Sharda Cropchem Limited (SHARDACROP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Sharda Cropchem Limited Q1 FY '21 Earnings Conference call hosted by Antique Stockbroking. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Manish Mahawar of Antique Stockbroking. Thank you, and over to you, sir.

Thanks, Aisha. On behalf of Antique Stockbroking, I would like to welcome all the participants on the call of Sharda Cropchem. 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 Bubna jee.

Good day, ladies and gentlemen. A very warm welcome to everyone present here for the earnings call of Sharda Cropchem Limited for Q1 FY '21. Sharda Cropchem is represented by myself, Ramprakash Bubna, Chairman and Managing Director; Mr. Abhinav Agarwal, Chief Financial Officer; and Mr. Dinesh Nahar, General Manager, Finance. Talking briefly about our Q1 FY '21 results, revenues declined by 7.5% year-to-year from INR 421 crores to INR 389 crores mainly due to degrowth in Europe by 3.1%; NAFTA region by 10%; and rest of the world by 36%. On the other hand, LATAM grew by 28%. Our volumes declined by 3.7% year-to-year. Gross profits grew marginally by 1% year-to-year from INR 115 crores to INR 116 crores. The gross margin expanded by 250 basis from 27.4% to 29.9%, mainly due to decline in the raw material costs. EBITDA declined by 16.5% from INR 58.2 crore to INR 48.6 crore. EBITDA margin contracted by 130 bps from 13.8% to 12.5%, mainly due to rise in other expenses. Profit after tax grew by 22.6% year-to-year from INR 22.8 crore to INR 27.9 crore. PAT grew -- sorry, PAT margin during the quarter expanded by 117 bps from 5.8% to 7.2% due to rise in foreign exchange gains from INR 2.48 crores to INR 13.47 crores, coupled with decline in taxes from INR 11.5 crore compared to INR 36.8 crore and to lower effective tax rate of 34% versus 20%. Net working capital days improved from 99 days to 89 days due to prudent working capital management. With this brief overview, I would now like to hand over the call to our CFO, Mr. Abhinav Agarwal, for discussing other aspects of financial performance. Over to Mr. Abhinav Agarwal.

Thank you, sir. A very good afternoon to all. I will give you a brief about Q1 FY '21 performance. During the quarter, our revenue declined by 7.5%. This was due to a volume fall of 3.7% and price scalization fall of 8.2%. On the other hand, the company experienced a foreign exchange gain of 4.4%. During Q1 FY '21, our agrochemical business revenue fell by 2.4% year-on-year. Europe and NAFTA declined by 5.9% and 6.8%, respectively. On the other hand, LATAM and ROW grew by 25.5% and 2.8% respectively. Our non-agricultural business revenue declined by 22.8% due to overall fall in industrial mining, construction and port activities. We incurred a CapEx of INR 71 crores this quarter vis-à-vis INR 39 crores in the last year. Thank you. We now open the floor for questions.

[Operator Instructions] The first question is from the line of Chetan Thacker from ASK Investment Managers.

Sir, just wanted the volume data by region. And second was, what you understand the reason for higher other expense in the current quarter?

I'll first give you the volume data for this quarter. In Europe, the volume was 28,31,078 kg of reserves as compared to 29,63,791, which is a decline of 4.5%. In NAFTA, it was 15,45,741 as compared to 19,02,256, which is a decline of about 19%. LATAM, it was 7,88,801 compared to 5,58,780, which is a growth of 41.2%. The rest of the world, the volume was 5,00,196 compared to 4,58,060. It is a growth of 9.2%. Overall it is a decline of -- by 3.7%.

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

Sir, first question is on Europe performance. So -- which has shown significant decline in revenues in the quarter, almost 5% revenue decline. While we were anticipating Europe should be a contributing factor for the current year. So particular reason in Europe for this volume decline?

Rohan jee, I want to catch up to you but please speak a little bit louder. Rohan, it is a decline of 4.5%, which we cannot call as very significant. It can be even a small aberration here or there between 1 month to another month or one country to other country. Overall, I don't think that we can point out something very glaring to attribute to this decline.

