Sharda Cropchem Limited (SHARDACROP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sharda Cropchem Limited 4Q FY '20 Post Results Conference Call hosted by Antique Stockbroking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stockbroking. Thank you. And over to you, sir.

Thank you, Nirav. On behalf of Antique Stockbroking, I would like to welcome all the participants on the call. From the management, we have Mr. R.V. Bubna, Chairman and Managing Director, Mr. Abhinav Agarwal, CFO; and Mr. Dinesh Nahar, GM Finance on the call. Without further ado, I would like to hand over the call to Mr. Bubna for opening remarks. Over to you, Bubnaji.

Thank you, Manishji. Good day, ladies and gentlemen. A very warm welcome to everyone present here for the earning call of Sharda Cropchem Limited for the quarter 4 and financial year '19/'20. Sharda Cropchem is represented by myself, Ramprakash Bubna, Chairman and Managing Director; Mr. Abhinav Agarwal, our Chief Financial Officer; and Mr. Dinesh Nahar, General Manager, Finance. Talking briefly about the fourth quarter results, revenues grew by about 15% from INR 363 crores to INR 876 crores in the quarter 4 of financial year 2020. This is mainly due to growth in Europe by 21%, NAFTA by 14%, and on the other hand, LATAM and rest of the world degrew by 6% and 15%, respectively. During quarter 4, our volume grew by 11%. Gross profit grew by 34% from INR 237 crores to INR 317 crores in the quarter 4. Gross margins expanded by 522 bps from 31% to 36% -- 36.2%, mainly due to better price realization and revenue growth in Europe and high-margin generating region. EBITDA grew by 48% from INR 158 crores to INR 234 crores in quarter 4. EBITDA margin grew by 600 bps from 20.7% to 26.7% in quarter 4, mainly due to growth in gross margins. Profit after tax grew by 34% from INR 106 crores to INR 142 crores in quarter 4. PAT margin grew -- PAT margin during the quarter grew by 234 bps from 13.8% to 16.2%. Highlights for the financial year '20. Revenue during the year marginally grew by 0.3% from INR 1,998 crores to INR 2,003 crores. Region-wise performance during the financial year '20. Europe grew by 8.2%, NAFTA and LATAM and rest of the world degrew by 3.2%, 7.3%, and 13.9%, respectively. Gross profit grew by 0.7% from INR 610 crores to INR 614 crores. Gross margin expanded marginally by 12 bps from 30.5% to 30.7%. EBITDA declined by 4.7% from INR 369 crores to INR 352 crores. EBITDA margin contracted by 91 bps from 18.5% to 17.6% due to rise in other expenses. Profit after tax declined by 6.6% from INR 176 crores to INR 165 crores due to increase in the ForEx loss from INR 4.5 crores to INR 15.1 crores in the financial year 2020. Increase in depreciation and amortization from INR 99.4 crores to INR 137.1 crores in the financial year '20. PAT margin stood at 8.2% as compared to 8.8% last year. Net working capital days improved from 87 days in FY '19 to 74 days in FY '20 due to prudent inventory management. Cash and cash equivalents stood at INR 269 crores in FY '20 as compared to INR 336 crores in FY '19. With this brief overview, I would now like to hand over the call to our CFO, Mr. Abhinav Agarwal, for discussing our financial performance. Mr. Abhinav Agarwal.

Thank you, sir. A very good afternoon to all. I will give you a brief about the Q4 and FY '20 performance. During Q4, our revenue grew by 14.7% year-on-year. This was due to volume growth of 11.3% year-on-year and favorable product and price variance by 30.2% year-on-year in quarter 4 FY '20. However, an unfavorable foreign exchange impacted us by 26.7% year-on-year. During Q4 FY '20, our agrochemical business revenue grew by 19.3% year-on-year, led by growth across geographies. Europe, NAFTA, LATAM, and rest of world grew by 23.1%, 13.8%, 10%, and 25.4% year-on-year, respectively. Our non-agriculture -- sorry, non-agrochemical that should read, revenue declined by 28.3% year-on-year. Now we talk about the FY '20 performance. During FY '20, our revenue marginally declined by 0.3% year-on-year. This was due to volume growth of 5.7% and favorable product and price variance of 5.7% year-on-year in FY '20. However, an unfavorable foreign exchange impacted us by 11.1% year-on-year. During FY '20, our agrochemicals business revenue marginally grew by 0.2% year-on-year, highlighting the geography-wise performance as follows. Europe grew by 9.6% year-on-year; on the other hand, NAFTA, LATAM, and ROW, degrew by 10.4%, 2.3%, 3%, respectively, year-on-year. Profit after tax for FY '20 stood at INR 164.7 crores as compared to INR 176.3 crores in FY '19. This year, we incurred a CapEx of INR 175 crores in FY '20 vis-à-vis INR 149 crores in FY '19. Thank you. We now open the floor for questions.

