Rallis India Limited (RALLIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Rallis India Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir.

Thank you. Good day, everyone, and thank you for joining us on Rallis India Limited's Q4 and FY '21 Earnings Conference Call. We Have with us today, Mr. Sanjiv Lal, the Managing Director and CEO; Mr. Nagarajan, 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 discussions may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the result presentation. I now invite Mr. Sanjiv Lal to begin proceed with the call. Over to you, Sanjiv.

Thanks, Gavin, and good morning, everyone, and welcome to our quarterly call. I trust all of you are safe along with your family members in the current context of the pandemic. As mentioned by Gavin, I have with me on the call Mr. Nagarajan, our Chief Operating Officer and Mr. Ashish Mehta, our CFO. I'll begin the call with a quick overview of the key trends in the sector, post which I will move on to a rather specific development. Amidst the rising COVID cases, one positive news has been the forecast of a normal monsoon by both IMD as well as Skymet. The quarter gone by marked about the 3% increase in Rabi sowing area in India. Good credit growth in rural India kept sentiments buoyant. And globally also the sentiment for pesticides remained positive. Moving on to Rallis specific developments. Let me start with the headline numbers first. For the quarter, we reported revenue growth of 36% and profit of INR 8 crores compared to INR 0.68 crores in the previous year, driven by improved performance of domestic and international business. The growth rate was also aided in part by the lower base in the last year. For the full year as a whole as well, we have delivered a fairly steady revenue and profitability growth of 8% and 24%, respectively. More than the headline numbers, we are pleased with the factors behind the numbers which are driving the growth. As discussed earlier, we have invested in capacity expansion in some of our plants, which have been completed. Our new formulation facility is expected to be commissioned during the first half of FY '22 and the multipurpose plant later in the year. Our newly launched products are getting a good positive feedback from the customers, although demand generation efforts were somewhat hampered through the year due to inability of our team members to engage directly with the farmers. Further, our revised credit terms as well have been well received as can be seen by our cash flows. And Ashish will elaborate shortly on this gain. Our international business is shaping as well with good demand for a majority of our key products. With regard to contract manufacturing business, while we are continuing to witness [ testing ] at present, we are undertaking the acquisitive steps towards reviving the business. I will talk about it in detail shortly. In the Seeds business, we are undertaking steps to address the present [indiscernible] in our product portfolio. Let me now dwell a bit more in terms of our strategy for each of our business segments, starting with the domestic business first. As we have indicated in our previous calls, our efforts are directed towards delivering steady and consistent growth in the business. We have done a 3-pronged strategy towards achieving that objective, first being to strengthen our product portfolio. And we have started that as we introduced at least 2 new products in each year as what we have stated. In FY '20 itself, we introduced 6 new products, 3 of which were in-house, while the others were co-marketing. Continuing with the same trend, we introduced 3 products during the current year as well. And we expect to introduce new products in the coming year as well, which will help us drive the revenue run rate. In addition to introducing new products, we have also undertaken a detailed analysis of our existing portfolio and have identified product gaps -- to plan -- to drive growth. Lastly, our credit terms have been well received by the market. Not only has our product offtake run rate improved, but so has our collection cycle and cash flow as well. We believe the completion of the above measures should help us maintain and drive the business momentum in the near to long term. Moving to the international business. We are witnessing steady demand for most of our key active ingredients. We have also selectively undertaken expansion and debottlenecking of capacities where we see significant growth. As most of you may be aware, we have completed the capacity expansion of Metribuzin, wherein we have a significant presence globally. Further, we have also expanded capacity for Hexaconazole and Pendimethalin. Further, we are also working towards improving our product mix in this business, registering our own products in key markets and increasing the share of formulation business in the overall product mix. I am pleased to report that we have already received registrations for Metribuzin technical in North America and for Metribuzin formulation in Brazil. Secondly, we are also working towards augmenting the overall product portfolio for the business and are on track to add new products. Lastly in terms of contract manufacturing, while we see near-term softness in the business, given our limited portfolio, we are undertaking steps towards developing the business to make it a key growth driver going forward. With that in mind, we have put in place a dedicated team for the business and aim to leverage our strengths to develop our partnerships with global players. Our portfolio approach of having multiple businesses has provided us the stability when some of them or parts of our portfolio are being challenged. Moving on to the seeds business. As mentioned earlier, our attempts have been directed towards building our comprehensive product portfolio to eliminate the [indiscernible] present in the business at present. We have a strong Kharif portfolio at present with a dominant position across 2 product categories. With regard to the Rabi segment, we are exploring in-licensing opportunities to launch rabi maize and vegetable seeds till the time our own hybrid seeds get commercialized. Hybrid Mustard launched recently has done well. We have also, during the year, launched a couple of new products, which have been well received. Two new products in maize, one in bajra and one in chili. We're also undertaking investments towards building a strong product pipeline for strategic crops like cotton, maize and vegetable. And we are hopeful that these efforts will help us address the existing gaps in the business and enable us to develop a comprehensive portfolio going forward. A quick word now on CapEx before I hand over to Ashish. Of the INR 800-odd crores CapEx plan approved by our Board, we have firmed our plans for about INR 550 crores to date, of which, as mentioned earlier, we have completed expansion of a couple of our products. And 2 more will be completed by June '21. That is by the end of Q1, along with the annual shutdown of our Ankleshwar facility. We also expect the CapEx encompassing our multipurpose plant, pilot plant and automation, et cetera, to be completed during FY '22. To summarize, we believe we are well placed to deliver stable and consistent growth over the coming years. All the businesses are shaping up well, strategically heading in the right direction. While some may be ahead of the others in terms of pace and the level of progress attained, but broadly, as I mentioned earlier, all of them are heading in the right direction. With that, I now request Ashish to walk us through the financial performance before we open it up for Q&A. Over to you, Ashish.

