Sharda Cropchem Limited (SHARDACROP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sharda Cropchem 2Q FY '20 Post Results Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Himanshu Binani of Antique Stock Broking. Thank you, and over to you, sir.

Thank you. Thank you, Vikram. Good day, everyone. And on behalf of Antique Stock Broking, 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 of the company; Mr. Ashok Vashisht, the CFO of the company; and Mr. Dinesh Nahar, the General Manager of Finance on the call. So without any further ado, I would like to hand over the call to Mr. Bubna for his opening remarks, post which we can open the floor for Q&A session. Thank you, and over to you, Bubna jee.

Thank you, [indiscernible]. Good day, ladies and gentlemen. A very warm welcome to everyone present here for the earning call of Sharda Cropchem Limited for the Q2 FY '22. Sharda Cropchem Limited is represented by myself, Ramprakash Bubna, Chairman and Managing Director; Mr. Ashok Vashisht Chief Financial Officer; and Mr. Dinesh Nahar, General Manager, Finance. Talking briefly about our Q2 results, revenue grew by 51.3% year-on-year from INR 425 crores in Q2 FY '21 to INR 643 crores in Q2 FY '22, led by strong volume growth across geographies. Europe grew by 7.3% year-on-year, NAFTA grew by 115% year-on-year. LATAM grew by 114% year-on-year and rest of the world grew 75% Y-to-Y. During Q2 FY 2022, our agrochemical to non-agrochemical mix stood at 78% versus 22%. The agrochemical business grew by 46% year-on-year. Among agrochemicals, Europe business was almost flat. NAFTA grew by 125% year-on-year. LATAM grew by 135% year-on-year, and rest of the world grew by 86% year-on-year. The formulation mix stood at 94% versus 6% in Q2 FY '22. The non-agrochemicals business grew by 74% year-on-year during Q2 FY '22. NAFTA grew by 96%. Europe grew by 65%. Rest of the world grew by 59% and LATAM grew by 17% year-on-year. The company continues to strengthen its product portfolio by prudently investing in new product registrations. Sharda Cropchem's total product registrations stood at 2,610 on 30 September FY '22. Additionally, 1,054 applications of product registrations globally are at different stages of approval. The CapEx stood at INR 153 crores in H1 FY '22 versus INR 130 crores in H1 FY '21. With this brief overview, I would now like to hand over the call to our CFO, Mr. Ashok Vashisht, for discussing our financial performance. Over to you, Mr. Ashok.

Thank you, Mr. Bubna. Our friends is very good even to all of you. I'll give you a brief order Q2 FY '22 financial performance of the company. During the quarter, our revenue surged by 51.3% on a year-on-year basis, which was mainly driven by a strong volume growth at 60.8%, and favorable exchange gain of 1.1%, whereas there was an adverse impact of the product mix essentially because of the [indiscernible] as in Latin America, so to the tune of 10.6% during the quarter. In terms of gross margin, we grew by 36.3% year-over-year basis from INR 132 crores in quarter 2 last year. So it was increased to INR 180 crores in quarter 2 FY '22. Gross margins were at 28% in quarter 2 FY '22, slightly lower than the -- in comparison to the FY '21 quarter 2, essentially because of the change in the product mix and of -- some impact of inflation in the freight cost particularly in this quarter and half year. On geographical mix, Europe continue to be the highest contributor, followed by NAFTA and Latin America. We could strengthen our footprint in NAFTA and Latin America during this quarter. EBITDA registered a very strong growth of 76.8% on year-on-year basis from INR 59 crores in quarter 2 last year to INR 103 crores in quarter 2 FY '22. The EBITDA margin expanded by 233 bps to 16.1% in quarter 2 FY '22, mainly driven by volume growth and better cost management across and partly impacted by change in product mix and inflation in the freight cost. Profit after tax grew by nearly 68% on a year-on-year basis from INR 19 crores in quarter 2 last year to INR 32 crores in quarter 2 FY '22. In terms of cash profits, it stood at INR 93 crores in quarter 2 this year FY '22 in comparison to INR 61 crores last year. So significant improvement in terms of cash profit as well. Cash and cash equivalents stood at INR 370 crores in quarter 2 FY '22 in comparison to INR 314 crores in quarter 2 of last year. So there is a special focus on the working capital management. So that working capital stays in Q2 86 days in -- as of 30 September 2022, in comparison to 98 days as at 30 September 2021. So with this, we open the floor for your specific questions. Thank you.

[Operator Instructions] We have a first question from the line of Bharat Gupta from Edelweiss.

Congratulations for a good set of numbers. Sir, my question pertains to the recent issue of the China front. So what we have been hearing that there has been power prices issue and that is definitely impacting the overall agrochemical industry. So just wanted to get a sense because our business is primarily driven from China only. So how secure are we in terms of securing the finished products? And what is kind of inventory positions are we holding with respect to the coming quarter?