[Operator Instructions] First question is from the line of Vibha Batra from FairConnect.

And my question is on the agrochemical growth versus non-agrochemicals. Would the Q4 of 2020 be representative of how your revenues will look going forward and therefore, the operating margins because you're seeing growth in your agrochemical business, but a degrowth in non-agrochemical business. If you can please elaborate on that.

Madam, our business is a seasonal business, and Q4 has been historically our best quarter for last -- lot of years because of the season. So a growth of Q4 cannot be interpreted as the trend going forward. It will depend on many factors which are -- which cannot be predicted at this time. The main factor is the weather, then cross-currency foreign exchange, and political situation in different countries. We cannot interpret this as a going-forward trend.

Okay. And non-agrochemical business shrunk. So will that decline continue going forward?

See, the non-agrochemical business was affected by this corona and COVID-2019 (sic) [ COVID-19 ]. The non-agrochemical is mainly dependent upon mining industry, construction industry, and so many things where a lot of material handling is involved, operations in the ports, and other handling places. Activities in these areas were very highly subdued in the last 4, 5 months, and that has impacted the non-agrochemical business adversely.

Okay. Okay. And -- but now that we are in the New Year, what will be your expectation -- fair expectation since you've been in the business for several years? On agrochemical revenues, what kind of growth are you expecting?

See, we would place the rate of growth to about 5% to 10%, but it is dependent upon so many factors which are beyond our control and beyond our projection at this stage.

Yes. And what kind of margins would you be kind of projecting for FY '21?

More or less in line with what has happened in the previous year.

Okay. Previous year, actually, your EBITDA margin shrunk for the whole year to 17.6%. But for the quarter, they were up. So would that be somewhere between the 2 or there will be like 17%, 18%? There is a stark difference between [Technical Difficulty] quarterly margins and yearly margins.

I would say in 17% to 18%.

Next question is from the line of Chetan Thacker from ASK Investment Managers.

Sir, I just wanted -- sir, 2 things. One was the volume number region-wise that you share for this quarter and for the year as a whole?

Yes.

And second, sir, I just wanted to understand, this quarter, we have seen that improvement come in on gross profit margin. So is it fair to assume that for FY '20 we'll go back to our older range of 33% to 36% or it will still be at this 30% to 33% range?

You mean FY '20, we've already given you the figures. You mean to FY '21?

Sir FY '21.

Chetan, we like to try to play very safe game. I think it would be in line with what has been happening in the last 3, 4 years.

Okay. And sir pricing issue -- the pricing pressure that was there, that has eased to some extent. We have been able to take price increases?

There is -- see, there still continues to be pressure on the margins.

Okay. And sir, NAFTA, it is good to see this quarter we've got growth. So NAFTA the growth that we've seen in FY '20, which was a degrowth of -- for the year as a whole, but FY '21, can we expect that to move to a growth of 5% to 10% and the issue in NAFTA is resolved?

I think we should be able to maintain 5% to 10% growth.

Okay. Okay, sir. Sir, just the volume numbers, sir, for the quarter and the year.

Volume numbers for quarter or for the year?

Sir, both sir.

Okay. Volume in -- now I'll give you the quarter 4 figures first. Europe has been 5,215,140 kg, NAFTA 3,330,000, LATAM 518,000, and rest of the world 728,000.

Okay.

This is '19. This is FY '20.

I'm sorry, Chetan, I made a mistake. The figures that I gave you were for the year FY '19 because this is as a whole -- what has been presented to me is '21 and then '19 later. I was presuming it is '19 first and '20 later. So please delete those figures. For FY '20 quarter 4, Europe is 5,427,000, I'm giving you round figure; NAFTA 4,20,1000; LATAM 507,000; and rest of the world 758,000. And for the whole year, Europe is 12,692,000; NAFTA 8,810,000; LATAM 2,444,000; and rest of the world 2,660,000.

[Operator Instructions] Next question is from the line of Rohit Nagraj from Sunidhi Securities.

Sir, we have good amount of dependency of supplies from China. So how has been the situation in the current quarter? It must have been affected during the last quarter, but what is the condition in the month of May and -- April and May, particularly?

Mr. Rohit, you've spoken in a low tone which is not so audible to us. Can you repeat your question with a little louder voice, please?

