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

Ladies and gentlemen, good day, and welcome to Insecticides (India) Limited Q2 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sakshi Mehta from MUFG Intime. Thank you, and over to you, ma'am.

Thank you, and welcome to Q2 and H1 FY '27 earnings call of Insecticides (India) Limited. Today, on this call, we have with us Mr. Rajesh Kumar Aggarwal, our 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 is based on beliefs, opinions and expectations of the company as on date. So 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 call to the management for the opening remarks. Thank you, and over to you, sir.

Good evening, everyone, and thank you for joining us for our Q2 and H1 earnings call. We appreciate your continued interest in the support of the company. Today, we'll walk you through our performance for the second quarter, highlight the key developments across the business, discuss the progress we have made against our strategic priorities and share our outlook for the coming quarters. Q2 has been an important quarter for us, and I would like to take this opportunity to reflect on what went well, where we faced challenges and how we are positioning the business for sustainable growth. We'll begin with our overview on our financial and operational performance, followed by key business updates and our outlook. We'll then open the floor for the questions. With that, let me begin with the key highlights of Q2. First, let me talk about the industry dynamics. Super El Nino has impacted or I should say that weather has disrupted the key agriculture regions across the country is not wrong. And it is not only India, which got impacted, but the entire Asia, rather the entire world got impacted because many regions saw drought and few states were badly impacted. So along with this, the global uncertainties and the supply chain disruptions also played a very important role because you know the crude prices went as high as $125 and it is just yesterday night when it has come again below $100, and the impact is yet to be seen because this is the Diwali time, festive time. So the things will get cleared soon. But at this moment, everything becomes so expensive, including the sea freight that it was impacting the business adversely. So this Nino impacted the wet crops like sugarcane and paddy because in many parts of the country, the water availability was a constraint. But at the same time, even the dry crops like maize, cotton, soybean, they got an impact. And chili was also very adversely impacted so far after the current cyclones where, again, impact is plus and minus. When I say plus and minus because the water became available to the crop, it is plus. But it came along with the wind, so the crop was down, so that is minus. So there were both type of impact which were observed from these 2 cyclones, which we have received in the last couple of days. But as a whole, we see that the Indian farmer remain buoyant for the new technology products. Another development is that the inflationary trend is visible in almost all agri commodities prices, particularly if we leave aside the vegetables, which are -- which get impacted by the seasonal pressures, all the agriculture crops, we see a price hike and we see farmer -- the general trend is that they are moving towards the premium products. The number of sprays have come down, but they are looking for better solutions for protecting their crop. So I would say that despite of the low yield, the farmer profitability has remained intact to a greater extent. And still, we see a good interest in crop protection amongst the farmers. Talking about IIL performance in Q2, there is a 8% revenue growth in Q2 and if we look at H1, there is 2% degrowth. The margins have -- we see a consistency with focus on premiumization and cost-effective products. Kaeros continues to gain the traction as an emerging platform to expand distribution footprint. And I'm glad to tell you that North, East and West, we could open up completely and the target to open the southern part of the country is in Q2, which means that during this year, Kaeros will be visible across the country from Kashmir to Kanyakumari. IIL is gearing up its crop-based solutions with ICS plots. These ICS plots IIL crop solution plots has been a big success for us in the past few years. Last year, we were working on 30-odd plots. This year, we have doubled that number and that number is about 70 across 4 crops, the 4 major crops where we are working are rice, cotton, soybean and chili. We have demonstrated amongst the farmer that how by using the similar number of space and sometimes the lesser number of space, generally with the lesser cost, how we have improved their productivity, how they can make more money per acre by using the solutions suggested by IIL, and they have become so popular that thousands of farmers are attending the farmer meetings at these plots and giving very good acceptance to the new generation products, which are introduced by IIL. So the marketing team has been very, very aggressive in the field activities in H1. We have completed more than 18,000 farmer meetings across the country. There has been more than 9,000 demonstrations, and we have met more than 2.5 lakh farmers in H1. So the investment in manufacturing has continued in Sotanala and Dahej. So we are expected to complete the Dahej project in full by December, though the plant is partially into manufacturing and it's partially capitalized, but it should be fully capitalized by the end of December. And Sotanala, we can expect the completion in the next fiscal. Currently, both inventories and debtors are at a little elevated level. Focus on improving cash flows with working capital improvement is going forward. Outlook on the macros. The macro conditions remain volatile. We remain focused on execution of strategic priorities. Premiumization and Kaeros expansion will support profitable growth for IIL. Normalization of interest costs with positive cash flow -- after completion of Sotanala project, major CapEx cycle will be left behind us. We'll remain focused on improving utilization of our facilities, which we are putting up. And needless to mention that we are trying to build up the state-of-the-art plant and the idea is to build up a DCS plant and focus on CDMO business from this plant in particular and also upgrade Dahej to this level so that we can do the CDMO activities from both these sites. Organization rebuilding is an ongoing process, keeping in mind the next phase of growth and efficiency, and we are working on our Board. We are working on team building and trying to find the gaps wherever there are and fill these gaps across. Now I'd like to introduce our new Director, who is appointed today by the Board. So Mr. Veera Bhadram as an Independent Director. He is highly respectable industry veteran and with over 40 years of experience in the agrochemical and agri input sectors. He has held several senior leadership positions during his distinguished career, including serving as whole-time Director of Coromandel International Limited. He holds an M.Sc. Agriculture Economics and is an aluminous of the prestigious IIM Ahmedabad. We are delighted to welcome Mr. Veera Bhadram to the Board and look forward to benefiting from his rich industry experience, deep domain knowledge and valuable insights. So with this, I hand over the phone line to our CFO to highlight the results.

