Sharda Cropchem Limited (SHARDACROP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sharda Cropchem Limited Q1 FY '23 Conference Call hosted by Antique Stock Broking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mahesh Mahawar from Antique Stock Broking Limited. Thank you, and over to you, sir.

Yes. Thank you, Yashri. 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; Mr. Ashok Vashisht, 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, post which we will open the floor for Q&A. Thank you, and over to Mr. Bubna.

Thank you, Manish. Good evening, and a very warm welcome to everyone present on the call. I hope all are keeping safe and healthy during these times. Along with me, I have Mr. Ashok Vashisht, Chief Financial Officer; and Mr. Dinesh Nahar, General Manager and SGA, our Investment Relations advisers. Hope you all have received our investor deck by now. For those who have not, you can view them on the stock exchanges and company website. We are a fast-growing global agrochemical company with a clear position in generic crop production chemical industry. Our vast and growing library of dossiers and IPRs provide us solid foundation for the growth in the global marketplace, especially in advanced markets such as Europe, North America and Latin America. It equips us with the ability to operate in a diversified range of formal and generic active ingredients space globally. The company continues to identify opportunities in the generic molecules and corresponding formulations and generic active ingredients. We're preparing dossiers and seeking registrations in the relevant jurisdictions. Sharda Cropchem's total product registration stood at 2,719 as on 30th of June 2022. Additionally, 1,153 applications for the product registrations globally are at different stages of approval. The CapEx of Q1 FY '23 stood at INR 102 crores. We are placing special focus on expanding its biocide registrations while scaling up its marketing and distribution capabilities across geographies. We maintain relationships with multiple manufacturers in the agrochemical industry, mainly in China and India. Sourcing from multiple manufacturers help us in getting quality products at optimal price, thereby de-risking its sourcing capabilities. Over the years, we have built a strong brand franchise within our global markets. We are benefiting through the economies of scale in our portfolio and leveraging value of our supply chain to deliver value to our customers across geographies. For Q1 FY '23, revenues grew by 32% at INR 825 crores. I'm referring from a year -- I mean, the same period last year, not on the previous quarter. Revenue growth was led by better price realizations and product mix. Gross margins have impacted by weakening of euro versus dollar, leading to an increased input cost and impact on higher freight costs. Major currencies have depreciated against U.S. dollar in the last quarter due to ongoing war between Russia and Ukraine. Nearly 50% of our Q1 FY '23 sales for Agrochemicals business has been to the European region, whereas majority of the company's raw material is imported from China and payments are made in U.S. dollars. This has impacted the company's gross margin and overall profitability as the euro had considerably depreciated against the dollar during the quarter. PAT was impacted by higher depreciation and ForEx losses of INR 43.2 crores in FY 23 versus a gain of INR 11.5 crores in Q1 FY '22, impacting to the tune of INR 54.7 crores. We are evaluating various measures to mitigate and advert of ForEx going forward. We have accelerated focus on revenue-generating investments and are continuously looking to improve the operational efficiencies, which will help us improve the margins. With this brief overview, I would now like to hand over the call to our CFO, Mr. Ashok Vashisht, for discussing our financial performance. Thank you very much.

Thank you, sir. Good evening, everyone. Coming to the Q1 FY '23 performance. Revenue stood at INR 825 crores against INR 623 crores in quarter 1 last year, registering [indiscernible] 32% year-on-year. Revenue growth was led by better price realization and product mix. We had a favorable price and product mix impact of nearly 38%, coupled with exchange loss of 3.3% during the quarter. During the quarter, there was a marginal degrowth in volume to the tune of 2.5%, mainly in LATAM and NAFTA. Our gross margin stood at 25.4%, marginally lower comparatively, essentially due to weakening of euro versus dollar and also due to a slight increase in the freight cost. EBITDA has grown by 4% in absolute terms to INR 111 crores. However, percentage EBITDA margins is lower due to lower gross margins and a slight increase in the freight cost. PAT stood at INR 23 crores in Q1 FY '23 versus INR 38 crores in quarter 1 FY '23 last year. PAT has, as you might have seen in our presentation, PAT was mainly impacted by ForEx closes to the tune of INR 43.2 crores in quarter 1 FY '23, driven by weakening of the euro versus a gain of INR 11.5 crores in FY '22, impacting to the tune of INR 54.7 crores. The euro has weakened against dollar by nearly 7% in the last 3 months from April to June '22. Coming to the subject Agrochemicals business grew by 15% year-on-year to INR 615 crores, whereas there is a growth of 137% in non-agro business, and we achieved a turnover INR 210 crores in non-agro business. In the Agrochemical space, Europe grew by impressive 24%. NAFTA region grew by 10% in value sales. Latin America de-grew 2% in terms of value sales. Sales in the rest of the world grew by 18%. Europe continue to contribute at 51%; NAFTA region, 31%; Latin America, 13%; and the rest of the world, 5% of the agrichemical business for Q1 FY '23. In the Non-agrochemical space, Europe grew by 143%. The NAFTA region grew by 196%, LatAm grew by 165% and rest of the world grew by 13%. In Non-agro space, Europe contributes nearly, 28%; NAFTA, 55%; LATAM, 6%; and the rest of the world, 11%. With this, we now open the floor for questions. Thank you very much.

