Godrej Agrovet Limited (GODREJAGRO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Godrej Agrovet Limited's Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to 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's Q1 FY '22 Earnings Conference Call. We have with us Mr. Nadir Godrej, Chairman of the company; Mr. Balram S. Yadav, Managing Director; and Mr. S. Varadaraj, Chief Financial Officer of the company. We will begin the call with opening remarks from the management, following which we 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. Nadir Godrej to make the initial remarks.

Good afternoon, everyone. I welcome you all to the Godrej Agrovet's conference call. I hope that you and your families are safe and healthy in these difficult times. The COVID second wave has severely impacted India in the first quarter with daily cases touching a high of 4 lakh cases per day. Rural India was impacted more with nearly 50% of the cases and 50% of the deaths reported in rural India. Economic recovery, which we've seen in the fourth quarter, was subdued from April 2021 onwards. All macroeconomic indicators, such as the PMI index, GST collections, et cetera started declining from April '21. However, the situation has started improving from the 15th June onwards, with cases decreasing and lifting of the lockdown, leading to a gradual recovery. For the agricultural sector, the south-west monsoon started on a positive note, but then there was a large gap of 20 to 25 days of stanchy and erratic rain, which lowered Karif sowing and the farmers' income. All input commodity prices were significantly higher due to an increase in demand in the domestic and international markets. On the other hand, output prices are lower in a few businesses due to subdued demand, especially from the HoReCa segment. Despite these situations, GAVL has been able to register a stable performance in the first quarter of the year. The financial highlights and key developments during the quarter are as follows: Consolidated total income was INR 2,003 crore for the quarter compared to INR 1,562 crore in the same period of the previous year. Profit before tax was INR 137 crore compared to INR 134 crores in the previous year. Now I will discuss the key highlights for each of our segments. The Animal Feed business had a very good quarter. Volumes were up 18%, driven by volume growth in cattle, broiler and layer feed. This, coupled with price hikes taken net to 34% growth in segment revenues. While raw material prices were at the peak, R&D benefit realization and strategic raw material stocking contributed to segment's profitability, which grew by 32%. However, in the Aquafeed business, shrimp feed margins declined as the raw material price increase could not be fully passed on to the farmers. In the Vegetable Oil segment, the oil prices are very remunerative and the oil extraction ratio was higher than the previous year. Crude palm oil prices increased by 76% year-on-year and the oil extraction ratio was 69.95% compared to -- 16.95% compared to 16% in the previous year. As a result, in quarter 1 fiscal year '22, segment revenues grew by 84% and segment results were 4x higher than quarter 1 fiscal year '21. This is despite a marginal 1.6% increase in fresh feed countries arrivals over the previous year. The stand-alone Crop Protection business posted sales growth of 15%, driven by higher sales of in-house products. Segment results grew by 6% as higher raw material prices limited the growth in profits. Particularly the good and early started south-west monsoon was followed by a long gap of 20 to 25 days of low rains, which affected the sowing of major crops and thereby the demand for agrochemicals. Moving to the performance of our subsidiaries. In Astec Lifesciences sales grew by 15% in quarter 1, driven by higher sales in the domestic markets as exports declined. Segment-wise, sales mainly consist of enterprise sales in the first quarter is not a strong quarter for the contract manufacturing business and a large part of orders are executed in quarter 2 to quarter 4 of every year. The EBITDA declined by 14% year-on-year due to high input cost inflation. Further, fixed expenses such as power, cost break costs and other fixed costs have increased due to the normalization of business activities and the acute global container shortage. For our Poultry subsidiary, Godrej Tyson Foods Limited, it was a very difficult quarter. End product prices declined sequentially as micro lockdowns led to lower demand from the HoReCa segment. But the raw material prices increased sharply over the last year due to higher commodity prices. As a result, while sales grew by 7.3%, the company reported a marginal loss at the EBITDA level compared to a profit in the previous year. In our Dairy subsidiary, Creamline Dairy Products Limited, sales recovery seen in the beginning of April of 2021 was impacted by the decline in out-of-home consumption and the decline in demand from the HoReCa segment. Further, procurement costs increased over the previous year. As a result, while sales grew at 14% on a lower -- on a low base of quarter 1 of last year, the company reported an EBITDA loss of INR 3 crore. We believe that with the easing restrictions across states, volumes and sales will increase in our food businesses. GAVL's joint venture and Bangladesh ACI Agrovet Limited recorded strong revenue growth of 22% and PBT growth of 18% in quarter 1 fiscal year '22. The growth is driven by strong volume growth in cattle and poultry feeds. In these challenging times, we are ensuring business continuity along with maintaining employee safety. We are conducting a nationwide vaccination drive for company employees and families, contractual workforce and our trade partners. Nearly 88% of our employees have received the first dose, and we will cover the entire employee base with both doses shortly. With this, I conclude our business and financial performance update for the quarter and the year. We will be happy to take your questions. Thank you.

