India Pesticides Limited (IPL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 and 9M FY '23 Earnings Conference Call of India Pesticides Limited, hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tejas Sonawane from Dolat Capital. Thank you, and over to you, sir.

Thank you, Aman. Good afternoon, everyone. On behalf of Dolat Capital, I would like to thank the management of India Pesticides Limited for giving us the opportunity to host their Q3 FY '23 earnings call. From the management team, we have with us today, Mr. D.K. Jain, Chief Executive Officer; and Mr. S.P. Gupta, Chief Financial Officer. Without further ado, I would like to hand over the call to the management for their opening remarks, post which we will open the forum for a Q&A session. Thank you, and over to you, sir.

Thank you, Tejasji. Good afternoon, ladies and gentlemen. I hope you and your family are staying safe and healthy. I take the pleasure of welcoming you all for the Q3 FY '23 Earnings Conference Call of India Pesticides Limited. I hope you all had a chance to look at the financial statements and earnings presentation uploaded on the exchanges and our website. Despite the inflationary pressure, our margin saw an improvement on Q-on-Q basis due to improved operational efficiency and cost pass-through. The company performed well with a 16.1% Y-o-Y revenue growth, driven by higher demand for existing products and the new molecules. High-cost raw material inventory and high fuel prices have been a challenge during this period also. Our R&D capabilities, including the ability to create substitute chemicals and decrease reliance on imports, are critical components of our strategy. All of our recently launched products were well received by market, and we expect their demand to grow going forward. Further to this, our planned INR 70 crores CapEx for expansion at Sandila plant in FY '23 is on schedule. We are happy to announce that the Ministry of Environment and Forests has granted us environmental clearance for our Hamirpur project under our wholly owned subsidiary, Shalvis Specialties. We anticipate starting operations during the fiscal year '23-'24. Our export component increased to 68% from 49% in Q2 FY '23. The increase has been driven by the company's focus on expanding the global reach and building strong relationships with international customers and expanding customer base. The company's strengthening of R&D has also created a crucial role in its export growth. India Pesticides Limited has been consistently developing new products that cater to the ever-evolving demands of the global market, and its innovative products have been well received by international customers. As informed to stock exchanges last month, we have recently commissioned a plant for a herbicide with good export potential. During the quarter, our long-term credit facilities were reconfirmed by CARE Ratings Limited at A+, which highlights our ability to manage capital efficiently. IPL continues to overcome challenges and are much stronger despite uncertainty in the business environment. We are eager to roll out new products in the coming quarters to improve product mix and reach consumers. We assure our shareholders that we are committed to working towards our vision of supporting chemical business and farmers across the globe by producing superior value chemicals through quality and efficiency. India is now a relatively stable economic haven, with strong domestic demand and growing competitiveness in exporting quality of goods and services. IPL is poised for success with skilled manufacturing and competitive edge. With this, I would like to pass on to Mr. S.P. Gupta to walk us through our Q3 FY '23 financial year highlights. Mr. Gupta?

Thank you, sir. Good afternoon, ladies and gentlemen, and thank you for joining the India Pesticides conference call to discuss Q3 financial year '23 results. I will quickly go through our financial performance. Taking you through the financial highlights, the total revenue stood at INR 222 crores as against INR 191 crores in Q3 financial year '22. That is Y-o-Y growth of 16%. The growth has been driven by the growth in the international market. EBITDA in Q3 financial year '23 stands at INR 51 crores, with EBITDA margin of around 22%. The PAT stood at INR 35 crore in this quarter as compared to INR 43 crores in Q3 financial year '22. PAT margin is 15.7% in Q3 financial year '23. The revenue from exports stood at INR 148 crores as compared to INR 109 crores in Q3 financial year '22, and domestic revenue stood at INR 69 crores as compared to INR 81 crores in Q3 last year. Revenue from Technicals and Formulation stood at INR 184 crores and INR 34 crores, respectively, during this quarter. India Pesticides Limited has a strong balance sheet with the ability to generate good free cash flow. The company is planning to fuel its CapEx plan with internal accruals. We remain confident of continuing our growth trajectory while extending full support to our customers, suppliers and other valued stakeholders. With this, we would be happy to take your questions. Thank you.

[Operator Instructions] The first question is from the line of Rahul Jain from Credence Wealth.

Am I audible?

Yes, yes, sir. Yes, sir.

