Rallis India Limited (RALLIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to the Rallis India Limited Q4 and FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir.

Thank you, Janice. Good day, everyone. And thank you for joining us on Rallis India Limited's Q4 and FY '20 Earnings Call. We have with us today, Mr. Sanjiv Lal, the Managing Director and CEO; Mr. Nagarajan, the Chief Operating Officer; and Mr. Ashish Mehta, the Chief Financial Officer. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation. I now invite Mr. Lal to begin proceeding of the call. Over to you, Sanjiv.

Thank you, Gavin. And thank you, everyone, for joining us on our earnings call today. I trust all of you and your loved ones are safe and healthy. And as Gavin has already mentioned, Mr. Nagarajan and Ashish Mehta are joining me on this call. So to begin with, I'd just like to highlight a couple of macro level developments before we move into the Rallis specific developments. Let me just start by saying that what all of us have experienced over the last 1.5 months has been truly unprecedented. I don't think many of us would have imagined the severity and magnitude of this crisis at the beginning of the year. What started as a country-specific issue in China has rapidly transformed into a global pandemic impacting businesses across geographies and continents. Our thoughts remain with the communities and individuals, including the healthcare workers and the first responders most deeply hit by the COVID-19 crisis. Moving on to the business side. Q4 has been very eventful for Rallis, as we merged our subsidiary Metahelix Life Science and the financials reflect the merged accounts, including that of Zero Waste. The merger of Metahelix has gone through smoothly, both at the people, process level as well as financial alignment. While the negative impact of COVID-19 is being felt across the industry, we have seen gradual resumption of operations across the country. Our facilities at the Dahej, Ankleshwar and Lote were permitted to operate in April, although with a significantly reduced strength, which would allow for social distancing. Rallis also got an FDA approval for producing alcohol-based hand sanitizer at its formulation facility at Akola and later at Ankleshwar as well. About 140 kiloliters has been produced and distributed free of cost to various government departments, hospitals, local communities and the Tata Trusts in various parts of the country. We utilized part of this shutdown period, this lockdown period primarily to take up our annual maintenance activities for critical jobs at Dahej and Lote. And you will recall that earlier in the year, there has been a significant disruption out of China. And at that point itself, we had sort of prioritized taking our annual shutdown for our facilities in the month of April. So that was very much as part of our overall plan. On the input front, while we have faced issues on availability from China during January, the supplies have recommenced with some delays due to logistics issues. These logistical challenges of product shipments during the last quarter of Q4 itself due to the lockdown has since been resolved. Moving on to our domestic markets. We believe that the rabi season has played out well, led by ample water availability, which should result in a higher output. Advanced forecasts available from the IMD indicate a normal monsoon, which bodes well for the kharif season. Both our domestic and international business continued to perform well during the year. Our efforts in recent times have been to revise the product portfolio with an endeavor to launch at least 2 new products each year over the next couple of years. I'm pleased to say that we have started on a strong note in this regard, having launched 6 products in FY '20 itself. Three of them were 9(3) products and the others co-marketing. While it's too early to comment on the success of these products, we are heartened by the initial response from our customers. In addition to the product portfolio, we have also been working towards widening our distributor reach, and I'm happy to share that we had made good progress in this area as well. As you're aware, we had revised our trade terms making it more aligned with the market during the first quarter of FY '20 to support our partnership with the distributors. This strategy worked out well, as can be seen by the improvement in our cash position. Moving on to the seeds business. Our efforts under this business has been largely directed towards strengthening our rabi portfolio, given that we are relatively well placed in the kharif segment. We are focusing on maize and mustard crops in the rabi space. Further, we are also targeting and are undertaking steps towards building a vegetable portfolio. Such efforts should help us in balancing our portfolio and drive growth under the seeds business. While our seeds business was also classified under essential services and essential products during the COVID-19 lockdown, considerable efforts have been made by the team and our colleagues in the field and the factory to ensure that the seed production harvest could be brought forth into the processing plant for packing and dispatch to the North India market in time for the season, and we have been able to complete a large proportion of our placements. Shifting focus to the international business, while we are presently working on 2 molecules under contract manufacturing, we are undertaking steps to leverage our tie-ups with global innovators to expand this part of the business. The other focus area for us in the international business has been to strengthen our alliances. And we are, again, constantly looking towards broadening our product base and branded formulations through Co-marketing arrangements. Further, we are also actively looking at the opportunity to register our own brands and increase the revenue from the formulation business. We believe that our efforts will help us to scale up the business in the near term. I'd like to touch upon our CapEx plan. We had announced a CapEx of around INR 800 crores for strengthening our domestic and international business. The commencement of operations of our new Metribuzin line had got pushed back because of the lockdown. And our formulation facility at the SEZ -- at Dahej SEZ is now running behind schedule and will not be available for the coming kharif season. This will, however, not impact our product availability for the current year. Lastly, we're also setting up a state-of-art R&D facility in Bangalore to further drive our growth with a significant step-up in our product development for crop protection, crop nutrition and seed research. The design of the new center has commenced. To conclude, I would just like to reiterate that while the impact of COVID-19 will be felt for some time, we continue to be positive for the long-term growth trajectory of the business and are undertaking steps to drive the next growth phase for the business. I would now request Ashish to walk us through the quarterly financial performance. And with that, it is over to you, Ashish.