See, Mr. Bharat, so far, we have been doing fairly well in this financial year. China situation has been alarming for many months, but somehow we have been able to sail through very comfortably. This is a true fact that the situation in China is not normal. Their government has become very conscious about pollution control and the incoming Olympics in the month of February. They are taking many strong measures to curtail pollution like stoppage of mining of yellow phosphorus for us and controlling the waste disposals by the industries, both air as well as water pollution. Another serious impact is shortage of coal supply in China, which is impacting the electricity generation and electric supply is also being curtailed for the industries. They're giving more preference to the residential consumers than industries. Let us see, this will affect everybody. You have very rightly said that we are mainly dependent upon our procurement from China. But I want to tell you, sir, China has become a factory to the world, and everybody is directly or indirectly dependent upon China, if not the finished product, the semi products for the basic raw materials. Multinational companies across the globe are dependent on the China. So our impact will not be very much out of the tune compared to the rest of the players in the field.

Right, sir. And sir, in terms of the inventory, which we would be having. So primarily, just wanted to get a sense because Q4 is 1 of the heaviest quarters for us. So like in terms of whatever supplies which we are having, are that good enough to meet the rising demand which you are seeing from the European markets or the North American markets?

Mr. Bharat, this is a period when we build up the inventory, we don't carry on the inventory for the complete year. We are finding in some concerns in getting the shipments because of the lack of production and other things. But as of date, the level of inventory that we are holding is slightly better than what we were holding last year. Of course, these orders start coming up also during this period of time. But our customers are also very careful because the prices have gone up, and they are not used to buying at higher prices. So I would say that, so far, our business is moving normally, not a very serious impact, including the inventory levels.

Right, sir. And sir, like if we look on the pricing trends, definitely, there has been some sort of an impact due to the change in the product mix. But going like what you have also been said in the -- in your opening remarks that there has been some issues in terms of the raw material side. So definitely, there would have been some sort of an increase in the overall raw material prices. So are -- have you taken the full price impact on the chain? Are MEC still resistant enough to pass on the increase in the raw material prices for the product?

No, sir. The inventories have not much to do with the prices. The prices have gone up and the consumers are showing some resistance. But at the end of the day, they do come around and absorb a fairly good part of the increase in the prices.

So sir, have you taken any prices increase for the for the Q3 quarter?

What was your question? Have you taken what? Prices increase?

Have we taken prices increase? Or have we passed on the price increase in our raw materials to the end customers?

We do that for every transaction, See, as you may have been knowing about our business, we don't have any long-term contract, either with our suppliers nor with our customers. Most of the time, every transaction is a fresh negotiation. So the prices that we are offering to our customers is by adding our normal margins to our cost prices. So there is some...

Are there any reason...

Yes?

Yes, you can go ahead.

So there is an increase in the prices, which are being held by the -- I mean, we are claiming from the customers, and they're giving us.

Right, sir. And sir, just what we have seen is there has been some sort of pressure in our margins, where it is gross margin to have come back to a 28% kind of a range. So going forward, do you expect it to be sustainable in the coming quarters or there can be some sort of improvement as we have taken some pricing increase for the coming months as well?

See, Mr. Bharat, presently, the margins are under stress under pressure. Going forward, I would feel that the similar situation will continue unless China becomes all of a sudden very open, and they start increasing their production and dispatches in a full swing. Till then, it's going to be a little cautious game, and we are prepared for it.

And sir, if we look like -- it's just a bookkeeping question. Are other expenses as a percentage of sales have declined despite a spurt in the logistic cost around the group. So what is the key reason for the same?

Sir, [Foreign Language]. Can you repeat this question with a little louder voice, please?

Sure, sir. I was just asking, if you look at our other expenses as a percentage of sales, so that has declined a bit. I was just asking that there has been a spurt in the logistic costs. So what has been the key reason? Why we have been able to maintain our other expenses on a lower side?

See, the other expenses are not impacted by the availability of raw materials or selling prices, they are more or less at a fixed level. But because the price levels are increasing, so proportionately, they appear to be under the amount subdued. But this is a relative equation. Our other expenses are fairly at the same level as last year.

It's got better cost management basically.

So there has there been any material impact on the logistics front, like the fee costs, which have increased our...

Gupta Gee, the logistics cost is a totally different game. It has nothing to do with our other expenses. This is a direct expenditure. And there is a substantial increase in the cost of freight, sea freight as well as air freight. And I mean, I don't think that the other expenses are connected with the logistics.

Sir, that has been a part of costs or like cost of goods sold, or it is taken like separately?

It is taken as cost of goods sold.

Okay, sir. Right. And sir, last question on the guiding strength. So let me we have delivered on and we have given -- delivered a 50% kind of a growth in H1, and you were earlier maintaining a conservative target of delivering a 15% to 18% growth for the full year. So now can we expect that there should be some like from the conservatism to now -- do you want to increase the guidance on the sales trend for the coming second half?

Sir, I would prefer to be on the conservative side. We should be able to grow at 15% to 20%.

For the full year?

Yes, for the rest of the year.

[Operator Instructions] We have next question from the line of Vishnu Kumar from Spark Capital.