Thank you, sir. Good evening, everyone. I welcome you all to the Q2 and H1 FY '27 earnings conference call. Coming to the financial performance for the quarter. Our revenue from operations registered a growth of 8% year-on-year during Q2 FY '27, reflecting the resilience of our business despite challenging market environment. Revenue from operations stood at INR 686 crores as compared to INR 637 crores in the corresponding quarter last year. Our gross profit margin stood at 33.7% during this quarter as compared to 34.5% in Q2 FY '26. EBITDA for the quarter stood at INR 92.44 crores and EBITDA margin stood at 13.5%. Profit after tax stood at INR 56.17 crores during the Q2 FY '27. For the first half of FY '27, our gross profit margin stood at 32.7% as compared to 31.7% in the last quarter -- comparable quarter, showing an improvement of around 100 bps. EBITDA stood at INR 161 crores, while EBITDA margin was 12.3%. Profit after tax for H1 FY '27 stood at around INR 100 crores. Coming to working capital. Our working capital days stood at 158 days during H1 FY '27 as compared to 151 days during H1 FY '26. Inventory increased from INR 744 crores to INR 814 crores. Debtors stood at INR 719 crores as compared to INR 643 crores. Creditors have increased from INR 420 crores to INR 533 crores. So net working capital as on 30th September was around INR 1,000 crores as compared to INR 966 crores as on 30th September '25 and INR 828 crores as on 31st March '26. Our efforts remain dedicated towards improving our working capital efficiency and strengthening our cash flow generation. These are the key financial highlights for the quarter and half year. Thank you. Thank you very much.

Now we open the house to questions.

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

Sir, on the [ resume ] side, so just want to understand first on the volume growth part, what has been the volume growth across our different segments in B2B, B2C and the export side.

This has been a negative volume -- there has been a negative volume growth actually in this quarter. Particularly, I can say there is a drop of about 6% to 7%. We have just managed to sell the value-added products better or the premium products better. And I see a 4% to 5% volume growth in this quarter.

Sir, across Maharatna and Focus Maharatna, what kind of growth we have envisaged during this H1 FY '27?

If you look at the entire range, then the drop has come particularly in the Gold products because farmer has shown interest in the new generation products, and we were also very, very actively marketing these products. So I can say that both Focus Maharatna and Maharatna have seen a little increase, particularly if I talk about Q2, then here, Maharatna has shown a decent increase.

Sir, also in the PPT it has been mentioned historical numbers have been mentioned FY '26. I think H1 FY '27 data has been missing across different product verticals.

I'll take down your question. Why it is missing, I'm not sure. So I'll get it amended if there is some errors. CFO is listening to your question. We'll note it down. And if the mistake has happened, we'll correct it.

Sure. And sir, like how has the Kaeros segment performed during this fiscal year?

Kaeros is doing very well. In the brand segment itself, it has done a gross turnover of about INR 75 crores. In totality, the company is showing a total sales of INR 100-odd crores, INR 114 crores, if I'm sure, in H1. I believe the brand sales from here should increase in a reasonable manner because already, as I told you, Northeast and West, the entire network is on, it is set. And I believe that for the year 2, we have made the complete preparation in terms of appointment of team and appointment of network and the material has gone into the market, very well accepted into the market. The packing is appreciated. The quality is appreciated in the market. So we should do well. So the target is to cross INR 125 crores of brand turnover in Kaeros. In totality, the number can -- Kaeros stand-alone might touch roughly around INR 200 crores in this fiscal. And next year, we can very well plan to double from here.

