Godrej Agrovet Limited (GODREJAGRO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Godrej Agrovet Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on Godrej Agrovet Q3 FY '20 and 9M FY '20 Earnings Conference call. We have with us Mr. Nadir Godrej, Chairman; Mr. Balram S. Yadav, Managing Director; and Mr. S. Vardaraj, Chief Financial Officer of the company. We would like to begin this call with brief opening remarks from the management, following which we'll have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Mr. Godrej to make the initial remarks.

Good afternoon, everyone. I welcome you all to the Godrej Agrovet conference call to discuss the operating and financial performance for the third quarter and the 9 months of the financial year 2019 to '20. I shall take you through the summary of our results, followed by the key developments and the operational highlights for each of our businesses. For the third quarter, our consolidated total income was INR 1,792 crore compared to INR 1,459 crore in the corresponding quarter of the previous year, registering a growth of 22.8%. The consolidated profit before taxes was INR 68 crore compared to INR 73 crore reported during the same period last year. Similarly, for the first 9 months of the year, the consolidated total income was INR 5,367 crore compared to INR 4,539 crore reported for the first 9 months of the previous year, registering a growth of 18.2%. Profit before taxes was INR 262 crore when compared with INR 308 crore for the corresponding period. Please note that the total income and profit before taxes for 9 months of the previous year exclude a nonrecurring income of INR 29.9 crore earned on sale of land, which was included in other income. Please also look that the financials for the third quarter fiscal year '20 and 9 months fiscal year '20 include the results of Godrej Tyson Foods Limited and Godrej Maxximilk Private Limited, which became subsidiaries with effect from 27th March 2019. Hence, they were excluded from last year's financials. Now I will discuss the performance of each of our business segments. In the Animal Feed business, volume growth was 8% in the current quarter, driven by growth in layer feed and fish feed segments. We have continuously taken price increases for most of our products, which resulted in year-on-year revenue growth of 32.2%. Consequent to the volume growth and price increase, segment margins improved significantly by 47.5% compared to last year. However, the prices of key raw materials remained high on a year-on-year basis. Going forward, we will continue to focus on maintaining our volume growth momentum, along with increasing the segment margins. In the Vegetable Oil business, the third quarter performance was strong as the revenues grew by 24.2%, mainly due to higher volume and sequential improvement in output prices. This resulted in significant improvements in the quarterly segment results, which grew by 36.6%. However, for the 9 months, the performance is adversely impacted by lower output prices and lower oil content seen in the first half of the year, which was also the peak season. In the Crop Protection business, stand-alone segment revenues and segment results declined by 15.7% and 15.2%, respectively. This was mainly on account of the extended monsoon, which resulted in delayed sowing. We have launched multiple new products in the last 9 months, which will increase the product portfolio and help us enter new crops and new segments in the near-term. In our subsidiary, Astec LifeSciences, we had moderate revenue and EBITDA growth of 4.5% and 1.9%, respectively, for the quarter. However, the 9-month performance was impacted due to lower realization, increase in input prices and deferral of export orders. Creamline Dairy Products Limited, our dairy subsidiary, posted revenues of INR 285 crore in the current quarter compared to INR 278 crore recorded in the same period last year. Profitability was impacted significantly during the quarter due to lower output prices and high procurement costs. We continue to focus on value-added products, and the salience of value-added products increased to 27% compared to 24% in the same period last year. Godrej Tyson Foods Limited, our poultry business, posted revenues of INR 158 crore in the current quarter compared to INR 128 crore in third quarter fiscal year '19. However, the EBITDA margins were under pressure on account of increase in the cost of live birds compared to the live bird prices. GAVL's joint venture in Bangladesh, ACI Godrej, recorded a robust revenue growth of 80.4% over the third quarter fiscal year '19, driven by strong volume growth in cattle, broiler and aqua feeds. With this, I conclude our business and financial performance update for the quarter. We will be now happy to take your questions. Thank you.

[Operator Instructions] The first question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

Sir, my question on the feed business. First, while we are seeing an improvement in the volumes, but in terms of the EBIT per tonne, or even the EBIT margins, on a sequential basis, it's been much lower. And from what we understand is, there has been some price hikes for the feed players. So I'm a little -- I'm not able to reconcile as to why there's a sharp drop on a Q-on-Q basis as far as the EBIT -- absolute EBIT and as far as the EBIT per tonne is down?

