Insecticides (India) Limited (532851) Earnings Call Transcript & Summary

On behalf of ICICI Securities, we welcome you all to Q4 FY '19 and FY '20 results conference call of Insecticides (India) Limited. We have with us Mr. Rajesh Aggarwal, Managing Director; and Mr. Sandeep Aggarwal, Chief Finance Officer. Now I hand over the call to Mr. Rajesh Aggarwal for his initial comments on the quarterly and the annual performance. Thanks, and over to you, sir.

Thank you. I welcome all the participants to this conference call of the company. First of all, I go through the industry scenario. The year was subdued not only for the economy but also for the industry. The monsoons were delayed, and they were very, very erratic. So in certain parts of the country, there were unseasonal rainfalls also during the time of soon. So broadly, we said that the past year has been disease free. It has been pest free. So the demand for insecticides throughout the year was reasonable. It was not on its peak. Last year, after a gap of many years, first time, the locust entered into our country and majorly was trapped on -- in Rajasthan and Gujarat, and it did not spread over the border states. In these circumstances, IIL came out as a winner and was able to deliver a resilient performance. A strong pipeline of products, a strong pipeline of customers that was something which supported us in building up the brand and making us -- making a strong top line for the company. However, the international sales tumbled, institutional sales were also not very good. There was high competition due to low demand. And then there was a COVID-19 situation. This COVID-19 aggravated the market situation further because it began with cash crunch, manpower crisis, lockdowns, low morale of employees, poor logistics and broad economy and business who are in a standstill. Agrochemical, though, was put under the essential commodities. So we could start the manufacturing somewhere in mid of April. But again, these challenges, what I mentioned, manpower, logistics, raw material, COVID, fear, low morale, quarantine issues, these are still haunting the industry. And when today, we are in a situation where people say that COVID has still not peaked, so the signs of worry are still there. There was good inventory in the trade. When the new kharif season started, so there is a good take a start to this season. Yet all these challenges, what we have discussed, still exits, and ministry has been very, very proactive in this COVID period and are now making various decisions. First of all, the pesticide management bill was announced, and it is in Rajya Sabha now. Lot of strict decisions are taking -- taken in this pesticide management bill. Industry is struggling, fighting for that, and we are hopeful that government will have some positive reviews on this. Then came 27 pesticides. The ban draft order, draft ban order, a sign of worry because all these 27 pesticides are large agenda products, which has a huge demand within the country and also in the international markets. The biggest problem was that most of these products are manufactured in India, and Indian companies are pioneers in manufacturing these products, and these are going to the international market from India in a big way. India is at highly competitive prices. Despite of that, these products were put in the banned list. People were shocked because there were no negative reviews, but on the basis of Europe and on the basis of some information from the NGOs. These were put under the ban order, though government backed out a little, and they started the exports of these products, and they have given a notification that export will be allowed. And on the domestic market, they want a hearing of the industry. But again, only at ports will mean that you will lose the competitiveness. So the product is also required for the domestic industry, and these are the products for the marginal and the small farmers, so very, very important. So this point of 27 pesticides is also very, very important if we wish to keep the country [ Foreign Language ] or self-reliant, and if we wish to carry forward the point of Make in India that we have pursued with the ministry, and we are very, very hopeful that we would be able to save a majority of products. Because today, the industry and the government both are, I think -- would be working together to generate the data, whatever data gaps are there, and most of these products will be same. Along with this, government wanted new levels of pesticide. So a lot of discussions are on there also. But I mean to say that in this time of COVID-19 and also the big locust attack has -- is there in the country after a gap of 26 years in such a big way. Because as I mentioned, after 2 decades, we look at locust had come into India in Rajasthan in a big way, but that was controlled majorly in Rajasthan and Gujarat itself. But this time, it has entered into Central India, and it is moving to all the states from east to south. So everybody is worried. Locust is a big problem. Locust multiplies very fast. Eat anything green, it is called Desert Locust, and it is a very chaotic insect actually, which can eat anything green, whatever it finds, may it be garden, may it be forest, may it be trees, branches, shrubs, anything, and it moves at a very high speed of about 150-kilometer per day. So which means it has a big potential to challenge the full security of the country. And if it is seen somewhere, then it's a chaos. So under these circumstances, IIL has growth, IIL has passed in the last year, and we are entering into the New Year. So I will talk about the IIL's performance. So company performance on the top line front has been quite robust in these difficult circumstances. Company has grown by almost 14.2%. The sales is INR 1,363 crores, where the branded sales has seen the maximum jump and contributed more than 72% to these total sales volume. The institutional business has come down, international markets have come down because of the restrictions by some neighboring countries and also the growth is impacted due to this. And there was always a price pressure. Because, as I told you, this was a disease-free and a pest-free year. Generics was in reasonable demand, and our sales of generics has also gone up. I'll explain it later. Coming down to the EBITDA. You will be shocked to see the downfall in the EBITDA margins. When we were doing this kharif case, we had not imagined that it is going to hit so much, but it has. INR 156 crores, a downfall of almost 16.7% and the margin from 11.4% have -- EBITDA margin has sunk to 11.4%, and the net profit is INR 86 crores, which has decreased by almost 30%, and there is a substantial hit on margin percentage what we make. Here, I would like to explain the results of the lower revenue and lower profitability. As our [indiscernible], this was a pest-free year. Demand was low. And the registrations were delayed, particularly design registration, which we are bagging -- banking, and we want these registrations very badly because a lot of files are there with startup. And now with Make in India and our persuasion with the government, we are very, very confident that we should be able to bag almost 1 dozen registrations. So 1 dozen, majority of 9(3) is very, very important. And when these registrations will be coming, there will be a complete turnaround. The exports were also restricted by the neighboring country that also created an impact because at that time, that was our largest customer. There are also reasons behind the profitability impact. As I told you that there was high demand for generics. So we could sell generic and clear the inventories. There was pressure of inventories. We were having large stocks. We wanted to dispose these stocks and also generate cash because this COVID situation was very, very visible, and