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. Devrishi Singh from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on the Godrej Agrovet Q2 and H1 FY '21 Earnings Conference Call. From the company, we have Mr. Nadir Godrej, Chairman of the company; Mr. Balram S. Yadav, Managing Director; and Mr. S. Varadaraj, Chief Financial Officer. From Astec LifeSciences, we have Mr. Ashok Hiremath, Managing Director; and Mr. Arijit Mukherjee, Chief Operating Officer of the company. We would like to begin the call with brief opening remarks from the management, following which we will have the forum open for an interactive Q&A 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. Nadir Godrej to make his initial remarks.

Good afternoon, everyone. I welcome you all to the Godrej Agrovet's conference call. I hope and wish you are doing well and are staying safe. With the easing of restrictions over the past few months, early signs of economic recovery are visible across sectors. Rural India is recovering faster than the urban centers. This recovery has been supported by a good monsoon, except for rain damage during the harvest, leading to a fairly good kharif crop and high water reservoir level and remunerative crop prices. In addition, the government has also provided timely monetary support over the last few months. However, while the economy is recovering at a fast pace, we are still behind the pre-COVID level. Demand from the HoReCa segment and out-of-home consumption remains muted. The low demand for products like milk, curd, chicken and eggs has adversely impacted volumes and sales of companies operating in these segments, but we expect the situation to improve over the next [ few ] months. Moving to the financial and operational performance. The key highlights and developments for the second quarter and the 6 months ended September 2020 are as follows: We had another quarter of excellent performance. Our consolidated profit before tax during quarter 2 fiscal year '21 increased INR 145 crore, representing a growth of 78.5% year-on-year. This was despite a 7.5% decline in the consolidated total income. Similarly, for the first half of the current fiscal, our profit before tax increased by 43.7% to INR 280 crore, despite 8.1% decline in consolidated total income. Please note that in the second quarter and half year of the current fiscal, total income excludes INR 9.6 crore and profit before tax excludes INR 4.8 crore of income earned from sale of a real estate project. Our consolidated balance sheet remains strong with a low debt-to-equity of 0.21x as on September '20, and our cash flow generation is also healthy. Now I will discuss the key financial and business highlights of each of our business segments. In Animal Feed, the segment's results grew by 10.6% during the quarter. This is despite the decline in the Animal Feed volumes in sale. Demand for the end-protein products, that is, milk, chicken and eggs, were muted, which impacted volumes and revenues across feed categories. As a result, current quarter volumes and revenues declined by 15.8% and 18.8%, respectively. For the half year, while the segment sales declined by 17.2%, segment results were up by 12%. In the coming months, we expect a faster uptick in demand from the HoReCa segment, which should sequentially improve feed volumes. We had a very good quarter in the Vegetable Oil segment. Our segment revenues and segment results grew by 23.9% and 44%, respectively. Higher yields and higher end product prices contributed to the growth. Price in the crude palm oil and palm kernel oil increased by 36% and 35% in the second quarter. The oil extraction ratio increased to 17.3% in the quarter vis-à-vis 16.5% in the previous year. The current quarter performance could have been better but for the lower arrival of fresh fruit bunches, which declined by 24% due to the whitefly attack. For the half year, our segment revenues and results have grown by 17.9% and 15.6%, respectively. In the Crop Protection stand-alone business, our efforts to increase collections are yielding result. Collections were INR 443 crore (sic) [ INR 433 crore ] in the first half compared to INR 299 crore in the same period in the previous year, which is an increase of 48%. However, our segment revenues and segment results declined by 11.9% and 10% as excessive and heavy rainfall in August and September 2020 reduced application opportunities for agrochemical products. Even for the half year ended September 2020, our segment revenues and results declined by 6.1% and 15.1%, respectively. Moving to the performance of our subsidiaries, Astec Lifesciences posted another quarter of strong performance with revenue and EBITDA growth of 10.5% and 83.5%, respectively. Higher volumes coupled with better realization and preponement of a few orders into the second quarter contributed to the growth. However, [indiscernible] on a full year basis, Astec will maintain moderate growth in its top line and profitability level. In our poultry subsidiary, Godrej Tyson Foods Limited, both Yummiez and the Live Bird business segments have done well. In the Yummiez segment, our products continue to receive excellent customer response across product categories. Our market share in the nonvegetarian frozen food segments and in the vegetarian frozen food segments increased to 28.5% and 7.9%, respectively, in the first half of fiscal year '21 from 23% and 5.6%, respectively, in the previous first half. For the Live Bird segment, end prices remained firm and raw material prices are favorable. As a result, our subsidiary, Godrej Tyson, reported an EBITDA of INR 9 crore versus a loss of INR 11.1 crore at EBITDA level last year. For the half year also, Godrej Tyson has reported an EBITDA of INR 30.5 crore versus a loss of INR 4.7 crore in the previous year. Our Dairy subsidiary, Creamline Dairy Products Limited, performance was impacted by a low out-of-home consumption and subdued demand from the HoReCa segment. Though on a month-on-month basis, demand is improving across key product categories, during the second quarter, revenues declined by 15.4% year-on-year, but low procurement prices and focus on fixed cost control resulting in EBITDA growth in the second quarter. We launched a new dairy sweet, Mysore Pak, and also relaunched the entire product portfolio under the new Godrej Jersey logo. For the half year ended September 2020, revenue and EBITDA declined by 20.7% and 6.4%, respectively. GAVL's joint venture in Bangladesh, ACI Godrej, recorded another quarter of strong performance with revenue growth of 24.9% in quarter 2 fiscal year '21. Growth was driven by strong volume growth across all feed categories, that is cattle, poultry and aqua feed. That concludes our business and financial performance update for the quarter and half year. With this, I close my opening remarks. We will be now happy to take your questions. Thank you.