Congrats for good numbers that you've got this time. Sir, just help me understand this, sir. Normally, first half is something that you report, let's say, INR 300 crores, INR 400 crores in your European business, but this time we're about INR 450 crores, INR 500 crores. First half, I'm saying first 6 months. Similarly, in your U.S. business also, you have done pretty well. Is it because of some molecules, or is it because of some real pricing that you have materially benefited. Normally you used to say that MNCs are not taking price hikes? Or is it because inventory in the system has gone down? If you could just help us understand structurally or, let's say, there are some near-term gains you are having?

Sir, I'll catch up the second point of your suggested answer. In my opinion, the inventories in the system is getting dried down. And we are able to -- it's not so difficult to claim a better price from the customers when our costs are going up. At the same time, I think we are still more competitive compared to the competitors. And multinationals are also increasing their prices.

Got it. So inventories are low in the system that is helping you drive disproportionate growth in the first half, generally, this quarter or even the 6 months you're saying?

In absolute terms, our inventories are higher this year compared to the last year. But relatively compared to the volume, it would be slightly on the lower side.

Understood. So this situation of low inventory that you're seeing in the market, do you think this will continue into the next year, sir? I mean, given the Chinese raw materials are not available, how do you see that?

It will be under strain. The availability is under strain. The Chinese awardable to ship the goods to us as per our requirements. And because of our contacts and relationships with most of the manufacturers, somehow, we have been -- so far, we've been able to get our supplies sufficient enough, not enough to build up a comfortable level of inventory. And this effort and business strategy will continue.

Understood. Sir, for fourth quarter, last year, we did about close to INR 1,100 crores. And I'm sure you have good visibility as to whether you have enough material available or that is something that will go from China to U.S. and Europe by fourth quarter. So if you could broadly tell us whether you are at a favorable position that you'll be able to kind of -- whatever growth you think that can be done all the material is available? Or you think there will be some shortfall there?

Sir, I don't think we are favorably covered. The situation, which is tough and difficult, is for everybody, and we are a part of it. So -- but even last year, we had not anticipated that we'll do so well in the quarter 4. This year, also, we feel that we should be able to do comfortably well, but not as well as quarter 4 last year.

When you mean comfortably well, will you still see growth by fourth quarter? Or you think it will be just about flat?

It could be lesser -- there would be a growth, but not as much as we had last year, but lesser than that because the base is very big.

Understood, sir. Sir, my second question on this is that you have been highlighting that -- for quite some time that the MNCs have not passed on prices? And now because of the low inventory situation, they have taken a price hike. Now is the price hike commensurate for the technical prices that have gone up now, do you think further price hikes are required because prices have gone up in the recent past? And let's say, once MNC increases the prices for generics, maybe if price is correct, they will bring it down or sustainably because it's a small product, they will not bring the prices down. What is your view on this? Both from a medium and the short term, I'm asking?

See multinational and -- multinational companies has a very big advantage of PAT inventory. I think their inventories are also shrinking now. And they are also under pressure to increase their prices because they are paying higher prices for their sourcing. So I think this situation also helps us in compete better in the market.

Got it. The point I was trying to ask is if the -- because, for them, these products are not really big and you have highlighted that, in the past, if they take the price hikes, more or less those prices can kind of hold on to. So if prices come down, do you think they'll hold on to the prices because this is not a very big portfolio for them, which could be a sustainable benefit for us? Is that -- that's the point I'm trying to understand. I'd say, 1 year from now, will the prices come down again if -- will they drop the prices or they will not drop the prices, if the material prices comes down?

Vishnu jee, you think I'm the right person to comment on how the multinationals will behave in some of my imaginary situations. We can only predict. We can only make a guess. And there is no reason for -- I mean, they do not react so quickly to the placation in raw material prices or procurement prices. I have a feeling that this year, they have been quick enough because their inventory levels are on the lower side. What will happen if the prices come down, I'm not the right person to comment. They may or may not.

Got it, sir. And in your U.S. market, are we introducing any new molecule that has given us some disproportionate benefit, any specific molecules that we can possibly say or any product -- any particular categories that has done really well for us in the last 1 year or so? U.S. and Europe, any particular category?

Sir, we have been getting more and more registrations, more and more product approvals. Our portfolio is enlarging, and that is helping us to increase the volume.

Sir, any rough idea you can give us, let's say, local distributors have gone up x percentage, more states, more touch points. Anything that you can say that this last 2 years, it is now better, something for us to get a more of a grip on?

Our customer base is also increasing in U.S. With the increased our portfolio, the acceptability of our products is increasing, the recognition of Sharda Cropchem is increasing, and we are finding it easier to introduce our products in the market and getting it accepted by the customers.

So when you mean customers, how many distributors would probably be having there, I mean, last 2 years to now?

I don't have the figure readily available, but the number of customers are maybe about 20%, 25% more compared to last year in the United States market.

[Operator Instructions] We have next question from the line of Chetan Thacker from ASK Investment Managers.

