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Rallis India Ltd
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Ladies and gentlemen, good day, and welcome to the Rallis India Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir.
Thank you. Good day, everyone, and thank you for joining us on Rallis India's Q1 FY '24 Earnings Call. We have with us today Mr. Sanjiv Lal, Managing Director and CEO; and Ms. Subhra Gourisaria, Chief Financial Officer.
Before we begin, I would like to mention that some statements made in today's discussions may be forward looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation.
I now invite Mr. Lal to open proceedings of the call. Over to you, Mr. Sanjiv.
Thanks, Gavin, and good morning, everyone. As mentioned, Subhra Gourisaria, our CFO, is also joining me on this call this morning. I will begin the discussion by providing a brief overview of the industry. Post which, I will comment on Rallis' specific developments.
The agrochemical sector has encountered a rather challenging external environment, delayed progress of monsoons and uneven rainfall distribution has impacted sowing patterns in the domestic market. Further, high channel inventory and unprecedented price drop for a few active ingredients due to an oversupply from China has created near-term volatility. We have also witnessed distressed selling by some other parties, resulting in very low price levels.
As far as monsoons are concerned, we experienced a delayed start to the season due to the cyclone Biparjoy, resulting in a rainfall deficit during the first half of June. However, there was an improvement in the second half of June, leading to a reduced deficit. Except for Northwest India, other regions received below average rainfall compared to the long-term average. The monsoons have picked up with cumulative rainfall being 2% above normal till July 12. For the periods up to July 12, out of the 36 subdivisions, 15 have received deficit rainfall, 10 have received normal rainfall and 11 have received excess rainfall. We have seen monsoon picking up pace and are hopeful of a good rainfall for the remainder of the season and notwithstanding.
The delayed onset of the monsoon had an impact on crop acreage with paddy and cotton being most affected.
As for the Ministry of Agriculture and news reports, the overall kharif sowing is showing 4.29% lower than previous year same time. Paddy cultivation, which comes to a sizable part of the kharif crop cultivation decreased by around 9.8% and cotton has decreased about 5% compared to previous year.
On the other hand, the acreage for other major crops such as [indiscernible] and sugarcane increased by 15.9% and 4.7%, respectively, compared to the previous year.
With the improvement in rainfall across regions, we can expect an increase in sowing activity and hope things will reach normal levels by the season end.
In terms of international business, there were challenges due to excess inventory buildup and pricing pressures on major generic active ingredients, which have affected business sentiments.
Moving on to Rallis' specific developments. Starting with our headline numbers, revenue degrew by 9% over previous year. Crop Care business degrew by 13%, and seeds business registered at 2% degrowth over the previous year.
EBITDA for the quarter stood at INR 109 crores as against INR 113 crores last year. EBITDA margins came in at 14%, higher than the 13% of the previous year. There were concerted efforts to improve margins through timely pricing actions, better product mix and control on fixed costs. Our actions of timely liquidation of high-cost inventory in the past have also helped us during these turbulent times. Profit for the quarter stood at INR 63 crores as against a profit of INR 67 crores reported during the corresponding period last year.
Moving on to the individual businesses. As mentioned earlier, domestic business was impacted by the delayed onset of monsoon. This impacted the sowing activities coupled with excess channel inventory, which we have been indicating in our earlier calls as well, which has restricted the volume growth during the quarter. Channel inventory continues to be on the higher side, primarily due to higher carryover inventory from the previous year led by low pest infestation in the Rabi season. Due to the expectations of drop in prices, the trade is expectedly cautious and are more likely to decide on their purchases closer to consumption. Q1 is largely a placement season and clearer liquidation trends will become evident during Q2. Besides new product launches, we have also been working towards expanding our distribution network and continuing to work with e-com channels as well. Our distribution network for domestic Crop Care business stood at 4,700 with a retail footprint increasing to about 61,000 as of end June.
Moving on to international business. As mentioned earlier, excess channel inventory, coupled with sharp price erosion across major generic active ingredients, has impacted the overall growth sentiment during the quarter. Prices of certain key products like acephate and hexaconazole continue to trend lower.
Prices for pendimethalin have been somewhat stable. Overall, volumes during the quarter have been significantly lower compared to the previous year, and we continue to remain positive on pendimethalin for which we have secured technical equivalence in EU. Also for pendimethalin, as indicated in our earlier calls, raw material suppliers for the product have been secured and the outlook remains positive due to our new access to the EU market.