[Operator Instructions] We take the first question from the line of Depesh from Equirus Securities.

So firstly, on the Animal Feed segment, it will be helpful if you can please give the category-wise volume growth numbers. And also in the last call, you spoke about the price hike in the shrimp feed segment. And you also spoke that the industry was further contemplating to take a price hike. So just wanted to know what's top that? And what is the outlook on this margin because the RM prices continued against.

Okay. So, volume growth in Q1 over Q1 of '21 is cattle feed about 9.5%, broiler feed about 70%, layer feed about 20% and aqua feed about 4%. Definitely, price rise was required in shrimp feed, particularly, where inclusion of meal is substantial. And soya meal prices were rising at the rate of 2%, 3% every day in the month of April and May. So if you ask me, our contribution, which used to about 14%, 15% at one time in shrimp feed had dropped to 4%, 5% because of delayed price increases. Two reasons. One was that the shrimp prices were very low. So the Farmer's Association, et cetera, were requesting for delaying price increase. And the other thing is that if you are following the news articles, I think Andhra Pradesh Government is implementing several price controls in several commodities linked to agriculture. And that has also led to delay in taking a price increase, and that is why contribution levels in shrimp feed came down significantly. However, in the last 2 months, we have taken a price increase of almost INR 7,000 a tonne. But it is nowhere near whatever is required. Now another good piece of information I wanted to give you was that government is likely to allow import of soya meals. So soya meal prices which have gone to almost INR 100 a kg, in the last 2, 3 days have come down to about INR 85 a kg. Let us see whether government notification comes out in the next few days and how the markets react. But my sense is that some -- even if INR 85,000 or INR 80,000 a tonne of soya meal, 1 more price increase will be required in shrimp feed to get to the historical contribution margins.

Got it, sir. Secondly, sir, this week on the palm oil business, government announced a new initiative on the palm oil production where the plant increased the area to 10 lakh hectares by FY '26 and further by FY '30. So my question is that previously, also such initiatives have been announced. So what are your thoughts on how this time it is different and will this actually work out?

So I think earlier, most of the initiatives were unilaterally taken by the government and which were inconsequential and insignificant. But I must congratulate the government this time because for last about 9 months in intensive consultations with the private sector players and the state government concern has been happening. I think government realizes that there is nothing better than oil palms to produce quality of oil palm per hectare as compared to other oil seeds which produce between 300 to 700 kilo per hectare, it is only oil palm, which can give 3.5 tonne per hectare. Now we have been engaged and I personally have been engaged with the government for the last 9 months. There have been recommendations made by us, where support to the industry and support to the farmer should be given. It is not that it is not given, but now it is routed through the state government. And we said that whatever support has to be given now the DBT system is there. And those vehicles should be used to transfer funds to the farmers as well as processor. And that will only give the boost to oil palm because through the state government subsidies, they geared for to be realized. So apart from that, there will be a formula which has been recommended, which will be beneficial to us as well as the farmers and gap between the formula price and the farmer price will be paid by the central government. So modalities are still to be understood, but I think that whatever we have recommendation -- recommended and all our recommendations are taken on board by the government. I'm very sure that we can accelerate production of palm oil in the country. Apart from that, there will be a separate section for Northeastern states where the benefit will be several times more than what they will be for rest of India. So let us wait. I am also eagerly waiting for the gazette which should be out in the next 2, 3 days. And my sense is, I think that the kind of consultation the government has done a lot of our issues and expectations will be taken on board.

[Operator Instructions] The next question is from the line of Abhijit Akella from IIFL Securities.

So just a question -- just a clarification on the Animal Feed segment. In case this import of soya meal is permitted by the government at significantly lower paces, so would that be a benefit for margins of the entire animal feed industry? Or do we have to pass it on to the farmers? And therefore, it's really margin-neutral. And in that context, how do you see Godrej Agrovet placed relative to the rest of the industry in terms of maybe able to -- being able to retain some of the benefits of the lower RM cost?