[Operator Instructions] The first question is from the line of Jason Soans from Monarch Networth Capital.

My first question pertains to your subsidiary, Astec Lifesciences. I just wanted to know, I mean, in terms of triazole fungicides, what is the potential of the product? And as what has been that we've seen triazole fungicides facing a bit of a slowdown due to SDHI, which is the replacement, doing well. So I just wanted to know some color on the industry. That's my first question.

Shall I take that one?

Yes.

Okay. The total triazole fungicide market globally is about $3.2 billion and is growing at a low single figure rate. Now obviously, yes, as you rightly said, SDHIs are growing at a faster rate. But what has been discovered is that SDHI need triazole fungicides to be used with them to overcome fungal resistance. As similarly when strobilurins were introduced, the solo products used to have resistance to the fungus. So when combined with the triazoles, they were -- they found that they were more effective. So SDHIs are being used along with triazole fungicides. And therefore, the market is stable and growing slowly. Now that does not mean that our growth potential is to be measured in terms of the global total market growth because we are relatively small player. I mean, if we look at our triazole fungicides, we sell about $80 million worth. Now that's a small proportion of the global market. And we are playing the game of increasing our market share. And also, there are some new generation triazoles which are replacing some of the older generation ones and also replacing some of the other class of fungicides that are around. And we are working on those, and we'll be introducing them in the process of the next 2 or 3 years, which will lead to substantial increase in our revenues. And in that context, we see a fairly good growth path in the triazole fungicide segment.

Yes. My next question pertains to, sir, the herbicide plant, which is expected to come in Q4 FY '21. So basically, just wanted to know what are the plans for this herbicide plant. And obviously, it deals with CRAMS. So I just wanted to know what's your idea and the scale up which you expect in this plant.

Now that was going very well. It's -- we're investing about INR 85 crores in that plant. And it's a state-of-the-art plant and it can make a variety of new generation herbicides and intermediates. Now in my last con call, I had mentioned that we had business firmed up for this new investment to the extent of about 30%, but I'm happy to report that since then, some projects have come along, and we see visibility of 100% occupancy more or less of this over the next few years. We've come out with a very, very promising project, which will really result in total sales turnovers of INR 175 crores to INR 200 crores. So the plan for this herbicide plant is to make these CRAMS products. We have the visibility. We have a range of sulfonylureas, which are being made on a contract basis. And we'll also be making some additional products, which will add to our -- what we call our enterprise sale business. And so the visibility on this herbicide plant is very good, and we're very optimistic about it. And we plan to put it online by Q4 of this year.

Okay. And my last question pertains to the R&D center, which you are building up. You also spoke about on the last call regarding that you're going to work in terms of [ frozen ] chemistry, hydrogenation capabilities and other sort of chemistries as well, and you see a lot of potential there as well with the China [ pest control ] strategy, agrochem also being in a very strong space. So just wanted some color on that as well.

Well, I'm happy to tell you that all the design work is over, the detailing is over. We are going to do the groundbreaking by the end of November, early December, and we want to have it up and running by January of 2022 or the end of 2021. As I said last time, it's going to be a very, very significant increase in the bandwidth ability of our ability to develop new products. It's virtually a factor of 5 over what our existing capabilities are. So quantitatively, it's going to increase the number of projects that we can handle simultaneously, which is currently, frankly, the limiting factor. It's not the number of projects that we have in hand from a customer's point of view [indiscernible]. So this will enable us to do that faster. And also, we'll be able to offer our customers all the -- a complete toolbox of chemistries. So there will be the other missing tools as it were in our kit that will be developed. And therefore, we can -- customers will prefer us for projects where there are a series of reactions, where we have the expertise to do it. So we're very optimistic about what we can do with this R&D. We've already taken on some people at a very senior level who will head this R&D. And it's going to be [ beneficial ] for the company.

[Operator Instructions] We take the next question from the line of Ankur Periwal from Axis Capital.

So first question on the Animal Feed price. While you did mentioned in your earlier remarks, slower demand overall from the broiler as well as the layer feed, just wanted to understand what has been the sort of uptick? Any incremental feedback that you can share on the ground, given now restaurants as well as demand for milk, eggs, et cetera, is on an uptick, plus the regulatory prices as well. So any feedback there on the -- from Animal Feed volume uptick perspective?