we were imagining that this pressure of lockdowns and this, if comes to India, that will make the situation worse. Looking at that, we planned that we should improve our balance sheet and try to clear the inventory and do the cash collection so that at any difficult time, we should be sitting on cash. All the more, Nuvan and Thimet, we had very high expectation from the profit margins on these products, but there was tremendous pressure. We wanted to dispose of all the inventory of Thimet in the previous year itself. So it went at competitive prices. And same case of Nuvan happened, where the prices had to be reduced due to increased competition into the market because everybody wanted to dispose of these stocks. So the desired profit did not come out of these 2 dying molecules. The raise was -- were erratic. The pest infestation was low, and DD results was also low. So all these aspects, they led to decrease in the profitability of the company. We tried to dispose of all the generic products -- stocks, inventories at cash in the last quarter. But that was not done at a loss. But that was done at a thin margin and we didn't realize that it will have such a drastic impact on the overall profitability but it happened. So that at one point, but we also would achieve what we had targeted in the beginning of the year that despite this situation, despite the impact on profitability, the company's focus on improving the balance sheet happened. We could reduce our debt from INR 293 crore to INR 118 crore, reducing it by more than INR 175 crores. We are targeting to become debt-free by end of this June 30, means next 2 days because we are getting very good cash collections. And the cash position of the company overall has also improved year-on-year wherein the total cash available in our balance sheet in 2019 was just INR 9 crores, it has increased to INR 68 crores at the end of year FY '20. The liquidity side overall in the market, but still, we focus on cash generation, we focus on inventory disposal. And I believe that we are able to increase our cash flows. We are able to decrease the credit days, these credit cycle -- inventory days. We are able to decrease the working capital days. So at one place, I can say that company has successfully cleaned up the balance sheet, cleaned up old stocks, finished stocks of Thimet, disposal of Nuvan is in full swing, and we believe that in the next 6 months, we should be able to dispose of the entire inventory of Nuvan. Working capital reduction is there. We paid off the credit as well. You would find that the creditors are also less, the credit days have also come down, and the coffers are full of money. So good for buying at these difficult times because, yes, we are also facing the crisis, the crisis of manpower, the crisis of raw material, the crisis of packing material because everything is erratic and people are really afraid. We are on the path of making the company self-reliant. We are doing expansion regularly. INR 28 crores was the CapEx, which was invested in the last year. And I believe that our target of putting INR 100 crores is still there in the next 2 years. The expansions on all, we could start our SEZ plant, the first phase of it. And now we'll be moving ahead to start the second phase of the SEZ plant. We have got the approval to establish the new plant at Dahej. It's a brownfield expansion, which we are going to do in the right side. The -- in Chopanki site also, we are going to get the approval soon. Partial approvals are already obtained and that the construction work in all the locations is in full swing. I mean to say that we will be expanding our technical facilities, both at Rajasthan and Gujarat, and then we will be making some technical -- new technicals, for which we are going to back the registrations in this fiscal. Along with this, we will also do backward integration to make some of the raw materials within India. So that is the plan. And for the exports, we are putting up the SEZ and this SEZ should be able to help us a lot in building our international markets also. So here, I can say, friends, that our innovative molecules, our improved product mix and this launch of about 1 dozen products, majority of which is 9(3) is going to help us in future. We had launched about 8 projects in last year, but there were only 2, 3 major products, 2 came from Japan and 1 was our own mixture, which came in. But the launches were at very back end of the season. That's why we only contributed INR 30 crores in the last fiscal, but I believe that we'll be able to multiply these sales. We should be able to achieve at least INR 50 to INR 60 from these products. And apart from this, we will be focusing around other Maharatna product also that will be helpful in achieving our targets for future. To sum up company's performance, I would say that in this year, the growth target is stable. Because of the COVID situation, we are not able to target big. But yes, whatever we have lost in bottom line, we'll try to achieve whatever best will be possible in this fiscal. But here, I would say, out of my 9(3) product list, we are -- we have cleared 2 registration of technicals. We are expecting to receive the registrations soon. So we'll start the manufacturing and try to launch the product as soon as possible. That target would be to launch these 2 products in the month of July. We are delayed by almost 2 months, but still, the season is on. So we'll be able to catch it, and we'll begin by launching our new 9(3) products. So I see a good future for the company in 2020, where the original benefit will come in the next upcoming year '21. So here, I would also like to talk about the industry and the company outlook that despite of the challenges, the agrochemical project industry has projected a good growth and year ahead also is expected a growth year, monsoon forecast is good. Rather, if I read today's newspaper, it says that the monsoon is advanced by 2 weeks, and it has already hit most part of the country and the expectations from kharif season are very, very good. This will also be supported by the government announcements of these stimulus packages, particularly for this sector and also for the farmers where they are also trying to increase the MSP of many crops. This means there will be a good future for us. The COVID has impacted very drastically. And if this situation deteriorates, it might have some impacts on the kharif season. Otherwise, the expectation from the kharif season is very, very good. The workforce crisis is there. Due to labor migration, there is problem of manpower, not only in our plant, but also in the plants of our suppliers, packing material suppliers and raw material suppliers. So those challenges still exist, but our new generation registrations, which were delayed and which should be cleared now, this confidence is coming from there because now the ministry has also started following Make in India, and they are trying to convey the message that the Line 3 registrations will be cleared on top priority. They are saying 6, 3 months. I'm assuming 6 months and I'm assuming that all my registrations or about 1 dozen which are stuck for years together, they should be cleared within this fiscal by next Diwali, which means that we'll be launching some of the products during the kharif season, some products will be launched in the rabi season, and some products will be launched in the next kharif, but still the accumulation, what has happened from last 2, 3 years, we'll be getting all those registrations, and I see a good future for tomorrow. We are hopeful that FY '21 is supported by a strong capital structure. We will be able to deliver stable top line and enhance margins by improving the product mix and focusing on Maharatna category products. With this, I thank you very much and open the house for questions.