Thank you, Sanjiv, and welcome, everybody, to these earnings calls. I hope you all are safe and keeping good health. Highlights for the Q4. As I'm sure you must have gone through the numbers, but as a custom, I need to call out the numbers. Revenue at INR 471.26 crores was up by 36% compared to the same quarter in the previous year. Operating EBITDA at INR 17.72 crores compared to negative INR 9.81 crores in the same quarter of previous year. Profit before exceptional items stood at INR 9.88 crores compared to a loss of INR 14.08 crores in the same quarter in previous year. There is an exceptional item of INR 1.68 crores, which relate to profit on sale of assets during the quarter. And finally, profit after tax after exceptional items stood at INR 8.12 crores compared to a profit of INR 0.68 crores in the same quarter in the previous year. For the year-end highlights, revenue of INR 2,429.44 crores grew by 8%. Operating EBITDA at INR 322.89 crores, a growth of 24.5% over previous year. EBITDA percentage at 13.3% compared to 11.5% of previous year, a growth of almost 170 basis points. Profit before exceptional items at INR 294.06 crores, a growth of 30% over previous year. And profit after-tax and exceptional item is at INR 228.58 crores, a growth of 24% over previous year. Now I'll give you the business-wise breakup for the Q4 as well as for the year-end. Domestic formulation business revenue at INR 172 crores registered a volume growth of 35% with a price correction of 10% downwards, resulting in net growth of 15% for the quarter. For the full year, total revenue stood at INR 1,084 crores versus INR 949 crores in the previous year, registering a volume growth of 16%, and a price correction downward of about 1%, resulting in a net growth of about 14%. International business registered a growth of INR 230 crore revenue for the quarter, a growth of 73% over the previous year, largely driven by volumes across all active ingredients. For the full year, total international business dropped at INR 741 crores versus INR 722 crores in the previous year, registering an overall growth of 3%, a breakup of which is largely volume with price correction, mainly Metribuzin. While growth rate was seen across all major active ingredient, price correction, as I said, was in the Metribuzin, which pulled down the overall growth. Crop nutrition, this includes both Geo Green and plant growth nutrients, net revenue for the quarter was INR 23 crores compared to INR 19 crores in the same year -- in the previous year, an overall growth of 21%, largely driven by volumes. For the full year, crop nutrition is at INR 120 crores, compared to INR 98 crores in the previous year, registering a handsome growth of 24%, again, partly driven by volumes. Seed for the quarter was at INR 26 crores versus INR 24 crores of previous year, largely driven to better price realization. And revenue for the full year was at INR 401 crores compared to INR 364 crores in the previous year. EBITDA for the quarter is 3.76% versus negative 2.8% in the same quarter in previous year. And for the full year, EBITDA stood at 13.3% versus 11.5%, registering an increase of 177 basis points. The earnings per share for the year FY '21 is at INR 11.75 versus INR 9.51 from the previous year. The company's working capital days were at 86 days versus 83 days in the previous year. The receivable days improved to 61 days from 73 days in the previous year. Cash from operating activities stood at INR 216 crores. And total equity investment as at 31st March '21 stood at INR 321 crores after meeting CapEx outflow of roughly INR 160 crore. ROE for the year is 18% compared to 16% of the previous year. The Board considering the results is pleased to announce an equity dividend of INR 3 per share compared to INR 2.50 per share in the previous year. That's all from my side. And I now hand over to Gavin.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Rohit Nagraj from Sunidhi Securities.

Congrats on good set of numbers. So the first question is in terms of R&D. So how does the new product pipeline look for the next 3, 4 years? And what would be our focus crops or focus areas from new product introduction point of view?

Thanks, Rohit. So in terms of our pipeline, we have already stated that we will be targeting, introducing at least 2 new products from our R&D efforts. So I would say pretty much we are in line with what we have stated. And our pipeline also is looking reasonably healthy going forward. We had done a very detailed gap analysis of what we need to do in terms of our portfolio. We do have weaknesses in certain segments, which we have identified for which the work is currently underway. And over a period of time, as you're aware, that it goes through a registration process, development process, so we will be having these products getting introduced into our portfolio. And some of these are related with segments like wheat and soybean, so we will be having products in that category as well. And also herbicides is another area where we're also working on getting a couple of formulations to strengthen our overall product mix for the crop protection portfolio. Likewise, on the crop nutrition portfolio, we've also identified opportunities for introducing new products. We have seen a good traction for some of the products that we have introduced. Some of them, which we introduced during FY '21, included fertigation related products for vegetables and grapes. And we also introduced Neem-Based products, again, for the segment looking at biologicals. And we will be having a couple of additional biological products getting launched during the upcoming Kharif season. So specifically on the crop protection, certainly, they're going to be 2 per year. And on crop nutrition side as well, there will be new products as well as on the seed side, where a number of hybrids have gone through the various testing stages, key commercialization stages. And we did introduce 3 new hybrids into our portfolio last year. And we look forward to introducing a couple more in each of the years that will help in refreshing, renewing and rejuvenating our portfolio in all our categories. Does that answer the question, Rohit?

That's very helpful. A very comprehensive answer. For the second question is in terms of geographical revenue target for FY '25. So currently, we had about 63% from domestic and 37% from international. And the target suggests that about 60% domestic, 40% international. So is our focus still on the domestic market given that there is no material shift in terms of our geographical revenue breakup for the next 4 years?

So it is our stated position that we want to expand our international business, and this comprises both the B2B sales as well as the contract manufacturing opportunities. And we do see a lot of opportunities in contract manufacturing and for which we have already put in place a team to work with various innovators across the globe to see what are the opportunities that we can take forward for partnering on the supply chain of some of the innovators and other users of agro chemicals, including intermediates. So we do see growth in that segment, both for actives as well as intermediates and also on the formulations because we have won a couple of registrations in Africa. We have got one formulation for Metribuzin during FY '21. We also have got the approval for insecticide formulation. We are waiting for getting the state-level registration within Brazil for us to commence our sales with the insecticide. So we do expect good traction from our exports business, but that is not to say that the share of -- as a percentage, the -- it is looking like as if we are reducing our intensity on the domestic side. But I would just like to re-emphasize that domestic market is a key growth area for us. It is the largest part of our portfolio. We are expanding our portfolio beyond crop protection to crop nutrition to biologicals and, of course, seeds, which is an important part There is a good pipeline of work which is happening especially on some of the problem areas which we have in our portfolio related with the rabi crops in our seed portfolio. So the work is very much on. So we will be growing that. But the 60-40, I would just like to clarify, is related with the crop detection side.

