Nath Bio-Genes (India) Limited (NATHBIOGEN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Bharati, moderator for the conference call. Welcome to Nath Bio-Genes Q4 FY '21 Earnings Conference Call hosted by Go India Advisors. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Mr. Sheetal Khanduja of Go India Advisors. Thank you, and over to you, ma'am.

Thank you, Bharati. Good morning, everyone, and welcome to the Nath Bio-Genes earnings call to discuss the FY '21. We have on the call with us today, Mr. Satish Kagliwal, Managing Director; Mr. Devinder Khurana, CFO; and Mr. V.N. Kulkarni from Research. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that the company faces. I will now hand over to Mr. Kagliwal for his opening remarks. Thank you, and over to you, sir.

Thank you, Sheetal. Good morning, ladies and gentlemen. Thank you for being here on this call today, and I hope you and your loved ones are keeping safe in these difficult times. Since the second wave of corona has reached all the sectors of economy, once again at a very crucial time affecting the moment of men and materials, more particularly for agriculture sector, which is undergoing preparations for the kharif season. Despite the restrictions imposed, your company, through the supply chain team, were able to deliver goods in time, pan India. The kharif season is all of rich this year, due to a very favorable monsoon prediction, the sales are progressing very well across India. Our sales and marketing teams have been taking extra efforts to deliver seeds to our farmers. We are even giving home deliveries wherever required when the farmers are not able to reach the shops in time. Following all the necessary COVID protocols, [indiscernible] activities we are undertaking effectively. We are now, this season, also using new technologies like sharing short videos of our product testing modules to the select farmer groups. We are also using social media, multimedia, messaging services and tele calls to reach the farmer and also our channel partners. This is all to remind them, help recall our products. We continue our efforts to further enhance our management bandwidth by bringing new talent and highly experienced professionals be it addition of Chief People Officer, new business lead for our PHM vertical and many more at different levels. Now I would like to touch upon some new things which are happening in the company, more particularly on the product front. We launched 2 new products in our PHM vertical, in all granules and in [ broccoli ]. Both are soil conditioners and help in improving the quality of soil and also relative crop. They will helps us create a basket of products for our plant health nutrition vertical. This will also -- this also help us in getting aligned with the soil amendment markets globally. Government of India enhanced the cotton seed prices by INR 37 per packet this year. This is surely helping realizing a better value this year. Hence, following all the necessary protocols, we will put in extraordinary efforts to promote our unique cotton products, namely NBC-10, SANKET, JUMBO and [indiscernible] this year. The response to these efforts is visible. The trip of illegal HTBT cotton continues to affect the organized industry. We, through our associations, are working very hard to request Government of India to regularize HTBT cotton. And also -- in the meantime, also stop the business of illegal supply of illegal HTBT through governmental intervention. We have been investing heavily in our hybrid research program ever since the inclusion of Dr. Ish Kumar and Dr. Kulkarni in our team. I'm very happy to announce that we have launched 4 new products this year in different segments of hybrid paddy and they are [indiscernible], Dhadak and Dhadak Gold. and the response to these new products launching has been phenomenal. Before I hand over to Mr. Khurana for his remarks, I'm indeed pleased to share the announcement of date of dividend this year by your company. We are also exploring various strategy restructuring plans about which Mr. Khurana will give further details. Finally, we are continuously focusing on strengthening the organization during the field of new product discovery, product development, sales and marketing, working with new technologies will improve just this all to us our results to create long-term value for all our stakeholders and including national agricultural productivity. Thank you, friends. Over to Mr. Khurana.

