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

Ladies and gentlemen, good day, and welcome to the Nath Bio-Genes Q2 FY '22 Earnings Conference Call, hosted by Go India Advisors. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Ms. Sheetal Khanduja from Go India Advisors. Thank you and over to you, ma'am.

Thank you, Vikram. Good evening, everyone, and welcome to the Nath Bio-Genes earnings call to discuss the H1 FY '22 results. We have on the call with us today, Mr. Devinder Khurana, CFO; and Mr. Vyan 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. Khurana for his opening remarks. Thank you, and over to you, sir.

Thank you, Sheetal. Good afternoon, ladies and gentlemen, and welcome to our H1 Earnings Call. I hope you would have seen our earnings presentation, which has been uploaded on the exchange and so at the outset let me wish you a very, very prosperous an auspicious Diwali on this auspicious day of Dhanteras being the beginning. And I'm sure with the courtesy of the Gods, the investing community will also do extremely well. Now I will start on the benefit updates and then move on to the financial performance. Commencing with kharif season, as for agricultural ministry data for kharif in 2021. By 16 July, only 57% of the 1,073 lakh hectares were sown across the country. Cotton area has reduced by about 11.57%. Paddy has also reduced by about 7% on Y-o-Y basis. Sowing of core period like maize, bajra and jowar is also down by about 40.63%, 40% sale. If this cover up to certain extent, in the subsequent weeks. But overall, they has been a lack in kharif 2021. Ironically, the reservoir levels are also failing as compared to the previous year. As for Central Water Commission, the live stories across the country is lower by 7% from last year and it is 15% on the 10-year average. It goes without saying that these have affected the kharif sowing across the nation. Our net cotton sales also dropped lower to approximately 12 million times, which is around 11% more than last year. This has been primarily all across the why our sales returns, which were close to 27%. While COVID second wave, these effect kharif sowing. There is also an issue of illegal BT cotton, which the entire organized sector is there. We are seeing that farmers are now using an unapproved version of BT cotton. Sales of HT BT doubled to a record-high 75 lakh packages of illegal cotton seeds. Industry lobbies have written to the Agriculture Ministry, demanding that action be taken to stop such sales. Noting that the cultivation of GM cotton has rise a serious environment and economic consequences. I'm talking about activity. We are also actively working with the farmers to educate that. Like we said, we have been able to maintain in spite of the overall lack in sowing. And we are proud to announce that our other food crops especially bajra, maize, jowar, they registered a strong Y-o-Y growth of around 35% in H1 FY '22. So I would like to say that apart from our temporary setback in quarter, otherwise, we are good to go. Rabi season updates, we are well conditioned for the rabi season. And we have lined up the vegetable sales that are well stocked, mustard and wheat also. The new product in P&L segment are being pushed actively. The 3 verticals created to ensure sales are being consolidated and further augmented. Various farmer education programs and road shows are being organized to reach the furthest corners of the country. Our research department is constantly endeavoring to create better products to serve the farming community at large. On export front, we are in the process of establishing an outlet in Uzbekistan to cater to the Central Asian market. We propose to set up a fee for prosperity. Coming to the H1 operations and financial. Our actual revenue grew although marginally to INR 229 crores. We have maintained the gross margin of 50% plus on Y-o-Y basis. Our EBITDA margin has marginally improved to 22.56%. We continue to maintain our long term debt free status. Our Y-o-Y finance cost is higher marginally on account of increased working capital by margin. We are keeping our working capital under control. Although the inventory level has increased due to sales returns, but they are still manageable, and we don't expect any write-off. Debtors have increased dues to sales spread and are still being realized and under control. The company has made a positive operational cash flow once again. And that would help the leasing of the working capital cycle. The company has declared its main dividend and warrant for dispatch to all shareholders in August. Those who have not been able to encash due to any issue may please get in touch with our [indiscernible]. Coming to FY '23 growth outlook. In cotton, we expect a volume growth of 10% to 15% in FY '23. Paddy we are confident of a strong volume growth of 15% to 20%. Vegetables segment is still showing strong results as we are anticipating a growth of 25% to 30% in the segment. Overall, the company's hope's to grow at a steady pace, irrespective of the issues being faced by the sowing community. With that, I would like to open the floor for questions.