So in the first quarter of this financial year, that is April to May -- April to June, the layer population has come down by almost 25%, and the broiler population was down by about 50% to 55%. And in the latter part of the first quarter, that is around mid-May, the retail demand came back, and we saw uptick in prices, and that is one of the reasons for good performance of Godrej Tyson Foods Limited. Now if you ask me, it is not switch on, switch off that the population can be increased because people had to get rid of their breeders, and it will take some time for breeders to come into production. So we believe that today, we are at about 65% of the original capacity of broilers and about 80% of original capacity of layers. So that is why you see egg prices are high as well as chicken prices are also very remunerative. The reason is that the demand and supply match is just there. As the restaurants open up, we are seeing a weekly increase in demand, and that is adequately met by the slow increase in the production of eggs and chicken. So we believe that we will be back to our capacity what it was before the COVID took place somewhere around February, March, not before that, both in broiler and layer. The story of milk is not very good. Milk -- almost 1/3 of milk is consumed by institutional buyers, and whether it is sweet shop, canteens, restaurants, et cetera, and all these places were mostly closed for the first quarter. In the second quarter, there is some uptick. But unfortunately, milk is still not picking up because we are also entering into the flush season where automatically, the production goes up. So we will have a situation of milk surplus for some more time. The farmers have not been feeding the animals properly, and they are not investing on animals just because of the poor demand in milk had suppressed prices in the first half of the year. And the other reason is that, in fact, the -- because of this COVID lockdown and initial total stoppage of movement, the conception of animals had also not happened. So whatever was supposed to happen, say, from April, May, June, started in July, August, September. So my sense is that milk cycle will be delayed by a quarter at least. All these surpluses, et cetera, will start vanishing sometime in January, February. And we believe that if not milk shortage, but definitely milk demand and milk consumption will -- is going to go up significantly in the fourth quarter, and we will see rise in milk prices, ex farm, and definitely, the farmer will start investing in. Early shoots of that, we can see a slight uptick in our cattle feed demand this quarter, and we will see that it will rapidly grow in future as the milk consumption and milk demand grows.

The next question is from the line of Madhav Marda from Fidelity.

My question was on Astec. I think in the initial remarks, it was mentioned that growth could be a bit moderate for the entire year. Could you just help us understand because I think the first half, we've done close to 25%, 30% growth. And there were some preponement of orders also which was mentioned. So how should we think about the rest of the year for Astec?

Yes. I think what Mr. Godrej probably meant that growth will not be at 207% of the previous year, but it will be in line with our traditional growth. We've always been saying that we can grow at about 20% per annum. So that's the kind of growth that we would have on a year-on-year basis. So when -- he said it in the context of the fact that the first half were [indiscernible] growth over the previous first half, so in that context. Otherwise, the prospects are good, contract manufacturing business is doing well. The demand picture is good. Our order position is [indiscernible]. So it's good, but it's just not 207%. That's it.

Understood. Understood. Okay. And my second question was on the Animal Feed business. So we've seen margins expanding really well in the first half. And I think part of that is probably to do with the low raw materials prices and probably some of the R&D initiatives that we've undertaken. So just wanted to understand the sustainability of these margins going ahead, because if I look at the last 2, 3 years versus first half of this year, margins have been much better. It's almost INR 1,700 EBIT per tonne. So how should we think about these margins here?

So you're absolutely right that both things played a very important role in first half in expanding margins. So -- and there's a very unique thing which is happening. Right now, this is the season time for corn and soya, just because of global situations and because of some delay and damage which has happened in different crops due to the monsoon overstaying it's welcome. So we are seeing some surge in prices in both corn and soya meal. However, the crop is bumper, and we feel that the prices are going to moderate in time to come. So we will be able to maintain the same margins in Q3 and expand the margins in Q4.

The next question is from Sumant Kumar from Motilal Oswal.

Yes. Sir, my question is regarding palm oil. There is whitefly impact and volume has declined. So can you tell us what is the volume degrowth this quarter? What is the volume data?

Yes. I can tell you that almost 17%, 18% drop in fresh fruit bunches, some of it was made up by -- because of higher oil extraction ratios. Oil production drop will be close to 15%, 16% over last year. Now having said that, this is a problem which is unique about that area. And we have done whatever we could do to control. But unfortunately, under -- unless and until there is a community initiative to eliminate whitefly, most of the efforts taken by individual farmers are of no avail. So I think that was one of the reasons, but the OER has been good. Lot of efficiency improvements were there. And on top of that, the prices were very good. That is why oil palm performance is very good this year.

How much improvement in OER?

OER, we increased by, I think, 0.7% or 0.8%. But as the year goes by, that gap will keep on increasing.

Okay. So this is the first time though there is a whitefly impacts on palm oil price, is it?

So it is -- actually, it is the first time, but because we had seen batches of this here and there in past also, but it was not that rampant. And it has affected not only our plantations, but plantations across Tamil Nadu -- sorry, across Andhra Pradesh and parts of Telangana. And I think industry took lot of initiatives also. But unfortunately, unless and until it has done on large scale and by everybody, the effect is not fully realized. But I think that it has subsided. And I think we are all devising a strategy on how to community control this whitefly infection should it show up early next year.

The next question is from the line of Dheeresh Pathak from Goldman Sachs.

Continuing with palm oil. So unlike many other agri products this year, where the harvest has been good and prices soft, palm oil and other vegetable oil prices have been high. So in case of palm oil, any outlook on the price? And is the price high this season just because of the pest attack or there's any other reasons?

No, I think palm oil prices are linked to global prices. And on that, I would request Mr. Godrej to expand.

We expect palm oil prices to stay high because of low production of oilseeds and palm oil. That being said, in the next few months, we have the highest production of palm oil seasonally. So a small dip cannot be ruled out. But over the long term, prices should stay fairly high.

The next question is from the line of Depesh Kashyap from Equirus.

