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

Ladies and gentlemen, good day, and welcome to Insecticides (India) Limited Q3 FY '26 Earnings Conference Call hosted by MUFG Intime. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Ms. Tejal from MUFG. Thank you, and over to you, ma'am.

Thank you. Welcome to Q3 and 9 Months FY '26 Earnings 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; Mr. Devendra Kumar Ray, Chief Operating Officer; and Mr. Dushyant Sood, Chief Marketing Officer. Before we proceed with 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 risk and uncertainties, which are difficult to predict. A detailed disclaimer has been given in the company's investor presentation, which is uploaded on stock exchange. Now I would like to hand over the conference to the management for the opening remarks. Over to you, sir.

Thank you. This is Rajesh Aggarwal, MD of the company. Good evening, everyone. Thank you for joining us for the Q3 earnings call of Insecticides (India) Limited. Q3 played out in challenging operating environment. The quarter was marked by weak farmer activities, cautious channel behavior and weather issues, along with low incidence of pests. Despite these headwinds, IIL demonstrated resilience, delivering 8% growth driven by proactive market engagement and the strategic business decisions. Let me briefly summarize Q3 performance of IIL. Demand conditions remain subdued and recovery being uneven across region and crops. Growth during the quarter was volume-led rather than value-led. In Q3, largely growth came from B2B segment which helped sustain growth momentum. B2C demand remained muted due to broader industry challenges. Now I'd like to comment on margins and profitability. From a profitability standpoint, gross margins moderated due to: number one, higher B2B share; number two, pricing power remains limited in comparison with the higher base of last year, having 36% gross profit. Next, EBITDA and PAT reflected the mixed impact of Q3 with higher finance and depreciation costs. Here, the very important lines, I would like to say, we maintained strict cost controls, capital discipline and working capital management. Liquidity remains comfortable and balance sheet strength continues to be a key focus area. I would also like to discuss about the new products and the brand momentum. A key positive in this quarter was the strong traction from new project launches, SPARCLE, a broad-spectrum insecticide for brown planthopper control in rice was successfully launched, developed using advanced chemistry from Corteva, strong farmer acceptance supported by IIL distribution strength and brand credibility. Other recent launches like Centran, Million, also witnessed encouraging farmer response and are building momentum. Established brands like Torry, Torry Super, Xplode have entered the next phase of volume expansion. During the first 9 months, companies launched 5 new products, significantly strengthening the portfolio. The adoption of new age technology reflects the strength of our networks, field execution and farmer connect. About the international business update, international markets showed early signs of recovery, though momentum remains gradual. We expect exports to stabilize first before contributing meaningfully to margins, which is more likely beyond the immediate quarters. Coming to Q4, we expect Q4 to remain like Q3 with continued impact on margins on a higher base of last year. Key factors which impact the Q4 includes continued weak farmer sentiment, high dependence on generics-driven demand, sustained pricing pressure, higher resilience on -- higher reliance on B2B sales to achieve top line objectives. Given these conditions, gross margins are expected to remain under pressure and maintaining 35% level in H2 will be difficult. Clear vision of Q4 to protect top line and market share. So we have a strategy, actions -- action points. So we have to -- we have selective aggression, not blanket discounting. Focused sales push on identified geographies, crops and accounts with further -- faster conversion, avoiding margin-destructive broad-based discounts, B2B with margin guardrails, scale B2B volumes only where contribution margins are positive with strict pricing floors and order-wise profitability tracking. Product mix steering as a feed actively pushed relatively higher margin SKUs, particularly the Maharatnas and the Focused Maharatnas within the generic basket, supported by micro incentive and weekly mix reviews. We will also work on inventory and working capital tight controls. Q4 is about controlled defense preparation and not short-term optimism. Priority remains in preserving long-term competitiveness. Medium term outlook and FY '27 view. While near-term margins are under pressure, we want to clearly start -- state, this is not a structural margin erosion. The current phase is driven by market conditions, product mix, tactical business decisions. We expect profitability improvement over the coming periods, supported by improved market sentiment, push towards specialty and branded products, operating leverage, benefits of investment made in brands, teams and systems, technological shift and market control measures undertaken by IIL in form of the apps like IIL Pariwar, IIL 360. I would like to share the take aways again. IIL has given a resilient performance despite industry stress, delivered 8% growth in Q3 and 5% growth in 9 months despite erratic rainfall and a muted spring season, reflecting a strong execution discipline. Demand recovery is gradually emerging, while near-term demand remains selective, stabilizing raw material prices and inventory levels improve visibility for a gradual recovery. Clear growth revival road map is there, targeting a return of 8% to 10% sustainable growth over the next 2 to 3 years. Portfolio and the capacity alignment for growth. Portfolio gap filling across technicals and formulations, supported by capacity expansion at Dahej and Sotanala. So Dahej is expected to be operational by end of this fiscal and Sotanala formulation activities also will be started in next kharif, and I don't think we are going to miss these deadlines. Shift towards higher quality growth, increasing focus on our Maharatnas, premiumization of technology-led products, supported by strategic global collaborations, including Corteva. So we can expect the new launches coming during the coming season and in the past fiscal or the current fiscal year, we have launched about 5 products. And then again, there is a visibility of launching another 5 products in the coming kharif season. So the new launches, which were there in the past season, particularly SPARCLE, Centran, Million. They have all done very well. And as I told you, Torry, Torry Super, Izuki, Centran SC, a lot of products we are going in the next level or next phase of scale up. Exports are gaining traction with 180-plus registrations across 22 countries, that position the company for well-sustained export led growth. We have key agreements with Government of India signings, particularly the 1 signed with EU is also going to support in a better way. For the B2C segment, deepening farmer connect and brand equity. A strong on-ground engagement through ICS Plots with the Tractor Brand strengthening via innovation led differentiated marketing. So I would like to highlight this. Number one, to market our products as Tractor Brand Pesticide and Tractor Brand enjoys a very good position in the market with -- vis-a-vis the top leading brands. And ICS Plots, what is ICS Plot. I have also explained in the past also the integrated crop solutions. It has attained a very good success because here, we are demonstrating to the farmer, the ROI on the investments we make with the IIL solutions, that is that how much investment we are making vis-a-vis competition and what is the yield and ultimately how much they are earning more than the competition or what they are following their own strategy. So this is giving very good image to the company and the plan is to at least double whatever investment we are making in the ICS Plot and we are going to do it in a big way in the future, and I believe this is going to help us in brand building in various crops and providing the complete solution for various crops across the country. So the next important point is disciplined capital allocation. CapEx focused on capacity creation and maintenance aligned with medium-term growth priority will be the target and, of course, will improve the capital efficiency and the organization revenue, ROCE and ROE up to 6% to 7% over 3 years is already visible as talent induction and organizational strength underway to support the next growth phase. The new formulation and technical plant is in full action at Dahej site is going to help us to improve our performance in FY '27. So before I give it to the CFO for the results discussion, I would also like to give the concluding remarks about Q3 and Q4. Q3 and Q4 are about resilience and discipline. We have cautiously prioritized long-term franchise strength over short-term margin optics. IIL remains well positioned to emerge stronger as the cycle turns with shaper portfolio, deeper market reach and a stronger foundation for profitable growth. Thank you for your continued trust. And now I hand over the line to the CFO to discuss the results.