Yes. Is it better, sir?

Yes.

Yes. Sir, we have dependency for supplies from China. So how has been the condition in current quarter that is particularly in April, May, and June, which is currently going on?

The conditions are very comfortable. The factory productions are more or less normal and availability is good.

Okay. And in current quarter, what is your sense in terms of our markets? Are they picking up or because of the corona issue and lockdown at various geographies, there has been slightly lower offtake.

You already answered my question. There is a slightly lower offtake because of this corona and lot of subdued atmosphere around. And we will have to see. There is element of subduedness.

Okay. And this is also in Indian context or in Indian context, we are experiencing better things because of the external factors like the monsoon is expected to be good, the water levels are good, so the offtake has been also good?

No. Mr. Rohit, Indian context is totally different. And if you have looked at our business model, our presence in India is less than 2% of our total revenue. So it is not in tandem with Indian context.

Right, right. Fair enough, sir. Okay. And in our portfolio, do we have any biologicals product? Or how has been the trend if there have been any biological product in our portfolio in the last 2, 3 years?

Very little.

Okay. But are we focusing incrementally on adding more of these products in the portfolio given the market wants to have certain amount of biologicals also in place?

No, Mr. Rohit. Our trend is -- we go with the trend in the market. And the demand for biological products is minuscule, and that is not part of our focus area.

Okay. Fair enough. And sir, one last bookkeeping question. What have been the registrations by FY '20 across different geographies?

1 minute. See, our total number of registrations in FY '20 has gone up to 2,418. And region-wise, Europe is 1,230, NAFTA 210, LATAM 740, and rest of the world 237.

Okay. That's interesting. Sir, one just last question on the CapEx front. Sir this year, we have done about INR 175 crores. What do we expect in FY '21?

It should be in the same range. But again, I have repeatedly said that the registration CapEx is a very uncertain process. It depends upon so many factors, mainly the authorities and weather and so many things. But we expect it to be in the same range between INR 170 crores to INR 200 crores.

[Operator Instructions] Next question is from the line of Nitin Agarwal from IDFC Securities.

So from where, Mr. Agarwal -- from which company?

Sir, IDFC Securities.

IDFC, okay.

Sir, 2, 3 things. Sir, on -- in this call here, we've booked a INR 56 crores write-off on intangibles and impairment. We booked INR 40-ish crores around last year. How should we look at this element? Sir, is there any specific reason which has drove this higher write-offs in these 2 years? And how should we look at it going forward?

See, there have been many factors, mainly some of these expenditures which were incurred external in -- historically, we were advised by our auditors that we have to follow certain accounting norms and write-off the expenditures which have become old, even though they still have a lot of value. They generate a lot of revenues, but we had to go by some accounting standards and nature of some of the expenditures.

Okay. And sir, do we expect this kind of amount to recur every year going forward?

This kind of amount to recur?

Yes, sir.

You mean amortization?

Yes, this amortization of INR 40 crores, INR 50 crores, or the write-off that you've taken...

It could be. Mr. Agarwal, it could be, but it's difficult for me to predict at this stage. But it will be not so big as it has happened in this year.

All right, sir. Sir, secondly, in your presentation, you've talked about inorganic growth or opportunities. So sir, what kind of inorganic growth opportunities would be of interest to us?

I don't know. Where did I say inorganic growth opportunities? I have not said it anything, sir.

Sir, in the presentation -- anyways, I just sort of picked up in the presentation. And then secondly, on -- from a new market perspective, barring -- I mean, so are we looking at growing certain new markets beyond the market that we are present in? Are there any specific markets that we're targeting over next 3 to 5 years?

See, we are looking into new markets as well as greater penetration in the existing market by more number of molecules and higher number of crops.

Okay. Okay. And sir, lastly, on the quarter, our gross margin expanded sharply this quarter. Obviously, there is a product mix issue in terms of Europe and NAFTA being a lot higher. But sir, within these geographies, have you seen -- or are we witnessing any meaningful improvement in the quality and the -- of our portfolios itself? Or there will be probably having a much larger component of higher -- relatively higher-margin product mix geographies now?

Mr. Agarwal, it's a mixture of product mix as well as demand from the markets -- demand from the customers.

Sir, how does the demand really impact these margins? I'm so sorry, if you can help us with that?

If the demand is of a higher-margin product, then the overall effect is higher-margin and higher profits.

Right. Right. And -- but do you see these trends to be sustainable, sir, in the sense of these higher-margin composition being relatively higher quite for us now versus what it was in the past?

At this stage, it is difficult to say. It, again, depends upon how the weather performs and how does the demands grow. But it should remain in the same range.