Sir, according to media articles, this whitefly attack infested the Telangana region in the month of March and April. So were we aware of this impact or we got impacting the September month only?

No, no. This -- actually, it affected in the early season, that is March, April, May and partly in June because once the monsoon arrived, it got washed off. But by that time, it had already caused the damage because how it causes the damage is it damages the fruit formation. So even if it goes away, the fruit formation is already affected. So the output per tree and per hectare is negatively affected.

Right. Sir in the last call, you're talking about that this season can be elongated, and there can be extra fruits in the month of October and November. So that guidance stays? Or how is it?

Yes. So the tapering is taking longer. So I can only say that what I said is proving -- has proved right in October. And let us see how it shapes up in November.

And lastly sir, this is a very good year for the dairy companies in terms of margins. The procurement costs are very low and the selling prices are inching upwards. And your competitors have shown that kind of margin [indiscernible] has actually declined quarter-on-quarter. So just your thoughts on that, sir?

Yes. Yes. So the issue was that I think I've already said that in last call that 2/3 of our sale came from institutional segment and big caterers and shops and other things. So that I think was a very big setback for us. The retail sales has come back and grown over last year, definitely. On top of that, due to initial surge in milk supply, I would say milk stocks, we converted lot of milk into powder and fat. And if you see our number, we are carrying almost INR 9 crores, INR 10 crores of provisions in case the fat prices do not increase. That is why we have taken that provision. But there is all expectation that once the milk's demand comes back, I'm very sure that milk supply will be short for some time, the butter prices will go up, and we will be able to release these provision. Once we release this provision, I think it will be a big -- you will see the margin expansion very quickly. So it is just the provision we are carrying which is distorting the margin number.

The next question is from Pritesh Chheda from Lucky Investment.

Yes, sir, I have a question related to Astec. So in the quarter gone by and some assessment that -- if you could give some assessment on the domestic and the export growth rate that you would have seen because when you're looking at the export data, it was a fairly strong growth that Astec had recorded in quarter 2. So is there something in the domestic that there is a decline or anything? And second, has the triazole prices declined? And if you have any comment on the -- that part of the area?

Domestic versus export on an annualized basis is in the range of about 55% to 60%. In the first quarter, Arijit, do you have that number, this proportion of export...

Yes.

No, I'm not actually looking at the proportion. I was actually looking at the growth rate. So is there a case that -- or if you could give some flavor on the growth rate in domestic and growth rate in exports for us for the quarter and the first half?

Yes. Should I try to answer this?

Yes, yes. Okay, go on.

So traditionally, in the domestic businesses, first quarter demand is always less because first quarter, hardly there is any crop, any crop in the sense where our fungicide goes. So our generally demand starts from second quarter, early second quarter. But this year, as -- particularly for this year, as we were -- mostly capacities were sold for export businesses, so our exposure to domestic businesses are very limited. This is particularly for Astec. But overall, if you see the season has gone well. So overall, the demand for almost all fungicides, particularly, fungicides have been very good in the domestic market. In case of pricing, some fungicides, because we were not there, showed a little bit of high prices, but then now once -- now the demand is happening now we will see the prices coming down. But overall, domestic demand year-on-year has been good because the rains have been good. And in the late season, there was a little bit of rain. So fungicide application increased. So overall, it has been a good demand for us because we sold most of it for exports. So our presence in the domestic market this year has been relatively less.

Can I...

I'll just add to that more, of course there is -- there are different products when it comes to contract manufacturing, prices are pretty stable. There's no changes in -- some of the products, there's no changes. Some products, there are some declining in prices. But corresponding to that, there is a decline in the raw material costs as well. So the margins continue to remain healthy. So there is a varying picture from product to product. But on the whole, there is no concern on the margins.

Sir, I was just trying to interpret the answer. So it's that the exports has grown faster than the domestic, is what interpretation is? And domestic has not declined. Is that the interpretation I should take for the H1 and the quarter 2? And the second interpretation is that the prices have not declined. Is that the interpretation I should take for?

Well, some prices have -- for 1 or 2 products have declined, but the raw material prices have also declined. So the margins are maintained. So that's some part of our business, not a major part of our business, but prices are stable.

And increment -- yes, sorry, sir....

As far as the growth is concerned, Arijit just answered that.

Okay. And incrementally, you expect the growth to sustain with a similar margin, is what you indicated at that 20% growth number, right?

Yes.

And as you operate the herbicide plant, where more of the business is CRAMS, so margin should have an upside bias considering that export is a higher margin than domestic? And your mix should change in favor -- should become richer in favor of export, is that interpretation correct?

Yes, contract manufacturing is all exports. And also, the contract manufacturing business has a higher EBITDA margin. So that our blended average is about 20%, whereas for herbicides manufacturing, it's upwards of 25%. So it will pull up our blended average EBITDA margins.

[Operator Instructions] The next question is from the line of Sumant Kumar from Motilal Oswal.

Yes. So my question is regarding Crop Protection, particularly domestic business. We have seen Q1 muted and Q2 was also muted. So can you talk about the product portfolio, how the [ PGN ] segment is growing? What are we doing in the -- enriching the product portfolio?