So first and foremost, there will be significant benefit only in broiler feed and shrimp feed, where the quantum of use of soya meal is much higher than other feed, point number one. Point number two, I think most of the poultry players have not been able to pass on all the cost increases. And one of the reasons why there is so much clamour for early imports and so much pressure was built on the government because all the other players were financially stressed because there was a limit to which what can be passed on with chicken prices lower because of COVID, et cetera. Now my sense is that immediately the price reductions will not happen. But eventually, they will have to be done because our domestic crop also is only about 5 to 6 weeks away. So that definitely will have. Now how much of it is passed down, we have seen in such situation that entire cost drop because of soya bean will not be passed on because the members -- the players have been very stretched as far as margins are concerned in the past. Now we are reasonably insulated because of our R&D initiatives, we have been able to use other raw materials instead of soya and protect our margins. So let us see what my sense is that this level of margins, which we have got is sustainable. And I must also tell you that even though the market has shrunk both in layer feed, fish feed and in broiler feed. I think this is our time to use or use the play we have in margins to grab more market share. And I must tell you that this 70% growth, which has come in broiler feed in spite of shrinking market, is a huge jump in our market share actually.

Got it. And the second question was on the Oil Palm segment. In the context of sharply higher prices of CPO and related products, we have seen the margin expansion seems a little bit maybe below expectations this quarter. So any specific reasons that you might want to point out for that? And also I just wanted to check when we could get -- when we could expect to see the benefits from the higher oil extraction ratio that we've been talking about, the 0.4% to 0.6% benefit on the OER.

Yes, yes, yes. So let me answer your first question first. You know the formula as the price goes up, the payout of the farmer also goes up. That is point number one. Point number two, Andhra Pradesh government unilaterally increased the formula price, thereby eating into almost 2% of our gross margin. So I think that is the second reason why the margins are not expanded in the line of price expansion. Third thing is that if you see -- don't look at absolute also, but even per tonne contribution is also not reflecting the kind of inflation which it should have. Apart from that, the FFB arrival have been a little subdued because of some bright period in June and mid-July -- up to mid-July. It is still picking because this crop is very different year-on-year, and we are seeing, depending on monsoon and depending on a lot of other reasons, the production pattern keeps on changing. So our expectation is that it is started late and it is going to end late and probably towards the end of the season, we will make up the FFB volume. Lastly, you asked me about OER. Definitely, all the initiatives we have taken have resulted in improvement in OER, and we have reported almost 0.95% in the first quarter. I think similar improvement of OER or around that will be reported in second quarter also. And not only our plant modification R&D initiatives to improve oil extraction efficiency improvement initiative, oil loss controlling initiative, we have also started massive grading exercise at our collection centers. We are taking over most of the collection centers ourselves so that we can keep a tab on the quality of fruit because during these months of June and July and partly August because of monsoon and because of dry season, normally, we pay for wood and water also. So I think that thing will be controlled and these measures we will keep on strengthening because we are paying substantially higher than last year to the farmer, and we are going to expect more stricter quality performance from the farmer. And I think that state government is cooperating for quality improvement initiatives are concerned.

The next question is from the line of Ankur Periwal from Axis Capital.

Sir, a couple of clarifications. First, if I got you right, in the animal feed market, you did mention that our thrust will be gaining market share. So does that come at the cost of margin or probably one can expect the current margins to sustain and there could be an incremental volume growth?

Yes. The current margin is likely to sustain. Even if you have a difference in this quarter, it will be in basis points only. And my sense is that this momentum of 17%, 18% growth will be sustained in the current quarter also. And most likely what we are aiming for because the season will start only from October, November onwards, we will push our system further to get more market share and more volume growth in Q3 and Q4 as the EBITDA margin profile. According to me since the margin is good, we will go for improved market share this year.

Sure, sir. That's helpful. Secondly, on the crop protection side, last year, we were focusing on higher collections even at the cost of growth, is that the case. But how are our thoughts this year? I did go through the commentary therein we mentioned that there were certain delays in monsoon and hence slightly lower offtake. But structurally, what is our thought in terms of will we go for growth here, obviously, keeping balance sheet intact?

I tell you that -- I'm saying that even quarter 1 numbers look respectable. But I must tell you that the Herbicide segment in the industry has been very badly affected because of this lifestyle between 10, 12 June to 7, 8 July, which was the herbicide period because both Hitweed Maxx and Hitweed are early-stage herbicides and those craves should have happened from 20th of June to 30th of June, which where we have a big dent now. Now if you really ask me 2 of our star products, if the targets are not achieved, and I can definitely tell you that the -- even though registered growth, we will not achieve our growth targets we had set for this year. I think that we will have to scramble, and plans are underway to focus on a lot of other products which we have to make up for the lost margin and lost sales. So I think we are in a little bit of a scramble right now. I will not -- I will be honest with you that I think it will require some effort to probably focus on some other high-margin products to make up the shortfall of herbicides. Having said that, definitely, market hygiene has always been our focus, and that will continue to be our focus. But it is -- the start is not as we expected.

