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

Ladies and gentlemen, good day, and welcome to Insecticides (India) Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikunj Seth. Thank you, and over to you, sir.

Thank you. Welcome to Q2 and H1 FY '26 earnings con call of Insecticides (India) Limited. Today on this call, we have with us Mr. Rajesh Kumar Aggarwal, Managing Director; Mr. Sandeep Aggarwal, Chief Financial Officer; and Mr. Dushyant Sood, Chief Marketing Officer. Before we proceed the call, I would like to give a small disclaimer that this conference may contain certain forward-looking statements, which are based on beliefs, opinions and expectations of the company as on date. These statements are not guarantee of future performance and involve risks and uncertainties, which are difficult to predict. A detailed disclaimer has been given in the company's investor presentation, which is uploaded on the stock exchange. Now I would like to hand over the conference to the management for their opening remarks. Over to you, sir.

Thank you, Nikunj. Rajesh Aggarwal, MD of the company. Good evening, everyone. Thank you for joining us today for Insecticides (India) Limited Q2 and H1 fiscal year '26 earnings call. First, let's discuss about the industry outlook and the market scenario. This monsoon started on a positive note overall, but turned challenging during the second quarter in particular. After first 20 days of dry weather, there was heavy rain, which led to the disruption in the normal agronomic activities. This resulted in restricted field access, excess moisture also caused crop damage in major crop across India. Not only the dry crops, but even paddy suffered the yield because the recent rains, which had come in the previous month, it was the harvest season. The harvest season got delayed, the entire cropping cycle where the [pace] had to happen, there were many setbacks, but still the agrochemical demand, I can say, remains subdued in the domestic market. Let's talk about the global front. We are seeing encouraging signs of stabilization with normalized inventories, improving demand in Latin America and South Asia, and opportunities emerging from the shifted global supply chains. On the domestic front also, we see a favorable rabi, showing supported by adequate salt moisture and stable input cost. Let's talk about the business performance of IIL. Against this challenging backdrop, I'm pleased to share that IIL has successfully maintained its business momentum and market presence. Our core portfolio remained resilient, supported by our strong distribution network, brand equity and field engagement with farmers. We proactively expanded sales and distribution efforts to stay closer to farmers. We launched five new products during the season, particularly in this quarter. Two products were launched, ALTAIR, the seeding of ALTAIR, which is a patented pre-emergent herbicide for paddy developed by Nissan Chemical Corporation, Japan and will be exclusively marketed in India by Insecticides (India) Limited was launched. And I can say that a good seeding of this product is done in the paddy markets, particularly in the Eastern part of the country and also the southern part of the country. Now I'd also like to talk about the second launch, which is the big launch, which is SPARCLE, a broad-spectrum insecticide, which aims to address brown plant hopper and improve rice seed. Designed with advanced chemistry from Corteva and IIL's extensive reach and farmer connect, SPARCLE aims to help farmers improve crop yield, quality and profitability. Then we also launched patented fungicide, which is Muse, and Centran SC was launched, which is an insecticide again, and Brahmos. So Brahmos comes from our own technical, which is an insecticide. Muse is a patented mixture developed by Insecticide India. Centran is again a mixture, which is next level of mission, which is based on CTPR and SPARCLE and ALTAIR. So these five products, and we have very high hopes from these products. Particularly, I would like to discuss about the tie with the Corteva because I think it's a very important step. Our collaboration with Corteva Agriscience marks another milestone in IIL's commitment to bring the world's best agriculture technologies to Indian farmers. Corteva Agriscience is a global pure-play agriculture company, having industry-leading innovative solutions. Combining with IIL's extensive market reach in India will enable availability of latest technology products to Indian farmers. IIL and Corteva Agriscience reaffirmed their joint commitment of transferring Indian agriculture by delivering science-backed performance-oriented and farmer-friendly crop protection solutions, and we can look many more products from this collaboration. We remain focused on profitable growth and continued our journey of premiumization with improvement in gross profits and maintaining EBITDA margins during Q2. Would like to discuss about the strategic progress. We continue to advance our long-term priorities, strengthening the brand market, the domestic portfolio. We have launched several new technologies in this rabi season. Here, I would like to particularly mention about Million, which is a rice herbicide, and it is backed by the technical called pyroxasulfone, which IIL made this year in large quantities on its own and not only B2C, but it also improved B2B sales. Here, I would also like to discuss about Centran because Centran insecticide has shown very good results, both in the granular as well as ST segment or liquid segment, and we have very high hopes from this brand in the H2. Similarly, SHINWA, our other leading product, #1 product from Insecticide India from Nissan's portfolio, is expected to play very well in H2 as well. Important mention Torry Super, which is a maize herbicide, which is a patented product came out of the shelf of Insecticide India. This also is going to expected to play well in H2. And with these many products and our focus on particularly pulses, paddy, horticulture crops, maize crops and wheat crop, we are very, very hopeful that we are going to make a reasonable recovery in H2 of this year. Apart from this, we remain quite optimistic on improving our market share, scaling export footprint backbone and backward integration, deepening farmer advisory and digital engagement. A lot of activities are being carried out by Insecticide India. They have given in the presentation that how we are connecting with the farmer, connecting with the network, connecting with our CAs, who are the crop advisers. We have more than 1,200 crop advisers, connecting with them and taking the information to the market, expanding our R&D pipeline with differential formulations and technical collaborations. Our R&D centers in Chopanki and Dahej continue to progress well with new combination molecules, underdevelopment with automization and capacity enhancement initiatives efficiently and sustainably. We have added horsepower to the team with new leadership joining in. The C-suite additions will provide directional guidance to the next journey of IIL with their industry expertise and experience. Now I'd like to share the outlook. Before this, I would like to talk about the key focus areas. We'd like to particularly consolidate the specialty portfolio and launch differentiated solutions, accelerate export expansions, improve efficiency and margin profile, maintain working capital and cash flow focus. So these will be the key focus areas and with improved moisture conditions, farmer sentiment picking up and channel normalization underway, we are entering the second half of the year with cautious optimism. On the long-term prospects, I remain focused on innovation, premiumization and complete crop solution provider and globally competitive agrochemical partner to farmers while continuing to build trust, quality and sustainable growth. In H1, we have recorded the EBITDA margin of 13%. And I think from here, we can build up and you can see our performance improving in the next two to three years continuously. I can say when the time gets tough, the tough gets going. At Insecticides, we are not just building products, we are building trust, strengthening farmer prosperity and shaping the future of Indian agriculture. Thank you once again. I'll now request the CFO to share financial details. Thank you.