So in Crop Protection business, I think one thing, if you remember, for last 2 quarter or 3 quarter, we have been tightening the debtors and we are doing very tight inventory management just to improve the hygiene of the business. And we were almost there when COVID struck, unfortunately, and pushed us back. Last 2 quarters -- in the first quarter, the growth was a little muted because we lost almost 15 days production in Jammu because of COVID in month of May. And our star product was -- this herbicide, Hitweed. So the sales of that product were affected. In the second quarter, we -- the going was very good. But unfortunately, the month of September because of excessive rains, some sprays could not be done. And that is why we lost some volumes. Having said that, I think on the whole, the year will be very good for us. We will achieve all our objectives, including growth over last year in profitability. And all this with a substantial reduction in working capital and debtors.

Are we doing more work on product side, the PGR and also in herbicide segments?

Yes. So we are in the process of launching some products. And as I told you that several products are in the pipeline also. So I think they will be launched in the coming years. So offline, we can give you details of the products which we are planning to launch and the kind of potential they have.

The next question is from the line of Siddharth Gadekar from Equirus.

Sir, my first question was on the R&D center. So is it fair to assume that we would be seeing some big CapExs once the R&D Center is commercialized?

Yes. We -- obviously, it will attract a lot of the projects. And particularly, there could be large-sized projects, and therefore, there will be capital expenditures involved with that. Yes, these will be accelerated, CapEx is growing once the R&D center comes up.

So sir, is it fair to assume that we would be leveraging the Agrovet balance sheet to do the CapExs in Astec?

No, no. It's an independent balance sheet. The good thing that you will -- I have to tell you is that, for example, now, we've already invested about INR 60 crores in capital expenditure this year. But our borrowings have come down to below INR 100 crores, they're about INR 99 crores. Debt equity ratio is about 0.36. So we're able to manage all this with our internal accruals. And so even with an accelerated CapEx program, particularly this R&D and all that, we maybe -- may have to increase our debt-to-equity ratio to some extent, but we do not to resort to any external borrowings or any other kind of dependence on Godrej Agrovet for funding these projects.

The next question is from the line of Pratik Rangnekar from Crédit Suisse.

I have a question on the Poultry segment. On a Q-o-Q basis, we note that your revenues have increased, but margins have come off quite sharply. Sir, whereas I think in the earlier comments, you may have mentioned that Live Bird prices have been firm this quarter. So just trying to understand the drivers of this sequential margin drop. Also, if you can provide some color on the split between RGC, Yummiez and Live Bird? And how have the efforts to tap the e-commerce channel fared this quarter?

So Varadaraj, just help me, I think the margins have improved.

Yes, sir, margins have improved. So for example, if I were to look at the Poultry business quarter-on-quarter as compared to last year's same quarter, there has been a significant improvement in the margin for our Poultry business.

Yes, sir, I'm referring to Q1 versus Q2, Q1 '21 versus Q2...

Q1 versus Q2, there's a slight drop vis-à-vis Q1 versus Q2. So that is primarily because of the pricing which was there and the seasonality which is there. But it is a small drop. It's not a big drop this year.

Okay. And sir, the next part of the question was, the split between RGC, Live Birds and Yummiez? And if you could just talk about your efforts to tap the e-commerce channel here in the Yummiez business.

Yes. So shall I take this, sir?

Yes, yes. No, I just wanted to tell them that retail business in RGC -- institutional business is almost 0. So we have a 70%, 80% growth in -- degrowth in institutional business, but retail business in Real Good Chicken has grown by about 28%, whereas Yummiez' top line has grown by 71% and contribution has grown by 87% in H1. Varadaraj, you can give them a split.

Yes. So in terms of Live Birds, it is around 56%; Yummiez should be around 23%; and Real Good Chicken will be around 22% of the total revenue for Q2.

The next question is from the line of Madhav Marda from Fidelity.

Sir, my questions has been answered.

We move to the next question. The next question is from the line of [ Manish Periwal ] from [ Fiduciary ].

Am I audible? Hello?

Yes, we can hear you. Please go ahead.

I basically -- I'm basically new to this company. So I wanted to understand the strategic perspective going ahead. So if you could give us a 5-year view as to which of the businesses from the very diversified profile that you have today are going to be the main line, meaning, what are going to be the drivers of this organization going forward? So a 5-year perspective or a 10-year perspective.

I think the answer is a very long answer. So preferably, we should have a separate call on that. We would like to explain to you what is our focus and how it will be done and what is the rationale also. So can you get in touch with the -- our Investor Relations department and set up a call separately for about half an hour.

Yes, yes. I would be happy to do that.

Yes. Okay.

The next question is from [ Varun Arora ] from Safe Enterprises.

My question is regarding Astec Lifesciences. So could you give me -- the first question is just a data point, could you give me the first half contribution coming from the contract manufacturing as well as FY '20 contribution?

Contribution from contract manufacturing, separately?

Yes.

Arijit, do you have that number?

We can give that offline, right?

We should give that offline.

We should give that offline.

Yes. We don't have it off hand.

Yes. My second question is regarding -- once we have this R&D Center, how will it enhance our capabilities on the contract manufacturing side? In the sense, I believe, right now, in the contract manufacturing piece, we are only probably catering to the triazole chemistry and going forward once the herbicide plant comes, that will be an addition. But with the R&D center coming up, can we provide more full-fledged services in this piece, something that PI Industries is doing, wherein we can do research also, participate on the manufacturing, commercialization, full-scale services? Is that the part that we'll be taking once we have the R&D Center?