The next question is from the line of Varshit Shah from Emkay Global.

Congratulations on a great show, especially on the export side. So my question is first on the reach. So I think if I were to just do a simple math that you currently have a reach of 48,000 distributors, [ retailers with 3,700 ] distributors. That's roughly around 14 retailers per distributor. And the target which you have set out for FY '22 is 65,000 retailers on 4,000 distributors that's roughly the ratio of 16 retailers per distributors. So are you expanding the area of coverage for distribution? Or is there a changing alignment strategy at the distributor level? That's my first question.

Okay. Naga, you'd like to take a go and respond to Varshit?

Yes. Actually, what we have done, Varshit, is that we had actually done a pilot exercise, trying to sort of assess the coverage that we are getting at the retail level. What we find is that there is certainly scope for us to increase the retail coverage. And while we are referring to the numbers at this point in time, what we also feel is that it is important to look at the throughput that some of these retailers are carrying. So in terms of numbers, certainly, I think we would have to increase. But I think more importantly, we would have to increase in the relevant set of retailers who are having high throughput. So the intention is to increase the retail footprint. And certainly, we will be leveraging the existing distribution channel to achieve it. And of course, wherever we find that there are pockets where we need to add distributors, that will also be done. That is why we are expecting an increase in both. But we do expect the retailers to, what we call the [ SSPD ] ratio, to increase in the manner that you articulated. More coverage per distributor as well as more distributors.

Sure. And second question is on the new [ active ], which you are looking for to add in the coming years. So will that come up in the new MPP? Or do you have some capacity on existing MPP as well to start? And if you could be a product in H1 or H2, when you plan to start the new activity in the International segment?

So Varshit, this is what will go into the new multipurpose plant. And that plant is getting constructed. And we are expecting that we should be able to commission that plant during this year. But things may change because of the kind of difficulties that the country is going through. There's a lot of the labor which works on the project side, having moved away for their own reasons. And we are seeing that even at our [ seed ] formulation plant where the number of people who we really need for completing the project has also decreased. So that being said, our intention is to commission the multi-purpose plant during this financial year where the new products will go. We don't have appropriate capacity available for us in the existing plants because most of them are dedicated plants.

Sure. Sure. That answers my question. Just one last question. Can you just call out the CapEx plan -- as per today's plan for FY '22 in terms of spend?

So we have an overall plan of -- in terms of cash flow, we have done about INR 158 crores, INR 160 crores during FY '21. And we are outlooking cash flow about INR 250-odd crores for FY '22. b

[Operator Instructions] The next question is from the line of Chintan Modi from Haitong Securities.

So one, if you could discuss a little bit more about this new product launch that is EV, what is the kind of market size that you are looking at? How would we -- are we planning to kind of scale that up? So that is one thing. And also from the gap analysis perspective, you mentioned, wheat and soybean will be our focus. Could you help us understand what would be the current portfolio in terms of wheat and soybean and any potential launches in this same -- in next year?

Naga, do you like to go?

Yes. I'll take that. So you wanted details about EV. EV is actually a combination of strobilurin and a diamide. It is a fungicide plus an insecticide combination. So it is, in that sense, a unique product. [ Oxymethyl ] plus Flubendiamide. This product, the formulation is aimed at a couple of crops. One is Paddy and the second one is vegetable, and particularly, in vegetables, tomato. So in the case of both these crops, it would be utilized or useful in the middle stage of the crop. So for example, in the case of Paddy between 45 to 60 days. And in the case of vegetables, in the flowering and fruiting stage. So not in the early stage of the crop, not in the end state, but in the middle stage of the crop. And it is aimed at a combination of sheath blight and [ leaf boulder ]. These are the problems of the farmer that this particular combination is expected to address. It is a product where the cost of application is a little bit on the premium side. It's closer to about INR 1,400 per acre. So it is a bit of a premium product. And therefore, it would be found attractive for farmers facing specific kind of, let's say, difficult problems in some of the premium geographies. So for example, in the case of Paddy, we would expect that places like Punjab, Haryana, Uttar Pradesh. Maybe in the case of tomato, it would probably be places like Maharashtra. So these are the kind of places where we would expect this product to be [ off a field ] because we must remember that there are also lower-cost products that are available. But of course, this one is having a utility in a more difficult situation, more stressed situation. The overall market size for this product for Paddy and tomato or for blight and leaf folder maybe is about INR 700 crores to INR 800 crores overall market. But I think this would be in the premium end of it. So maybe the addressable market, what we can think of as maybe INR 150 crores to INR 200 crores. So this is some detail about EV. We have introduced this product, and this will be the first year effectively of seeing the ramp-up and so on. As far as soybean is concerned, last year, we had introduced a product called [ Inlip ]. It was a co-marketed product. And towards the end of the previous year, that is FY '20, we had introduced Impeder, which was for the wheat segment. So we have the -- a few introductions that have gone in. Of course, there are many more which are in the pipeline, which our R&D is working on. Primarily, we are looking to strengthen our distribution infrastructure, like we already spoke about in the previous question, in specific geographies, Madhya Pradesh and also parts of North India where wheat is grown to take advantage of these products introduction. Does that cover your question?

Yes, sir. So that was quite helpful. Second question is with respect to the international business that we have seen [indiscernible] volume growth. But wanted to understand more from a price recovery perspective, like last quarter also, we had seen raw material prices increasing and that has kind of intensified further. So have you seen any price increase? Because at least in the domestic market in Metribuzin, Pendimethalin, we have seen some good amount of price uptick. So from that perspective.

