique Stockbroking. Thank you, and over to you, sir.

Thanks, Janice. On behalf of Antique Stockbroking, I would like to welcome all the participants on the call. From the management, we have Mr. M.K. Dhanuka, Managing Director; Mr. Rahul Dhanuka, Director, Marketing; and Mr. V.K. Bansal, CFO, on the call. Without further delay, I would like to hand over the call to Mr. M.K. Dhanuka for opening remarks. Over to you Mr. Dhanuka.

Thank you, Mr. Manish. Good evening, ladies and gentlemen. Hope you are all doing well and keeping safe. We welcome all of you to discuss the Q4 and full year FY '20 audited results of Dhanuka Agritech Limited. Myself, M.K. Dhanuka, Managing Director of Dhanuka Agritech Limited, I am joined today by my colleagues, Mr. Rahul Dhanuka, Director, Marketing; and Mr. V.K. Bansal, CFO. As you are aware that Dhanuka Agritech is a leading agrochemical company in India, the company's strength lies in the manufacturing of formulated products. The product portfolio is largely distributed across insecticides, herbicides and fungicides. Insecticides contributes a significant portion of the overall revenues and the company aims to ramp up presence in the fast-growing herbicide segment. Dhanuka Agritech is aggressively working towards the goal of transforming India through agriculture by initiatives such as doubling our farmers' income. We cater to all major crops in India and have implemented the best-in-class technology to ensure a smooth and efficient supply chain. We have adopted a rural FMCG model. To service the diversity of Indian crops and needs of farmers, the company has a wide range of products in its portfolio, over 80 grams -- in fact, sizes ranging from 2 grams to 200 liters. These products are in various forms, liquids, dust, powder and granules. We have a pan-India presence through our marketing offices in all major states across India. The 3 manufacturing units with 40 warehouses and a network of over 14 branch offices across the Indian geography, caters to about 7,000 distributors and dealers and around 80,000 retailers. Dhanuka have more than 1,500 techno-commercial staff, supported by a strong R&D division and a robust distribution network, which has Dhanuka to reach out to approximately 10 million Indian farmer touch points with its products and services. Dhanuka Agritech's R&D division has asked NABL Accredited Laboratories and has international collaboration with 9 leading global agrochemical companies from the U.S., Japan and Europe, which help us to introduce the latest technology in Indian farmland. As the revenues from operations during Q4 FY '20 was INR 227.57 crores, representing an increase of 18% over the corresponding period last year, and it was INR 1,120.07 crores in FY '20, which was 11% up over last year. EBITDA stood at INR 45.78 crores in Q4 FY '20, up 39% year-on-year, and it was INR 173.47 crores in FY '20, up 19% over last year. EBITDA margin improved from 17.1% in Q4 FY '19 to 20.1% in Q4 FY '20, and improved from 14.5% in FY '19 to 15.5% in FY '20. Profit after tax was at INR 39 crores in Q4 FY '20, up 46% compared to the corresponding period last year, and it was INR 141.47 crores in FY '20, up 26% year-on-year basis. PAT margin improved from 13.9% in Q4 FY '19 to 17.1% in Q4 of FY '20, and improved from 11.2% in FY '19 to 12.6% in FY '20. The Board of Directors has declared a 6% -- 600% interim dividend. That is INR 12 per equity share having face value of INR 2 per share, which has absorbed INR 68.83 crores inclusive of DDT in its meeting held on 13 February, 2020. The Board has decided to keep the interim dividend as its final dividend. The zone-wise share of turnover for financial year ended 31st March, 2020 was: North India, 25%; East India, 11%; West India 33%; and South India, 31%. Category-wise share of insecticides was 43%; fungicides was 15%; herbicides was 31%; and others, 11%. Thus, as per IMD report, last year monsoon was normal in the country and expected the same in the coming year, which has brought a smile on the faces of the farmer. The monsoon onset on 1st June in Kerala, and it is progressing very fast to the other states of Karnataka, Goa and other states. As per April 2020 data, the total summer crop area has increased to 52.7 lakh hectare from 38.64 lakh hectare as compared to the corresponding period in a year ago. The area coverage under pulses, coarse cereal and oil seeds has increased to 2,505 lakh hectares from [ 14.79 ] lakh hectare as compared to last year during the corresponding period. In view of the nationwide lockdown announced by the government of India on 24 March, 2020, to control the spread of COVID-19, the company's operations were temporarily disturbed at manufacturing facilities and sales depots across the country. This resulted in partial deferment of company's revenues from the month of March last week to the first quarter of FY '21. The company has resumed operations in a phased manner from the beginning of April as per government directives. Dhanuka Agritech was fast to implement various measures to protect employees, communities and operations to ensure supply chain was not impacted. We also encouraged known critical operations to work from home and carry out interactions electronically. The company adheres to social distancing norms across sites and the staff is encouraged to maintain 2-meter distance from co-workers and other stakeholders, who operate in and around the site. The company closely engages with suppliers, vendors and distributors to ensure that there is a minimum impact on business operations. The pandemic is expected to slow down overall business activity across key sectors in India. However, since our products fall under the essential category, we do not foresee any major impact to the business due to coronavirus pandemic. Although it is expected that the GDP degrowth may be to that extent of 3% to 5% in India, in FY 2021, it is expected that GDP growth will be around more than 3% from agriculture sector. So this is the factor from where GDP growth will be coming to India. Hence relationship with the domestic manufacturers and distributors has helped the company sustain inventories in the pipeline during the lockdown period from March to May 2020. The company will work towards engaging with all the participants across the value chain, both upstream and downstream, to deliver a strong kharif season and build a solid momentum for the remaining part of FY '21. The company has a strong pipeline of section 9(3) products, which should drive the revenue growth in coming years. I'm happy to share that Dhanuka has introduced 2 new molecules in June 2020 itself. One is Dabooch, 84% WDG. This is a herbicide. It's a pre-emergence herbicide for soybean crop. It has been introduced with the help of Corteva. Another product is Dozo Maxx, which is a herbicide for cotton crop. It has been introduced with the help of Godrej Agrovet. So these 2 herbicide has been introduced in this quarter. I'm hopeful that these 2 herbicides will also contribute in the top line and bottom line of the company. Thank you very much for your kind attention. We would now take the questions from you, which you may have. Thank you very much.