So as per the new accounting system, Godrej Tyson Foods transfer is also recorded as sale, which is at 0 profit. And that salience through last quarter was about 35,000 tonnes.

Apart from that, also the -- in this quarter, the salience of aqua feed, which is a higher margin segment within the Animal Feed is less as against the previous quarter.

Sir, on an apple-to-apple basis, what would be the margins? I mean, if I'm adjusting for that Godrej Tyson sales, which happens at almost 0 price to this entity, then what would be the EBIT and EBIT margin?

So if I were to exclude the Godrej Tyson feeds margin, so then the margin is -- for the current quarter, will be around 4% as against 3% last year for the same quarter.

But it'll still be lower because of that aqua feed? I mean, that is the...

Yes, because quarter-on-quarter, I think aqua feed offseason is the second and the -- third and the fourth quarter, sorry.

But we have taken price hikes, right, for this...

Yes, yes, yes. So that, I think we have been very proactive. And you will see that these margins becoming better in Q4.

Sure. And sir, on the -- with Creamline Dairy side, I think, continuously, we are seeing the business sales to be trading -- trading slightly lower-than-expected and really not contributing to the overall performance. What we also heard is there has been some price hikes in milk. If you can quantify, #1, why this continuously we are seeing a disappointment on this Creamline Dairy? #2, what is the quantum of price hike? And #3, what are we planning to do to improve the performance here?

So 1 thing -- so let me answer your second question first. That as a strategy, I think we have been saying that value-added is the most sustainable part of the business, and that is continuously growing, and we will end up about 29%, 30% of total salience as value-added products this year, which was about 22%, 23% last year. So that strategy is intact and that is one thing which will definitely keep on improving our margin. Now we come to what is happening this year. For last 6 months, there has been continuous increase in the procurement cost of milk, that you all know, because there is a shortage of milk and import of skim milk powder, et cetera, is not being allowed. And there is lot of competition for procurement of milk, not because of current consumption, but because of converting into fat and SMP, which will be utilized in shortages during summers. Unfortunately, just because the nature of the industry is such that there have been a lag of between 4 to 6 weeks in price increases, we have increased almost INR 8 a liter in 3 price increases in the past 6 months, but cost increase have been close to between INR 10 to INR 12 a liter in different parts of the area -- parts of areas we operate in. So this, I think, is primarily because of dominance of cooperatives in this sector because they take their time to take decisions. Private sector is definitely very prompt. So this is the 1 thing which is hurting the business significantly. And it is not that, that we have not been proactive, we've taken some price increases. And that is why you see a little bit of growth -- degrowth in our milk business.

Sir, we are referring to that INR 8 hike, right?

Yes.

Versus that INR 12 hike, yes.

Yes. And when I say INR 8, the NRV is slightly lower.

Okay, okay. Yes, sure. And sir, finally, my question is on the Crop Protection side that's a stand-alone business. I mean, we've seen across the board, the number seems to be good for most of the companies, but we are slightly negatively surprised when seeing our numbers coming out, especially post Rallis or other companies that had come out. What is it that has been different for us in this quarter because it looks like the margins are much lower, and we are not able to gain growth? Well, our peers have been able to do well.

Yes. So if you see our past record, we have been growing top line, bottom line in this business and are having a very, very high EBIT. But there is a price we paid for it in the past, which was, I think we lost control on the hygiene. And the working capital kept on rising, particularly the debtors. I think we have taken a very conscious effort in these 2 quarters, Q3 and Q4, that we are not very focused on sales, but we are very focused on recoveries. And I can assure you that in last quarter, in terms of working capital improvement, there is a substantial headway we have made, which will be built upon in this quarter. So what is happening is just because to keep pace with the sales growth, unfortunately, there were certain compromises we made on...

Credit extended to the...

Credit extended. So I think we are pulling it back. We want to maintain hygiene. We have certain product launches planned. One has already been done in December. It's a product called Hanabi for miticide in chillies and tea, which has a very good opportunity in these 2 crops. It is a product from Nissan. So we are on track, but I think hygiene was very important. So it is a conscious call to clean up before we embark on another high-growth year.

Sure, sir. Sir, if I might ask, what would be the quantum of debtor days that we -- or receivables that we are now giving compared to what we used to give?

We will give it off-line.

Off-line, but let me tell you that whatever the number is, we need about 30 to 35-day reduction in that number. I think it is more than 150 days.

Yes.

Around 150, will move to 120.

So we have to bring it down to below...

The question is about our policy rather than the actual...