Good evening, everyone, and welcome to the conference. So if you see the second quarter results year-on-year comparison, the revenue [Audio Gap] increased from INR 627 crores to INR 638 crores, an increase of 2%. Gross profit increased from INR 199 crores to INR 220 crores, showing a growth of 11%. EBITDA remains on the constant side, INR 90 crores to INR 89 crores. Then PAT is somewhat on the lower side from INR 61 crores to INR 59 crores. And the basic reason for PAT is financial cost due to the tough market conditions, the recovery of the debt is somewhat slow in this period. So if you see the segment-wise B2C premium versus generic in FY '25, it was 67% premium and 33% generic. In FY '26, it is 65% premium and 35% generic. Segment-wise sales, if you see in last year, Q2 FY '25, the B2C was 84%, B2B was 14% and export was 2%. And this year, the B2C is 77%, B2B is 19% and exports are 4%. So these are the quarterly performance of the company. And along with this, we are working very hard on ESG also, Environmental & Social Governance. So we are working very hard on ensuring effective usage of natural resources, reduce carbon footprint by adopting energy-efficient manufacturing processes. And we are working on adopting the ZLD policy across all our manufacturing plants, though as on today, the three of our plants are Zero Discharge Liquid plants. So thank you. Thank you very much.

Now we can open the house for questions and answers.

