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

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Insecticides (India) Limited hosted by Asian Markets Securities Limited. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [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.

Thank you. Good evening, everyone. On behalf of Asian Markets Securities, I would like to welcome you all for 3Q FY '22 Earnings Conference Call of Insecticides (India) Limited. From the management, we have with us Mr. Rajesh Aggarwal, Managing Director; and Mr. Sandeep Aggarwal, Chief Financial Officer of the company. We shall start the call with opening remarks from the management, and then we will move to Q&A session. I now hand over the call to Mr. Rajesh Aggarwal for his opening remarks. Over to you, sir.

Thank you very much, Kapadia. So Rajesh Aggarwal from Insecticides (India), I'm the MD; and with me is the CFO, Mr. Sandeep Aggarwal. So he'll be joining, and he'll be throwing the light on the company's performance. First of all, I'll talk about the industry overview because the market scenario, particularly in the domestic segment, has been quite tough, actually. Q3 was the cultivation season, and we saw a lot of rainfalls, so plus and minus, plus because we hoped for the rabi season increased, and there was a lot of shift in the crops. Actually, we see that different areas are showing interest in different crops. Like in south of India, the people converted from rice to other crops like pulses and soybeans and some other crops actually, which created the trend that apart from rice, they will be doing other crops. And if we look at the scenario today, we see a lot of sales of cotton seeds, which means that the cotton is also going to grow, particularly in the dry area and in some other areas. So there is going to be a good crop shift, which is good for the industry and a good opportunity for everyone. Omicron period, so there were challenges. And at the same time, there were a lot of international challenges also because we see that the international pricing of all the commodities is restored. When I say all the commodities, I start with crude, metals, plastics, paper. So all the raw materials are disturbed, and then at the same time, the chemical supplies are also disturbed. And still, there is a lot of dependence on China. And since China is not [ smooth ], so there are a lot of challenges which are coming in the raw material supplies. So at one time, it is a challenge. At the other time, it gives a big opportunity because we see that today, world is looking at the alternate source, and there is a lot of inquiry from -- for the products from India because the world wants to look at the alternate source, and they see India as the alternate. And a lot of companies are making a lot of investment into this business. And this scenario I've seen almost after 2 decades when the companies are making big investments in their technical manufacturing facilities in backward integration. And a lot of, I would say, investment is being made. And I see good growth, and I'm very, very optimistic that this sector, which was somewhat stagnant in last 2 decades, are -- again, it's a [ wrong word ], because from -- in the last 2 decades, from INR 2,000 crores, the industry has come up to INR 30,000 actually domestic and INR 30,000 crores international markets for almost INR 60,000 crores industry is today. But I see that it will grow further at a very high speed, particularly the international markets. And also, I see growth in the domestic segment. And we have recently seen the budget where a lot of emphasis was given to farmers and agriculture. Particularly, government is focusing a lot on drones, and kisan drone policy is coming, and a lot of improvements are coming. So we look at the opportunity that our farmer will also get the help or support of the technology, and that day is not far when we see drones making this trade in the field, actually, which will lead to a lot of ease in spraying. And there are certain opportunities which are left because the crop is dense and people don't want to enter into the crop at those times. So there will be spraying opportunities. And of course, the opportunity goes up. At the same time, today, if you look at the political speeches of the political, like, leaders, so there is a lot of focus on biological and organics, where I would say I agree and disagree. Agree because, yes, biologicals are interesting solutions, and future is not far when biologicals and organic farming will move together along with the, I would say, the conventional farmer. Because you cannot work with one extreme. It is not possible. Like if we look at ourselves, we take care of ourselves by doing exercise, by doing yoga, by opting to [ aerobic means ]. Some people also go for, I would say, homeopathy. But if there's a disease, you have to go to a doctor. Similar with the importance of agrochemicals. If there is attack on the crop, if there is weed, there is fungus or disease or pest infestation, then there is no other alternate. You can strengthen your crop. You can strengthen your soil. You can also give the immunity from the other things by using the biologicals. But if you try to save 100% of biologicals, it's little impractical target, in my opinion. And I believe that all these technologies are going to coexist. And the good thing is like as a company, we are focusing on each and every direction. Like we are doing a lot of CapEx on the backward integration, on increasing the capabilities of our technical manufacturing. In Insecticides (India), we got the technical manufacturing at 2 locations, in Rajasthan and Gujarat, and those are locations company has made big investments. And roughly, the investment of about INR 68 crores or INR 680 million has gone into this fiscal, and we are on the verge of completion of our project at Rajasthan. We target that by March end, we'll complete our project in Rajasthan in full, wherein we'll be increasing our capacity by almost 50%. And we are also going to manufacture certain new AIs from Rajasthan. At the same time, in Dahej, we are doing the backward integration, and we'll be making the raw materials for 2 of our major technicals. And along with this, we are also improving or also establishing the capacity of certain new technicals. So I see a lot of new introductions coming out of our technicals and ultimately turning into the formulation. So a lot of opportunity in B2B segment, a lot of opportunities into B2C segment. And also, I see a lot of opportunity coming up in the international segment because of this investment. And there is a further, like, expansion lined up to complete this expansion further. About INR 10 crore will also go into this fiscal, so making a total of about INR 80 crores in this fiscal, actually. So if I talk about the future outlook, we see a very strong pipeline of new products. This year, we have introduced 2 products with Nissan, and we are on the verge of co-introducing 2 more products shortly with Nissan. There will be a lot of products coming from our R&D center, I mean to say backward integration, some new formulation development. So the pipeline this year is going to be very, very strong. And I believe '22, '23 is going to be a big year for the company, where we'll be doing a big jump in the top line as well as the bottom line because we will be completing both our projects in Dahej and in Chopanki. Dahej should also be operational by April, which will augment our production capacity. And of course, the new AI are going to support us, and the backward integration program, again, is going to help us in a big way. When I say big way, I mean to say that will strengthen my technical manufacturing capabilities of the 2 products. And also the new AI which are going to come, they are going to strengthen our brand sales and distribution sales as well. And we will start feeling that impact from the first quarter of '22, '23 itself. We see a lot of, like, support from the international market. This year, our export sales are almost going to double than the previous year. The achievement in the 3 quarters have been INR 100 crore plus. There has been a good demand from different parts of the world. And we see the new markets of East and West Europe, Africa, CIS, NAFTA countries, and particularly, Canada and South American markets also like increasing our market share. And we plan that in the long run, about 15% to 20% is going to come from the export business to IIL. I mean to say that we will double this year, and the target will be to double our export sales in the next year again. Though it is a challenging target because the numbers are growing, but I'm quite confident that there'd be more registrations coming in. And with this image the company is getting, we should be able to grow in the international markets in a big way. This import substitution, like this backward integration is going to lead to a lot of import substitution. And though the business of the company in totality is going to increase, but I don't see a big increase in the imports for the company because ultimately, we'll be reducing some portion of the imports from the international markets. So I can say that the margins are going to grow further in the next fiscal, and export targets we have achieved, and we are going to double in this fiscal. And the CapEx which the company has made is towards the completion, and there is a strong pipeline of products which is coming in. And for this pipeline, we are focusing on the market, so that we have the pipeline of customer ready to accept this product. And I'm very, very confident that the time, which is going to come now, but particularly in the kharif season, the beginning of kharif season itself will start giving us the results. Now I'll request CFO to explain the results of the third quarter.