So if you take the full year perspective, if you take the full year perspective, I mean, FY '21 over FY '20, we do find that Metribuzin international prices of Metribuzin, what we have been able to notice is that there is an average drop of about 40%, right? That is the Y-o-Y drop. So that is -- however, something which has been picking up from having hit a low point in Q3, so through Q4, we have witnessed some improvement. But certainly, if you still take the annual comparison, it is definitely low. We do think that it will improve progressively over a period of time. So in fact, that is the reason why that although we had volumetric growth in Metribuzin, I think Ashish already mentioned about the increase in revenue of the B2B business, right? It has moved up this year to INR 740 crores compared to INR 722 crores in the previous year, meaning a growth of about 3%. But that is in spite of having volume growth in all the active ingredients. And really this 40% drop -- including Metribuzin, volume growth, including Metribuzin, and this 40% drop in prices has actually contributed to the revenue actually growing by only about 3%.

The next question is from the line of Amar Mourya from AlfAccurate.

Congratulation for a very good revenue growth. Sir, my -- I have 2 questions. Hello? Am I audible?

Yes. Yes. Go ahead.

Yes, please go ahead.

So first question, sir. I mean after consecutively 3 years of EBITDA margin contraction, in financial year '21, we had reported 1.6%, 1.7% -- 170 basis point expansion in the margin. So do we see this trend to continue from here?

Yes. So I think maybe we can talk about some of the initiatives that we have taken. And in terms of going forward, what are the things that could influence it. One is certainly, I think we have looked at our portfolio and tried to sort of prioritize certain products where our margin profile is a little better in the domestic business, domestic crop protection business. So that is one of the initiatives we have taken. We had also adopted what you can call as a high-frequency pricing approach this year, that is FY '21, consequent to the volatility that we anticipated in the -- and of course, we had a weakness as well in terms of our procurement prices. Of course, we also had to contend with the kind of price changes on certain products like Metribuzin, right, which we spoke about in the international market, which, of course, went in the opposite direction. As we look ahead, we think that some of these approaches, we will certainly continue. We will continue to have a focus on the portfolio, product portfolio, as far as possible try and emphasize the better margin products. We will certainly have a very close pricing approach because we do expect the volatility to continue, I mean, if not actually increase really. On the international prices, certainly, we do expect some improvement in the Metribuzin prices. But like it was mentioned in the earlier call, there are a couple of active ingredients where perhaps the international prices are a little bit higher than what we would expect them to settle down at. Pendimethalin was one of the examples that was cited. So maybe there could be a little bit of moderation there. But overall, we do think that this approach and this kind of an outlook and, of course, the monsoons in India are predicted to be good. So the unknown factor is, of course, the extent of COVID impact. But if you keep that aside, we would be actually positive about the evolution on this front, on the margin front.

Okay. Second question is on the CapEx. So if I see currently out of the INR 436 crores kind of a CapEx, at least INR 230 crores kind of a CapEx would be kind of a revenue-generating CapEx? I'm eliminating the formulation pilot plant and the R&D facility CapEx. So I mean in that, historically, we have generated kind of 2.5 kind of [indiscernible] turnover ratio, even if we consider 2x kind of [indiscernible] ratio, then also it's around about INR 450 crores kind of a revenue. And remaining INR 364 crores kind of a CapEx, which is yet to be planned, which will also have a potential revenue of around about INR 700 crores. So is it fair to assume that in next 3 to 4 years, we are building a base for something around INR 1,200 crores kind of a CapEx additional on top of whatever is there in the business And this will be materialized in this 3 to 4 years' timeframe?

Can you...

I just had a point, Amar -- sorry. You mentioned that. I'm removing 3 parts which includes the formulation part...

So I'll just repeat again. Out of the total INR 436 crores of CapEx, which is outlined, so I'm -- what I'm doing is the formulation plan basically is the shift from the -- what a shift. So basically...

It's not a shift number, right? I don't think it's a shift. It's a new formulation plan where new products will be produced. Nothing to be done from the existing plan where we have a formulation.

Fantastic. Then the revenue growth will be, I'm just assuming, then the revenue potential would be higher than the INR 1,200 crores. The idea is that is it -- can we address this kind of revenue potential in next 3 to 4 years?

The CapEx program is intended to expand our manufacturing capacity. And while you have got your math, Amar, but we are looking at investments, which are value creating. So we use an internal rate of return to determine whether we should make the investment or not. And while you have sort of carved out what looks like value creating through volume growth, but I would also like to add that things like pilot facilities and all these are all part of the value-creating process only. Because without that, we cannot commercialize some of the things that we are doing in R&D.

So sir, basically, what I'm trying to understand, out of this total CapEx of INR 800 crores, whichever we have planned, is it fair to assume that -- what kind of revenue growth it can -- I mean what kind of revenue potential it can generate?

Again, it's a little difficult to answer that question in a straight way, Amar, because the volumes don't come out in the year, first year of commissioning these kind of assets. [indiscernible] over time. Yes. So ultimately, they may reach the numbers that you are proposing, maybe even more. But that is the approach which we have to take. Unless we build the asset, we will not be able to get the volume. b

And also, Amar, just to add, the way we have an -- I mean, every single one of these CapEx proposals, actually, we evaluate as part of our investment process. And some of them we involve products, which are, let's say, of slightly lesser margin. And some of them -- and therefore, higher revenues. So that the combination of the 2 kind of justifies the business case. In some cases, it may be a higher-margin product but a lower revenue build up. And the third thing is that when you have debottlenecking investments, like, for example, when we have talked about expansion of Metribuzin or debottlenecking of Hexaconazole the additional revenue that you may get for a particular level of investment may be quite a bit different compared to -- or the marginal investment may be quite a bit different compared to the average investment. So it is a combination of all this. And the formulation plant, obviously, as you know, is quite a bit different in terms of the asset terms, right, if that is what you are trying to sort of make a judgment on. So it's a little bit hard to sort of quantify in that way. But all these investments, including pilot plant, for example, these are all value-creating and are required in order to bring in some of the active ingredients that we are developing in our laboratory into the market. So they are all value creating is what we would say.