Yes. So policy is 90 to 120 days, but nobody pays on time, we would be at 150-plus days. And we want to bring it down to sub 120.

The next question is from the line of Sumant Kumar from Motilal Oswal.

Sir, my question is regarding palm oil. So just would like to understand the palm oil price impact on their margin. And it will get -- is it going to be worse with the Malaysian palm oil import restriction?

So Malaysian palm oil import restriction does not affect volumes because we will buy from Indonesia. India, I'm talking about. So I'm saying that only the source will change. I think the general impact of palm oil prices is very, very positive. We are a little unhappy that had it happened 2 months in advance earlier, we would have really, really benefited during the season also. But having said that, the oil prices are holding, and there'll be some positive impact also because of refined oil being -- import being banned from Malaysia and Indonesia. So refining will pick up in the country, and so will the sources of oil in the country.

So are we thinking about the foreign integration of -- for the refining?

No, we would not like to refine. We will continue to be sellers of crude palm oil and palm kernel oil, the way we produce because refining is a totally different ballgame because we don't want to get into retail, et cetera. So -- and I needed to specify this because this question is asked several times to me. Please look at this as a agri business. That is our core competence. So we want to grow very, very efficient plantations, we want to increase productivity for the farmers, we want to increase oil extraction ratio. And that is where the focus is.

So we are expecting the price would -- is -- going forward, it is going to be firm?

It's already very high, much higher than last year. But we can always expect that prices will fall somewhat in the season because it's also the season in Malaysia and Indonesia, and production is very high from June to October.

So price has increased post the biofuel policy and...

The biofuel policy is what is keeping prices very high. And hopefully, this year, in this season, the drop may be smaller because of the biofuel policy. But on the other hand, we don't know what is the effect of coronavirus.

Okay. Because China will have a lower demand. In that case, will have an impact on crude palm oil price?

Yes, it will have a lower demand for palm oil, and it also has a lower demand for diesel.

Okay. So do you have a short-term correction in the palm oil prices?

Certainly, there would be a short-term correction and long-term impact will depend on how long the epidemic lasts.

Okay. Talking about overall Crop Protection business, so we are focusing on lowering the credit period to the dealer. And when we see the overall margin has impacted, so domestic business, we have a lower volume. Others are -- other players are showing a very decent number, more than 10%, 15% kind of growth. And our domestic business has declined by 15%, 16%, and so margin have been impacted. So which -- in domestic business, which crop -- you're talking about delayed monsoon, delayed sowing, which crop has a higher impact on your business?

Some of the horticultural crops.

Okay. So can you name the...

Grapes, grapes.

Grapes, okay. And talking about Astec, you have -- you were talking about the decline in realization. And overall, all the profitability of the -- all the AI business for all the companies has risen significantly post the increase in realization. And now the overall, we have seen the trend across globe, we are seeing a correction in the prices. So going forward, do you think the margin will be under pressure for the midterm for the Astec?

I don't think so because I think we are also -- should I talk about it? So there is -- this quarter is going to be much better than last quarter, I can tell you.

The coming quarter?

Incentives, incentives. That would have been incentives.

Yes. So the other thing was, there is a INR 6.5 crore reversal in Astec because of our -- we were getting some export benefit, which past year, we have taken at 3%, but government has now ruled that it should have been taken at 2%. So we have taken a hit of about INR 6.5 crores in the first 9 months numbers.

So the MEIS, you have a 3%, now it is 2%?

Yes. And we don't know what will be the scheme --

Prior period source.

This is for prior period -- it is for prior years also. And the scheme is effective till 31st of March, and they've not announced what will be the shape and form of the new scheme.

Sir, you said -- what is the amount, reversal in this quarter that you're sustaining.

INR 6.5 crores.

It is included in EBITDA, right?

Yes, yes. Yes.

So when we add that, the margin is higher than that, then in that case?

Yes.

Yes.

Okay. So next coming quarter, you have a deferral export, so you have a better top line and also margin?

That's what we are expecting.

Okay, okay. And talking about Animal Feed, when we talk about, you have -- you said you were transferring 0% benefit to Tyson. So we have seen -- under all the quarterly trend, we have seen a margin, decent margin, say INR 1.3 to INR 1.4 per EBIT -- EBIT per kg. And so can we expect this trend, whatever the numbers we have for Q4 onwards, so INR 1.3 to INR 1.4 per kg, it is going to decline from here because of Tyson? And Tyson, we are -- overall because of higher input prices, we have seen a lower -- the loss -- losses. So what can we expect from here for Godrej Agrovet Animal Feed business?

