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

Ladies and gentlemen, good day, and welcome to the Q1 FY '22 Earnings Conference Call of Insecticides (India) Limited, hosted by Asian Market Security Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saurabh Kapadia from Asian Market Securities. Thank you, and over to you, sir.

[Audio Gap] Insecticides (India) Limited. From the management, we have Mr. Rajesh Aggarwal, Managing Director; and Mr. Sandeep Aggarwal, Chief Financial Officer. Without further delay, I would like to hand over the call to Mr. Rajesh Aggarwal for the opening remarks. Over to you, sir.

Yes. Good afternoon, everyone. Myself, Sandeep Aggarwal, CFO, on behalf of Insecticides (India) Limited, I welcome you all to this Q1 FY '22 results conference call. I hope you and your loved ones are staying safe and healthy during the health pandemic. Our Managing Director, Mr. Rajesh Agarwal, could not be present on this call due to the health issues. We would continue with our usual approach. I will present the company's financial and operational performance during this quarter, and then we'll open the floor for questions and answers. Let us have a view of the industry scenario. First quarter of the fiscal year started on a mixed note. Second wave of COVID-19 impacted the economy and statewide lockdowns restricted the business activities to varying extent. Agricultural sector was largely less impacted with stable demand, but spillover impact of general macroeconomic environment slowdown was present, hampering operations of dealers, distributors and market outreach program of the company. There were scattered and delayed monsoons present in the initial stages, though we are expecting revival in the monsoon. But the current situation led to delayed sowing in second half of June. Now let us discuss about the company's performance. In first quarter of FY '22, insecticides saw a strong growth in sales on both sequential and year-on-year basis. Company reported revenue from operation of INR 468 crores, showing a growth of around 14.3% on a year-on-year basis. In this, branded sales for the quarter was INR 305 crores, a growth of 2% year-on-year basis and contribution of 65% to the total sales. Institutional sales stood at INR 124 crores, an increase of 29% year-on-year and contribution of around 27% in the total sales. Export revenues grew significantly by 180% year-on-year to INR 39 crores. I would like to highlight that Lethal group of products are receiving positive response in the market as a substitute of sales of both Thimet and Nuvan and entire Maharatna product range is experiencing good growth. In first quarter, EBITDA for the quarter stood at INR 53 crores with a margin of around 11.3%. Operating margins were slightly impacted year-on-year basis due to the increased share of institutional sales. And the institutional sales margins are lesser than the branded sales margin. Net profit for the quarter was at INR 35 crores with margins of 7.4%, which are improving and moving closer to the pre-COVID levels. Now during the quarter, we have received 3 9(3) category registrations. That new products will further strengthen and improve our product portfolios. At present, we have a total of 20 products approved under 9(3) category. Due to pandemic challenges, there is delay in receiving approval from regulatory bodies. So new product launches are getting affected. Still, our plan is to launch 5, 6 new value-added products in FY '22, even considering this situation. One product, which we had already launched in the month of July, called Hachiman, is giving us a very good response in the market. New products launched in the last fiscal are witnessing positive response from the market. And we had adjusted a sale of around INR 12 crores during this quarter, and we are expecting that they will see a stronger growth in the coming year. As mentioned earlier, we lost Lethal group of products for replacing 2 shelved off products and they are -- these products are receiving positive response in the market. Looking ahead, we are optimistic on long-term growth of agri sector due to strong fundamentals and being the backbone of Indian economy. In short term, we have to be cautious as the recovery of both economy and agriculture will depend on impact of subsequential waves of health pandemic COVID-19 and our national ability to contain it. We believe that temporary setbacks are behind us, and the company will deliver strong growth going forward as we receive new product registrations and improve our product mix, which will definitely led to increase the bottom line of the company. Hello? Hello?

Please go ahead, sir. Your line is in the talk mode.

[Foreign Language]

Sir, can you hear me?

Hello?

Sir, hello, can you hear me, sir?