Sir, I just wanted the tonnage numbers by region?

Yes. One minute. You gave me a second, please. Sir, for Q2, in Europe, the tonnage is 3.61 million kilograms or liters. NAFTA, it is 2.74 million; Latin America, 1.46 million; rest of the world, 1.10 million; total 8.92 million compared to 5.54 million in Q1 FY -- sorry, Q2 FY '21. So in terms of tonnage, we have grown by about 61% in Q2 as compared to Q2 last year.

We have next question from the line of Dhruv from HDFC AMC.

One question was in the previous call -- earlier call, you had mentioned about that there is some prestocking that also you are seeing at least for the last 3, 6 months or 9-odd months. So where are we now in that restocking cycle?

Your voice is getting mixed up by some small disturbances. [Technical Difficulty].

Hello, is this okay, sir.

Now it's okay.

Yes, sir. Sir, I was saying that in the last call, you had mentioned about some that you're seeing in the market for the last 3, 6 odd months. So sir, how -- where are we now in this restocking cycle? I mean, is that largely now behind or that still continues?

You mean pre-season stocking?

Yes, sir.

I don't know whether I have been, but we don't have a strategy of having a very big stress on the preseason stocking.

Not you, sir. Your customers are stocking ahead of the -- ahead of time because of expectation of rate issue or not ability issue, that way.

Sir, I think that customers are also not doing much of our prestocking because they are very much uncomfortable with the increase in the freight cost and the total increase in the cost. In some of the products, the prices that they're paying us is almost 80% to 90% more compared to the same products last year. So they are also not very comfortable and happy to stock. They feel that the prices are already very high. This is my impression.

Okay. Okay. So there's not much of prestocking that has happened in the last...

In my opinion, no. because of the level of prices that are happening today.

Got it. So sir, in that context, the growth that we have, including the volume, if you can help us understand what's driving this growth? Is it...?

As I mentioned in my previous statements, this is probably because of the drying of the inventories with our competition and our [ peer sheet ]?

Okay. Okay. So we are able to source the material much better than the competition and, hence, they are seeking to buy it from us, not...?

Probably. Probably, yes.

Okay. And sir, do you look at it this way, say, for example, say, how much of the sales growth over a 2-year basis or a 3-year basis has come because of new product registrations? Do you have that kind of data? Say, for example, this year, you have grown, say 51%, how much of this growth is coming from new registrations that you have got, say, 3 years back? So 3 years back, you got this registration and today, the sales is x percentage of your total sales. So just trying to understand how much is driven by new sales, new product sales?

I'll ask Mr. Ashok Vashisht to reply this.

Yes. Dhruv, actually, there is a few products which are -- which goes off and few new products come in. So it's a rolling. So we do that, but we are not into -- so clearly, we can say that this is because of the new products -- because it's a change, it's a regular change, few products going off, a few new cars coming in. So there is a focus, but measuring that and then giving that as an inference, it is my new business may not be the right thing.

Okay.

Sir, in a word, we have not done any detailed analysis on this front. We are so much occupied with the normal briefing. We have not done any serious analysis on this front.

Yes, sir. was what I'm trying to understand, we have done superbly well in terms of growth in the last 3, 4 quarters. And I understand part of this is because of the people stocking it ahead because your competitors don't have. But I'm just trying to understand how much of this can be dissected between the normal growth that you would have anyway achieved because of products are getting registered and stuff like that and new penetration is happening? And how much is -- if there is some qualitative way we can try to dissect that?

So PBC, the focus earlier was only Europe. So with this now, we are putting more focus -- equal focus on NAFTA and Latin American regions. So we see growth in half year so apart from Europe. In fact, Europe is the #3 in terms of growth. So we are getting good growth in NAFTA region and LATAM, which we are expanding.

Got it. Got it. And is this growth coming because of new registrations as much particularly, I mean, large part of the growth? Or is it because of the penetration increase? I mean, I understand it will be everything, but the bigger part is because of what?

Mr. Dhruv, it' is both penetration as well as expansion of the portfolio.

Okay. Okay. Sure, sir. Because I mean your portfolio is expanding for quite some time, but the acceleration in growth has happened in the last 3, 4 months -- sorry, 3, 4 quarters. So I was just wondering what has happened now that this growth is happening? I mean what...?

We are more nimble for...

See, if you see half really, the growth in NAFTA region is 110% as given in the opening remarks of Mr. Bubna. Latin America 120% half year, which is actually helping us in terms of giving this significant growth, of 50% growth. And Europe is 35%, and Even the word is 45%. So basically, [ compensation ] of the existing portfolio and new molecules, both are helping us in term to getting this growth.

Got it, sir. And sir, if I understand correctly, your growth will be higher in NAFTA and LATAM going forward also. Sir, you have historically used to give this GM margin split. And in that, if I understand correctly, the Europe was the highest margin then followed by naphtha and then LATAM can there be some impact on margins as we -- the share of NAFTA and LATAM continues to grow in our portfolio?