Moving on to Contract Manufacturing. The business remains steady with revival of PEKK after a gap of nearly 2 years. Our teams continue to engage with overseas partners for further expanding contract manufacturing partnerships. As mentioned in the earlier calls, we have signed 3 new contract manufacturing opportunities, and we have commenced the dispatch of 1 intermediate during the last quarter.
At Dahej SEZ, our MPP has been put to use in terms of trial production which has started. We have expanded the capacity for one of our key hybrid formulations both for domestic and export markets.
On the digitization front, we have strengthened our planning process by deployment of SAP, Integrated Business Planning solution. We expect this to enable more agile and precise decision making while also digitizing many of our processes.
Moving on to seeds business, we have had a good start with revenue marginally lower over the previous year. Our placement efforts were quite satisfactory with support from all teams. We have also seen -- we also had a good marketing engagement for most of our regions. In terms of the new hybrids, we are pleased with the performance of Diggaz, our north cotton hybrid, which has seen a good volume growth.
In terms of absolute numbers, this season, we sold 400,000 packets as against 150,000 packets during Q1 FY '23. As far as other crops are concerned, we are waiting to see clear trends in liquidation with rates picking up only now. Our distribution network for seeds business stood at 2,750 and retail footprint increasing to 47,000 retailers as of end June.
To conclude, while the year has started on a challenging note, we are hopeful that the situation will ease in the second half of the fiscal. Our efforts are directed towards strengthening our product portfolio across businesses. Our domestic formulation business, our seeds business and international business as well. We're also working towards widening our distribution reach.
With these opening remarks, I will now hand over to Subhra for a detailed analysis of the financials. Over to you, Subhra.
Thank you, Sanjiv. Good morning, everyone, and thank you today for joining us for our Q1 earnings call. Let me quickly walk you through our financial performance for the quarter. Post which, we should commence the Q&A session.
Starting with the top line, our revenue for the quarter was INR 782 crores as against INR 863 crores during the previous quarter same period. The degrowth in the revenue was primarily on account volumes and sharp rise -- a sharp drop in prices, as mentioned by Sanjiv. As such, performance of both domestic and international business was somewhat benign.
Seeds business was broadly flat with revenue of INR 262 crores during the quarter. EBITDA for the quarter stood at INR 109 crores as against INR 113 crores during corresponding period last year while the absolute EBITDA is lower. However, the EBITDA margin stood at 14%, vis-à-vis 13% in Q1 FY '23. Our teams have displayed agility navigating through these turbulent times by ensuring market linked pricing and superior product mix.
Profit for the quarter stood at INR 63 crores as against INR 67 crores for the corresponding quarter in previous year. PAT for the quarter at 8.1% vis-à-vis 7.8% in Q1 FY '23.
Moving on to business-wise performance. Delayed monsoons coupled with high channel inventory impacted volumes and realization during in the quarter. We had also indicated in our previous call that the channel inventory has been higher and the sales growth will be impacted in the near term owing to the same. The trade is in a wait-and-watch mode and are likely to form up their decisions closer to the consumption period.
We are committed towards improving our product mix by launching towards new and innovative products. These new products are targeted towards not only strengthening our existing position but also helping us plug the crop and regional gaps in our portfolio.
Moving on to international business. We remain cautious. Prices of input materials have been very volatile with some of the raw materials witnessing drop of more than 50% since they peaked a couple of years back. As you can expect in this situation, it is exceedingly difficult to predetermine the right purchase price. We're working on shorter purchase and pricing cycles and are taking portfolio costs to liquidate inventory even at a lower margin wherever necessary. Also globally, some of the players in the industry have been holding very high inventory and delaying purchases, still they're able to liquidate their own stocks.
Moving on to seeds, early trends of [indiscernible], especially the liquidation of north cotton. However, we'll get clear leads on the garment crops only by the end of current season.
Our cash flows have improved with specific focus on inventory reduction and collections in the domestic and international markets. During the quarter, we also repaid INR 25 crores for working capital loan. The [ end result ] expense for CapEx would be in the region of INR 150 crores for the year.
To conclude, we are hopeful that our efforts towards improving product mix and distribution network, coupled with efforts towards lowering our dependency on China for raw materials, will contribute meaningfully in the coming years.
That concludes the opening remarks. We can now commence the Q&A session.