[Operator Instructions] The first question is from the line of Tarang Agrawal from Old Bridge Capital.

Sir, considering your opening remarks, I just wanted to check mainly the hit that you've taken on your revenue is on account of clearing your DDVP inventory, is it? The Nuvan inventory? Would that be the right way to look at it?

No, that's not the correct way of doing it. Revenue mix, like we have grown.

14%.

By 14%, the revenue has grown. We were expecting more. But people [indiscernible] and also the brand sales the -- sorry, the -- along with the international market also got a hit, and my brand sales also was impacted because we generally focus on Maharatna products. The growth in Maharatna product was much lower than the growth in the generic products because we wanted to clear up inventory, including the inventory of Nuvan, though Nuvan is still in Maharatna, actually. We are not deleted from Maharatna. But yes, we could not get much sales of Nuvan also because we were expecting that there will be at least 20% increase in the sales of Nuvan year-on-year. But practically, it did not happen. We almost did the equivalent quantity what we did in the last year, almost equal. So that growth did not happen.

And how much of that inventory is still left, sir, because my sense is the December 31, 2020, is the final stop date, right?

Our target is to finish it before Diwali. So we will always target -- September 30 is the target internally. But even if it goes below -- beyond that, then we'll be able to finish that by Diwali. So we did the same with Thimet. Thimet, our target of 31st of March. Major inventory we are able to settle by January. Some small thin quantities were there, which were disposed in February. Otherwise that's a target given to the team. And I think the team is working in the right direction.

Right. Sir, how was importing of technicals, how has it been in the last 3, 4 months? And given the current geopolitical environment, how do you see it going forward in the immediate future?