Thank you, Mr. Kagliwal. Good morning, ladies and gentlemen, and thank you for joining us today. I hope you would have seen our earnings presentation, which was released yesterday. As Mr. Kagliwal pointed, we have had a very difficult year on the account of COVID. The pandemic hit us at a crucial time last year, just at the beginning of kharif and it did impact our cotton seed sales. However, despite a difficult operating year, we have been able to deliver 10% revenue growth this year. Before we start discussing the operating and financial performance, I would like to touch upon what Mr. Kagliwal spoke about. We have been wanting to reward our shareholders for their faith and trust they have shown in us. To begin with, we are recommending amazing 20% dividend. We are seriously contemplating buyback and working with our merchant bankers for the same. However, this would require lending institution approval and will take some time. I understand that there is a natural concern regarding funding of some of these options, and I would like to address that. We are contemplating buyback. And as and when we get the approval for the same, which might happen in Q2 or Q3 of this fiscal, my working capital requirements would be quite eased. And since the working capital requirement will suitably ease out, sufficient funds will be available with the company. If you all recall, last year, we announced a major shift in strategy as we moved towards derisking and diversifying our portfolio. We took significant steps to ensure that besides paddy and cotton segment, our other portfolio would be strengthened to create a more derisk business model. I'm happy to report that we have been able to deliver strong growth in each of our verticals of vegetables, field crops and supplements. Our vegetable portfolio volumetrically grew by 13% this year. As you are aware, this is a high-margin portfolio with EBITDA margin of -- sorry, contribution margin of 60% and above. If we see the growth value, it was over 14%. This vertical was strengthened with new marketing head joining. And he has undertaken many new initiatives by defining new territories and managers. We are also in the process of launching multiple new products in tomato, which would have high-level disease resistance assisted by markets; in okra, which will have high-level disease resistance with short internal resistances; in chilli, with high yield and excellent virus resistance; in cucumber, with high yield and no bitterness; and in bitter gourd, high virus resistance with high yield. This would further strengthen our vegetable portfolio. The other biggest contribution to revenue came from field crops, besides paddy and cotton. This portfolio performed quite well and the strong growth seen here is a testament of the wide acceptability of bajra and maize products. This portfolio contributed 17% of the revenue this year as compared to 15% last year. Maize grew by 32% and bajra by 10%. Wheat also grew by 34%. However, jowar declined. The overall volumetric growth was 10% and revenue-wise around 14%. Turning to Plant Nutrient segment. This segment was massively impacted because of COVID and it delivered a moderate growth of 80%. The product continues to give a margin of around 70% plus. And in revenue contribution, it maintained the 10% of the overall sales. It is and it remains a wonder product with excellent margins. We have high expectations from this product and have set up a suitable vertical to enhance sales and margins. Apart from the same, we are also diversifying within the segment into our different products this year, for which the details will be given in the subsequent quarters. I will now discuss our cotton portfolio. Cotton delivered a 5% growth this year. The portfolio took a significant hit due to COVID in both the waves. We saw significant sales return of 27% this year as compared to 11% in the previous year. The distributors were unable to place the product and subsequently, we had an inventory build up. We expect the cotton inventory to normalize over the next 2 years, but we have already rationalized the cotton production to absorb the higher inventory. Government has done away with royalty on cotton seeds. Although the reduction is only around INR 20 per packet in volumes, it would have a reasonable impact. We would continue to be present in cotton and paddy simultaneously enhancing our efforts in other crops, too. I will now briefly talk about our financial performance. Our top line grew by a moderate 10%, which was largely driven by good operational performance in vegetable and field crops. The growth, although not matching the guidance, was still commendable pursuant to the pandemic situation, which hampered farmer and marketing personal movements simultaneously. However, we maintained our gross contribution margin of 56% this year with a net profit margin of around 18%. We have maintained a tight working capital cycle. However, it has been adversely impacted on account of cotton sales return. The same is being rationalized with reduced cotton production since we have sufficient inventory of the same. Luckily, the cotton seeds can be easily carry forward for many years. The debtor period has further reduced from 140 to 130 days. We plan to continue to prune it more. The finance cost has marginally increased from 2.34% to 2.87% of the sales. The same is on account of enhanced working capital limits. I would also like to point out that the promoters have considerably reduced supplies of their holding in the company to under 20% and it is further being reduced. Before I open the floor for questions, I would like to discuss FY '22 outlook. While the COVID situation seems to be getting under control, it would still impact kharif of this year. We hence expect to deliver a top line growth of around 15% to 20% in FY '22. However, we will be able to maintain our contribution and EBITDA and PAT margins, of which I'm reasonably sure. With this, I will open the floor for questions.