So good evening, everyone. And welcome to the conference. I am pleased to represent -- to present the company's performance for the 9 months ended FY '26 as compared to FY '25. Revenue from operation during the period has increased from INR 1,641 crores in 9 months FY '25 to INR 1,714 crores in FY '26, reflecting a growth of around 4%. Gross profit has improved from INR 509 crores to INR 546 crores, showing a healthy growth of around 7%. EBITDA stood at INR 201 crores in FY '26, 9 months and PAT stood at INR 128 crores in 9 months FY '26 with growth remaining flattish. In 9 months FY '26 segment performance was well balanced with B2C contributing around 76%, B2B 20% and exports 4%. This demonstrates the steady diversification of our revenue stream with an increasing tilt towards B2C segment. Within the B2C portfolio, premium products accounted for 59% and generic products 41% in first 9 months of FY '26. The premium segment has sustained its strong growth trajectory, further reinforcing our portfolio strength and positioning us firmly on track towards our strategic goal of premiumization. Alongside financial performance, we remain committed to sustainability and ESG initiatives also. We are focused on optimization -- optimizing resource usages, reducing our carbon footprint through energy-efficient manufacturing. I am pleased to share that 3 of our facilities in North India are already [indiscernible] compliant, understanding our commitment to reasonable growth and long-term value creations. Overall, 9 month FY '26 demonstrate resilience with revenue and gross profit growth, stable EBITDA and diversified segment mix. While PAT was impacted by financial costs, our long-term strategy remains strong, supported by both operational performances and sustainable [indiscernible].