See, Europe will still continue to be having the highest margins. The margins in NAFTA region has also improved considerably. Early, it was very normal -- nominal, this year, it is respectable. So margins is competitively growing in NAFTA, but Europe still continues to be a region of best margins.

Yes, true. But just from an incremental basis, if the growth is higher from NAFTA and LATAM?

I can give you a comparison in Q2 last year. Europe was 36.7%, which is 33.2% this year. In NAFTA, it was 20.2%, this year it is 28.3%. LATAM was 27%, this year, it is 15%. And rest of the world was 32.5% and this year 20.7%. So margins in LATAM and rest of the world has come down considerably. NAFTA has increased considerably, and Europe has also subdued slightly.

Got it.

Overall, our margins have come down from 31% to 28%.

Got it. All right. Sir, my next question was more from understanding the near-term dynamics of our business. So sir, we understand quite fairly well now that the Chinese technical prices are rising because of all the disruptions. Now if I understand correctly, we don't contract either the supplier or the customer, but some of the MNCs, I believe, do contract the suppliers. So their costing will not probably change as much as your costing will change. So sir, from a purely near-term perspective, is this negative from the structure that we are in? And I understand this will all normalize, say, 6 months or 12 months down the line, but just to understand the dynamics from a near-term perspective.

Sir, I feel that you said that -- I'll tell you one more very surprising thing. Now we are suppliers to many of the multinational companies also. They do have their offices in China, but I don't know why they send the inquiries to us and buy from us in spite of all these things. I'm not really able to get out into the details why it's happening, but it is happening. And multinationals are paying us much better margins than the normal customers.

That's interesting. So they source it from you rather than directly reaching the...?

Some products. I don't -- I won't say that it is great, but it is starting from a 0 base to some small numbers and which is very encouraging for us.

Got it. Got it.

Sometimes we are shipping by air to the multinational companies from China.

So is it possible to share what percentage of the sales will be that today?

It will be a very small percentage, not very significant. But even a few transactions is very encouraging for us.

Yes, true. True. And sir, 1 last question before I join the queue. Sir, now given that the China issue that we see today, I mean, if you see the last 4, 5 years, it has been happening regularly some of the other event because of emission, because of some issues, production issues or something else. So sir, how do you see the situation now in terms of your business strength? Do you -- are you thinking of diversifying more away from China in your sourcing to probably more of India just to hedge yourselves better? Or I mean, how do you -- how are you looking at the situation?

Mr. Dhruv, that situation has not come to this level so far. Even today, China happens to be the most reliable and most economical source. There could be some small sources available in India. But again, the Indian supply is also dependent upon China for the basic raw materials and Indian suppliers also tried to keep pace with the Chinese. It is not that the Chinese are expensive, engines will be cheaper. Indians will also come at the level to take advantage of the situation. So, so far, our preference is still with China, unless we don't have availability of a particular product and it is available in India.

Sure. So I understand that's fair that they will also price it to China level, but at least the volumes will be available. So are you looking at that way? Because from -- just for example, in the current situation, China is not even able to supply volumes irrespective of the price that is whatever is coming to?

Sir, in terms of volumes, Indians are not very large volume manufacturers and suppliers.

Okay.

The volume of Chinese factories, I mean, all the Indian suppliers put together will not match more than 25% to 30% of Chinese production.

We have next question from the line of Resham Jain from DSP Investment Managers.

Sir, I have just a question on the growth part because you mentioned that the full year growth looks like 15% to 20% only. And if I take that, it seems that the second half could be flat. And also, whatever you've said in your commentary, given the price increases and significantly lower inventory at the retailer level, it seems that the full year number, 15%, 20%, seems to be quite conservative, significantly conservative.

Listen, I think I have not been able to -- I have not been able to explain myself or you have not understood me properly. I said that for the rest of the year I'm not increasing my expectations to more than 15% to 20%, it may happen. That does not mean the full year.

Second half.

This is only the second half that I'm talking about. And today, we are almost end of the October month. So even October month for us has been much better than October last year. So I'm left with only 5 months. So 5 months -- I mean in the first 7 months, we achieved more than around 50% growth. I'm not so optimistic to maintain the same pace in the next 5 months. Next 5 months, we will be 15% to 20%. It may happen more.

On conservative, which is visibility, but it's even.

That is correct.

Got it, sir. I understood it incorrectly. So I got it right. Sir, the second question is on depreciation. Is that a run rate which you are -- or will you be able to guide for the rest of the year and going forward in terms of CapEx also, what will be your CapEx for this year and for next year?

As we see up to 30 of September, our CapEx has been higher compared to last year for 6 months. And this CapEx is going to increase at the same pace. So our CapEx at the end of March '22 will be higher by about maybe INR 40 crores, INR 50 crores. Last year, we might have been INR 250 crores, to INR 300 crores. So this year also, it will be in the range of INR 300 crores, INR 275 crores to INR 300 crores, could be even higher.

Okay. Okay. Understood, sir. And sir, lastly, in terms of -- we have this line item, which comes sometimes the impairment of some of the intangible assets. Is there anything which has come during first half this year? And anything, which you're expecting in the second half?

