Sharda Cropchem Limited (SHARDACROP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sharda Cropchem Limited Q1 FY '27 earnings conference call hosted by Antique Stockbroking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Riju Dalui. Thank you, and over to you, sir.

Thank you, Sania, and good afternoon to everyone. A warm welcome to all participants on Sharda Cropchem's 1Q FY '27 Earnings Call. Joining us today are Mr. R. V. Bubna, Chairman and Managing Director; Mr. Shailesh Mehendale, CFO; and Mr. Jetkin Gudhka, Company Secretary. Without further delay, I would like to hand over the call to Mr. Bubna, for his opening remarks. Thank you, and over to you, sir.

Thank you. Good afternoon, and very warm welcome to everyone present on this call. Along with me, I have Mr. Shailesh Mehendale, our CFO; and Mr. Jetkin Gudhka, Company Secretary; and SGA, our Investor Relations Advisers. Hope you all have received our investor deck by now. As you are aware, we are engaged in the marketing and distribution of a wide range of agrochemical products catering to diverse global customer base. We develop comprehensive dossiers and obtain product registrations in our own name. And we continue to allocate substantial resources towards securing registrations, which strengthens our market presence and helps us a substantial foothold across key markets. As on 30th June 2026, our total product registrations stand at 3,016, up from 3,011 on 31st March 2026, with an additional 1,027 applications for product registrations globally at the approval stage. We have started FY '27 on a strong footing with our operating performance showing clear improvement during the quarter. Revenue for the quarter rose by 9% year-on-year to INR 1,074 crores. Gross margin expanded by 120 basis points to reach 36.7%, while EBITDA grew a healthy 25% to INR 178 crores, taking the EBITDA margin up by 220 basis points to 16.6%. This improvement was driven by favorable product mix and our NAFTA, LATAM and rest of the world markets all delivered growth along with the better profitability. Turning to Europe. Our largest market and traditionally the one with good margins, we saw a temporary softening in the performance this quarter. This comes on the back of an exceptionally strong FY '26. So some moderation was not unexpected. The main reason behind this was the distributors cut back on the stock largely because of unusual heat wave conditions and shut across parts of Europe this summer. It's worth noting, however, that even as the revenue in Europe softened, our agrochemical margins in the region actually improved during the quarter. Given our strong registration base and the long-term relationship we have built with customers across Europe, we remain confident that volumes there will recover in the coming quarters. LATAM, on the other hand, kept up its momentum and has remained one of our strongest growth engines this quarter. We remained a debt-free company with cash and bank balance -- cash, bank, and liquid investments of INR 767 crores as of 30th June 2026 as compared to INR 702 crores as on 31st March 2026. We continue to maintain our FY '27 guidance of 10% to 15% revenue growth, gross margins in the range of 35% and EBITDA -- and remain focused on strengthening on long-term growth platform through sustained investment in our registration pipeline. With this brief overview, I would now like to hand over the call to our CFO, Mr. Shailesh Mehendale for discussion and our financial performance. Thank you.

Thank you, sir. Good afternoon, everyone. Coming to the quarter 1 FY '27 performance, revenue stood at INR 1,074 crores in Q1 FY '27 versus INR 985 crores in Q1 FY '26, an increase of 9% year-on-year. Coming to the split, agrochemical business grew by 8% year-on-year to INR 915 crores, whereas the non-agrochemical business grew by 15% year-on-year to INR 159 crores. Gross margin stood at 36.7% in Q1 FY '27 as against 35.5% in Q1 FY '26, an increase of 120 basis points. EBITDA grew by 25% to INR 178 crores with EBITDA margin at 16.6% as against 14.4% in Q1 FY '26, an increase of 220 basis points. ForEx gain stood at INR 7.5 crores in Q1 FY '27 as against INR 73.1 crores in Q1 FY '26. This lower ForEx gain had a corresponding impact on our EBIT, PBT and PAT for the current quarter. EBIT stood at INR 120 crores, PBT stood at INR 118 crores and PAT stood at INR 88 crores. On a like-to-like basis, PBT prior to this ForEx gain grew by 16% year-on-year to INR 111 crores, reflecting the underlying strength of our operating performance. Coming to the balance sheet. Total equity stood at INR 3,245 crores as on 30th June '26 as against INR 3,137 crores as on 31st March 2026. We remained a debt-free company and have cash, bank, and liquid investment of INR 767 crores as on 30th June '26 as against INR 702 crores as on 31st March 2026. Coming to working capital days stood at 88 days as on 30th June '26, showing an improvement of 10 days as compared to 31st March 2026. We can now open the floor for the questions and answers. Thank you.

[Operator Instructions] The first question is from the line of Anubhav Mukherjee from Prescient Capital.

Sir, my first question is that can you split the 9% revenue growth in Q1 into volume, ForEx and price/product mix?

Can you repeat it once again, please?

Sir, I was asking that the 9% revenue growth you've delivered in Q1?

Yes.

Will it be possible to split that into volume growth, ForEx and like realization growth?