Well, I'm glad you've asked that question, because this is probably something that people confuse us with because we are -- on the one hand, we've got this triazole fungicide business, but that is our enterprise sales business. Our contract manufacturing business is not restricted to triazole fungicides. We are doing a lot of products which are involving other chemistries other than triazole fungicide chemistry. But because it's contract manufacturing, it is not kind of publicized. It is all on a confidential basis. And therefore, when we do it, people don't know about it. But we are practicing many other kinds of chemistries already for our different customers. So we already have a wide range of chemistries, including Grignards and epoxidations and heterocyclic chemistries and -- I mean, some kind of building blocks of chlorine chemistry already that we are doing. But having said that, we obviously have to expand on it. The way that the contract manufacturing business works is that, let's say that BASF or somebody is looking for somebody who can do a field craft and -- because there's a field craft involved, there's Grignard involved and then there's nitration and hydrogenation, they look around, they look to PI, they look here and there and see who are the people who have the set of skills. And then they will pick a partner. And then if Astec is good at Grignards and this line of chemistry, they will come to us. So the wider range of chemistries that we have mastery over, the more business we will attract. So this is precisely what we will be doing. While we have an adequate kind of a set of chemistry skill sets, we want to expand on that. And then we become the preferred people that the big guys will come to. So PI is a little ahead of us on that curve because they've been around longer. But by the time this comes, we will develop these so-called technologies, which means we can offer it to our customers, and therefore, these complex multiple synthesis products can be brought into our company. That's the plan.

The next question is from Abhijit Akella from IIFL.

Sir, just a few clarifications on the Tyson Foods business. We've seen sharply varying margins in 1Q and 2Q. So what's the right run rate to work with for the rest of the year now going forward?

Very, very interesting question. I think this is a little abnormal year because we had a very, very bad last quarter of the last financial year. We took some time to recover, and there was a sharp recovery in the first quarter. And that is why you see -- saw the margin rise, and then it stabilized in the second quarter. Now normally, third and the fourth quarter are the quarters where consumption is much better than H1. This year, H1 was unique because of the lower population of the birds, the prices were high. And second thing is that the Yummiez really kicked off big time because in-home consumption of Yummiez went up. So we strongly feel that the margins of Q2 will definitely be protected in Q3 and Q4. Yummiez' sales growth of the first half may not be repeated in the second half once out-of-home consumption grows, but it will be significantly better than the second half last year. So my sense is that steady state, I would say, for next few quarters, we can assume that margins similar to Q2 can be expected.

Got it. And on the stand-alone Crop Protection business, sir, I heard in your previous remarks that for the full year, we expect a very good year with revenue growth as well as probably some expansion in margins, even though the first half has been a little bit subdued. So if you could -- I mean, are we expecting a very good rabi season going forward? And isn't the base a little bit difficult from last year? Your thoughts on that?

So I can definitely tell you that I'm not saying that it will be a super year for us. It will -- what will be a super year for us if we are able to reduce our capital employed in this business significantly and if we are able to maintain the same run rate in terms of reducing inventory and reducing debtors, which we have done in H1. Definitely, keeping hygiene in view, we have very good plans for rabi. We have certain chemicals which will definitely be very useful in coming season, particularly the product like Hanabi which we launched in tea and now this year, we are going to launch in chillies, et cetera. So these kind of products will help sales and expansion of margins. I can only say that our first target is to surpass last year's performance and profitability. And that -- I'm very sure that we will do that. Last year profitability was very badly hit because of the lockdown in March. But definitely, we will do much better than last year this year that I'm very sure, and we have very good plans for rabi.

The next question is from the line of Depesh Kashyap from Equirus.

Yes, I have a follow-up, sir. Sir, In the Dairy segment, you talked about the better provision of INR 9 crores to INR 10 crores. So that number was for the second quarter or the first half?

Everything -- most of it was first quarter.

Second quarter, you mean? Or the first quarter?

April to June for us.

Okay. Okay. Understood. And sir, in the Animal Feed, you talked about the decline in the poultry and cattle feed. Can you just talk about the shrimp feed, how that segment did? And how is the outlook there?

Shrimp feed in spite of industry reducing 15%, 20% -- you know that the export from India is very less because the shrimp quantity is not available. And today, the prices of shrimp are all-time high. We still registered a growth of about 4% in volumes. And I think, I'm very glad to say that we have reversed the trend. Fish feed has been very volatile because of fish being very, very volatile. We -- our volumes are definitely good, but they are at par with last year. We have not registered any growth in the first half of the year. But I can tell you, the fish prices are also rising because now that consumption is rising and the fish quantities are not there, so we are expecting placements to happen both in fish and shrimp wherever possible because there is likely to be a very [indiscernible] for both shrimp and fish in the second half. Traditionally, second half is not an important half for fish and shrimp. But this year, we will see much better second half than what we saw last year in both these categories. And in fish, I must tell you that there were a lot of disruptions. So there were fishes in the pond, but there were no manpower in May, June, July to harvest. So the harvesting got delayed. When the harvesting happened, then the consumption was not there. So there were a lot of ups and downs in fish in the last 6, 7 months. And I am sure that the result of that will be short supply of fish in the coming few months. So there will be a lot of placement of fish in winter season, which is not the regular case as far as fish production is concerned.

The next question is from the line of Pratik Rangnekar from Crédit Suisse.