Yes. Thank you, [ Rajesh ]. Yes, good afternoon, everyone. So let us discuss about the financial results of quarter 3. So the total revenue during the quarter 3 was INR 3,146 million as compared to the quarter 3 FY '21 revenue of around INR 3,002 million. The EBITDA has increased from INR 150 million to INR 186 million, showing a growth of around 23%. And the EBITDA margin has increased by 88 basis points during this quarter. The PAT margin of the company has improved from INR 61 million to INR 82 million, showing a growth of around 34%, and the basis -- and the show -- increase of around 57 basis points in the PAT margins of the company also. So if we'll go for the further bifurcation, the sales -- the total in-house consumption versus sales from the Dahej technical plant was around 49% in-house consumption and 51% versus sales. The total jump in the profit was basically due to the improvement in the sales of Maharatna, which stands at around 56% of the total B2C sales in the first 9 months. The patented product we sold during these 9 months were around INR 57 crores. And the sale of in-licensing products during the first 9 months is around INR 100 crores. If you'll see the bifurcation of B2C, B2B and exports. In the first 9 months, the B2C sales are the 66% contributor; B2B is 26% contributor; and exports are contributing around 8% in the first 9 months of the company. And if you'll see the bifurcation of insecticide, herbicide. The insecticide is around 52% in first 9 months; herbicide, 34%; fungicides, 10%; and biological products are 4%. So these are the basics of the quarter 3 results. Now I open the house for question-and-answer session. Thank you.

Thank you, Sandeep. Please put forward your questions.

[Operator Instructions] The first question is from the line of Prashant Biyani with Elara Capital.

Yes. Sir, the guidance that we have mentioned in 7 -- Page #7 of FY -- or for FY '22 revenue, EBITDA and PAT, vis-à-vis if we compare it with the 9-month results, so which implies that in quarter 4, we are going to achieve revenue growth and EBITDA growth of around 32% and 64% broadly. Is my understanding correct?

Well, I'll say as far as this revenue growth percentage is concerned, you know what the season is going on in the market, what is the demand pattern and how the monsoon is panning out. The growth target which we had earlier predicted of 10% to 15% might not be achievable. It may be somewhere between 5% to 10%. And we have given a guidance of 100 bps increase in EBITDA margin. And in the first 9 months, we had already achieved 88 bps. But yes, if you'll see the scenario of the industry, there is a lot of increase in the raw material prices, freight prices, then power prices. Despite all the negative scenario, we still achieved 88% growth in our EBITDA margin. I think that is also commendable. But definitely in the fourth quarter also, we are trying to work on the Maharatna products which is a good contributor. And due to that, our first 9 months results are showing an increase in the EBITDA margin and net profit margin. And hopefully, we will try to fulfill our commitment about the EBITDA margin. Possibly, we will try our best for that.