So 3 things I want to tell you about this. First and foremost, let me focus on Q4. The aqua feed offseason is there. Q3 and Q4 also.

Yes.

So there'll be -- aqua feed is more profitable than rest of the Animal Feed. Godrej Tyson's tonnages will almost remain the same, at par with Q4, but there will be an organic increase in our margins in rest of our business.

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

Sir, what was the FFB volume for palm oil in Q3 and last year same quarter?

FFB volumes of the palm in Q3 as compared to Q3 last year.

So we have 131,000 tonnes of FFB which we processed, very similar to last year same quarter of 132,000 tonnes.

And first 9 months also, give...

First 9 months, we processed 529,000 tonnes against 455,000 tonnes last year.

Okay. And sir, in Astec, last quarter also, we had seen some deferral of orders. So is it some client-specific issue? Because globally at least, the weather patterns are not creating any issue this year in any of the geographies but I understand that it's a volatile business quarter-on-quarter. But last quarter also, we had seen some of the deferrals. So if you could just clear the picture on that front?

It's all about when we record the sale. That is why within a quarter also, if there is a deferral, it does not get recorded.

So here, we recognized sales only after it is received at the customer destination. So that is the reason why deferral of sale happens in Astec.

And as it is in FOB.

Yes, under it is FOB. So towards -- generally, what we have -- towards the end of the year, we try and ensure that we plan for the dispatches well ahead of time, so that this deferral generally doesn't spillover a financial year. That's what the care which we take. But on a quarter-to-quarter basis, this becomes a bit of difficulty in terms of spillover of the sales to the next quarter.

Yes. I mean, so this quarter, some orders deferred to Q4, that's fine. But some of the orders which got deferred in Q2 would also have come in Q3 might be offsetting both these things?

Yes. So yes, so there will always be this kind of spillover from Q2 to Q3 also. But what is the net carry forward is what gets impacted. So the quantum will not be the same. And Q3 to Q4, the spillover will be higher as compared to Q2 to Q3.

And in the stand-alone CP business also, so Q4 also should be soft for us because of the controls, whatever we are doing on the receivables front?

The answer is yes. But I think most of the controls have already yielded the desired results. So we will not be holding back sales.

So that is, again, seasonality, which is there. So Q4 generally if you see, Q4 from a CPB perspective, there will be some uptick in terms of their performance.

Okay. And in the Animal Feed, so the latest Kharif arrivals, if you see corn and maize or soybean prices, they have been high. So could we expect some more price increase after this Kharif arrivals to happen in the Animal Feed? Or...

I think both corn, soya and de-oiled rice bran, which are the main raw materials, are softening. So corn, soya is softening because of lack of demand in poultry because poultry is in very bad shape. Do you know that live bird selling at below cost of production for almost last 7, 8 months. And there is a huge cutback in production by all poultry players. So because of this little bit of lack of demand, the prices have started softening. So I don't see any price increases coming in next 2, 3 months. However, they have not fallen to a level where there is a price reduction pressure as of now.

The next question is from the line of Prakash Kapadia from Anived PMS.

So if I look at our 9-month performance, the sales growth has been 18%. Earlier, we were facing a scenario where sales growth was not coming. Now because of certain agri inflation, sales has kicked off, but EBITDA has not really grown. So on a going-forward basis, how do we forecast sales and EBITDA both moving in the upward trajectory? Is there some visibility confidence on a going-forward basis? I'm looking at a trend, not a specific number.

Yes. So this has been an exceptional year from an inflation point of view. And unfortunately, even though the prices have been increased, but not in the same proportion as cost, both in our Animal Feed business, in our chicken business and in our milk business. So definitely, we -- and we are also seeing, particularly in milk business, a very, very different year, which people tell us -- we're in this business for only 4 years but veterans tell us that it is an extraordinary year as far as increase in cost is concerned. But having said that, on a steady-state basis, 12% to 14% top line growth is something which we budget normally, and that's what we should also take for our model. This year also had the oil palm, impact, the -- wherein the crude palm oil prices were not -- crude palm oil and palm kernel oil...

Kernel oil prices.

Prices were not good during this season. Now it has started going up, but during this season, it was not up and the oil extraction rates were also lower because of the pseudo-ripening process which happened. So in that sense, this year has been an exceptional year for some of these reasons and hopefully, we should get back to a normalcy.