Now we're happy to take your questions, please.

[Operator Instructions] The first question is from the line of [ Shubham Jain ] from [ Countercyclic ].

Am I audible?

Yes, yes.

So I have a few questions. Sir, you have launched new products in HY -- FY '26. I think that's Altair and SPARCLE. What is the revenue contribution from these segments in Q3? And what is the guidance for the half a dozen launches planned for the remainder of 2026?

Altair and SPARCLE, Q3 there was some season remaining for SPARCLE, but not for Altair. Altair will have -- see some market in Q4 and SPARCLE also is going to see the market for Q4 because both are paddy-led products. Altair is used in the initial stages. So now the paddy sowing in the Eastern and Southern part of the country is going to take place and Altair will be used. And SPARCLE is going to see the demand in the later stages when BPH or brown planthopper comes after 60 to 75 days of the crop. So at that time, it will be used, so somewhere in March. So I see another sale of about INR 10 crores coming from these 2 products in Q4. Q3, I don't have the exact number, but from these 2 products, I believe hardly INR 2 to INR 3 crores.

Okay. And the rest of launches, we planned for 2026, what could be...

Launches are going to fall in the kharif season, if I talk about the rest of launches, but the launches, which are done in FY '26 going, I am going to get a sale again because various crops like pulses, vegetables, sugarcane, we are moving to maize targets. And the wheat sales is also going to start because it was -- it has rained in the entire North India and there was a cold wave. As the cold wave settles in this week. So from next week, the sales should start, the insecticide and fungicide sales should start in the market, and we are waiting for the right time and right opportunity.

Okay. And sir, previously, we have targeted around double-digit growth through Maharatna segment, the premium one. Has the share of these products improved in Q3 to offset the volume loss from something that has been banned previously like Nuvan and Thimet. What's the split?

I appreciate your question. Nuvan and Thimet are old stories. We have already come out of it many years back. The new product, which is going to get banned is Monocil, which is -- this is the final year for this product. And that will also go, and that -- when it will go, the gross sales of the product will be around INR 75 crores. So you can say about [indiscernible] from that product. So that will be the additional loss, which is going to hit the company. But as you know, that Nuvan and Thimet when they went in the final year, the sales, the gross sale was roughly INR 200 crores, and we never got a hit out of that. So even with Monocil [indiscernible] we are not going to get the hit because I've explained it many times that the generic molecule -- relatively new generation generics takes a hit and as a strategy, we launch new products to take its place. So we have already planned that there are going to be 5, 6 launches in the new season and we are going to start them in the kharif season. And apart from that, the launches which has happened in the previous year. The previous year again, not being a very good year, because I explained in the Q2 conference also that there was a lot of heavy goods return because of the bad weather condition. So generally, these conditions do not take -- get a repeat year after year. So FY '25 was bad, '26 is more difficult actually. So '27 should be a year of makeup, and we should show the resilience performance from Q1 itself. That is my belief. And we are, I would say, cautiously I'm saying that we should see the -- start seeing the growth from Q1 itself with our products and their traction. So quite confident on that. But yes, the specialty products, the premium products are a little slow at the moment. Will build some momentum in Q4, which we will try to build up. But at this moment, the demand for generics is low.

Sir, and next question would be what's the current status of our fully automatic plant, the Sotanala...

Sotanala technical plant is going to take some time. It will take 1 more year. The target is to start it in 2027, not in '26. In '26 we will start the formulation facility, somewhere in the Q1 of '27.

And what would be our optimal utilization...

Q1 of '26, formulation will start in Q1 of '26 and the technical will start in '27.

Okay. And what could be our expected impact on the overhead manufacturing?

That will indicate actually with time. But there may be some shift of products, some changes. So at the moment, I have not worked out the impact, but I think we'll make up the impact because we are going to work on various new products and other things. So that should get compensated with the increased volumes, which the plant is going to make. So for the formulation, it won't be much impact. But when it comes to technicals, technicals of course, will come with the cost. So when I do technical synthesis, then yes, my power bill and both my oil bill, they are going to increase. So the consumption, I can assume will be in the range of INR 30 crores to INR 40 crores per annum on these 2 accounts.

Right sir, and can you provide some color on this raw material situation, how much could be impacted? And how are we able to...