Sure. And sir, secondly, this 50% capacity expansion in technical -- in Chopanki, this is happening in technical or formulation?

This is all for technicals.

Sir, which AIs we are planning to commercialize from there? If you can share some name.

Actually, we'll give them as the things progress. But there are certain things which I can share that like we are increasing our capacity of [indiscernible]. There will be new molecule like [indiscernible], which will be manufactured here. And there will be few more actually, which are going to come with passage of time. So [indiscernible] capacities also, we are going to increase, yes? So there are certain couple of molecules. There's like -- now in Chopanki, we only do insecticides. And we are also going to add 1 fungicide here, namely Metalaxyl. And maybe Metalaxyl-M also will get added into the long run, which is particularly for exports. So we'll be working for these 2 molecules also. So there are certain molecules actually which will be coming now. So we have set up some particular lines, and there are some multipurpose lines also.

Sir, when is the expansion going to complete in Chopanki?

I'm told that by March end, we'll complete the expansion of Chopanki.

The next question is from the line of [ Himanshu Upadhyay ] with O3 Capital.

Yes. Am I audible?

Yes. Yes, you're very clear.

See, my first question was more on the broader business, okay? If we look at our return on capital employed, there is a lot to catch up, okay? And the inventory days have been pretty high and, again, receivable days, okay? So -- and again, the EBITDA margins are 10% around, okay? See, over the next 4 to 5 years, what can lead the margins to improve from here? And again, the working capital, okay, that we can have at least high teens type of ROCE, okay? Any vision statement you have on how you want to take the -- or improve the return ratios for the business? And what would be the things which you are doing that may -- or the company's return ratios improve over next 3 to 5 years? And what is the target you will have on those terms? Because when I see your revenue line, we are around INR 1,400 crores, INR 1,500 crores, okay, which is a pretty good revenue line in terms of other agrochemical companies which are present in India. But the one place where we need to improve is the return ratios, okay? So some thoughts of yours on those terms, it will be helpful.

Your question is [indiscernible] actually, the CFO can talk about the numbers. But still I would like to tell you that we are very seriously working on this. These 2 years have been the COVID years, actually, very, very difficult time, where we didn't want to give too much credit to the market. But still, the agrochemical business is a credit-oriented business where you have to build the stocks also because the movement of stocks have been very, very difficult from the international markets. The time which was previously 3 weeks, now we have to consider more than 2 months actually. And then again, there are a lot of issues, and the supplies are troubled. So you have to keep the stock, and then run the show. But you will see all the result improving as our perform -- like our sales goes up and the thing goes up. So you will see further improvement, I believe, in quarter 4. And from quarter 1, you will see a continuous improvement. Though we are stuck around INR 1,500 crores, what would be our expansion coming in and the new products coming in, because I told you that a lot of interesting molecules are coming from Nissan. We'll be launching 2 more molecules of Nissan. Last year, we have launched 2. The time which we got to market this product was very, very limited. So technically, I can say there will be 4 new molecules, 2 lower launch in the last season. In the second of the season, 2 further will be coming from Nissan this year. So there will be 4 new products from Nissan. Apart from Nissan, we are also bringing some products by backward integration. So there will be all new chemistries manufactured first time in the country. Apart from that, there will be certain new formulations which will be coming from our own R&D. And there will be further more technicals also, which will be coming from our R&D. Some of the registrations are back, and they are waiting for the plant to start the production. At some places, we are waiting for the registrations. But everything is in the final stages. So this year, I see that the pipeline is going to be very, very strong. Last 2, 3 years, the registrations were not coming, that's why the performance was slow. If you see the growth, the growth has been single digit in the last 2, 3 years, actually, which will change in totality. Whatever we have lost in 3 years will make a recovery in 2023. And this year, we will be targeting a big growth, actually, a big leap. We'll be trying to touch INR 2,000 crores in the next fiscal. So I'm not giving the exact number, but we'll be somewhere like -- we are still under planning, but we'll be targeting to meet that number in the next fiscal, with the good growth in the bottom line. So whatever you have observed, the observations are correct to an extent, but you'll see a big improvement in the coming year itself. So there will be no need to wait for 3, 4, 5 years. We'll be showing our performance this year itself. Thank you. Sandeep, would you like to add something?

Yes, sir. As far as the capital investment return ratios are concerned, we are investing in both the plant in Chopanki and Dahej for the last 2 years. But due to COVID, everything got delayed. And now we are hoping that our plant in Chopanki will start in the month of March. And Dahej, also, we are trying to start in the month of April. So when both the plants will start, then definitely, whatever investments we have made in these 2 plants will start giving us a return, and that will show you the improvement on capital investment also. Thank you.