[Operator Instructions] First question comes from Nitin Awasthi from East India Securities.

Just had a few questions on various topics, so I'll just go through them one by one. Firstly, on the bonus issue, you mentioned that you see significant amount of cash being released from the working capital cycle. Could you just explain how and why do this cash be required again going ahead, if this is cyclical?

Let me take this question. Although we are currently contemplating buybacks, if buyback has to happen, [ I will need free flows. ] That would be eased out by end of the season in working capital because whatever funds are available with the company at the end of the year are all infused into the working capital to ensure a growth in the coming kharif season. The season would be over. And your question, why the fund would be required, the company will definitely need funds if we are going to buyback.

No, sir, my question was, like you said rightly, that this point that worked for the growth of the company. So once these working capital cycle, when it eases and you put all those funds for buyback, wouldn't there be a vacuum of funds, which is required for growth next year?

Definitely, no. The reason being very simple, that the profit -- our profits also add. We have sufficient bank limits. The working capital got stretched this year because of enhanced cotton inventory, which has been eased out in the coming production. So that should not be an issue. The growth of the company will not be hampered even if we go for buyback.

Got it, sir. Sir, the second question would be on the plant -- growth regulators market and the products that you have. On online, also, there are a lot of videos, I don't know whether many participants have seen it or not, but the company has done a lot of things where the single product has been now multiple products basically under the same brand is starting to come up and you mentioned like granules and et cetera, other products also coming out. What I wanted to understand is that could there be a possibility of a tech transfer from your partner in China whereas you can manufacture these products yourself over here? Because a lot of companies other than yourself, like even Godrej Agrovet are tying up with companies abroad to transfer that tech to India and then manufacture those goods themselves.

Sir, would you like to answer that?

I'd like to answer this question. See, the possibility of manufacturing in India will be explored the moment we feel that manufacturing here is cheaper than getting it from China. So that is the question that -- that will address, then we feel that the manufacturing in India should come. So until then, we consider to import. Whatever [indiscernible]. We feel new products which were launched are being manufactured here only, in India.

Okay. Okay. So the granules and the newer products in the portfolio are not imported, they are manufactured by the company. So the company is today a manufacturer of plant nutritional products?

Yes. [indiscernible] right. The value addition has been taken place in India, the raw material has been rarely imported, okay.

Noted, sir. Noted. Noted. Sir, the third question would be on the illegal seed front. We're seeing a lot of news articles stating that there is a ramp in transit increase in illegal cotton seeds. And if I'm not wrong, the 2 markets where the company has had significant presence is Gujarat and Maharashtra. And both these markets are significantly getting hit by these illegal seeds. So are we going to see a significant impact on -- and our growth being compromised because of this influx of the seeds?

Yes. I'll answer this question Devinder. See, this illegal -- infiltration of illegal BT has definitely increased this year. And this will definitely impact not only us, all the organized seed players in the country. So we depend on sales and then somebody -- it's like somebody is just coming before us and taking away the share of sales. And this definitely will be going to affect all the seed players, including us. So we are -- as I said, we are making efforts from the governmental front to [indiscernible]. But this is -- it's a difficult thing to control because it's widespread, number one. Number two, on the regulatory front, we are also encouraging and we'll work with the government at this period [indiscernible].

Yes, sir. Noted, sir. Sir, finally, on the [ GNS technology, ] your competitor [indiscernible] has been stating that he has this technology, and this will add significantly to his bottom line. Any comments whether the company is also having the same tech? And if not, by when will we have that tech so that we can also add significantly to our bottom line?

I would like to answer this question, I'm V.N. Kulkarni here. So thank you for asking this question. And we are into it. And this year, we are making the trial seed production with [indiscernible] GNS lines. And hopefully, we will be entering into commercial production next year.

Okay. Finally, sir, the last question, how much is the current pledge of the promoter entity? With which entity is this pledged? And by when is this pledge going to be released, any time line that the promoter entity has?

Let me answer that. The current promoter pledge has come down to less than 20%, which is around almost 35%, 40% earlier, and which is going to further reduce by another 5%, 10%. We have made some pledge to our bankers, which will definitely never go away. But leaving that aside, almost the entire pledge will be taken out before September.