Thank you, Sanjiv, and welcome, everybody to this earnings call of Rallis India Q4 and FY '20. As Sanjiv already mentioned, the quarterly results includes the financials of the merged entity, Metahelix Life Science and Zero Waste. I will first touch upon the crop care business, how we fared in the Q4 as well as for the whole year. Our revenue at INR 322 crores was marginally higher compared to same period in previous year. The profit before tax of INR 1 crore against INR 19 crores was registered in the same quarter in the previous year. Due to the announcement of nationwide lockdown pan-India to contain the outbreak of COVID-19, the operations of the company were disrupted at certain manufacturing locations and depots of the company as a result of which goods worth INR 16.04 crores could not be dispatched to the domestic market. Further, international shipments were also disrupted due to absence of transportation facilities in the last week of March, resulting in lower shipment of INR 53.18 crores. This apart, there could not be any invoicing done for the domestic market in the last 10 days of March '20. You would have noticed there was a sharp rupee depreciation in the last 15 days of March. And as you all know, that we have a longer -- we enjoy a longer credit period on imports vis-a-vis a shorter credit period of realization of exports. There was an M-to-M impact, which we have mentioned in our investor slide, which has been put up on the Rallis' website. Approximately INR 9.9 crores of M-to-M loss had to be accounted in the quarter. So that had an impact on the EBITDA margin. There are certain items of additional provisioning, which we had to do as per the guidelines given by the institute to come back and to ensure that the impact of COVID-19 is also, to the extent possible, to the extent, estimated by the management at that point in time is accounted for. So some certain provisions with regard to receivables, certain provisions with regard to slow-moving stock had to be accounted. This was roughly around INR 3.5 crores to INR 4 crores. We also saw a sudden drop in the G-Sec rate, which has an impact on the actuarial valuation, which also had an impact on the operating margin. This was roughly about INR 1.2 crores. Overall, if you see the impact of the current quarter -- on the current quarter's financials because of all these factors led to a drop in EBITDA margin. While the revenue growth was modest over the previous year, there was a volume growth both in domestic business, largely driven by new products like Ayaan and Zygant. Further pricing pressures on B2B business in the international markets like Metribuzin, Pendimethalin continued to be felt. For the full year of the crop care, the revenue was INR 1,881 crores against INR 1,672 crores of FY '19, a growth of INR 210 crores, reflecting 13% growth over previous year. In the previous year, you would recall that we had a business of seeds, which was discontinued in the fourth quarter of FY '19. If you were to remove the value of that, which is around INR 30 crores and make a like-to-like comparison, then overall, the growth in the crop care business is 14.5% over previous year. Out of this 14.5%, maximum growth is through volume. Out of the total growth in absolute terms, almost all increase came through volume growth. Domestic business accounted for roughly around 70%, driven by introduction of new products during the year. The ITI index was 16% for the year FY '20, registering a good healthy growth over the previous year. Now coming to the seed division, it registered a sale of INR 24.47 crores for the quarter against INR 21.86 crores registered in the same period in the previous year. The loss for the quarter was around INR 18.47 crores against INR 17.74 crores in the same period in previous year. For the full year, the seed business total revenue was around INR 364.42 crores against INR 336.21 crores for FY '19, registering a growth of 8.4% on mix of volume growth and price realization. To summarize the other highlights of FY '20. Cash from operating activity was at INR 337 crores against INR 80 crores in the previous year. Total liquid investments for the company as of 31st March stood at around INR 300 crores, up by INR 200 crores compared to previous year. Working capital improved by INR 75 crores at the consolidated level. For the crop care division, working capital days improved from 106 days in the previous year to 70 days for the current year. This is all from my side. Over to Gavin.

Sir, can we open the call for the Q&A session now?

Yes, please.

[Operator Instructions] We take the first question from the line of Aditya Jhawar from Investec.

Sir, you mentioned that there was this provision of about INR 3.5 crores, INR 4 crores that includes provision for receivables and slow-moving inventory. Sir, if you can help us better understand, are you foreseeing a situation where there could be some meaningful bad debt written off? And typically in this -- every year, what is the kind of provisioning that we do in this quarter for bad debts?

Aditya, just to answer your call -- answer your query, see, these receivables are provided by expected credit-loss model defined by the institute. And this is a model which is basically on the aging of receivables compared to current year versus last year and also under various brackets of the current year -- every quarter, every half-year vis-a-vis the last year. And going by the collection trend, we thought that it will be good that we take some additional provision given that there was a slowness in the collection. If this was not done, and the current condition would have continued for a longer period that could have been an impact on the collection, so which would have come and hit us in the first quarter and second quarter going forward. So this is out of prudence, we have taken a call. If the collection happens, automatically, the reversal happens of the provision. Turning on to the slow-moving, nonmoving stock. As you know, some of the stock -- I mean before the expiry, much before the expiry, 3 to 4 months before the expiry, the materials the -- what are produced out of our technicals are sent back to factory for processing, right? And because of the lockdown, there was a restriction of movement of materials. So it was an additional provision we took in case the materials are not able to move on time and reach the factory, there could be an impact. So it's just a provision we have taken to be on the safer side, more on a conservative side.

That's helpful. Sir, how do you foresee production ramp-up in Q1? So you mentioned that some of the plants are starting production. And by when do you think that we would be back at pre-COVID utilization level?

So Aditya, our plants have restarted. I think on 27th, we had informed that our plants are restarting at Lote and at Dahej. Ankleshwar had been sort of operating at a low rate, depending on the availability of manpower. Now one of the biggest challenges before the industry is going to be manpower. From the Rallis side, I can say that more or less our supply chain related with incoming material has been largely set right or resolved, you may use that word. But in terms of availability of labor, availability of manpower, it is something that is going to be a bit of a challenge. So we are expecting that over a period of time, this will slowly get resolved and operations will be at full capacity. As of now, I would say that we would be close to running where we need to, although with lesser manpower. So our operating teams are there working at the factory, and those who are the office staff, support staff all working from home so that we can minimize the number of people at the workplace.

Okay. Okay. Sanjiv, if you can highlight, are there some preliminary talks with regard to China plus strategy where you are engaging more with customers on a potential derisking from China and Rallis could potentially gain from that? Are there some preliminary talks going on?

So we had already kept everyone informed that we are in discussions, and these discussions are going on. And there's also publicly available announcements, including things by the Japanese government, who have assured their industry that they are going to be making available $2 billion for Japanese companies to [ visa rights ] to India. And we would like to believe that Rallis would be one of the preferred partners going forward. But as of now, there's nothing to confirm or report.

[Operator Instructions] We take the next question from the line of Prashant Biyani from Prabhudas Lilladher.

Sir, do you expect the loss sales of Q4 to materialize in Q1, especially in the international business?