There are a lot of different type of news, which are coming in. The industry has been pursuing a special duty on the imports of technical and also the formulation from abroad. We are quite confident that one day or another, this special duty request will be considered by the government. And there will be a special duty on imports of technical from China and also for import of formulations from abroad. So that type of assurance we have been getting from various ministries. So we are pursuing it. And looking at the geopolitical environment, it is going to become difficult. So if we look today, today, the people want a lot of product Make in India. There is domestic demand of that pattern is different, like visible domestically. Along with that, the international companies also wish to tie up with you if you have a solution because they want alternate sources other than China. But this is going to take a little more time, but people have started showing their interest because they are also receiving this type of information that we have to build up the alternate sources.

Okay. Sir, my final question, we've been doing some channel checks and what we have been given to understand is a lot of inventory players who were restricted to or maybe focused more in the specialty portfolio have, in the recent past, really stepped up on the generics portfolio. So in that sense, the space has become a lot more competitive. So just wanted your thoughts on it and how do you see the generic space going forward?

Like generic contributes 65% of the world market, and same is true for India. So generics are always there. Generics are 2 types again. There are old generics and there are new generics. So there is a huge scope for the new generics because these new generics, some of the generics are already brought into the country by the multinational companies or their partners, which we are trying to bag in 9(3) because we -- nobody produces them in India. We wish to produce them in India. But apart from that, there are many generics which India has -- which are not launched by the MNCs in India. And they -- nobody wants to bring because they don't get the advantage because of the expense is so much of registration. But government is also giving some signals that they might be helping or easing out the registration formalities, and they want to understand what are the products, which are very good -- which are doing very good in the world, generic products, and which can be suitable for India, and they make some issue, some relaxed guidelines for that, actually, so that we'll be able to register those molecules also. So I believe the type of discussion, which is happening with the government, it's a good time for manufacturing, and we'll be getting a lot of opportunities for these products also, otherwise, which would -- we would have left in the routine because looking at the registration expenses because if some product has not entered into country and you wish to register, there are minimum expenses, INR 10 crore to INR 15 crore per product. But if the government relaxes the guidelines and take some international data, that will mean that we will be able to reduce this expense drastically, and it will come near to the 9(3) registration, which we do in INR 1 crore, INR 1.5 crores or INR 2 crore apiece. So that will be very, very competitive position for manufacturing many new products in India.

[Operator Instructions] The next question is from the line of Kunal Sabnis from VEC Investment.

If you could help me understand the demand level in the market, so B2B as well as B2C. If you could just compare the level maybe, say, June last year to June this year, what would be the demand in the market, B2B as well if you receive? And what is your ability to service that demand? I mean, in terms of inventories as well as the production because what we understand is the production level will be lower as compared to same period last year.

Yes, you are correct, actually. The market demand is very good because the season is advanced. Advanced means like the people do the swing early, particularly in many parts of the country. The state had given the instruction to the farmer to select some of the crops zone wise, area wise, and there were different type of recommendations issued by the government, and people are abiding by those. And particularly, if I talk about North India, where the season starts first, the paddy farmer were in full panic. Because traditionally, they go for transplantation of paddy rice, but they were finding that the manpower crisis is there. Looking at that, some of the farmers, there'll be direct seeding, which is more conventional process of rice cultivation, but it can save cost for the farmer and they can do early. So some farmers did DSR, some farmers also put the nurseries, and they were thinking if the people come in, we'll do the nursery. But overall, the overall impact is, the good part is, the season started 1 month before. Generally that transplantation takes place after 15th of June. But this year, the transplantation of the rice cultivation and other cultivation, it started in the month of May itself. So which means this season is advanced. So one advantage, the market has started earlier. The rain is also advanced by 2 weeks, monsoons, which means good time, good time for sales. So I can see the demand in the entire country. So today, the demand is good. But yes, there is fear at the back of the mind. Two fears. One is everything is in shortage because of the manpower crisis, the raw material, the packing material and the manpower crisis in your plant. So when there is demand supply shortage, then the prices go up. So you are buying expensive, yet you are selling expensive also. But if you sell everything on credit, how will you make a recovery? So that is a big pressure in the back of the mind. I would say from the signals we are -- which are coming that there will be growth in the first quarter. But I'm worried. Cash collection is also good. As I told you that in next 2 days, we'll be completely debt-free. We have reduced our creditor days. So despite of doing all this, the worry is there actually somewhere in the back of the mind. And that is one reason I'm not talking about growth in this year in totality. I know we will be able to do quality sales. We will be cautious on cash collection. We'll do more Maharatnas. We'll work for focused products. But still, despite of this good demand, we'll not be able to back the entire thing. Ability wise, ability is there, but demand is in full swing. The -- I can say that today, the order book is 2 months. I have so much demand from my branches that I cannot fulfill the entire demand even by end of July, mid-August, so much demand, so it's there.