[Operator Instructions]. Our first question is from the line of Prashant Biyani from Elara Securities (sic) [ Elara Capital ].
Sir, about 2% increase in Crop Care EBITDA in this sort of a subdued environment is quite commendable. What were the drivers in that if you can just highlight for the start?
Prashant, the prices have been quite volatile as you would have also got from your own network. So what we've been trying to do is taking more frequent pricing calls downwards and upwards when necessary and also ensuring that we are not pushing too much into the trade because the trade is already overloaded. And not with our product, but I'm saying generally the trade is overloaded.
And we've also been taking these pricing calls and also really looking at our portfolio in terms of the more relevant products for the current period of time. So that is the portfolio choices that we are making for pushing appropriately. So largely, these are the actions, and we had already started the work on a network expansion a couple of quarters back, and we had spoken about it, and that is also helping in sort of increasing our reach and width of our network.
Secondly, sir, how -- post-Q1 in the first 17 days of Q2, how has been the demand from the trade as well as the actual liquidation at the farmers' end?
See, actually, what is happening is that the northwest of the country where the sowing initially starts as you are aware, that is having excessive rainfall, right? So the consumption of many of these chemicals is still going to have to wait. So I think consumption may take some time for picking up. But since the overall acreages have now increased and come to within 5% of the same period last year, I think the overall sentiment seems to be in the right direction. That gives us some optimism.
Our next question is from the line of Tarang Agrawal from Old Bridge Capital.
Three questions from my side, mainly on the Diggaz seeds. What are the attributes of the seed which are driving offtake?
Well, I think what is driving our offtake is that this is a slightly early variety, and it has shown a very good yield. And this is what is finding favor with the farmers last year also, we had a very positive response, although the volumes which we sold were limited by what we had, which was about 150,000, 170,000 packets. And we have scaled up to about 400,000 packets, which practically we believe, have all got sold out. So this is -- come out as a good product and the farmers are appreciating the performance over the last 2 years, which is helping us fill it up.
Okay. And I mean, how do you see it for next year?
Well, we believe that this particular product is going to grow even further. So we are hopeful of being able to get enough acreages for planting for the next season. So that is the work currently underway for securing acreages for expanding the availability for next year.
Okay. And how is it priced? I mean, is it priced at par, slightly at a premium?
No, no. We are not doing any value extraction to premium. It's sort of priced at a similar level to what our products have been.
Our next question is from the line of Rahul Veera from Abakkus.
So just wanted to understand our new launches Gateway and Gateway GR. Are we making the technical as well sir, or are we [ sourcing ] from outside?
No, no. This is currently in-sourced. We are going to be making the technical, but that is some time away.
Okay. Okay. And is it a domestic manufacturer?
Yes, yes. It's a domestic supplier.
Okay. Okay. And sir, coming back to the seeds portfolio, are you seeing a reduction of [indiscernible] seeds in the first quarter where we are able to gain more market share because at the industry level data, we are seeing that the sowing is [indiscernible] versus our product has doing extremely well. But is it also because of the [indiscernible] seeds going down, [indiscernible] the industry or channel, anything, sir?
So Rahul, I'm not very clear as to what is the level of the illegal cotton that has been sold this year that we will know only more towards the end of this Q2. But certainly, I think there has been mixed experience of the farmers. This is from what our understanding is that they have really not benefited from the illegal cotton that has been used by them. And all said and done, having seeds from a lone company is giving a lot of assurance so that has been our experience, where our products, at least in the North market, have moved well. And even Maharashtra, which is an important market for us, we believe that one of our very good hybrids, which unfortunately did not do very well in the last 2 years has also done, I would say, reasonably well, although we will know the final figures after the liquidation only towards the end of Q2.
Our next question is from the line of Abhijit Akella from Kotak Securities.
So is it possible to share the breakdown between price and volume between both the domestic Crop Care and the exports for the quarter, please?
Subhra, you'd like to just share our numbers?
Yes. So Abhijit the domestic Crop Care business volumes were largely flattish and price was the one which has led to this degrowth. And as far as international Crop Care business is concerned, the last part of the degrowth was led out of volume because at a level of -- with the mix of the portfolio, we were able to manage at an overall level the price but a large part of the degrowth was coming over volume.
Okay. So the extent of price decline, is it possible to share a rough range there for the export side?
It would be sub-10%, Abhijit.