So Prashant, we have not seen any cancellation of any orders. And I think the international business will be on track only. So there is -- as of now, there's no reason for us to be concerned.

Can I just comment there, Sanjiv?

Yes, please Naga, go ahead.

Yes. So since you specifically asked the question, whether you expect it to come back in Q1, the way we are approaching it is that we have had some difficulty in shipments last month, that is in the last month of last quarter, that is in March. Now we are trying to -- like we have not had any cancellations, but we are trying to sort of retain that business but also be conscious of the fact that the domestic market, kharif season is coming up. So the way we are approaching it is to try and see if there is a scheduling of the business that can be done over a longer time frame in this year, the first few months of this year. So there could not be a one-to-one map to sort of expect that it would all come back in Q1, but we are presently hopeful that we should be able to retain it in the course of this year.

Okay. And how are we positioned in terms of supplying materials in the domestic market? If the growth is decent in kharif in India, would we be in a position to more or less supply the required materials that the market demands?

See, I think, as you are aware, that supply is clearly has been disrupted in the month of March and April. Freight rates have gone up. Availability has been a challenge. Drivers have not been available for many of the trucking companies. So under the circumstances, we are trying to navigate through this space and make sure that both the seeds as well as the crop care items come through to their respective markets. The way we are approaching it is we are prioritizing markets. We are looking at places which are green zones, for example. We're looking at orange zones. We are looking at the red zones, trying to identify at the micro level each of the distributors to whom we should supply and also trying to pay attention to the last mile, that is from the distributor to the retailer and onwards to the farmer. So I think those are the actions that we are taking. But at an overall level, yes, it is challenging. It is not as it was earlier. It will be more expensive and more challenging to plan it out.

Okay. And just last question before I join the queue, our gross margins have improved marginally this time. Was it due to the higher share of domestic business? Or in general, are we seeing a declining raw material prices and hence, this margin expansion is sustainable?

Ashish, you'd like that?

Prashant, just to answer your question, there was a product mix combination in the domestic market, which also had an impact -- positive impact on the margins. As of now, it will be too early to say whether raw material prices increase will be there and how it will get impacted in this thing. But this is fact that in the quarter, there was a good product mix in the domestic business.

We take the next question from the line of Nisarg Vakharia from Lucky Investment.

I'm sorry, I may be repeating what you have said earlier. But can you please highlight what is the absolute other expenses, which is a one-off in this quarter, which will not repeat?

Vakharia, actually -- you might have missed out what I said in my opening remarks. There was an M-to-M loss of about INR 9.91 crores, which is part of that other operating expenses.

INR 9.91 crores?

INR 9.91 crores, yes. That is one thing. And there were certain other provisions which we had made based on the guidance given by the institute given the COVID-19 conditions, especially on the receivables and also on the stock provision, which I've explained already.

Okay. And again, I'm sorry, I logged in late, but out of the INR 16 crores and INR 53 crores, how much of the sales is lost and how much is deferred for the next quarter?

I think Mr. Nagarajan just...

Yes. I already mentioned it. I think at this point in time, from the international portion that is about INR 50-odd crores, INR 53 crores, we are hoping to retrieve it over the course of several months, not specifically first quarter. As far as the domestic business is concerned, it is a little bit more intricate because there are specific seasons, specific spots. And as you pass-through that time, it is difficult to sort of retain that business. So it's a little bit of a mixed situation in the case of domestic business. It's hard to quantify out of that INR 16 crores, how much will be retained because I think the period of nonsupply extended almost 20, 25 days.

Next question is from the line of Nihal Jham from Edelweiss.

Sir, just wanted to start off with the domestic business and on our working capital. You mentioned that there has obviously been a certain change in policies. So if I understand it right have we tried increasing our cash discount to see to that the receivables have gone down for the sale, if I just have to understand better?

Yes, I think at the macro level, what you're saying is right, but it is a little bit more calibrated than that. Like we had explained last year, we had increased our credit period compared to the previous year, FY '20 versus FY '19, if you were to compare, we actually increased the credit period. But when we increased the credit period, we also increased the, what we are calling as, cash discounts, we are calling it as payment incentive, basically at various milestone payments, right, prompt payments date. We had also emphasized the advanced booking incentives. Essentially, we did what you said, which is to have incentivization for early payments. But we also had a penalty for delayed payments. So it is a combination of 3 things: extend the credit period, increase incentives and penalties for delayed payment. The net effect of all of that is what we are now seeing after maybe running it for a year, we are finding that it has helped us in terms of -- I mean our sales has gone up and collections have also gone up.

That is helpful, sir. And if we just look ahead, just wanted your comments on currently farmer liquidity. And also, do you expect that because of liquidity issues, you could see an increase in receivable in the channels for the coming quarter or 6 months?

See, what we are hearing from various sources, as you know, is that among the various sectors that are affected in the economy, the agriculture sector is relatively less impacted. Now there were many surveys or many -- not surveys, I would say, studies, which people have provided, and one of them appears to be from -- I mean happens to be from CRISIL who have indicated a 5% decline in the median income of farmers. But I think as you would appreciate, the median does not really convey the full picture. There is a distribution of farmers. There are people who are in the fruits and vegetable segment who are likely to be more affected compared to the ones which are in wheat or rice, which are likely to be less affected. So I think there are different products in our portfolio and different geographies in the country. And I think it is going to be a match of how we kind of link the 2 to minimize the company-level impact. But certainly, at an aggregate level, there is a projected income decline. Liquidity in the market is expected to be difficult even at the trade -- at the channel level. So we do foresee difficult conditions ahead. Having said that, the way we are looking at it is to try and improve our channel policy and also refine our credit control frame work, which we use to determine which distributors we supply material to and so on and so forth. So I think it's a combination of some prudent actions that we are taking. And I should say that some positivity in the agricultural market as well as the government initiatives, all of which I think will really result in what the final outcome is going to be. But you're right, it's going to be a difficult period from a liquidity standpoint.