So sir, considering you won't be able to service the demand and -- which is very good, you will get higher prices as well, does that mean that in the first half, you won't be able to match the revenues of last year first half?

I already told you that the signals are positive. And since we are almost sitting in the closure of the first quarter, the first quarter also looks positive. Positively, there will be growth in sales. So touching the revenue of last year is not a matter. It's not a concern. The concern is going to come if the COVID situation increases further, and there are going to be lockdowns. Then yes, the concern can come in the second quarter. If there is no such situation, then there won't be any concern.

Perfect. Sir, you also mentioned that recently, you got about 3 approvals, but the registration certificates are awaited, right?

Yes, this is a process, actually, they take time. So yes, we got 3 -- 2 9(3) approvals. One is the 9(4) approval for import from Japan, but certificates are yet to reach me. So we are expecting to clear the certificates within, say, 1 week or 2 weeks.

That's soon. Okay. Sir, and finally, if I can ask last question. On the export front, any guidance or any view you can give in terms of how it's going to shape up this year or any incremental contracts you have received?

Last year, we had a target to touch INR 100 crores. But Pakistan, we were very hopeful that it will start working, but it didn't happen at all. And then there was COVID situation, so some dispatches did not happen. So we fell at INR 65 crores. This year, I'm very confident that we'll cross INR 100 crores actually.

The next question is from the line of Kishan Gupta from CD Equisearch.

So basically I want to understand about this ban on pesticide. So what sort of arguments you have put forward in your defense to the ministry?

Okay. Basically, Ministry has given various reasons, they are in public regime. They want a lot of data from the industry, which is the technical data. So technical part, we are fighting technically. We are trying to say that we have already submitted 80% of the data, and whatever balance data is there, we are trying to generate that data and we'll submit that. Because what has happened is, in last 3 years, there are different committee reports, which have come in. And after every committee, they have added their requirements. Even if we draft an order, they are added to requirements. So on certain basis, we have pointed out that whatever we have asked that is not required because I'll not use the word illogical, but that is unrequired. So we are fighting for that, and we are trying to submit the technical data. Along with that, we are also trying to submit the position of Make in India and also the [indiscernible] Baharat, where in many molecules India is the pioneer in manufacturing. And when Indian factories have started, international participation stopped. And today, India is a challenge for the -- in the entire world because we are supplying these products at very competitive prices to the international farmer, and we are giving competition. So along with this, we have also tried to generate -- to take the letters -- recommendation letters, I would say, or the objection letters, you can say, from different associations of the government. Association means there are associations of scientists, different type of associations, so nobody individually is doing that. But as an association, the scientists are giving some recommendations, which are also reaching the ministry. And along with this, we are also approaching the chemical and fertilizer ministry and the -- this -- the other ministries to help us actually, and everybody is helping.

So basically, what is the chance that you people may be able to sail through this ordeal?

Given one benefit, 45 days are improved to 90 days, and export is allowed because they realized that was a erratic decision, which was taken by them unilaterally. Now they have given a commitment that they will take interest here as a part because we also want to -- we said that if we are not taken into confidence, then we may have to go to take a legal resort for that. Because if you do decide something on your own without consulting, consulting means without giving a proper hearing because we are also there to submit whatever data gets out there. We are with the government. We don't want to sell old generic products actually just like that. So if the products are effective, if the projects have good efficacy, if the products are useful, then okay. If they don't find them useful, okay, we'll also exit out of those products. So I believe most of the product should be cleared.

Okay. And like about this, you said, but what about the government has mainly harped on it environment and not about the potency of the product, but more about its environmental harm. So what is your defense on that front?

There is no complaint. That is just an imagination. The major things are positioned on Europe. Europe is a different type of territory. We are a different territory. Europe has different population, we have different population. Their environment is different, our environment is different. In a country like India, which is a tropical climate, the dissolution of insecticide, the deterioration of insecticides, both are very, very fast. But it's not the same in the case of Europe. So we cannot compare India with Europe, where the spray methodology is different, the farm size is different, and the crops are also different. We have a lot of pest infestation but whereas in the other countries, European continues or some other countries, they are using medium herbicide. So requirements are very, very different. You cannot compare one country to another country. So as per your country requirements, we are putting forward that you have to plan, you have to see, you have to assess scientifically that because all these products which have come, they have come scientifically, and they have to go also scientifically. So there is -- I can say -- yes?

So basically, I mean to say, this has been instigated by the European, some NGOs and all?

I don't want to say that, but yes, the name of the NGO is very much there in the order. You can read it. It is influenced by NGO, it is influenced by Europe. There is no doubt about that. It is mentioned there. If you read 3 or 4 products, you will find Europe. You will find NGO, everything is mentioned.