[Operator Instructions] We have our first question from the line of Chirag Setalvad from HDFC Mutual Fund.

If you could understand the -- you pointed out the pressures on profitability. If you could help us understand what is the company doing to mitigate that, and where do you see sustainable profitability both gross margin and EBITDA margin in the near term?

You see, this slide in euro versus dollar was not predictable in advance for us to plan a strategy Even today, the experts say that the euro is going to strengthen up. So we are a little bit handicapped in making a solid strategy towards this end. We are thinking of buying our supplies in Europe from China, but we are also afraid that if we buy them in euro and if the euro goes up, then we will lose the opportunity to make up for the loss that we've already incurred. We are keeping a close watch on the situation, and we will slowly act.

So where do you see the near-term profitability settling at a gross margin level because you would have taken some price increases as well to take care of the freight cost changes? So where do you see sort of in the sort of second half of this year, profitability at a gross margin and an operating margin level?

We feel we should be getting nearer to last year's gross margins in the course of time.

We have our next question from the line of Harsh Baria, professional investor.

My question is about the high growth in the non-agro business. What is contributing to such high growth in the non-agro business? It cannot be that the end market is growing at these rates. Can you expand a bit about it?

End market is not going at the same rate, but we are able to get a better share in the existing market, mainly because of our strategies and providing service to the customers by delivering our products on time and with good quality -- but agro will also grow. So the proportion may not be so much different than what it is in this quarter. But both the businesses are expected to grow.

Can you elaborate on your marketing strategies? was there a change that happened recently that has contributed to such high growth?

Mainly concentrating on our sources to get the goods manufactured because they are tailor-made products to get them manufactured in the right time. And probably Chinese suppliers were also a little bit free to help us in this matter. And also pushing on the shipments in spite of increased costs or not waiting for the cost to come down or not negotiating much on this. Main thing was to deliver the goods on time to the customers.

Okay. And I think last quarter, you had highlighted that this -- that the margins have been hit in this division. Can you tell us like what were the margins this quarter in the non-agro business?

One minute See, margins region-wise, I'll tell you. The margins were about 22% in this quarter compared to the same about 14% in the last year.

We have our next question from the line of Ankush Agrawal from Search Capital.

Firstly, I wanted to understand a little bit on the business front. So would it be possible for you to explain some of the reasons why the generic penetration in the Agrochemicals is very small compared to something like a pharma industry?

Your voice is not very much audible. It's getting cut in between. So could you repeat? Can you please repeat once again and speak with a little slower speed.

Yes. So sir, what I wanted to understand was that what are the reasons because of which the penetration of generics is very low in the Agrochemicals space compared to something like a pharma industry when the generics command a very high market share compared to the innovatives.

So your question is not very clear. You are comparing the share of generics in the agrochemical business compared to the share of generics in the pharma? Are you trying -- I mean is that...

Yes, yes.

I'm not able to comment on what is happening in the pharma.

No, I'm trying to understand -- what are the reasons why in the agrochemical, generic -- market share is very small. What are the reasons why generics has not been able to penetrate more in the...

Yes, yes. I'll tell you, I've been answering this question repeatedly in various calls and I'll repeat it once again. The cost of registration in agrochemicals is very high and the time period is also much longer. Both these factors and at the end of the -- I mean, it may take 2 years, 4 years, 7 years. So these are the 2 factors which prevent normal investors or normal people in this line to plunge themselves into the registrations of agrochemical business. In pharma, the cost of registration is much smaller...