Okay. Sir, in the previous 2, 3 quarters, we have had issues with regards to logistic cost of raw materials going up. In the previous quarter also, you had mentioned about gross margins going down because of high cost inventory and increasing in fuel cost and also logistic costs. At the same time, you had also mentioned that you will -- this inventory, high-cost inventory will be completely utilized in this particular quarter. So first question with regards to margins. Yes, we have shown some improvement in gross margins from about 43% to around 45% in the current quarter, quarter-on-quarter. So how soon do we expect the gross margin to reach our 50% mark, which we were doing some quarters back, given that the high-cost inventory must have run out? That is my question number one.

Sir, inventories, we thought we completely -- we have not yet consumed the total high-cost inventory. But we feel that by this quarter, it will be completely -- we will be utilizing the high-cost inventory. And with this, for the next quarter, our margin should improve.

Okay. So it will take another couple of quarters to reach back around 50%, 51% gross margin.

Sir, 50%, 51%, it will be very difficult to say, but we will try our maximum whatever is possible.

Sure. And sir, with regards to CapEx, we had completed roughly about INR 35 crores in the first half and the balance, INR 35 crores, to be done in the second half. So till date, how much CapEx is completed out of the INR 70 crores for the current year?

We have done CapEx of INR 54 crores in 9 months.

Okay. And the balance will be completed before March.

Before March, sure, sir.

And this INR 70 crores plus the earlier INR 70 crores, this is that INR 140 crores of brownfield CapEx, which we have done at the existing plant, will contribute roughly about 2.5x asset turnover?

Yes, sir. Yes, sir.

And how much time, sir, it will take to ramp up this capacity to reach this full utilization to the extent of 2.5x?

I think it should be by end of this year. That is the FY '24.

Okay. So FY '24, we can have -- with the existing plants, we can surely reach about around INR 1,100 crores of top line, INR 1,000 crores to INR 1,100 crores?

Yes, yes. Easily, sir. No doubt about it.

And sir, what kind of contribution we will see from the new products which we have added in the current quarter and also in last -- previous 2 quarters? Till date, what is the contribution from the new products? And what is the expected contribution from new products in the next year?

Contribution from new product is around INR 25 crores during this quarter. And we are expecting around, say, INR 250 crores of incremental turnover during next year from new capacities.

Sure. And sir, you had mentioned in your earlier calls that all the new products which you are trying to launch or will launch, typically, they will have 50% plus gross margin?

That is our realistic, but considering this inflationary pressure, I think the gross profit range will be say around 46% to 47%.

Okay. Sure. One last question with regards to the new site. So how much CapEx do we expect? We had earlier indicated to spend about INR 20 crores in the current year in the new site. Typically, what is the amount expected to be done in this new site by year-end? And you mentioned that we expect the new site to start commercial production in the next year somewhere around quarter 2, quarter 3. So next year, what kind of contribution to sales can we see from the new site by the new greenfield CapEx?

Sir, actually, the new site is going as per our expectation. We were expecting the meeting for the environmental clearance to happen in November, which did happen, and we got the clearance in the first go. And we are now starting our activities at the new site. And the CapEx, what we have planned for the next year would be about INR 700 crores. And we expect the first 2 units to be in operation by, say, December, January onwards. And the contribution from that site would be nominal, probably because the plant would be still under stabilization. But from the next year, FY '25 onwards, it will contribute significantly.

The next question is from the line of Ayush Mittal from Mittal Analytics.

First of all, congratulations on a good performance [ considering ] the times that have [indiscernible] industry [indiscernible]. So sir, 2, 3 questions. So first, we are seeing a very big demand-supply mismatch in the agrochem industry, and many of the players are facing very weak demand or inventory correction, or they are facing pressure on margins. So on the demand side, are we facing issues? Or are we broadly in line with what we were planning to grow? And we also had some new product launches ahead for the coming quarter. So can we -- can you share more about this aspect?

Sir, demand-wise, we are not facing any major problems. The products, what we are regularly producing, we are able to sell, and the quantities are reasonably okay. I think if we see the total volume, what we have done this quarter is slightly more than what we did in the previous quarter. Our previous quarter, we did a Technical turnover of about INR 3,900 crores -- sorry, tonnes. And this quarter, we are doing more than 4,000 tonnes. So demand-wise, it is okay. But the pressure -- cost pressure is only because the energy cost has increased a lot. As informed last -- in the last conference call as well as in TV interview, our fuel cost has gone up significantly. Especially, the rice husk -- if we are to buy around INR 300 a quintal, now the price has increased almost to INR 1,100, and now it is ranging around INR 850 to INR 900. So the cost of energy has gone up. And because of the lots of uncertainties in the initial period, we have imported a lot of inventories to avoid any risk of production stop. So the inventories, we are still carrying and which we hope that, by this quarter, we will be able to consume the high-cost inventories.