[Operator Instructions] First question is from the line of Bharat Gupta from Fair Value Capital.

A few questions from my side. I hope I'm audible?

Yes. You are audible but you have to ask two, three questions at a time and then you can ask further questions. We ask then I'll not be able to maintain track.

Sure. Sir, first question, like can you just describe about the volume growth across our Focus Maharatna and Maharatna product category during the quarter in H1?

There is technically no volume growth in the FM and Maharatna segment. Might be a small percentage, so not big. Actually, there were a lot of return, particularly in the FM segment because all the key herbicides, what we started manufacturing, which were leading the market, they are for cotton, paddy, sugarcane, maize, cotton, soybeans. So most of these products showed the, could not be spread during the peak season because of the heavy rainfalls and earlier the dry weather conditions. So there were good returns. So in this quarter in particular, we are not able to increase our FM and M volumes, but I see a recovery coming in H2.

And sir, what will be the quantum of sales figure? Can you specify the number for us during this quarter?

Specific number, it is in the range of INR 150 crores. Last year also was a bad year, where it was about INR 100 crores. So you can see that there is an increase in 50% of good return.

Right. And with respect to the pricing position and the channel inventory, how are we placed with respect to rabi? Because I think itself would have faced this kind of an issue where herbicide returns would have been on a higher side.

That's normal actually, whenever the season fails, such type of conditions come in. So it's a normal scenario for the industry. And as a strategy, we never keep the stocks in the market. So whenever this type of situation comes in, we look back everything. And we try to furnish the new materials, which are for the existing new season. So now the herbicides on maize are going to start. The season on wheat is also going to start, followed by potatoes, some products and also sugarcane and some other crops. So we are focusing around that. A lot of pulses and gram is also there. And in the southern part of the country, there is rice also. So the herbicides are going to start from here, followed by insecticides and fungicides. So we see momentum coming again in the season. The harvest of the crop got delayed because whatever was cut in the field was destroyed due to [Audio Gap] [rainfalls] and whatever was not cut, it is also standing green in the field. So the entire cycle is delayed by almost a month.

Right. A question to Sandeep, sir, there has been an increase in the overhead expense. Is it primarily with respect to the [other expense] or there is some investment which has been done?

No, no, no. There is no expenses increase due to sales. The expenses, which has mainly, other expenses increased are due to the increase in field promotion activities because we are doing nowadays a lot of field promotion activities. If you'll see the presentation, you can check the numbers also. So that is the main reason of increase in the other expenses. And another reason is the ForEx losses. I think around INR 2 crores of ForEx losses is there. That's why there is an increase.

Just the last question, sir, with respect to the margins. I think this quarter, we have seen an improvement in the gross margin, and that is why there would have been a product mix change where Focus Maharatna would have been on a higher side. So can you just explain what has been the primary drivers behind the improvement in the gross margin? And with respect to the EBITDA margin this quarter, it has remained subdued. But going forward, do we expect to remain at 13% odd levels for the full year?

Bharat, definitely, the reason for increase in gross profit is the sale of Maharatna and there is an increase in profit in generic also this time. So that's why there is an increase in gross profit. And EBITDA is definitely based on the same lines due to increase in some expenses. Other expenses you have already seen, and employee cost has also increased. And we are hoping that definitely, we are trying to improve our margins by mixing the good product mix and introducing the new products. And definitely, we are hopeful that it will continue to grow. I have CMO also sitting with me who can explain about our continued efforts in the field and the type of expenses which we are making in the field promotion of the product, and that can be one reason that we could maintain despite of such a huge good return because initially, we were targeting that this should be a very good year when the rains started in advance. So, our expectation from this year were very, very high. But due to the drought in between and then continuous rainfall, that got shattered, but I still would like to, we can explain about the efforts which are made in the field.