Just wanted to touch upon the Bangladesh JV. You've had a very strong performance here in both first quarter and second quarter. So just want to know what kind of growth run rate do you see here. And what sustainable levels of growth or profitability can be [ gotten ]?

So I think Bangladesh, in year '18 and '19, particularly '17 and '18, we made a lot of corrections, plant upgradations, product upgradations and several geographical distribution expansion. I think all that is coming into play. And we are very sure that over last year, we will again have at least -- top line growth of at least 20% and bottom line growth of between 25% to 30%. And last year, we were #3 company in feed business in Bangladesh. This year, we are very sure that in case we can grow our volume upwards of 20%, we will become #2 company in Bangladesh. Thanks to our excellent procurement plus lot of R&D initiative transfer from India, margin expansion is also happening rapidly.

The next question is from the line of [ Raj Rishi ], who's an individual investor.

This is a question for Mr. Hiremath. In the last con call, you had mentioned the supply chain shift which is happening or supposed to happen from China. But you also mentioned a very interesting point. The derisking is not just from one geography to the other. Like for some years, it has been happening, but most of it was cornered by the likes of, say, big companies like PI, et cetera. So do you see this trend continuing on a sustained basis, derisking away from not just one geography but also from the big guys to maybe guys like -- companies like Astec?

Yes, put yourself in a customer's position, and if God forbid, something happens to a company like PI, they would want to derisk. And this is the feedback we get from talking to them as well. They say that we are really looking for more suppliers because we've got too much exposure to these people. So they are also waiting for our R&D center to come up. And they are waiting to give us projects. So this is -- I mean, this is what the customers are telling us. So it's the way it is.

Okay. And Mr. Hiremath, like this -- once this R&D center, you're saying early 2022, it should be up and running. So the impact of this on the revenue should be for '22, '23 on a very sizable basis?

R&D is a very long-term investment. It will certainly start showing results within a year or 2, but I mean the real impact will be a kind of a step jump that will happen over the next 3 to 4 years after its commissioned. So by the time you got your R&D center running, you've got a project, you develop it, if it comes online, you're looking at a 2-year lead time. So really 2023 onwards, you'll start seeing the effect of it, and then the full effect will be in the years after that.

But I should add that we already have an R&D pipeline.

Yes. Yes. I mean, having said that, with the existing R&D setup that we have, we are -- it's sufficient to grow a 20% plus per annum. We have the bandwidth and the capability. And while we are waiting for this new R&D center to come up, we have rented some R&D centers which were lying idle, we've hired more people, and we've increased our R&D bandwidth by a factor of about 50% to 70%. And therefore, we are handling all the projects that we had in line now. So we have the capability at the moment, but it's just that when that comes, it will just be at a much higher level.

The next question is from Ashish Thavkar from Motilal Oswal.

So one question on your feed business. There's one particular Pradhan Mantri scheme and there were some talks or rumors about government wanting to take the feed industry or develop a feed industry or probably the shrimp industry in Punjab. So we all know AP is a big industry there. So do you see prospects brightening up on the shrimp side of the business for you?

The answer is there are 3 schemes of Government of India. One is this infrastructure development scheme of Ministry of Animal Husbandry, mainly for feed mills and for infrastructure in poultry and cattle, which is INR 15,000 crore. Apart from there are 2 schemes for fisheries -- inland fishery development. One is I think INR 15,000 crores and the other is INR 20,000 crores, which is very, very focused on Northern Indian states. Pardon me, shrimp is not possible there, and that is not the focus. But definitely, fish is a very big focus and fish expansion is happening rapidly. And you'll be surprised that the fastest-growing states in fish cultivation are Jharkhand, Bihar, Chhattisgarh, UP, Punjab, Uttarakhand, these places are developing because there are a lot of fish varieties, which are surface feeders, which have proved themselves in southern part of the country. And fish consumption is very high. Only availability is a problem in Northern India. So that is one focus. The second focus is that government wants to increase their exports from about INR 48,000 crores to INR 1 lakh crore by FY '23. I think in -- this is in that direction that lot of funds are being mobilized. And I can definitely tell you that the opportunity of fish is very high in this country because internal consumption or domestic consumption of fish is very high and can grow further. It is a meat which is acceptable everywhere. And you'll be really surprised that fish is 1.5x more per capita than the chicken. And it can rise even further because it is very easy to cook and very healthy meat also. So I see very bright future, particularly for fish industry and particularly for all states above the Tropic of Cancer. I think last time I told you also that seeing the trend and the quantity of fish feed we are selling in Bihar and other northern states and where the growth rates are, we are setting up a fish feed facility in Barabanki in UP.

Okay. And sir, this, with regards to this -- the regulatory body which the AP government has set in, so it seems that -- pardon me, if I'm wrong. So it seems that, they are more towards of the interest of protecting the interest of the farmers. To that extent, do you see on -- at least on the pricing side, anything which is concerning as far as this AP region is concerned?

So that, I think -- I must tell you that Government of Andhra Pradesh, unfortunately, is trying to, I would say, intervene in almost everything. So they want to bring price controls, they want to -- in the name of supporting the farmers. But unfortunately, I think this is going to be counterproductive because the industry might not... [Technical Difficulty]

Hello?

Hello?

Yes, you may all go ahead. We can all hear you.