Okay. Great. So -- and sir, there was some new herbicides that you are planning to launch in Q4, and we have done a lot of stocking for that. I think the inventory buildup was due to that...

The herbicide major usage comes in the first quarter of every year because normally, in April, May, June, the demand would be higher on these [ books ]. There are -- so we are slowing the product now, and the major sales will happen in the next quarter.

In Q1 or Q4?

Q4 -- Q1. In the last half, Q4 and Q1. Major sales would be in Q1. But we have to build the stock because that is a very short-time sale. So that is why we have to build this stock.

Okay. Yes, sir. Sir, the new expansion that we are doing at Hamirpur, we have just got the EC, and you are saying that within a year, we'll be able to build 2 units. That's a very short time. But so have we only been doing some construction activity? Or how will it happen? Because usually, it takes 2 years for a plant to get up and running and then it takes time for approval. So how will we be managing so fast?

Sir, actually, what happens is after getting the environment clearance, simultaneously, we are also working on other clearances because we require a lot of clearances from the government. So I will just explain to you, after environmental clearance, we also got the ground water abstraction clearance also. We got the permission from them. And the [ FIROC ], we have already received. Then we have made arrangement with our -- this landfill system company, [ MP ]. We are already in the agreement with them. And then we already applied for the consent to establish to the pollution control board. So these activities are parallelly going on. And we are planning initial stages a few intermediates. So for intermediates, we don't have many regulatory requirements in terms of registration at the CIB, what is that, the Central Insecticide Board, et cetera. So we have already shortlisted a few intermediates that we will be starting first. So we feel that we should be able to produce funding by the third quarter opening in the fourth quarter of this year. And this is also a must for us because of the tax benefit role that the government has given that the plant has to be commissioned in FY '24. Only then we can avail the concessional income tax of 15% [ that ] push us to act a little faster.

Okay. That's great to hear, sir. And sir, another 4,000 tonnes we were planning to add at Sandila. Any update on that?

Yes, that is going on, sir. That is going on. As of today, as we informed last month, we have already added one more herbicide, which is a very good export potential. Overall, the capacity of that plant would be about 300 tonnes. And then a few into more intermediates are under construction, which we will be commissioning maybe in March, maximum by April.

The next question is from the line of [ Nagesh Shen ] from NB Investments.

Sir, during the quarter, there is an increase in the export compared to the domestic sale. So first question is, what are the reasons for this?

There has been very good demand for our herbicide as well as recently launched herbicides.

Okay. Is it specifically for herbicide only, this increase in sales has happened?

Yes. But existing herbicide had -- we have got good export order. And a few quarters back, we have launched one more herbicide that's exclusively for export. That has got very good export demand.

Okay. Sir, just a continuation of this. See, we have our top 3 products where we have more than 20% market share, where our competitors are all these MNCs. And these MNCs must be having their manufacturing plant at either China or maybe some place in Europe. And if it is in Europe, with the current increase in power cost. So any information you have got, whether they have received their production and they're diverting their requirement to India or something like that?

No. Sir, our major competitors, they are not based in Europe. The major competitor is based in Israel. And they have their products going on. But our -- because we have long-term arrangements with our customers, we are able to continue to supply the required quantities to them. And from China, we have not so much of competition at all because the manufacturers of these compounds in China are relatively very small.

So I'll ask you in another way. So because -- is there any increase in demand for our these 3 products from Europe markets?

Europe market increase is not -- in 1 quarter, yes, because that product we have launched only last year. So we are getting good demand for that one herbicide from Europe itself. Europe and the adjoining countries from Europe, from the main European Union, when the adjoining countries, we are getting good demand for that. And for the herbi side, we are getting good demand in other countries also.

Okay. Okay. Sir, now since our IPO, how many products we have launched till date, sir?

Sir, at the time of IPO, we had promised 8 molecules to be in the pipeline. And out of these 8, we have already launched 7 products. With this new herbicide, what we have commissioned this month, including that, it will be -- this will be the seventh molecule what we have launched. This includes 6 key ingredients and 1 intermediate, and [ the new plant ] is already under construction, which we are planning to launch soon.