Right, sir. And sir, lastly, there is this whole issue around a lot of countries globally looking to have their own sort of issues in terms of controlling imports from China or restrictions of various kinds. Obviously, from a India perspective, we're not bothered because we are not impacted because we don't import into India. But do you see it as a structural problem? Is it a -- as a real problem for market outside in terms of some countries, specific countries import sort of enacting certain kind of restrictions on Chinese imports?

Not at all. I think these issues are only specific to India because of various -- our neighborhoodness and boundary and all those things, which are not affecting any other country except India. These are really related to the border issues.

Right, sir. Okay, sir. Got it, sir. Which is a fair point. And sir, last question. On the quarter sir, our other expenses are very high. Was there any element of one-off in other expenses for the quarter?

Can you repeat your question, sir?

Sir, other expenses for the quarter Q4 were very high, even if you adjust for the other ForEx loss. Is there anything which drove up? Any specific thing which drove up these other expenses in this quarter, sir? The SG&A expenses?

1 minute. Mr. Agarwal, this is mainly due to the write-offs.

Sir, do we have a number for the write-off for this quarter?

I will have to look into it.

[Operator Instructions] Next question is from the line of Chirag Dagli from HDFC Mutual Fund.

Sir, can you talk a little bit about the pricing environment in Europe, specifically about the kind of price hikes you can take and offtake? Is there any change from the last time we spoke in terms of the ability to take price hikes?

Chiragji, can you speak little louder, sir?

Sir, on price hikes, last time we --

Price hike.

Price hike.

On price hikes in the European market, sir. Can we -- is there -- can you share some light on what is the environment right now? Are we able to take price hike, not able to take price hikes? Because in the past, we've spoken about multinationals being very aggressive, what are you seeing right now?

Chiragji, the same trend continues. Multinationals continue to be aggressive. And they don't want the generics to grow. It's a general trend. And there is no general trend about the price hike. This is product specific. If we have some good products and if you have the availability and there is a demand, and the products of high margin, that has -- that helps us. But this cannot be termed as a trend.

Understood, sir. And sir, in the NAFTA market, we have this product called acetochlor. In the past, we had some issues with the formulation. We've also indicated that we fixed some of the issues. How is the offtake there? What is the outlook over there because we remain the only generic in the market, right?

Yes. The offtake is improving. And as the registration issues are more or less -- sorry, formulation issues have been more or less overcome.

Sir, despite that, we are not seeing growth in NAFTA. So for the full year, if one looks at the number, we are still -- in dollar terms, we are still declining. So if you can throw some light on whether this product is helping, not helping? And what is the outlook on this product going forward?

See, this product is helping us. It is helping us to approach more number of customers and sell our other products. But there were a lot of other issues in NAFTA region last year which continues to grow also this year. That is the U.S.-China trade war. The high incidence of import duties and the actual agricultural sector's inability to absorb all those import duties, and they became a little more resistant to keeping the inventories, taking risks. They want to buy at a very short notice and limited quantities.

Okay, sir. Okay. Okay, sir. And sir, in terms of guidance for depreciation, this number is very volatile. Sir, if you can just give us some sense of how should we think about depreciation number in FY '21 and '22?

You see, the effect of depreciation every year, like, say, if we have capitalized some intangible assets this year, the effect will continue for the next 5 years. But I think we should remain in the same range and there should not be any abnormal increase or -- and if there's any decrease that's in the normal natural process.

There will be some increase for sure, right, sir, on this -- on that -- on an absolute basis?

For the capitalization done this year, I have not studied that in so much detail. But if you have done I have a good amount of capitalization this year, then it will have an impact compared to the previous year. Nothing abnormally high.

Right. Okay. Okay. Right. So in general, if we bake in INR 20 crores, INR 30 crores absolute rupees crore increase in every year, is that a fair number to look at, sir?

What did you say, in general what bake in means?

Sir, this year, for full year of FY '20, the depreciation number has been about INR 137 crores. Can I assume that this will be INR 167 crores in FY '21?

No, sir. It will not increase so steeply. It should remain in the range of about INR 130 crores to INR 145 crores.

It will not increase. Understood, sir. Is this because some of the older products would become fully depreciated? Is that how this work?

Yes, sir.

Understood, sir. Understood. And is there a tax guidance that you want to give, tax rate guidance?

Tax rate guidance, Chiragji I have not looked into -- we're not prepared for that, sir. We can ask this question [Technical Difficulty] answer this later on.

Sir, we have not moved to a new tax regime, right?

