Dharmaj Crop Guard Limited (DHARMAJ) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Dharmaj Crop Guard Limited Q2 and H1 FY '26 Earnings Conference Call hosted by TIL Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Mehra from TIL Advisors. Thank you, and over to you.

Welcome, everyone. Good afternoon, and thank you for taking the time to join us in this earnings conference call of Dharmaj Crop Guard Limited. The investor updates have already been uploaded on the stock exchange and on the company's website. To take us through today's results, we have with us the management, Mr. Ramesh Talavia, Chairman and Managing Director; Mr. Jaman Talavia, Full-time Director; Mr. Vishal Domadia, Chief Executive Officer; and Mr. Vikas Agarwal, Chief Financial Officer. We will start with a brief opening remarks on the business performance from Ramesh sir, following by opening remarks and financial performance by Mr. Vikas Agarwal, and then open the floor for Q&A session. I'd like to remind you all that anything and everything said on this call that represents any outlook for the future, which can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties have been mentioned in our annual report. With that said, I would now like to hand over the call to Ramesh sir. Over to you, sir.

Good afternoon, everyone, and thank you for joining us today for the Q2 and H1 Financial Year '26 Earnings Conference Call for Dharmaj Crop Guard Limited. We are pleased to report that for Q2 financial year '26, Dharmaj recorded revenue of INR 347 crores, reflecting a 12% year-on-year growth. For the first half of financial year '26, revenue reached INR 715 crores, registering 26% year-on-year growth. This year, our Q2 revenue was sequentially lower than Q1, which is the uncommon trend of our company. The primary reason for this divergence was an early onset of monsoon, which arrived nearly 20 days ahead of schedule. This leads to a preponement in Kharif season demand, resulting in some Q2 sales being booked in Q1. Despite this early monsoon impact, which were evident in Q1, we still anticipate sequentially stronger Q2. Unfortunately, the erratic and uneven nature of monsoon towards the end of Q2, particularly in light of late August and September, resulted in crop losses and subdued demand for agrochemicals across the country. Some region experienced excessive rainfall while other faced deficiency, creating an uneven environment in terms of soil moisture and market condition. Additionally, lower cash activity due to the heavy rainfall leads to reduced insecticide spraying, especially in September, which further impact demand. This trend was observed across the industry. Northern India, especially Punjab, northern Rajasthan and neighboring states also faced a localized flooding. While our primary concentrations is in Western and Central India, this event had some incremental impact. In summary, while the second half of Q2 did not unfold as anticipated, especially after the promising start to the monsoon -- to the season, our results for kharif season as a whole demonstrates strong resilience. On a financial, H1 FY '26 to H1 FY '25, we delivered a robust 26% year-on-year growth, underscoring the strength of our execution and market positioning. Breaking down our top line further, our formulation business continues to be mainstay, delivering 17% year-on-year growth in brand formulation and 21% year-on-year growth in domestic institutional formulation for H1 FY '26. The active ingredient segment has scaled up meaningfully as well as posting sales from 44% year-on-year growth in H1 FY '26. Furthermore, our export institutional business, which had challenges last year, has returned to growth with 51% year-on-year expansion in H1 FY '26. On the profitability front, our Q2 margin moderated sequentially and year-on-year, mainly due to the lower contributions from our brand formulation business and higher share of active ingredients and export, increased operational expense in Q2 due to our annual appraisal and rise in headcount and certain noncash items like mark-to-market ForEx losses also impacted margins. Consequently, we saw for Q2 EBITDA margins compressed relatively to Q1. However, on an H1 FY '26 to FY '25 comparison, margin improved slightly, driven by higher scale and operating leverage. This improvement is inflected in our net profit, which stood at INR 49.9 crores for H1 FY '26, up from INR 36.1 crores H1 FY '25. Looking ahead, active ingredients remain an important lever for margin expansion. We aim to keep our Sayakha facility EBITDA positive throughout financial year '26, supported by scaling up and increasing active consumption at our formulation plant. With an improving pricing environment for the industry, we expect active ingredient to further enhance profitability. Another highlight is receipt of an interest subsidy of approximately INR 3.53 crores in November, pertaining to our period from January '24 to April '25. Looking forward to the upcoming Rabi season, with favorable moisture and reservoir level nationwide, we are optimistic about the good demand momentum, we are confident of our ability to surpass last year's Rabi performance and remain firmly on track to achieve our growth objective for financial year '26. Thank you, thank you very much.

[Operator Instructions] We'll take the first question from the line of [ Shlok Akolia ], an individual investor.

Sir, my first question was that we know that the whole industry has faced a difficult environment because of erratic monsoon and subdued channel movement, but expectations for Rabi are highly positive. How is the -- how is Dharmaj thinking about H2 performance? And is there any update to your earlier guidance?

In H2, we are confident to our growth planning in this year, current year because of the last year comparatively, Rabi season gave some lower part. And this year is we are heavily -- highly optimistic to grow our business.

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Shlok, sorry, your voice is sounding muffled. Can you please repeat it?

Am I audible now?

Yes.

So 22% to 25% growth is what we expect for [Technical Difficulty] around [Technical Difficulty].

I'm sorry, we've lost you again, [ Shlok ]. No, we still can't hear you. Your voice is very muffled.

Now, audible now?

Now it is better. Please go ahead.

Sir, 20% to 25% growth is what we expect for the whole year as provided before and about [ 150 points ] of EBITDA...