Okay. So there are -- what I'm seeing is from the document there are some private entities through which the pledges are being made. So all those pledges you're saying that by September, they'll be cleared and the pledge to the bankers with the guarantees would stay?

Yes, something like that. You're right.

[Operator Instructions] Next question comes from Niteen Dharmawat from Aurum Capital.

Sir, you talked about buyback, share buyback program. And I wanted to know what is the total consolidated net debt that we are having as of today? And since you also mentioned that you see some improvement in the working capital cycle. So what is the net consolidated debt that you see after that working capital cycle improve? So that's my first question.

Let me answer you on that. You're expecting me to tell you today how much our working capital will be eased out post season. I think it's very difficult to predict at this particular time. The season has not even started, right? So depending upon how much usable funds we have at that particular time, the contour will be contemplated. And I also have already mentioned that I need to take permission from my existing bankers. So today, my being able to tell you what exactly will happen after the permissions come or when the permissions come is a little difficult. You want to help me on that [indiscernible] something, sorry?

What is the net consolidated debt as of now?

We only have working capital which is touching around 90, 96. The altered balance sheet has already been put on this thing. So you can have a look at that. We have around 90 -- sir, between 90 to 100. Yes, so let me also add to that. Let -- it be noted that this company has got no long-term debts. We only have working capital bankers and they are the only lenders to the company.

Got it, sir. Yes. And second question is regarding the rural demand since you mentioned that you see a change in the demand pattern now. So how is the demand now in the quarter 1 from the rural sector, if you can elaborate further on that?

Yes. I actually -- your question is on the different client side. Rural demand is definitely changing because, let's say, for example, vegetable markets, when these are not functioning well during this last few months, second wave. So vegetable demand is reasonable. This produce demand is a little less. So that automatically the farmers are not coming to buy more seeds, right? So there are shifts in the cropping pattern. There are shifts in the way farmer is looking at the crop. And this is varying from geography to geography. So this is different in form and different in Maharashtra or Gujarat. [indiscernible] Rajasthan was very badly affected because of the very strict restrictions imposed on movement of the people. But okay [indiscernible] definitely has impacted the rural -- [indiscernible]. So the impact has been different in different geographies and I think by the time we go back [indiscernible] to July, [indiscernible] will be normalized.

[Operator Instructions] Next question comes from [ Arvind Bhat, ] an individual investor.

[Foreign Language] from last 20 years, I have been invested into this company. And this is a happy moment for me to get dividends from the company. And thank you for that. And 1 more thing, sir, actually last year [Foreign Language]. Due to COVID and uncertain [Foreign Language]?

[Foreign Language] So thank you for thanking us. Secondly, [Foreign Language].

[Foreign Language] overall sales, in terms of sales, overall sales ?

[Foreign Language]

[Foreign Language]

Sir, can you please answer that?

[Foreign Language] I'm very happy that you are so much involved into the company's progress. [Foreign Language] That was the first part of your question. So we have to invest in technologies and new markets. We talk about new markets of Philippines. Philippines [Foreign Language], we [indiscernible] have the first more advantage. And we will consider to hold that advantage for long periods of time. [Foreign Language]. Hopefully, this -- that would happen. We continue to make our efforts to get introduce them in Philippines. We also continue to work in several new markets with taking our technology even in our markets, like Philippines [Foreign Language]. We work patiently. With time, we have to have work on such projects where [indiscernible] is a little bit longer, but finally when it comes, we have the advantage of being first mover of this thing, something new -- something impact missing. [Foreign Language].

Okay, sir. [Foreign Language].

