UPL Limited (UPL.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to UPL Limited Q1 FY 2022 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Radhika Arora. Thank you, and over to you, ma'am. [Technical Difficulty] Ma'am we can't hear you. The audio is breaking.

Good morning and good evening, ladies and gentlemen. Thanks for joining us today for the results for the quarter ended June 30, 2021. On this call, we will be referring to a presentation that has been shared with you and is also available on our website. And we take as having read the safe harbor statement. From the management, we have with us our Global CEO, Mr. Jai Shroff; Group CFO, Rajendra Darak; COO, Carlos Pellicer; Global CFO, Anand Vora; Raj Tiwari, our Global Chief Supply Chain Officer; and Farokh Hilloo, Chief Commercial Officer. We will start with an overview from Jai followed by a business update from Carlos and a financial update from Anand. With that, let me now hand over to Jai. Over to you, Jai.

Thank you very much, Radhika. It's a pleasure to be on the call. The quarter has been challenging in many ways. We have seen a huge cost increase across the board in raw materials and in freight charges. In spite of that, I believe the team has delivered fantastic performance, particularly in the circumstances of so many weather impacts, which Carlos will go through. I think the team has done an excellent job, and we see the prospects for the full year to be very promising. The India business has done very well. The U.S. business has done well and performed much better than last year. But the weather impact in Latin America, China and Europe has slowed down some of our growth in the first quarter. Thank you very much, and I'll hand over to Carlos and be waiting for questions after.

The line from Mr. Carlos Pellicer, has got disconnected. Please hold on we'll reconnect him. Ladies and gentlemen, thank you for patiently waiting, the line from Mr. Carlos Pellicer has got reconnected. Thank you, and over to you, sir.