Okay. Got it. And also just on the pricing actions now, were there further price reductions taken during the quarter? And should we expect any lagged impact of that for the upcoming September quarter as well?
So they will be definitely carried forward because some of the price changes. As you know, Abhijit, the prices or the material cost has been on a downward trajectory, and that's where we will have a carryforward impact further in Q2.
Our next question is from the line of Rohit Nagraj from Centrum Broking.
The first question is from the demand from global markets. So on the exports front, are there particular geographies where the inventories are higher and other geographies where it is normal? Any sense on this?
So Rohit, in terms of our portfolio, pendimethalin is one of our important herbicides. And the demand for that, we have seen largely stable, although there has been some price correction. On the insecticide, which acephate is one of our big insecticides that we export to -- largely into Brazil where we find that the price erosion has been very, very significant as well as the inventory of herbicide, our understanding is also on the higher side. Although metribuzin is a smaller volume for us in that market presently.
All right. Got it, sir. And sir, second question is in terms of the increase of Chinese generics in the domestic market, so what is your sense? How this is affecting the domestic market? And will it have a significant impact during the current season because this is just a placement quarter and second quarter, we'll see the actual impact in terms of any returns.
No, Rohit, we have a number of multinationals and Indian companies in the domestic formulation business. And basically, the competition is in this set only. So many of these Chinese generics are being procured for formulation by the Indian companies as well as some of these multinationals. So nothing has changed as far as that is concerned.
The result is the prices are coming down, and there is already an overload of inventory in the market. And if the consumption picks up as the season progresses, then I think the industry will also have a positive outcome.
Our next question is from the line of Viraj Kacharia from Securities Investment Manager.
Yes. So first question is on the inventory part. So [ saying ] this crop will get some prospectives both in India and international markets. What is the extent of inventory in the system? So if an annual consumption is 100, then are we at 30 or 60? So any perspective you can give both for the market key regions India and abroad and -- for us?
So Viraj I know for some -- as already I had mentioned in my earlier comment, therefore, the products that we are dealing in, we are finding that pendimethalin, the demand is stable, plus we've also expanded our technical equivalence in EU. So that is also helping in us being able to maintain the volumes as far as pendimethalin is concerned. We do have issues with the acephate, more so on the pricing. And hexaconazole, which is another big molecule of ours, which we are selling into Southeast Asia. We are seeing some revival in terms of consumption offtake in particular. So these largely -- and metribuzin is, I would say, more or less flat with maybe some slight uptick in terms of volumes that we're expecting going forward.
Okay. Sir, basically, what I was trying to understand is so Q1, if you see are -- especially domestic business figures. So the factors that you outlined in product mix, more dynamic pricing. And -- but product mix process doesn't change in a quarter. I mean I understand you have been trying to launch new products and trying to scale them up, but there's also a factor on the key product prices, especially in generic being on a downward trajectory. So in terms of Q1 performance, is there something -- were there any one-offs in this? Or how should really understand the performance in domestic business which helped us, what is our season in for [ financing ]?
Subhra, I don't think we've had any one-offs.
No. I don't there were...
There are no one-offs. I would just say that we tried to be a little prudent in terms of how we are doing our pricing. Also on the procurement side, we've been reducing the quantities that we've been buying at any particular point in time so that it has a limited impact on the -- in case the prices come down further. So we've been trying to navigate through this in a manner, which I would say, has been helpful. And what I had also -- what has also been mentioned is that in the last quarter, we were sitting on higher cost inventory, which we had liquidated even at very, very nominal margins. So that has also helped.
Our next question is from the line of Arjun Khanna from Kotak Mutual Funds.
Just on the exports front, we were -- we talked of in the previous quarter's export of PEKK, the molecule coming back for the aerospace, has that come through? Or do we expect it to take further time?
No. I had also mentioned that we will be exporting some of the PEKK during the current financial year from practically 0 in the last 2 years. So we will utilize some during this year. And our understanding with our customers is that this volume is expected to steadily pick up over the next couple of years back to where it was before this pandemic started. So it is, I think, in the right direction now.
Did we see any revenues in the first quarter?
Yes. Yes. We saw revenues in first quarter in fact we commented it started from Q4.
Sure, sure. No, because if we had degrown 30%, so I'm just wondering, obviously, the scale is smaller. Sure. But that's -- sure.
[ We're not at ] peak capacity, yes.