So climate change will probably continue to have impacts on the Kharif situation in India. We might have fewer good years but it doesn't seem to have much impact on the Rabi situation.

Okay. And we also do a lot of R&D in terms of product development and reducing input price. Obviously, this year has been, as you mentioned, it's been a fairly challenging year on the input side. So when do some of these R&D initiatives fructify and show into better margins for us? Because we do a lot of things, which others are not in a position to do.

So in Animal Feed from Q4 onwards, you will see that. And next year, you will see the benefit magnifying also because 2 of our investments have been commissioned, 1 is commissioned last September, October, and 1 has been -- is under commissioning right now in Bundi. So you will see those benefits. In Astec LifeSciences also, we have de-bottlenecked the plants in Astec LifeSciences and in fish feed plants, debottlenecking is there, so you will see a resurgent sales there also in next year. As far as oil palm plantation is concerned, I think one experiment has been very successful and additional equipments are being added. And when the season starts in July, these will be in place. And I'm very sure that whatever improvements we have made through chemical technology and physical critical equipments in the plant, you will see an uptick in OER in the next season. So all these things have taken time. Definitely, we are late by 1 to 2 quarters in most of the things because all of them were big investments, and we wanted to be very sure that they will deliver. And that's why I'm saying that on the whole, I feel that starting September, October last year, a lot of things have started kicking in, and more of it will happen every month.

Yes. Okay, okay. And lastly, monsoon has been plentiful this year. So if you could give us some sense of where are we seeing pent-up demand? Or what do you think -- which segment will benefit for next year? Earlier we had a few years where monsoon was a concern.

So crops will always have year-on-year challenges, depending on -- because crops do not benefit from 1 monsoon, and if there is a drought next year, that crop will benefit from that. However, the reservoir levels are very good. So we believe that even if a monsoon is an average monsoon, the people are going to have a good time in Indian agriculture. But I must tell you that big benefit of last year's monsoon will come in oil palm plantation. Some of it we saw last year, we did about INR 4 lakh something YTD. INR 4 lakh, how much?

We did last year -- sir, INR 455,000.

INR 455,000 and this year, first 9 months, we have INR 530,000. Yes. So crops will always have these challenges. So again, we will start looking at the skies in July, because sowing, et cetera, will need water. 45% of India is irrigated, 55% will be in rain-fed. So that challenge will always remain.

And is it fair to say, assuming milk prices come down, and if we are targeting on a longer-term basis, 12% to 14% growth, should that also translate into profit growth, assuming the RM inflation cools off from here on...

Absolutely, absolutely. We analyzed last 20 years data, and we have seen that a challenging year like this is always followed by a good year. But I don't see any price -- cost decrease in milk for next 4, 5 months. It is only in August that we will see -- unless and until import of milk powder is allowed, then the prices will definitely soften because in another months’ time, the shortages will come because dry season will start. But having said that, we have seen that shortage season is always followed by a very good flush. So hopefully, the milk prices will come down from August onwards.

The next question is from the line of Ashish Thavkar from Motilal Oswal.

Sir, in the aqua feed business, was there an element of GST on the fish meal this quarter?

No, no. This actually, shrimp is the most profitable part of aqua feed, and it was off-season for that. But fish feed -- and fish feed also, it was -- it is not full season because whenever temperature drops, definitely the placement comes down. So it is just a seasonal issue. And having said that, let me also tell you that for all the cost inflation, because of different reason, a big price correction has already happened in the industry in this quarter.

Okay. Sir, we were also looking for a foreign partner in the shrimp feed business as we were interested to -- we had a poor FCR and there were efforts from our side to correct it. So where are we on those -- in those lines?

So we tried, but unfortunately -- and we tried very aggressively and seriously, but unfortunately, nothing could fructify. So what we decided 6, 7 months ago is that we need to take the responsibility and improve the business. We have 2 global consultants who are great authorities in aqua feed working for us, one on the plant and processes, the other on sales, marketing, training, et cetera. And I'm very glad to say that the decline we were having for the last 4 years has been reversed in shrimp feed this year. In the first 9 months in fish feed, we have grown 40% in volumes. Correct, 40%?

Yes.

Yes. So I think that we are getting grip. Apart from that, in this quarter, we are replacing lot of equipment on the advice of these consultants in our shrimp feed plant. So hopefully, we will start producing the quality, which we need to grow in this business, plus, I think these consultants are adding tremendous value. So we have decided to put all that on hold, and we will do whatever is possible within our resources to improve the business. And the results in past 6 months have been very encouraging.