Yes, sir. It is possible. Now just take a note, the volume growth has been minus 1.6%. FX impact is plus 12.7%. Product mix impact is minus 2.1% and total growth is 9%.

Sir, thanks for sharing that. Sir, in the press release for the quarter, it was mentioned that our product mix has improved. And we have been able to sell more of high-value products. Sir, why is that not...

I'm sorry to interrupt, Mr. Anubhav. Your line is not clear.

Okay. Is it better?

Yes, sir.

Yes, it is better now.

Yes. So okay. I'll repeat my question. Sir, in the press release for the quarter, it was mentioned that our product mix has improved. And we have sold more high-value products. Why is that not reflecting in the realization because the realization growth is negative, as you mentioned. So can you give some color on that?

I will ask Mr. Shailesh Mehendale to address this question.

Yes. So I think you have to look at overall picture in the sense we are having product mix negative to the extent of 2%. But then there is -- looking at geography-wise, you will have -- you can see that there's a degrowth, particularly in this particular quarter in Europe, but then there is a good growth in our other geographies. So you have to look at our overall position. And this will have improvement in the coming quarter.

Sir, I also have a basic question for CFO, sir. Sir, in the P&L, the INR 7.5 crores gain in Q1 FY '27 and there was a corresponding INR 73 crore gain in Q1 FY '26. Can you explain like how do we -- like what is that? And like what is the accounting treatment that leads to that gain? That will be very helpful.

Yes, just hold on.

Yes. So the last year, quarter 1, June '25 is having INR 73 crores of gain which is basically unrealized -- mostly unrealized gain on account of a sharp favorable movement of almost 10% in euro-USD, right? Whereas in the current quarter, there is only 1% degrowth in the ForEx movement, mainly euro. So that has resulted in the higher exchange gain accounted in the last quarter vis-a-vis current quarter, there is a INR 7.5 crores gain accounted. Is it clarified?

I get that, sir. I get the ForEx movement. But what are the, like, line items in the balance sheet that lead to this like translation gain? If you could throw some more light on that, that will be useful because this like -- there is a lot of volatility in this. Like one quarter, there is a lot of gain, then there is loss. So how do we account for this? Like which are the line items in the balance sheet that lead to this?

Yes. So basically, this particular unrealized gain or losses is coming in our balance sheet on account of realignment of our foreign currency trade receivables and trade payables. So those needs to be repriced on every balance sheet date and will have some favorable impact or unfavorable impact on our P&L. So that is how we reflect a separate line item in our P&L statement to show that this is the FX gain or loss. But this is mainly on account of unrealized gain or loss on repricing of our foreign currency receivable payables on every balance sheet.

And this is the sequential quarter-on-quarter movement that like that is?

Correct. So if you track our full year performance for the financial year '25-'26, you will find more or less we were having similar gains in the last 3 quarters. This was a so-called exceptional unrealized gain, which is accounted in FY quarter 1, June '25 because of this sudden appreciation in euro movement almost by 10% in that particular year. From 31st March '25 to 30th June '25, there is a favorable movement in euro, which is our main, I can say, position for our foreign currency receivables. Those have repriced by almost 10% increase in that particular quarter. This has resulted in that gain, unrealized gain.

Yes sir, that was very helpful, the clarification you gave.

Yes. Just to clarify, for the purpose of our EBITDA calculation, we don't consider whether it FX gain or loss, we don't consider it. So EBITDA is without considering the effects of gain and losses, just to clarify on that point, okay?

Yes, sir. And it's very helpful. And sir, I think you mentioned 10% to 15% revenue growth for the financial year. Will it be also possible to share what kind of volume growth you are expecting for the year?

Sir, almost 5% to 10%.

The next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, just I wanted to understand first up on the Europe thing. You mentioned that because of reduced restocking by distributor, we had volume issues in this quarter. But as we speak, has that situation improved and are the restocking rate by the distributor has improved as we speak now or by when you expect this to normalize?

It has improved and it has reached -- normally in most of the cases it is reaching the normality.

Okay. So it has improved. And as we speak, it's normalized?

Yes, please.

Okay. Great to hear that. And secondly, on your raw material. Do we import any kind of raw material?

What do you mean by import?

I mean for the raw material, do we have to import anything or we get it domestically sourced?

Mr. Deepak, you have not studied our business model. You seem to be very new to our business model.

Yes, recently tracking.

We don't manufacture anything anywhere in the world, including India. We get everything manufactured as per requirement from the manufacturers, mainly from China. So there's no question of any import for Sharda in India.

So we are 100% is contract manufacturing, right?

Yes, sir.

And it's mainly we do it from China?

Yes, please.

Understood. And lastly, on your margins, you mentioned your volume and revenue outlook. So anything on margins, EBITDA margin, how should one look at FY '27?

It will be in the same range of 18% to 20%.

The next question is from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I wanted to understand that in the past 3 years, we cumulatively added close to less than 100 registrations across the geographies that we are versus around 300 in the previous period between FY '21 and '23. Sir, how should I look at our growth going forward because the registration pipeline is not as strong as it was earlier, if you could help me understand?