[Operator Instructions] We take the first question from the line of Rahul Jain from Credence Wealth.

And congratulations for a fantastic set of numbers. A couple of questions, sir. One, with regards to your new product launches, so the earlier quarter, you had launched Zapak and Mycor. And as you mentioned about the launch of other 2 products in this quarter. So in last about 4, 5 months, 4 products have been launched. So 2 parts to this question. One, if you could enlighten us on the opportunity size or the size of this product? And further, going ahead in next, say, 2 quarters or next 1 year, what kind of further product launches are you looking at? And second question is, sir, with regards to -- in the previous call, you had mentioned there are various initiatives you are working on both these past 2 product launches as well as the penetration and further marketing network, increasing your reach. So if you could spell out some of the new initiatives, which you had mentioned in the previous calls, there are certain projects which are under pilot stage. And you had mentioned in the earlier call that you would probably give us more details in this call. So if you could just try to share some more details about various initiatives being taken, which could help us to further grow for the next year or 2? For next 2, 3 years to come?

Thanks for your question. This is Rahul Dhanuka. In terms of introduction, Dabooch, which we have introduced, is a soybean and a groundnut herbicide, and it is a pre-emergent herbicide. Today, when the farmer is facing extreme shortage of labor due to the movement of migrant labor, this will be a very important product to help the farmer overcome his lead management in soybean and groundnut fields. The other product, which is Dozo Maxx is a premix product of Dhanuka's Targa Super for application in cotton and controlling both broadleaf and narrow leaf weeds. Cotton acreage is 10 million hectares in the country and soybean acreage is more than 11 million hectares in the country. And groundnut acreage is also quite substantial, which gives us huge space and opportunity to operate both these products aggressively in the changing landscape. I would just like to highlight that the overall agriculture landscape is changing for 2 reasons: One is conventionally farmer is moving towards use of more herbicide as he is looking to protect his yield; and second is due to the migrant labor. Absence of labor makes the weeding process really tedious and almost impossible. So there is already an increased trend of herbicide consumption as we have seen in Q1. So these 2 have huge opportunity I would say. We are not specifying the numbers in the call. Sorry about that. In terms of upcoming introductions, we are looking at 2 new fungicides coming in for grapes this year. These 2 introductions have been delayed now until last year, and we are looking at introducing these 2 fungicides for grapes very soon.

And sir, with regards to the new initiatives and increasing your reach and penetration?

Right. Thanks. I missed out that one. So that project is underway. I must admit that the lockdown reduced the face-to-face interactions and has pushed back the project by about a month or so, but we are absolutely committed, and we have used this time to improve on our blueprints. And we are going to hit the market aggressively with our each initiative.

So just a follow-up on the product part. So you launched 2 products, Zapak and Mycor in quarter 3 and further arise herbicide Chempa, which also Nissan had been launched. And further, you have launched 2 more products, as you mentioned just now. So those are total 5 products which have been launched in last 4 to 5 months. Is that right?

So the overall introduction starting from Chempa until now will be 7 products. So 5 products in last financial year and 2 products -- 2 herbicides, Dhanuka has already launched this financial year in Q1.

Sure. Sir, if you could just share the cumulative sales, which can be possible from these 7 products, not product-wise, but if you could share, what is the kind of potential of these 7 products, the incremental sales, which could be derived. If that could be shared, that would be helpful.

So I would say that the potential of these products is really very high. And collectively, if I put together the potential of all these 5 products put together, then this would be close to INR 400 crores, INR 500 crores.

[Operator Instructions] We take the next question from the line of Varshit Shah from Emkay Global.

Congratulations to the management for the fantastic quarter despite all the challenges. My question is on the margin side, the gross margin. I think we have -- this is the first quarter where our gross margin have actually accelerated the year's -- previous quarter same year in FY '20. So should I read this as a sign of raw material pressure abating? Or is it more of a function of a change in product mix? That's my question one.

Actually, it is both. You see, Q4 numbers are basically resultant numbers, because of [ alternate ] number minus the reduction of the all Q3 numbers, quarter 1, quarter 2, quarter 3. So which means what? We are making a provision of trial goods for the customers and purchase side as well. So that is why in Q4, at times, the margins are better, right?

Right. But I'm asking on a Y-o-Y basis. So that would have been true for last year also. So I'm saying on a Y-o-Y, our margins -- gross margins have improved by 84 bps. So this provisioning element would have been present last year as well. So that is -- I'm asking on a comparable basis?

That's right. That's right. So that could be the impact of product mix as well.

Okay. Okay. So all of it largely would be because of change in product mix or there was some benefit of raw material cooling also, especially after China resumed maybe in February?

It is both actually. It is both.

Fair enough. And second, my question is a continuation of previous question. So on the go-to-market initiatives, with new initiatives and what do you see in terms of key changes which you are making in your approach to the market having that even that you have been aggressive on the product launches, and I'm sure that getting all of these products in the market and if you're successful, would require some bit of different approach in marketing these products. So can you just put a bit so -- light more around that?