Raw material is more or less stable. So there was a decline, which was taking place in December. January has started showing some increase, but again, you cannot comment because what is happening is Chinese New Year is coming. So before the new year they have their own style of [indiscernible]. So international situation is also disturbed and the currency is also in very poor shape. So overall, there will be a little increase, but that will be marginal. But more or less, I would say that the market is stabilized at the moment.

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

I hope I'm audible.

Yes, yes. You are audible.

Sir, a couple of questions. So can you just quantify like what would be the impact because of the pricing drop across our B2C and B2B categories? And how much volumes we have been able to grow in the quantitative terms across both the segments.

We'll give you the exact number. But as I told that the growth has been the volume-led growth. So in the B2B segment in particular, it will be about 15% roughly, B2B. And in the B2C segment, it might be about 4%, 5% -- 3% to 4% growth. So yes, it is more volume led in this quarter.

And sir, what would be the impact of the pricing in this quarter?

Pricing, since this is a low season actually. So the pricing is not impacted much, but then the discounted prices started -- starts in Q4. So Q4 will have some initial offers of discount because like it's a cyclic business. So here, you have to show the advance schemes and offer some preseason discounts. And then the season is going to start in the month of May. So these 3 months, February, March and April, you have to pass on some benefits to the market. And since the cost of currency is going up and some expectation in the price rise and some other things, so I would say generally 5% to 6% is the type of discount, which is considered during this quarter. So let's see where the market [ went ] as the demand starts. So I believe that somewhere about 5% to 6% discount only will come, not more than that because at the other point, the cost has also gone up by about 2% or 3%. So broadly, this will be the market situation expected.

Sir, I hope there won't be any sales return, which we have witnessed during this quarter?

It has already happened. So now it's nothing major, it is all minor.

How much of the sales returns would have come in this quarter?

This quarter number I will just give you. INR 50 crores is the total good returns in this quarter, which we have received. Yes, yes, INR 50 crore is the number what we have received in this quarter, making the total good return to roughly around INR 200 crores.

Is it in line with the industry? Or sir, our sales return would have been higher than what the industry levels would have been?

Should be in line with the industry. But for -- I understand that it is our highest goods returned, which we have received in a single year. So it has increased over 2 years, it has doubled from last year. It has gone up by about 40%, 30% to 40%, I believe. So it's the very high good return, what we have received from IIL standards.

So primarily, it is just because of the higher inventory out there in the system, sir, or by the competitors who primarily -- we are facing the heat because of this competitive intensity?

It's nothing like that IIL is facing the heat. That was the market situation because we had focused a lot on herbicides. The entire herbicide market got a hit during the peak season of space. And after that, the insecticide market also got some hit. So due to that, there were good return for the particular herbicides and insecticides. So that we had to take that off the market.

And also, sir, there have been talks in the industry about the higher product -- agrochemical production, which is taking place across the Chinese market. So what's your take on it? And primarily Chinese New Year is coming, but with your industry knowledge, how do you read the situation currently? You mentioned that raw material situation has been stabilizing -- is on a stabilization mode. So what's your expectations with regard to the next kharif season as well.

Like we have to plan the season in advance. As we approach near the season because our cycle -- industry cycle, the price keeps on increasing. So we have already made our buying -- most buying by December. So by December we are -- we have procured the product for the next 4, 5 months. So till -- so those agreements we have already signed in anticipation that the price starts going up. So there will be one increase, which is expected immediately after the Chinese New Year. One increase will come in the month of March when we go for the exhibition. And then in April, May, again, there are chances of the prices going up. So that is the normal trend. But if the market [ fails ] and there is very poor rainfall situation, then only the prices remain same or they come down. So the prices are already near the bottom. So further deterioration is not expected because many of the prices are all-time low. I can vouch almost 2 decades. So more than 2 decades the prices are -- for many products are the lowest. So chances of further decline from here is very minimal. So that's why I'm saying the market is stabilized and already some signals of prices going up because our currency is going down, Chinese currency has gone up. So there are signals and in many products, we are receiving higher cost, 3% to 5% type of increase is visible from China at the current moment, but it can be temporary. It can continue for next 1 month or 1.5 months. So we have to see.

And sir, because Kaeros is something which we have been coming up with respect to procurement of raw materials, primarily from Chinese market, I think. So do you think that will synergistically play out for us in case if there is further hike. And I just wanted to check how Kaeros has performed during these last 9 months.