No, sir, what I'm trying to understand over here is -- the point that you're making is nice. But since Sharda as a company, we have the registration. But why are we not able to penetrate? Because since we have the registration.

We are not able to penetrate?

Yes. The argument that you're making, there are not a lot of players is fine, that obviously there are not a lot of them. But even with 1, 2 players that are there in the generic, why are they not able to penetrate that?

Sir, the multinational companies have a name and reputation and people have much better trust on them than a generic company. It takes a lot of time for the generic company to establish itself and win the confidence of the customers but we are competent to provide them the quality and deliveries on time. And it's a very slow process.

We have our next question from the line of Rohan Gupta from Edelweiss. [Operator Instructions]

Sir, first question is on our gross margin. Though in the first question, you tried to answer that we are still not sure that how we will be able to make sure that our margins are not impacted given the currency volatility. You mentioned that you also have one option to buy in Europe from China and then sell it in euro as well. So given the volatile scenario in which we are, don't you think that it will be prudent for us to act fast and make sure that the business margins are not being impacted with the current volatility and take the decision accordingly rather than keeping it open and depending on how the currency movement will be happening going forward rather than focusing more on the business margin, sir?

Sir, we are not very sure when the euro-dollar ratio went up to 1.05 to EUR 1. Everybody was advising that is the bottom. From here, all the experts on the foreign exchange markets. If we had known that it will come down to 1.0 -- 1:1, we would have immediately acted. But this has been going on Rohanji all this time week after week and month after month. The scene was never clear to anybody, and we do not want to speculate. We would like to be very careful that we do not lose the opportunity when the euro starts taking the about turn.

Sir, absolutely right. And that's what you just mentioned that we are not in the business of currency trading. So I mean, we could have option of hedging it with the currency hedge or rather than waiting and watching when the rupee-dollar -- or I mean, euro-dollar will come back to the level what you are looking for, I mean, wouldn't it be prudent to have the sufficient hedge so that we can protect our margins in the current scenario? That's what my limited question was. Nobody is expert of making the prediction on the currency. So I understand we don't know how and when it will come back. But at least we could have -- we can take a sufficient hedge to protect ourselves from the currency volatility?

Mr. Rohan, the only hedge we do right now is to book forward contracts, where we also get some premium on this and protect it. But nobody was sure that it will go to the level of 1:1. Every time, we were advised that now it will start moving up, this is the right time. There's going to be this committee meeting in Europe or that committee meeting and all that. And even today, nobody is able to say that it will go to below 1:1. But if you start doing that, then that is where we prove that we have lost the opportunity. We are keeping a watch and very careful what we are doing, and we will take care as much as we can. But we do not want to speculate.

Right, sir. Sir, second question on this. Definitely, our business model is more dependent on China, which is based in dollarized revenue, I mean, dollarized purchases while we will sell in Europe. So I think the problem which we have faced, not many other innovators will be facing the same issue because they may be more -- less dependent on China or more dependent on their local markets. So is there -- because we are completely dependent on China for the imports of raw material and selling in the European market. So other innovators may not be facing the same issue. And that's where you see that it is difficult for us to increase the pricing or to pass it on to the end customers in European markets.

See, Mr. Rohan I want to give you a general information. China is exporting huge quantity of agrochemicals and all the exports is in dollars. And buying, purchasing in Europe is mainly in euros or European currencies. So all those operations are impacted adversely in this situation. In fact, I had mentioned last time that now I'm told that even the European manufacturers, multinational manufacturers are shifting their manufacturing into China because of various issues of fuel and energy in Europe. All these businesses will be adversely impacted with this euro-dollar uncomfortable exchange rate. Only those people who are exporting from other regions like in India where the dollar has become stronger than the Indian rupee, these people are getting benefited. But the rest of the world, most of the people are sourcing in dollars and selling in their currencies in the countries where they are selling.

So sir, with these other European players also facing the same issue what we have. So are we seeing that we have -- we also have pricing power and we are able to pass it on to the end customers? I mean, when you are doing the new -- I mean, when you're selling the materials now in the market, do you see that you are able to pass it on completely to the end customers, even including the currency depreciation?

We are making efforts. And in a fairly good proportion, we are also successful. But it will take time because we cannot -- we don't want to lose our market share. for some percentage of margins. We also want to keep -- rapport with our customers and keep on increasing the share. Both the things are contradictory, but we are trying to control both of them.