Thanks so much, Jai. Good evening, everyone. I'm pleased to join you today and present our financial results for the first quarter of full year 2022. Despite numerous challenges intensified by the expanded pandemic across the world, we have continued to deliver our commitments during this period. Our ultimate purpose inspired us to be agile, to focus deeply in our customers and to grow sustainable, as amplified by the prestigious Asian supply through sustainable leadership award for displaying commendable commitment to sustainability during the second week of July of 2021. Unfortunately, incident of political riots in [indiscernible] were reported in South Africa. Rioters forcibly gained access into one of warehouses rented by UPL situating in Durban, South Africa, and attempted to loot and [indiscernible] for the warehouse. Due to the fire, a significant portion of the warehouse and our UPL own inventory were damaged. Fortunately, there were no casualty or major injury to report. We have engaged the service of global renewal industrial cleaning service providers, environmental specialists and other solutions teams to assist the local authorities and manages to deal with the aftermath of the incident at the warehouse. I'm very concerned for all the efforts made by our team and partners in this extremely difficult circumstance, to protect the community and the environment. We believe that the damage will be totally coverage by insurance and the calculate of the exact damage value is in progress. And I'd like to thanks to our relationship with our customers and to our supply chain team that have been able to manage and minimize and mitigate the business impact. We are -- it's good way to manage the relationship with the customers and be able to manage properly our [indiscernible] . Our financial results. I'm glad to report that the revenue as well as EBITDA for the quarter improved by 9% each. The increase was support by strong value growth, favorable mix and price increase. This has led to an improvement in gross profit by 50 bps despite unfavorable weather condition across several regions, coupled with supply constraint and increased cost pressure. In addition, our net working capital was around 91 days, approximately 7 days higher than Q1 full year '21, primarily due to higher inventories, that had been created to support our growth in Q1 and Q2. We also remain committed to continue to reduce our debt. Overall, we maintain our full year 2022 outlook as highlighted in the Capital Markets Day presentation. Based on our robust customer-centric model, integrate manufacturing in our OpenAg approach, despite cost pressures in our order external challenge. Now let's look at our overall performance highlights for the quarter. We are happy to report that 3 out of 5 regions, LatAm, North America and India, delivered strong growth in the quarter. Europe and rest of the world were impacted by unfavorable weather conditions, resulting in a shrink market and pockets, as well as supply constraints. As part of this impact was offset by a higher price realization and a strengthening of euro against the Indian rupee. Overall, we achieved 6% volume growth, 2% price growth and further 1% upside due to currency movement. Improved gross margins were led by better price realization and favorable product mix in most geographies. This comes despite increased overall cost pressure as well as delayed realization of price correlation to the prebook orders and unfavorable mix, especially in LatAm. Fixed overheads were 11% higher than previous years, primarily driven by the increase in personnel expenses and the lessening COVID restriction. Despite all these external challenges and increase in overheads, UPL managed 9% increase in EBITDA versus previous year. Now let's take a look on the overall performance of our regions. In LatAm, we saw strong revenue growth, especially in Brazil, led by higher volumes. Among other major markets, Mexico was impact due to a severe ongoing drought. As I also mentioned earlier, Mexico was impacted by cost increases, [indiscernible] price realizations due to prebook [indiscernible] and unfavorable mix in Brazil. In North America, higher volumes led by growth in post packing solutions, coupled with a strong overall price realization driven robust growth of 19% over Q1 full year '21. This was aided by favorable commodity prices, a strong seasonal outlook, an increase in acres of most of major row crops. Further, favorable price realization has also helped inadequately compensating for marginal cost increase, resulting in an improved profitability in the region. In Europe, unfavorable weather conditions results in a shrinkage of key markets, especially in the southern region. Further, no derogation and competition from generics of key products impact sales of about $9 million versus Q1 2021. UPL exhibited strong performance in this quarter despite delayed monsoons in parts of the country. Several impacts of COVID from a second wave in April and May, and delay upward prices [indiscernible]. This was partially offset by favorable commodity price for food grains and key cash crops and process. [indiscernible] base brand [indiscernible] demonstrated strong growth quarter-to-quarter growth, supported by the very high price realization. The rest of the world witnessed around 14% dip in revenues versus last year, negatively impacted by unfavorable weather, such as the frost in China and supply constraints leading to decreased volumes. In Southeast Asia, where fortunately sales in [indiscernible] was challenged due to supply constraints, but were offset by increased sales in Thailand. Further, we [indiscernible] supply constrain and unfavorable weather conditions impacted fruit sales in China. Japan sales were down versus Q1 full year '21 due to the lower realization in health and nutrition sales in Japanese and Japanese yen depreciation. I would like now to talk briefly about our recent announcement and the exciting new launches through our OpenAg. We continued our test of remanaging sustainability. With an open network to create sustainable growth for all, no limits, no borders, we are proud of our recent launch of national plant protection, our NPP, and nurture farm to further enhance farmer resilience and sustainability. As announced in June, Natural Plant Protection, our NPP, is a new global business unit that houses our complete portfolio of natural and biological [indiscernible] agriculture and technology. NPP shall be a stand-alone brand, consolidating UPL existing biosolutions portfolio. Network of R&D laboratories and our facilities worldwide. Natural Plant Protection, our main entity, we will work across UPL's global footprint to shape and scale the biological technology of the future. The strength of NPP is that it will be a catalyst to a progressive approach to sustainable agriculture. Meeting the innovation and the technology needs of our farmers, consumers and environment. Natural Plant Protection will play a very important role as we have our micros that create micro impact with macro impact. nurture.farm, launched in July is a digital platform that advances resilience for farmers and the food system. Make agriculture simple, profitable and sustainable through technology-led solutions for generations to come. Covering every step of the farming life cycle, nurture.farm will operate as an open platform in the supply of products, innovation and mechanization. In case you wish to learn more about Natural Plant Protection, our NPP, and nurture.farm launches, please refer to the links of videos providing this presentation. Before I hand over the call to our CFO, Anand, to provide more details about our Q1 financial results, I would like to recognize our team for their resilience and dedication in ensure this strong performance in Q1 and launched these key initiatives as NPP and nurture.farm despite multiple challenges on several fronts. Thank you, and over to you, Anand.

