Dhanuka Agritech Limited (507717) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Dhanuka Agritech Q2 FY '22 Post Results Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. Thank you, and over to you, sir.

Thank you, Indra. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of Dhanuka Agritech. From the management, we have Mr. MK Dhanuka, Managing Director; Mr. Rahul Dhanuka, Chief Operating Officer; Mr. VK Bansal, CFO, on the call. Without further delay, I would like to hand over the call to Mr. MK Dhanuka for opening comments, post which we will open the floor for Q&A. Thank you, and over to you, Mr. Dhanuka.

Thank you, Manishji. Good evening, ladies and gentlemen. Myself MK Dhanuka, Managing Director of Dhanuka Agritech Limited. I hope all of you are doing well and keeping safe. Thank you for joining us for the Q1 FY '21/'22 results conference call. I have with me Mr. Rahul Dhanuka, CEO -- COO ; Mr. Harsh Dhanuka, Executive Director; and Mr. VK Bansal, CFO of the company. Dhanuka Agritech is a leading agrochemical company in India, focusing on branded sales in the market. The company's strength lies in the manufacturing and marketing of formulated products. The product portfolio is spread across insecticides, herbicides, fungicides and plant growth promoters. Insecticides contribute a significant portion of the overall revenue. Dhanuka Agritech is working towards the vision of transforming India through agriculture by working with farmers closely to improve their productivity and quality and in turn, enhancing their income. We work in all major crops in India and have implemented the best-in-class technology to ensure a smooth and efficient supply chain. To service the diversity of Indian crops and needs of the farmers, the company has a wide range of products in its portfolio with over 80 brands, in packed sizes ranging from 2 grams to 20 kg. These products are in various forms like liquids, powder and granules. Dhanuka has a pan-India presence through our marketing team and warehouses in all major states across India. With 3 manufacturing units, 40 warehouses and 14 branch offices across the India, Dhanuka caters about 6,500 distributors and dealers and around 80,000 retailers. Through this extensive network, Dhanuka reaches out to approximately 10 million Indian farmers with its products and services. Dhanuka has more than 1,000 techno-commercial staff, supported by a strong marketing team to promote and develop new products. Dhanuka's strong R&D division has world-class NABL Accredited Laboratories as well as an excellent team for new products in registration and development. Dhanuka has international collaboration with 9 leading global agrochemical companies from the U.S., Japan and Europe, which helps us to introduce the latest technology in Indian farmlands. Some of the ambitious steps taken by the government of India to revise the role of agriculture in the growth of Indian economy, such as increasing Minimum Support price, eNAM portal and Direct Benefits Transfer by our PM-Kisan Samman Nidhi have helped create a robust foundation to enhance farmers' income, encourage wider adoption of high-quality seeds and judicious use of fertilizers and pesticides. These initiatives will transform India agriculture and make it competitive globally. The opening month of monsoon performed quite well in overall outlook with 110% of the long period average. However, there was a slowdown in the rainfall activity from 15th June to 15th July. This has resulted in slowdown in herbicide consumption during this period. During the last fortnight, there is a recovery in the rainfall activity across India with almost all regions receiving good rainfall, and this makes us positive about the prospect of the second quarter. Coming to the financial performance for the quarter 1 of FY '21-'22. Revenue from operations stood at INR 363.78 crores in Q1 of FY '21-'22 versus INR 373.84 crores in Q1 of FY '20-'21. Herbicides stood at INR 68.86 crores in Q1 of FY '21-'22 versus INR 72.65 crores in Q1 of FY '20-'21. Profit after tax was at INR 48.60 crores in Q1 of FY '21-'22 versus INR 51.79 crores in Q1 of FY '20-'21. There is a slight decline in the performance of the company due to the pressure on pricing and supply of raw materials. Apart from this, the May month, there was a huge impact of COVID at village level, due to which the shops of pesticides were closed down and no sales were happening. Apart from this, the last year, the first quarter was exceptionally well. In June 2019, the revenues of the company was only INR 220 crores, against which, last year, we achieved 70% growth, which was abnormally high. So to meet that level was a herculean task. But still, I will say that the performance of the company is reasonably good. Coming to zone-wise share of turnover for Q1 FY '21-'22. North zone has contributed 28%, east zone has contributed 10%, west zone has contributed highest 44% and south zone has contributed 18%. Product category-wise share of turnover. Insecticides has contributed 29%; fungicides has contributed 12%; herbicides, highest contribution, 48%; and others 11%. The Board of Directors has recommended 100% dividend, that is INR 2 per equity share, which was approved by the shareholders in the 36th Annual General Meeting held on 29th July 2021. The company has launched a co-marketing product under brand name TORNADO containing Quizalofop Ethyl plus Imazethapyr to control broad leaf as well as narrow leaf weeds in soya bean and other crops. The company has also received registration of new 9(3) molecule ONEKIL, which is a combination herbicide for the control of all type of weeds in onion crop. I hope, with the introduction of these 2 molecules, we will be able to get a reasonable market share for these products. As discussed last time, the company has also started working on its greenfield project at Dahej, Gujarat. Dhanuka regularly organizes various seminars, Krishak Goshthis, Sammelans to educate our farmers about new innovative techniques of farming. Being India's leading agrochemical company, we are at the forefront of introducing digital solutions and innovations. In the same endeavor, we have tried to boost our reach through online and virtual farmer interactions and aggressive use of TV advertisement for our key products, such as Sempra, Targa Super, Mycore and others. We are focused on expanding our market coverage through our network of distributors and our digital platforms, including social media presence, where we engage with the end customer. We consider ourselves responsible towards securing the farmers' welfare and preserving food security of the nation. We continue to strengthen our association with the Farmers Producer Organization, Krishi Vigyan Kendra and other important institutions to increase our business expertise and boost our market presence. On this note, I would like to hand over the -- to operator to enable us to take question-and-answer session. Thank you very much.