Yes, ma'am, I can hear you.

Is it coming from your line or can you ask the operator?

[Foreign Language] Madam? Hello?

Sir, please go ahead with the line. It is in the talk mode.

Hello?

Ladies and gentlemen, please give me a moment while we check the line of the management. Ladies and gentlemen, thank you for patiently holding the line. The management line is reconnected. Thank you, and over to you, sir.

Yes, sorry for the disconnection. Can you tell me where we got disconnected? Hello? Hello?

Sir, you were talking about the good response of Lethal group of products.

Okay. As mentioned earlier, we launched Lethal group of products for replacing 2 shelved off products, Thimet and Nuvan, and these are receiving positive response in the market. Looking ahead, we are optimistic on long-term growth of agri sector due to strong fundamentals and being the backbone of Indian economy. In short term, we have to be cautious as recovery of both economy and agriculture will depend on impact of subsequential waves of health pandemic COVID-19 and our nation's ability to contain it. We believe that temporary setbacks are behind us, and company will deliver strong growth going forward as we receive new product registration and improve our product mix, which will definitely help the company to improve its bottom line. Thank you. Now I would like to hand over the call to moderator and address question-and-answer queries. Thank you.

[Operator Instructions] The first question is from the line of Saurabh Kapadia from Asian Market Securities.

Sir, if you can give more details in terms of demand environment post Q1? So with this monsoon progression, how the demand in the domestic market is shaping up?

Yes. As far as after Q1 in the month of July, there were good rains are coming. And barring some states, the rains are across the country. And yes, definitely, the sales in the month of July are also quite good. And we are hopeful that whatever till today guidelines we have given of 10% to 12% growth, that we will achieve.

Okay. And sir, how is the inventory situation with the distributors?

As far as distributors are concerned, though there were some delay in sowing, but yes, after that, the sales are picking up. And the material is getting liquidated because this is the time, second quarter, when I hope that most of the materials will get liquidated even from the counters of distributors also.

The next question is from the line of Jitendra Agarwal, an individual Investor.

This is Jitendra Jikadra, individual investor. Sir, I have a few questions regarding expansion. What are the expansion plan for coming 2, 3 years? And how we are going to fund those expansion? I mean, is there any plan for equity dilution or it will be mix of maybe equity and debt or how it is going to shape out, sir?

Yes. Jitendraji, as far as expansion plans are concerned, we had already given our guidelines that we will invest around INR 100 crores to INR 120 crores in coming 2, 3 years. And out of that, around INR 50 crores approximately has been invested last year. And even in this first quarter, we had already spent around INR 10 crores. INR 10 crores capital advance has already been given. We are waiting for the delivery of the machinery for that. And hopefully, by the end of third quarter, we'll be able to start our 1 or 2 projects, which are there since last year. Due to this COVID pandemic, they got some delays -- delayed and some approvals are also delayed due to that. But now we have got the approvals, and we are ready to start that project. But yes, all the amount invested in the expansion will be funded through the internal accruals. We are not going to dilute further or no plan to take any debt from the market.

[Operator Instructions] The next question is from the line of Dhruv from HDFC Asset Management.

Sir, one question was on the 2 products that were got -- I mean, I think the red category products. So sir, is it possible to share what was the sales in last year first quarter for these 2 products? Because I believe in this quarter, you don't have any sales for these products, but they were there in the last quarter. Is that right?

Yes. Last quarter, there was only one product. Thimet, we had already finished off last to last year. And only Nuvan was there during this quarter. And I think in the first -- last year, total sales of Nuvan was around INR 112 crores. And in the first quarter, Nuvan sales, I don't remember exactly in the first quarter, but totally, it was around INR 112 crores.

Okay. Okay. Got it. So sir, if I look at our performance on a 2-year basis because last year is a bit abnormal because of all the COVID issues. So on a 2-year basis, so basically, the base is 1Q FY '20.

Yes.