[Operator Instructions] We have a first question from the line of [ Ankita Nayak ] from [ Rubix Investments. ]

I have a couple of questions. What kind of products are in the pipeline, in the R&D pipeline for the vegetable segment?

Yes. We have a pipeline tomato hybrids for both acidic and salad, one which is -- one which we are selling better than that, which is permitted with the molecular markers. The other is we are bringing out very new innovative chilli habits, which are resistant to viruses. The complete trialing has happened. Just yesterday, we had a product advancement meeting of okra. We have identified 2 okra hybrids coming in that along with that, 2 cucumber hybrids. These are some of the products which are going to be lined up in the next year and the next to next year. In addition to that, in the Gourds we have a new person looking after for the Gourds. We are getting lot of products also in the pipeline.

Okay. Got it. And my next question is, sir, what is the rate of interest for our working capital loans?

Our rate of interest is about 7.5%, around 8%, commercial rate.

[Operator Instructions] Your next question from the line of Niket Dhruv from Grubbrr Systems.

I just want to know -- happy Diwali to you and everyone. Sir, as far as my understanding goes, I think in the next at least 5 to 10 years, we can see a major inflation going up, especially in the area of food and agriculture. So if that is the case, how does it -- does it positively affect the company? Or how does it affect the company?

Let me just briefly touch on this. You see, we are into a sector which can never go down because food and clothing, say cotton are always going to be the basic for every need of an individual. The land -- the irrigable land is always at a premium because the land cannot increase. And the yield on that particular land cannot be increased to manyfold. So what you say is actually very correct. Between the demand and supply gap, what is going to happen is if the demand is going to continue to increase based on the population levels of the globe and the supply not coming through with that, definitely, it is going to be a premium product. We, as a company, have also been a research-based -- research-strong company. So we always try and create products based on the changing agro-climate condition and changing environment. I think we are more able to continue to grow along with the industry and do well for ourselves and do well for our investors also. Agriculture is for --drawn on profit. Please remember that.

Also, I just want to add. In fact, our company is also thinking of value addition into the seeds because we are coming up with new innovative products. And all products should capture better value in the market is also our aim. So if you think of commodity inflation, that will also reflect into our seed cost increase because at commodity level, if the prices are realized, the better. Then we also expect that our prices in the seed sector will also get realized better.

Exactly. So our realization would be better in case of...

Yes.

And sir, second question is what are you -- I mean these days, I keep -- we keep reading about genetically modified seeds. Sir, what are the views on GM seeds? Are they good? Are they bad? And how it can take on the world.

This is a fantastic question. I'm one person who has involved in GM education. Nath Bio-Genes has complete belief in new science and technology, especially biotech integrated crop breeding. When I say biotech integrated crop breeding,it involves GMOs also. GMOs are bio safety level 1 kind of organisms, which are to be tested for toxicology. And Nath Bio-Genes is one of the leading GMO suppliers, especially in cotton. And we -- in our land, there are still some more GMOs are lined up. And we are looking for the policy environment to be improved in India. GMOs are something which really create innovations and high-yielding ability among the farmers because these are added with some genes and the -- all the tests for toxicology and biosafety, et cetera, are done before releasing to it. There are 2 signs that I encounter in my life. One is stress signs, wherein a lot of people without data, they will be making some of the vague statements in the society to create some confusion. Otherwise, we are the data-based people. We really create the data. One is short-term feeding, long-term feeding, then the progenies also, et cetera, mean after the reproduction, what happens? All these data is taken and submitted to the relevant agency. And that approval is given based on certain committee, which discusses it thoroughly. The committee involved, Ministry of Health, Ministry of Environment, Forest, the Ministry of Agriculture, Ministry of Science and Technology, everybody involved in making this decision. Whoever are listening to me, please note that GM0s are not dangerous. We should welcome the GMOs because these help in improving both the quantity and quality of agricultural produce. This will help us in creating both the nutritionally rich -- nutritionally secured and food secured society in the world. And with the GMO's adoptation, India can become an net exporter of agriculture we produce to the leading countries all over the world. And best examples are Brazil, Argentina, U.S. Because of GM0s, they have become a net exporter of many agricultural commodities in the world. India can be one with GMO release harmonization -policy harmonization is done. So thank you very much for this question. This is a very lovely question.