Got it. Sir, and this typical 2.5x kind of that normally takes -- how much time to reach to that kind of levels?

See, in the case of -- that's what, again, like Hexaconazole debottlenecking. We have already started reaching -- we implemented the product -- have been implemented the project last year, FY '21. And as of March, we have almost creating close to 100% of the utilization. So that way, it is very quick. But if it is a newer product, newer product, then it will also depend on the uptake of the product. Newer from our point of view, I'd say. We have to, let's say, secure the customers or get the kind of confidence in terms of the volume buildup. So it will vary whether it is a debottlenecking or whether it is a new active ingredient. Formulations also it move at a particular phase because in the first year, we would be doing introduction of the product demand creation. And then after that, we would also have to follow it up with multiplying the original set of users. So it will depend on whether it's a debottlenecking, new AI or a new formulation.

Yes. Just to take an example, Amar, and to make it more clear. Like in case of Metribuzin, when we expanded in 2 phases, each equal to 500 ton. The total investment was around INR 35 crores, INR 40 crores. But if I were to generate the revenue and considering that the capacity is being used fully, 1,000 ton would roughly give a revenue of almost INR 130 crores to INR 140 crores. So in that case, you will see the asset turnover will be looking much, much higher. In any case of a formulation plan, the plant is always built at a very, very high capacity. Again, it depends on what type of product you are doing. Is it a low margin and a high value or a vice versa? So there, it will be difficult to say that whether the asset turnover will be 1.5 or 2. But over a period of 3 to 5 years, it will be reasonable to expect a minimum asset turnover ratio of 1, minimum.

The next question is from the line of Nitin Gosar from Invesco.

Just 2 questions, sir. One, if you can help on some update on CRAMS. I think I missed out on probably on the update. And second is, if I were to look at the numbers, after 7 years, we have crossed the earlier reported high numbers on EBITDA and PAT. And I recollect when you took the charge 2 years back, you highlighted, revenue will flow earlier and margin will have its own journey to play out over a period of time. Where are we in that journey where revenue has started to flowing? Are we closer to the mark where margins can respond at a faster pace incrementally from here on? Or we are still in the investment phase?

So, I would say that the margins and all are a function of the portfolio, right? And we are in the process of relooking and renewing and rejuvenating our portfolio. So that will happen over a period of time. And therefore, we have prioritized our growth to say that we need to build scale, and that is what we are doing. So I would say largely, we are moving in that right direction. And as far as the contract manufacturing is concerned, you are aware that we do have a limited portfolio. And as part of this portfolio, one of the products will be linked to the airline industry, which is a polymer. And that has had a certain significant setback on account of the difficulties that sector is facing. So we are expecting that maybe towards end of FY '22, that will also revise and then we'll be back to a good trajectory as far as the polymer is also concerned. But what is more important from our perspective is to expand this portfolio and look for newer opportunities. And as we had mentioned in earlier calls, which you had been part of that, relative to some of the other players who have become fairly big in contract manufacturing, we are in a much, I would say, weaker position in this particular category. So it is a category that we have to build over time, for which we have put the team in place, who is now engaging with both international players who are doing formulation work, who are doing the B2F, the farmer related engagement. So both for active ingredients, for formulation exports, we are looking at the entire portfolio, including intermediate. So that is the work which is currently underway. And it will take time for it to build up. So we have resourced it. And we expect that over a period of time, we will start getting a couple of contracts to build up this portfolio. As of now, I would say, it is a work in progress.

The next question is from the line of Abhijit Akella from IIFL Securities.

First, just a clarification on the margins in this quarter -- the expense lines rather. Both other expenses and employee costs seem to have increased quite sharply compared to the run rate you were running at in the previous 3 quarters of the year. So just trying to understand what might have driven that? And what we should expect for these lines going forward in the succeeding quarters?

Ashish, would you like to take that?

Yes, sir. Abhijit on the employee cost, you've seen -- there's always an impact of actual valuation which comes at the quarter end. That is one impact which we have. And certainly -- and another impact is on the increase in headcount, which we generally do for replacement of the people going around and also for filling up the important portfolio gaps or rather territory gaps and other. So that is more of an investment. Other expenses for the quarter looks high because in the first 6 months, 9 months, the intensity of the activity, field activity was very low, right? And as the COVID was -- the relaxations were there. The travel started happening, more of field activity started happening. We've seen a number of field [indiscernible] deployed more, rather more means in terms of the previous quarter. The sales promotion activities, we also bring down aggressively. So hence, the expenses were there so -- in the fourth quarter. That is why the other expenses look a little higher. That is the explanation for it.

Okay, sir. And the other question I had was just with regard to this CapEx and sweating out of the assets that you've commissioned. So Metribuzin, while you mentioned Hexaconazole you're already doing 100% of what you've commissioned. How does it look like in the other products where you've expanded capacities over the past year? And yes, that's it.

Yes. So last year, in addition, we had the [ Hexamethyl ] plant also commissioned, debottlenecking again, and that is also running at almost full capacity. As far as Metribuzin is concerned, we are also in the process of re-siting our equipment from their present location to a consolidated location so that we are able to better drive efficiencies in operations. So in anticipation of that, we had -- and that's something which was expected to take until the end of the quarter Q1, so April, May, June. So in anticipation of that disruption, we had a plan to take this production right up to March at full levels of capacity even though the demand side has been somewhat soft. So therefore, in a way, you could say that we have been running at full capacity utilization on the Metribuzin as well. But I think with the understanding that the demand side is certainly not running at the full capacity utilization levels. The demand is still continuing to be soft, but that is actually a planned capacity. I mean, inventory buildup. [indiscernible] and [ Lambda ] are projects which are under execution now. So I guess once they are executed, we will come to the utilization levels. But in the first year, we have not planned 100% utilization for these products. These are as far as the active ingredient is concerned.