[Operator Instructions] Our first question is from the line of Rohit Nagraj from Emkay Global.

Congrats on decent set of performance despite challenging environment. Sir, the first question is on our ITI. So we've seen in the last 3 years it has consistently come down. On the contrary, we have been able to introduce newer products. So any specific reason for this? I mean we are facing challenges in terms of pricing of the new product or probably penetration of the same? Any specific reason or why it has been coming down?

Right. Thank you, Mr. Rohit. This is Harsh. So ITI Index, you are correct, has gone down in the last 3 years. And the reason for that is in the last 3 years, the molecules which we have introduced have not achieved the volume as per our plan, and we are making all the efforts to ensure they achieve the volumes as we move forward. Especially in the last 1.5 years, movement in the market has been restricted in different geographies due to the pandemic, which has restricted our ability to develop and generate demand for the new molecule. So that is the major reason for the reduction in ITI Index, especially in the last 1.5 years.

Understood. The second question is on the greenfield project. So given that, again, we have faced challenges due to second wave, have there been any delays in terms of commissioning of the project? As I understand, earlier we had indicated Phase 1 will be coming up by March '22. And how much revenue potential we'll have for FY '23?

Definitely some impact comes when such kind of pandemic takes place because during that period the labor moves to the villages and the availability of labor becomes a challenge which is required for the construction work. So some delay is there. But since we have just started the project, I hope that the time line which we have given, March 2023, we will be able to meet out that time line.

And after Phase 1 commissioning, any revenues that we envisage in FY '23?

No, no, we are expecting revenue FY '23, '22.

Our next question is from the line of Prashant Biyani from Prabhudas Lilladher.

Sir, in your EBITDA and top line growth guidance, you have mentioned that EBITDA may be impacted due to carryover of high-cost inventory. Sir, we are already in an inflationary environment, and everyone has been taking price hikes. So what makes you believe that Dhanuka will not be able to take price hike and it may impact our EBITDA growth?

So July month, as we know, has been a slow traction month especially, and similar was the situation in the month of June. So what we have seen is that these delayed rainfalls have impacted the passing on of the increased COGS to the consumer. And that is what is going to impact the pass on -- the cost pass on to the consumer. Now with the recent rains, the situation is looking really positive and upbeat. And the markets will be more received -- receptive of both the consumption as well as of the price increase. So I think that we'll be able to pass on the price hike post this month, post August.

Is it that most of this high-cost material is relating to herbicides?

It is spread across the entire portfolio. In fact, the early movement is herbicides. So herbicides are initially impacted, but it is spread across the entire portfolio.

And sir, due to this delayed rainfall, how much of the herbicide consumption do you think has been lost for the industry? And how much can be recouped back due to the recent rains?

How much herbicide has been lost for the industry. So you can say something between 7% to 10% consumption of herbicide would have been lost.