Thank you. Thank you, Carlos. Before taking the -- good evening and good morning, good afternoon to all of you. Before taking you through the key numbers, we take as having read the safe harbor statement, which is a part of the presentation. I'll begin with providing you the key highlights for the first quarter earnings and then take you through the detailed financials. The first quarter provided us a good start and added the momentum to growth in revenue and EBITDA as we work towards delivery of our commitment for the current financial year. We are seeing very strong crop prices in our key markets, while also seeing big challenges on weather in some geographies and supply chain pressures. Besides all challenges, we did deliver 9% revenue growth over last year same quarter, with a volume growth of 6%. We saw price increases and an overall positive price demand of 2% and the currency demand of 1%. EBITDA grew by 9% over that of the same quarter of last year. I'm pleased to say that we are on track to deliver on our commitments, both on revenue as well as EBITDA. Talking about the key financial markets. We ended the quarter with revenues of INR 8,515 crores and an EBITDA of INR 1,862 crores, an increase of 9% in both. The net profit for the quarter was INR 678 crores, an increase of 23% over that of the same quarter in the previous year. Gross margins were higher by 50 basis points and stood at 44% -- I mean, 43.5% in Q1 of last year. The margin expanded mainly due to better price realization and product mix, despite increases in supply chain cost and other increases in cost of raw materials and intermediates and the logistics costs. For the quarter, the fixed costs were higher by 11% as compared to the corresponding period of the last year. This increase was largely on account of Q3 investments and resources as we move our business to sustainable and differentiated products and the launch of NPP and nurture.farm as mentioned by Carlos earlier. During the quarter, we had a adverse net foreign exchange impact of INR 202 crores. This was due to the mark-to-market impact of headwinds taken on advanced orders in [indiscernible]. As a normal industry practice, we booked significant business with our customers in the first 4 to 5 months of the calendar year. The hedges ensures that the company's realization in U.S. dollars are protected. Further, these hedges enable us to offer a committed BRL rate for the plant, irrespective of the movement in exchange recently the U.S. dollar. During the quarter, there were significant acquisition of BRL by about 12%, as the hedges are taken on advance orders which we would be executing in the subsequent quarter that MTM, or the mark-to-market, will wind down with the execution of the orders. With INR 200 crore [indiscernible] has been recorded as a part of the finance cost, which is attributed to the timing mismatch between the quarters. I would also like to state here that we are close to 0.5 billion of advanced orders, which we have [indiscernible] in the first 5 months of the calendar year in Brazil. On the tax line, the deferred tax asset was created in line with the normal tax computation, which will get agented as the year unfolds. These compact assets primarily are from Brazil and Europe. The full year tax rate is expected to be at the lower end of the guidance of 15% to 18%. Exceptional items for the quarter are [indiscernible] INR 63 crores and largely on account of some additional costs that we incurred on the closure of our transaction [indiscernible]. Net profit for the quarter stood at INR 678 crores versus INR 550 crores, showing a growth of 23% over that of the previous year. Moving on to working capital. In line with the seasonality of business, where working capital builds up in Q3 and then releases in Q4, the net working capital stood at 91 days, higher by 7 days compared to last year. The payables for the quarter increased by 7 days, while inventory increased by 12 weeks and receivables increased by 2 days. We expect the net working capital base to stay between the 80 to 90-day range in the current financial year in line with the increased interest rates. Moving on to cash flow and debt position. As we informed earlier, our debt obligation is being served efficiently, demonstrating our commitment towards our bankers and stakeholders at large. And we remain committed to reduce the debt and maintain the investment grade rating of the company. During the quarter, Fitch rating and S&P Global Rating retained our investment-grade rating for UPL, which also upgraded its credit outlook to stable. During the quarter, we also borrowed $250 million of sustainability growth, taking the total sustainability bank loan to [indiscernible] $750 million, which was completely used to repay the acquisition loan which we had taken earlier. The acquisition loan now stands at $1.5 billion. The sustainability loan is a 5-year [indiscernible] repayment loan, which was modeled at 30 basis points below the acquisition -- below the cost of the acquisition loan. The cost of the sustainability loan is [indiscernible] 130 basis points and have the potential to provide another 5 basis point reduction on meeting the sustainability KPIs agreed upon with the investors. The gross debt and net debt stood at INR 25,099 crores, and the net debt stood at INR 21,467 crores. As regards to the outlook for the full financial year, we believe that the [indiscernible] connection, higher proportion of differentiated and sustainable products and spark a strong demand growth will enable us to deliver strong results going forward. I would like to reiterate that we maintain our guidance for the financial year '22 from 7% to 10% revenue growth and 12% to 15% EBITDA growth for the year. With this, I would like to hand over back to the operator. And me and the senior management team are ready to take questions.