The next question is from the line of [indiscernible] from Old Bridge Capital.

Now the placement season has commenced and [indiscernible] has come out with a positive forecast for margins. But the spread of virus seems expansive through the country. In this backdrop, I have a couple of questions. One, how are you seeing the demand of your products in the domestic market? And what are the bottlenecks that you are seeing in placements? Is it logistics, availability of manpower so on and so forth? So that's one. The second, are you witnessing any change in cropping patterns in this case, maybe May, especially because domestic trends appear to be decoupled from what's happening globally?

See, coming to the COVID impact, I think without sounding overly negative, I think it is to be acknowledged that the challenges posed by COVID are significant on multiple dimensions. We have had some of our staff, for example, COVID positive in many of our factories. We have had challenges on the raw material and packing material front. We have had challenges in terms of getting the required labor for our formulation plants as well as in our third-party formulators for them to be able to get the labor. And certainly, transportation is inbound as well as outbound, both arrival of raw materials into our plant as well as dispatches from the plant to the markets. We also have challenges in importation of materials, right, because of various kinds of lockdown, lesser percentage of people permitted to work, leading to delays in being able to clear the materials which may have arrived at the port. So I would say that the challenges are on multiple dimension. Some of the actions that we are taking, I guess, the most important and the first one that we are prioritizing is the personal health and safety of our staff. So that we have very clearly communicated is the #1 priority. Secondly, we are also prioritizing the operational safety in our plants. Because as you know, some of these things, even in the last year, learning from the last year have led to a lot of mishaps in a number of plants across the country, whether in this industry or in other industries. Obviously, we are constrained to prioritize the areas which we will take up during our annual maintenance shutdown, which is presently underway in a couple of our plants. But we are certainly prioritizing the high-risk areas, you can say. For raw materials, we are focusing on stocking up wherever possible, even if it means a higher level of inventory. In fact, last year also, we had adopted a similar kind of approach. And I think we will deploy a certain amount of capital in raw material stock-up and perhaps even in finished goods production and stock-up, like in the case of Metribuzin that we alluded to earlier. For packing materials, we are trying to sort of bring them in as much as possible, but we are set to a great extent dependent on a number of our suppliers. We have obviously tried to have a diversified base of suppliers. But certainly, I think that is one very important area. And that, in fact, has also delayed, to some extent, our new brand architecture rollout because we are finding that it is a little bit hard to get the required complement of packing materials for all of our products. But I think that is something which we are living with and we will probably focus on getting the material out even if it is in the old brand architecture, but try to get the new brand architecture going. On the logistics front, yes, I think there are challenges. So we are trying to sort of prioritize as much of stocking in the tail end of our supply chain rather than in the fountain head of our supply chain, right? We have a couple of hubs in our domestic formulation, and we got a number of depots, 25 depots across the country. I mean the more efficient way would obviously be to stock up in the hub and then move it to the depot as and when the demand kind of rises. But I think that is a more conventional route. We are now trying to be a little bit unconventional there, trying to actually stock up at the depots to overcome the logistics. Whenever we are able to get the trucks and all of that, we are trying to prioritize that. So these are some of the actions that we are taking. And we will have to actually -- there is no prescribed formula that we are able to sort of identify. We're just trying to sort of do the best under the circumstances. And I think that is what we tried last year. And we are encouraged by the success that we got last year. We'll continue to do that this year as well.

Are you seeing demand for placements?

Demand for placement is positive. Like you said, IMD, Skymet, everything is giving a positive picture. One of the things that we also learned last year, which I think we have called out in our investor deck also, is that we found that because we were constrained in terms of physical demand generation, we were forced to rely on digital means. But then the digital means are useful, as a reminder medium, not necessarily to position a new product. So we were, in a sense, challenged in terms of scaling up some of the new products where the benefits had to be kind of demonstrated to the farmers. So the share of the legacy products, the brands which were strong in our portfolio, that has actually increased last year. So this year, we were hoping that if COVID had abated, we would have had a better chance. I mean looking at the way things were in Q4 when mobility was possible, we thought that we will really be able to ramp-up our demand generation for the newly introduced products of last year and the year before. However, I think that is something which may now prove to be a little bit more difficult. We would expect, therefore, the trend of last year to continue, which is that the legacy products might acquire a larger share of our sales mix rather than the new products. And that, in fact, influenced our ITI achievement last year as well.

The next question is from the line of [ S Ramesh ] from Nirmal Bank.

The first thought is if you look at this year first half versus last year, you had had a similar situation in terms of COVID impact. So if you can help us understand on a Y-o-Y basis, assuming that monsoon is normal and the placement is normal, on the base you saw last year, would you be just about maintaining these new numbers? Or is it possible to see some volume growth for the domestic [ momentum ] market?

Without sort of providing some kind of guidance on this, we could say that the environment is certainly from the standpoint of demand outlook and from the standpoint of the good monsoons, things are looking positive. Like we already said, COVID is definitely one factor in which we cannot wish away. We are trying to take the actions that I mentioned to you in terms of coping with that. So at the moment, things are looking certainly -- simply because of the experience of last year, we are a little bit, you can say, prepared in some dimensions. But some other dimensions may be completely new this year.

In the second quarter, you mentioned biologicals. Sir in terms of the opportunity size and the kind of investment and as a share of business, do you have any goal posts. Can you share some thoughts on that?

We have introduced biologicals last year -- FY '21 with the new products that we mentioned. And we will be having more products coming in as part of our pipeline. What -- because it is a new category for us, our focus is really to -- it is also an asset-light model, which we are following, which is in terms of sourcing the products from a number of partners. So I think we need to stabilize. We said that we need to stabilize our business model in the course of this year before we put down specific goal posts in terms of revenue targets for this category.