[Operator Instructions] Our next question is from the line of Probal Sen from Centrum Broking.

This is on a follow-up to the question asked by the previous participant on the monsoon. When you say herbicide consumption lost, essentially it implies that because of the delay in monsoon some element of sowing just cannot be made up, at east for, Kharif. And therefore, in second half, whatever happens to Rabi, this consumption cannot be recouped, even in the second half of the sowing season. Is that the correct way to look at it, sir?

It could be a possibility, but not necessarily. See what has happened is that some of the sowing is delayed, but some of the sowings will be replaced by other crops. For example, in some pockets, soya bean will be replaced by onion or a toor which means there will be a gap of 1 month where farmer will not be putting in any crop. Increased acreages of onion and toor can mean increased consumption of herbicides. So what has been lost so far is a loss of this period. There's a possibility that depending upon the rain intensity and the crop choice, there is higher consumption of herbicides. [ What we are seeing today ], due to labor shortage, overall farmers' inclination towards herbicide consumption across all crops has increased significantly. We are seeing huge offtake of herbicides even in relatively backward states like Eastern UP, Bihar, Jharkhand and Bengal. So the demand is consistent, the rainfall has caused a break.

Got it, sir. So the 7% to 10% number is as of now. As and when recovery happens, this gap -- this deficit can be narrowed significantly, if what I'm hearing...

Depending upon the crop shift, the gap can be narrowed, yes.

Sure. And sir, the second question was with respect to the guidance of revenue and EBITDA. Is it fair to assume that because of whatever delay or some disruption that happened in June -- or rather June through to August, the impact is more in terms of margin. Volumes may not still be affected as much for the full year for us?

We have to wait and watch how the August and September pans out because July, August and September, these are 3 crucial months for the consumption of pesticides in the field. So unfortunately, because of the deficit rainfall in the month of July, at the initial sales, up to 20th of July, it has impacted the July consumption. But if August and September monsoon remains good, then we hope that we will be able to recover. But some sales which has already low, they have -- that has gone. So that cannot be recouped. So we are aiming for double-digit growth by March 2022. And some impact will be there because of the less offtake we could not pass on 100% price increase to the ultimate customer.

Got it, sir. Right. Sir, last question, if I may, with respect to the new project, how much of CapEx are we looking to spend in this year, FY '22 and '23? '23, of course, is the final completion. But '22, how much of investment will be done?

Around INR 80 crores.

Sorry, sir, that was INR 80 crores?

Yes.

Our next question is from the line of Vishnu Kumar from Spark Capital.

So firstly, I wanted to understand the current rainfall that has picked up, is it sufficient or you still think certain regions are still facing some issues?

Rainfall is -- as a farmer -- as an agri input company, I really want precisely in my precise 1 hectare of land. So it is never sufficient and it is never complete, so to say. It has rained really well in the catchment areas of Western Maharashtra, it has rained really well in the catchment areas of Western Karnataka, which means we have a lot of water available for a large section of irrigated Maharashtra, irrigated Karnataka, irrigated Andhra and Telangana because of Krishna, Godavari rivers, Tungabhadra river and all. There are many pockets which have received heavy rainfalls in Madhya Pradesh, in Maharashtra, in Gujarat, even otherwise. East India, we have seen some pockets heavy floods. There would be dry patches. There would be areas which have not received sufficient rainfall, and we have such pockets largely in Gujarat, in Rajasthan, in UP and in Haryana.

Okay. So put together, would you say that at least 60%, 70% are at least okay at this point and probably 30%, 40% still needs more improvement?

Probably more than 80% is okay.

80% is okay. Got it, sir. Sir, and second question of mine would be that the Chinese technical prices are again going up. Now if you were to draw the parallels between couple of years ago, also, we had the problem, things seems to be getting okay and again things are getting a bit off. So what are you seeing this time around? Are you thinking this is again going to be a bit more structural and volume continues to go up for -- so if you were to just say between a couple of years ago and now, are you seeing different or this time also you're seeing -- you're going to see the prices continue to rise slightly?

Your question is not clear to me. Could you repeat that?

I'm asking on the import of technicals from China, the raw material prices have gone up. Couple of years ago, I think it was continuing to rise and then we saw some reduction last year and probably, I believe, from the second half of 2019, it was slightly coming down. But now again, the trend is picking up. So would you say that this is more temporary or you're seeing that the prices again are going to structurally remain high?