No, we have not moved to this new tax regime.

Okay. Okay. So the cash flow statement shows about INR 63 crores of absolute cash tax paid, which works out to a very large percentage, 34-odd percent of the PBT. Can you just help us understand what is happening there?

You see, we are the highest taxpayer in our vault. And the department insists that we should pay -- in order to keep their [ statistics ] going, they insist that we should pay at least what we have paid last year. And there's a lot of resistance and persuasion from them. And I mean, we will be getting all this cash paid. There will be due for lot of refund. That's the only thing I can say in general.

Okay, sir. Will we move to the new tax regime, anytime soon?

Not for the next 2 years because we have a lot of minimal tax edits to be recovered MAT, for which we are a credit entitlement. So no, not that for the next 1 or 2 years.

Next question is from the line of Vishnu Kumar from Spark Capital Advisors.

Sir, very super growth on the top-line and on the margin. Congrats for that. Firstly, my first question is on the Europe growth. Are we growing at the cost of some other competitor not doing well, have we gained some market share there? If you could give some idea on that.

Mr. Vishnu, I will request you, again, to increase the pitch of your voice and go a little slow. Some of the words have got mixed up. So I will request you to kindly repeat the question and speak a little slowly and loudly.

All right, sir. So the growth in Europe is pretty good. Wanted to understand is that because some other smaller companies are facing issues and we have gained some market share there?

No. I'll answer your part by part. No, that is not the case. What we are getting is some market share from the big companies or multinationals, and that is because of our registrations.

Okay. Any specific new product or a chemical that has contributed to this growth, sir?

There are -- we are getting newer registrations. And this year also, we've got some new registrations, where we may be the only second registering holder after the multinationals.

Okay. Sir this -- when [ you are ] in Europe, you -- we are not so much present in Germany. Is that right, correct? So we are not present in France and Germany. We are only present mostly in Eastern Europe, and the Spain, Portugal, Italy, these countries.

Yes. So what is the question, Mr. Vishnu?

No, I was asking that we are not present in these 2 countries. We are only present in this Eastern Europe, and only on the Spain, Portugal, and Italy. These countries only, right? I mean since the question there, whether we are present only in these regions or also we are present in Germany, and France?

Sir, we are making efforts. We are -- we have recently got some registrations into these countries. We are trying to organize our sales force. So we should be growing also in France, and Germany.

Okay. Got it, sir. But as of now, we don't have any sales, but these 2 are the very big markets in that region if I'm not wrong?

No, I wouldn't say that we don't have any sales. We have lesser sales in Germany and France, but we do have some sales.

Okay. Sir, is there any other competitor who is going down in that market, at least if you could just let us know on that? We understand that you have gained market share from the innovators from the bigger companies, but there are smaller companies and some of them are [ shrinking ].

I think smaller companies did not exist. I mean the European registration is so expensive and time consuming that the smaller parties don't find it worth their capacity to invest and wait for such a long time. So smaller parties were not there, Mr. Vishnu. And I don't see them coming up in the near future.

Okay. Got it, sir. Sir, and if you could indicatively give us the gross margins across various regions which you normally used to give that number?

Yes, 1 minute. No, you asked for the quarter or whole year?

Both would be helpful, sir.

Okay. I'll give for the quarter first. Europe the gross margin is in the range of 38.6%, NAFTA 32%, LATAM America 29%, and rest of the world 29% -- 20%. And for the whole year, Europe is about 37%, NAFTA 24%, LATAM 28%, and rest of the world 25%.

Sir, any reason why are the gross margins business for full year for NAFTA...

Sir, sorry to interrupt you. Mr. Vishnu, your voice is breaking.

Yes. Sir, this -- at least this gross margin number suggests that then our margins for the fourth quarter is significantly higher than the full year number. So here what is the key reason?

So product mix and some registrations.

Got it, sir. Any -- I mean this -- we have entered into this Midwest where we're growing in [indiscernible] for the corn, soya. Are we tapping into the big opportunity? Have we started it?

What is that? Again sir, I couldn't catch up your question.

No, no. I was asking this -- the key opportunity you have been always saying that we've also discussed is that, it is going to be the Midwest market, where the corn, soya weak, that is the key market and some of the products also you are focusing there. Have we seen any big traction in volumes in that particular belt, in U.S. in NAFTA market?

There is not a very big demand. We -- see Mr. Vishnu, if you're talking about USA, it's a very special market where more than 75% was the market is controlled by the maintenance of companies. So all the generic companies are fighting for only about 22% to 25% of the market sale. So it cannot be either a big traction.