[Operator Instructions] We have our next question from Sonal from Prescient.

Sir, first question is more around the numbers. So for the Agrochemical business, we've seen 15% revenue growth. Can you split this into value and volume? That is just the first booking question.

Yes, please.

Sir, is my question clear?

Your question is clear. I need to get hold of some documents. Now you've been -- you want to know the volumes...

The volume and the value split of the 15% topline growth for the Agrochemicals.

Sir, volume-wise, volume growth has been negative 2.5%. ForEx impact is negative by 3.3% and the product and price mix has been positive by almost 38%. And overall, it is 32.4%.

So that is for the whole company, if I'm not wrong, right?

Yes, please.

Okay. Sir, I was specifically asking for the Agrochem business. If you could -- if you have those numbers -- yes, if you have those, that will be helpful, sir.

Sir, Agrochemicals grew by 15%. Now you want segment-wise. Do we have that details?

Sir, how much price rise have you taken roughly in Agrochem?

In Europe, Agrochemicals have grown by 24%. NAFTA region, 10%; LatAm is a degrowth of 2%; and rest of the world is 18%. Overall, 15%.

Got it, sir. And sir, how much price rise would we have taken in Agrochem, roughly?

What is that? This is price and product mix. Sir, I have total basis. That chart is not yet ready with me.

Sure, sir. I'll take on that later. I have a second question, sir, also, which I wanted to get an understanding of. I wanted to understand the demand scenario in Europe and NAFTA as we speak right now. And you've seen any sign of softening or inventory being built up too much because of which the demand is tapering. I just wanted to understand the subjective commentary from your side on this basically. And if you have numbers as well on the market, yes.

Sir, demands in the European region are fairly good, and there's no cause of worry at all. But in NAFTA region, there has been a pressure on the demand mainly because of the weather and somewhere the weather has been very arbitrary in NAFTA region, somewhere very heavy snow and storms and some were totally dry. So that has put an adverse pressure on the demand in NAFTA region.

We have a next question from the line of Tarang Agrawal from Old Bridge Capital.

Sir, just wanted to get Agrochemical volumes, regional Agrochemicals volumes and regional gross margins.

Yes, please. Regional Agrochemicals volume. In Europe, it is almost 3 -- 4 million units versus 3.5 million last year. How much is it? So 3 million, 4 million and 3.5 million approximately. So 4 million versus 3.5 million in the same period last year. NAFTA region, it is 2 million versus 2.4 million, a degrowth of about 17%; Latin America, it is 1.1 million versus 1.5 million, about minus -- by 28%; and rest of the world, 300,000 versus 340,000.

And gross margins?

[Foreign Language] Gross margin, in agro business, in Europe, it is 31% versus 42%; NAFTA 24% versus 25%; LatAm America, 17% versus 17% almost flat; rest of the world 23% versus 31%. Overall, 26.3% versus 31.9%.

We move on to the next question from the line of Alisha Mahawla from Envision Capital.

Sir, firstly, I'd like to understand with respect to gross margin, the sharp decline we've seen, is that completely and only because of the ForEx?

Madam, totally inaudible. You have to raise your voice.

Sir, I hope am I audible now?

a little better, but it can be more better.

Very much right.

Am I audible now?

can you speak in a sentence, please.

Sure. I hope I'm audible now.

yes.

Sir, I wanted to understand with respect to gross margin, the sharp decline that we have seen. Is this only because of the ForEx impact?

Mainly, yes.

Sure. And considering the kind of weak volume growth that we've seen in Q1, do we want to continue with our guidance of 15%, 20% top line growth for the full year?

Yes. Hopefully, yes.

Sure. And just lastly, the kind of for CapEx spend, which is largely R&D or registration-related of INR 100 crores, can we expect that to continue for the remaining quarters? Or are we expecting any spike in that?

We expect to be continuing in the same range, maybe a slight increase.

We have our next question from the line of Bhavya Gandhi from Dalal and Rocha.

Sir, did you have any one-off effect in last quarter maybe because our competitors were not functioning or we had sort of good relations with China and we got one-off benefit?

It is not clear again. I'm not able to grasp. Speak a little slowly and louder.

Okay. Can you hear me now?

I can hear you, but you have to speak a little slow.

Okay. Sir, last quarter, did we have any one-off benefit because our competitors are not functional and we had good relations in China and we were able to supply to the customers?

