Dhanuka Agritech Limited (507717) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Dhanuka Agritech Limited Q1 FY '27 Post Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stockbroking. Thank you, and over to you, sir.

Thank you, Sumit. On behalf of Antique Stockbroking, warm welcome to all the participants on the 1Q FY '27 earnings call of Dhanuka Agritech. Today, we have leadership team represented by Mr. M.K. Dhanuka, Chairman; Mr. Rahul Dhanuka, Managing Director; and Mr. V.K. Bansal, CFO on the call. Without further ado, I would like to hand over the call to Mr. M.K. Dhanuka for opening remarks. Thank you, and over to you, Mr. Dhanuka.

Thank you, Manish. Good afternoon, ladies and gentlemen. Myself M.K. Dhanuka, Chairman of Dhanuka Agritech Limited, and I welcome you all to the Q1 FY '26-'27 earnings conference call. I have with me Mr. Rahul Dhanuka, Managing Director; and Mr. V.K. Bansal, CFO of the company. As you are aware, Dhanuka Agritech is among India's leading agrochemical companies with a long-standing commitment towards advancing Indian agriculture through technology-led crop solutions. Over the years, we have built a strong pan-India franchise with deep farmer engagement and a differentiated product portfolio and a robust distribution network Today, we reach more than 10 million farmers across India through approximately 6,500 distributors and over 80,000 retailers. Supported by 4 manufacturing facilities and 41 warehouses, we continue to strengthen our ability to deliver products efficiently across key agricultural markets. A key differentiator for Dhanuka has been our consistent focus on introduction of innovative and globally relevant chemistries in the Indian market. Our partnership with 10 leading multinational agrochemical innovators from Japan, Europe and the United States continue to provide us access to the advanced technologies in differentiated solutions for Indian farmers. 2 R&D centers supported by NABL [indiscernible] laboratories and a strong regulatory and product development team remain focused on product registration, formulation development and strengthening our future growth pipeline. The agrochemical industry witnessed a significantly challenging first quarter of FY '26-'27 across the sector, revenue growth remained under pressure due to delayed monsoon onset in several key agricultural regions, which postponed sowing activities and led to reduction in product demand from first quarter to the subsequent months. Industry estimates indicated modest revenue growth while profitability remained under pressure owing to weaker domestic demand and price competition. You are well aware that in the month of June, we had 40% shortfall in the rain. And by the end of July, it came down to 15% shortfall. So even 1% shortfall in the rainfall impact the sowing areas and the overall growth of the crops. In addition, the sector continued to face challenging challenges arising from elevated raw material and logistics costs during the quarter. Several companies attempted price increases during the initial months of the season to offset higher costs linked to geopolitical tensions in West Asia. However, weak market demand limited the sustainability of such hikes. Against this backdrop, I would like to share that Dhanuka delivered a subdued operational and financial performance during the quarter. Revenue from operations for Q1 FY '26-'27 stood at [indiscernible] crores as compared to [indiscernible] in Q1 of FY '25-'26 registering a degrowth of approximately 12.56%. EBITDA for the quarter stood at INR 55. 01 crores and profit after tax stood at INR 36,530 crores. Our balance sheet and cash generation continue to remain strong, providing us the flexibility to invest for future roles by overcoming the short-term headwinds and [indiscernible] contribution to turnover for Q1 FY '26, '27 was north contributed 36%. Each contributed lower 9%, rest contributed 37% and [indiscernible] 18%. Product category-wise share was [indiscernible] 25%, fungicides contributed 14%, herbicides contributed 42% and others contributed 19%. [indiscernible] herbicides contributed 42% and others contributed 19%. While the first quarter was impacted by delayed seasonal demand, pricing pressures and external uncertainties, we believe these are largely cyclical challenges. The long-term growth drivers of the Indian agrochemical industry remain intact, and we remain optimistic about stronger momentum in the coming quarters. The shareholder of the company and the [indiscernible] meeting held today at 11 a.m. considered the final dividend of 100%, that is INR 2 per equity share having face value of INR 2 per share and the dividend will be declared within due course. The company share buyback of 5 lakh equity shares at the rate of INR 1,400 per equity share absorbing INR 70 crores. Further, it is to inform you that the company has acquired land at Nagpur, Maharashtra for setting up a new manufacturing plant [indiscernible] out is up to INR 200 crores. The proposed [indiscernible] metric ton per annum. It is expected that the plant will be operational by April 2028. We are pleased to inform you that in the upcoming months, we are planning to launch new products consisting of liquid fertilizer, fungicide and herbicide. At Dhanuka, we continue to believe that sustainable business growth must go hand in hand with farmer prosperity and national food security engage with agriculture [indiscernible] remains an important part of our farmer education and technology dissemination effort. Thank you very much for your kind attention. We would now like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of [indiscernible]

My question is about the products which we had acquired from Bayer. Have we expanded our distribution reach in other countries? And we had appointed some customers also in 5 countries and we are planning for more expansion. And you had also mentioned that these are real challenges which we are facing. So just wanted an update on this one.