Has it happened ever in the past?

First time. Because never they have believed the data of NGO. Now for the first time, they're believing the data of NGO.

The next question is from the line of [indiscernible] from [indiscernible] Capital.

So quite a weak quarter. I think one of the weakest quarters that you've seen for our company over the last many years. We were just trying to understand the reason why we saw gross margins decrease so drastically. And when we look at your initial commentary and the presentation, it suggests that the reason was because of higher contribution of lower margin-generate production. But the numbers don't seem to add up because -- so the revenue for the quarter increased from about INR 200 crores, a 19% increase, from INR 200 crores to INR 238 crores. And the increase in branded products was far higher, it was 33% from about INR 105 crores to INR 140 crores. Generics only increased by 3%. So I don't understand how was generics a large component of the depression in the margins?

Generics means -- generics are branded products only. But generics are older generation molecules, what we sell actually, where the margins are low. And our new generation molecules are called as Maharatna.

50%.

So generic sales in this quarter has improved by -- has increased by 50% that we have given in the presentation, whereas the Maharatna sales has dropped.

By almost 13%.

By almost 13%. So due to this generic sales increase and generics were full set, cash and carry. I don't want to give on credit. I wanted to improve the cash portion of the company. So we offer competitive cash prices to the market and we dispose of the inventory in cash.

So if that was the case, we -- I think what you just mentioned was that we've completely sold off our inventory of Thimet, we have some debts for Nuvan. And you mentioned that Thimet was pretty much disposed of, most of it, by January. So what kind of pressure did we see? I presume that means that we saw realization pressure largely on Nuvan. So -- and we still have some inventory. So do we expect significant pressure on Nuvan going forward as well? Whatever it will?

Now there may be a possibility, but I don't think that there will be too much pressure because I think we have already sustained that pressure. And we have understood at what level we can play easily because a lot of fakes and other products entered into the market actually, which we had to compete to an extent, which compelled us to move down. Otherwise, a lot of fakes were coming. So at one point, we controlled those fakes, we initiated many inquiries. On the other point, yes, we had to come down. We have to step down a level because of that pressure actually from the trade, so we succumbed to that pressure and then we realized late. Actually initially, I was thinking that Thimet, I can be able to use for 2 years. But I realized that most of it was expiring in the month of May and June. So I wanted to finish everything before -- much before that. So that pressure came in, which was unplanned. But I believe that whatever was there, it has happened. So now whatever for the large levels of Nuvan, we should be able to maintain that.

Because the reason why I asked this is because this came as a little bit of last quarter's results. In fact, we were expecting because it was also quite weak on account of inventory revaluation. We were expecting some kind of a kick up based on that this quarter but...

Actually, again, what happened is due to the COVID, the situation deteriorated. The new higher price inventory did not enter because the COVID, the -- everything was locked down in May end, so that could not be revised. So bad thing happened, but whatever is the situation, is the situation. I can't help it. Nobody imagined that COVID will bring such a strong lockdown that the office and then the plants will be closed, but it happened.

Okay. Second question that I had was with regards to exports, there has been a sharp jump from last quarter. I presume Pakistan hasn't opened yet. So is that on account of some other country?

Yes. We have developed the other markets actually, particularly the Middle East and African markets. So we are moving on. We have filed our registrations across the world actually. But initial opening is more in Asian countries and Middle East and Africa and some CIS countries, actually, they are going to be our major markets for a while till we enter into Europe and other markets in a big way.

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

Sir, is it now that except for Nuvan, are we now through with all the low-margin generic portfolio?

I'll not say that, that the generics are not there. But generics are not in focus actually. Whatever inventories we had, we wanted to clear out the inventories and collect cash because I wanted to sit in -- sit on cash at this difficult time, so that was the strategy. But now already, we are there, actually. And we are selling all types of products and as today's a shortage market. So we are trying to push more value-added for us.

And sir, generics have also seen some kind of price increase in the current season. So would it be fair to say that it is unlikely -- this kind of margin contraction is unlikely to get repeated in the current quarter or the foreseeable future?

Yes, you can say because last year was very pest-free actually, and there was tremendous pressure on the product pricing. But this year has seen a good start actually. The start is very good. And there is a lot of demand, both from institutional customers as well as the domestic brand business. So yes, I can show some confidence in your words.

Okay. And sir, how much was the sale of DDVP [indiscernible] in FY '20 full year?

FY '20. Total in INR 170 crores.

Okay. And how much of Nuvan inventory do we still have?

About 6 months we'll be clearing. What is the number Sandeep?