The next question is from the line of Rohan Gupta from Edelweiss.

Yes. Sir, question is more on the long-term strategy of the company and the reason which you have shared for FY '25, the international business should be roughly 40% of the total revenues. Sir, there, I just wanted to understand a little bit more. Right now, even the current mix also, you have roughly 37% of business is coming from the international business. And after 3 years also, you are looking at roughly 40% contribution from the international business. So that allude that domestic growth probably cannot be to more than 15% -- 12% to 15% even in the best of the case and the best of the year. So do we understand that even the international business also cannot grow probably just more than that 12% to 15%, maybe just a percentage higher in next 2 to 3 years? Or where we are seeing the limitation because you have mentioned some very selected points here in your presentation and the Slide #10 that how you want to grow the international business. So my question is more on the over next 3 years, why the revenue contribution from the international business still will remain at 40%. I mean that's what we are targeting right now. So just want to understand more on that.

So Rohan, you will be aware that we have existing portfolio, which we will continue to invest in for adding capacity as the opportunity keeps emerging. And of course, you're also aware that we are going to be introducing new active ingredients into the international market. The challenge is introducing anything new is it has to go through a registration process. It will take some time to build up in terms of value and volumes, right? And we're also looking at intermediates as part of our overall portfolio of exports as an opportunity. So because intermediates, we don't need the kind of time required for registration and all of that because it goes in for making an active. So those could be some slightly shorter cycle time opportunities. So all these you are looking at -- so this is an intention that you would likely shape for the business to be in this proportion. And while you have put some numbers on domestic growth, we're also looking at seeing how we are expanding our portfolio also to see whether there are other levers that we can look at. I'm not saying that we will continue to grow at 22%, 23% growth for the crop nutrition portfolio. It will be nice to be there. But we are adding products which are relevant for the crops that we serve to see how that part of our portfolio can also create traction for the volume growth.

Okay. So I get your point, sir. Sir, on the same presentation slide that -- where you have mentioned that you aim to be part of an innovative supply chain in the form of exclusive business agreement for the manufacturing of any AI. Sir, there, we understand that when you're talking about to be part of an innovative supply chain. So it means that right now you are only -- your [ client ] business is more focused on a generic product, but there you want to move ahead and helping the innovators in terms of launching the product or manufacturing the products which have yet not been commercialized. That's what we understand so far now this business. I mean where probably the companies are like [ PI ] and [ Deccan ] and all other. So is that understanding right that you are in talks with some of these innovators and want to be the part of their supply chain where you are planning to help them out will be helping them in the product innovations and will be associated with them at [indiscernible] product development? And is there any breakthrough on that?

So Rohan, I think you're going into very, very specific areas. But I would like to just keep it more at [ generics ]. When you talk about supply chain, it is both actors as well as intermediates. And we are also competitors from many of the innovators, right? So we need to keep that in mind when we are looking at our contract manufacturing portfolio. And therefore, it may be generics, it may be newer technology, newer patented molecules or it may even be intermediates. We have to leverage what is our skill. Our skill is what R&D and our skill in manufacturing where we have a lot of competency. So these are the skills that we will leverage for partnering with innovators, partnering with international players for expanding this category beyond the active ingredients, which we are selling as part of what you may call a catalog sale. These are the off-patented molecules that we can sell to multiple customers. Does that clarify your question?

Definitely -- yes, exactly. So you hit the needle, sir. So we are planning to expand our catalog. And over the next 2 to 3 years, that is the kind of service we are planning to go ahead with and are planning to offer that catalog to the global players. Is that something that you are working?

Yes. Catalog is basically a Pendimethalin Metribuzin, Acephate, Hexaconazole these are existing active ingredients, which you may call as part of our catalog. So we can sell it to anyone wherever we have registrations available in which country, we can sell it to anyone. Contract manufacturing means it is peer-to-peer. It means we will work only exclusively for a particular product with a particular partner. So there's a difference between what may I call a catalog sale or a contract manufacturing sale.

The next question is from the line of Viraj from Securities Investment Management.

I have 2 questions on the international business. First, you talked about us getting registration for Metribuzin in Brazil and U.S. So if you look at the last 1.5 years, we saw a good amount of pricing pressure inventory. And part of the reason was the inventory build up in the North American market. So how is the situation now there? And with these recessions now in place, what kind of a market potential is open to us now? So yes.

Yes, I think that is correct. The market situation was tight last year. Therefore, we were not -- we were carrying stock in Metribuzin. What this allows us to do is to increase the number of clients, right, number of customers with whom we could engage because we now have the registration, our own registration, which is what we have started doing. We are in the process of expanding our customer base. So the external conditions are also likely to be better. That is what we think. So therefore, we are hoping that Metribuzin will become in the course of this financial year, FY '22.

Okay. Second question is, in terms of broadly in terms of existing products which we cater to the international business, we are almost at close to full capacity in most of these products, and we have a good capacity share compared on a global basis. So based on your understanding of the market, are we seeing any other major capacity expansion elsewhere happening for these products? And in that sense, how should we understand the overall pricing environment for these products?

Well, I think if you take it product by product. Yes, in some products, as you know, Hexaconazole or in Metribuzin or even in Pendimethalin we have a significant share of the market. In terms of capacity increases in some of them, like for example, Hexaconazole that is actually in our understanding last year, there has actually been a contraction of capacity, partly also explaining the price advantage or the price improvement that we witnessed on Hexaconazole. Of course, it is a product which is largely confined to the Asian markets, mainly targeted towards Paddy crop. Metribuzin, on the other hand, there was a demand side challenge. I think that we should expect a reasonably stable capacity levels in Pendimethalin and Metribuzin. Acephate, there is a significant amount of capacity which is getting built up. But that is not a new development. It's been under construction for the last, let's say, some time, 1 year plus. So product by product, there are different dynamics. So what we think is that in terms of our capacity utilization, the actions that we are focused on is trying to increase the number of registrations, cellphone registrations, thereby increasing the markets and the number of partners that we could potentially sell to, apart from, of course, focusing on the domestic market.