Yes. I will this. I'll take the opportunity to answer you. I'm very happy that you have touched something which is newly happening in the company. In fact, Sudan were to begin this season itself, but the government has changed there. So that might delay. Probably next year, we will be in the market with a good volume there. Our 2-year trial has been happened and we are going to register at least 3 products there, and that will be sold next year. We were aiming this year only. We struggled hard to organize the release meeting, but there are systems where they work, probably they might be happening in July or so by the time our season is gone. So we aim for the next season. I'm very happy to say that Myanmar, we have already started. Again, you know that we have shipped the material. Because of the political tantrum there, the material has -- part of the material has reached the farmers. They have planted. And part of that has not reached. However, we have got revenue, whatever we were aiming at. The other one is we are working with PWC, PricewaterhouseCoopers, [indiscernible]. We -- probably by next month, we will be registering our company there. These are some of the updates. And in our neighbors, we are already in the market. We are continuing to be there enhancing our market share there.

Sir, one more question. [Foreign Language]?

[Foreign Language]

[Operator Instructions] Next question comes from Sunil Modi, an individual investor.

[Foreign Language] you are suffering from working capital crisis. Knowingly that you are suffering from working capital crisis, why the meeting was -- Board meeting was called for buyback at this time? Timing is more important. When Mr. Khurana is saying that you will have ease in working capital in Q2 or Q3, why you are calling Board meeting at present to discuss buyback proposal, when you are very well aware that you don't have that working capital to buyback?

Mr. Modi, let me answer that question.

Who is this?

Let me answer that question, I said. I'm Khurana.

[Foreign Language]

Mr. Modi, I'm Devinder Khurana, I'm the CFO of the company.

I had addressed question to Mr. Satish. If he doesn't want to answer, let them tell [Foreign Language] let this to be answered by Mr. Khurana. [Foreign Language].

Mr. Modi, Mr. Satish Kagliwal will answer your question. Firstly, I would like to put across a point which you have wrongly...

[Foreign Language]

[Foreign Language]

[Foreign Language]

Yes, please have patience. Okay. Thank you very much.

[Foreign Language]. Don't play with investors, please answer now.

[Foreign Language], we are not arguing on the forum, please. My request. Let's maintain...

Where is argument? I'm asking you. Sir, I am asking you why Board meeting is called when you are very well aware that you don't have fund?

Now can you answer if you have done, please?

[Foreign Language] point blank. Otherwise, let Mr. Satish answer this.

[Foreign Language] that the company is facing working capital crisis, that is a wrong statement.

In your presentation, it is mentioned. In your presentation, it is mentioned, company because of certain...

Sir, the protocol says, you ask a question and let the company answer, okay?

Okay. Okay. Sorry. Sorry. You follow the protocol, yes.

Okay. Your statement of the statement being understood today that the company is facing working capital crisis is not correct. The presentation says the working capital is stretched. There is a difference between stretched and crisis. The working capital is stretched because of additional inventory of cotton, which we had to carry. We are able to carry it subsequently over. There is no problem in that. Second is the company doesn't have funds why should it announce buyback. We have said we are contemplating buyback. It has not been announced in this Board meeting. It was only considered. I cannot announce buyback until I have a permission from my working capital lenders, the banks. Once the permission comes, the minutes clearly say, we will take it back to the Board for actual consideration. So 2 things I'm clarifying. One working capital is definitely not a crisis. It is always stretched at the end of March because we have enough inventory to be players in the market for the next year. And secondly, the buyback has not been announced. It is being contemplated. It is being considered. Now I can request Mr. Kagliwal to answer the balance of it, yes.

[Foreign Language]

[Foreign Language] I'll let it go by your word only stretched. [Foreign Language] I will for -- I will request you to go for audit.

Mr. Modi, this is Sheetal from Go India Advisors. If you have a question, can you be specific? [Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

See, the specific questions, let it be addressed in one-to-one discussion, okay?

Mr. Modi [Foreign Language], they will address all your queries one-on-one. We have very less time...

[Foreign Language]

[Foreign Language] I categorically made the statement in the first question itself.

Modiji, as you're part of shareholder, I would like to really acknowledge, appreciate your being with us for several years, we really appreciate and we welcome such...

Satishji, we have full faith in your management. Only question arises when there is an announcement of Board meeting where the buyback will be discussed. And at the end of the meeting, we have been informed that it has been deferred.

Really, your point is well taken. Our intention would be taken as...

[Foreign Language] I'm in touch in many investors, high network investors and they are all upset with this move. [Foreign Language].