Nuvan inventory?

Yes.

Inventory number [Foreign Language]

Number is not there, but we target to dispose everything in 6 months. Exact number can be provided.

Okay. And sir, we have decent aggressive plans on all fronts, EOU, technical and formulation. But can you share some time line by when we can commence production in all these 3 divisions?

Now we'll be staggering them in different parts actually. Like EOU production, we have started from Phase I, but we are starting the Phase 2 of EOU. Similarly, in Rajasthan, we are starting setting up the plants. So production can be expected by this Diwali. In the rabi season, we'll have production from the Chopanki expansion. And in -- by the same time, I believe by maybe December, January, we'll have the production from Dahej also.

Okay. Then, sir, this INR 100 crore CapEx plan for 2 years, most of it will be spent in the next 6 months also, is it?

This will be staggered again because we'll do phase-by-phase-wise expansion, product by product or building by building. So we make one building, we make the plant, we'll make another building, then put up the plant. We'll go phase-wise. So this will be in phases. This will be divided, actually spread. Spread over 2 years. It won't be in one go.

Okay. But Dahej facility that we are planning to commence before Diwali, most of the new registrations that we have got, we will be able to manufacture that in the new or existing facility?

I would like to correct, please. Dahej will be in January. Chopanki will be by Diwali. So some technicals -- new technicals will happen at -- by Diwali, some technical will come after Diwali, so that's a plan basically. Because I told you that it is the phase manner development. Because otherwise, I'll not be able to start the plant. If I try to put 8 molecules at one time, then the plant will install next Diwali. So I'll do it in phase-wise. One product after another product, as I put building by building. So we'll be doing it actually in a phase manner, 1 product, 2 product, INR 1 crores, INR 2 crores, like that will be started. Not all products together.

And sir, our working capital is still a bit on a higher side, if you compare with FY '18. Last year was kind of an abnormal year. But do we still have some headroom for reduction-ing net working capital days?

It is always there, actually. It's always there. So I think we should be able to show improvement -- some improvement in this year as the things become normal. If the things deteriorate, I cannot comment. If things don't deteriorate, you will see the improvement.

Okay. And sir, just very specifically, how have you seen the demand for Green Label and its B2B business as well in Q1?

B2B is normal, but good demand for the brand. There are some B2B customers who are asking for the international markets. That's why my B2B sales also might rise for Green Label because of the international market demand.

Okay. Just one last question. With the new launches, which crops are we targeting?

Like these are 12 products, if we are talking. Then there will be every crop, every type of disease, insecticides, herbicide, fungicide, everything will be there. Because it's a huge list of products. Majorly, the portfolio will be insecticides but it will be a wide range, actually, covering almost all the crops.

But any specific pest or disease in which we don't have any other molecule right now, any kind of that?

There is nothing where we don't have a solution. But yes, we'll have a robust solution for the majority of products or diseases or weeds or fungus, I can say. Like we'll be bringing certain new AIs, which are very, very popular on certain, I would say, insecticides and also some herbicides. And then there will be some combination, new mixtures also from us. So there will be interesting molecules, actually. I don't want to give us all the details right away. Because that will be majority in 2021 and minorly in 2020. But yes, the 2, 3 registrations which are cleared, I can talk about them. Because the 3 registrations, which have under clears are all insecticides, 2 are for Thimet substitution. And we are going to launch these products, though it has -- it is already late. But even if I'm going to hit the market in July and August, it's fine. I'll be able to get the full rabi season and partial kharif season, particularly for the South India. So 2 are -- as I told you, 2 are the substitutions. And one product is good, which goes on cotton as well as on paddy. So it is again an insecticide for BPH as well as white fly, and other flying insects in cotton and paddy.

[Operator Instructions] The next question is on the line of Deepak Kohli from the Emkay Securities.

Sir, I have a quick question. First is how is the raw material supply situation currently from the China? And do you see any declines in your raw material prices? And what kind of gross margins we can expect as going ahead?

Raw material from China is okay. They have good supplies, leaving aside sometimes shortage molecules because wherever is the shortage, it is tight, but it's a 80-20 situation. 80% products are freely available today and 20% are tight. Talking about the gross margin situation. So gross margin situation must see an improvement because last year, the decline happened due to the reasons I have already cited, I don't want to repeat those. So I can expect some improvement during this fiscal.

Okay. And sir, what is the inventory impact during this quarter? If you can perhaps give a number for that?

I didn't get your question correctly. Basically, inventory impact means, all the things are given in the presentation that how much inventory is improved, inventory days and everything is mentioned.

Sir, in the P&L, what was the inventory impact in the fourth quarter?