Okay. Incrementally next 2 to 3 years if you are looking -- focusing on growth let's sat in volume and value terms, which market will take a lion share of our growth, sir?

Europe and NAFTA.

Yes, between the 2 which would be the -- because there are the 2 for us anyways.

I would say Europe and then NAFTA.

Okay. Next sir, next couple of years would we at least be in the main CapEx of about INR 170 crores, INR 180 crores? Would that be a broad range?

Beg your pardon. Once again please repeat the question.

Capital expenditure for the next 2 years -- 2 to 3 years, would -- you would be in the range of about INR 170 crores to INR 200 crores. Is that a right number we should work with?

I think so.

Okay. And within this would it be fair to say, a lot of them would be because of you are doing a lot of re-registrations in Europe would get covered in the next 2, 3 years? Or it will continue to go on?

Yes, sir.

Okay. And how much would be the re-registration out of this flipping side cumulatively say INR 170 crores, roughly about INR 480 crores or INR 500 crores of CapEx you should do for next 3 years. How much would be for re-registration?

I don't have the estimation right now, sir.

Okay. But we'll get -- it will get covered in the 3 years. After that we may not have much for re-registration. Is that at least the right understanding?

As we look at it today, but you do not know what develops in the next 2, 3 years.

Okay. Got it. Sir, and final question on this write-off, one of the previous participant had also asked. Earlier you used to say that there are some registrations which brought a product probably that the value of which are the [Technical Difficulty] sales are not going to be that great since you are writing them off. So do we probably have at least next 1, 2 years of pipeline or you need to write-off some more registrations?

See we would be writing off some registrations but I don't think they will have big impact on the total write-off.

Okay. But you have some participants that...

Sir, sorry to interrupt you.

This is the last question.

Go ahead, sir.

Yes, sir. Final question just on the gross margin. We did earlier -- couple of years ago [indiscernible] 38% now in a drop. So going forward any gross margins guidance that you can give?

Sir, I think we should remain in the same range, plus or minus 4%, 5%.

[Operator Instructions] The next question is from the line of Rohan Gupta from Edelweiss Financial Service.

Sir, my first question is on the receivables. So as you mean that we definitely get our large part of sales in Q4. And with the incremental sales compared to last year, we have done close to INR 100 crores additional sale. But receivables have gone up by almost close to INR 180 crores. So is it that because of the COVID scenario we couldn't collect the payment of or do you see that there was a higher demand for credit sales in the market and you had to do the material pushing in the market?

Rohanji, both the -- I mean these are the 2, 3 factors combined. With COVID scenario in some of the countries, particularly the developing countries, there is always a request for extension of the time period for payment period. And COVID scenario has impacted the liquidity situation of customers across the globe. So it is having some impact.

Okay. So do you see that the receivables, I mean, they're getting normalized in the current scenario or there will be further pressure on the cycle?

See, we are not -- I mean, we are very hopeful that this is not going to impact our business very much. We'll be able to withstand and overcome the current situation.

Sir, second question is -- it is -- our gross margins and the overall profitability of entire business. Sir, we -- if we look at that your business is almost 37% close to margins, which are generated in a Europe market, which is half of your market. So isn't it that your entire profitability is coming from the Europe market and the other markets we had I mean hardly contributing anything at the 10% probably at the bottom-line but the investment will be seen as far as the Europe market is concerned. So it will be fair to assume that by just doing half of the business probably that we will have a similar profitability. Is it the way to look at your numbers because the gross margin-wise Europe has almost 1,200 basis points higher than other markets?

Guptaji, did you say that the registration expenses were also in the same proportion? In the rest of the world and other markets, the quantum of investment in the registrations is much smaller compared to what we are spending in Europe and NAFTA region. So there are other markets out of NAFTA and Europe, the margins are less and the investments are also less.

So when we look at the bottom line margins, so you are saying that probably the bottom line margins are either similar from all the markets, ROW, LATAM, and Europe, NAFTA? Is it so?

I have not understood the question, sir.

Sir, I'm saying that, definitely, the expenses and reregistration cost is higher in Europe and NAFTA. So if we adjust for that, the high reregistration cost, so net level -- net margins, you see that across the market, net margins are similar. There is not much difference?

No. There is a difference. The net margins are more in Europe and NAFTA, and less in the rest of the world and Latin America.

Okay. Sir, just last question and I'll come back in queue. Sir, though very small increase, but we have a asset-light business model, but there has been some increase in your plant and equipment in current year. It increased from INR 14 crores to INR 28 crores. Any particular reason for that, sir?