Sure, sir. That's helpful. And lastly, on the Dairy segment. Now if I go by history, we have been not as -- our performance has not been as great in this segment, and it has been probably almost 5, 6 years now. What are our thoughts in terms of either ramping up this business? Because in between also we had changed the product profile, the quality of the products was changed, we had introduced new products. But somehow, things are not clicking here. So any thoughts there? So where I'm coming from is, there has been a pretty impressive performance in a couple of segments. But that, in a way, gets overshadowed by sort of suboptimal performance by certain other sectors. And this Dairy segment has been a problem area for quite a while. So your thoughts there?

So let me just tell you that over the last several years, we had made a lot of changes. And one of the big, I would say, structural issue with our business, which was not such a big issue pre-COVID was overdependence on institutional segmented milk and short shelf-life products. About 1/3 of our turnover in milk, in curd and in ice cream bulk used to come from the institutional segment, which just vanished in COVID. The second thing was that over the last few years, we have been focusing on value-added products, and they had crossed -- they had almost touched 30% salient at a very, very fast clip for us. But unfortunately, particularly in second wave, which was most severe in Southern India, where most of our markets are, our value-added product sale, which is a very high contributor to our margins just collapsed. So coupled with that, definitely, we had this spike of milk prices also and buffalo prices are also all-time high in the history of milk industry right now also. So all this turmoil has -- I'm saying that all the benefits and all the changes and all the structural changes we have made there, the effect could not be -- or the benefits could not be realized because of these disturbances. Having said that, let me just tell you a few more things. One is that I think we have stabilized a lot of things right now. We have brought back focus of retail in milk. Value-added products is just a matter of time. As markets open up, if they have started opening up in the last few weeks, the trend has been very, very encouraging. So I would say that if you really ask me, our big question and our big effort is to get scale now. If we registered a 15%, 20% growth for 2 consecutive years, I am telling you, as far as other parameters of the business are concerned and efficiencies of business are concerned, we are there. If you ask me strategically, definitely, I would like to give myself a little bit of discount because of COVID because several of our initiatives which should have worked have not worked. But I would say, we will still wait and watch. I am very sure that quarter-on-quarter, we will start seeing improved performance by whatever correction we have done. In case there is another COVID wave or some other new mutation comes we may come back to square 1, but I think that we know what is to be improved, and we will improve in the future.

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

So I was just wanted to continue on Ankur's question on the Dairy business. This is a question of, like, sort of just trying to understand from you in the past as well that dairy has consumed almost 80% of the -- sorry, 20% of the business is capital employed, but it's not generating EBIT for the last 2, 3 years since IPO. The business so far as Godrej Agrovet, the ROIC actually much higher, but it's getting masked because of the dairy capital employed that's sitting on the balance sheet. So just wanted to understand that it would be like maybe 3-, 4-year outlook on how the margins can pull up for the dairy business internally, how you're not thinking? So we can sort of improve the entire [Technical Difficulty]

Hello? Hello?

Yes, sir. We can hear you. Please go ahead.

But I did not hear the question, the second part.

Yes. Sorry. Can you hear me now?

Yes, yes, yes.

Yes, sir. I was just saying that for Godrej Agrovet for the entire business, except for Dairy, the ROIC profile on a foresight basis, I think it's upwards of 40%, but because of the dairy business, the capital employed sitting, it's bringing down the entire ROIC profile of the company. So if you could just give us some sense in terms of 3, 4 years out, how you see the margin profile picking up, obviously, in a situation like COVID doesn't impact us, hopefully? That would be really helpful because that helps the entire company's joint ventures.