There is no revision of inventory in the fourth quarter. It was there in the third quarter already.

Actually, the high price material did not reach that mark, so we could not.

Okay. And sir, if we look at that this other income was measured to -- so what is the reason for that, sir?

You'll have to repeat your question, actually. Could not understand, please.

Sir, this other income, sir?

Yes. As far as other income is concerned, there is a regrouping from other income export incentive and capital subsidy has been regrouped into revenue from operations, which has been done by our auditors. So we had just regrouped, nothing else.

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

Good evening. A couple of questions. First is in regard like you have said in the opening remarks that there has been pressure in terms of manpower availability. So currently, at what utilization levels do we or the industry is currently operating on?

I believe it is roughly about 70% now. And I don't see any signal of increasing it further actually in the month of July also.

That would be the peak period, I believe?

That would be, but it's the situation. Because the packing material, [ wheat ] crisis, raw material, logistics, everything is under crisis actually. We are maintaining, but it's with great difficulty actually.

So that would the same across the industry as well, sir?

Yes, I think that should be the industry situation, and we are in a better-off position than the general industry are concerned.

Okay. And sir, secondly, in regard to the product ban, so recently, Punjab Government also banned 9 products, majority of which were already there in the list of like the products, which the government has proposed to ban. So like going ahead with states coming and banning out these products, so what kind -- what are your views over it, like how is the industry tackling this situation currently? And going forward, what we can expect, like even if government like approves the 28 products, which you have also stated. So going forward, will states be in that kind of power that they can further like prohibit the usage of these technicals or these products?

Yes, there are issues over the Punjab thing. The Punjab thing is very, very new, which has come just 2 days back. So we'll have to fight back as industry. But it is a routine that Punjab issues closure of 3, 4 products every year. This year, the number is 9, it is little bigger actually because they got the influence of the [indiscernible] product list of the central government. So if there, we'll have to fight back. So we are writing letters, every association, every company and we'll be pursuing it actually. So we have to see. That's true, basically, when the central government comes out with something, then the influence to the state government is matured actually, and they also try to do something. So that has happened, that action. But let's see how it goes on. But every year, Punjab Government will have issues on for 4, 5 products, and they will restrict the sales of this product during the peak kharif season. So it's a regular practice of Punjab Government.

The next question is from the line of [indiscernible] from [ Capricorn ] Research.

Mr. Aggarwal, I understand you have reduced the debt from INR 283 crores to INR 115 crores -- to INR 118 crores INR. INR 175 crores, I noticed you are reduced. But help me understand your finance targets have gone up from INR 15 crores to INR 23 crores. I couldn't understand that.

Practically, the debts has been reduced. Basically, major debts has been reduced in the last quarter only after the finishing of inventory of Thimet and reducing the inventory of Nuvan. Earlier in the first, second quarter, the debts were up in the tune of around INR 300 crores. That is why the total finance growth is higher.

So first half, it was most. So second half, it started going down. And final thing came in the end of -- in the last quarter.

Okay. And continuing with this, are you likely to remain debt-free for the rest of the year till end of this financial year?

I hope so, actually.

Okay. And second question, are you importing anything from China? Do you see any problem?

We are importing actually. The imports are there because, particularly, if I talk about this year, the domestic market is into crisis because the manpower problem is felt everywhere. So the raw material supplies are also restricted in India and China somewhere has reduced the supply. So for the last 2 months, China has been supplying of the generic things that India don't have. So you have to bank on China. Yes, we have started fixing some problems because Customs had some rumors about some drugs or something. I don't know rumor or actual fact, but there were some restrictions at the Customs, some of the Customs, including Chinese cargo. So a lot of rumors about face-off between China and India on the borders. A lot of news about the people hesitating to use Chinese goods. So business with China is going to be a challenge for future, that is true.

But would you be affected? What I'm concerned is would you -- would your production be affected, are you...

[indiscernible] everybody gets affected. So if some products which are being sourced from China, some raw materials, which are being sourced from China at a cheaper price, they will be available at a little expensive price to everybody in India, then we are also a part. So if we are with the crowd, then it does not matter. If there is a one-off standing in one corner, and the rest of industry has the advantage. Then it's going to be a problem but that only...

You would have an alternate source of supply?

Yes, the people will come up with an alternate source. We'll also do some backward integration. As I told you that we have a plan. So some cheap things where we see the crisis we'll be making by ourselves and for other things, we'll be developing the vendors.

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments.

I thank you very much for having trust in Insecticide (India) and attending our conference call. You asked very relevant questions. And I tried to satisfy but still if there will be some inquiry, you are free to write email. With this, I thank you very much, again.

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.