Sure. The second is, in terms of the MPP that's come through. In terms of the products you're going to fill it in, do we have a sense of road map when we could reach your peak sales and which products you're going to fill in?
Yes. So this year, we've already commenced with difenoconazole. That is currently being -- trial production is currently going on. And all going well. We will be doing 1 contract manufacturing molecule towards end of Q3 in the same plant. And again, there is another intermediate that we are doing and going to do in that plant. So that may also happen towards Q3. So Q2 will largely be difenoconazole in the multipurpose plant.
Our next question is from the line of Rohan Gupta from Nuvama.
So a couple of questions. Sir, one is on this sharp fall in prices and especially our supplies, which are coming legally from China where we have seen a sharp price reduction. Are we seeing that definitely the -- when the high cost inventory is over, we see then the benefit of low availability, I mean, with a low cost from Chinese material will help us in margin expansion? Or do you see that it will -- everything will passed on in the current competitive environment and no opportunity for the margin gain?
So Rohan, the prices have been coming down quite sharply and practically there has been new pricing, which is being offered on a day-to-day basis, right? So the issue is that even the customer has seen this declining price trend and for our products also they are demanding lower pricing. So in a declining market, it becomes very difficult to sort of get any kind of upside if that's what you are alluding to, Rohan.
And our view is that in this kind of an uncertain market, it may be better to take shorter procurement costs rather than taking a position and then you find that the price has fallen even further.
Sir, my question was more -- basically we at least procure close to 45% to 50% of our raw material requirement from the China market. So...
Exactly.
So which is pretty high compared to other players. So when the Chinese prices have corrected so on and so, I was just expecting that are we in a position to gain some benefit in terms of the low pricing environment because we are still dependent on China market.
Also, another question is that we have better integrated in intermediates or pending inventory? In the current environment, do we see that the Chinese raw material availability is much attractive price than manufacturing by ourself or in terms of if we have to keep running our plant, we may lose in terms of the pricing advantage, which otherwise would have been offered from China?
So Rohan, this is again a question of make versus buy. So if there's a better pricing that we are getting from imports, we will certainly look at that. And wherever we've got commitments because we have developed a domestic manufacturer, we will stick to our commitment only so that is very clear. There could be some lower pricing that may be happening out of China, but we have certain tie-ups and commitments with some of our partners. And we are also discussing with them about the correct level of pricing for the intermediates that we have shifted from import to domestic.
And on your first question, I think the prices will ultimately reach to a level of equilibrium. So I don't think that anybody having invest to illegal source will help over a period of time, it's really market-determined pricing.
[Operator Instructions] Our next question is from the line of Ankur Periwal from Axis Capital.
First question on the overall revenue growth both in the domestic as well as international market, given the ongoing scenario in terms of elevated inventory, what are our thoughts both on domestic and international considering that there are certain product launches that you have done already and from your planning going ahead also?
Ankur I understood your question, it is on revenue growth.
Yes, more focusing on the volume part here -- is a pricing function there, so...
Yes. Okay. So in terms of revenue growth, pricing growth, I think, is unlikely to happen in the near term because currently, where the prices are. The main thing is volume recovery, right? So that is going to be a key driver for overall growth.
And for the international market, we are a little cautious because the inventories are on the higher side, which is really putting a huge amount of pressure on all pricing. And as far as domestic is concerned, we expect that as the season is progressing, the consumption of these chemicals will start happening -- these products will start happening, which will help him bring back the volume growth. So we are really pushing for volume growth with new products being introduced as well.
Sure. And the contribution from the new products, especially in the domestic market, will still be hovering around 10%, 12%? Or it will be improving?
So we've been tracking what we call as the innovation turnover index last year it was at around 13%. And as mentioned in earlier calls that if we are able to get to about -- actually I forgot -- 15%, we'll be in a good position. So we're still very much focused on getting our new products to be scaled up. And in that context, not only in the crop protection business, we launched some new products this season, also in the crop nutrition category we have launched as well as in the seeds category, we have also launched, so we are looking at across our portfolio to be able to bring in new products for driving the innovation turnover index.
Our next question is from the line of Chintan Modi from Haitong Securities India Private Limited.
Sir, the degrowth that we have seen in the international market, do you think this is more or less in line with the market trends? Or do you think that Chinese companies have gotten very aggressive and gaining market share there?