Okay. And one more thing, see, we have seen a significant amount of CapEx which is happening in India, okay, not just in India, but in many other geographies on the chemicals side, okay, both pharma and agrochemicals, okay? And especially on the raw material side, okay, generally, this business is a 15% to 20% ROCE business, the API or the AI manufacturing, okay? But last few years have been pretty good for the backward players. But with increased capacities which will be coming up in the next 2 years or 3 years, do you think the margins can go down? And do extremely high margins which were seen in the APIs or the AIs will move back to what they were historically? Or do you think the numbers are sustainable on -- and how will it impact your formulations business, which is a bigger pie of your business?

It's a very tricky situation actually in the market. There is a lot of pressure on the generics, and there is a lot of lobbying around banning the generics. You have already seen this banning happening in the past 4, 5 years, actually. A lot of products are gone, and 2 of our star products have also gone actually in previous like 2 years. So this is a continuous pressure on the generics, and new technology products are coming. So now whatever investments are going, they are going around the new generation molecules. And you know that new chemistries have better margins also. So I don't think that there is going to be impact on the margin side to the industry, but there is going to be an opportunity. As I was telling previously that there is a lot of opportunity in the international market because -- and the price which India will be able to manufacture, it is difficult for the Western world. And we can opt as an additional source or as a -- to China, which is #1 source for the entire world. Now they are looking at new alternates. So India would establish itself as a new alternate, and I see a good opportunity in front of India, particularly in the agrochemical sector and also in some other sectors, where India will be increasing the exports in the big way. And a lot of exports will be going to the Western world, and when they go to the Western world developed countries, the margins are not bad actually.

Okay. I have one more question. If you permit me, I will ask, or I'll join the queue.

I don't know about the queue basically. So...

So can I ask one more question. Okay, yes?

Yes, go ahead.

Yes. So on the exports side, okay, what we have seen is the prices of chemicals or agrochemicals has increased drastically in Europe, okay? Are you seeing any benefits on the formulation and registration, what might be there? Because the patented companies, the price differential between you and them can be much higher, and people moving more towards the generics because the price of the patented molecules have increased drastically, what we hear in Europe. And what will be your broader European strategy or the geographies where you want to grow? What we understand, Europe is the most profitable part. So that's the reason the question came.

I would tell you that it depends on the products you have. There is profitability worldwide, all around. In Europe, we have bagged our first registration actually, which will be like first registration of our AI, which will be now marketed in about 17, 18 countries of Europe. So it is into that zone. So we see opportunity there. Yes, people have interest in generics. People have interest in especially the molecules. Of course, the margins in specialty are always higher. In case of generics, also the prices have increased actually because of the increase in the input cost everywhere. So at this moment also, the markets are quite disturbed. Particularly in case of herbicide, there is no clarity that the prices which are prevailing in the international markets today, are these the sustainable prices, or the prices are going to fall? So there is a little amount of risk also. That's why we have a mixed strategy. In certain molecules, we are going fast. In other molecules, we are very, very slow and cautious. We don't want to invest. So the strategy is very, very clear that we have to build up our strength in certain molecules and move into the international markets. So of course, whatever development we do, that will be a sustainable program because when we do the backward integration in my molecule, I get this trend. When I manufacture first-time product in the country, again, it gives me an advantage of being the first mover [indiscernible]. So similarly, getting good advantage into international markets also. So as a strategy, we are very, very clear that we will continue pushing the novelties to the market, and this will give Insecticides (India) as a new market, and our growth will be sustainable.

[Operator Instructions] The next question is from the line of Dhruv with HDFC AMC.

Sir, my first question is, in the last year quarter, last year same quarter, was there any sales of Nuvan and Thimet, too, that were banned?

No. Yes, it was done much, much before actually. 30th December, I think, was the last date for -- but we finished it before -- much before that. And Thimet had expiry of 1.5 years only. So it finished -- or 6 months before that, actually, I believe. So Sandeep...

So last year, there was no impact of...

Last year -- it's banned in 2020, actually, not '21.

Yes, 2020.

So 2020 was the final year for Nuvan, December. And June was the final month for Thimet, actually, 2020. Now we are in '22, so it's almost 1.5 years, we have not seen these molecules.

All right. So sir, if I look at the B2C sales for this quarter particularly, on a Y-o-Y basis, they seem to have fallen by about 8%. Now we have seen that global -- I mean, there has been a lot of increase in the technical prices. So everyone has seems to have taken price increase. All your peers also have taken a price increase. So I was wondering, I mean, there should have been a benefit of price increase plus probably some volume growth, depending upon market condition, but our sales have declined. So I'm just wondering, was there anything specific this quarter that we should be -- that should be highlighted?

This is -- you're saying -- Sandeep, do you have the [ percentage line adjustment ]?

That would be to [indiscernible] sales, 66%; [indiscernible] would be to export [indiscernible].

So growth has come from export, but B2C, particularly has declined on a Y-o-Y basis?

Almost matching [indiscernible]. Actually -- I take it actually [indiscernible] basically because the sales were not very, very smooth because the rates which we have seen this year are like -- there have been extraordinary event at the end of the season. So [indiscernible] in fact were higher basically, but we have made up, and it will be made up actually. So we are not trying to dump any stocks in the market. Rabi, kharif season [indiscernible]. So they got a little bit delayed, but we have lifted back everything. So market is very, very clean. So [indiscernible] that would have impacted a little.