Thanks, Rajesh ji. The on-ground efforts which IIL team is making resulted in some very good engagement with the farming community in this first half. Despite all the adversities, the thrust on demand generation action and development activities was increased, and that resulted, it was a result of over organized 9,000 farmer meetings, over 5,000 demonstrations. All these demonstrations were followed up with field days showcasing the value delivered by offering in each case by engaging farmers in a very systematic and organized way and reaching out to over 100,000 farmers. So this strengthening of demand visibility resulted in the product pull and a better product demand under a very, very adverse condition, creating a stable and a sustainable business for the organization. Thank you.

[Operator Instructions] The next question is from the line of Bhargav from Ambit Asset Management.

Congratulations on a good performance in a very tough market. Sir, first of all, just wanted to get your brains on the new talent which we have recruited. So obviously, in the press release, we saw that Mr. Devinder Ray has been appointed as the CEO. So his past experience is fairly credible given that we spent a lot of time at [PI Industries]. So if you could just spend some time in terms of what we should look forward in terms of contribution from his side, that would be very useful.

He'll be particularly responsible for all the manufacturing activities, the expansions which we are taking and also the supply chain management. So we think we are going to go very professionally. A lot of expansions are in place because in Dahej, there is a formulation expansion. We are also thinking of setting up a new facility in SEZ. Then in Sotanala, we have a plant. So that is also in full expansion. So with so much activities around and also the many, we are in talks with many large companies of the world to do some CRAMS activities or some other activities together. So we thought that this is the right time to engage a professional who can handle these activities well and who has got a good experience. So this gentleman comes with an experience of more than 35 years, and I'm very, very, I expect that he will be able to handle these things very nicely. So I will be relieved from one side because all the manufacturing used to report to me and a lot of time was going into this. So now maybe I'll be able to devote more time on balance sheet and more time on the international tie-ups and relationships.

Great. Second, sir, we had guided that by the year-end, we would like to end the inventory at close to INR 600-odd crores. Are we on track to achieve that target?

Looks difficult because the inventory levels have crossed INR 700 crores now in the middle of the year. And now we have to plan the new manufacturing from January, in particular, so January to June. So we'll have to start our purchases for the new season. So the inventory from INR 600 crores might price to INR 800 crores, but that will be normal because we'll have to build that inventory for the new season. So yes, we have suffered on the inventory part, which will correct in the time to come forward.

Okay. And lastly, sir, when we look at some of your peers in the Crop Care business, they have reported a significant decline in terms of revenues, whereas we have reported almost 2% odd growth. So what did we do different to have such a drastic difference in terms of performance, if you can spend some time.

Before me, Dushyant Sood ji was speaking about the activities which were carried out in the field. So generally, we keep 750 to 800 CAs in the field. And this year, the number was touching almost 1,500 during the peak season. And they were continued almost in the H2, sorry, the H1, means till September, they were continued. So still the number is in the range of 1,200. So we are doing a lot of activities, and we have done a lot of digitization for this team actually because we have a learning management software for our entire team where we have details of all the new and all the important products, what we have in our Focus Maharatna range. They can learn from there and they can take their activities to the field. We also have the sales force, which is also helping us in connecting with the farmer, connecting with the dealer, farmer, retailer, distributor and our team [Audio Gap] into the market. And since we have a lot of specialty products which are launched in the last two, three years, so our team was very, very active. I can say that since our presence was more in the market and we had the reasons to be present, so we got some sales better than our competition.

[Operator Instructions] The next question is from the line of Rishabh Shah from [Indiscernible] PMS.

Sir, first question is, just wanted to know your views in terms of cost, how do you manage your cost and bring efficiency? Because at the end, efficiency, sir, good efficiency, it will bring boost to our return ratios and margin.

Like if you see our performance, we have been doing this effort for past three years. We had a big hit after the COVID. And then we worked out on our complete product range, our product profile, market profiling, team setting, market setting. So everywhere we focused, and we tried to improve the balance sheet of the company. So even now, there is a new range of products, which is entering into the market. At the same time, there is a tail-cutting effort, which is also on for the market that all the sunset technology should move out of the company now and all the rising technology should enter into the company. And then, of course, you have to manage things well. We are trying. This quarter, we have suffered. But yes, if we look at one or two or three years, then we, I can say that we are back on our 13% profit trajectory, and we'll take off from here. So, so far, I was talking about 10%, 11% of EBITDA margin. Today, in the first half, which was a difficult half for any company, we have shown 13%. I'm very, very hopeful that from here, we'll grow continuously with our efforts because we are continuously spending on innovation. We are continuously spending on farmer training, team training. So these all are continuous part, and they should pay.