Mr. Modi, [Foreign Language], we have a lot of people waiting in the queue.

[Foreign Language].

[Foreign Language]. Sheetal go ahead please.

So next, we have a follow-up question from Mr. Nitin Awasthi from East India Securities.

So very, very specific question about a competitor, who's was backed by a very big conglomerate in India. So this JK Group basically, this is a specific question I'm asking. So this company was not doing much for a long time now. And now the promoter entity is infusing a lot of funds into this company, and the company is stating to have big plans in Bangladesh. Now is there something specific that this company has -- that they can do in Bangladesh or is everybody including us also looking at Bangladesh? And specifically the cotton market in Bangladesh.

Cotton seed market in Bangladesh. See, the question is regarding our competitor, I would like to refrain from answering this question. If your question is regarding the cotton seed market in Bangladesh, yes, cotton seed market in Bangladesh is growing. And Dr. Kulkarni can throw a little more light on that.

Every company has its own strategy. We saw that the growth in Bangladesh may not be as they have in Central Asian country. So we move to Central Asian country where our competitors are not there. So strategies of placing our trades into a well-grown and well-identified markets are very important. We left Bangladesh because it's a very small miniscule market. And we don't know why JK has gone there.

Next question comes from Anil Sharma from AB Capital. Next question comes from [ Ms. Preeti Singh from Value Investments. ]

Sir, what is the opinion on upcoming kharif season? How will it affect the first half of FY '22?

I couldn't hear you clearly. Can you repeat the question, please?

What is your opinion on the upcoming kharif season? And how will it affect the first half of FY '22?

See, the kharif season, as I said at the beginning itself, that the kharif season -- the sentiment is very positive because of the very favorable monsoon announcements, which have taken place since last 1 or 2 months and the monsoon has been progressing well. There are, of course, little changes, aberrations and the deviations which happened. But overall, the kharif outlook is very good, not only for us but for the entire Indian agriculture. And there will be an impact of COVID despite of good favorable monsoon, there is impact of COVID and restrictions and constrains that come with it. So we are upbeat on kharif this thing and first half year will truly determine as to how we'll really do in the full year, okay?

Okay. And what could be the upside from the news in Myanmar?

Myanmar is highly effective at the moment. Upside can be that [indiscernible]. So we are working given this constrained position there at the moment. We have registered the product but we are not able to deliver it to the farmers, take it there, complete the process. So we have with a little bit of constraint in Myanmar, okay?

Okay. Okay. Yes, got it.

Ladies and gentlemen, due to time constraints, that would be the last question for the day. Now I hand over the floor to Mr. Devinder Khurana for closing comments. Over to you, sir.

Thank you, ladies and gentlemen, for having joined us for this annual con call. We do it every quarter. And I would say -- so I would like to make a point that the company is putting in all the efforts to maintain or sustain the growth, irrespective of what is happening in the market. We would like to note that our gross margins around 50% plus have been maintained. Over the last 5 years, it grew around 56% now. The EBITDA margin has almost become 1.5x over the last 5 years, and the net profit margin has increased to almost double than that. The top line is growing. The bottom line is growing. We are into agriculture segment, wherein COVID has given a negative impact basically because of logistics movement, because the moment of the market [Foreign Language] being restricted by the government by not allowing to get out. And lastly, because the farming community also was not able to come out properly. In spite of that, the company is growing. Secondly, we are thankful to the investors who have been investing with us for years altogether. I personally am here for almost 20 years plus. And I know investors who are here with us since [indiscernible] time. We have been contemplating, giving something back to the investors, which we were unable to do because we wanted to grow. So invariably, all the internal accruals were infused back into the company for the growth. But this year, we felt it was high time that we started rewarding back the investors irrespective of the increase in share price. The first step towards that is dividend. Now that we have started the dividend, that would become a continuous process. Apart from that, we thought we will see whether we can go for the buyback, which we are still very seriously contemplating and we are very serious about it. Having said that, I would now like to genuinely thank everybody for being here with us. My request will be have trust in the growth of the company and stay invested. Thank you. Thank you very much.

Thank you, sir. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a pleasant day.