Sir, to that extent, we would have definitely seen improvement in market share in India, right?

Yes, but I'm saying that -- my thing would be that it would be improving in decimals right now from some 2.1%, we are talking about something like 2.6%, 2.7%. So that -- but I think that we started these improvements towards the latter half of this season. So I think best way to judge us, particularly in shrimp feed and all our efforts would be next season, starting in the next 6 weeks or so.

Okay. So given that 80% of the market is organized, you're targeting your market share gains from the organized players or more from the unorganized ones?

I think we are looking at an absolute increase in sales wherever it comes from, because at 2.7%, 2.8% market share, I think, talking about -- so we have a target of mark-to-market share, where it comes from, we are not very sure. But I think we will take small steps and short steps to make sure that not only we grow the business, but we also grow this business hygienically. Traditionally, outstanding is also -- has been 1 of our problems, which is under correction right now.

Okay, fair enough. Sir, one question on the agriculture side of our business. So there are some companies for the first time, who are willing to challenge the IP patents from the foreign companies. So there's basically, sir, one molecule by the name Coragen wherein one of the companies has challenged a patent. So like we have never thought of such -- challenging such patents. Is there something on our cards we believe we can do a pretty good R&D on the litigation side also, and we can have some patent challenges there?

So actually, we've not studied it, but I will definitely ask my team to get in touch with you off-line, and update in case we have some discussions like that.

Sir, a last question on this China thing, China coronavirus, I mean, since we have a sizable active business as well. So our dependence from China, and how do you see the situation panning out if the issue continues for more than 3 months or so?

So first thing is that, in last 2 years, we have commissioned 2 plants for backward integration. And that was not thinking about coronavirus, but the prices and costs were going up from China. So we started getting into backward integration and 1 more backward integration plant will be commissioned in July, which will be for backward integration and producing certain herbicides also in Astec LifeSciences. So we are definitely worried because we still are dependent on China for import of certain products but we are happy also that our dependence is not as it was a few quarters ago. So yes, we are worried. But till now, the supplies have not been affected, but I do not know what is going to happen in future.

And we can continue to source our own raw materials over time.

Yes.

Also, if there are supply problems from China, China is also sometimes a competitor for us.

Yes.

So net-net, I think we should be better off rather than worse off.

Yes.

[Operator Instructions] The next question is from the line of Madhav Marda from Fidelity.

Sir, just wanted to get an update on the change in regulation for palm oil, which had happened on the import side. How does that impact our profitability for the profitability margins on the oil palm business for us in the coming year?

Sorry, I did not understand.

The changes in the import regulation which happened?

Yes, yes. So that does not affect us because in SAFTA -- SAFTA, I think it is only -- it remains the same.

Yes. So the slightly lower import duty theoretically means a lower price, but because of B60 -- because Indonesia went to B13, palm oil prices have shot up a lot. So palm oil prices currently are about INR 72 a kilo. And last year, they were more like INR 55 a kilo or so. So what matters to us is the palm oil price. And although the duty is slightly lower than the palm oil price, the actual origin prices are much higher this year. So we are not likely to feel any effect for this. And the policy of using B30 is likely to continue for a long time because Malaysia and Indonesia will try and keep the price of palm oil as high as they can. And they can substitute a lot of diesel with palm oil, so they should be able to do it for quite some time. That being said, the present prices are very high, and we could see some lowering of prices from these levels.

Got it. Sir, usually, our palm oil business margins have usually been between 15% to 20%. That's been the range. Any outlook for the next year? I mean, because this year was a bit lower because the first half was weaker because of lower palm oil prices, but...

Actually, the pricing formula gives us a 21% to 22% contribution margin. And -- that's 22% of the price. So the profit margin depends entirely on the price because the fixed expenses are not related to the price, but the contribution margin is related to the price.

Got it. So basically any increase in the prices is basically a direct flow through for us to the bottom.

Absolutely.

Got it. Got it. And another question on the Crop Protection business. So if I look at the history and compare it to the peers, we've always had much higher margins because our product portfolio was much more premium. But as we are scaling the business and introducing more products, how do we see the margins trending for the next 2 to 3 years because as we become a larger player in the agrochemicals business in India in the domestic market?

Agrochemicals.