I think the prices are going to structurally remain high because of -- in general price increase at the raw material end globally, including China. So the piece which has -- helves up the price is the demand side. At the back end, the costs have gone up certainly. Am I able to answer you?

Okay. Is it -- are you seeing this is just about in the near term or are you seeing more supplies coming in China next year? Do you see any of your key products which you're buying from them, more supply coming or that is not happening, which means supply prices could remain high from that angle as well?

I think the prices in general will remain on an upward trend, but there could be many products which have kind of touched a peak and they would be seeing a reverse. For example, glyphosate has seen its peak. That should see a reverse. And there could be other such products which would see a downward trend soon. At the global [Technical Difficulty] the increase in crude prices, the nonavailability of containers and logistics issues, these things are adding to the erraticity and keeping the prices on edge.

Got it, sir. So you don't see it coming off at least in the next 6 to 9 months. It's going to remain more or less here, maybe barring a few movements here and there.

No. In fact, these rains, they will pump up the demand. So the prices should stabilize before going up.

Got it, sir. And, sir, some other listed names who have seen strong domestic growth whereas we've not seen that kind of growth. Generally wanted to understand the view that how some companies are able to report better, maybe a broad thought would be better if you could just give us some idea of how the industry is slightly different or probably what other companies would have done or what we have probably not done.

No. I don't think that there's almost anything which is happening a bit differently here. The only thing is we were able to service the extraordinary demand of the Q1 last year extraordinarily. So what we did in last year Q1 was really above the industry benchmark, above the industry averages and above the industry standard. So just to keep up with that pace in a relatively lower sentiment, in a relatively poor cash flow has not happened. Otherwise, I think we've really, really done overall. I'm sure we will be delivering good performance in the coming quarters.

Just 1 last question. Sir, are you seeing the unorganized market directionally going lower over the next couple of years? Are there any evidence to suggest that, that is already playing out and you see that, that is one area where you can go ahead and capture additional market share?

Farmer is becoming more and more quality conscious and brand conscious. That is 1 point. Second is the Department of Agriculture and the regulatory mechanism is becoming sharper and stricter. So that regime would rise. And the overall erraticity in the ecosystem makes it difficult for the unorganized sector to cope up and catch up. So that is where the organized sector and branded organizations and marketing-driven organizations like Dhanuka will have a benefit.

Okay. Got it, sir. Just one point on the fungicide market share that they've given 12%, is it in line with Indian consumption? Are we lower or higher at a market share, sir, because you've just represented probably a very low number on the fungicide market share of our sales or is it just seasonal?

I think so Dhanuka has recently entered into the most important fungicide market of grapes. With our offering -- Japanese offering of Kirari, Nissodium, Conika, we were hardly represented in grape markets. We launched these products last year in September 2020. So there is a long way for us to catch up on the fungicide segment of grapes for sure. So there is a lot of scope for us to grow.

Our next question is from the line of Rohit Nagraj from Emkay Global.

Sir, the first question is in terms of the input cost pressure. So you have told that generally the pricing of inputs will go up and we will be passing it on through price increases. But how is the ability of the farmer to absorb these prices? And if these continuously go up, then will there be any impact on the demand side itself? I mean your thoughts on this?

Farmers' ability to absorb the price depends upon largely the commodity prices, and commodity prices are on a significantly upswing, most of them. So cotton prices, soya bean prices, oilseeds, pulses, most of the fruits and vegetables, their prices realization is favorable for the farmers. So that is what largely would decide the ability to absorb the cost. Farmer is impacted on the other side by the uncertainty caused by absence of rains. So irrigated pockets like Godavari; the Krishna belt of Andhra, Telangana; Punjab; Haryana; irrigated belt of Madhya Pradesh, they will see a quick and fast uptake once the rains have happened. Overall widespread rains also means that the uncertainty is removed and farmer will be more inclined to go for quick uptake even if the costs are high. So the demand side is appearing only favorable going forward. From the supply side, various products, I took an example of glyphosate, but various products, they are either being unavailable due to the logistics issues or the global supply chains being impacted or they had kind of reached a peak. So for example, [indiscernible] pendimethalin, [indiscernible] mancozeb, glyphosate, these products have been unavailable, low availability or high prices. So if farmer is facing a dilemma, then the options to switch over from one generic to another is easily and readily available. And Dhanuka is absolutely well positioned to offer alternatives to farmer in case farmer makes a different choice.