Just one last question to end. So sir, I just wanted to know, like in case if inflation comes and there's good realization about our -- for our products, so how -- capacity expansion, what are our plans? And how prepared we are for the next 5 years or 10 years, good times is ahead?

What is happening -- sorry?

Okay. Please go ahead, sir.

Capacity production, as far as the industry is concerned, has never been a concern for a simple reason because, firstly, the production date is on the land. And we have a line of growers and farmers, who have been growing with us and -- growing with us and growing with us for almost about decade. All sorts of thing can be outsourced with the processing plant, storage is hardly an issue because the government is giving lot of infrastructure facilities to create GM storage and cold storages. So capacity production is the least of my worries, yes. Products and good products, they should be well accepted into the market are more important. And also Kulkarni's army is basically doing that given us products after products year after year.

Yes. I would like to endorse with that, capacity expansion for Nath Bio-Genes will never be a problem because the contract seed production happens and we have a really big network. The moment we feel that we have to enhance our capacity, it is just employing few more people and occupying few more territories into it. And all the territories where we are producing and expanding our business are all known to us. So be it in North India, be it in Central India or Aurangabad or Hyderabad. We have already known people to expand that. And I'm very happy to say that Khuranaji, our MD, we're all in expansion mode now because last time last year, a wonderful product coming out and that expand it to the maximum possible because our Chairman always says that -- do it suddenly and take -- capture the profits as early as possible with volume expansion. This is what his slogan is now.

[Operator Instructions] Your next question from the line of [ Palak Chopra ] from [ Kapoor Capitals Private Limited. ]

Sir, first question is that, is there any update on the export market which you were pursuing? Like what exactly are we setting up in Uzbekistan?

Madam, in 2019, we made a feasibility study for Central Asia. I was the one who went there. Currently, the addressable market, the present status of the market in Uzbekistan alone is around $400 million, which is expected to increase $700 million by 2027 and $1 billion in 2030, meaning that there is -- the government has very favorable policies now from the kind of the community policies were there, which were very stringent, wherein investment in seed sector was not possible. Now the governments have opened up and you like to amend their laws to help the investors to come and operate there. You may not -- you know that Uzbekistan is a cotton country, wherein the whole Russian Federation was producing the cotton. And fortunately, Nath Bio-Genes has its own cotton GMO. Which we are introducing in Myanmar, which is introducing in Sudan and we are also introducing in Uzbekistan. We have -- after that feasibility study, unfortunately, we delayed because of the COVID. However, we picked up our phase. We have established a company called Nath Bio-Genes Central Asia to cater the needs of those Central Asian countries. And we would like to establish our R&D in the product development and production facilities there. The government of Uzbekistan is helping us in giving us some facilities and infrastructure to us. You will be very happy to know that your company has already appointed the country manager there. And we have begun our vegetable trials. In the winter, we have vegetable trials going. So that will be a subsidiary company, which we are going to operate it. In addition to other places, other places are like Sudan. Unfortunately, the meetings have been postponed because of the unrest there and -- which just started -- happen in the last year. And we are now trying to project our own image into Myanmar because it is peaceful now. So we are trying to expand ourselves, be it as a company as well as also expanding the distribution should not be present there also. These are our new strategies, which we are operating in other countries.

Right. Very happy to hear this. Sir, my next question is, why has quarter returns been higher than anticipated? If you could please throw some light on that?

You're talking about sales returns?

Quarter returns, yes.

Quarter returns. You see what happened is that by the end of June, we have already placed some tail end to the market. And we are only anticipating that the sales return will take place [indiscernible]. But by the end of H1, the entire goods which have not been sold have already been brought back. Last year, we had around 26% of sales return, year before that it was only 11%. So this year, I had anticipated around 22% ,it went upto 27% which is still fine. We are okay with that. It's basically because the sowing areas have reduced overall. The farmers are still confused as to whether to come out properly and put the sowing. So many things are happening, even water levels have gone down. So we are definitely following the national average, if I may say that.

Right. Also, sir, if you could please just tell me about what marketing strategies are we adopting for vegetable segment?