For Kaeros, this is the establishing phase. So we have backed some registrations and small purchases we have started. So some transition from China has already started and some are in process. So it's taking some time because the registration in India also takes some time and documents coming from China takes some time. So we have started with 3, 4 products. And in these 3, 4 products, IIL definitely is going to get the advantage instead of purchasing from the competition as we purchase from our own company, the profit remains in-house. So the return sales during this quarter have been about -- yes. So the sales so far in 9 months is roughly about INR 90 crores. We would have given the number in our -- so 3 months, I don't have the number handy, it will be somewhere in the range of INR 15 crores, INR 20 crores.

INR 15 crores, INR 20 crores. For the full year, I think we were somewhere targeting INR 100 crores plus. So that remains on track...

We'll touch that INR 100 crore number because already INR 89 crores is done.

Sir, also with respect to the export side, so I think we have been trying to set up or penetrate the Latin America as well as the Australian market. So what's your take on it, like are we price competitive, and that's why we have been able to take the market share from them? What's the strategy of -- across most of the markets overseas.

Strategy is very, very simple. The strategy is registration. We register our products and we enter with the registered products into those markets. We are going to sign with the good customers who can afford a little higher price for the quality. So that will be the vision so that we don't hit our profitability. So in LatAm, the business has already started in a small way, and there will be some consignment, which will be going during this fiscal itself. And next year will be the deciding year, how much -- how big response we get. It depends on the first few consignments, which goes to those markets. Australia, the registration is not [ done ] yet. We are working. We are in the final stages of the registration. As we get the registration the business will start.

In terms of the overall revenue pie, so somewhere we are targeting INR 150 crores, I think, for this fiscal year. Probably we are sticking to it or there is a downward revision on the numbers?

In the International business segment, we -- looks like we will be crossing last year. But I mean achieving INR 150 crores is not possible because so far, we are plus of last year, but the gain is not much.

Like with respect to Chinese players, sir, somewhat our pricing remains similar? Or like how much does the Dahej backward integration is likely to benefit us going forward?

Backward integration, we are going to do for the specialist products and not for everything. So the target of backward integration will be only for the products where we are able to compete well and the products which are well settled or where we can have the price or cost advantage. So all the investment decisions are based on ROCE and ROE decisions. Wherever we get the profitability there only we will do the backward integration. Otherwise, we are also seeing the opportunities to get the smaller activities outsourced where we think that making the investment is making not much business sense. So these days, we have become very, very cautious, and you'll see that in our results also. So cautiously, we'll work in these markets and we'll try to improve the profitability for the...

[Operator Instructions] The next question is from the line of [ Praneet ], an Investor.

So I was wondering in terms of the competitive intensive -- competitiveness, was it specific to few states? Or was it more a broad-based pan-India situation?

No, it's nothing like that we are losing our market share. The market has come down by 2% to 3%. That is the industry estimate. In that scenario, we have grown by 8%. So overall, the performance of IIL has been resilient, but yes, we had to do a strong work, like the team was ignited and they were working day and night for this performance. So a little difficult market situation that has impacted. So the company brand image, it is getting good. The products, the new products which are being launched, they are getting very good results. Overall traction is good. But this is all due to the market situation. You will see the change coming from Q1 itself.

So we are pricing our product competitively so that we can gain more market share. Is that a fair understanding?

I didn't say that because when you are working with the premium product, there is no competition. you have to price your product in your own way, depending on how much you can expect from the market. So we are not reducing the prices to get the market share. I told that we are going to be very cautious approach where, we will select the markets, we'll select the product, and we might give certain cash discounts to the parties who take those or who are better pay masters, but we will not pass on very big sales scheme so that the profitability remains intact.

Understood. And in terms of the sales returns, do we expect this to be the new normal? Or how do you expect going forward? Because you also mentioned that the sales return is double what we had last year and a much higher compared to the past.

One-off situation which has taken place. We are trying to rework our strategy, how we have to place the products in the market, what commitments do we need to take from the wholesaler or distributors? And how do we need to talk to our team so that they are more particular with whatever is the market situation. If somebody has taken the material he has to own that material. So we are working out our strategy. That's how we have to go more stronger in the markets with the tighter credit limits at one place and also the tighter credit periods. So we'll try to get the investment from the network, and we will be very particular that this situation won't get repeated.

So is there any cost associated with the returns in terms of product wastage or anything? Or is it just the fact that we get the product back because...