Right. This is very helpful. Sir, the second question is in terms of the spurious pesticides. So we have seen that last year, I think there was relatively lower ingress of the same because of the pandemic issues and imports curbed. How was the situation? How is the situation now? And will it have again an impact in terms of the domestic markets, market share partially being taken by these spurious pesticides?

See this unregulated market is difficult to observe and predict. So the pandemic situation really put them on a back foot. Now that the pandemic has slowed down, they could be probably back in action. I was earlier answering a question where I say that the regulator has become pretty active, biostimulants have come under FCO regulation and there are other initiatives by the industry associations like CropLife India, like ACFI, whereby the spurious players are being challenged directly and aggressively. So that would be a fight at Dhanuka and some industry bodies we are willing to take up aggressively and actively.

Just 1 last bit. In terms of our imports of technical from Japan or China, are we facing any challenges in terms of availability or delays of shipments? And are we protected to that extent from inventory? And how is the receivables situation currently?

Okay. So the container unavailability and the logistical issues are certainly causing some delays in supplies. And as of now, we are really well placed with our inventory because of relatively lesser offtake in June. So we're really well placed with inventories currently. And our pipeline is also robust in terms of the shipments happening from Japan. Shipments from China are a bit impacted overall for the industry. In terms of receivables, I think so we are largely at par as per last year. And sooner, the cash flows in the market for farmer will improve, and we are already seeing a turnaround in South Asia happening, I think our cash flows and receivables will be much better off.

Our next question is from the line of Dhruvam from HDFC Fund.

Sir, as you mentioned earlier, on a 2-year CAGR, if I look, your growth has been superb, about 40-plus percent, if I'm not wrong, which seems quite strong. But in context of your commentary that the market is weak, I mean, because of lower rains or gap in rains, I'm not able to reconcile what's driving this strong growth and then your commentary that the market is weak. So I'm not saying Y-o-Y growth. I'm just looking at 2 years ago because the last year was a bit abnormal.

Could you repeat your question? I didn't get it.

Sir, I'm saying on a 2-year basis, you have grown exceptionally well, which is about, what, 66%, which is about 30% on a 2-year basis, for the quarter. But then in the commentary you're mentioning that the market is weak because of gap in monsoon. So I'm not able to understand if the demand is strong, then why the commentary is a bit weak?

No, the demand is expected to be strong in Q2. Q1, we faced a break because of delayed monsoons.

Sir, you faced a break, but despite that, you have grown at about 2 years -- about -- on a 2-year basis, you have grown at 66%.

Right.

So this was when the demand was weak. Is it? So the point is, if -- had the demand been normal, the growth would have been even higher?

Absolutely. So that's what I'm saying. The question was, what is it that we have missed. I don't think so we have missed anything. We have not missed anything. And we are absolutely on track in terms of catching up.

Okay. Okay. So is it something that you place it this quarter and so there are some returns in the next quarter which can impact you, that is why the sales in one quarter look higher and probably there could be some reversal in the other quarter? And that is what's the reason for...

No, at Dhanuka, we don't do that. We don't front-load the channel. We don't do that. And yes, we do support. If there's any break in the season and the channel faces any backlash, then that is our partnership we engage with them. But we don't front-load the channel so we do not have huge inventories in the channel pipeline.

Okay. Okay. So because -- sir, in -- okay, got it. I think from your base, you are speaking about that. Sir, the next question was on the operating cost. Now over the last 2, 3 years, your operating cost as a percentage of sales have improved significantly from about 14% 2 years back to about 10% -- less than 10% in FY '21. Last year, you mentioned this was because of COVID, and there could be some reversal and the cost would catch up. So how is the trend now in -- even in 1Q, it seems low. So I'm just trying to understand how is the trend now. How do you see the pace of growth in the expenses?

You see other expenses were lower in Q1 because of the impact of COVID because April and May months were very severe impact. However, in the remaining 9 months of this year, the other expenses have increased significantly this year.

Okay. Sir, can you probably throw some -- give some number around about 11-odd percent, is it, or that can be even higher than that?

[ We are expecting ] in the range of being 15% plus.

Sorry, sir, how much?

15% plus.

15% plus Y-o-Y growth in other expenses?

Yes.