Sir. Just one last question from my side. On the international business, I think over the last 4 to 5 months, we have been highlighting that there has been a pressure on Pendimethalin and Metribuzin, specifically the prices. I just wanted to understand a little more from your side on the industry scenario that is it a question of clear cut overcapacity and this situation is something you expect to continue for the coming few months, especially considering our capacity will also get commissioned for Metribuzin in the next 2 to 3 months whenever post-lockdown?

Definitely, I think the situation in the U.S. market has led to an overhang. We have also seen studies of how the COVID-19 has affected the farmers' income in the U.S. market. And we do find that there is an impact in corn market or in soya bean market. So -- but also we are also understanding that the sales of pesticides may be somewhat less, shall we say less -- it cannot be only correlated with the farmer income, there may be other factors that will play us as well. And as things improve on the weather front, maybe the demand would increase and the supply overhang that we have thus far witnessed may come down. I mean these are all just subjectives at this point in time. But the pressure on the price point for both the products what you mentioned have remained. There are also reductions in the intermediate -- there is also a reduction in the price point of the intermediates as well. So I think what we really are focused on is trying to sort of compare the difference between the 2, which is really where our margins play out.

I understand. It would be the contribution...

Mr. Jham, I'm so sorry to interrupt, requesting you to please rejoin the queue. [Operator Instructions] The next question is from the line of Dhavan Shah from ICICI Securities.

So I have 2 questions. So firstly, about the CRAMS opportunity. So you are doing on these 2 molecules. So I just wanted to understand the opportunity size of these 2 molecules. And by what time you will be introducing another molecule in the CRAMS portfolio? And if you can share the run rate of the CRAMS revenue for FY '20? That is my first question.

Dhavan, as far as our contract manufacturing business is concerned, we have mentioned that we have been in discussion. And as and when we have something confirmed to report, we will get back and report, but our discussions with various companies is on. And as far as our existing 2 products are concerned, one of them is certainly seeing considerable pressure because it is a polymer that we produce, which goes into the aircraft industry. And we're all aware of the situation on the aircraft industry. So there is a decline in the consumption of that particular material. So we will be seeing some erosion of sales for that category for the FY '21. Yes, go ahead.

No, no, sir, yes, you please complete it.

No, no, I was just saying that we will report back once we have confirmed business on the contract manufacturing part.

And what is the opportunity size, if you can share in terms of dollar or rupee terms? And how much are we doing right now in the CRAMS portfolio?

So in opportunity size, Dhavan, it really depends on what we're able to partner and with whom we are able to partner and for what quantity, what value. So these are things which we can only know once we have finalized these kind of contracts. But as I was mentioning in the -- in an earlier response, is that there seems to be a lot of interest of many countries to look at India for manufacturing. And I think the government is also very keen that we position ourselves -- we in the sense, India positions itself as a preferred destination. And they are doing all the right things. Hopefully, they will come up with some very clear policies and guidelines on how investment can be attracted. And we would also like to believe that because of our background as one of the pioneers in contract manufacturing, Rallis would certainly get an opportunity to work with many companies on contract manufacturing.

And second one is, you already mentioned that some of the international -- I mean the molecules what you are selling for the international market, you're seeing the pricing pressure. So how is it in terms of the cost dynamics? Is it also in line with the realization? And you also mentioned that some of the CapEx are delayed by around a quarter or 2. So how do you see the asset turn of the incremental capacity going right?

So Dhavan, your audio was not fully clear, but I would say that when we are talking about our products Metri and Pendi coming under pressure on pricing, the other thing to also note is at least for Metribuzin, while there's pressure on pricing, there is also a correction which is happening on the price of the intermediates and key inputs which will go in for that. So yes, there is a pricing pressure, but it is also getting balanced in a large way by the input prices as well.

And what kind of asset turn do you see of this incremental capacity in the next 1 or 2 years? Is it the same of the base business? Or do you see...?

Dhavan, your question is not very clear. Can you just repeat it again?

Yes. So my question is, I mean, as we are delaying our CapEx for few molecules by 1 or 2 quarters. So how do you see -- and the prices are also under pressure. So how do you see the asset turn of these few molecules over the period of time? Will it be in the same line as we are doing for the rest of the business? Or we can see some decline in the asset turn?

No. Actually, on Metribuzin, we had mentioned in our previous call that there is a huge overhang of inventory in the key markets of North America. And this inventory overhang is expected to come down by Q2. And we expect that by Q1 that additional capacity that -- which has got delayed by a couple of months, will be up and running. So we don't foresee any loss of business arising out of the delay in the CapEx. And as far as the formulation facility in the Dahej SEZ is concerned, while it is delayed by a couple of months, in any case, we had not factored it in -- for a kharif production -- kharif requirements.

We take the next question from the line of Varshit Shah from Emkay Global.

Sir, firstly, on the gross margin. Sir, can you just help us understand that in terms of the spreads in your international market, the spreads have remained same? Or on a quarter-on-quarter basis, they have declined and net of benefit in the RM and realization pressure? So that's my question number one. And then question number two, is in the domestic business, I think you've seen a sharp jump in gross margin improvement. So is this purely driven by a change in product mix? Or is there something else? I mean there's some price hikes or something else?

Yes. you want to take that?

Yes.

Go ahead, Naga.

No. So I just want to say that on the international business, we -- our margins have been under pressure. I think for the full year, if you were to look at what you're calling as a spread, if you were to look at it the way we internally look at our business in terms of gross contribution, there is actually a reduction in gross contribution. So net of the raw material price benefit, raw material cost benefit the price pressures have had an impact on the international business for the full year of FY '20 versus FY '19. As far as the domestic business is concerned, like what Ashish already mentioned, in the quarter, it is more of a mix. And I think we would not read too much into it because it depends on what products constitute the revenue, which has been reflected in Q4. And there is no price -- there is no special price increase that we have executed in much of Q4. So I don't think the effect there is very large.

So -- and just an extension to that. So I think the raw material prices, in general, for the domestic business are started coming down. So net of currency, are they better going into Q1 and Q2? Or there is still some way before it actually starts becoming better?