The next question is from the line of Vishnu Kumar from Spark Capital.

I just want to understand, this year, we will have a new MPP plant and the formulation facility as well, if I'm right?

Yes, that is correct.

Got it, sir. And second, I wanted to understand the margins. Now for the first 9 months, if you see Y-o-Y, you had almost 400 basis points margin expansion. But in the fourth quarter, it's almost a 200 basis point dip. Now if I see incremental margins and incremental revenue, I actually see that your gross margin, so that only 36% revenue and the 41% revenue reported. Now where is the pressure that is coming if I compare on a Y-o-Y basis only specifically for fourth quarter?

When you refer to the margins -- I mean you're referring to...

The gross margin, sir.

You have you've calculated it from the -- because we have not given out the gross margin.

Yes, we have calculated it, calculated the gross margin.

Okay. So the way -- here's the way we are thinking about it, actually, if you look at it on an annualized basis, year-on-year basis, we feel that the margins have actually been quite stable. In fact, you could say a little bit better this year. And when I say margin, we are referring to the gross margins, gross contributions, and that is after knocking out all the variable expenses from the revenue. Of course, there has been a change in the mix, and there are changes in terms of product level margins. So for example, in the case of exports, contract manufacturing and domestic formulation, there is a change in mix between these 3 compared to last year. And within each of these, if you take exports, Metribuzin margins have significantly reduced Y-o-Y compared to the previous year. However, the margins on some other products, right? Like, for example, Hexaconazole, Acephate what we talked about have increased. So I think there have been -- the point I'm making is there have been variations at the granular level. But at the aggregate level, we feel that the margins have actually improved a little bit. When you subtract only the cost of material and the change in working capital, a change in stock and compute it -- compute the margin, what you are referring to, the variable costs are not fully captured in that. So if you actually capture it and calculate the way we do the internal MIS level, you can say, the margins have actually improved.

Okay. So would it be fair to say, sir, between the domestics and the exports, I just ask you a ballpark number here, which would have a higher gross margin, not on average, I'm saying considering everything to get on an FY '21 overall basis, the segment would have a higher gross margin?

Both domestic formulation and international B2B are similar in terms of margins and range at the gross contribution level. But of course, if you look at the fixed costs that go below the gross contribution level, in the exports business because it was largely B2B and has a much thinner sales and distribution infrastructure, you would find below the GC level. If you calculate at EBITDA level or something like that, it will probably be higher compared to the domestic business.

We'll be able to take this one last question. We take the last question from the line of Alok Ranjan from L&T Investment Management Limited.

Sir, just one clarification on the 2 herbicides that we have Metribuzin and Pendimethalin. What I see is that, of course, the global market size of Pendimethalin is more than the double of Metribuzin. And in terms of the applications like gram per hectare if you see also our Pendimethalin is widely used. Apart from that Metribuzin [ and users that sits in the cross spending, it really is already there ]. So when I came to the company, the efforts that we have taken either in terms of the registrations or in terms of the manufacturing capacity that we compare to Pendimethalin where we have like 20%. The efforts are more towards the Metribuzin side. So what I infer is that the Metribuzin is a more immature cross-spectrum herbicides compared to Pendimethalin, which is a more broader spectrum and with more users. So first of all, is it like Pendimethalin a competitor to Metribuzin? And is it true that the Pendimethalin opportunity to grow is much better than Metribuzin and why we are more focused on Metribuzin?

No. I think if you look at our capacities for Pendimethalin are larger compared to Metribuzin. And the reason why we had upgraded the capacity or debottlenecked the Metribuzin distribution capacity, we have felt that there is an opportunity to increase the Metribuzin. But [ partly ], we've also increased the Pendimethalin capacity as well. So Pendimethalin is an important product, and it has its own place. And even in the Indian market, we have strong brands, right? You probably are aware, we got Tata Panida and Panida Grande. These are strong brands which we have for the domestic market as well, apart from the international market. In Metribuzin also, we have Tata Metri, which is also a strong brand. So it's not that we are feeling that Metribuzin is to be emphasized more. Even Pendimethalin capacities have increased. It's much higher to start with compared to Metribuzin.

But in terms of the global growth, do you believe that the Pendimethalin growth are potentially higher compared to the Metribuzin? And it's quite mature product Metribuzin? Or is it in terms of the combination Metribuzin has also equally good potential? So how do you see the global growth of the Metribuzin compared to Pendimethalin?

Pendimethalin certainly is bigger. Pendimethalin certainly is bigger. And we, in our share also, Pendimethalin international revenues, you can say absolute revenues coming from international business is higher compared to Metribuzin. But Metribuzin can also go into new formulations with other active ingredients, and it is being worked upon in a number of geographies. And we can supply Metribuzin to such formulators as well for combination products.

Thank you very much. We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Thank you all for participating in today's call. And there were a number of questions that had been asked. We trust that we've been able to give clarity on that. We are now looking forward to FY '22, starting with the Kharif season, which is just picking up. There are certain challenges that are already being faced by the agrochemical industries. And like the way we dealt with the challenges during the previous year, about the same time when the lockdown was announced towards end of March. I'm sure that working closely with the government, the State governments as well, the Central government that we should be able to find work around to many of the challenges that have been faced whether it is at the port for clearing products and materials or whether it is logistics. And since agriculture continues to remain our focus for the country, I'm sure that the government will also take that extra step in supporting the farmers, the agriculture to make sure that the steel, the fertilizers, the crop care product are all available in a timely manner. And as we've already mentioned that the monsoon forecast looks good. It still needs to play out, so we are looking forward for a good season ahead. Thank you very much. We'll again reconvene in July for the Q1 results for FY '22. Back to you, Gavin. And thank you.

Thank you.

Thank you very much. On behalf of Rallis India Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.