Our next question is from the line of Chintan Modi from Haitong.

Sir, again, my question is on this revenue growth. So on the base of 1Q FY '20, you have grown by almost 66%, which is a very strong rate. So I just wanted to understand, in comparison to this, how would have the industry grown? Do you have any number?

Might be between 40 to 45 percentile.

Industry would have grown at 40%?

Yes. 40% or 45%, yes.

Sir, if I look at the results of some of the peer companies in domestic, I mean the results were not this kind of encouraging. I mean they were good but not such high number. So what I'm trying to understand is whether this growth rate is coming from new markets we are exploring? Or what is changing in terms of -- are you gaining market share from other players? For my -- other possibility could be that our inventory in the channel could be high and which can impact the second quarter.

Our inventory in channel is absolutely not high. But yes, if our growth is more, definitely, we are gaining some market share.

Okay. Okay. So any specific trend apart from that, you think, which has led to such a robust growth rate? I mean if you could just elaborate on that, like, any specific product is doing well or any specific geography is doing well for you? Was there a significant increase in the distribution network which is leading to this kind of a growth rate?

So there are 3 major initiatives at the back-end which are playing. And just the last year's pandemic situation multiplied the effect of our efforts. One is the branding, marketing, visibility efforts to reach out to the farmers, reach out to the influencers and the channel aggressively. So we were able to do that in the midst of the pandemic also even in Q1 last year. So that was one initiative. Second initiative is the aggressive supply chain support that we offer to our primary channel as well as the secondary channel. Again, in the middle of the pandemic, we were able to activate our production units in first week of April. We were able to activate our depos and supply chain. We were able to coordinate with the local authorities, district collectors and district magistrate, agriculture commodity being an essential commodity, to reach the channel aggressively. This would be -- supply chain was the second aspect which gave us this benefit. Third is powerful new products which we introduced over previous years had not seen traction. However, labor migration resulted in a lot of movement in weedicide. Overall attention towards product development and educating the farmers resulted in new product moving aggressively even during that period. So these 3 initiatives collectively put us on a sharper curve as compared to the industry.

Okay. So you believe that next year, if the monsoon still turns out to be good, then we will be able to sustain this kind of a growth rate? I mean not from such percentage perspective, but at least we'll be able to sustain these numbers, absolute numbers.

Absolutely. Absolutely.

Okay. And sorry, if I missed, have you given the guidance for full year in terms of revenue growth rate?

Yes. For the full year, we are targeting for double-digit growth. And as I told that August and September we'll decide. So we will be able to give you more specific number after the second quarter.

[Operator Instructions] Our next question is from the line of Archit Joshi from Dolat Capital.

Sir, my question is relating to the new product launches where we have done a significant bit of work. And whilst doing that, we have maintained that some of our flagship products like Targa Super or Sempra and Sakura have been very resilient in terms of demand and where there's been a decent bit of volume growth. Sir, my question is, despite the product launches that we have done, and we have seen our ITI to be going down sequentially, what is it that as a company that you're facing on that front in terms of reaching out to farmers? And probably in saner times, pre-COVID, had we done the same kind of product launches, our volume growth could have been a little higher. So any thoughts on why this -- the farmers are sort of resenting from adopting to the new products that we have launched?

Farmer is adopting the new products. There is no issue on that front. Farmer has aggressively lapped up -- the channel has aggressively lapped up the generics also. So the generic growth rate has been relatively higher, I can say. In terms of Q1, what happened was unprecedented, unimaginable. In Q1, the channel was lapping up, the farmer was lapping up the generic portfolio across weedicide, across insecticide very, very sharply. So there was a disproportionate offtake when it came to generic insecticide and weedicide and even fungicide, and we were able to service that demand. So that is one piece. Second piece is, you have seen our flagship product, Targa also done really well last year. [ Sempra ], our offering, again a herbicide in sugarcane and maize, received wonderful response last year. Largo, our insecticide, introduced with Corteva, has been accepted extremely well and performed really well in this year, especially in Q1 in various horticulture crops and maize. Godiwa Super has done really well. We phased out some of the products relatively faster, and we slowed down our introduction in FY '19 and FY '20. So slowed introductions in FY '19 and FY '20 means we have a lower ITI in FY '21 and FY '22. But you will see this ITI gaining traction very fast and will turn around in the next FY -- next financial year.