So if you look at our product basket, we have several brands. So in certain cases, we have imported materials. Then like you correctly said, there are -- there is a ForEx impact as well apart from the price movement. There are several products which are domestically produced either by us or sourced from other domestic manufacturers. And there, the price movements are somewhat different. Certainly, not the way the ForEx movement has happened. So it's very difficult to give you an overall response, but we are dealing with each of those at an elemental level, right, at the product level, keeping in mind what the market can bear, keeping in mind what we can pass on, keeping in mind what we can absorb. It's a combination of all these factors.

Just one last one from my side. So in the international business, incrementally, have you seen any business sort of inquiries increasing because of supplies continue to diversify, not in the CRAMS, but your international business? Or it's more business as usual at this point in time?

Sorry, can you repeat that question, the increase in business consequent to us?

So is there any increase in inquiries in the international business, ex of CRAMS and because of importers looking to diversify away from China? Or it is the usual run rate, which you're usually anticipating in the inquiries, I'm saying? Have you seen a spike in inquiries as well?

Well, I think the diversification trend had already started consequent to the environmental and thereafter the safety concerns that were already present from the Chinese market. So what we are finding is that it is sort of accelerating, you can say. There's more people talking about it. But at this point in time, I mean, when we are talking in May at this point in time, there is nothing specific that we have to report that we have gained because of this.

We take the next question from the line of Chintan Modi from Kotak Security -- from Haitong Security, sorry.

Sir, I would like to understand about this additional dealers that we would have -- we have added during the year, some 400 about. Which are the zones or which are the states that this addition has happened? And in the past, you had also talked about rationalization in dealer network. So if you could highlight how we have improved in this sense? And if there was any large market which was missing from our side, what are we doing to work on that?

Yes. We are doing both. We are adding as well as we think there is a net addition of about 4,000 people, 4,000 [ SSP ] as we call them. And these are happening in different markets. The process that we follow is to look at each market, each state actually and look at the specific markets within that and try to identify our distribution gap and try and plug those. As far as weeding out the existing partners, we look at the kind of business that we have done with them, the kind of other performance metrics, net returns and so on and so, payment behavior and so on and so forth. So effectively, we are doing that. In terms of specific geographies that we are intensifying, yes, we are intensifying. As you know, we are relatively better placed in certain pockets like Telangana, Andhra Pradesh, Maharashtra and a few markets in the country. But we are focusing on places like Madhya Pradesh, where we have some improvement to carry out.

Okay. And in the northern part, if you could highlight, like Uttar Pradesh. These are also very large markets, Punjab, Haryana?

Yes. So the way we approach it is we look at -- I mean you need -- I mean the way we see it is that there is a need for a holistic solution to really take advantage of the actions that we are doing. We need to have the right product. We need to also have the right distribution. So the combination of the top best solutions that we are offering, along with the distribution solution is what we are really looking for. And in that regard, at this point in time, NP is the area of focus.

Okay. Got it. And sir, last rabi, we had launched mustard in the seeds business. So how that has played out in fourth quarter? And how -- what do you think about the upcoming -- on the next rabi season because we have plans to launch new seeds?

Yes. We are very satisfied with the kind of response we have had. The mustard introduction has played out well. For the -- it came in between Q3 and Q4 of this year. We are quite satisfied with the kind of response that we have got. We are hopeful on that particular product.

We take the next question from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

Sir, my question is, if I look at the balance sheet, specifically on the inventory portion, I mean, largely, the inventory on a year-on-year basis has been kind of flattish almost. I mean you're looking at almost INR 675 crores going to INR 700-odd crores, I mean, despite of sales going. And we also talked about this deferment of sales, which is primarily there. It can spill into the next quarter. So number one, if you can help me bifurcate this into finished goods and raw materials? And number two, I mean, normally, if I look at every fourth quarter, we tend to build inventory for the coming season. And if I look at it, I'm not able to visualize whether we have been able to do it. So does that mean we will see softer uptake in the first quarter? Or is there any lower demand that we see potentially for the forthcoming kharif?

Ashish, shall I -- Sanjiv, shall I take that?

Yes, go ahead.

Yes. So I think while we don't provide that level of granular detail what you are seeking in terms of the breakup of the inventories, the finished goods and raw materials at a macro level, I can say that there is an increase in the raw materials, which is there consequent to what we discussed about COVID and so on and so forth. So we are having an increased level of raw material purchases. There is also an increase on account of the material that we could not invoice out. The finished goods also have gone up. But I think these are only 2 elements, but there are other things which are there in the -- within the inventory, the figures that we report. So I don't see -- and if you take -- if you think about seeds, the inventory is also increased compared to last year. So I don't think we are underproviding in the inventory as far as supplies for the year. There is nothing to be read into inventory from that standpoint.

Sure. But is there a change in the way the accounting has been changed or something because I hardly see a jump. I mean if you're saying that there has been an increase in your finished goods and raw materials, I mean, technically, the number should be a much higher number than probably what I'm seeing here?

No, but what I can -- maybe I should clarify that. You see, when you look at our inventory, there are certain products, which is a combination of many products, right? So you would have some reduction in certain products, but you could have an increase in certain other products, leaving the overall finished goods inventory pretty much at a similar level. But for the desirable products, you could actually have larger number of -- larger amount of inventory. So there is obviously industrial movement within the groups. And that is why I said that from our Q1 or going forward situation, we are not thinking we are underprovided.

Sir, as far as -- my second question is as far as the season goes, from what I understand is the first demand will primarily come from fertilizer, and we understand that the demand of fertilizers has been advanced primarily with the fear of availability of materials. And assuming that the season starts on time and probably we are seeing a good kharif as per whatever the Met Department is talking about, there is also good amount of water level on the ground. And we are also seeing, at least initially, there is a jump on the paddy, which typically is more favorable for agri inputs. So if we are assuming that the demand is going to be there in place, I mean, should there be any issues, number one, as far as production is concerned in terms of availability of materials? And number two, if you see any issues in terms of making available these products because of transportation, et cetera, over sales as 1Q or 2Q, I mean, are we on track mainly to capitalize on whatever demand that we see on the kharif side despite of whatever...?