So we have acquired [indiscernible] in its variants and Tridemenol and its variants from Bayer for global markets. And as we speak, we have already established some customers in various markets and already business started with them, whereas in some markets, we are yet to establish our distribution setup, which is ongoing as we speak. Also, as we speak, the Executive Director of International Business, [indiscernible] is traveling to these markets in U.S. and Brazil, meeting with customers existing as well as prospective.

Okay. And sir, in terms of revenue, could you please tell us how much would these products contribute to the top line in FY '27?

As of now, we are not sharing the number of how much Tidamenol and [indiscernible] will be sharing in FY '27. But yes, we'll address this query separately.

Okay. So my next question is the products we introduced in the last year like [indiscernible]. So how much do the new product launches contribute towards the top line? And has that ratio increased over the years? And also, I wanted to know the thought process when you introduce new products, what are the management's internal target for the return ratios and margins which they would like to command? And does it differ from segment to segment?

Right. So what we track our performance on new product introduction is through innovation turnover index. And we have maintained a healthy innovation turnover index. Last year, it was about 13.89%. And Word, which is a biological calcium, sorry, not calcium. It's a biological bionutrition for various crops. We introduced late last year, sometime in September. And we have seen good traction for [indiscernible] in the first quarter this year. There was no significant movement last year. MYCORe Super was introduced the year before, that was in FY '25. MYCORe Super was introduced in Q1 FY '25. It did really well in FY '25. It has done extremely well in FY '26 also. And this year, Q1 also, MYCORe Super has received good traction across the geographies and across serial crops, pulses, sugarcane and even horticulture crops.

Okay. And just like the second part of my question, what is the thought process when you introduce the new products and some internal management, let's say, targets for the return ratios or the margins which you would like to command would it differ from segment to segment?

Yes, it differs from segment to segment since at Dhanuka, we introduce new patented products also, new chemistries from various J-makers, Japanese partners and their premixes. They fall in a premium category and we command a different margin on those products. Nutrition products also mostly have a differentiated and a premium margin. MYCORe Super and [indiscernible] both would fall in the same category. We introduced various metoo products and co-marketing products also time to time, which would normally fall in a lower margin category as compared to 93 products or nutrition. We benchmark a healthy 20% margin minimum for any new introduction, but mostly 93 and nutrition would have significantly higher, more than double sometimes.

The next question is from the line of [ Umang Shah ] from Banyan Tree Advisors PMS.

Sir, my first question was what is the update on the GST notice that we have received a couple of months back?

You see we have already appointed our [indiscernible] that is under consideration. It will take a little more time.

And are we confident that [indiscernible] order within our favor?

Sure, sure, sure. Now these molecules are categorized under that category of fertilizer. So currently, she is 5%. We are sure we'll win the absolutely. There's no doubt about it.

And the second question was 2 parts. One was, are we looking to sign more deals in the international markets like we did with buyers? And will it also help feed our Dahej plant capacity?

Right. Thanks for that question. As you are aware, Dhanuka is a debt-free company. We have a strong balance sheet and has been like that for many years. So yes, we are scouting out for good inorganic growth opportunities, including product portfolio. Leveraging our capabilities in Dahej plant is always an expanded option. yet our strength in Indian market, market access as well as capabilities to manufacture synthesized products in Dahej altogether are various dimensions across which we explore acquisition.

Okay. Okay. And sir, this Nagpur plant, is it going to be a formulation plant? Or is it going to be a technical plant Dahej?

This is going to be a formulation unit.

The next question is from the line of Darshita Shah from DSP Asset Managers.

My first question was regarding the guidance cut that we have done in the PPT for FY '27. Just wanted your thoughts on why such a steep cut, especially on the top line growth front?

So as you can obviously see the movement of monsoon and its impact from various angles, I think so this is where we estimate our best position to be. We are still pretty hopeful of the growth that will come in Q2 and Q3. And yet it is absolutely appropriate that we project a clear picture to our investors.

Got it. But so I mean, it's safe to assume that second quarter so far has also not seen a larger growth given that we had some benefit of the base as well last year same quarter.

That's right.

All right. Okay. Secondly, on the new facility, the 23,000 tonnes facility, INR 200 crores CapEx for a formulation unit seems a little high, isn't it?

How do you arrive at is high...

Also why because for the technical plant we had set up, we had expanded roughly about INR 250 crores, INR 300-odd crores. Usually, the thought is that formulation plant, about INR 60 crores, INR 70-odd crores is something that we do and we expect 7, 8x asset turns on the formulation plant. So that's why I just wanted your thoughts on the same.