I would say that go-to-market is a critical piece after identifying and bringing in the right product and going through years and years of regulatory approval and registration cycle. It is go-to-market approach, which decides channel satisfaction, channel engagement with the company, and it is go-to-market which decides the consumer connect with the organization. At Dhanuka, we take this very seriously to engage with our consumer as well as with our channel. Our all-new launches are keeping in mind the market opportunity or the changing scenario. We identified that the farmer is going to significantly shift towards herbicides for one and pre-emergence herbicide for second. So last year, we introduced Chempa, which is our rice herbicide and especially for DSR, direct-seeded rice. And we were looking at direct-seeded rice increasing year-on-year. That's how we introduced Chempa. This year, we see due to absence of migrant labor, it has become almost impossible for the farmers of Punjab, Haryana and various places to do transplanting. In absence of transplanting, they have to depend upon early pre-emergence herbicide. That is where Chempa fits in very aggressively for Punjab and Haryana. It is coming to the rescue of Punjab and Haryana farmers. Similarly, Dabooch, which is a pre-emergence herbicide is finding favor with the farmer and the idea is to educate the farmer on use of these products, because the farmer is not experienced, and that is where we adopt different technologies to train the farmer. In fact, we have learned a lot ourselves on using digital platform to reach out to farmer, communicate and train them. We are using similar tools and technology to reach our distributors and retailers also. And we are talking about modifying some of our approaches in terms of go-to-market, which I shared. Our pilot was delayed by a month, but we have done homework on improving the blueprint and we are going to modify couple of things as we hit the market and work on our channel.

I would also like to add here that the recent amendments to the APMC and Essential Commodity Act makes it all the more imperative for us to do this go-to-market approach aggressively because this is going to break our long-standing relationship between the commission agent and the farmer, who was the creditor of note for the farmer. Now, if the farmer will have access for his commodity to different markets, then he will purchase also from different markets. He will no longer be depending upon his local pesticides shop, which means Dhanuka has to be aggressively present on all the areas where farmer is going to reach out and sell his products, which will include deep retailer's network, which will include FPOs, which will include the modern channel of Internet sales, digital sales. And we are harnessing all of them to stay on top of it.

We take the next question from the line of Madhav Marda from Fidelity Investments.

I just wanted to understand how was the raw material prices trending for us currently? And I think the last time we spoke, there were some savings which could come and now with crude falling, I think there could be further raw material tailwinds for us. Could you give us an update on raw material side of things?

Could you repeat your question, please?

No. I'm just saying on the raw material side, our raw material sourcing, are we seeing any benefits in the raw material prices because of fall in crude?

Actually, in the quarter 1, normally, in the month of April, price were on very high side in the month of April. Now they are settled. There is no reduction side, it's not there, case is not there.

Okay. No, sir, I was just asking more from a gross margin perspective for us for the kharif season. Can it be maintained at last year? Or how would the number be based upon any price hikes that you've taken in the market as well? So maybe you could help us on that? Yes.

Yes, yes. You see last year, during kharif, there was a heavy decline in the gross margin. So I'm hopeful this year there should be some improvement in gross margin, but at least maintaining the last year level, absolutely for sure.

Okay. Have you taken any price hikes this year? Or any plans to take price hikes versus last year?

Yes. Largely in the case of generic, we have taken price hike in the month of May. June, not very much significant. There was lag in month of May.

All right. Okay. And any outlook on revenue growth for us for this year? Any numbers that you are now working with internally?

We are expecting this year very good growth because of the good monsoon this year.

Okay. And on the fixed cost side, is there any initiative that we have running for on the employee cost or any other, other expenses, advertisement costs, any savings coming there versus FY '20?

You must have seen, there is a significant improvement with regard to the employee cost in the year '19/'20. And this year, since we are expecting a good growth in FY '21, so we will expect the improvement in the employee cost as well as other expense as well?

We take the next question from the line of Probal Sen from Centrum Broking.

Hello, am I audible?

Yes.

Sir, I just had a couple of questions. One was you mentioned in your initial briefing that certain amount of revenue due to the lockdown had to be actually deferred or rather, postponed to 1Q of FY '21. Is it possible to share that number in terms of how much revenue has actually been deferred and whether that amount has already been, let's say...

Yes. Approximately 2% of the top line. Approx 2% of the top line.

2% of March sales, sir, or on total year sales, sir?

Total year sales.

So about -- so 1,100 -- 11,500 -- 1,150, whatever we did, of that 2%?

INR 20 crores to INR 25 crores, you can say.

Got it, sir, got it. That was one. And second, the structural shift that you spoke about in terms of the market moving more and more towards herbicide. Now, last year, if I got the number correct, we did 31% of our sales from the herbicide category. Is that correct?

Yes.

Yes. So...

In FY '20, we did about 30%.

30%. Right, sir. So is it fair to say that, that number could improve by a couple of hundred basis points every year, if this shift actually continues to be there, sir? Over FY '21 and '22? And if so, does it also have a positive impact on our margins in terms of, if this category becomes a bigger share of our revenues?

So I'll put it 2 ways. First of all, it is about the market need. So there are different opportunities which keep emerging in different markets, and we try and identify the right product for those segments and create that opportunity. However, I cannot underplay the opportunity for insecticide in the country. So overall, the value will continue to increase for herbicides, I'm very sure. But the percentage shift will happen significantly or not, I cannot say. Why? I will just bring on that perspective also. While herbicides is a growing opportunity, we have recently faced over last 2 years, fall armyworm issue in maize, which has also explored paddy and sugarcane area. So that is a dangerous pest, and we have to deal with it with use of insecticide. And secondly, we are seeing since last September locust attack. This is also going to be a pesticide -- insecticide guzzler. So overall, the value for both the markets will increase. And we will, through our product portfolio, try and ensure that the margins are impacted favorably.

Sir, one last question, if I may. You -- just a little bit -- I got a little bit confused. So Chempa plus 6 other products that have been launched in FY '20 as well as including the 2 in FY '21 so far. When you mentioned the number of that INR 400 to INR 500-odd crore, roughly as the potential, this is for all the 7 products combined. Is that correct?

All the 7 products, including FY '20 launch and 2 products launched in Q1 FY '21.

We take the next question from the line of Jitark Shah from JM Financial.

Hello?

Yes, please go ahead.

Yes. Am I audible?

Yes, you are audible.

Yes. So sir, I just had 2 questions. One on the APMC front. Do we see that because farmers can have a higher realization over coming days and years, can we have a higher price point for our products? That's number one. And second is on supply chain front. How does like intermediaries and raw material source from China or as well, might impact given these lockdown and all these situations?