Sir, I think it all depends around how you look at it. When you say strong, what do you mean? We have been investing around INR 450 crores to INR 500 crores all these years. And this year, the investment is going to go up. Secondly, I have been telling all my friends and investors that the process of registration is full of all the uncertainties. Nobody can say when we receive the registration and at what cost. So it's full of uncertainties. But still, our efforts are very much there and very strongly there. And they are also giving us the results and returns.

So I wanted to understand with older molecules, I think most of our registrations are like previously 3 years out, like 3 years older. And there is a regulatory or scrutiny towards the older molecules towards newer generation molecules. So how should I look at our business going forward? Because right now, these past 1 or 2 years, there has been a euro improvement, but volume growth is not seen in this quarter. So are we facing some kind of pressure on the molecules that we have under registration?

No, we are not facing any pressure on the molecules that we have in registration. All the things I've explained, in Europe, the volume growth has been affected by the weather, unexpected heat and a lot of unpleasant weather, nothing to do with the molecules.

Right. Sir, so like my second question was on the El Nino. So can we still expect that 10%, 15% revenue growth even with the El Nino effect this year?

Where is the El Nino effect? So far, it is not there. It's only being talked about. And El Nino is not new to the world. They keep on happening and going. The world still goes on. And the number of foolness is increasing and the requirement of the food is also increasing.

Got it. Sir, just a final question from my end. Sir, a lot of our revenue growth has been driven by the volume over the last few years. How should I look at it going forward? Will it be from new product addition, which are at a much higher realization or it will be volume-led only going forward?

Both. New products as well as the volume.

The next question is from the line of Vikas Singh from Neo Capital.

Sir, your CapEx guidance was INR 500 crores. [Technical Difficulty]

Vikas, your voice is not audible. It is getting cut in between. I have not been able to hear and understand your question. So you need to take the help of the anchor or take care of your instrument.

Sir, your CapEx guidance was INR 273 crores -- INR 500 crores for the year. But in the first quarter, you have done INR 273 crores. Have you revised your CapEx guidance upwards?

Sir, I have explained you for answering the previous gentleman, the process of registration is full of uncertainties. You cannot predict anything. So we have not revised our CapEx investment for this year. Just by seeing what has happened in the first quarter. First quarter has been a little unusual, because we had to spend very heavily on some data compensations, but that's not going to repeat in the rest of the year.

So it will be only INR 500 crores for the full year?

It could be INR 500 crores, it could be INR 550 crores or it could be INR 480 crores.

The next question is from the line of Rohit from iThought PMS.

Sir, just 2, 3 questions. So first question is on the new products. So can you -- if it's possible for you to share, let's say, what is the contribution for us from the new products, let's say, products that we have introduced in the last 12, 18 months. If we can share what is the revenue contribution for the last year or this quarter, whatever you may seem fit. So that is my first question.

Sir, the new products are contributing to the better margins and the immediate impact on the quantity is much lesser because the product has to have acceptability from the customers and get a recognition. Do you understand? But the newer products are more valuable to the company and older products are slowly getting faded away.

So is this a thumb rule? Do we have any sort of an internal framework or benchmark that we need to introduce like every year, we should get a certain number in terms of volume or like you said, maybe value-wise, it is not much. But anything -- any benchmark that you use for your new products internally that every year that we should introduce so many new products or we should get so much volume from these new products or something like that? Just to understand.

No, sir. As I've told you, new products, we do not know whether we'll get 10 new products or 5 or 15. And that is not in our hand. That totally depend upon various government authorities and committees and they are not very scheduled. They have many other commitments. And there are a lot of uncertainties, as I'm telling you. So we try to do what best is available and what best is acceptable to the market.

Sure. No, I understand that. But from your side, you keep your registration momentum going on. Is that the right way to think about it?

Yes, please.

Okay. Sir, the second question was on your -- so I think you alluded to the fact that the volume recovery in Europe should be very strong for the next 9 months. That is how we should take it?

I said -- the word, very, has been added by you. It will be strong.

No. No, I mean, sir, given that is negative, it has been negative. So I mean, when you're saying that your overall year, you still see like around 10% volume growth. So given that, I mean, the next 9 months should be good in what -- I mean, better than -- much better than what you have seen. Is that the right way to put it?

Expected to be. As I've told you, in the first quarter, it has not been good, not because of any human factors. This is the effect of mother nature. So we cannot predict. But as the things are predicted, the next 3 months, 3 quarters will be better than the first quarter.

Got it. And sir, what is leading to this improvement in NAFTA and LATAM? Because I think last year, NAFTA was a bit tepid. But this year, we've seen very good growth in the first quarter. Do you see this kind of momentum in the coming quarters also? Like, for example, last year, Europe did really well, which improved the margins also for us. So is this possible that in this year, as you said, that if volumes come back in Europe in the coming quarters and if NAFTA and LATAM continue to do well, so like all 3 engines will fire together. Is that a possibility? Is it probable that will happen?