Just 1 minute. Give me a few minutes, sir. Just 1 minute. Rohan, hello, this is the result of new in IND-IAS (sic) [ IND-AS ] standards. Office that we are using is on lease. But it is supposed to be capitalized and about INR 22 crores have been capitalized for the office that we are using now. It is purely on lease. We are paying only the rent, but the accounting standards says that it should be capitalized.

Next question is from the line of Resham Jain from DSP Investment Manager.

Sir, I have 2 questions. So one is in India, what we have seen is that because of COVID situation, there were certain prebuying which has happened from the farmer side because of the uncertainty related to availability of material. Is that something similar has happened in Europe as well because of which the growth is little higher? Is that one of the reason?

Reshamji, yes, that it can be one of the reasons because this pre-buying is a practice, I think, more prominent in the developing -- developed countries than in developing countries. A lot of people want to be very safe. There are many other people buying the goods at least 4, 5 months in advance, keep it with themselves. And I don't know what is the reason, what kind of uncertainties they feel, but probably they feel some uncertainties. So this is very normal in most of the geographies.

So does this mean, sir, that in quarter 1, the growth which you might have seen already till -- because it's quarter 1 is already over, that would be a little lower than what we have seen in the past?

See, there is lower growth in quarter 1 if we compare it to quarter 4. But if we compare from year-to-year, then that trend is more or less the same. There's not a big difference, but it can differ, like say, if the people have bought in advance in some -- we have not done the calculation for that.

Okay. Okay. So that was my first question. Sir, my second question is on -- in -- the overall sourcing because when we hear the global commentaries of various companies, agrochemical companies, they are thinking of changing their sourcing base, whatever they can because majority of it comes from China. So in the past, you have mentioned that India is very small and China will remain very large. But is there any change in the thought process because Indian companies also in the chemical space we are seeing there is a lot of investment happening. So has there been any change in thought over there that some percentage of our raw material we may strategically buy from India?

Resham, there's a lot of talk about it. But on the ground, the effect is very little. They may have -- it may have but very insignificant, sir. It will have to be still dependent upon China if we have to keep on sourcing all these chemical products, if not finished products for the intermediaries. If not intermediaries, the basic raw materials. And this applies not only to agrochemicals but most of the chemicals, including pharmaceuticals.

Okay. And sir, just one final question is on margin trends. We are seeing a very strong improvement in margins because of the growth in Europe. Should we expect quarter 1 also will be on the similar trends or because rupee has further depreciated since March, so should one expect this kind of margins in quarter 1 at least because this quarter is already over?

Resham, first of all, rupees appreciation or depreciation has very little effect on our business model because our -- we are totally -- ours 97% sourcing is from outside India. And secondly, quarter -- the spring season is the best season in the world for the agriculture. So quarter 1 is related to the spring season and the best consumption of agrochemicals in agriculture. Quarter 1 of our financial year is in the fag end of the spring season and nearing to the autumn. So we cannot expect the same performance in quarter 1 as compared to quarter 4.

Okay. But Y-on-Y will the margin be better because the trend is much better in quarter 4?

Yes, sir. See, most of the important products are sourced by the smart players in quarter 1 -- quarter 4, sorry -- I mean, I would say January to March. April to June, only those people who come with the last moment requirements or there's a sudden demand. Otherwise, most of the requirements are made in January to March quarter.

Next question is from the line of Chirag Dagli from HDFC Mutual Fund.

Sir, the gross margin that you gave, was this for the whole business or just the agrochemicals?

Whole business.

Whole business? Okay.

Yes, sir.

Okay. And sir, in the European market, while it may differ, but across the continent, how many products do we sell?

Across the continent, we have not worked out that Mr. Chirag. We can pick up that information and answer to you later on.

Would it be like 30, 40-plus molecules, sir?

Beg your pardon.

Would it be 30, 40-plus molecules?

Yes, it could be.

It could be. And just ballpark, sir, if you can indicate in how many molecules will Sharda in Europe be the only generic?

I would say maybe about 10 to 15. It's a dynamic situation, Chiragji. Today, if I say I'm the second one. Next week, I may find somebody who also has got the registration, and this process is not published or it's not transparent.

In the market -- I understand, sir. I understand. I understand, sir. So in the ballpark of 10 to 15 products, we will be the only generic in the market in those markets. So in a small market like, let's say, Poland, you could be the only generic?

When we say -- yes -- see, we have to talk about Europe because if I'm in -- second in the -- in Poland means I'll probably be the second in many countries, most of the countries in Europe.