Got it. Sir, because -- am I right to understand that this quarter, there should have been some price increases also because your technical prices -- I mean, raw material prices have also increased?

Increased [ in time ] but at increased prices, much sales have not happened. Reasonable sales have actually. So you'll see some more sales happening in Q4 on little price increase. So the quarter 3 was just converting, converting with the price increase. And the trend has just started. So they'll gain in Q4. So Q4, you will find that impact coming, not in Q3. So people was interested in B2B demand, there was export demand because, yes, there were international shortages. So there, we could come back. But in branches, yes, some returns of Q2 because of the heavy rainfalls, and lower demand in Q3 in totality would have impacted our like B2C sales.

All right, sir. Sir, because your exports have grown very strongly, but even the B2B business, I was wondering because even technical prices have increased. So even your B2B business would have seen a very strong growth. But they have grown, but not as strongly probably as one could have expected. So...

This is season [indiscernible] you will have to appreciate. Clearly, ending here, multi-nationals closure have to do the closing in December. And other companies also build the closing period. [indiscernible] 6 months [indiscernible], the second half of the year is never a strong selling period for us. So it is a reasonable selling period. And this year, it's got an impact due to bad rains actually. Because when we required rains, these were not there. And at the end of the season, there were heavy rains. And even now in the winter, there are heavy rains in front of you. So that is impacting the cropping cycle and cropping -- everything actually. So the demand is mediocre. This is not a very strong season from agrochemicals perspective, still mediocre.

Correct, sir. Sir, the next one was that in your press release, you have mentioned that you have got a patented patent for one of your molecules, I believe a combination product. And so how should we see that? I mean, does it now enable you to charge more on the market? I think herbicide, you mentioned.

It's the wrong way of putting it, actually. When you make the product patent and you are bringing the innovative technologies, of course, you are going to get the premium because of the exclusivity. So it's nothing like charging high. We are investing a lot on R&D. I'm running 4 R&D centers with different teams, 1 biological R&D center, 1 is the new product discovery R&D center, 2 are technical synthesis and development R&D centers. So we are continuously investing on R&D, though that this amount is not visible because almost all of my R&D centers are existing in my plants, apart from 1 R&D center, which is an R&D center run with the Japanese. So a huge investment is being made, and it will be a return on the effort actually, whatever we gain. So if we are not making big bottom line, you say you are not making. If we are making, you are saying that we are, I don't know...

No, sir. No. I was wondering from this angle that -- I mean, this patented product that we have got.

Yes, when you are doing the new technologies, of course, the payment is going to come. So this year, as I told, that my pipeline is going to be very, very strong. There will be about 7, 8 launches, out of which we are expecting 4, 5 will be very good launches. So all will be announced, I think, within the first quarter itself, by like April, May, June. So there will -- the announcements are going to start from March, April and May, June. So these 4 months, there will be big announcements actually about the molecules, and you will see those announcements. So next time when we will be talking about the final results of this year, by the time I believe that there will be about 6, 7 launches by that time. And you know the stories from the market, what is happening and what type of launches are these. So interesting launches. Many will be, yes, the niche market segments, so where we'll, of course, get the price advantage also.

Sure, sir. Sir, one -- the other question was on the -- sir, is it possible to share what would be our total gross block investment in our technical manufacturing? And as you mentioned -- so just to understand what are we currently, and how much is it going in the next, say, 1 year or 2 years? Because you mentioned your capacity is increasing by about 50%. So just wanted to get some sense of...

We had already made a budget of about INR 200-odd crores actually for 3 investment. But due to COVID, it's delayed to 4 years. And in 4 years -- everything is a public number, but since you have put a question, so I'll request CFO to explain, like we can submit a statement wherein we say that our gross block investment before this and this much investment we have made, which is going to capitalize now and the total investment is this much. And of course, then you'll be able to calculate these things.

Sure. It can help us to analyze the number better because actually, we understand the potential even better [indiscernible].

I will share the figures on [ May ].

Sure, sir. Perfect. And sir, lastly, on exports, sir, is it possible to give some quantitative or qualitative sense on how are our registrations moving? Because I believe you are working a lot on registrations globally. So however registration...

We have more than 100-odd partners, and we have made various applications across the world. So far, our basic like investment, which is moving or basic exports which are happening are all brand -- like ready-made product exports. But now we are bagging the registration in South America and also in Europe, and we are expecting certain more registrations in other geographies. Like Malaysia, we have bagged; Taiwan, we have bagged. So a lot of registrations have started clicking now, Which means that a lot of my technicals will start moving directly along with the formulations. So I see a good opportunity. And then again, if you have further queries, you can ask this detailed question, and my export department can give a detailed reply for this actually. And Mr. Satwe will be available for all the meetings and conferences. We have the right person to give the reply in detail for this, but we'll make one statement for this also.

The next question is from the line of [ Riju Dalui ], an individual investor.

Just I would like to ask you like one number-specific question. So if possible, could you please share Q3 sales data for domestic B2B and export business?