Sir, also like with respect to the product pipeline, I think we were also anticipating to launch OAT insecticides during the fiscal year. So what's the update? And how the whole -- I think we were supposed to launch different entries in this whole fiscal year. So where are we in respect to it?

Yes, the pipeline is strong. The registrations are taking some time. In this current season, the launch of Nissan's new product is going to be the first. It will get followed by some of the 93 products or the mixtures IIL. And OAT, I'm not sure that the OAL product is going to be released in this season or the next season because have filed it in the -- I would say, the first application has gone to include it in schedule. And once it gets included in schedule because there is some further inquiry from the CIB about that. So once that inquiry gets cleared, then we are going to file the application. So since the application is not yet filed, so I don't see an immediate visibility of launching in this calendar year of 2027. So it might get delayed by a few months.

And sir, just like what would be the quantum of sales for us during the quarter and how the inventory is shaping across the channels?

In the channel, we have the sales returns are high, but not as high as last year because we were very, very particular this year in our placements, though the season is weak. But despite of that, I believe that the returns have come down and all the returns are taken care. Like most of the returns have already come in this Q2. The Q3 will be the normal returns. And whatever sales number you are seeing, they are all net of the returns.

And sir, just a last bit from my side with respect to exports, I think there has been a mention in the PPT as well, while the segment has been at low single-digit revenue contributor to us. What is the strategy to reach to the global markets and how we will be cost competitive with respect to the Chinese manufacturers?

We have 2, 3-point strategy for the international business. So here, so far, what we were doing was more of the brand business. So we were doing the white label and dispatching our products to Middle East, ASEAN countries, CIS countries. That was the initial strategy. Now we are focusing on technicals. When I say technicals, these technicals have started moving to CIS. They are going to Europe, they are going to America, they are going to Asian countries. So we wish to improve our production of the technicals and sell them to the developed part of the world. And at the same time, we are also pursuing the CDMO business, and we look forward that we make the breakthroughs in that. So some small, small breakthroughs have just started. So they are in the initial stages, but we'll target that in the next fiscal in a big way.

CDMOs I think we'll be doing it for the Japanese players or we have onboarded -- we are in discussions with different clients?

Majority Japanese, but we are also in discussion with some other companies.

That's it from my side and wishing the whole team a very happy Diwali.

Thanks a lot. I forget that you have completed, yes. Happy Diwali to everyone who is participating. Thank you. Thank you very much.

The next question is from the line of [ Praneet from SG Investments ].

So I'd like to understand what's our plan or let's say, volume growth we expect for the entire year? You already mentioned that you have degrown by a little bit. Do you think we'll continue to degrow for the full year? Or how is it going to be?

I understand your question. But very frankly, this is not a year of volume growth. We'll just end up doing the value growth because the volume has already suffered because of low rains. Herbicide sales are low because of low rains, granule sales are low. These are the general products which consume a lot of volumes. So the volume growth will be down this year. I'll not be able to make it, but I'm very, very sure that there will be value growth, and we'll be able to make some improvements in H2 of this year.

Sir, value growth is primarily on the fact that raw material cost increase and there's going to be a pass-through? Or would it be that you be selling more premium products?

It will be both. It will be a combination of both though I'll not be able to give the breakup, but it will be a mixture.

And with regards to our CapEx of the plant, how is it going? And do we see any delays? Or do we expect to commercialize it as we thought? By when do we think it is?

Dahej, we were expecting to clear within the first half of the year. Now we expect that we'll be completing Dahej in this Q3. So partially, the production has already come out and it will be in production fully with all the improvements wherever we found the gaps because there were some gaps in electricity, there were some gaps in utility. So everything we have sorted out now. And after the shutdown when the plant restarts in December, it will start with full swing. So there will be further level of some improvements, which we are doing in the plant that will come in the next year, but that will not be a big expense. That will be a small expense. I can say it is a maintenance CapEx. So it is in line. Regarding the Sotanala plant, we have a target of starting the formulation business in April. There might be a delay of 1 month to May because the gap in force in the NCR. So it might impact -- there may be a delay of 1, 2 months actually. But I think by May, we should start formulation. And in the next fiscal, we are also going to start the technical manufacturing. Our vision was to start by Diwali, even if it gets late, then December, January. So in next fiscal, we are going to start it fully. The Sotanala first part of technical and the complete formulation unit is going to start in the next fiscal. So it's very much in line with what we had planned, I can say.

Got it, sir. And coming to our team size, I noticed that in the presentation, we have given that 750 is sales and marketing and around crop adviser team. Do we have any plans of expanding this? And like what's the usual trend of expanding this team year-over-year? And is there any further growth this year than normal? Could you just give us insight into that?