We think it already was mentioned. It is a challenging situation from the availability as well as the cost of transport as well as the last mile availability, not just from the distributor, not just from the C&F point, but -- not just supplying to the C&F point but supplying to the farmer at the end of the day. There are challenges. They are slowly improving. But one of the important things, which is to be recognized is the government has been extremely supportive of the industry. Pretty much agriculture was the first industry, which kind of opened up even during the lockdown with the essential commodities tag. So I do not want to reduce or belittle the difficulties and the challenges that are there in the market. That are there. We are working on it, and we are doing our best to navigate through this.

We take the next question from the line of Abhijit Akella from IIFL.

Sir, one of the comments I caught in your opening remarks was that there was no invoicing done in the last 10 days of March. So I just wanted to confirm whether I heard that right? And if so, what would be the amount of billings that would, I guess, get deferred to the next quarter?

Yes. You heard -- the comment was correct. But I mean we would like to give a number because that was basically on the plans of what -- where the materials would have moved and what could have been the consumption. So it will be not a correct thing to give a number.

Yes. Just to add to what Ashish said, this is pertaining to the domestic market what you heard, correct. And in the domestic market, it is not an automatic shift, right, from what is not invoiced to go into the next quarter because it is dependent on the requirement at the farmer and it is dependent on the season. And that is why I think in the earlier question, I had indicated that it is not an automatic given that it will be recouped in the next year.

Okay. Fine, sir. And second was just with regard to where the operations stand right now at the plants. If you could help us get some sense of what's the level of capacity utilization at which we are operating our various units, mainly for the export capacity, I guess? And then second, in terms of the port infrastructure, what I gather is that the ports are probably running at a throughput level of no more than, say, 30% odd of normal levels. So what are you seeing there? And how does that impact, let's say, our first quarter shipments?

Abhijit, in terms of the port, you are right, there's a lot of congestion, which is there at the port. My understanding from whatever I heard is that there's a lot of export cargo, which has got stuck. And therefore, the incoming cargo is also getting delayed plus also permission of CFAs and shipping agents and all to also visit the ports. So these things are slowly getting untangled, and we've also faced that -- those issues. They have all been resolved, and our containers have also started moving out from the port as well as our exports have also started happening. So the ports will sort themselves out. And our plants, as we had already mentioned, are -- have been started up. In fact, Akola plant where we do formulations has been running practically from the third or fourth day of the lockdown being announced, where we had also -- I had mentioned started taking up formulation of hand sanitizers. So it has been running with a limited crew. And we -- as the people are becoming available, we are increasing the production of formulations from that plant. And the production has also started coming out from Dahej as well as from Lote, where we do largely export cargo, which is Metri, Pendi and acetate.

Next question is from the line of Kunal Mehta from Vallum Capital.

Sir, this seed season will be a precursor to what's going to happen in the kharif season. Of course, there are other variables. Can you give us an understanding of how we'll see the seed season going -- performing for the next 2 quarters?

You are referring to the seed season?

Yes, seed season for the next 2 quarters because that would have an influence on how we are going to see the performance of kharif.

Yes. So I think maybe I can share some thoughts as to what we are seeing, and we can draw conclusions from how it might go. One is, of course, that the monsoon forecast has turned out to be positive. I think it is saying it's normal monsoon, which I think is -- which is a good input. What we are finding is that supply disruptions have existed, but they are also getting resolved. In fact, seed industry being the first like you said, within the agriculture, when it was opened up, I think it has benefited quite a bit by the government's support. So materials are moving, processing is happening. And that way it is a little bit positive. From the standpoint of moving material to the C&F point, I think we are -- we could say that but for some increased cost at some point in time, we are perhaps, I think, pretty much sorted at this point in time. Now all these things could change depending on the second wave and all of those, which people are talking about, but I'm just saying that at this point in time. But the movement from the distribution or C&F and distributor point to the farmers is something which is happening. It has started in some markets. Places like in Punjab, what we have seen is that maybe some farmers are advancing their purchases because they do not want to probably venture out as many times as they would have normally done to procure their seeds. But that is very limited and anecdotal. We don't have a full behavior pattern established on this. But certainly, at the trade level, we are finding that there is, you can say, a scarcity mindset or panic buying, whatever way you want to call it, it has been noticed in the case of fertilizers also where it has been reported that the sales have been significantly higher in April this year than last year. Maybe a similar thing is what we are also finding in seeds, but we will have to wait and see. So at this point in time, the focus -- our focus is to make sure that we get our material into the market and ensure availability. We are focused purely on that, and we will have to see how the whole thing goes on, which is also going to be correlated with how the lockdowns move, how the situation changes on the ground. It's very difficult to -- it's a very complex subject to really predict how it will go out. But right now it looks like it is certainly compared to many other industries in a better situation.

Sure, sir. And sir, second, I have another question. I wanted to understand how do you see volumes -- I'm sure this is a very tricky question and you have -- you are faced with multiple factors of how things would behave. But what I'm trying to understand is that because of delays in shipments to geographies like Europe and North America, we are going to see a lot of material being passed on, being flooded to -- into the domestic markets because of suppliers not being able to send -- export these materials. So I wanted to understand for the coming season, do you see there could be an oversupply of materials? I'm sure, of course, I also appreciate that the last mile connectivity is also a challenge and so is the logistics. So how do you see the whole inventories in the channel going -- behaving in the next 3, 4 months once we build up to the kharif season?

Kunal, I think the domestic market just simply cannot absorb if you are -- if I go by your hypothesis that the exports will not happen, and all of that will go into the domestic market. The size of Indian export of active ingredients and agrochemicals is too high for the Indian market to absorb. And there's really nothing to suggest that the international markets will not be able to take this material. Like the way the Indian government is focusing on agriculture, I'm sure all the key consuming markets like Brazil and U.S., their political leadership is also focused on getting agriculture fully back on its track. So there is really nothing to suggest at this stage that we'll have anything dramatic happening on the export of agrochemicals.

Next question is from the line of Rohit Nagraj from Sunidhi Securities.