Do we have that, Sandeep?

For Q3, only Q3, proportion is B2C is 58%; B2B is 27%; and exports are 15%.

And also one more question that I have is that in our previous like question that has -- like regarding the price hike, so you were saying that you have taken a little bit of price hike in Q3 and the more will come in Q4. So could you just quantify that in Q4, you will be able to fully pass on the higher raw material costs?

Like it will pass in stages. Q4 is our end of season actually. So though we have started increasing the prices and for certain molecules, yes, it will be passed on in full. For other molecules, we'll be having old inventories, and we may be charging a little premium on that also. And for certain products, I may have to just touch the cost, or it may be cost minus 1%, 2%, but we don't sell at a loss. But there may be specific situation molecule-wise. So very difficult to comment at this situation. But I would say, overall, you will see an increase in the EBITDA margins in Q4. That much I can comment. And the exact impact will start coming from Q1. Because as the new crop comes in because of the start -- advent of the kharif season only, the real impact is going to show.

Got it. Got it. Sir, given these high commodity prices across each and every chemicals and the higher power cost, so that might have impacted the Q3 numbers. But if I look at your gross margin, that has improved actually 30 bps on a Y-o-Y basis. So it is largely on account of export contribution and higher B2B like -- and higher sales of Maharatna products?

Yes. Basically, it is the product mix which is making a difference. So when the new products start moving in a better position, and since the market is already showing the increase in the prices, so we are able to realize a little better actually than the previous year.

The next question is from the line of Himanshu Binani with Prabhudas Lilladher.

So my line actually was disconnected in between, so I don't know if you have answered the question. My first question was -- my first question was on the gross margin side basically. So despite in a rising RM cost scenario, while you have been like commenting that you haven't like taken price hikes to that quantum, that is actually evident into the numbers for this quarter. So I was just wondering what has been the reason behind the gross margin improvement basically during the quarter? Can you please...

Yes, basically...

Actually, number one, it is generally the product mix impacts. Number two, to an extent, we are able to take it actually, so not fully. And there may be some old inventories which have moved on a new price. So I'll not say exactly on the new price, but at a little higher price, so it would have been impacted. You will see that it's not a huge number, actually. It's a marginal number. In terms of percentage, it is big. But at just -- we see it's just INR 3 crores. So INR 3 crores is a miniscule number technically. But in terms of percentage, it is looking big.

INR 3 crores is the inventory gain number during this quarter?

I'll not say exactly the inventory gain actually. So there have been various reasons. The product mix -- number one is the product mix. Number two, maybe the better [ utilization ] there. Number three, maybe the inventory gain. So all the 3 reasons put together might have impacted actually.

And sir, what has been the quantum of price hike basically on a portfolio level? What's sort of price hike we have taken?

It's not in general actually. The major hike is coming in the generic product. In that segment also, there are certain set of insecticides which is impacted, and herbicides are impacted very badly. So there are particularly some products, like glyphosate, paraquat, atrazine, which have seen the maximum price hike, followed by some other herbicides like pretilachlor. And then there are certain insecticides, which are particularly new nicotine insecticide, imidacloprid, [indiscernible], which are showing a big hike. There are other products which are showing smaller hikes. So again, this is a temporary scenario. I cannot say that this is going to be same scenario in the next kharif because China is very unpredictable market, and they are commanding the market at this moment, and they are trying to govern the price and lead the world. But I don't think that this is a very stable situation. So in my belief, the prices are going to drop from here a little. So I told -- you said we were disconnected. So we have made product by the strategy, where in certain molecules, we are going slow. In certain other molecules where we believe that we'll be able to make the recovery or we'll be able to take the price hike, there, we are going a little faster.

Right, sir. And sir, I have one more question basically on the gross margin sales [ revenue ]. So we have actually commented on some sales return basically during the quarter, and that was from the kharif season. So what has been the quantum basically of the sales return basically during this quarter?

Sandeep, can you give the exact number?

Approximately INR 30 crores.

Sorry?

Approximately INR 30 crores.

3-0, INR 30 crores. Okay. And sir, my next question is basically on the guidance basically. So we continue to maintain our guidance basically for the whole year. So now going into the Q4, which happens to be the seasonally weakest quarter basically on the domestic agrochemicals per se. So I just wanted to understand with the 9-month run rate basically for the fourth quarter, so what is actually giving us this confidence that we would be like able to achieve the growth guidance basically, both on the revenue as well as [indiscernible].

Sandeep, you can take it actually. Like from my side, I would say that, reasonably, we should be able to sell in all the directions, like all the 3 departments, particularly B2B international business and B2C. They are quite confident that they will be able to meet their targets, so I'm confident. So that is a major reason actually. And Sandeep, you can speak on this.

Yes. Practically, if you see the first 10 months results, the revenue growth is only 5%. And I've seen that the fourth quarter is a lower sales quarter. So the total revenue growth should be somewhere around 5% to 10%. And the EBITDA margin which has improved by 88 bps in third quarter, so I hope that it will improve further in fourth quarter. So we'll be able to maintain our guidance on EBITDA margin improvement, but definitely on the revenue part, I feel that it should be somewhere between 5% to 10%.