[Operator Instructions] The first question is from the line of [indiscernible] from Equitas Capital.

My question is to Anand. I wanted to understand why is the cash operation for this quarter are lower than Y-o-Y ratios, despite our revenues and EBITDA are growing?

Well, as we build up the our working capital has gone up. And as we build up for inventory for the next 2 quarters, the working capital typically takes up the cash flow which is in the [indiscernible] month -- early in the quarter. So it's largely because you will see that the working capital ramps up in Q2, Q3, and you will be -- despite positive cash flow coming from operations, but at the overall level, the [indiscernible] in working capital.

The next question is from the line of Tarang from Old Bridge Capital.

Three questions from my side. One, in LatAm, excluding Brazil, how has the overall market behaved? And have you lost market share there?

Carlo?

Yes, yes. Overall, the main constraint in LATAM was in Mexico because of the drought, several droughts -- very several drought in Mexico. And -- but our LatAm business is quite good. We have not lost the market share. We have even progressed well in some countries like Chile, Paraguay and other countries, they we have what has been the impact for us as we have a very good business in Mexico and the drought in the first quarter that have impact more, our sales there. Now but this impact for the market is not for us, especially, but our growth in LatAm was good, and we have not lost market share.

Sure. During the commentaries of your staff, they seem to have suggested that the season was actually favorable. My sense is the target [indiscernible] So just wanted to get some sense in your target territories in Europe. How has the market behaved? And how is the uptake on the biosolutions business there?

Yes, very good question. And we are on track with our biosolution approach in Europe. And the disruption that is happening in Europe in terms of product mix changing and all this, the first quarter have been impacted because of this cost. But what we are -- we have been able to create solutions that replace what we have lost. And we have been very successful. And an example for that is our ARGOS, our solution to drought that one product that we used to sell that you see, I could see that was a solution to control drought in [indiscernible]. We have been able to launch a new solution to control droughts in Europe, that the value of that solution is 6x more than the value of the solution that we were selling before. And for us, the challenge that is happening in Europe in some way it's giving us a lot of opportunities. And we are launching new products. We are coming with new solutions. And this quarter of Q2 will be starting a good win for us. We are seeing good growth. And we are with this customer-centric approach, really focused in create solutions to the pain points of the farms. And this is what we are doing. And I have been visiting like together with Jai, we have been in Poland last month. And the results of our solution there is amazing. We have been visiting apple farms that is using our vaccine plan, that is a vaccine to control disease and control -- to make the place for health in many different crops. And for apple, this farmer that we visit is our ProNutiva farm. We have been able to apply 6x our vaccine plan and grows the crop without disease and without any residue in their crop. Let's say it's really, it's moving good, and we are very excited about the opportunities that the disruption it's happening in Europe. And our pipeline of solutions of NPP is coming, and will help us a lot to grow in Europe.

Just the last one. You seem to be gaining some decent traction in your non-agribusiness in India. Noticed in FY '21 or FY '20, it's grown about 50%, and that this seems to be similar in Q1 FY '21 over FY '20. So if you could just elucidate what is this business all about? And what is your outlook for it?

I will leave that to Jai. Jai, can you talk about that?

Yes. Thanks. So UPL has been building out a specialty chemical business, pharma intermediates, et cetera., the ancillary to our existing feedstock of raw materials which we do. And that business is growing nicely. We are seeing actually quite good growth rates in that space and we have some investments also in the last 2 years, which are all kicking in and giving us revenue growth. We believe that business will continue to grow quite fast. And just demand and the investments [indiscernible]. A lot of it is intermediates for pharmaceutical industry and other ancillary industry market which we add capacity.

The next question is from the line of Girish Achhipalia, Morgan Stanley.

I had a couple of questions for Anand. So firstly, on the spec. I hope you did understand that Brazil and Europe, is it something which is one-off here? Why should it reverse then subsequently with this Brazil and Europe have contributed this way in a big way, even historically. So what's really happened in the tax rate level? That's one. And second, if you can just quantify the BRL impact out of the INR 200-odd crores, because we had about INR 177 crores impact even in Q1 of previous year. So I just wanted to understand what's really changed?