Sir, I think Ashok will reply this question more for this impairment, it forms a very small part of the total CapEx. Yes.

Yes. During the quarter 2 this year, the impairment is [ 8.7 ] million and half year is INR 4.4 crores . And last year, comparatively, quarter 2 was INR 192 crores, and the half year last year was INR 290 crores. So we are not foreseeing significant impairment in the second half. yes, there will be. Yes, because that is every quarter, we do that impairment exercise. So whatever has been pared so that has been pared as per I know for India. But we are not facing any significance Impairment.

We have next question from the of Sonal Minhas from Prescient Capital.

This is Sonal. I hope I'm audible. I have 2 questions. One was on the longer-term margin outlook for the NAFTA region. I'm assuming as you're gaining scale, you've doubled your top line in the region. And I think you just spoke about the NAFTA margins going up from 22% to 28% H1 to H1. Just want to understand like if we zoom out 1 year, 2 years and compare you to your competition there, do you see these margins converting to 30%, 32%? Or this is what typically the margin profile for that particular region? And the second question is, you've spoken about Europe being the better margin profile business. If we were again look at Europe from a 2-, 3-year perspective, do you see these margins recovering in Europe?

Sir, I do see margins recovering in Europe. And as far as NAFTA region is concerned, we have been able to understand the market better. And we feel that we'll be able to maintain or improve on the margins also in the NAFTA region.

Got it, sir. Sir, second question, just want to understand the success metrics of your filings in these geographies. Just wanted to understand how do you qualify some filing molecule or, let's say, product success? And what gets defined as basically? So is there like an internal metrics of return on capital, or, let's say, expectation of so much top line and so much time for products to be successful or the product to be retired? Just want to understand how do you work because this is kind of a treadmill and would be -- as you increase your CapEx, it's important to understand the capital allocation discipline around this exercise. So just -- if you could help us a little bit with that, that will be helpful to understand the business.

Mr. Sonal, we do not do so much of analysis on the feasibility front or return on capital because the final prices that we will get from the market or we will sell at are never defined and they are never fixed. We, as a generic enter that market, the prices start going down. multinationals also in order to maintain their share. Sometimes they also start reducing the prices to maintain their share. So if these things are not very firm. It is difficult to calculate the return on income. Return on income initially before we went the products are all very attractive and very lucrative. All we go, we select the product, is getting a feedback from our customers, our distributors and the market as to which product has better future, which is a product of future and which will have a longer life in the market. And we also see the product is available in China and whether the quality is maintainable in China. And if we have these factors, then we take a plunge into the product.

I understand that. So sir, assuming all your products have basic assumptions that they are available in China and there is a sustainable quality, which you can meet, and this is a follow-on what I'm just asking that -- and you would not be the only generic player in the market. I'm assuming there'll be more rule enter, price erosion will happen. So if you see a product margins deteriorating over, let's say, 1 year, 2 years, 3 years, is there a cutoff point in this where you say I can't do this business because margin erosion can be factored in roughly, but it can't be exact? So where do you say that I will not sell this product going further? I just want to understand that.

Well, we haven't come across any situation where we find that the product is not giving us any margin or discouraging margin. You understand initially when we introduce our product, probably we are the second or third generic. And another thing I wanted -- want to let you know that there are not many generics who are competing with us in these markets. They can be counted on finger tips. And on that front, we are not so much worried. And every generic which comes and if they are limited number, every genetic has comfortable place in the market to introduce their products and sell their products.

So sir, if I am an analyst who's trying to understand your business from outside, from margin front, if you enter a geography, do I see that your margins -- your model, let's say, x margins. These margins will squeeze down as the competition intensifies, others also reduce their pricing? And then, over time, the discipline with whatever market share is stabilizing the margins tend to expand a little bit. So it's kind of U curve on margins with maturity coming -- your maturity coming in that particular market? Is that how I should model it or mentally align it to understand the business?

Mr. -- what is your name?

Sonal.

Mr. Sonal, please understand that the process of registration is -- requires a lot of patience and heavy amount of capital and a lot of time. These 3 factors reduce the competition very considerably. Most of the businessmen want to invest in tangible assets, which they feel are very secure. And I mean, easily, they can get out of it by selling them off. The risk involved in the intangible asset registration is very high and uncertainty of getting any value if they want to get out. And this gives us a very good room, and we have got used to these kind of investments, and we are seeing the fruits of these kind of investments, which many people don't view. Most of the manufacturers should be the right people to enter into the market with early sessions, but they do not that when we borrow something from them. We sell at a handsome market, but still they don't -- it doesn't attract them into this business.

Got it, sir. Sir, don't get me wrong, I'm trying to, I think, understand the business from a margin perspective over a 3-, 5-year period, especially your geographies where you entered. So that's why I was trying to like, I think, ask...

And our rough estimate is that the return on investment on the -- in these new registrations, you can recover in a period of 1 to 3 years.