We have created a separate vegetable vertical which has been headed by Mr. Harish Pandey. He is an experienced in vegetable sales. He has been given a dedicated set of people, including our last year, regional managers, factory managers, and field advisers down the line. And their only job is to sell vegetable. And because now it will be a separate team selling vegetable and only vegetable, definitely, dedicated will help that we go much beyond what we have been doing so far, firstly. Secondly, we have also identified the territories in which vegetable is supreme. That the vegetable goal is supreme. So extra efforts have being given to those areas to ensure the vegetable growth. And of course, like Dr. Kulkarni said, products are in any case there.

I would like to add to Mr. Khuranaji, that we have a very clear strategy on 2, 3 strengths, like one is expecting our own strength because we have R&D and product development and product delivery strength in some of the crops. I think in some of the crops, we are not very strong. So we have developed 2 strategies. One is in-house sourcing and marketing wherever -- we can develop upon it. And the second one is we expand our presence through overall research and development. So both the strategies are in place. So we believe, in some cases, we would like to have a collaboration as a mantra. And in some places, we would like to have our own R&D delivered products also. So with this, what we are doing is that we are not going to compromise our product basket on our product basket front and as well as our revenue footprint also.

[Operator Instructions] Your next question from the line of [ Anil Sharma ] from [ AB Capital. ]

Just a couple of quick questions I wanted to know from you. First, in terms of paddy. I can see that the sales -- we don't -- we didn't see much growth over there. So if you could please elaborate a bit on that and any new product pipeline that we might have in paddy? And number two, I just wanted to check regarding the employee turnover amongst the senior managers. So probably, I would just like to understand how many employees might have left the organization in the past quarter or so, at senior management level, yes.

Doctor, you cover the paddy, I'll clear the...

Yes. Yes, I will. Actually, in 2019, we made a product statement in that -- in which segment we don't have product and in which segment we have strong and how do we move these products into market. So one of the area we were lacking was 120 days maturity products. I am very happy to announce that there are 2 products. Probably, there are some TV channels which have covered and there are some local newspapers which have reported. There is one Dhadak and there is Dhadak Gold and there is one Dhoom. So these are all suitable for different territories, which -- where it test marketed last year and which have been successfully taken -- approved by the farmers community and farming community. And thanks to our salespeople also, they have worked very hard. And next year, we are thinking of exactly doubling whatever we have done it. Our products are successful and competitive in this 120 days crop. So another is that we have tested initially a few products on the end series, which have DNA markers in that. In that also, there are 2 products which are successful, but that will be going for next year test marketing. However, this test marketed product will be going into the volume building in the next season. Probably, in the next season, if we find it rice as different picture than what we have at this time. Khurana you can, next part of the question.

Now let me tell you about employ turnover, that we -- in our company, we have employed who has been with us for maybe more than 2 to 3 decades. I myself have been here for over 26 years now. Our management upward -- the assistant and managers upwards in that category level. We have over 20 people. And I'm proud to say that over last 1 year, not even 2 to 3 people left. So that way, our employee retention is quite good. And the motivation level is good to stay on because everybody feels that the company is going to do well in the future. And those who leave, in any case, we always have replacement lineup and the work and operations do not cover.

Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to the management for closing comments. Over to you, sir.

Okay. At the outset, let me thank you from the core of my heart for having attended this conference, although it was scheduled at the back end of the holidays. But somehow, because of operation reasons, we couldn't do it earlier. So thank you for being with us. And thank you for the continued interest in our company. I would like to only reiterate the fact that based on the research and the efforts being put in by the company, we are always trying to create a pipeline products, which will be well accepted by the farming community and create an overall benefit to the farmers. This would result in the company growing. The growth has been partially stagnated over the last 2 years basically because of COVID and COVID-related problems. Still, I'm proud to announce that we haven't suffered as much as others have suffered. But we plan to jump back to our original growth prospects that we have been announcing. And hopefully, kharif '22 is going to be another bumper year for the company. Thank you. Stay with us. Thank you very much.

Thank you so much.

Thank you very much. Thank you, gentlemen of the management. Ladies and gentlemen, on behalf of Go India Advisors, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.