Sir, my question was that, this is a Europe region from where we were expecting a strong growth in a current year, while starting for the year Q1, though, it's not something very significant, but it is still a muted growth -- I mean, it's a decline of 5% to 6% in revenue. So there is no particular reason on that -- reason in that, and you see the growth picking up in the rest of the year.

Sir, I agree. But I don't think that we were saying that we have a very strong growth in the first quarter. I mean it has just happened. I don't have any other specific factors to point out to you. I would say that it has just happened.

Okay. Sir, this price drop in the quarter, average realization, minus 8%, which you mentioned. So sir, do you see that the prices across the region have started actually going up, and for most of the product prices have gone up. So do you see that this trend of negative realization is continuing? Or you see that the prices have started going up from June, July, and going forward, it will be positive trend?

See, I don't think that we can draw any conclusions from the figures obtained in quarter 1. I would feel that the situation will remain stable. It could grow a few percent up or it can decline few percent down. But there is no clear trend.

So how are the raw material prices are behaving for you? Just to ask clearly, in China, the chemical prices are moving up, stable or they are lower compared to last year?

In China, around there prices are having a tendency to go down.

They are going down?

Yes, sir. Of course, it depends from product to product. But the [indiscernible] trade is going down.

Okay. And in terms of availability of raw materials from China, sir, of the chemical, it is completely resumed or it is still having some impact? And what are the COVID-19 globally, it is still going on. So are there any issues or any revenue loss you have seen because of that or the situation is absolutely normal as far as your business is concerned despite COVID-19 pandemic is still going on?

I mean, are you asking in the context of China or the whole world?

Sir, both. Raw material availability also from China and in the global market demand.

See, we feel that availability is also improving in China. There is shorter time of shipments -- from the order to the shipments. And the factories are also going to -- going downwards. And one of the reasons which I presume is because of the confusion and a lot mess that is happening around the globe because of this COVID-19, the demand from major sectors are probably on the decline, and that is having a positive effect for us in China. Now talking of the whole world. I think that the world cannot be -- cannot say that they are not affected. A lot of countries are facing a lot of problems. And there is a confusion. As of now, we don't see any ray of hope of improvements. We'll be happy that current situation continues or gets stabilized.

Okay. Sir, a couple of questions more, if I can just squeeze in. Sir, on this LATAM market, we have seen a significant growth in the current quarter, almost 40% in terms of volume and 25% sort of revenue growth you had mentioned. So once again, do you see any trend or any particular reason or early start of the season in LATAM? Or it is just a normal season, there is no extraordinary events played out in the quarter driving this kind of growth?

So Rohan, this percentage-wise growth of 41%, and if you see the figures, it is only about 2,30,000 compared to the whole global because of 56,00,000 and 58,000,00. So I think that things are normal. There is not something very significantly bright we can attribute it to. But the things are normal, it is slightly the improvement compared to previous year.

Okay. And sir, just last thing. Sir, we have seen that global or many countries have reacted very negatively against China after this COVID thing. Your entire raw material definitely is coming from China, which distributors and dealers across the world are definitely aware. Just asking, have you seen any of your distributor, dealer complaining or giving you any kind of backlash that we don't want to do business with you because the material coming from China? Have any of this trend -- have you started noticing any such things because of the angle which the global market have against China?

Mr. Rohan, not at all. In fact, the people are very happy, they are eager since they can get a quality product at a reasonable price. This kind of hatred that we see in the media is not going on at the ground level in most of the world. In India, we do have -- we do see some kind of a feeling at the ground level, at the consumer level and that can be because of leaving waivers and we arraigned some tubes and other things. But rest of the world is not at all affected by this sentiment, including United States of America as on date. The goods are being asked for, called for and accepted in a very normal way.

And your business in the U.S. which was impacted by additional duties, imports is -- how it is getting normalized, coming back to track? Or it is still taking higher taxes in U.S. and you're not able to increase the revenue from the U.S. market?