So I fully agree with you. I also personally disappointed at our performance in dairy business in the last few years. And as I have conveyed already that we have taken a lot of steps to improve the business and we are very, very optimistic that whatever we have done is most likely start giving the results in the coming quarter. And considering that we have shared our optimism earlier also and not delivered on that, I would abstain from giving a 3-, 4-year outlook. But I must tell you that all efforts are there to improve the business. And I think the proof of this footing will be meeting and once that comes, we will definitely see you will all see whatever steps have yielded desired results or not. Today, if you really ask me, I think a huge amount of efficiency improvements have happened. It is just a question of scale. If we get to that scale which we want to get to in Q4 of this year, I'm very sure we will not disappoint you in the coming years. That is point number one. Point number two is basically one thing you must realize is that world works on animal protein value chains, a disintegrated industry is not something which exists in several developed countries. If you see broiler industry was almost integrated, shrimp is also on way. So I think similar things will start happening particularly in private sector, in the milk industry to secure supply chain, people will go back and get into feed business also. So milk sellers will -- milk companies will get into feed and feed companies will get into milk. I think that we will see rollout in the next 5 to 10 years in this country. Some of the signs are already seen. I'm saying we don't have our eyes on the next 3, 4 years only, but we have our eyes on the next 5, 10 years where we see an opportunity of building a good milk business, supported by our Maxximilk where we produce cutting-edge genetics and our cattle feed business, where we are #1 in the country.

Understood. And if I can just ask 1 more question on the dairy business? Like given that all the efficiency improvements, value-added product mix, scale up, et cetera, that we have done, in your understanding, in a steady-state basis, what could be like the steady-state margin profile -- EBIT margin profile for the dairy business in your view, as these things play out? If you can just give us an understanding that would be helpful?

Steady-state margin. Hold on for a minute. So let me answer your question like this. Look, the liquid milk business, we are price takers. So most of the efforts in our milk business is focused on quality improvement, smarter distribution, lowering cost of logistics and procurement of high-quality milk at reasonable price. So I think that is the focus which has been there and that is why we went directly to the farmers also for procurement. And that thing got really, I would say, discontinued because of COVID because nobody would allow us in the villages, et cetera, at that time. So I'm saying that we are price takers, but come what may a 9% to 10% contribution margin in milk is something which we should get to. Right now, we would be at about 6% to 7%, but I think that is possible. And after that, it will be a scale game. Some year, we will get 8%; some year, we will get 10%, but we need to probably grow the milk business by 10%, 12%, 15% at the base we have to become even relevant. In the value-added segment, I think we are operating at close to 20% contribution margin. I'm very sure that the opportunity is only 1%, 2% here and there. And there, again, on a small base, if we grow 30%, 40% per annum and in 2 years, I think we would utilize all our capacity. I'm very glad to say that I used to talk about ghee generation because the kind of products we sell require a lot of buffalo milk, and we used to have surplus ghee generation and we used to take a lot of provisions and hit because of low prices of bulk ghee. But I'm very glad to say that 1 of the initiatives which we have undertaken a year ago was to make sure that we develop a ghee market. And I must tell you that growth in ghee is almost 70%, 80% over last year in first quarter. And today, we have no provisions on ghee. We are not taking any provision. And actually, the ghee sale has increased so much that for the first time in our -- after taking over, we are buying buffalo ghee from outside. So I'm saying that is the biggest correction in the model which we have made. Otherwise, there was a leakage of 2%, 3% of gross margin because of this provisioning we used to make on ghee. So I think several improvements are in pipeline, several improvements we have made. But I think we need to get to scale now. So in case we improved the business by 20% or so in a year's time, I would definitely say there a lot of these volatilities will not be seen so clearly later.

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

Thanks. My questions been answered. Thank you.

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

Yes. Sir, my question is the crop protection margin is false correction. So you mentioned in the PPT, raw material prices increased sharply. So can you talk us more about what are the key raw material price in this quarter?

I will have to answer this question offline, if you want specific raw materials where the prices have increased. So -- and pardon me, I think there are some of the technicals which we import, particularly for Hitweed and Oryzostar, but exact names and kind of deltas which have happened, I will let you know. Yes. So I have some details here. Thank you. So mostly generics and pre triathlon, pendimethalin, [indiscernible] , carbendazim, mancozeb. Yes, these are some of the products which are costlier than what they were last year.

So my question is if -- when the price was increasing and how much do we have passed on and why we are unable to pass on because of weak demand and what?

Yes. So in some of the products, which we use in kharif because of this lull. Let me just also tell you that the dry period of 10 June to 5th, 6th of July, is again getting repeated in last few days again because August rains are very, very important for Indian agriculture. So I think some dry period has already set in, in several parts of the country. So I really do not know how well or how badly the sector will do. But I can definitely tell you that pesticide industry will be in a little bit of stress. I'm not talking about companies which have got proprietary chemicals and they still do better. But plenty of us who have growth regulators and herbicide focused businesses are going to find it a little challenging.

Yes. Can you talk about the palm oil volume this quarter? And what's your volume growth?