Well -- so Chintan, I don't have a very clear answer. I guess that will emerge as the time progresses exactly who is winning and who is losing. But I'm sure you also come across these various news reports of very serious inventory and pricing even with the multinationals, which is likely to impact their overall revenues and growth during the current calendar year.
Sure. And second is with respect to the MPP, when should we expect this to be like full utilization levels?
So this year, we are outlooking maybe we'll get to about 60% to capacity utilization. And next year, it should be much better. So this is the first year that we are going to be using it. So we have to bring in the new products. And I had mentioned that one, we've already started and one more in intermediate and one more molecule we will be producing towards Q3.
Our next question is from the line of Archit from B&K Securities.
Just one question. Sir, can you give us some general sense of about the situation in China, and when do you see this entire inventory problem subsiding? Any thoughts on the situation?
Yes, Archit. I can only sort of go with what I have heard and also some of the inputs that we have received following the CAC, which was, I think, very well attended by many global companies as well. So the sense is that the Chinese industry is also trying to get back to a growth path, which I think is for us, putting a lot of pressure on availability out of China, but with the inventories being where they are globally, that is sort of pushing prices downwards. So I guess there will be some amount of stability, which will come once the inventory of many of these input materials in China also starts building up because unless there is consumption of these intermediates, they will also have to curtail their production.
If we all continue to produce the way we are, then there's going to be a serious issue on even inventory of some of these materials in China. So our sense is that there could be some price stability that may start emerging in the next month or 2. We've already seen it in some of the products, which seem to have now touched the bottom because some of the offers that are coming at a slightly elevated price. So there seems to be some stability that is now coming at least for some of the intermediates.
Sure, sir. Sir, actually, there were a few companies, obviously, global companies, some of them saying that the inventory situation can alleviate a bit probably in the first half of this calendar year, and then there are some companies who are calling out for a complete washout for this entire calendar year or probably financial year. So I know that this will go -- will be product specific and it might differ from 1 product to another. For our company specifically, whatever we're exporting in the international markets for that do you see, as you mentioned earlier, would that in certain -- some situations like acephate, maybe the bottom has already reached? Would that be like a safer assumption going forward and that there may not be any more deterioration in terms of prices?
So Archit, as far as the season in Brazil is concerned, it is going to be picking up now in Q2. So if that season goes well, then there could be a huge demand coming back.
And as far as our portfolio is concerned, I would say that we need to be a little watchful largely for acephate. The others, I think we will be able to manage. So acephate, the price erosion has been fairly sharp. And we are a little bit cautious on that particular product, but others, I think we should be able to navigate.
Our next question is from the line of Jyoti Singh from Arihant Capital Markets limited.
This is Abhishek [ Jain ] here, sir. Sir, two questions. Sir, what would be the incremental revenue coming from the CapEx completed in the year if you can throw some light on the same? Second question on the -- apart from [indiscernible] CapEx, what is the CapEx timeline for the next 2 years if you can give a little more of an accounting.
So Abhishek, the revenue from our new MPP, there is nothing in Q1 in terms of revenue from the new product because we have started to trial production in the month of June. So there is no revenue, but it will start accruing from Q2 onwards. And as far as capital is concerned, we expect to be incurring a CapEx of about INR 150-odd crores during FY '24. We will be spending some part of that on our new R&D facility as well. And also for perhaps some debottlenecking that we would like to do for 1 or 2 of our products where we see some good opportunity. And largely, that's it, Abhishek.
Sir, going forward, any numbers like what kind of revenue like FX turnover we'll be looking out -- in the next 3 years?
So Abhishek, typically, as we mentioned in the earlier calls also, we look at our investment decision slightly on the longer term using the internal rate of return for the investments that we make. So the asset turns and all, we have to see in a slightly longer period of time. Subhra, unless you would like to add something?
No, no. See, this is a multipurpose plant, and it's for feeding new opportunities, so it will take some time as we said to reach the full capacity utilization. So I think it will be early for us to talk about asset turns on this plant.
Our next question is from the line of S. Ramesh from Nirmal Bang Equities.
So in terms of the gross margin expansion in the first quarter, can you explain how you've been able to achieve that? Is it because of the decline in the international business that you may possibly be enjoying lower margins? So what is the reason for this?