Sure. Thanks, Girish. Girish, on the taxes, it's just that based on the quarterly numbers and with a mark-to-market impact, even last year, we had a, kind of negative deferred tax asset which was created in Brazil. But then in other regions did well, and therefore, there was the net impact of tax was a provision for taxation. This year, because of the large impact coming out of mark-to-market, we had to -- there was a larger bid for tax asset, which got created. And also in Europe, as you saw, we -- our sales were below the last year's sale, and therefore, the comps, obviously, the cost of operations and other things are there. So that gave us some benefit of creating and which resulted in creation of the deferred tax asset. But as I mentioned in my commentary, that as we move forward in the Q2 and Q3, you will see the reversal of these deferred tax assets as we, in [indiscernible] Brazil, the orders get executed, then they will be converting into sales. And in case of Europe as the business picks up, in largely Q3 or Q4, you will see the reversal happening on deferred tax asset. So that's on the taxation part. And your second question, which was with regard to the FX, as you would -- as I mentioned in my commentary, we saw a 12% appreciation in Brazilian real from 1 April to 30 of June. It jumped up from 5.6% to $1 to 5% to $1, although we are back at 5.2%. But as of 30 June, there was an appreciation of 12% in Brazilian real in that quarter. Besides, as you know, the business from Jan to May, June, we collect advance orders. And as I mentioned in my commentary, we had advanced orders in excess of $500 million. We have taken NDF and put options to hedge our advanced orders, as I mentioned in my commentary that this helps us to protect our dollar profits, at the same time, dollar margin. At the same time, it gives us an assurance to the customer that they will be getting the products to the time at which they are booked. So it's just a mark-to-market on these orders. And as the orders get executed in Q2 and Q3, you will see that those reversals would happen as we move forward. So it's just -- as I mentioned, it's just a mismatch, timing mismatch. Q2 was rolling over into Q2. Q1 mark-to-market rolling over into Q2 and Q3, as we anticipate the others, this should get another.

So Anand, I just wanted to understand the Y-o-Y variance because even in Q1 of last year, you had a similar situation. So have you booked much higher orders and hence, this is becoming bigger. Because even if you look at FX impact slide that you have put out, the number is INR 202 crores versus INR 177 crores versus last year. So this particular movement is, they're talking this particular data, right, or if some other regions would have positively contributed to the delta being lower.

No, I think it's largely coming out of the excess orders that we have got this year, 1. And 2 is, last year, we didn't follow the practice of taking the hedge. As we had shared with you last year, we did get impacted because we had the advance orders for the currency depreciated significantly during this quarter. We saw almost like a 30% depreciation, which happened in the currency. This quarter is one, the other way around. But we -- in order to protect our selling price to -- the committed selling price to the customers and also in order to protect our profit margins, we adopted the derivative strategy. And typically, you would see this phenomenon in 30th of June quarter -- quarter ending 30th of June, that's when we will have peak advance orders. Once those orders are executed at the end of Q3, Q4, you will see that it's coming down significantly.

Fair. My last question is Carlos. Just, if you can spend a minute on sustainable solutions growth during the quarter. And what targets do you have for the growth of sustainable solutions business in fiscal '22, in the underlying growth that we're talking about, 7% to 10%. And just if you can comment on the European market share. Are we flat or are we down a little bit given the changes that are happening on the product side a little bit?

So yes, you have me. Thanks for the question, Girish. The -- looking to Europe, what is happening, say we have lost registration like the CRTC, and we replaced that technology to sustainable technology that is various. So in that way, we do sell our strains of chemistry, and we increased our sales of sustainable. And this is what we are doing with the other products that we have had impacted. In Europe, we are working very, very deeply on the [indiscernible], on the penetration of the biosolutions and in our growth of biosolutions, which could be almost the double of the growth of our normal solution. So if we are looking to grow in the range of 7% to 9%, our growth in biosolutions will be disproportionately bigger than the growth in the chemical side. And we are seeing this all over Europe. It's not just 1 country but all over Europe. And we are quite dedicated on that. We are putting more people in the field to say, biosolutions, demand much more work. It's a much, much more profitable business, even in Europe that we have already a very good profitable business, biosolutions is more profitable. But to gain more service, demand more work in the field, and for that, we are adding additional resource in some countries to help us to have that close. But to answer your question, we will grow more in biosolutions. And in general, we are gaining share in Europe because the market is stable or did grow a little bit in Europe, and we are gaining share because of our sustainable solutions. And we will see more debt in the next years now because new solutions are coming, new registrations are coming. And our footprint that we have in terms of manufacturing, that we have in Europe, that we have in South Africa, that we have in Mexico, that we are building in India, it's helping us to do that. Because when we see the demand increasing, we will need more capacity too. So we have a good capacity today. But we will need to keep focused all the time because the growth of the sustainable solutions would be proportional. Like [indiscernible] our footprint, we have a very strong software footprint. We are a leader in software globally. And we will see this solution -- the big solution with diverse, so we are developing a lot of the diversified type of zinc, copper and sulfur in our buying solution, our product is approach, so that you give us a lot of growth in Europe and other countries solutions.