Hold on. Yes. So the revenue growth was about 83.5%, and segment growth last year we made INR 6.5 crores, we've made INR 32.6 crores profit. And volume of CPO fold has grown by almost 6.5%. FFB processed is only about 2% more than last year. And last year, the delay was because of COVID lockdown. But this year, I think there is a little bit of shift in the season. And what we are seeing is that the 4- to 5-week delay in the season is expected in case it rains well from now on. But my sense is that on an overall basis, I think because of price increase and because of full year improvement we will see a significant improvement in profitability in this business. I'm very sure that last year's number for volume of FFB, CPO and CPKO all will be surpassed.

The next question is from the Ritesh Gupta from Kotak Securities.

Just 1 on the palm oil side, what was the reason you told for the margins to be weak this quarter? Because I think palm oil prices have been pretty strong so that has driven the margin...

So I would say there are 2 things. But entire increase in the palm oil prices have not come to us. So let me tell you that what has happened. So palm oil prices have increased, and we pay farmers as a percentage of oil price. So last year, that is '19-'20 -- no, sorry, '20-'21 -- so '19-'20, because oil year is from October to September, we were paying farmers in the formula at about 16.8% or 16.85% of oil price. But this year, unilaterally, both Telangana Government and Andhra Government have made it 18.62%. So it is almost about 1.9% increase. So definitely, the quantum which should -- we should have gained because of increased price that quantum is very less. But one good thing is that a lot of our initiatives, including some R&D initiatives, particularly because of this high price, government has allowed us to implement a lot of quality improvement initiatives in farmer farms and we are doing a lot of grading. So today, if you ask me earlier, we used to reject about 0.5% to 1% of the fruit. But now that rejection rate has come to 4%, 5%. And that is showing in higher OER of almost 1% in the first quarter. And similar improvement we will see in the second and the third quarter also, I am extremely confident. And I need to tell you that higher OER is direct injection into our PAT -- PBT, sorry. Direct injection into our PBT because we pay the farmers on weight of FFB but on oil recovery.

Understood, sir. And just on the crop protection side now that you have reached a certain size and scale in the business and you have historically grown faster than the industry as such over the last 2-year period. What is unique that you -- what is the unique tool that you're doing in the crop protection business? Because honestly, this industry is easy to get up to a INR 1,000 crore or INR 800 crore top line base. And then I see income are starting to kind of -- so in terms of next 3 to 5 years, let's say, what is unique that you are doing in terms of let's say in licensing or something else or maybe in terms of distribution, et cetera? How are you looking at it over the next 3, 5 years?

So let me tell you that 1 of the great things we were doing in this particular business was very good execution because or extent of sales and distribution. We were getting about 7%, 8% organic growth from existing molecules, and we were able to launch 1 or 2 new molecules every single year, which will give us another 4%, 5%, 6% increase. So we maintained 13% to 15% growth in this business for several years post 2007-'08. The other reason was that our EBIT margins were always very high because our new products would be either coming from our stable or with the in-licensing products where our gross margins will be significantly higher than the existing products we had. So I think this was the combination of these 3 things, but is giving us very good results. But for 2019-'20, '20-'21. And I think '19-'20 is 1 time when we took a breather and probably set a lot of things right in this business. Of course, that continued. But unfortunately, because of COVID, again, be it collection, be it inventory management, be it sales of certain -- or production of certain products. In last 1 year, we have seen some disruption. And mind you, the opportunity for us is very, very small in certain chemicals like I'm telling you if you don't sell Hitweed from 10th of -- 20th of June to 10th of July, in 20 days, we have to dispose of INR 200 crores worth of herbicides. So I'm saying if we miss that opportunity, it is very difficult to recover and very difficult to come back. So I think it's a combination of events which have been hurting us. And definitely, we are committed. So we might -- we will just come back to the earlier levels very quickly. Now just to give you another flavor, I think 6 products are in pipeline already in next 3 to 5 years and at different stages of registration. These are all products which are coming from our own system, 4 are herbicides, 1 is a fungicide and 1 is a growth regulator biofertilizer. Most of them have got usage in paddy and cotton. The in-licensing products, which are already signed up and are in process of registration, there are 5 of them, 2 insecticides, 1 herbicide and 2 fungicides. So I'm sure that in case we roll out these 10 products in the next 3 to 5 years, we will get back to the growth rate, which we have done earlier in profitability as well as top line.

The next question is from the line of Nitin Awasthi from InCred Research.