Right. I will take that. So first of all, I would like to see the impact of APMC removal on the product portfolio. Farmer will have a wider choice and farmer will go for value-added products because he is getting a better realization. When he's trying to access modern markets of fruits and vegetables trade and then he's trying to access the export markets, that is where he will need better yield, better quality and lower residue. And he will go for a higher value. So I see an upsell in the portfolio. So there is going a major portfolio shift. And I will not say that the price point will change dramatically. I think so we'll continue to offer value pricing in most of our products to our consumer also. But the shift -- upshift in the product choice itself will impact the overall portfolio and the margin significantly. And second, in terms of the intermediates and raw material available, I think that we shared earlier also that China, at that point of time, itself was having huge inventory which was not moving out due to logistics. Eventually, the logistics has been favorable. And the material has moved in and come in aggressively. The challenge has been the clearance at Indian ports, which was really bad in 4 weeks of April, and even first week of May. But subsequently, ports have also come into active operation and material has been cleared from the port aggressively, almost all raw materials and intermediates. Yes, Indian technical manufacturers, I feel it's still not being able to come up to speed to that extent. And they are facing either labor shortage or operator and quality control people. So some or the other resourcing shortage is plaguing the Indian manufacturing side, which is probably impacting the production of generic products. I would say Dhanuka, having a significant portfolio bent towards Japan, U.S., Europe and even some products coming in from China, our pipeline of products and current inventories are really safe and secure to take care of next 2, 3 months.

We take the next question from the line of Keshav Lahoti from Angel Broking.

Yes. Sir, can you please elaborate how has locust impacted your business?

Your question is not clear. Can you come again?

Yes. Can you please elaborate how locust has impacted your business?

Sir, I'm so sorry to interrupt, but may I please request you use the handset mode while speaking as there's a lot of disturbance?

Should I repeat my question again?

I got your question. We have two devices, hence there is an echo.

Okay.

So maybe not sure. We're actually having two devices. [indiscernible] needs to be disconnected. May I go ahead with my response?

Yes, sir.

Not yet, while we still have echo.

Mr. Keshav Lahoti. This is the operator. I'm so sorry to interrupt. There's a lot of echo from your line, sir, because I would request you to please use the handset mode while speaking or asking a question.

Yes.

Janice, I've got the question. If you can put Mr. Lahoti, on mute, I'll respond.

Sure. Please go ahead, sir.

Now there is no echo also. Right. So locust attack has given opportunity for selling agrochemicals in the government tender business. Across many states, it was a huge menace after 27 years. And this has given opportunity for Chloropyriphos, chloro cypher, fipronil SC, Lambda cyhalothrin 5% EC, and Profenofos, Profenofos cypher and other variations of Lambda cyhalothrin. So there are other products also approved by the government of India, but I'm talking about the portfolio. So out of all the approved products, I think so we have about 7 or 8 offerings to the farmer, depending upon what is the severity of the pest in their markets, and what is the recommendation from the local university and the Department of Agriculture. Dhanuka is reaching out through trade channel to Department of Agriculture and to farmers in terms of giving them training on how to deal with the locust and offering them products to manage this menace.

Okay. What could be the -- how much top line could increase due to locust menace, any idea?

I will not even speculate. I think so, all of us will be better off if this disappears sooner than later.

We take the question from the line of Deepika Mehta from Axis Bank.

So 2 questions. One in the absence of labor in the farmlands, do you think cash drop would not be sown in the kharif season? And does the requirement of their products could be impacted? And I'll ask another question.

I don't see why cash crop will not be sown. In fact, cotton acreages is up for increase, sugarcane is going to be a favorable crop and fruits and vegetables have been impacted in short term. However, they will come back and be restored is my feeling. So farmer would probably go for less labor-intensive crop and more stable crop which can be used, grown with mechanized tools or relatively lesser use of labor. So transplanting of rice is extremely labor-intensive and weeding of any crop is labor-intensive. So these 2 operations, farmers are going to bypass, either by crop shift or by use of rice chemicals.

Okay. Other question is, any opportunity -- I mean, carrying on with the -- any opportunity on the pharma side if you guys are also chasing it, because some of your competitors are?

So Dhanuka Agritech Limited is focusing significantly on agriculture and development of agriculture. Pharma, this is Dhanuka Laboratories Limited is a separate organization. And as of now, we are not talking about Dhanuka Labs and Orchid Pharma here.

Okay. And in term of domestic manufacturing of intermediates in the long term, is your company or overall in India companies are looking at domestic manufacturing of intermediates and technicals to move away from import dependence?

I think so China phobia has really taken up this opportunity very aggressively and significantly for India as a country. And India as a country is trying to woo almost all global, large chemical manufacturers to set up manufacturing base in India, which includes agrochemicals. So I think so, this is a very relevant opportunity in current context.

We take the next question from the line of Saurabh Kapadia from Asian Market Securities.

Sir, if I look at our balance sheet, then compared to last year, we have some higher inventory. So is it like the raw material inventory or the finished good inventory we have captured just before the lockdown happened?

It is largely raw material inventory, and it was according to our plan actually.

Okay. And sir, how is the current situation in terms of last-mile delivery to the distributor and dealer? Because initially, in April and May, we faced some issue on the logistics side.

Could you repeat your question?

Sir, talking about the last-mile delivery, are we able to deliver on the -- to the every part of the country because initially we had the logistic issue to supply these products?

Yes. Initially, there were [ depredation ] in month of April. But by the last week of April, things were regularized largely.

Okay. And sir, just one last. Your perspective on the 27 products that is to banned, the draft notification. So definitely, we have more than 10% exposure. So how do we look -- if the ban comes in, what would be strategy for Dhanuka going ahead?