So if I look at this -- the growth on 2-year basis is about 30% in revenue. But if I look at some of the other companies, your peers, they seem to have done a decent -- on a 2-year basis, have done a decent plus 50% kind of growth. Sir, is there something -- is it because of the product that we are catering to, where probably the demand was not high? Or something else that you can point out why the growth has been a bit below what the peers have done? And when I speak of peers, I mean I'm referring to most of the other guys. I've taken a cumulative of everyone -- of at least the listed guys?

Boss, practically, as we are catering to the whole lot of basket and -- we generally depend on the new products and new introduction into the market for our bottom line. We want to change the product mix also. But during these 2 years of pandemic, the restrictions of -- the field staff was very restricted. We were not able to give proper demo to the farmers. We were not able to provide them with all our benefits of the new products. So that hampered our growth, whereas the companies, who you're talking about, their products are already established in the market. They are not coming out with the newer products. Because we -- a company we started in just 2001, we are more of a generic company now trying to change our productions. So when you come out with a new technology, newer product in the market, for first 2, 3 years, you have to work very hard with the farmers. You show them the results of the product. And that can be done only with the physical presence of the staff with the farmers. That hampered us in the last 2 years. Even in this quarter, that was a challenge again in this quarter also.

Okay. Okay. Got it. So basically, it's -- for us, it's the new product, which drives a lot of our sales.

Yes. Yes, practically, you can do the meetings on Zoom, but you cannot show the result on the PC.

Got it. Got it. Sir -- okay. But if I look at this way, say, for example, the Maharatna I believe would be the product that you are -- which is your own category of products and the others, I assume, are the generic ones where you are selling relatively normal brands. So, sir, but for you the generics are also a decent 50% of your B2C sales. But these are very regular category products. These are not giving you -- I mean -- so I'm just trying to understand what am I missing? I mean when you say you don't have very strong basket of your own products, so I'm just trying to understand that.

It's not like this, boss. Though we are giving the generics into the market, but as tail cutting strategy, we are not very keen to supply the generics in a big quantity. So that productions are not there. And we are focusing on the new product Maharatna category. You are absolutely right. If you see in FY '20 and FY '21, there is a decrease of around 7% even in Maharatna sales. That is a big challenge for the company. And that has happened only because Maharatna products contain the newer products only, and for that, you have to work with the farmers. You can do meeting electronically, but you need to show the result of your products into the market. Only then -- and in very first year, you cannot take care of the hold of the market. It will take at least 2 to 3 years to take care of your market. So it depends on time, and the COVID period is such a period that the movement was restricted, everybody knows that thing. And this year, it was even more dangerous. And many mishappenings have also happened with our dealer distributors also. So that was a big challenge. But still now we are hopeful that now people have started moving into the market from mid of June. So hopefully, this year, if it didn't happen again, then we are hopeful that both top line and bottom line will improve.

Got it. Got it. This is helpful, sir. Got it. And sir, I missed the CapEx guidance that you gave. What is the CapEx for the year that you are targeting?

This year, it will be around INR 60 crores.

INR 60 crores. And sir, comments on the -- some comments on the margin profile. So we have about 12-odd percent for the last 2, 3 years. But this year, I believe the red category products would not be there. So do you see some improvement in the mix because of that? And overall, some guidance on the margins, how do you see that ranging?

Boss, as far as margins are concerned, definitely, the margins will improve with the change in the product mix, and if we will be able to work with the farmers, then definitely it will improve faster from the -- faster pace. But yes, as we are targeting 15% of EBITDA margin and, hopefully, in 2 years or 3 years, we'll be able to achieve that.

And sir, this is across portfolio, not just B2C, right? When you're saying 15%, this includes the exports and everything.

No. Across B2C margin, which you see it is already more than that. It will be across portfolio only.

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

Sir, just a couple of questions from my side. First, in regard to the inventory levels. So we have seen that the monsoon has primarily remained erratic during the month of June and July. So what's your sense on the inventory front, particularly the herbicide inventory situations out there in the southern markets, in the northern markets?