See, the first part was not true. The second part is true. We have good relations with the suppliers and we were able to get good support from them.

Okay. So there was no one-off impact in last quarter, right?

No, not at all.

Okay. And sir, can you just provide revenue, EBITDA and PAT guidance for FY '23 and '24?

'23 and '24?

Yes.

Sir, I can provide for '23. We hope to maintain our growth about 15% to 30% and EBITDA at the range of 18% to 20%.

Okay. Fair enough. And sir, you mentioned about European companies shifting their manufacturing to China. Will that lead to some sort of demand softening?

Demand softening for our company?

Because then procurement from China would become easier.

Will become easier?

Directly procuring from China would become easier. And sort of, will it be some revenue loss to us?

No, sir. No such thing.

We have our next question from the line of Anubhav from Prescient Capital.

Am I audible?

Yes, please.

I just have 1 question, sir. Have you seen any pressure or fall in product realization from last quarter to this quarter?

Have you seen what? Pressure?

Any pressure or fall in, like your average realization from last quarter to this quarter like sequentially?

No, no, no such things. We have increased the volume.

No, sir. I'm not talking about volume, sir.

I'm not saying -- the last quarter, the same quarter. I'm not talking about the last calendar quarter, I mean, compared to April, June last year and April June this year.

Yes, sir. My question was like from Q4 FY '22 to this quarter. Like sequentially, have you seen any fall in product realizations or realization has held up? Like is there any pressure on realization...

Mr. Anubhav, we are not comparing with Q4 last year with this quarter. Ours is a seasonal business and every quarter has a specific role to play. Our Q4 every financial year is the best quarter. You cannot compare Q4 of last year with Q1 of this year.

Sir, I'm not talking about volume...

We can compare with Q1 of last year and Q1 of this year.

Sir, I get that. And I'm not talking about product volume, sir. I'm talking about the pricing, product pricing, realization. Like is there any traction on the final realization that you're getting?

No. There's no such thing. So the prices are more or less at the same level.

We have our next question from the line of Harsh Baria, Professional Investor.

You had previously shared volume numbers across markets. Was this overall volume that Sharda shipped? Or was this Agchem volume?

I think the question was for Agchem and what we have said was for Agchem.

Okay. My final question is about the price increase of 38% on the entire sales for this quarter. Was this mostly attributed to increasing raw material prices of your Non-agrochemical division?

You're talking about -- I mean, the question is related to non-agrochemicals? Am I right?

Yes. So you had -- yes.

Yes, there has been increase in the prices with the efforts that we are putting in. We are -- we had not realized the impact of freight. Now we are taking the freight into very serious component, and we are putting pressures on our customers to give up a better price -- give us a better price. And they are yielding.

We have our next question from the line of Harsh Shah from L&T Mutual Fund.

Mr. Bubnaji, I hope everything is always good at your end?

Yes, sir.

Yes. So there's 2 questions. Sir, you have answered all of the questions very, very thoroughly. But just 2 questions from my end. First is apart from ForEx management, is there any other way where we can increase our gross margin? Or is it purely we have to try to manage our ForEx only?

So ForEx is one thing. Second is being in constant touch with our customers if they can somehow realize our situation and give us a better prices. But then they have also -- they also have limited freedom on that account because they are also facing competition with their customers. ForEx is the main thing.

Understood, understood. So assuming, let's say, from now to next quarter, there is no major movement in ForEx, our gross margin should remain similar to what we have reported in Q1? Or how should we look at it?

No, sir, it will be -- it should be better because we are thinking of other means, as I just mentioned in the beginning of this con call. We are trying to source our products from -- and Chinese are also registering. China also knows that euro -- what was the fate of euro. But then they may be having some ways of hedging their losses. So they are -- in some of the cases, where we have tried, they've agreed to give us a price in euros, and we will increase that share of buying in euros.

Okay. Understood, sir. And sir, with so much of the issues that we are currently hearing in overall macro economy of euro, earlier, you had already mentioned that licensing has already got very complex and is taking a bit more time. So it is taking a bit more money. Has that time line and that expenditure further increase now or is it remains similar to what it was last quarter or last year?

It is constantly increasing. But since the -- since all of those expenses are in euros, if you compare it with dollar, then it may not be increasing. In terms of euros, it is increasing.

We have our next question from the line of Gagan Thareja from ASK Investment Managers.