So while one perspective is that the government itself has 2 opinions on whether or not to go for this ban. So I really feel that the ban will not get imposed immediately in the given time lines. At worse, the industry is prepared to take the issues in different forums, different influencing methodologies. That is what we are going to adopt. Tomorrow, there is an event in FICCI for discussing the subject of 27 products banning. And I would also like to say that at Dhanuka, as of now, we have relevant dependence on some of these products, which are up for ban. However, our portfolio allows us huge diversity and huge choice in terms of replacing each of the ban products with an alternative. And we have a very robust pipeline with our principal companies, especially from Japan, whereby we can bring in and offer farmer a great substitute. The only challenge here would be that the substitute that we'll bring in would have relatively higher price point for the farmer vis-à-vis the choices available right now. So the banning should not move forward is a strong recommendation.

Okay. And sir, the last thing. So we already held...

Sir, so sorry to interrupt. May I please request you to rejoin the question queue for your follow-up as we have people who are waiting for the call? [Operator Instructions] Next question is from the line of [ Suneel Kohli from Bohec ].

Congratulations on a very good set of numbers. I have 2 questions. Considering that you are expecting this year to be good, and you have rollover of about INR 20 crores plus sales from last year, due -- and a low base over the last many years, do you think it's possible for you to grow as high as 20% this year? I'm not asking for a guidance. I'm just asking in terms of possibilities. Secondly, your margins had fallen significantly compared to what you should do earlier with raw material cost and operating leverage aligned. Do you think a 17%, 18% margin is a possibility?

[ Mr. Kohli ], anything I say here would be taken as management guidance. So I would really say we are looking at a very, very robust opportunity ahead of us with good monsoon, good groundwater. Already the catchment area of Karnataka and Maharashtra, they have received good rains, which means we can foresee good water in Telangana and Andhra Pradesh, where the river flows in from the catchment area of Karnataka and Maharashtra. So a robust and a high double-digit growth is a certain possibility. So I cannot underplay that one, and we are aggressively geared up to take advantage of that opportunity. And of course, we will.

And sir, what do you expect of margins?

We will maintain the margins that we have. And with that kind of a robust growth, I think, so we'll be improving on our margins also and probably a good improvement.

We hope to have 100 bps improvement in EBITDA margin in this year also.

Wow. I will take that as a good wish and a blessing. Thank you so much.

Next question is from the line of Rohit Nagraj from Sunidhi Securities.

Sir, in terms of the lockdown issue, you have indicated that the supply chain issues have been settled by the end of April. However, is there any impact due to increase in cost of transportation? And second line question on that is whether the debtors have gone up?

'19/'20 debtors were gone up by around 10%. It is in line with the increase in the turnover.

No. This is for the Q1. I mean, for the period of April and May, have we seen any kind of such situation that the debtors have gone up or we need to give increased credit period?

Not really, not really.

Okay. And the impact of higher transportation cost on the operating margins for the current quarter, do we expect anything on the operating margins front?

Cost could be higher, but not more than 10, 15 bps on overall regions.

Okay. And sir -- right. And sir, if I look at the Y-o-Y number, the staff cost has been stable and other operating increases have been down by about 6%. Any specific reason? And do we foresee this year that if we expect to grow double-digit on the top line level, a similar kind of increase will happen on staff cost and other operating expenses?

Both costs will increase, definitely, but not as high as sales basically. There could be improvement in the EBITDA margin because of that only.

Okay. Fair enough. And any indication on the innovation turnover index for FY '20? What was it and -- FY '19?

It was 12% as against 17% last year.

Next question is from the line of Vishnu Kumar from Spark Capital.

Firstly, just 1 question on the -- because of the migrant issues, we understand one section of the farm labor has moved to probably towards UP, Bihar and these states. So the behavior and probably the requirement of herbicides, how will it play? I mean, if you could broadly explain that because one section of demand could actually go down, one could go up.

Yes. I got that you were asking what was the impact of farm labor. And what are the things that affect...

Yes. The cost of -- so my first question is because of the shift in people, for example, Punjab, Haryana, people have gone towards UP, Bihar. So how do we see the impact of farm labor, one; and that impact on herbicides to us? And obviously, in certain states, the farm labor cost is going to go down because there are too many abundant availability for the season. So the interplay of these forces, how do we see the growth?

Right. Thank you. So in the states of Punjab, Haryana, Maharashtra and other agrarian advanced states, the absence of labor will result in more use of herbicides, for sure, and more use of mechanization. So Punjab, Haryana is facing a transplanting challenge, and they are going to go for direct seeded rice, which means more consumption of virucides, herbicides like Chempa, which is a Japanese product in Dhanuka. And when we talk about the migration to, then the migration is to Chhattisgarh, Bihar, Jharkhand, Odisha, West Bengal, Eastern UP, which are hitherto relatively not as advanced when it comes to agriculture, in terms of both mechanization as well as advanced product consumption, although these markets have also developed significantly. And in fact, the herbicide consumption has also been very high in some of these markets. So there could be a marginal impact on herbicide consumption going down. But given the disproportionate consumption of agrochemicals in the rest of the country, in the Northern, Western, Central and Southern part of the country versus lesser consumption in Eastern India, the impact would not be -- only be favorable; the delta will not be negative, it will be positive.

Okay. Got it, sir. And in general, do you see the cost of labor, like probably we were INR 300 to INR 400, that doubling or it will -- any sense on that in these states?

Cost of labor doubling means?

In these states, for example, Maharashtra, Punjab, Haryana, the farm labor cost, will it materially go up? What we used to hear is INR 300 to INR 400 per day. Would now that be the significant cost to the farmer?

I think so. The increase already what I'm getting is 35% to 40% because transplanting is to be done in a given time frame. But the political influences have also prevailed because of which the time frame, which was earlier, much lesser has been increased significantly for the farmer for doing the transplanting. And the labor cost has certainly gone up dramatically and so has the herbicide use. Sempra use in sugarcane and maize has increased many fold because the labor is not available in sugarcane and maize.

Got it, sir. Sir, and second question is on the Southern irrigation projects, especially in Telangana. A lot of -- I understand that some projects have started. Given that 30% of your revenue comes from this bucket, are we going to see a disproportionate growth? Any thoughts on that?