Just 2 questions. One is a precursor to the earlier participant on the logistic point of view. So how the logistic is [indiscernible] during the current period? So we have about 1 month of April which was gone? And just a follow-up on the [indiscernible]. In terms of availability of sort of intermediates or surfactants from domestic market, which primarily probably coming from the MSME segment? Are those available? And if they are not available, is it hampering our production? And at the same time, you've talked about the transportation cost very well. So because of the transportation, will there be a pressure on margins, at least for Q1? That's my first question.

So Rohit, the logistics, every day, I think things are simply improving. And we expect that there may be a slight increase in cost, but it's not something that the investments are not there. The other issue is around the supply chains for manufacturing and things like even packaging materials sometimes becomes issue. But what I must say is that the advocacy, which is being done by various associations and the focus that the government has on agriculture, many of these things are getting resolved sooner than later. And apart from big cities, which are still covered under red zone, most of the industrial activity as of the last couple of days has also been allowed. So we would see a gradual improvement unless something dramatic happens, which would sort of reverse the positive direction in which the manufacturing is moving.

So the second question is on the international business, which we partly deferred as Mr. Nagarajan was mentioning. So -- but these products, which we are supposed to export in Q4 would have been for a particular season and particular crop. So how do you foresee that those will be recouped over the next 4 months because maybe the season is over or the crop for which it was supposed to be there, those plantings have already been done? So how do you foresee that particular business coming in? And...

Yes. No, I think the key difference is that, that typically, most of the AIs are B2B sales, right? So you have a buffer in between. Unlike in the domestic market, where you have a formulated product, which goes directly to the farmer. And therefore, the season dependency is much higher. Here, you do come -- you do get the benefit of an intermediate player who can actually stock up or stock down depending on the situation. So that is what is giving us the hope that the international business can be retrieved.

Okay. And just a small bookkeeping question on the CapEx front. What was the CapEx for FY '20? And given the current circumstances, what is the number that we are looking for FY '21?

So for CapEx, we have done some rationalization in terms of how we need to move forward. So we'll be looking at close to about INR 100 crores in terms of spend. So while there are some delays, we are not shying away from making the investments on our growth requirements for putting up new capacities.

And FY '20 CapEx number has already been booked?

Ashish, would you like to just share that?

I didn't understand the question. Can you please repeat?

CapEx of FY '20.

No, '20. I heard some '20, what is...?

CapEx, capital expenditure in FY '20?

Okay. It was around -- the cash flow was around INR 65 crores for FY '20.

We take the next question from the line of [ Amit Maurya ] from AlfAccurate Advisors.

Firstly, now given that Q1 and Q2 are the 60% of your revenue. And this supply side and utilization issue, so do we see some revenue leakages because of these?

So Amit, we've already articulated there are a lot of potential challenges and real challenges on the ground. And the situation will change from one day to the next day and maybe for the next couple of weeks, things will keep changing. As of now, we are not seeing any significant or major issues in terms of our ability to make available products. There could be some products, which may not be able to be fully made available. But these things we'll need to balance out.

As we mentioned earlier, I think we are prioritizing availability. So I think that is really what we have -- in fact, if you relate to the earlier question that was asked on the margin, again, I would say that we are prioritizing availability. The availability is important thing, but we are actually focused on making sure that material is available.

Okay. And sir, like you mentioned that there was 10 days of invoicing not done in domestic market. So like would it be like in Q1 also, there would be a similar kind of number, 10, 20 days kind of -- 10, 12 days kind of invoicing, not...

No, no, Amit, I think by the time we got to the first week of May, most of these things have started resolving themselves. So -- but the point which had been made earlier that there is a certain requirement, which comes from the market, right? For example, it was very much the crop season happening in the eastern markets. And if there's a requirement of, let's say, a fungicide, which is required to address attack of, let's say, blast in that particular paddy crop and you were simply not able to move the material even out of a warehouse, then that opportunity is completely lost. It will not come back because by that time, the issues -- the farmers already faced that issue and the consequences of that, and it becomes a lost sale. So it's very difficult to say that the invoicing, which did not happen, how much of it we can recoup because it becomes an opportunity loss because the issue for which that material is required could simply not be supplied. I hope that clarifies, Amit.

We take the next question from the line of Rajat Setiya from VRDDHI Capital.

Just one question. seeds sales are -- I mean quarter 1 being the only quarter that made all the profit in seeds business. So are we looking at huge degrowth in the seed business in this quarter?

Your question -- can you repeat the question, not very clear. Can you say that again please?

I was saying, in seed business, quarter 1 is the only quarter when we make our profits. And this quarter, a lot of disruptions happening, 1 month of lockdown already in place in April. So are we looking at huge degrowth in the seeds business in this quarter?

No, like I mentioned earlier, seed was the -- within -- I mean if agriculture sector was, let's say, the least affected in this present situation, seeds was the first in the agricultural sector to probably get the benefit of both the government support and all company's attention. So therefore, from our point of view, we are not working on that assumption, what you are saying. We are actually working on supplying, making our supply and availability at what we have planned. So that is what we are really focused on. Disruptions are there. There is no question about it, whether it is the early problems we had in terms of moving the seeds from the production centers to our processing factory or even getting the requisite manpower in the processing factory and then subsequently, the logistic issues that we face. But I think those have, I should say, not fully solved, but certainly, they have settled down to a pretty large extent. And our focus is really to supply the seeds that we have planned.

We take the next question from the line of Levin Shah from ValueQuest Research.

Sir, I would just like to know how we are placed in terms of raw material availability. Like you dwelled upon in the beginning, like the availability has improved, but are we able to get raw materials from China? What would be your dependence on China? And how have the prices moved in the recent past?

So our -- go ahead, Naga, go ahead, go ahead.