Sir, my first question is around your depreciation. The depreciation amount is down from Q4 to Q1, and the depreciation varies across quarters in any given year. Could you explain the reason for that?

Because we are getting -- constantly, we are getting registrations throughout the year. And as we receive the registration, all the investment made on the registration, which was earlier bracketed under capital work in progress, is getting capitalized. So that is why there is a variation from quarter-to-quarter. And it's a continuous process for us.

Right. I understand that. But from Q4 of last year to Q1 of this year, why should the depreciation fall?

Sir, again, as I explained to you, we get many registrations in the last quarter or end of the third quarter, and they get capitalized in the fourth quarter.

Okay. Right. And second question, sir, on -- in Europe, what is your exposure to Eastern Europe in sales?

It is much lesser compared to Western Europe.

Any number you could give us, ballpark number approximate?

The number, we have not segregated this because the agriculture in the Eastern Europe is much lesser, the population in Eastern Europe is much lesser and the demand in Eastern Europe is much lesser.

We have a next question from the line of Ankush Agrawal from Surge Capital.

Sir, again on the business front. So what I wanted to understand is that, say, if we launch a new product, so how does that product performs over the year? So does it start at, say, a small amount in year 1 and then gradually flees up over next 3, 4, 5 years? Or we start big and then it's kind of stay the same over medium term?

Sir, I have not understood your question. The words were getting mixed up. Please repeat it and a little slowly.

Yes. I'll be slow. Yes. So what I am trying to understand is that, say, Sharda launches a product, right? So how does it performs over the years? Like so in year 1, do you start small and then over the years, the next 3, 4, 5 years, does it gradually flees up, sir? Or you start with a decent share and then over the year stays kind of similar or some small growth for individual product?

Sir, it starts with a moderate level, and gradually we increase it because the customers have to get used to our product, they must get convinced that our product will perform and they should also have the trust on the quality. So even a customer, if you need 100 liters of product, he'll start with maybe 10, 15 or 20 liters from us. Only if he is convinced then he may increase it to 40, 50 liters.

Right. So the old products for us are growing, right?

Yes. And at the same, some of the older products, if they become commodity, then they start going down in the proportion.

Sir, can you say when does this happen? So if a product goes generic in, say, this year, so over the next 3, 4, 5 years, how long does it take for the product to become commodity that it will start falling like the overall market?

Sir, again, I'd like to request you to please -- your questions are not very well comprehendible. Can you repeat the question once again, a little slowly?

I'll take that offline. I think that will need some explanation. Sir, lastly, just a clarification, so when we sell our product...

We have our next question from the line of Sameer Deshpande from Fair Deal Investments.

We have been performing very well throughout the last year or almost 2 years. After COVID also, we have done very well. And so this quarter seems to be an aberration and mainly due to the things beyond control. No one really could predict that type of currency movements. So it's understanding that this will be an aberration, I hope. And from Q2 onwards, as you mentioned, if the rupee -- or the euro-dollar parity continues at the same level, you mentioned that the gross margins are expected to improve. So will that be at the same levels around 29, 30 levels which normally used to attain?

Sir, this last sentence is not very clear. I understood most of the question. Last sentence, you have to repeat.

I will repeat it. I think you mentioned if there is euro to dollar parity current, which was there in -- if it remains the same, do we hope to return to the gross margin levels of 29, 30, which we were achieving over the last year?

This is a very hypothetical thing. But if the euro dollar exchange rate improves, then our profitability and gross margins will improve. That's the only thing I can say in general. To what extent and other things, it is a pure guess, which is very easy to guess, for anybody.

Okay. And now the second question is regarding you mentioned about the guidance, which is around 15% to 20% for the year. And the operating margins have an EBITDA of around 18% to 20%. Is it correct? Which I heard?

Yes, please.

And the other reason for this year, has gone up from INR 6 crores to around INR 20 crores...

We have our next question from the line of S. Ramesh from Nirmal Bang Equities.

Sir, my first thought is in terms of your strategy of new products. Can you share how many products you are launching this year, how many you plan to launch next year? And how do you see your ability to possibly going for higher-margin products as we launch new products?

See, every new product that we launch, commands a higher margin compared to the products which are already being marketed, mainly because of the competition factor. And this process will continue.

Okay. And the second thing is, looking at the European market, the regulators are trying to discourage the use of chemicals, pesticides and pushing the industry to move for a sustainable and biological products. So what is the challenge you are facing, how do you plan to work on given that you have a large exposure to Europe?