I will not speculate that, although North, West and South are certainly going to be the growth drivers on the factor of shortage of farm labor. These 3 zones are the ones where the farm labor has migrated from to largely Eastern India and to some parts of Eastern UP and to some parts of Karnataka and Madhya Pradesh. So these 3 zones are going to actually get favorable delta on the factor of farm labor migration.

Got it, sir. Sir, and one final question. On the fertilizer, we are seeing there's a massive pickup in demand, one of the historic numbers. Normally not -- we don't see it in April and May, we are seeing a sizable growth. So how are the first 2-month trends? In terms of your placement, it has been very encouraging. I mean, if you could give us some insights into that?

Q1, I think so, so far is going good for us. And we are able to catch up on the logistics pressure put by the channel and the markets on us. And we have been able to service. And I think so we are doing a good double-digit growth.

Next question is from the line of Dhruv Maheshwari from Premji Invest.

Congrats on a good -- great set of numbers. Sir, just in continuation to the question of the previous participant, just want to understand if there was a certain level of pre-buy that would have happened in 1Q? And how is the system inventory currently? And the price hikes that we would have taken in the generic segment, would it be a function of demand/supply mismatch? That's my first question.

Right. So as such, at Dhanuka, we do not really encourage pre-buying or placement. However, markets were relatively more hungry because there was hardly any channel inventory, and I had shared this in my previous con call in February also, that the channel inventory is not significant. And absence of channel inventory really intensified the hunger and there was some pre-buying also in the market, and there were some panic purchase fearing that the products may not be available when they are actually required. So these factors put together has resulted in some movement. At Dhanuka, we try and follow the practice of passing on the increased cost to the consumer. So we have done that across March, April and May already. And to some extent, in June, also, we have passed on the increased cost on the product prices.

Understood. Understood. Sir, my next question was more qualitative in nature. Just in terms of how do you see -- could down trading be a theme in FY '21, just based on COVID and the panic around COVID? And also, what is the trend in the unorganized sector and spurious product segment that you see? And how could that play out in the near future?

When you say down trading, what do you mean?

So just farmer probably preferring a cheaper product over maybe a premium product in terms of when he has limited visibility in terms of -- if his cash flows are under pressure. Anything on those lines that could play out.

Right. So I think so farmer has umpteen choice available across the product range. And I don't think so that there could be a easy shift towards picking up a cheaper product. That is -- that will depend upon the crop shift, if any. So in the short term, for example, in April, we have seen the vegetable crops not doing well. Now, we can either relate it to COVID. But if we really look into the history of tomato, then every 2 years, tomato prices go down significantly. And then farmer has to make a choice between the cost of harvesting versus cost of leaving the crop in the field. So that is not something very surprising according to me. And all the initiatives being taken by FPOs, by NABARD, by the Government of India, the Department of Agriculture and Rural Welfare, I think so we are going to only move towards a better atmosphere of agriculture commodities being upgraded, agriculture commodities finding their way into organized and modern retail and agriculture commodities from India finding their way out for exports. All these 3 things being favorable, I think so it can only lead to up-pricing and up-purchasing rather than down-pricing.

Okay. And sir, if you could just comment on the unorganized and organized part.

So I think so all shortages actually give huge opportunity and as much opportunity to unorganized and spurious players also at the cost of safety of their own people and teams and space and family. However, the Government of India is moving in very aggressively and almost ruthlessly around that in terms of having a PMV in terms of making the QR code mandatory on all pack, government has come out with new guidelines just day before yesterday on new packaging guidelines of QR code and other things. So it is a continuous industry and government and regulator collaboration to hammer down on spurious and poor quality products. And I think so at the end of it, we will win the game.

We take the next question from the line of Siddharth Gadekar from Equirus Securities.

Sir, could you just share a split between the volume and the realization growth in FY '20?

Volume value, okay. Our volume growth was 12.71% as against a value growth of 11.36%.

We take the next question from the line of Nitin Agarwal from IDFC Securities.

Sir, on the gross margins, just one question. Historically, sir, we've had much higher gross margin as you are doing revenue right now. Sir, structurally, is there anything which has changed in the business that we can't go back to the older gross margins or it's just a matter of time before so that gross margins eventually will be caught in play?

Could you repeat your question? There is a sound in background. We can't hear.

Can you hear me well?

Yes.

Can I repeat now, sir?

Yes.

So I think on the -- our gross margins used be fairly high in FY '16/'17. They've come off a fair bit over the last couple of years. So I think this reduction in gross margin, sir, is just -- is it structural? Because of the way business is being done or is that there is a possibility that we probably can go back to our older historical gross margins of 40-odd percent there going forward?

You see possibility can never be denied. But yes, over a period of time, you see in the year which we are talking, there was a significant increase in the prices. Whenever prices are increasing very rapidly, we get the advantage on the carryover inventory of the inventory in the system. And last year, because declining trend was there, there was a very bad impact on the gross margin. But in the year in which the huge increase is there, gross margin will be better and less impact on account of the product mix. So possibility is definitely there. That cannot be overruled.

Right, sir. And sir, on our overhead, on staff costs and other expenses, this quarter, other expenses came off quite sharply. Any particular reason on a Q-o-Q basis, sir, they came off so much?

You see in case of other expenses, one reduction on the account of you see because of change in the -- because of IndAS, some INR 4 crores, INR 5 crores so that actually shifted from other expenses to the depreciation and interest on account of a lease agreement of the godowns and the rent.

Right, right. And sir, going forward, these costs will continue to stay below the increase in revenues? Is that a fair assumption?

No. Cost will definitely increase. But if we are delivering a good growth, which is good double digit, the impact will be positive on the EBITDA margin.

We'll take the next question from the line of Deepak Kolhe from B&K Securities.

Congratulations for a good set of numbers. Sir, my first question is, sir, what is the CapEx plan for this year?

CapEx plan is not very significant. It would be around INR 5 crores to INR 10 crores.

Okay. And sir, second question is on, can you -- is it possible for you to provide a specialty and a generic product mix for the 4Q and FY '20?

It is around 2/3, 1/3.