Okay. Now you said out of the 7 launch, 6 are technicals and only 1 is intermediate, right?

Intermediate. Yes, sir. Yes, sir.

Okay. Okay. So now before this...

It is largely being imported. So it will be an import substitute in line with our government's initiative of [indiscernible]. So from that point of view, now we are able to manufacture in India.

Okay. Sir, before this IPO, I think we had only 6 products, no? 5 fungicides and 1 herbicide, that is correct?

We have 7 to 8 products. We were having 2 for herbicide and 6 fungicides.

6 fungicides. So total 8 products, no?

8 products.

Okay. Now [ why I was ] asking that question is, of the 8 products that you had before the IPO, are we completely backward-integrated in those products?

In those products, sir, majoritily, we are backward-integrated, except some critical general-purpose intermediates, no, which are available in the market that we were sourcing from the market. But otherwise, we are backward-integrated. So 1 or 2 intermediates, we have to import because they are readily available in the market. Those we were buying from the local market as well as importing. And otherwise, majoritily, it was backward-integrated and the Indian-source, sir.

Got you. Now the new 6 technicals that you have launched. So there, we are not backward-integrated, right?

So there also, we are backward-integrated, sir. As I told you just recently, we started an intermediate, which was being imported -- majoritily was being imported. So that we started manufacturing. So we are getting backward integration in that. And the other 2 molecules also we are getting backward integration. Our strategy is that we only say that we would like to be backward-integrated company. We do very few products. We did the n-minus-one strategy.

[Operator Instructions] The next question is from the line of [ Ankit Gupta ] from Bamboo Capital.

Congratulations for...

[ Mr. Gupta ], can you a little bit loud, please?

Yes. Congratulations for a decent set of numbers in tough times. Sir, if you can talk about how has been the realization trend over the past 3, 4 years for some of the key products like captan, folpet and [indiscernible], let's say. What were their prices of pre-COVID? And how are they currently -- how much did the move up in the past 1 year now has been the price trend over the past 6, 9 months?

Earlier, the price was very, very stable. During -- as compared to last quarter of this financial year '22, the price has increased by around 8% now for the molecules. Earlier prices were very stable before COVID.

Okay. Okay. So there wasn't any significant increase in prices post-COVID, let's say, in FY '21, '22?

Yes, yes, yes.

And now in fact, in this 6, 9 months, they have increased by 8%?

Yes. Yes. But correspondingly, raw material cost has also been increased by this similar amount or slightly more, slightly more.

Sure, sure. And sir, 1 figure that you mentioned that from the new launch, newly launched 7 molecules were expected, we are expecting to generate INR 250 crores of revenue in FY '24. Is that right?

Yes, yes.

And how much are these molecules contributing to our sales in 9 months?

9 months, they have contributed around 12%.

Sure, sir. And how many molecules are we planning to launch in FY '24?

FY '24, sir, we will be launching at least 4 products.

Okay. And this will -- this product will also be targeting export markets largely?

These 4 products would be at least 2 in the -- in our subsidiary and 2 products in our existing plants.

Sure, sure, sure. And sir, the new greenfield CapEx that we have -- that for which we have got the EC approval, will that be largely focusing on the existing set of molecules? Or will be introducing new molecules which will be contributing to the revenue from the new plant?

We would be aiming at new molecule, sir. Existing molecules, we have had a reasonable capacity here. And we would be there aiming for the new molecules and the new chemistries with bromine and fluorine and other processed chemistries.

Sure, sure. And sir, Sandila plant post this INR 70 crores CapEx, will there be any space left for further CapEx or, like, we can just reach around INR 1,100 crores kind of revenue from the Sandila plant and now the growth will largely come from the new greenfield CapEx that we are doing?

Sir, with this expansion, the Sandila plant will be almost full. Maybe very small space for 1 or 2 small products but not very much for any big capacity addition there. And the further expansion will come largely from our new site.

[Operator Instructions] The next question is from the line of Chintan Mehta from Prudent Broking.

Sir, my question is how much the top 3 product contribute...

Mr. Mehta, can you be a bit loud? Your audio is very low.

Sure, sir. Sir, how much does the top 3 products contributed in 9 month FY '23 ended, sir?

They contributed around 45% of our turnover.