Understood, sir. And sir, when you sort of think about the European business, in one of your earlier calls, you mentioned that in the larger markets of Germany, France, business is not as much as it is in the smaller markets like Spain, et cetera. In these markets, are there products which you have, which can give you sort of some foot in the door with distributors who would have otherwise not spoken to a smaller company like Sharda? And how many would these be? How many such products would you have?

Chiragji, I request you to repeat the question but the question has been pretty long.

I'm sorry, sir. In France -- in larger markets like France and Germany, do we have any products where we are only generic -- sole generic right now? And it will open doors to distributors which would have otherwise not opened doors to us.

See, we will have to figure out. I mean we have not done so much of a investigation, but in France and Germany, there could be definitely few products where we are the second registration holders and the only second generic registration holders. And opening the doors for the distributors, it is not so easy, sir, because most of the distributors are fairly well off. Multinational companies reward them in terms of after-sale bonus and so many things. But they don’t easily come to smaller generics like us. We have to push ourselves into their office. They don't come to us. And then they are not so much dependent upon small molecules or smaller companies. The multinationals take care of them.

Understood, sir. But you said that you would still have 5, 6 products -- 5 products in these biggish markets where you'd be the sole generic?

Yes, sir.

Next question is from line of Nitin Agarwal from IDFC Securities.

Just one question, sir. On -- our cash balance is healthy now. And I guess the way trends are, we should be able to keep generating reasonably healthy cash going forward. So what are your thoughts about the usage of cash for the business going forward, sir?

I didn't understand.

Sir, the usage for cash...

Sir again -- Agarwalji, please increase the pitch of your voice.

Sir, I was just asking on the cash, we already have a pretty healthy cash balance and the business is generating cash on a very regular basis. So what is the thoughts on the usage of the cash balance, sir?

Mr. Agarwal, we are using our cash generated mainly for the intangible assets and registration processes. And we have not reached that stage where we can sleep well that we have enough cash in. So we are always on our toes, matching the cash requirements and cash generation.

Thank you very much. Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to Mr. Manish for closing comments.

Yes, Bubnaji just -- I have just 2, 3 specific questions. One sir, intangible write-offs in earlier participant you said the next year, possibly FY '21, your intangible write-offs will not be material, right, sir?

Yes.

Okay. Well, last year, I recall last year, when this INR 42 crores of amount came into FY '19, I think you said the same thing basically that this will not come but I think this year, again, yes, we came out with a INR 52 crores of number a bit surprised basically how to basically take it for the next year, actually. So...

Manishji, I'm only a chemical engineer. I'm not chartered accountant, you see auditors come up with lot of these requirements and demands, which is difficult to avoid and defend. We have to fall in line, what are the various -- all this -- in 9 AS norms and other things.

So my question is sir, basically, my point is that if the auditor has done that and then you said basically there is a good value in that registrations -- product registration. So it is not related to value basically, right, on audit terms wide. So basically, if you are talking about on a duration of a registration, so ideally this amount should come back again, in the maybe not similar number, maybe this number should come back in the next again because 5-year or a 6-year timeline, whatever the auditor has set up, so that should come again, this amount, maybe INR 50 crores, INR 40 crores, whatever should come in the next again.

Sir, you put your question in a little simpler way. I'll be able to understand better.

My sense is that basically, it's the auditor, you said the write-offs done by the auditor and maybe the -- because the accounting standards changed, right? And you said there is good value in the registrations, right? So ideally, it should come back again in the next year. That's my question because you are saying that there will not be much amount should come because it's a big number, right. I'm not saying it's a small number. It's INR 50 crores of write-offs what we have done.

See, the -- I mean my estimation is that the next year, even if it comes, the figure may not be so high.

Okay. Understood. Okay, sir. And second, sir, just what could be the top-line revenue of growth expectation for the next year or maybe guidance if you can provide for the next year, FY '21?

Manishji, it should be in the range of 5% to 10%.

Okay, 5% to 10%. And you said EBITDA should be 17% to 18% for the next year, right, sir?

This is our guess. This is our rough estimate.

Okay, sir. And sir, last data point I need if possibly Abhinav can answer that. What is the registration pipeline as on 31st March? I think you have given a registration outstanding as on date, right? And what is the registration pipeline number?

Just 1 minute.

Geography wise, if possible.

Sir, pipeline is 1,040. Geography, Europe 730, NAFTA 100, LATAM 140, and rest of the world about 70.

Okay. Sure, sir. That's from my side. Sir, would you like to make any closing comments, Bubnaji?

No, sir. Thank you so much.

Yes Nirav, we can close the call now. Thank you.

Thank you very much. On behalf of Antique Stockbroking Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.