Okay. And sir, if you look at a new molecule as a percentage of revenues, in the past 3 years, we are seeing it is declining. It has almost declined from 20% to 12%. So how do we see like if this contribution to improve going ahead, so will that lead to an improvement in the margin?

See, the new products, they certainly influence our capability to leverage the channel and the farmers' attraction towards our brand and our products. And we have moved from 20% to 12%, yes. And I think so we are very soon going to move up higher also in coming year, which is this financial year. So we are looking [Technical Difficulty] So yes, from -- last year was 16.6%. From that, we have moved to 11.87%. So this will go up significantly because we have had some very good launches in FY '20 and some very good powerful launches coming up this year as well. The impact on the margins is actually visible as the overall portfolio impact in the EBITDA, which is favorable so far. We've been able to maintain that irrespective of the IDI index.

Next question is from the line of Keshav Lahoti from Angel Broking.

Sir, I just have a follow-up question. Sir, what are your plans on pledge? Like you have some 14% of your promoter as a pledging?

Yes. You are asking about pledging...

Yes. You heard my question?

Mr. Keshav Lahoti, requesting you to please use your handset mode while speaking, sir.

Sir, what are your plans about pledging?

I am not getting the [ gist ] of the question.

Am I audible?

Yes, you are audible.

Sir, what are your plans regarding pledging? 14% of the promoter is pledged.

[Technical Difficulty] that Dhanuka has Dhanuka Laboratories, which is a closely held company owned by the promoters has acquired Orchid Pharma Limited. And the promoters have given bank guarantee against which the shares were pledged. Although it was expected that bank guarantee will be returned once the payment for Orchid is made, but there is some technical lacuna, we are expecting that the bank guarantee very soon. And once the bank guarantee will be returned by the bankers of Orchid Pharma, then the share will be unpledged.

We'll take the next question from the line of Mithun Soni from GeeCee Investments.

I have a couple of questions. One, you indicated that you're looking at a good double-digit growth for FY '21. On delta, like, where is that majority of the growth going to come from? Are you saying because of this migrant labors, most of the incremental growth is coming from herbicides? Or is it going to be fairly balanced from herbicide, insecticide and fungicide?

It is going to be a balanced growth coming across the portfolio, sir, because -- and it will be riding on the back of a good monsoon. And migrant labor problem is a short-lived issue or a short-lived opportunity broadly showing itself largely in Q1. Otherwise, it will be a balanced growth across portfolio, across geographies, I feel, riding on the strength of a good monsoon.

And this will also include some amount of benefit of increased geographical reach? Or is it going to be coming mostly from the existing geographies where we are present?

Geographical reach has not changed dramatically. We are present across the country, across all districts, across all crop segments, so geographical reach has not changed significantly. We have certainly improved our penetration in each of these markets.

Okay, okay. And my second question is, of course, like if we take the last few years, and that is where we also had this mid-single-digit growth. Now, on a more stable basis, what is the growth one should look at, right? Again, this year was a good -- this is a good monsoon phase that should help us. But on a more stable basis, what is the reasonable growth for a company like our size to think of that this is a stable growth, which we can do over a period of 2 to 3 years rather than just 1 particular year, this year?

Right. So being an agri-dependent industry, we do depend on the monsoon. And we also depend upon the commodity fluctuation, commodity price fluctuation. However, I think so 10% to 15% growth over a period -- over a horizon of 2 to 3 years is a fairly reasonable expectation.

But sir, that is something what we were talking in the past also when the numbers where we had a slackness of 4 years of about single digit. So is it that the product basket, what is we have today, is good enough to give us that growth? Or is it just the more better consumption of the product or better pricing, which is going to help us to get this growth?

Well, thank you. Those 3 are actually suggestions and a combination of the 3 will be helping us. We continuously work on cleaning out, tail cutting of our product range and adding new products so that we can take the advantage of changing trends and shifts in the market. And we also try and keep our prices as rational as possible and do a value pricing for our consumer. At the same time, I think so aggression in the market is something which can never be overestimated. So I think so we got to continue to be extremely aggressive and reach out to our consumer with far more speed and agility.

We take the next question from the line of Kaushik Dani from Reliance PMS.

Congratulations, sir, on a good set of numbers. I just missed out the volume and the realization numbers for Q4 and FY '20. Just repeat?

Yes. FY '20, our volume growth was 12.71% as against a value growth of 11.36%.

Realization was?

Value growth was 11.36% and volume growth was 12.71%.

Okay. And for the quarter?

For the whole year.

Yes, yes. And for the quarter?

Quarter could be as against the value growth of 18%, the volume growth was around 19 type.

Next question is from the line of Vishnu Kumar from Spark Capital.

I know this question might be asked multiple times, but are we looking to probably put a technical plant? Any conversations or at least in the next 18 to 24 months, should we probably expect some diversion of cash flows into this, more like a business derisking strategy?

So I would really like to come back and share this news formally and probably in the management note rather than in response to a question, sir. So at the right time, we'll come and share the developments with the house.

We'll take the next question from Kunal Mehta from Vallum Capital.

I have a single question. Sir, you mentioned that you have been taking price increases in the last 4 months. So sir, could you please quantify on a portfolio level, what is the average price increase you have been able to pass on?

Price increase largely, I told you in the month of April and May.

Sure, sir. So that would be around 5%, 6% this year?

As far in the case of generic, in few molecules, it was 5%, 6% or more. But overall basis could be around 2%.

Okay, okay. Sir, the follow-up on this is that going forward, this year, across industry and across both agrochemicals and crop nutrition products we see -- we are expecting good demand. So against the trend which we have seen in the last 3 years or maybe 4 years, where we had, I would say, a lackluster monsoon, would this market allow us to take good price increase and improve our gross margin this year, sir, in the range of at least 4% to 5% apart from the volume which we have -- increase, which we are going to enjoy?

This much it appears to be difficult because now the crude is very soft. But I think increase in prices may not continue. Price has already been stabilized in the month of June. So I don't see this much of growth. But yes, there is a scope of improvement in terms of margins, definitely.