Right, sir. And sir, one more question basically related to this only. So sir, I just wanted to understand the margin differential basically. On the gross margin side, basically, if you can quantify for the Maharatna products and the other molecules basically and the same for the domestic B2B, B2C and exports sales. So how has been the margin differential basically in all these categories?

The highest margin is there in B2C sales because B2B sales is the sales to the peers, so you cannot earn as compared to the B2C sales. So -- and as far as the Maharatna is concerned, definitely, the margin in Maharatna is better than the generic product margins. And if you see the margin improvement, the basic reason for the improvement in margins is also that in the FY '21, the Maharatna's contribution was only 36% in quarter 3. Whereas in this quarter 3 FY '22, the Maharatna contribution is around 46%.

So here, I would like to add a little our strategy. we are focusing a lot on Maharatna. This year, we have designed a further bifurcation of Maharatna, the Focused Maharatna and Maharatna. And we'll be targeting that a major portion of our business has to come from Focused Maharatna than Maharatna, where we'll be including certain new molecules which are going to be launched into this fiscal, and certain molecules which have come into the last fiscal where we got very little window to market those products. So I believe with these new technologies also and with our focused approach, our sales for these focused products, which is Focused Maharatna and Maharatna, is going to increase further, which is going to like give us a good growth, both in terms of top line and bottom line in the new fiscal.

And sir, what would be the gross margin basically in the Maharatna? Any approximate numbers?

It will be difficult to share the numbers actually because it again varies from product to product and on the market scenarios. But to believe like the Focused Maharatna, the new categorization which is -- we have given is going to have the highest margins, followed by Maharatna. And then there will be a gold segment. And silver segment will be just like, I would say, there will be the products under tail cutting, which will be tail cut in routine. So in the next 4, 5 years, you will see them declining further. And the silver range is the range which is under tail cutting. So this means it will keep on varying from product to product and time to time.

And sir, one last question, basically, if I may have. So one on the CapEx side basically. Sir, just wanted to understand the time line basically of the project, number one. And the second thing is that...

We have 2 projects. Two major projects we are completing -- we have given. Like one is the expansion at Chopanki. So Chopanki is going to complete by March. One another is expansion at Dahej. Dahej is also going to complete by April. And third one was the expansion which we had done in the SEZ for establishing a formulation plant for exports. So that is already completed mostly and capitalized. So I believe we'll be completing all our expansions by April or maybe middle of May, wherein Chopanki will be done by March in this fiscal in full. And Dahej will be coming later on, like April. And we should, be able to target April in full. So again, Dahej will be...

Total CapEx number then for all these 3 projects?

Mostly, it is done actually. Now it's the last leg. Whatever, INR 10 crores, INR 15 crores, will be required to finish this will be there.

And what has been the total amount spend on this CapEx?

We have given a target of INR 200 crores for 3 years, actually. So Sandeep, you can give the exact number. This year, the investment which has gone is about INR 68 crores roughly. Sandeep?

Yes, sir.

So roughly around these numbers.

And sir, what sort of [indiscernible] and margin profile one can expect from this CapEx?

We have not declared it clearly, but we can say that by this CapEx, we'll be increasing our capacity by almost 50% in terms of technical manufacturing, and this will be supporting our company in a big way. And once this capacity starts manufacturing, like it comes into production, so we see a good growth, and next year we'll be targeting roughly about INR 2,000 crores plus and good expansion in the bottom line also. Because this CapEx is divided into 2 parts. One is the -- that will be the total sales. This CapEx, we can divide into 2 parts. One is for manufacturing of new AI and another is backward integration, which will not increase the sales number but which will support the margins as well as sales albeit AI where we are doing the backward integration.

Right, sir. So sir, you talked about that....

Sorry to interrupt. Mr. Binani, may we request that you return to the question queue for follow-up questions?

So I was confirming the last thing basically.

Sure.

Can I do that? Yes. So sir, you talked about that INR 2,000 crore sort of revenue number for next year?

Yes.

The next question is from the line of Abhijeet Bora with Sharekhan.

Yes. Sir, my question is that when you gave a revenue growth guidance of -- revenue guidance of INR 2,000 crores next year, can you break the incremental revenue which we'll be getting from new AIs and the benefit of backward integration?

Actually, it is little early because the new AI also will be coming out of the backward integration only and like that -- no, from the expansion only. And the backward integration is not going to give you the number -- any sales, direct sales. It will be consumed in the -- I mean to say, in the AI you are going to manufacture. So there will be hardly a INR 50 crore jump from the backward integration because you are going to sell certain chemicals, hardly INR 50 crores. But the entire jump is going to come in terms of like we will become a sustainable supplier for these products to the world because people will be able to believe better and they will get regular supply -- get regular supplies like at a price which will be less fluctuating. So this will give them the confidence for our supplier position actually and also give us this confidence to sign longer agreements actually with the people, particularly in those 2 products where we are doing backward integration.