So I'm saying, they also realized that it may be counterproductive because future expansion of this industry might happen in some other state, and the material can come in Andhra Pradesh. So I think the way they started and the kind of controls they wanted to exert, I think that has significantly diluted. And we have also made representations to the government there that, depending on level of interference, they may not be good for the industry. So I think we will -- we have come to some kind of a working arrangement. Like in many industries in Andhra Pradesh, aqua feed also has come to some kind of working arrangement with the government with limited interference from them. At one time, they wanted stocks and costing, et cetera. At least for the last 6 months, they have not asked for that.

The next question is from the line of Nitin Shakdher from Green Capital Single Family Office.

My question pertains to -- I've noticed that on the Animal Feed business and on the Crop Protection business, quarter comparison of last year versus this year, the revenue is slightly down. But in terms of the operating profit before interest and tax, there seems to be a slight bump up on the Animal Feed and the Crop Protection business. Any specific reasons as to how you've been able to maintain the profitability on these 2 segments? And what initiatives would did do to ensure that?

Yes. So Animal Feed is purely because of raw material prices coming down. And we can tell you that as soon as COVID came -- I'll give you an example that in February of last -- this year, the corn prices were close to INR 23, INR 24 a kilo in different parts of the country. And as soon as the COVID came, they collapsed and then they recovered. But in the first quarter of this year, that is April, May, June, the corn prices held at about INR 14, INR 15, ex factories, which is significantly lower than what they were last year. Of course, there is a pass-through because there is a lot of visibility the farmers have. When the prices go up, there is a pass-through upwards. And the prices goes down, there is a pass-through downwards. But this benign raw material situation was the most -- was the reason why the margins are good in Animal Feeds. In Crop Protection business, it is a mix issue. I think the mix is highly skewed towards our own products, Hitweed, Hitweed Maxx, growth regulators, et cetera, and not on traded products, which -- because 1/3 of our business in Crop Protection business comes from traded products which we buy from others and sell just because we want to complete the whole complement of products for a particular crop so that we can hold the distribution and hold the farmer. And I think that is one of the reasons that margins are better because the traded pesticide is much lower this year and our own products are much higher. So that could expand our margins slightly.

Okay. Okay. Great. And my second question is -- I noticed that during the quarter, the group has sold equity stake in Astec Europe, which is a subsidiary of Astec Lifesciences, for a consideration of EUR 1. Can you explain this transaction? What was the stake? And what was the valuation? And was it an accounting entry or nothing significant?

Nothing significant. Ashok, can you explain, please?

Yes, yes. We had set up Astec Europe and we held 50.5% stake in that, because we wanted it to hold some registrations for us. Over the years, the registrations expired, and there was no point in continuing to hold it. And there were operating costs, and they were obviously standing overheads, and it was -- so there was -- it was making small losses every year. Our partner over there, who was the 49.5% partner, wanted to acquire the company. And given that there was really not any revenue and this was just a loss-making company, we decided to sell it him for EUR 1.

The next question is from [ Shravan Vora ], who's an individual investor.

I have a couple of questions, one on Astec and one on Godrej Agrovet. Sir, Astec, Mr. Hiremath, you had guided in the last call that we would be maintaining margins of 20-odd percent. So I think -- I just wanted to know whether we still hold that guidance?

Yes. If you look at what we've delivered, Q2 has been 20%, H1 has been 22.5%. So I've always been saying that it's -- we have -- given fluctuations in selling prices and this and that, 20% is what we can give you the guidance for. And as our contract manufacturing business increases as a proportion of our total sales, this will inch upwards towards eventually 25%, when we get a significant amount of contract manufacturing in our portfolio.

Right. Right. And so when you talk about growth, like H1 was I think about 25%, 30%. So if we still hold our guidance for, say, 20% growth for the full year, so can we -- are we looking at, say, a 10%, 15% kind of growth for the second half of the year?

Now I'm talking about a bottom line growth of 20%. Now the top line will depend on selling prices. So I'm unable to give you a guidance on that. But since, as I said earlier, because the selling prices come down, the raw material costs go down, the margins are reasonably maintained. So therefore, I can give you a better guidance about the profit than the top line.

Right. Right. And on Agrovet, sir, I have been noticing that our margins are improving and we are investing heavily on R&D. And because of the nature of our business being a little commodity oriented, do we see that these margin improvement is due to R&D, other than the raw material benefits that we get? Can we be more sustainable?

Yes. Yes. So in first half, we could see definitely lot of improvement in our cattle feed margins because of the R&D initiative in spite of the fact that cattle feed suffered because of low demand. And as the quarters go by -- unfortunately, there is a lot of distortion of raw material prices because of COVID. But in a steady-state business, we will clearly demonstrate the kind of quantum R&D will add to our margins.

Right. Right. And sir, like I noticed that our capital employed has gone up over the past 3 years. And as far as I understand, it is largely because of our Crop Protection business and our dairy business. Am I correct in understanding?

Varadaraj?

So apart from -- the primary increase also has happened because our acceptances have gone down significantly during H1. And that is because the [ purchases ] in H1 was lower vis-à-vis what it was last year and the opportunity for acceptances in rediscounting has reduced significantly. So that has also resulted in a significant increase in the capital employed.

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 all your questions. If you have any further questions or would like to know more about the company, we would be happy to be of assistance. Stay safe and stay healthy. 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.