Sir, a couple of questions from my side. Firstly, on this investment of the company in a company called KSE and why I ask this is -- if I look at the other shareholders of KSE, through the promoters of Godrej Agrovet would be the largest shareholders in that company along with Godrej Agrovet. So if you could just explain, is this an acquisition candidate that we're looking -- is the company is looking at because of similar lines of business? Or what is it?

So let me just tell you something about KSE then Mr. Varadaraj will talk about the financial question you have asked. KSE is a company which is into cattle feed and some solvent extraction business in Irinjalakuda in Kerala. And they are the dominant player for cattle feed in Kerala, and they do a lot of copra extraction also. Company is very closely held and the float is very low. But if you really ask me, definitely, it is a very, very good company to acquire. But we don't see any opportunity like that in near future. At 1 time when we saw this opportunity for acquisition of some share. Mr. Varadaraj?

Yes. So since we are in the same business as the intent to sort of make a financial investment, we have sort of made an investment of around INR 26 crores in this company. Anything else you need to know on this?

No, sir. That's all on the KSE front. Second question would be on the import allowed of soybean -- GM soya meal by the government. Now the landed cost of imports given the taxes and the cess that has to be paid on the imported GM soya meal would come close to INR 50. So wouldn't that mean that in some segments, you could actually retain the margins and take a price cut, helping the segment grow? Is that -- or is that too farfetched?

Look, I tell you that there'll be 2 phases of import. One phase of import will be from Nepal and Bangladesh. And that will not come at the number you are mentioning because we already have -- we have gone in for contracts with Nepal and Bangladesh and blended soya, which is domestic today, that's about 90,000 and this will come between 70,000 to 75,000 in different factories. And we have contracted some quantity in the hope that the notification of the Government of India will come in next few days. The second thing is that the big soya meal import from South Africa and America can only hit in 6 weeks' time in case the containers are available. And that can definitely come between -- after paying the duty, et cetera, between INR 50 and INR 55. So that math we are still doing because the number is fluctuating. So that definitely will be a very big blessing in disguise. That will also stabilize the new soya meal prices. Now in case the soya meal price in October, when our domestic production has also started -- starts and imports start hitting Indian ports, at INR 55, we can pass the benefit significantly and retain a decent margin for us also, and you will see a big spike in our contribution margin if that happens.

The next question is from the line of Utsav Mehta from Edelweiss AMC.

My first question is on the acceptances. So last quarter, we've seen a sharp drop in acceptances, because of the differential interest rates. Could you provide some update as to when that will normalize? And...

Yes. So this is Varadaraj here. So the acceptances, as you rightly said, we reduced the acceptances -- the supply financing fee because of the differential in interest rate. Even now the gap between acceptances, the cost of acceptances and cost of borrowings is close to 2.5%, 3%. With those kind of a differential, it's still not appropriate for us to resort to supplier financing asset tool. And hence, we are continuing to focus more on borrowing on the books of the company. As and when this sort of gap reduces in future, that's when we will sort of relook at it. But at the time being, definitely, we don't have any strong intent to do that.

Okay. My second question is sort of harping back again on dairy and even the poultry business. So after many years last year, we've probably seen a positive EBIT in both these businesses to the tune of like INR 11 crores and INR 25 crores. I know it's not been a very good start to the year, but do you believe that you can at least reach back to that absolute number at least for this year in F '22? Or do you think that's probably going to be unlikely given how we started?

So the answer is that in chicken business, I think the industry has -- we've been badly hit and chicken population is even lower than last year this year. So as and when India starts opening up big time because this is shravan. So shravan is a subdued month, particularly in West and Central and parts of North India. So my sense is that in a month's time, we will start seeing shortages in chicken and eggs and the prices will become remunerative. So I'm very, very optimistic. I think we still have to see what will happen. I'm very optimistic that we will probably improve our number significantly in the chicken business. I must also tell you that July was just the opposite of June because July the shortages had set in and suddenly, we had seen prices giving us about 20% PBT on sales. So I'm saying this is a cyclical business, seasonal business. And I'm very sure that there is no way the company can dump and the country can come back to the same production level as pre-COVID. The consumption will go up in case there is no third wave and the industry will benefit. Now coming back to the dairy business. Yes, I think we have in our current best estimate for the year factored in improved volumes in milk at a reasonably good percentage per quarter. The reason is that once things open up, definitely, some of our institutional sales, which we have lost is going to come back. So my sense is that, that will definitely come back, and that has started happening week on week in the last few weeks, we have seen that. Second thing is that we need to get to the volumes which we have talked about in the value-added business, which we will. So my sense is that what we -- what the profit numbers will look like, whether we will reach last year of profit? The big question will be how much milk prices and milk cost will drop in the flush. In case it drops -- like normally the drop is between 50% to 20% year, every year, we have seen that off-season and in-season price drops to this level. In case it drops to this level, definitely, we will get to those numbers. But there is very little we can do on price. We have pushed the volumes also in our current best estimates, and we are getting that volume in last almost 8, 9 weeks, we have been on track. The only thing is that if the cost of milk comes down, we can definitely get back to those levels.