Right, sir. Sir, I was trying to understand, if these product launches would have been during the pre-COVID times, say, where you used to have a lot of on-ground activation sort of activities like Dhanuka Doctors, et cetera, would that have influenced the buying behavior of farmers much more than what we can see right now? Is that something that could have had a negative bearing? Any comments on that?

That's something we truly miss. That is something Dhanuka loves to do, reach out to the farmers, touch the farmers, touch the fields, touch the crop, educate the farmer on the spot, demonstrate the results. That is something we have really missed over the last 15 months. And I think so our farmers are missing that, our channel is missing that. We are trying to catch up and compensate through Zoom meetings with farmers, through Facebook Live with farmers. We are inviting scientists from universities, from TDK experts and consultants doing this interaction. But thank you for bringing that up. We really miss that. It is painful that we are missing it, and our farmers are missing it, because of which the ITI, the farmer education has been will be slow, will be slow if the lockdowns remain in action.

Our next question is from the line of [ A Anandha ] from PGIM India.

Sir, could you throw some more color on your revenue growth guidance? You have -- in the answer the previous question, you said that you're expecting a double-digit revenue growth for this year, which is in line with the guidance that you have given at the end of Q4. And in the presentation, you have put a line stating that you're expecting muted revenue growth in FY '22 due to delayed monsoon. So could you just reconcile these statements?

Actually, earlier, we were expecting better double-digit growth. But now considering the muted rainfall, we are also looking muted double-digit growth in this FY '21-'22. So that's why we have mentioned that because of the not very good rainfall and the impact on the first quarter and July month, we are looking for muted growth in this FY '21-'22.

So even for a double-digit growth for FY '22, for the remaining 3 quarters, as a whole, you would need to grow at low to mid-teens kind of growth to have -- to end up with a double-digit growth. That's the way to look at it?

Yes, you are right. That way, we have to do much higher growth in the remaining period to touch the double-digit growth by March '22.

And sir, this would be assuming that the rainfall picks up from this month onwards and that's sustained for the remaining 3 months, and you have a normal Rabi season. That's the base assumption that you have taken into account?

Naturally. Because if the season is not favorable, then it will be difficult. But we are hopeful that the recent rainfall which has come, which is giving positive sign, and we do hope that in times to come as for the forecast, August, September, we'll be having very good rainfall. So let us cross our finger and hope for the best.

And for EBITDA margin guidance, so if I assume a mid-teens kind of revenue growth for the rest of the year, the gross margins could remain under pressure. There is some scope for some operating leverage because of the mid-teens kind of revenue growth. That's how one should look at it?

Yes, there can be some impact on EBITDA margins also because in the first quarter, because of the muted growth or you can say, little degrowth, we were not able to pass on the 100% price increase in the prices of raw material. Some price increase has been passed onto the consumer, but 100% we have not been able to pass. And since the demand in the first quarter was not that great, as for last year, when demand is less, then it becomes difficult to pass on the price increase in the market because of the competition. So that way, we expect that there will be some impact on the EBITDA margin.

Our next question is from the line of Rohan Gupta from Edelweiss.

Sir, couple of questions from my side. Sir, one is definitely on a very high base of last year, our first quarter growth was muted. But I just wanted to understand, sir, can you give some sense on the industry growth for the first quarter and also a likely growth for the entire FY '22?

So the industry would have probably grown in Q1 this year by about 10% -- 10% to 12%. That is what...

Despite sir -- because last year was good for everybody. I mean not only for our company but on heavy base of last year, you see the industry still has grown by almost 10% in Q1.

I think the industry would have grown by 10%.

What will be the likely expectation for the full year?

The full year expectation, I would have around 10% -- 10% to 12%, again for the industry because what has been gained in Q1 last year and the growth over that is something which is averaged out. And then going forward, it was normal. The rest of the 3 quarters is comparable for everyone. The leverage that we had in Q1 in last year was a very different leverage we had because of our ability, our supply chain. So rest of the 3 quarters are going to be, on an average, about 10% to 12% growth for the financial year.

Right, sir. Sir, second question is on the margin pressure which we have already witnessed in Q1. I understand that our growth was slightly muted and that's why there may have been some pressure on margin. But Dhanukaji also mentioned that there has been cost increase in some product that is across the industry. But sir, you also mentioned, Rahulji, that this time, the agri commodity prices are on a higher side, almost across all the agri commodities. So is there any farmers' resistance in the market that we are not able to pass on the price increase or it is just on the competitive pressure in the market? You also mentioned that the generic market is completely flooded in Q1. So because of high competition, we were not able to pass on this cost.