If I look at my sales and marketing team, the on-roll team is almost the highest in the industry or is at par with the best in the industry. So I don't need more people in Insecticides (India). And then the third-party team, it keeps on varying. The minimum is 750. The maximum goes up to 1,300, 1,400. So as the season is a little weak this year. So in H2, I believe the number will be in the range of 750 only the third-party people. But yes, we have established Kaeros also, and we are taking Kaeros brand to the market. So in Kaeros, there will be another team of about 150 people, about 70, 80 people on roll and a similar number out of roll on third-party roles.

Got it, sir. When you mentioned third party is the fact that we hire them for the only time being at that point of time and they're not on a payroll for rest of the year.

It's not necessarily. There are some people who continue for a little longer times also. But they are on junior level. So we don't keep them on roll until they develop a certain skill and they are fit for entering into the company. I mean to say they have to confirm certain deliveries. They have to be trained in the market. Once the person becomes capable of joining the company, then only we give them the appointment in the company.

Got it, sir. And one question I had with regards to our distributor management system or retailer system. I just wanted to understand, are we able to track all the secondary sales? So how does it work? Do we have any systems in place? Or do we have plan on having more systems in place?

We have got the DMS but this tracking takes place by an informal system, which is run by the marketing team for all the important products, which -- where there is and -- where there is a feeling that we have to -- which are seasonal in nature, where we have the placements, we try to keep a track. So the entire marketing team activity is to ensure that whatever goes to the market, it gets diluted. So we have a QR system because QR system, when it is like once I supply to a distributor, distributor will download that, distributor download then the retailer, then the farmer, but the success rate is 15%, 20%, not more than that. Then we have a distributor DMS platform also in SFDC in IIL, which is fully operational. But again, I don't give the full knowledge about the inventories in the trade. So it is an informal system. In Kaeros also, I have opened a system called [ Beetroot ], which will be fully operational from -- after Diwali festival. They have been doing trial entries since last 2 months. But again, the market visibility, 100% by system will not be there actually. It will be partial.

Got it, sir. And we are at the higher end of the visibility that we can achieve because of the system or is there some more scope to go here?

Yes, we have to make the continuous improvements in the system actually. So if my QR -- so next year, I might be planning some schemes for the farmer and the retailer so that the participation increases. So if I'm able to increase that participation to 60%, 70% level, the visibility will be more. Till the time I get 15%, 20% visibility, it is just nothing. It is just a market information or just a market idea or I can call it an informal idea, which I get. The marketing team, generally, they will keep a track because they are responsible for liquidating the product in the market. So they keep on discussing this in every week, weekly meeting. So I get that idea because I do my monthly meeting and apart from the monthly meeting, there is a fortnightly meeting also. So I keep on getting that idea every -- I would say, every fortnight.

Got it. So basically, we are putting more effort and we launch schemes next year, so we'll get more visibility to improve the system.

Yes, yes.

Got it, sir. And with regards to exports, I was just wondering in terms of the potential because anywhere domestic market has not performed well. I understand Super El Nino exists everywhere. Just trying to understand, is there a possibility that we can scale exports when especially domestic market is a little weak?

We are working on that. International markets are also not very strong. The impact of El Nino is across the world. But still, we are seeing a good opportunity since we have registered more than 10 technicals of ours. And in certain countries, we have made more applications. So we are working on about 15 AIs, and it is a big range that way. So we are trying to establish ourselves IIL as a strong supplier for a variety of technicals of herbicide, insecticides and fungicides. So once we get that traction in the market, then of course, we see our international business going up. And we are trying to sign some contracts with certain companies as I was answering the first question to begin our CDMO. So if that starts, then it takes us to the different level. So we are trying to do that, trying to sign various agreements and trying to do a regular business with certain set of companies. So as it happens, we'll make an announcement.

Sir, don't mind me. I'm a little confused with when you mentioned CDMO business. Could you explain what you mean by it? Which business are you talking about? And what are the exact opportunities here like in terms of sales and other things?

Okay. So when I say CDMO, it means that a business which is a contracted business where a company tries to take the molecule from us on exclusive basis or semi-exclusive basis. Generally, all the companies see China as a key supplier to them, but they are trying to develop one parallel supplier along with China. So some companies are trying to develop Indian partners because India is one of the strong country to manufacture these products. So some of the companies might be working in India with one partner, they take us as the second partner. Some companies can have exclusive arrangements with us. And then since our products are registered products and we have to register them in their countries. So it's, I would say, a process which is little difficult. So you have to generate your data, you have to qualify that country's position, then the first thing is to be registered in that country. After the registration formalities are complete, then there is a chance that you start that type of business. So we are trying to build up those businesses with certain companies, which will strengthen our international business.