Okay. Sir, one thing I don't understand is that you mentioned that INR 68 crores of CapEx you will be doing. In total INR 100 crores of CapEx, if I'm not wrong.

INR 200 crores [Foreign Language]

Okay. [Foreign Language] FY '21 Maharatna revenue [Foreign Language] so INR 1,400 crores...

[Foreign Language]

[Foreign Language]

Other technical manufacturing [Foreign Language] we are targeting for this year. [Foreign Language] product registrations [Foreign Language], it will be helpful to me. [Foreign Language]

So peak revenue putting [ back at now ] and all the existing capacities we have...

Again [Foreign Language]

So lastly, what I want to basically understand is that INR 500 crore incremental FY '23 [Foreign Language] 10% annual revenue growth, right? Is that the right understanding?

[Foreign Language]

[Foreign Language]

[Foreign Language] There is a tremendous pressure on generics. Already on government-supplied products [Foreign Language] there further progress, which are under pressure. So generics [Foreign Language] because that is the demand of the day. International markets [Foreign Language] which will be run by the subsidiary. Insecticide [Foreign Language]

[Operator Instructions] The next question is from the line of [ Himanshu Upadhyay ] with O3 Capital.

Yes. So my question was on tail cutting, and we had spoken about tail cutting and the generics, okay? So what proportion of -- or what has been the concentration of revenues come in last 5 years? Because tail cutting as a strategy has been there for, I think, at least last 5 years.

It's a continuous process because [Foreign Language] but that is unpractical. Ultimately, if I'm bringing the new technologies [Foreign Language] older technologies also. [Foreign Language] This year, my silver range sales is less than 5%. [Foreign Language] I'm not saying partly but the whole sector market share [ 5% to that, 5% to that ]. [Foreign Language] is not that easy. [Foreign Language] So tail cutting with a [Foreign Language], so we are clearly focused [Foreign Language] as a strategy, [Foreign Language] business Maharatna or Focused Maharatna followed by gold. [Foreign Language]

Okay. So our aim is to be -- have around 100 products in the market means, on an average 30, 40 tail cutting the range, but 100 would be the main focus area for us to grow. Would that be...

[Foreign Language] Maharatna, Focused Maharatna [Foreign Language] We are discouraging those products basically as a strategy. We are not investing.

Okay. And one last thing on export side. See, how exports could we -- yes, our strategy is to export the products and manufacture also on our own. But -- and there are also many other small manufacturers who are coming up in India for various other agrochemicals. Would we like to take registration for many other players and be a complete basket player in some geographies? So some we manufacture and some from third-party and be a complete basket seller in Europe [indiscernible]. Would that be a strategy, or it would be purely manufacturing-led strategy?

My strategy is always led by manufacturing. It's a manufacturing-led strategy. That does not mean I don't support my customers. If I have to support my customer and even if I have to import or buy from the market some products and then make the formulation and give them, I give them. But that percentage is minimum percentage. It's silver for me actually, I don't want. Because ultimately, I made my export arm to support the plants. It is not to like -- of course, ultimately I have to work for the customers, but the strategy is to support plants and increase manufacturing.

The next question is from the line of [ Riju Dalui ], an individual investor.

My question with regards to -- if you look at the commodity price, commodities like cotton and maize, so those prices have increased by more than 50% or 60%, maybe doubled in last 3- to 6-month period. Like are you expecting some kind of crop shaped towards these commodities or these crops in the next kharif season?

[Foreign Language] Yes, the -- there are [Foreign Language] we see a good change in product mix because India, rice was the most popular -- being a very popular crop wherever you have water. So in South India, people were doing kharif and rabi both paddy. And in North India also, wherever they could paddy, or East India, wherever they can grow paddy, they were growing paddy only. But this year, we have seen the interest of the people that people are shifting towards other crops. And we see a big increase in cotton coming in, a reasonable increase in -- we have seen in mustard crop actually in this rabi season. Corn, maybe yes. There are a lot of like in certain areas, sugarcane is doing. So a variety of crops are growing actually. And also in certain areas, soybean also is showing a growth. So in totality, I can say, a variety of crops are going to be increased in the coming kharif season. And this is going to like make a big difference in the total market size. And I can see there can be a little jump in the market size in the domestic market also because with all these crops coming in and the interest of the farmer to protect these crops and the prices of many of the crops are going up, so the market size can grow in the next fiscal. This is the expectation.

Right. So can we expect like some kind of new market like -- or market size expansion in -- like in these crops that you are talking about, right? So maybe in other chemicals or...

Let's say, it won't be a big leap. These [indiscernible] have roughly INR 30,000 crores [indiscernible] market. So there can be 10% to 15% jump in the market size. We can expect that. Again, that will depend on the monsoon. That will depend on a lot of factors actually. But there is a possibility. There is a definite possibility that the domestic market of the company can go up by -- can show double-digit growth in the next fiscal. There is a possibility.

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Thank you very much. I thank all the participants for participating and giving your views and asking the relevant questions. I hope we have tried to reply everything, but if there is something and we get the names, we'll respond to all those queries. Thank you very much.

Thank you.

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