So June and July, it was high competition and inventory pressure because of which the cost could not be passed on. Lower consumption, higher inventory pressure, higher competition because of which the cost could not be passed on. As the consumption picks up, then Dhanuka will be probably the first one to pass on the cost.

Sir, we have already entered into high consumption period now. So we are already -- we have already seen July is over and getting into August month now, which is, I mean, a heavy consumption period. You will be getting trends in the market. So as far as your understanding is concerned, do you see that margins should be improving in Q2, if we just look into that?

Not in Q2.

Okay. So there may be continued pressure on the margin in Q2 as well because the Q3 is the heaviest quarter for our company and for the entire industry. So...

That's right. It is for the entire industry, yes.

Our next question is from the line of Uday Gupta from Kotak.

This is Ritesh from Kotak. Sir, just 2 questions from my side. One is that kind of understanding from the same questions that have been asking -- asked earlier. So, of course, the high base -- I mean marginal decline despite a high base and while your sales would have been great, last year there was some shift from fourth quarter as well and some preponement of demand from 2Q as well. So last year first quarter was a fairly strong quarter, right? And on that, you have seen only 2%, 3% decline. And you have also said that liquidation in the ground and the consumption on the ground probably hasn't been great because, of course, sowing itself has been running behind schedule. So what I'm not able to understand -- what I am kind of not able to understand is that -- I mean where does -- like if you have seen such a strong Y-o-Y growth on a 2-year basis, where did the material got liquidated? Because, I mean, otherwise, there would be material in the channel. And then secondly, on the -- in the presentation, you have said that you have been sitting on high price inventory and that will drive the margin decline. While -- so I just want to -- I mean, I think, the commentary suggests that the margin decline is largely due to the raw material inflation which you are not able to pass on. So could you just connect -- could you like just give me a sense on both revenue and raw material cost?

Yes. You see because of the very muted demand, there was a lot of pressure in the market. And now the -- see -- prices of many molecules are softening. Are you getting the point? So, you see, whatever we purchased in the month of July, the prices of many generics are on the declining mode [ in the month of August ]. Therefore, we are saying we are having the high-value inventory, right? That was the reason in our presentation.

Okay. Okay. Okay. Understood. And sir, on the top line growth because, let's say, when I look at your last year, of course, there was a lot of shift from fourth quarter to first quarter and there was some preponement of demand also because of COVID-related reasons. There was some preponement of demand also last year. I mean some 2Q material is actually is in first quarter itself. So on that base, you've done reasonably well. You have probably hardly declined by 2%, 3%. So I'm just asking that if the liquidation is not happening, sowing has been behind schedule, so -- I mean, like, is it that your channel inventory on a Y-o-Y basis is much higher this time than last time?

See, channel inventory, normally, we see quarter 1 sales [indiscernible] in most of the companies. We are not pushing very big inventory. But however, the monsoons start from first week of June. So people are keeping the material and sending to [indiscernible]. So this time, again, the material was lying with the distributor and the consumption was expected to start in the first week of July, which has not happened this year.

Ladies and gentlemen, that was the last question. I now hand over the floor to Mr. Manish Mahawar for closing comments. Over to you, sir.

Yes. Thank you, Indra. On behalf of Antique Stockbroking, I would like to thank the team of Dhanuka Agritech for providing us an opportunity to host the call. Dhanukaji, would you like to make a closing comment, sir?

Yes. Just one comment to summarize that last -- Dhanuka continues to demonstrate our ability to overcome challenges and emerge stronger despite the uncertain business environment. We are enhancing our marketing efforts to capture market share. The basic fundamentals for agriculture and agricultural inputs in India are very strong, and we are bullish on the prospects in the coming quarters and the coming years. So we hope that this rainfall which has started now will continue because Sawan has just started. According to Hindu month -- Hindi months, Sawan and Bhadon, these are 2 main months of rainfall. So we hope that this rainfall will continue, and the Indian farming community will get the advantage so that Dhanuka will get the advantage in the coming quarters. Thank you very much. Thank you. Thank you all

Thank you, members of the management. Ladies and gentleman, on behalf of Antique Stockbroking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.