Thank you. The next question is from the line of Ritesh Gupta from Kotak.

Just on the NPP side, what is the likely revenues of this deal? If you could share that? And -- would it be like, it will be launched like a separate brand or eventually, let's say, could it also attract some third-party investments as well as a separate platform? So if you could just highlight that please. And then on the Europe side, in terms of I couldn't follow, I think, Carlos just talked about it, but I think what is the outlook for the rest of the, rest of the year, in India especially has grown materially faster, while the sowing trials has been running behind expectations. So -- or at running behind. So what's outlook to be had for the rest of the year?

Yes. Anand, in terms of the -- can we disclose that number? How will you say that?

Yes. I think we have shared with the investor community that our sales from the biosolutions and the NPP range of products which we have now regrouped under the banner of NPP is in the range of about $350 million to $375 million per annum. And this year, we expect that to grow at or faster than the normal growth rate of us. I can -- we say that because we are in the first quarter. But our internal targets are to grow at a faster pace than the normal business. So that's almost on the numbers, but please go ahead next the qualitative piece in the [indiscernible].

Yes, yes. In terms of India perspective, we have had a very, very good Q1. Q2, we are monitoring and working, let's say, that are -- have had a delay in [indiscernible] and have. Now it's raining a lot. It's -- we are very close to the customers. We are supporting them, very close to the retailers, to our distributors. We expect a very good year in India because technology-wise it's been increasing a lot. We are seeing a very good perspective. The point that we need to work, it's the weather. Now I'd say the weather conditions that will be important to monitor now, but we are, with a lot of new products launched. We are -- our [indiscernible] technology now, it's moving very good values and all the other brands that we have in [indiscernible] are moving good. We have launched our [indiscernible] its first time that [indiscernible] it's sold in India. We have sold our protomeal, it's first time that protomeal is sold in India. So we have bought our triple meal mixture. It's the first time that our triple meal mixture it's registered in India for seed treatment. And there are new products coming in this season. So there are a lot of new product launch in India in our platform, our ecosystem to work in India, it's so strong. Let's say we are really gaining share, and we are progressing quite well in India.

That's helpful. Just 1 bit on the gross margin side you saw Y-o-Y -- bps of Y-o-Y expansion, about 50 basis points. And so how should we see it in the subsequent quarters because I think you will be -- I mean, -- So one is on the price hike that probably need to be taken or probably have been taken to come through into the numbers? And secondly, on the logistics cost, I mean, could you quantify what kind of logistics cost impact, what you're seeing and how that should evolve over the rest of the year?

Yes. We are expecting in our price increase, and we are -- we have been able to increase our prices. And we are continually increasing, monitoring the cost and the price. Now and, as the price of commodities are so good, farmers are making money, have been good for them. There are constraints of product availability. And as we have our manufacturer footprint, all the investment that the company has done during the last 20 years on the manufacturing side, now it's coming to us in a very good momentum. Because I'd say so many companies have closed their factories or have stopped their [indiscernible] to China or some other countries. And we have done the reverse. Now we have [indiscernible] manufacturing, we have invested in our supply chain capabilities. We have a very, very strong team on supply, came out in our manufacturing capability. This is giving us a very good momentum, that constraint of some products and cost increase of some raw materials, we have so much tech integrated. We are able to play in the market now and be able to have product availability and be less impacting costs than others. And this is why our margins have improved in Q1. Even though we have hold orders, we have all this situation, we have improved our margins in Q1 and we are expecting the same in the next -- in the following quarters. This is the reason why I say, I believe Jay have been so resilient. The company has been so resilient in keeping the manufacturing focus and keeping the manufacturing footprint. So that is, I believe, fundamental to the business model that we have.