[Operator Instructions] We have next question from the line of [ Chirag ] from ASBL.

Sir, I'm tracking your company since the last few years. I just want to understand exactly how it's different from the other agrochemicals and as business Also, we are mostly patent driven, and we also saw manufacturing. Is my understanding correct, sir?

Sir, you would like to repeat your question. Your voice was getting mixed up.

Now its proper?

Yes. But please speak a little slowly, so that can be understood better and then mixing up between 2 words.

I want to understand your business model that how we differ from other agrochemicals and fertilizer players? And also, what different products we do because order you've seen that we outsource our manufacturing, right? So how we do business on this model exactly, the value chain, I want to understand?

That the biggest difference between us and other players is that most of the players start first as a manufacturing and then go to the marketing. We do not have any manufacturing. We straightaway introduce ourselves into the marketing, and we continue that and we find it very lucrative and very attractive. We outsource 100% manufacturing particularly these agrochemical products or most of the agricultural products are seasonal products. On the off season, the manufacturers find it very painful to keep their plant running either to build up the inventories or sell it at a very attractive prices. We are not affected by these adversities or these minus points of the manufacturers. We are very nimble footed. If, for some reason, in some season, we find that a particular product is in abundance and the prices are dropping down, leaving little margins, we do not deal in that product for that particular season or that period. A manufacturer does not have that choice.

Okay.

You understand me, sir? Is that is a big difference of them there's hardly anybody. I think we have a unique business model in India. And they are not no other company in the world who is not doing any manufacturing. There are some companies, which are having a similar business model who may be manufacturing 20%, 30% of their market. We have 0 manufacturing of -- compared to what we market. And we don't find it very interesting to go into manufacturing because, fortunately, whenever there is a good product, giving good margins, there are many manufacturers which come up on a very short notice. That helps us to sort of derisk our business.

Okay. So for the product development, we in-house do R&D, or is that also we out do?

We also the R&D also.

Okay. So in comparison to the traditional manufacturer of the agrochemicals and vis-a-vis ourselves, what is the margin -- any margin reduction, which we earn compared to the traditional manufacturer?

I have not understood your question, sir.

Okay, sir. What I'm asking is like most of the manufacturers do in-house R&D similar to what pharma players do, plus the to their own manufacturing, okay? So they have some patent and all with them. So to protect our business model comparison to them, what extra edge we have?

Sir, we do not have any patent. The products that we are dealing with, the patents are held only by the multinational companies who have invested a huge amount of capital to invent this production. They enjoy a 10-year patent production. Our role comes only when the product goes off patent. And I'm not -- I mean, any manufacturer holding patent for their new products are only multinational companies, having billions of dollars of turnover and big volume, big budgeting.

Okay. So we purchase those going to -- patent, right?

Pardon me?

So we purchased those rights of patents, which are -- goes to -- which are expired or not used by the MNC after a certain period of time?

So I'll explain you, Chirag, actually, we are a different company, as explained by Mr. Bubna. We are a tangible assets driven company. So -- and agrochemicals like pharmaceutical is a controlled industry. No, it's reps cannot be sold freely. So to enter into any country, so you have to register your product in that respective country. So expertise of Sharda is that we have that capability and expertise. And our cash flows allows us to register product, which involves enormous capital and time, yes? So we get those licenses in the respective countries. And only any company who can sell the product, if they have a license from the respective government. So that is a big differentiator and entry barrier. So it is possible that there is a manufacturer from whom I get my product manufactured, that manufacturer cannot sell directly in that country. So there is a big entry barrier yes. And it is -- looks to be simple, but it is highly dynamic. It is a complex business model, but it is highly flexible. So as extend by Mr. Bubna. So we work majorly on the bearing costs, so which is the same, yes? Like in other businesses, which differentiates us from them. A major part of the cost is variable cost, whereas formulates major compared to fixed cost, so which is our strength.

I'm sorry to interrupt, kindly come back in a question to Chirag. [Operator Instructions] We have next question from the line of Somaiah V from Spark Capital.

Sir, can you just help us with the registration split across the regions, which you generally used to give, both from what is the pipeline and what we have?

See in the number of registrations we have is 2,610 registrations. Out of that, in Europe, we have 1,370 registrations, NAFTA 252, LATAM 450, and rest of the world 238. Total, I repeat 2,610 , and we have about 1,054 registrations in the pipeline, which are at different stages of registration, which are in process.

Got it, sir. And the split for that would be...?

Splits for the registrations in pipeline?

Yes, sir, the breakup of 1,054, yes?

Europe, 738; NAFTA, 88; LATAM, 138; Rest of the world, 90; total 1,054.

Helpful, sir. And sir, if you could also give us this both volume and gross margins you have given for Q2 FY '22, if you can give the same for Q1 FY '22?

One minute. No, you want Q1 FY '22 or...?

The previous quarter, yes, Q1 FY '22.

Q1 FY '22. Sir, your question was about margin, no?

Yes. Yes, both volumes and margins, Q1 FY '22.