Next question is from the line of Nitin Agarwal from IDFC Securities.

My questions have been answered.

We take the next question from the line of Rohan Gupta from Edelweiss.

Sir, my question is on -- definitely on this government proposing ban on the 27 generic products. Though I understand that industry will definitely find its way to delay it, but government intention is very much clear that they want to keep moving the product portfolio more towards newer products. In that, sir, we have still 1/3 of the revenues coming from almost generic products. So all I want to know from you that how you see that this government approaching these new products and new registrations and where Dhanuka is fitting because we do have a global tie up with 8 to 10 companies. Do you see that our product portfolio will more align towards new products in next 2 to 3 years, it will be almost 90% new product? I mean, our generic product portfolio will keep on falling or how you see this? And do we need to have more tie-ups, more aggressive launches of the new product to correct this?

Thanks for that question, Rohan. The market is 60% or more generic market and rest of it is the specialty market. Dhanuka aggressively plays in both the segments of generic and specialty. These 27 products ban would impact about 8 or 9 products in Dhanuka portfolio also and probably as many brands, about 10 or 12 brands. And at Dhanuka, we are significantly well geared up to replace this entire portfolio over a period of 2 to 3 years' time because of our tie-ups with a gap of about 15%, 20%, for which also we will explore aggressively and bring in befitting products. So the whole thing will have 3 purpose: one, to defend these products with industry collaboration and partnership, taking the [ liaising ] as well as legal recourse to deal with it hoping that better sense prevails; two, reducing our dependence on the restricted products or restricted crops, if any; and three, bringing in better substitutes faster. And at Dhanuka, we'll be playing aggressively on all the 3 fronts. As of now, the effort on one end is to deal with getting this proposed ban revoked. And tomorrow, our Chairman is leading our seminar in FICCI 3 p.m. to 5 p.m. to guide this message across with the regulators, which include Ministry of Chemicals and Fertilizers, Ministry of Agriculture and Rural Welfare and the Minister, Mr. Tomar himself. So I think so this house I would like to give a significant comfort and confidence that these products, except barring 4 or 5, which are red triangle or high toxicity profile products like monocrotophos or something, barring 4 or 5 products, they are not going away.

But Rahul, my question was definitely, they may not go away immediately. Maybe we get an extension, we get a sufficient time line to phase out these products. It may take 2 years to 3 years. But ultimately, these products, definitely, they have been proposed. They are in that list because of whatever reason the government felt it. I'm just saying that these are roughly 4,000 to -- maybe INR 4,000 crores revenue product. If they have to be replaced, will be replaced by probably INR 10,000 crores to INR 12,000 crores high-cost product, that will open a clear opportunity for the entire industry. It may not happen soon. It may take its own time, maybe 2 years, 3 years down the line. But my whole point was that this generic market, you also said that 60% India market is generic and in value terms maybe roughly 40%. So I am looking at these larger opportunities and where Dhanuka is placed to take the benefit of this industry keep on moving towards new-generation product, which will be costly product, which will be probably high-margin product, a INR 4,000 crore worth industry getting replaced by another INR 10,000 crores to INR 12,000 crores may not immediately in another 3 to 4 to 5 years. I just wanted to understand that do we need to look into this? And are we making any strategy level changes to launch new products more aggressively in future? Definitely, you have 8, 9 products, which you said that you already have substitute to launching in the market. But I'm looking at that why only 8, 9 products, which we are rightly selling, which right now we are selling and can replace. I am looking at entire 27 product market, which will be replaced by many new products and why we will not be aggressively benefiting from those new product launches. That's what my question was.

In fact, I would say, Rohan, that your question is suggesting the answer itself, and we will be very aggressive in terms of getting new products as a replacement of these products. And in fact, this kind of replacement is an ongoing process and should be an ongoing process with the regulator reviewing the toxicity profile, the regulator reviewing the application methodology and the technology regulator reviewing the upcoming technology and the cost of replacement. So this should be an ongoing process. And globally, it is an ongoing process. Although in India, it is appearing as very large because government has talked about 27 products and INR 4,000 crores in 1 book, which has not happened anywhere else in the globe. So this kind of a phasing out is a must because we are in a toxic industry, so to say. So nothing against that, particularly. And at Dhanuka, our rigorous effort will be to be free of this portfolio dependency over the next 3 years to 4 years' time. So not only that, but in addition to replacing this portfolio with better products, we will be able to harvest the opportunity of other products which have been banned and which are not present in Dhanuka portfolio currently. So we should be able to take the advantage of the replacement in a couple of ways: one, bringing in new products; 2, creating better premixes and combination products in partnership with various multinational companies; and three, we'll reach out to our deeper channel in much deep Internet and use of the modern retail outlets. So with these 3 approaches, we are going to ride the wave of replacement as and when it happens.

Thank you. Well, ladies and gentlemen, that was the last question. I would now like to hand the conference back to Mr. Manish Mahawar for his closing comments. Over to you, sir.

Yes. Thank you, Janice. On behalf of Antique, I would like to thank the team of Dhanuka Agritech for providing us an opportunity to host the call. Mr. Dhanuka, would like to make close comments, sir?

Yes. Before closing the call, I would like to make a few closing remarks. I would like to reiterate that due to good monsoon projections and the availability of water in the reservoirs, Dhanuka is expecting very good growth, I repeat very good growth in FY '21, and especially the first quarter because first 70 days of this quarter has shown a very good growth. And we hope in the next 20 days, also, we will have the similar kind of growth. So the investors can expect very good numbers for the first quarter to consider results are out. We continue our endeavors so that Dhanuka Agritech performed better than the industry average and delivers its best to meet the expectations of all its stakeholders including the farmers and shareholders. I wish that the monsoon remains very good as per the forecast of the IMD and the Indian farming community reaps a good harvest, harvests a good crop in kharif also as they did in rabi season. Thank you very much.

Thank you. On behalf of Antique Stockbroking, we conclude today's conference. Thank you for joining. You may now disconnect your lines.