So the taxes, I said, one more fact that our taxes are continuing to be at a higher level. And that is creating a lot of inconvenience for everybody in the same, including companies like us, who are distribute and exporting and the distributors, retailers, everybody is having a complaint about the higher prices and the same not being passed from on from the -- where the finished products are being made, agricultural production. So this situation continues.

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

Sir, just looking forward from the question from one of participant on the China sourcing side. So how much has been our sourcing from China and has it declined over the last few years? And if there is any strategy to shift part of it from the domestic market that is in India or probably the opportunity to few players in terms of [indiscernible] and sourcing?

So what is your good name, sir?

Rohit Nagraj, sir.

Mr. Rohit, our situation remains the same. Our sourcing is more than 95% from China. And if at all, there could be an increase of 1% or 2% in this range because of better availability and better prices. And as far as our company is concerned, we go by what is the requirement of the business. And we do not have any better alternate sources as of today considering the prices and availability and the quality.

All right, sir. So -- and the second question, is there any sizable decline which has been observed in some of our markets? Or there has been some postponement of demand from the Q1 to Q2?

It's very difficult to comment Mr. Rohit, but we do not see any significant trend or significant factor to answer your question.

The next question is from the line of Bharat Gupta from Edelweiss Securities.

So I have a couple of questions. First is in regard to the NAFTA market. So are we seeing that there has been like inventory overhang kind of a situation out there in the month?

It could be, it could be.

And sir, what's the outlook like in terms of the visibility of growth, like is the season get delayed, particularly in the regions pertaining to NAFTA? Are we seeing that kind of situation out there in the market?

No, sir. We feel that the situation will become better compared to what it has been in the first quarter.

Okay. And sir, is it possible to share the gross margins across the region?

Just 1 minute. Yes sir, the gross margin was 36.3% in Europe; 23.5% in NAFTA; 28.4% in LATAM; and 21.6% in rest of the world. Overall, 29.9%. If you want, I can give you the figures for the -- same figures for the last year's quarter 1.

Sure, sir.

Europe was 36.1%. So there is an improvement of 0.2% in Europe. NAFTA, 19.2% to 23.5%. So there is a significant growth in the margin, about 4.3% in NAFTA. LATAM, it has remained constant, 28.6% last year and 28.4% this year. Rest of the world also more or less the same, 22% last year and 21.6% this year. Overall, 27.4% last year and 29.9% this year.

Sure, sir. That's very helpful. My second question is regarding the Latin American markets. Sir, we have heard like about the commentary impact the global player. So there are some kind of currency tailwind in regions pertaining to Brazil, Argentina. So how are we looking at the scenario? Like we have shown a good amount of growth in this quarter. So do we see that the growth going forward can be -- can have an impact negative -- like negative currency impact in the subsequent quarter?

Sir, we do not have -- we have not come across any such glaring factors. But we feel that the economics of this region are in big trouble, partly because of politics, and partly because of many other factors. And they continue to remain the same in the last 6 months, 12 months.

And sir, on to the gross margin side. So do we expect the gross margin for the full year to remain like in the range of 32% to 34%?

Beg your pardon?

Sir, for the gross margin for the full year, like you have said that there has been some softness in the raw material prices. So do we foresee that the gross margin for the full year can remain in the range of 32% to 34%?

I think it should be -- we should be able to do that.

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

So just follow-up question was on higher other expenses, the reason for higher other expenses. And second is, when do we start seeing the benefit of the Euro-INR in our numbers?

Sir, it is -- I mean, to my knowledge, the things that happened about 1, 1.5 months back and we are getting benefits of this. But we do not know how long will it last. We are getting direct benefit and almost instant benefit.

Sir, there will be some amount of claim hedging, vanilla hedging that we do, so that would have impacted to some extent in Q1. So probably the full positive impact, assuming currency stays here, will be visible as we go forward. That would be a fair understanding?