Should we expect the gross margin to sequentially improve in the subsequent quarters?

Yes, we expect that we would be in track with our announcement that we have done in Capital Day. Say, we are keeping our perspective exactly aligned with that progress that we have done in Capital Day.

The next question is from the line of Probal Sen from Centrum Broking.

Am I audible?

Yes, you are.

All right. Sir, just on the weather conditions that you spoke about quite a bit with respect to Latin America and as well as Europe, in Latin America, is it fair to say that in Brazil, the first half of the sowing season is something that is -- has obviously not gone as planned? So what would be the [ monitorable ] one should look at to measure whether the second half of the sowing season or the rainfall, which starts from September, I believe, that is actually performing as per expectations in order to sort of meet our Latin American revenue guidance or the growth guidance that we're talking about right now?

Yes. I'd say when we see Brazil, the second season of corn have been impacted by some drought. What we've been factoring, the corn that we have been -- is planted in February, March, this year, the planted South Cone has delayed a little bit because have delayed the planting of soybean last year. Now soybean delayed 30 days, and then the [ soy in South Cone ] have delayed 30 days, too. For us, soybean is by far much more important than corn. And soybean prices are so good this year that we expect an increase in planted area of soybean in Brazil and South Cone. We are seeing already a very good year of soybean in North America. And the stock is low. The inventory of soybean is quite low globally. We are seeing that the price of soybean, we will be keeping in this range between $13 and $14 per bushel. And this is an exceptional price, exceptional price. Before COVID, the price was in the range of $8.8, $8.6 per bushel, $9 per bushel. Now we are in the range from $13 to $14. Let's say, farmers will invest a lot in the crop. They will try to capture as much use as possible per hectare. Exchange rate in Brazil and in South Cone, Argentina, Paraguay, it's quite good to the farmers, too. It's a -- we are not seeing any weather prediction that we will come with a problem for soybean in that area. So today, it's too early to say that. The soybean will be started planting in the end of September in Brazil. The first regions will start about 20th of September. But as today, we don't have anything that creates any like point that's putting risk the starting of the crop. And the expectation is the increase in about 2 million hectares of soybean just in Brazil, that the planted area will be increased. That is very good for us because our portfolio in soybean is very, very strong.

All right. That's very useful. And the second question again was on weather this time in terms of the Indian market. Obviously, you have done perhaps much better than estimates because of stronger pricing realizations from what the briefing was earlier. But the delay that happened in June in terms of monsoon through to the first week of July, do you see that as at least a permanent impact, at least for FY '22 with respect to [indiscernible]? And does that have an impact on our domestic business at least for Q2 before the second half of Rabi sowing actually starts from September, October?

Yes. We have here in the line, Farokh that is our Chief Commercial Officer. I would request to, Farokh, if you can explain that. You are so close to the market there. And can you make some view on that?

Yes, sure. Thank you, Carlos. Could you just repeat that question please one more time?

Yes. I was wondering that the kind of delay that's happened based on some -- whatever we little can understand that some of the delay in sowing is not something that can be captured back at least as of now despite the fact that rains have actually picked up post the second week of July. So does that impact our prospects at least for Q2 before the impact of, let's say, Rabi sowing again starts to show up in our growth numbers? That was my question.

Yes, you are right. Basically, there are some areas in MP, where we have lost out on some acreages of [indiscernible]. And then what we have been doing in the last 3, 4 years is that whilst we are looking at the big crop, the big villages, we have also started work on looking at small crops, small but very niche, very specialized crops like groundnut, like pomegranate and all those kind of crops. And what is -- secondly, what is a helping us also is this ProNutiva concept that we are doing with -- in certain geographies where we have the adoption of the entire farm, the entire villages in that particular -- for that particular crop. So yes, we would have some impact when it comes to [ isolating this ] for crops like soya bean. But we don't see that impacting our Q2 or even in the full year basically because we have a mitigation plan in place where we will catch up on those losses with the other crops that we are focusing on.