So we progress going forward, the margin as a percentage might be slightly lower than what margins which we used to enjoy earlier. But hopefully, the growth in revenue should sort of more than make good the drop in margins.

Got it. And sir, just lastly, on the dairy business, this is a query I've asked in the previous con calls as well, it's about 25% to 30% of our capital employed, but profitability has been a bit of a challenge so far. How do we see this going forward because it's a drag on our return on invested capital, right, for the business?

Yes, it is. So we have several plans in place. And you would have seen the benefits of that had this big inflation in cost not happen. And one of our big strategies continues to do well, which is building brand and increasing the salience of value-added products in the total sales. And from 23% last year, FY '20, we will get to something like 30%, and have another big jump next year. So we are also concerned. Having said that, let me also tell you that this value-added strategy had lot of investments built in. We had to set up a UHT plant, we had to set up a flavored milk plant. And all these investments take between 2 to 4 years to breakeven. So I think as the time goes by, you will see margin expansion as the capacities get filled up.

What would be sustainable margins in the dairy business for us once it stabilizes in the next 2 to 3 years? Any view on that?

Whatever I tell you will be difficult to believe because today, we are in a very difficult situation, considering milk prices keep going up. But if we see Creamline Dairy's past, so Creamline Dairy, I think, in several years, in the last 25 years, has had 5% to 6% PAT also.

And it may improve slightly -- expect slightly better margins as the salience of value-added products rises, and as all our new investments come to near full capacity utilization.

[Operator Instructions] The next question is from the line of Rakhi Prasad from Alder Capital.

This is regarding Tyson in terms of -- just wanted to get a sense of -- I mean, we've shown some reasonable growth. And what is the pricing power that we see in this business? Considering that -- or give us some idea of how the cost has played out over this last quarter?

So frankly speaking, in the chicken business, we don't have much pricing power because the market is still linked to commodity, 95%, 96% of INR 70,000 crores market is still [wet] market, the live bird market. Yummiez, we have still power because the brand is taking shape. And it is -- the margins are low because we commissioned a INR 70 crore investment last year, which is coming to about 50% capacity now. So I think that is where we can definitely command some premiums, but not in the chicken business.

So how do we look at -- what would be our stable margin profile going forward? What should we expect?

Stable margin going forward in the Tyson business, right?

Yes, in the Tyson.

So I think live bird business is very, very seasonal and cyclical. And I've never seen so many continuous months when the chicken prices are below cost of production. And again, it is a commodity. So it's just a matter of time because there are very, very big cuts taken by all players in terms of production of chicken and come summer, again shortages will come like every year, the chicken prices will shoot up. So I am very confident that if we don't take a yearly cut or a quarterly cut in these businesses, we definitely can see a steady margin of 4% to 5% PBT on sales, with all its ups and downs.

The next question is from the line of Kishore Chidambaram from Cholamandalam.

I just want to know what is the palm oil acreage for Q3 FY '20 and what it was in the corresponding quarter last year.

So I think I'll tell you that we were close to about 60,000 to 63,000 hectares in the start of the year. And we have added about 2,600 hectares in first 9 months, and this is the time when acreages are added in parts of Andhra Pradesh and Tamil Nadu so we'll end up at about 3,500 hectares to 3,700 hectares in this current year.

Okay. What was it in the corresponding period last year, sir? I mean, if you can just give me the number?

Last year, we added -- last year -- so 31st of March -- 31st of March '19 -- you want exact number or even ballpark will...

Just give me -- ballpark, yes, ballpark would do, yes.

462,000 hectares.

The next question is from the line of Bharat Gupta from Edelweiss Securities.

This is Nihal Jham here from Edelweiss. Sir, my first question was on the Crop Protection business. You mentioned that there have been certain delay in payments, which you are trying to correct. I just wanted to understand that are you facing this issue in any specific region or geography? Or is this a pan-India phenomenon that is coming through?

I think this is a big problem for our east and south business.

Okay, specifically in the east and south. But just as I think earlier participants have also mentioned that there is a possibility of the current season being good and possibly that farmer payments could also come through. So could this have naturally not cleared out in the current Rabi season itself? Or is this a specific issue with the distributors that you're dealing with?

No, I think it was a issue that -- actually, we were on the treadmill that we were continuously selling and collecting less. So we just have corrected that. And I think we are focusing on collection more than sales, and we are very, very happy that a lot of money was recovered in the last quarter. January was also very good in recovery. And I think we will start the next year in a very good position as far as outstanding and inventories are concerned.