Sir, this is not a very serious challenge for us. I feel that the current trend will continue. There could be a marginal desire to go for bio products. But the availability it's in practice, that alternative is not very challenging.

So one final thought in terms of the trend in the container freight and the availability of chemicals from China, how is the situation now? Do you see the container freight rates coming down? Or do you see the supply from China, you think in terms of the volume of material available?

There is an improvement. The freight rates are softening and availability of the shipping space is also improving. It is not as bad as it was about 2, 3 months back.

How about availability of chemical raw materials?

That is also improving.

We have a next question from the line of Anurag Dinkar Patil from Roha Asset Managers.

Sir, other income has increased significantly to INR 20 crores in Q1. So can you explain what is the reason behind it?

One minute.

Yes, this is Ashok Vashisht. On other income, so this is a purely accounting presentation, there are 2 components. Profit on sale of usual fund, INR 11.4 crore has come in as other income. And there is a loss on some of the investment, which we sold mutual fund. There is a loss of INR 12 crores 15 lakh, which is forming part of other expenses. So this is purely as far as accounting presentation. If you have to get it out, see the [ net ] impact.

Okay. And sir, you have maintained guidance of around 18% to 20% EBITDA margins for the year. And current quarter, they are significantly lower. So can we say...

That is happened...

Yes, yes. So in the second half, are you expecting significant improvement in the margins?

Yes, we are expecting, yes. So the guidance is for the yearly basis, so which we are maintaining, 18% to 20%.

We'll take our last question from the line of Himanshu Binani from Prabhudas Liladher.

So sir, again, the question is on the gross margin side only. So sir, I just actually trying to understand one thing. So you have taken a hit into the gross margin, and that was largely towards the ForEx side, while you have taken a product loss of somewhere around INR 43 crores. So just trying to understand the impact basically. Despite taking a 38% increase in the price, we had a 400 basis point decline into the gross margin. So, can you please quantify what has been the overall impact basically into the gross margin, which was led by the ForEx?

I will -- I'll ask Mr. Ashok Vashisht to answer that question.

See, there are 2 things. Basically, one is realized and the other one, unrealized. The INR 43 crores which you are seeing is basically that is a notional loss and not actual loss, the quarter-end positions of accounts receivable, accounts payable. And in terms of -- basically, which is impacting us in the gross margin is wherein I have already made the payment for that in dollars, and our license is in euros. So the impact could be to the tune of 4%, 4.5%, basically, which is already forming part of the P&L.

Okay, Okay sir. And sir, one more thing basically on the other expenditure. So after excluding that INR 12 crores number also, are other expenses on an absolute number is coming way higher. So last year, it was somewhere around INR 65 crores, INR 66 crores...

Yes. It is by the scientific reasons, yes. One is freight because we did -- the revenue growth is 32%. And secondly, there is an increase in the legal and professional fee. Basically, we are increasing building base for our professionals across the globe to ensure the growth going forward. So there are the 2 key reasons, freight and even increase in the legal and professional fee.

So sir, any numbers to quantify on that side?

So the freight, which was increased by 31% and which was INR 12.6 crores last year, same quarter, now it is INR 16.5 crores.

This year, it is INR 6.5 crores?

INR 16.5 crores.

INR 16.5 crores. Okay.

Yes.

And sir, on the legal and professional?

Legal and professional, which you can see in the annual report also, I mean, the results so INR 32 crores versus INR 49 crores now.

Okay. And sir, one last question basically on the registration breakup, if you can provide us with the numbers...

Yes, sure. So total is 2,719 as of 30 June. So out of that, 1,445, Europe; 280, NAFTA; 753 Latin America; and rest of the world, 241.

241. And sir, on pipeline numbers also?

Yes. On the pipeline, 761, Europe; 135, NAFTA; 162, Latin America; and rest of world, 95; 1,153 total.

As there are no further questions, I would now like to hand the conference over to Mr. Manish Mahawar from Antique Stock Broking Limited. Over to you, sir.

Yes. Thank you, Yashri. On behalf of Antique Stock Broking, I would like to thank the team of Sharda Cropchem for providing us an opportunity to host the call. Bubnaji, would you like to make closing comments?

No, Manishji. I think we've spoken enough.

Thanks, sir. Yes, Yashri, we can close the call, please?

Thank you.

Sure. On behalf of Antique Stock Broking Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.