Boss, you are absolutely right. There are herbicide inventories are there in the market. But yes, as far as the inventory is concerned, the inventory will get diluted, no problem. Because now in the month of July, there are good rains and good demand in the market also. So I'm quite hopeful that the inventories will get diluted even from the dealers and distributor counter also. And we are not keeping very big inventories of herbicide with our branches and our factories.

Okay, sir. And sir, if we look at the new product launches, so definitely, we have been one of the companies who have remained aggressive in launching our new products. So can you give me the sense what's the idea index for our company currently? And the potential of the new products which we are going to launch? Can you throw some light on the products which we are about to launch and the products which we have even launched recently?

Boss, the products which we have launched last year. So last year, the total turnover of those products were around INR 38 crores. And during the first quarter, we had already clicked the turnover of around INR 12 crores from these products. And hopefully, the turnover from these last year introduced products would be more than INR 60 to INR 70 this year. As far as current fiscal is concerned, though we got the registration of 3 products, but we could not launch even a single product in this first quarter. We launched one product called Hachiman in the month of July. And we got very good response from the market. Even whatever we were planning to manufacture and sell in the market, we got -- we have to manufacture more than that. So response was so good in the market. The results are very good. That product is with the help of Nissan and one product is Insecticides with a combination of these 2 products. And we are hoping that at least 4, 5 more products registration we will get during the year. And though it depends on the timing, if we'll get it after the finishing of the second quarter, then definitely the impact of the sales -- bigger impact of the sales will come in the next year. But yes, even in the second half, there will be some sales, but that will be only for the introductory sales.

And sir, like -- if we look at the blockbuster products, so definitely, Green Label was amongst the one, primarily in the year 2016 when we launched it. So like do we have some such kind of a product, which can become one of the blockbuster products going ahead, like [indiscernible] the product, which is there in pipeline or it has launched. Any such products which can generate a turnover of more than INR 200-odd crores for the company going forward? Do we have such kind of a product in pipeline?

Very difficult to say that there will be a single product who can clock the turnover of INR 200 crores, very difficult to say, but yes, there are certain products in Lethal category, like Lethal Gold and Lethal Granules we have introduced. Tadaki is one product which we have introduced. All these products are showing very good results in the market. And hopefully, the Lethal group can cross INR 100 crores. And 1 or 2 new major products are also in pipeline. One is with the Nissan. As and when we'll get the registration? Hopefully, that product would be a very big product. I cannot say more than INR 100 crores or INR 200 crores. But yes, definitely, it will be more than INR 50 crores. And at present we are targeting those products we are thinking that we should have 10 products in our kitty who can contribute around INR 50 crores instead of having 1 or 2 products who contribute INR 100 crores or INR 200 crores. Because at the time of banning, it gives you a very bad state like Thimet and Nuvan both were around INR 100 crores, higher selling products and got banned. So very difficult to lose your INR 200 crores sales and then maintain and then further grow. We know how to do it. But it is a painful process. So it is better to have 5, 7 products or 10 products with a INR 50 crore turnover instead of having 1 or 2 products.

And sir, what kind of a strategy do -- are we implementing, particularly scaling of these products? Like are we increasing our distribution base or are we going to like increase the overall penetration of these products in the markets?

Boss, we are not trying to increase the distributor base. We are trying to increase our farmer base. We are trying to improve the penetration because you have to show the result of the -- result of your products in the market. If product is able to show or demonstrated good results, then you can penetrate among more farmers. Even out of your farmer kitty, you can even penetrate to others farmers also. So we are trying to work on the field with the farmers instead of working with the distributors. We want to get the demand generated from the farmers. So the distributor can sell it easily. So this is our strategy.

And sir, pertaining to our export strengths where we have seen a solid improvement. So what has been the key drivers behind such a spurt in the overall level of growth?