We are imagining this plant to be significantly automated plant, cutting down on labor dependencies, making this plant of global standard in terms of both safety and efficiency. So with that automation in mind, we are expecting initially a relatively higher CapEx.

Okay. But I'm guessing given that it's a new land, some part of the INR 200 crores would go for setting up the utilities and everything?

Yes, it will be.

Got it. Got it. And the asset turns, we should think about it at like 7, 8x.

I think so this is probably not the right time for me to come on the asset turns part, but I think so we'll be able to come back and address this towards once the project details and everything are deeply finalized, which is probably late last Q4.

Got it. Okay. [indiscernible], if you could just give us the split for the Dahej side revenue, EBITDA and beer product revenue and royalty for first quarter?

You see in terms of Dahej turnover last year, it was around INR 16 crores. This year is around INR 26 crores. In terms of EBITDA, last year, EBITDA was negative INR 3 crores. This year is less than INR 1 crore.

Okay. Sir, sorry, could you repeat the revenue number again?

Revenue is [indiscernible]

Okay. Got it. And for Bayer product?

Bayer product revenue is not actually coming in our books in the quarter 1.

And the royalty?

Royalty is significantly lower as compared to last year. It is around INR 4 crores.

Right. Okay. Sir, just your thoughts and just one last question on your thoughts on -- do we have any threshold on how much do we plan on expanding on these beer products to set up a distribution network in the export market?

As of now, not on that front.

The next question is from the line of [indiscernible] from Tri Asset Managers.

Most of my questions are already answered, but a few questions from my side. After this season began, how would you categorize inventory level at distributors and retailers? Are inventories broadly aligned with the primary sales? Or do you see any stocking or destocking trend emerging?

And this you are seeking for which window?

This year, quarter 1, quarter 2.

Quarter 1, quarter 2. So okay. Now as you are aware that last financial year ended with significant increase in prices and a fear of nonavailability. So there was probably some front-loading in the market in the beginning of the year. As the season is progressing, we don't see either way stocking or destocking happening. Business is progressing on the go as per the market demand and inventory rotation is happening normally. So I don't foresee any stocking or destocking by end of quarter 2, either way.

And recently, we have launched many new products and upcoming also, we have many products. So could you please share how much of the Q1 revenue came from products which were launched over the last 2 years or 3 years? And what contribution you expect from these products over the next 2 to 3 years?

I've really not pulled out this part of the data. But as far as is concerned is around 11.5%, which is the conclusion of the last 3 years [indiscernible]

The next question is from the line of Prashant from Elara Securities.

Rahul, Q1 was supposed to be a decent quarter, I think, in general because of price increase and the industry might have got benefit of some low-cost inventory that we would have carried for the kharif season from Q4, but it does not seem to be so. So some more details from you on how Q1 panned out actually? And how is the situation in Q2 on ground would be very helpful.

Yes. So Q1 for us, and I believe industry general is herbicide. Heavy for soybean, cotton, various other crops across large parts of the geography, including especially -- these were some of the states which were like worst impacted in...

Sorry to interrupt sir, your voice is not audible. Your voice is cracking a little bit.

I'm sorry. Tell me, Sumit, is it better now?

Yes, sir. Please go ahead.

I'll take that part. So Rajasthan, Gujarat, Madhya Pradesh, Maharashtra import cotton and soybean markets. They took a major beating in terms of rainfall, especially in the month of June. And in some pockets, farmer had to even go for resowing. That is where herbicides for Dhanuka have taken a hit. And that's our -- that's reflected in our Q1 performance. In terms of South also, the sentiments have not been good. The rainfall has not been good in June as well as in July. Moving to Q2, July, while various districts and some pockets have seen excessive rainfall, a large part of the country remains deficit in rainfall and that's how July is moving. Of course, July has done better than June, yet what we see is a difficult quarter.

Okay. Sir, seeing your revenue breakdown segment-wise, herbicide declining by around 25% is understandable. But in a season of herbicide heavy consumption-wise, fungicide sales up 11%?

[indiscernible] around 11%.

No, Y-o-Y growth.

I didn't get your question.

So fungicide sales was up 11% year-on-year in Q1. Generally, Q1 is a herbicide placement season and insecticide fungicide takes a backseat for because the sales are generally higher in Q2. But why is fungicide sales also up 11% this quarter?

This is very interesting. Some -- and a very specific fungicide, a very special Japanese fungicide has a special traction in dry season in horticulture crops. Now high horticulture prices, for example, tomato, cooker bits, et cetera, gave traction for these 2 products. And that's why fungicide has grown in Q1, whereas you are conventionally right, Q2 is a fungicide quarter.

Which molecules would these be or which brand [indiscernible]