Sir, I have not understood your question very completely. But I can also comment because without understanding your question, that initially, we were not able to take advantage of this increase in the cost currency rate of euro versus dollar because of power contracts. And we booked not more than 25% to 30% of actual requirement. So the impact has not been very much adjust also. And now we are getting very good rate, the euro-rupee rate and euro-dollar rate. And we feel comfortable and we are very happy about it. And we hope this will continue.

Hopefully, sir. Keeping fingers crossed. And just wanted to understand the reason for higher other expense in this quarter?

One minute. You know higher other expenses, first is the freight and forwarding expenses. Because of this COVID-19 and in order to meet our targets, we had to airlift a good quantity of the products. And even, the airfares were almost 100% more than we were paying the same last year. So one is this freight and forward, then second is legal and professional charges. The lawyers are becoming very expensive and all the professionals are becoming very expensive. Third is commission on the sales and incentives that we provide for team of salespeople. And then there are some other expenses and another thing is the writing of intangible assets and intangible assets under development. This has been also a significant contributor to the other expenses increase.

Sir, that was INR 1 crore, right, the intangible write-off in this quarter?

Yes, yes.

Okay. On the freight side, out of INR 50 crores for other expense, how much was paid for freight and forwarding? [Foreign Language]. So just wanted to understand that.

Freight and forwarding should be about INR 10 crores.

Okay. INR 10 crores some which will go off, because now the lines would operate normally. So this air lifting bill would be out.

Hopefully, but we cannot say because, I mean agriculture being our seasonal product and depending upon the results, we sometimes receive requirements and demands at a very short notice, which is not predicted by the -- our down the line people, distributors and retailers and also the farmers.

Okay. And sir, what was the same number, INR 10 crore in the last year same quarter?

It would have been about INR 8 crores.

[Operator Instructions] The next question is from the line of Somaiah V. from Spark Capital.

Sir, on the Europe and Indian market. Was there any kind of a weather-related issue that impacted Europe? We heard some dry weather impacts. Was that impacting numbers in Q1? And also in North America, was there any kind of pre-buying that happened in Q4 that kind of impacted Q1?

So one minute, sir. First of all, I couldn't get your name the lady was announcing. What is your good name, sir?

Somaiah V, sir.

Somaiah?

Yes.

Somaiah, no? Like Sri Somaiah? The same sort of family name, no?

Somaiah V. Yes, sir.

Okay. And you asked me a question that whether it was carryforward of -- can you repeat your question?

Yes, sir. Sir, in Europe, was there any kind of weather drive impact that we saw in Q1?

We did, we did. And in some of the regions and countries, the weather was right. And the weather was also not convenient. In other cases, the time of application was shortened. So we did have these kind of complains.

Got it, sir. And in North America, because of this COVID thing, I mean did we see Q4 getting a kind of a pull forward benefit, and that kind of impacted Q1?

No, I don't think so. I mean, those people are not so much farsighted. Most of the customers and our customers in North America, if they want the product, they want it yesterday. And if you tell them that the goods are in transit and will be coming after a week, then they don't call up next time, they take it from somebody else. So they don't want for such a long thing.

Got it, sir. Sir, and was there good pricing gains in North America Y-o-Y? Because between -- 19% volume decline and whereas the overall decline in NA was around 6%. So a lot to do with FX, or we also had pricing gains on a Y-o-Y basis?

See, we have a big portfolio of products. So in some products, there has been a pricing gain and on some products, because of -- this is purely a factor of the demand and supply, and it varies from product to product. It's very difficult to generalize it.

Okay. Sir, you mentioned that in terms of RM prices moving from China. Is it something structural as an availability or new capacity has come in, so that is driving it? Or is it something which is because of a lower offtake or lower demand is probably driving this improvement?

I would say that the second half statement that you made is more responsible. There is no excess or over capacity being generated in China at this part of the year of [indiscernible], mainly because of the COVID fears and corona and all those things. But subsidizing of the demand from various parts of the world could play a more important role in the easing of the prices.