So sir, what, just a follow-up what you are saying that in the last three years, we have shifted our focus to Focus Maharatna and Maharatna products where our, let's say, margins are high, so is that the reason, is that what you're talking about in the last three years the shift?

Yes, that's very important because all these are innovative products, either they have come through my R&D center or they are the mixtures, which has again come from the formulation R&D center or they are the products from the leading companies of the world. So they are all important products. So you have to work on development of these products. You have to work on setting up because your regulatory team, your registration team, your development team, all the teams have to work and then your sales team has to carry these products to the market. You have to enhance your production facilities to take up these new projects actually manufacture and supply to the market in time. So overall organization has to align in that direction and then only you get these results. So yes, we have worked seriously, very seriously on our product mix, and that has resulted into this success, I can say.

Sir, just one more thing. The second question is that when you say upcoming new products, so like do we do any study that the market, for example, is moving more towards some insecticides or more towards the herbicide, we increase the R&D budget or the number of products more in the herbicide category because the demand is shifting more towards the herbicide category, it would help our return ratios a bit better?

There is a gap in all the segments. We are working now on all major crops. We have identified the major crops of the country. So we are looking that 100% solution should go under Tractor brand. It will be insecticide, fungicide or herbicide, whatever is required. And yes, the focus is more on specialty herbicide these days because they are a regular sale, which happens in the Q1 itself. This was a typical year basically where we saw returns, but still, our sales numbers are pretty good even after this situation. So yes, we are working in identifying the gaps in our portfolio and the gaps in the marketplace. So what farmer wants, what is his expectation for what problems he's not getting the solution because I always believe that the customer looks for the solution and not the product. So if my product is able to provide him the solution and value for money, definitely accept my product. If my reputation is good, if my relationship is good, if my quality is good and my cost is good. So if you trust my brand, definitely he'll take my new solutions.

[Operator Instructions] The next question is from the line of Puneet, an individual investor.

So in terms of technical, I understand that incrementally, we are trying to introduce our own technicals into our formulations and introduce products. So at this point of time, what percentage of the product portfolio would be from our own captive technicals versus everything else? And what kind of contribution change would we see in the upcoming three to four years in terms of using our own technicals?

The maximum Maharatna and Focus Maharatna are our Focus products. They come from our own technicals and our own technologies. So there is maximum focus to do this. From 50-odd percent, we have come to 65% in our FM range. So they are either from our own technicals or from the technicals of our partners. So we are going to continuously focus around this. In next two to three years, we can expect this crossing 70%.

Understood. So in terms, so adding technical capacity, how is it working out for us in terms of adding incremental capacity for the technical plant and all of that?

We have to select the products that what products we need to market, what are the AIs, which are the future AIs. What are the Generic AIs which has some margins where we can show the differential in the market and we can make reasonable money. So we have to identify the products what we have to do and the assignments are given to the R&D teams. I have different R&D teams in both the plants in Dahej and at Chopanki. So the Chopanki is more insecticide and fungicide plant. Dahej is more a herbicide plant and so are the R&D. So the R&D teams work around developing these molecules, which are getting off patent. There is also a formulation work around developing the new formulations. So that is also made at both the plants as of now. So it's a continuous exercise, which we keep on doing actually for better returns.

Understood. And in terms of the export market, how, what is the likely trajectory at this point of time in terms of growing? I understand that this quarter good.

You will see the growth from exports also coming in. So export will be positive. So we, I don't want to give numbers, but still like 150 is something we are trying to do again for the last two years, we could not achieve. This year, I'm confident that we should be able to touch that number.