No, no, I just wanted to say that raw material -- first of all, raw material availability from China has improved. There is no question about that because the Chinese manufacturing plants have come back and that has improved. But I think what we need to keep in mind is that there are 3 things in the raw material supply, right? One is the availability from the international zones, that is production there; second is the shipping logistics; and third is the inland logistics within the country, within India. Now I think we have had challenges, as you are aware, in all the 3 areas, whether it is production, inland logistics or the shipping line. You can see the Baltic index, for example, it dropped considerably when the COVID broke out. But all of these are slowly settling down. We are working through the challenges. And it is something which we are very, very keenly monitoring. And it is also something which we will have to almost monitor from a month-to-month kind of a basis because it is -- while you may have material on order, until it really reaches to your factory, you are not in a position to really start the production of the subsequent product. So I would say that things have certainly improved compared to what they were 1.5 months back. Are we still facing challenges? Are we concerned about it? Certainly, and that is something which is deserving -- I mean getting our attention. In terms of price movement of the raw material, again, it is mixed actually. Some of them have gone up, but some of them have gone down too because of the oversupply and the difficulty in moving the material maybe because of these reasons. We are finding both ways movements are happening on the raw material prices.

Sir, and our dependence on China for raw material?

We had mentioned it earlier also. We have about 55% or 54% of our raw materials, which are coming from China. There is no change in that percentage at this point in time.

Okay. Sir, and my next question is on these products that we have launched during this year, so Zygant was one of the major products. And also, there were other products that we had launched this year. So how has been the performance? And do we see any of this products being a sizable part of our revenues maybe a year from now?

So like what Sanjiv already mentioned, we had 6 products that we had launched in the FY '20 for the domestic market. Zygant what we mentioned is certainly one of them. We also had Ayaan and Sarthak. So these are 3 products, which are 9(3) products that were launched: Zygant, Ayaan and Sarthak and we had 3 co-marketing products that is Trimbo, Cameo and Impeder. Trimbo, Cameo and Impeder. So we have in all 6 products that we had launched. And our view is that the response that we have received for, I would say, 5 out of the 6 because Sarthak came much later in the year has been quite encouraging. We are hopeful all these 5 products, Zygant specifically has been quite encouraging too.

[Operator Instructions] We take the next question from the line of...

Can you make it last question, please.

Sure, sir. We take the next question, as the last question, it's from the line of Nitin Agarwal from IDFC Securities.

Sir, this is a year where, as you mentioned because of the challenges which are there, there's going to be significant disruptions. I mean sir, structurally, you would see anything changing for the business given the fact that in such environment, typically, the weaker players tend to struggle a lot more than the well-capitalized people with better liquidity like us?

And that is certainly something which can potentially happen. And we'll, of course, have to wait to see how the others in the market are going to respond to the whole issues, which we've already discussed. So I can't -- I don't have an answer to you, Nitin, in terms of how the others will be able to withstand the issues and challenges of the market. I think that only time will tell. But certainly, those companies who have got good liquidity would stand much better in the market, at least, during the course of the next couple of months as we go through this very challenging time.

And just secondly, [ late ] question, with all these issues which are there, there being concerns around the farmers not getting paid on time for the rabi crop. Do you see a situation where farmers down trade a bit on the crop protection side in terms of not probably going for more expensive material? or is that a probability?

That is a very difficult question. In fact, we are constantly trying to ask ourselves that question whether there will be a down trading or whether there will be an up trading because when you have limited amount of money, do you choose a strong brand, which is a proven brand because you really want that guaranteed result or do you want to make do with what is an also-ran brand but available at a lower cost. So this is actually a very difficult question. But I think what we are nearing around to a view is that it is going to depend on 2 things apart from, of course, at the income level. It is going to depend on the crop we are talking about and it is going to depend on whether it is something which is a prophylactic or whether it is curative, right? So if you are in a crop where the export realizations, for example, are good like grape crop, even though that is under pressure at this point in time, you might see a little bit more interested in going for superior brands because you want to really maximize whatever you are left with because we hear that there is considerable amount of grape production that has got destroyed thereby limiting the income levels of the grape farmers. But on the other hand, if you again consider it as whether it's prophylactic or a curative. If it's a prophylactic where you just want to do something to -- on a habitual basis to prevent the occurrence, maybe you would settle for a weaker Chanvanprash kind of a brand rather than necessarily the #1 brand, right? So you probably could choose down-trading there. So it's a little hard to say. It's probably very nuanced. It goes crop by crop and farmer by farmer. So that's actually the question that you asked is a great question, and that is what we are constantly trying to figure out in our marketing conversation.

Nitin, I'll just add to that. There is -- I think even the government is quite aware of the fact that agriculture, especially the kharif season has to succeed, and even from the side of the associations and all various projections have been given to the government, including how to increase the credit limit on the Kisan credit cards and all of these things. Plus, I think even in terms of mandi receipts, how fast the government is making money available into the farmers account is also important. We have a number of things that the government is already doing, is considering doing. And as Naga is saying that even some of the choices that the farmer makes is really going to determine how the kharif season is going to play out. So yes, I would say -- to the last question, I'll just try to sum up to say that the sentiment, overall, the way we see it is positive because of the positive outlook that has been indicated by the IMD in terms of normal monsoon. The activity that is happening in terms of the rabi crop coming into the mandies and the markets and the government efforts in terms of putting in place mechanisms, including creating local mandies closer to the farm where the farmer can go and leave his product. To the things as far as Indian agriculture is concerned, so far it seems to be helpful. And I think agriculture is an important area like the way pharmaceuticals is. And this sector, our expectation is, would be less hurt compared to some of the other sectors where the business is completely collapsed, whether it is the airlines or hospitality or travel industry. So we are in a much different place than many of the other sectors are. So there's nothing to suggest that we cannot have a good kharif season as we stand today. But again, the situation is dynamic. And things could change from week-to-week over the next 1 month and over the next couple of months as well. With that, it's back to Gavin and the CDR Team.

Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing remarks.

Yes, ma'am. So I'd sort of concluded in a way I'd already given concluding remarks. So Gavin, if there's anything else that you would like to add or want us to add, we can close the call.

Yes. Let us close -- let's close, please.

Sure. Thank you very much. On behalf of Rallis India Limited, we conclude today's conference. Thank you all for joining. And you may now disconnect your lines.