Absolutely. Sir, if I summarize right, what you're saying is this is more an issue with our channel rather than them being a stress at the farmer level, and that is what you're trying to correct?

I think food inflation has definitely helped cash flows in rural India. So that is 1 of the reasons why our collections have been good. But I think big reason is a very, very concentrated and a focused effort in doing this.

Okay, that's helpful. Sir, second question was on the dairy side. Ideally, as I understand that the winter months are the flush season. So have we not seen already a price correction happening in the recent months, which should have or should help our business in the coming quarter also because the prediction that milk prices will fall in August is a little long way off. So I just wanted to understand those dynamics.

So there's a time lag and all companies are suffering. So the time lag of 4 to 6 weeks in price increases vis-a-vis cost increase, and that is why margins are under pressure. You will see a pattern, which also strengthens our strategy that higher the value addition, lower will be the impact of this -- there will be an impact, but the impact will be lower. The businesses will be more sustainable to cost pressure if the value-added salience is high. So definitely, I think we are in for some very tough time unless central government allows imports of skim milk powder.

But in the current winter months, there's been no correction on the milk prices?

No correction.

In fact, that was the -- every -- we were all expecting that during the flush period, the prices will sort of soften. But instead of softening, it just got -- it just started going up. So most of the private dairy players were impacted adversely because of this reason.

Okay. What's our average procurement price like currently?

So let me just tell you that April was INR 211 for -- INR 211 total solids, per kg total solids. And February is INR 242, this is cow milk.

Okay. That's helpful, sir. Last question from my side on Astec. What is the trend on input prices currently? Is it that we are seeing a reduction there happening? Or those still remain elevated?

Raw material prices.

I think they have been stable.

They have been stable. We can...

Yes. So what -- in fact, in Astec, what we've been trying to do is they've been sort of doing backward integration. And hence, our dependence on the imports is reducing year after year. And the prices right now, at least, the input costs are sort of stable as of now.

Sure. And just for my understanding, this trend of stable prices has just recently begun? Or they have been stable for the last 5, 6 months for us?

It's been stable for the last 4, 5 months.

Yes. Last 4, 5 months, they've been stable.

The next question is from the line of Prit Nagersheth from Wealth Financial Advisors.

Yes. My question is, can you share some outlook on maize in terms of -- at what prices are you procuring now? And how do you see it impacted because of the Rabi crop?

You're talking about corn?

Yes, right.

The maize price.

Maize, yes. So corn prices delivered in certain parts of the country in September, October last year had crossed INR 25 a kg. During season, they came down, which was almost 60% higher than a year before last. And then they softened up to INR 18, INR 19 a kg. And just because of slightly lower demand, they're holding at that level even though season is past. Having said that, I don't see any great pay inflation from now on because in another 8 weeks' time, the Rabi crop, mainly from Eastern India, Bihar, will start coming in. So I don't see any big inflation happening in corn. One of the key reason is that the poultry demand is softening. Because of the low prices of both egg and chicken, the placements have come down significantly.

So you basically see that with Rabi crops coming in supply in a few weeks, the maize -- the corn prices will -- could potentially soften further?

Yes. And the Rabi crop will be very big because at the time of sowing, the corn prices were very high, so farmers were very motivated to go for corn.

Right. We're seeing about 10% additionally than -- 10% more sowing for corn so far.

Sorry, I didn't get you.

No, you're right. We're seeing 10% additional sowing in Rabi related to last year, because the corn price has gone high.

Yes.

We'll be able to take one last question. We take the last question from the line of Jeet Shah from Axis Capital.

Very quickly, you mentioned the palm oil prices to be INR 72 per kg, right? So going ahead for the next -- over a medium term, what do you think the prices will hold at after the B30 and B60 declarations?

It's very difficult to predict commodity prices. The bullish factor, as I've said, is the B30. The bearish factor is coronavirus. And the other bearish factor is that in the season, prices usually fall because both Malaysia and Indonesia had their peak seasons at that time. And India's peak season more or less coincides with that. So we can always expect prices to be lower in our peak season. But that being said, we are starting from a very high price. So if you ask me to guess an average price for next year, I would say, something like INR 66, INR 68.

We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Thank you. I hope we have been able to answer your questions satisfactorily. If you have any further questions or would like to know more about the company, we would be happy to be of assistance. Thank you once again for taking the time to join us on this call.

Thank you very much. On behalf of Godrej Agrovet Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.