Understood. So just to summarize from what you are saying, you're basically from all the segments, you're just circumspect on the dairy business and the crop protection businesses and the other segments, you believe that segmental profits in absolute terms easily grow?

Yes. So dairy business -- crop protection business, I can definitely tell you that we still have 4, 5 months to go. And we still have products which we can sell and up the game for ourselves. So I'm very sure that even if we miss, we will definitely grow our last year in CP business, that goes without saying. But point is that will we grow 10% or will we grow 20% that is still a matter of conjecture. So I would say that growth will be there. We will do -- it will be a profitable growth. We will be able to put up a much better show in spite of a erratic monsoon. But definitely, last year number will be crossed.

So growth in all businesses except dairy. Understood.

I will keep my fingers crossed for milk.

We take the last question from the line of Senthil from ithought Financial.

Sir, we have a couple of questions. First question is on the top line. So over the last 5 years, you've acquired Astec and also you've increased the stake in dairy and [indiscernible] dairy. And so the growth CAGR was around 11% on the top line. So in the earlier call, you had mentioned that a lot of activities or initiatives has taken on the dairy business. So considering this next 5 years, what could be the medium-term growth guidance that the company is eyeing?

So let me tell you that why -- whatever I will say will not make sense in 3 -- 2, 3 quarters also because let me just give you an example. So let me tell you that the volume increase in feed was 18.33%. The value increase was 34%, okay? So what kind of inflation if you tell me will prevail in the next 5 years? I will tell you what will be the forecast for the company. Similarly, I'll tell you 1 plant number in palm. The revenue has increased by 83.5%. The oil sold over last year increased by about 6%, 7%. So my sense is that lot of things are dependent on the commodity inflation. But that is why during budgeting, actually, the top line is just a derived number. Most of it is focused on volume. We always talk in volume terms. And second thing is that the targets of contributions and profit in all our businesses, barring 1 or 2, are fixed on rupees per kilo, rupees per tonne, et cetera, or rupees per liter. So my thing is that top line, definitely, we will surprise you from here, we will put on the positive side, we may surprise you on the negative side. But what we are more focused is a steady growth impact, not even PBT year-on-year. And that is what we -- that is what we will drive.

Okay, sir. Second question is on the capital allocation side. So in any new projects, what is the internal target that the company eyes, like -- can we eye on a range also?

So let me just say to you that fish feed is growing in the country and fish production will continue to grow. We have already committed to a fish feed plant in Barabanki in UP at the cost of close to INR 88 crores, which will be commissioned by February-March next year. We are already in the completing stages of the herbicide plant in Astec Lifesciences and we have already made plans for further investments in Astec Lifesciences, plus that R&D we have been talking about and doing nothing for about 2 quarters, all permissions are in place, and most likely in the beginning of next month, we will start that project also and try to complete that in 12 months' time. However, having said that Astec also hired a laboratory, so their R&D initiatives are not affected. It will be just moving from a lease building to our own building in a year or year and 2 months' time. So I think those investments will continue. All this will add up to INR 250 crores or so in next, say, 3 or 4 quarters.

Okay, sir. But the -- yes, that you'll be looking into these products -- like projects?

So we have a capital investment committee, which looks at these businesses. All of them are -- like I'm saying that you can always come and meet me because our businesses are such that we can make very good IRR at 1.5x asset turns in Astec Lifesciences and make a very bad IRR in 4 asset terms in our feed business. So point is that definitely, we take all these things into consideration. So -- but a standard IRR is something which we cannot work out. The other reason is that all businesses also borrow at different interest rates. If you ask me in animal feed business, anybody is ready to give us money at 3.5%. Isn't it? So they are -- I'm saying in case you want some more insight, more than glad to engage with you.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management 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 will be happy to be assisted. Stay safe and stay healthy. Thank you once again for taking the time to join us on this call. Bye.

Thank you. On behalf of Godrej Agrovet Limited, this concludes this conference. Thank you all for joining. You may now disconnect your lines.