I'm sorry, we lost you again, Shlok. [Technical Difficulty] Shlok can you be in a good network area and then may be join back the queue, please? We'll take our next question from the line of [ Dwipal Goswami, ] an individual investor.

Good afternoon, sir. Thank you for the opportunity. Am I audible?

Yes.

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Okay, sir. On year-on-year, sir, [Foreign Language] 6 months down the line?

[Foreign Language] from H1 to H1, actually. If you see to H1 to H1 [Foreign Language] that will increase to [ 1% to 1.5%, ] [Foreign Language].

Okay, sir. [Foreign Language]

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Next question is from the line of Yogansh Jeswani from [indiscernible].

Sir, can you share about the volume growth that we registered in both the formulations and the technical side? I'm sorry if you covered it in the opening remark, but the line was quite patchy.

So we have a volume growth of around 30% to 35% overall.

Okay. Sir, can you break it down between technical and formulation, please?

For technical and formulation, for technical, it was around 30%. And for formulation, it was around 35%, approximately.

13% or 30%?

30%, 28% to 30%, 30%.

Okay, 28% to 30% in technicals and 35% in formulations?

Yes. So overall, it is 30% to 35%.

Okay. And this you're saying for H1 or for quarter 2 specifically?

This is for H1.

This is for H1. Okay. And sir, with this volume growth that is coming to the technical, so how much are we now being able to do captive and how much is it outside?

So our captive utilization product to product will be around 30% to 35% of the total production, and the rest will be outside, till.

Okay. And sir, like you're sharing to the previous caller that in FY '27, you're expecting 70% utilization in the Sayakha unit. So when that happens, the captive consumption will still stay 30%, 35%, and this would be the growth from the outside market that we'll do or the captive will increase further?

It will be -- both will increase actually. So percentage wise, it will be remain more or less same actually. Our captive will also increase and our outset will also increase in 10 percentage. So there will be hardly any difference in percentage wise.

Fair enough. Understood. And sir, in terms of product, if you can call out what are the key products that is leading the technical customers at the moment? And going forward, what is your expectation from these products in terms of price range, in terms of volume? I know it's tough to give a guidance. I'm not asking for the guidance, but just a broad understanding of what are the key products and how you're looking at them in terms of the market dynamics?

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So Rajasthan is recovering now. Got it, sir. [Foreign Language]

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Got you. Got it, sir. And sir, in terms of going forward. [Foreign Language]

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[Foreign Language] See, depends on product to product, season to season and volume too.

[Foreign Language] Given more than half the year has passed. [Foreign Language]

EBITDA, right now, it is already at the breakeven. EBITDA level is already breakeven. So whole year also, we presume that it will be positive only. It will be breakeven at EBITDA level definitely.

And sir, at PBT level?

PBT level, there might be -- we won't have any cash losses. So we can say that PBT level, 50%, we will cover.

Next question is from the line of Ankit Gupta from Bamboo Capital.

[Technical Difficulty]

Ankit, sorry, can you use your handset mode, please?

I'm on handset only. Is it better now?

Speak a little louder. Yes, this is fine. Go ahead, please.

[Foreign Language]. Outlook for the coming few quarters in FY '27?

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Yes. [Foreign Language]

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For FY '26, our revenue for technical plant will be around INR 250 crores to INR 260 crores. And after that, it will be increased by again 20% to 25%, what guidance we are giving. So on that parameter.

So around INR 300 crores, INR 310 crores.

Yes, yes.

And what kind of EBITDA margins are you looking forward in FY '26 and '27 in this business?

GP margin, I can tell you in FY '26, GP margin is 22% right now, which was last year in FY '25, was 19%, so it was improved. So it depends upon how the pricing will go in technicals, but we feel that I would improve.

We'll take our next question from the line of [ Praneet, ] an individual investor.

So I would like to understand in terms of the gross margin, like between the 4 business verticals, could the management explain what gross margin does each vertical has?

Yes. So our technical, as I already told in H1 for our technical gross margin was around 22% for our formulation, our GP margin for our B2C is around 40% and for formulations, it is around 18%.

Okay. What about in exports?

Export is around 18% to 20%.

Understood. And one more thing regarding your capacity utilization. In a previous con call, the management has mentioned, because it's a lumpy business, like in the technical, it's difficult to scale up beyond 60% to 70% mark. So what has changed now that we're able to deliver 65%, and do we need to add capacity to continue to scale our technical business?

No, sir, there is some -- it was in formulation. Formulation can't go beyond 60%. In technical, we'll definitely go up to 80%. So that guidance possibility, we have given. So last time, last year, FY '25, we had capacity utilization of 58%. This time, it is 62%, 65% to 68% product to product.

So -- but with the rates we are going at, like 20% to 30% volume growth -- value growth, we will need additional capacity by next year, right? So what does the company think about that?

Yes, yes, definitely. The next year also, it will be increased. So it will be around 70% to 70% plus.

No. I understand the capacity utilization will increase. But additional facility, we'll need because once we reach 80% and we want to maintain the revenue growth of 20% for the technical business, we will need more capacity, right? How is the management planning on catering to that demand after the 80%?

Got you. That part -- that, we will see in future actually whether or how we will increase that because in 80% capacity also, when we do 80% capacity utilization, our outside scale will be around INR 400 crores to INR 450 crores. That will take at least FY '27 and '28. After that, we will think of it for addition of new capacity utilization, new capacity. However, we have some addition in our herbicide plants that Ramesh sir will explain to you a little bit.

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Okay. So right now, our technicals only are in insecticides. Now we're also expanding towards other technicals in herbicides also?

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