Great. One last question if I may. With respect to the impact of freight supply constraints as well as some increase that has been seen in raw material prices from China, any view on how the rest of the year would pan out on these fronts? I'm sorry if you covered this earlier.

No, no, thank you for your question. We have Raj Tiwari, our supply chain manufacturing head. He can give a brief for you on that. And we are quite on track on that. So Raj, can you pick up this question?

Yes, sure, Carlos. As far as the logistics cost is concerned, going forward, I see the cost at a similar level for next 3 quarters. There has been -- universally, there has been, especially in the ocean freights, there have been an increase to the tune of 15, 20, 30 [indiscernible] [ 25% ] but that is going to stay. And that -- in my view, that will not further go up, will remain stable there. As far as the cost increases are concerned, there has been some cost increase on basic commodity but also some correction, which has happened. And also in case of intermediates, I think most of the products, what we make ourselves, we are also backward integrated, so not much impact. I mean there has been an impact because of basic commodities increase but not on account of large price increases when it happened in intermediates in China. There has been also -- for example, glyphosate, and as said, that has moved very, very rapidly up in the last 3, 4 months, but glyphosate as such is not a big [ molecule ] for loss. So there has been an impact, but for us, the impact has been less as compared to our peers groups.

Vishnu Kumar from Spark Capital.

This question is for Carlos. I'm circling back on the same question on the weather in Brazil. I understand about [ the 3 months on ] that you spoke about and the Southern Brazil going under stress. Would Mato Grosso, which is the key region for our soya crop, does it depend more on rainfall or more from reservoir levels? Because we understand even reservoir data that is coming out of Brazil is showing some phenomenally low water levels there. So would that be at a risk if the following rains don't really show up, that Brazil probably may see some stress in the second half?

Yes. Thank you. Thank you for the question. And it's a -- soybean in Brazil, it's so interesting because we have from the River [ Doce ] that is very south of Brazil up to out on Amazon, that is very, very large and very wide from Bolivia -- almost Bolivia to Minas Gerais state. So it's very wide and very long, let's say, country. Let's say the weather can be more dry in one place, more wet in other region. But in average, the soybean is quite sustainable in Brazil. Mato Grosso is the main state and weather in Mato Grosso used to be very regular, very, very -- let's say, you can delay a little bit to start rain or have a little bit of shortage on the end of the corn. But it's amazing that it is not irrigated area, but it's able -- you are able to do 2 seasons, 2 seasons of 1 -- first is soybean followed by cotton as safrinha cotton. And first season is soybean and second season is corn, 2 seasons in a non-irrigated state -- region. So it's -- Mato Grosso is really perfect for agriculture. Soy is good and the farmers are so technified. And what happened every year, so it's something that -- will start sowing in 15, 20 of September. It's when it's allowed to start the soy -- planting soy is -- before 15 of September, it's not allowed to plant soybean in Brazil, all over Brazil. It's starting from September that is allowed to manage disease control from one season to other. And normally, what has happened is worst-case scenarios that instead to start planting 15 of September, start planting 30 September or first week of October, on that -- it's the worst case. Like last year, instead to start first 15 of September, started planting in second week of October. But the weather, it's quite good and we don't have any predicted out market pressure here. What we expect here that the planted area in Mato Grosso could increase quite a lot this year because of the excellent price on cotton, corn and soybean. The 3 crops that is the main crops for Mato Grosso, the prices are exceptionally high. Almost [ $0.09 ] for cotton, $5.5 per bushel in corn and $13 to $14 per bushel in soybean trade. Mato Grosso this year will be like the farmers are making so much money. And even have this drought in corn, the farmers can make a lot of money this year in Mato Grosso. It's all over Brazil, but especially in Mato Grosso. They have machines at this time now. No machine, there are big lines -- a big queue on the machine supply. The farmers are buying machines. They are buying cars. They are buying because they have made a lot of money.

Got it, sir. Just on the U.S. market, again, there's a lot of drought news that we keep hearing on the Midwest. I understand that the season is already almost over in another maybe month or so. How is the current inventory situation there? Is it okay? Or how much -- the next year standpoint, how do we see that? Is that market okay? Or are inventory building up there?