Okay. The volume in Q1 FY '22 was Europe, 3,69,000; NAFTA, 2,666,000; LATAM, 1,599,000; and rest of the world 4,34,000; total 8,395,000 volume.

Got it sir. Margins?

Margin; Europe, 38.6%; NAFTA 22.8%; LATAM, 17%; and rest of the world, 27.8%; total 29.3%.

Helpful, sir. Just 1 last question from my side, sir. So based on the volume numbers that you have given for this quarter and also your total revenue growth, this kind of suggests that both in LATAM and Europe, there has been an impact on either price or product mix. Specifically on LATAM front, I mean, can you just help us with some color on that? I mean is it -- You have seen a price increase in North America, whereas that has not been the case in Europe or LATAM? Or is it purely a function of product mix?

Major assumption of product mix.

It's mainly a function of product mix.

So from a pricing standpoint, there has been increase both in Europe and that. I mean would that be right to understanding?

Not really. Majorly product mix and will come impact of freight marginal because there is increase in the freight cost, which is also impacting us a little bit.

We have next question from the line of Dhruv from HDFC AMC.

SP06 Just 1 question. In case you shared this data, Sir, what would be the top 3 technicals for you on an overall basis? And if you can name them and also if you can probably share what is that as a percentage of sales, if top 5 or top 3 are valuable also similar for last year and quarter?

Sir, I'm sorry, but this is considered confidential information I cannot share that.

Okay. And okay. But broadly, what would be share of sales for top 3? Do you share that or not even that?

Yes, share, I can give you, not top 3, but maybe top -- 1 minute.

Top 5 or top 3...

Yes. For the -- I mean, half year FY '22, the top 3 molecule share is 24%. Top 5 molecules is 31% top 10 molecules is 46%.

This is first half? And sir, similarly, last year?

Last year, last year, the top 3 was 18%. Top 5 was 25% and top 10 was 40.3%.

This is first half last year and first half current year?

Yes.

We have next question from the line of Harsh Beria, an Investor.

I have a question on the unit economics of the business. If I just look at a longer time of sales per registration, that has grown, let's say, from INR 60 crores -- from 60 lakhs per registration in FY '15 to about 60 lakhs now. Where is the registration cost per registration has really increased a lot. I think it's somewhere from 6 lakhs to 20 lakhs now. And this is in line with your previous commentary on the increasing registration caused by government. So First question is, is this the right way of looking at the business?

I did not understood your questions very honestly, can -- you will have to repeat it.

Okay. If I look at all your agrochemical registrations and the sales that you do from the agrochemical division, I'll get a sales number per registration. At the same time, if I look at your -- at the same time, if I look at your intangible assets in your balance sheet, and I normalize it by the number of registration, I'll get a proxy to registration cost that you're paying, which you are putting in your intangible assets. So if I look at the difference of these 2, it seems that this has gone down a lot in the last few years?

What has gone down?

So the difference of revenue per registration minus registration cost per registration, this has gone down over a period of time. Is this a right way of looking at it? Or am I looking at it in a completely incorrect way?

Sir, it is not the right way of looking at it. because of process of registration and the cost of registration varies from country to country and product to product. In some countries, I may get a registration in $100,000, in other countries, we have to spend EUR 5 million to get a registration. So it varies so widely between product to product and country to country, you cannot make any such comparison or ratio valuation. And also the time. So I suppose -- as we develop my -- registration, developing country or say, Latin America or Far East, the time is more smaller and the cost is much lesser. With registering the same product, same concentration in Europe, the cost can be 10x or 20x more. So you cannot draw any such conclusions from the number of registrations.

We have next question from the line of Jagdish, an Investor.

Sir, company is having cash on books of INR 300 crores. Why don't they reward the shareholders by buyback in the shares?

I mean please repeat your question, Mr. Jagdish a little more slowly. The company?

The company is having cash on books of more than INR 300 crores.

Yes.

Why don't the company is rewarding the shareholders by giving dividend or buyback in the shares from market?

Mr. Jagdish, then you have not studied our company's finances very deeply. We cannot do any buyback. We're only holding the maximum amount that we allowed as per the law. You understand? And we do not want to offload our shares to the market because that will give a wrong signal to the market. And we don't play into the prices of the shares. As far as the results are concerned, you have -- if you have seen our company's financial structure, we are a debt-free company. We have not borrowed anything from the banks.

Company can do buyback and promoters can also surrender shares. This shareholding pattern will be same.

No. We do not like to look at those things. We like to consider on our business rather than playing with the sales and market capital of the shares.

Sir, so you can reward the shareholders that special dividend.

Mr. Jagdish, we will consider as we look into this.

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

Well, ladies and gentlemen, it has been a pleasure to receive your questions. And I hope we've been able to answer them to your satisfaction. 1 minute. The business is full of challenges, and we have been spending a lot of time and efforts to strategize our business and get the best out of the situation rather than complaining and giving up. Thank you very much.

Thank you very much. Ladies and gentlemen, on behalf of Antique Stock Broking, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.

Thank you, everybody.