Got it. Sir, and the non-agri bid, the non-agri segment, I think though your agri declined 2%, it's the non-agri that led to overall decline of 8%. I mean, any thoughts on the outlook for this given the COVID time? I mean, how this -- you're expecting this to span out?

Sir, it is slowly improving. It is slowly improving.

Okay. Then what would be the kind of gross margin or EBITDA margins for this non-agri segment?

One minute. Non-agri segment, overall, the gross margins have dropped from 17.6% to 16.1%. So that's about, I think, 7%, 8% or could 6%, 7%.

Got it. Just, if I can, just a couple of booking keeping question. So one, you had spent close to INR 70 crores of CapEx this quarter. So I mean, can we take it as a bit of front loading this quarter, and the year CapEx would be normal as previous years, I mean, the full year CapEx?

Sir, I think that we will end up this year with higher CapEx compared to last year.

And roughly, what would be the outlook, sir, on the CapEx?

Sir, first of all, registration process is filled up with so much of uncertainty. It is very difficult to predict. You cannot plan and all of the planning was topsy turvy, because of so much of uncertainty, which are built up in the process of registrations. We are -- depend upon the weather, the trials and the bureaucracy all over the world, the government committee, government authorities taking up a priority or not priority. There are so many things, I would not like to take more of your time on this. So it is very difficult to plan. There is no trend like this. The only trend is the cost of the services are increasing month-by-month and quarter-by-quarter. The government charges, the ministry chargers are getting multiplied for the same evaluation from year-to-year. So the process is becoming more and more expensive and uncertainty continues.

Got it. Any thoughts on the tax rate on an annual basis, your outlook?

Tax rate. I think you'd have to ask the Government of India. But let me see. We have predicted the effective tax rate to be between 25% to 30%.

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

Yes. Thanks a lot for the follow-up. For this quarter, almost 1.5 months has gone by. So how are we seeing the trends in the market?

The trends are good. Nothing that I can comment. Nothing that I can complain.

That's helpful. Sir, and then last quarter, we had given our guidance in terms of revenue growth and EBITDA margin or revenue growth of about 5% to 10% and EBITDA margin growth, that 17% to 18%. And given our Q1 performance, do you like to revise the guidance based on the current outlook?

Sir, I have not understood. I would request you to speak a little slow and louder.

Sure, sure. Sir, last quarter, we had driven revenue growth guidance for this year of about 5% to 10% and EBITDA margins of about 17% to 18%. And so post Q1 numbers, do we want to revise the guidance based on the current performance and the outlook for the rest of the year?

No, sir.

All right. And the CapEx guidance, also last quarter, we had indicated about INR 175 crores to INR 200 crores. And first quarter, we had done almost INR 70-odd crores. So you have also mentioned about the uncertainty related to regulatory approvals, et cetera. But would this be the similar range or it may go beyond this range?

As on today, I feel it will be in the same range.

[Operator Instructions] The next question is from the line of Deepak Kolhe from B&K Securities.

Sir, can you please provide the geography-wise breakup for the registration pipeline?

Just 1 minute. You asked me for the registration pipeline?

Yes, sir.

Yes, sir. For Europe, about 700; NAFTA 115; LATAM 130; and rest of the world 70. Total about 1,020.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Manish Mahawar for closing comments.

Thank, Aisha. On behalf of Antique Stockbroking, I would like to thank management of Sharda Cropchem for providing us an opportunity to host the call. Bubna jee, would you like to make any closing comments, sir?

No, sir, actually I have some other commitments in the next 10 minutes. I would say that the company's business is going normal. Fortunately, we are not affected by this COVID-19, as is the case with almost 70% to 80% of the industries and companies globally and in India. So we have been very fortunate to have been spared by the negative effect of this COVID. And I'm thankful to God for this situation. As on date received, we see that this would continue, unless, of course, something absolutely unexpected happens like what is happening in South China and a lot of politicians are talking about World War 3 or something very disastrous. Then, of course, we have to keep our fingers crossed. As on today, I think for us, the business is normal. Thank you, Manish jee.

Thank you. On behalf of Antique Stockbroking, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.

Thank you.