So one factor we said is, of course, the mix which is domestic versus international. But more importantly, it is within the products that we sold within the international business and the domestic business. So that has helped in terms of margin expansion. Plus, as Sanjiv mentioned earlier, what we have been able to do with a set of our high-priced inventory. We do have a small proportion even now, but not a significant one, and that is helped in terms of not coming under pricing pressure in terms of being bid on a very low margin. So we have indeed taken some pricing calls at a low margin, but at a portfolio level, we've been able to be at a similar margin level or slightly better.
As a follow up, are we in a position to sustain the gross margin reported in the first quarter for the rest of the year, adjusted for seasonality, of course? And on this base for next year, will you be able to maintain this sort of margin, assuming prices are stable, so that there's a volume growth, you can show earnings from a -- in a broader trajectory perspective?
See, you yourself have put that there are multiple factors which are going to depend on margins. But more importantly, we should remember that Q1 is a seed business where the margins are relatively better. So if the business -- if domestic business does well, which makes better gross margins for us, the margin should continue to improve. But it's too early or too premature to [indiscernible] it is dependent on various factors.
Just one last thought. So if you're looking at the MPP and the new products, incrementally, I understand is a long-term decision, but incrementally, do we see growth coming more from volume growth? Or would you also be able to improve your margin profile?
I think in the near term, it will be more the volume growth, Ramesh, because the price volatility is such, I don't think we can get a huge revenue growth coming from pricing at least in the near term.
Our next question is from the line of Vishnu Kumar from Spark Capital.
I wanted to understand how is the current demand trends, especially with the fact that we are facing excess rainfall in certain regions and very deficient rainfalls at least in the Southern Central, if you could just help us understand on this?
Vishnu, I think we just have to wait for some time because the consumption really needs to start now. Q1 largely is placement for crop protection, and it is the main season for our seeds business, which we've already said has gone off well in our context. So the agrochemical consumption will just about now be getting started.
So any trends that you're picking up, sir, because at least in the southern markets, the rainfall deficiency seems to be much higher.
That is true. So actually, if you see the uptick by trade, I think that is now picking up slightly because in anticipation of good planting, which is happening, the trade is also picking up material now. So we expect things to become clear in about a week, 10 days' time.
Got it, sir. And also, sir, you mentioned that the price of -- price erosion is continuing. Is it more or less pass-through at the retail level or you still expect that the retail pricing can come down a little bit further to accommodate for the price reduction that is happening?
Sure. In terms of our inventory in the market, I think we are okay. There will be no further reduction that we will see because we have sort of, as I mentioned, done very, very major placement in the market with the pricing that we believe is right.
[Operator Instructions] Our next question is from the line of Tarang Agrawal from Old Bridge Capital.
Just a couple of questions on the technicals business. This is more to do with trying to get a sense on acephate and pendimethalin where you guys are big players. So on the market, the global market, right, is the pricing impact on account of incumbent manufacturers liquidating the stock that was already lying in their factories, maybe because of COVID they were not able to supply? Or is it because of some sort of aggression on their part, wanting to garner higher market share, irrespective of whatever price it comes at, that's one?
Number two, I mean, given your scale in manufacturing these technical side, you all are fairly well aware of the cost structures and the current pricing and how they both interact. So at current prices of acephate, pendimethalin, do you think these are sustainable prices for any player?
No. In terms of pendimethalin, I think the pricing has been a little more stable. So there's -- we don't see any major issue there. But yes, in terms of acephate, we have seen a very, very sharp reduction in pricing. Just to give you a sense of some numbers that impact [indiscernible] key starting materials for acephate, the prices come down by over 40% since it's peak last year, which has led to the price of the product itself declining very, very sharply. So I would say that the price acephate is largely being driven off the price of these starting material, which is sort of forcing the product to be sold at much lower pricing.
Okay. And do you see this? I mean whatever action that we are seeing, whether it's on the technical or the intermediate, that action is on account of the manufacturer trying to liquidate the stock that was already lying, or is it on account of some aggression of them wanting to come back on the horse and really gain market share irrespective of whatever price they gain market share at.
Yes, I think there is some additional capacity, which has come up. And some of perhaps the newer players are trying to establish themselves with some of these intermediates, which is also adding to the lower pricing.
Our next question is from the line of Abhijit Akella from Kotak Securities.
Just one question. For the domestic crop protection business, could you -- possible to share the percentage of revenues from the top 5 products? And second, just on the new products. Chlorantraniliprole, the 2 formulations that we are launching. If you could just help us understand your outlook for that market. I believe it's very large, but there's probably a lot of generic competition that's kicking in now. So what sort of market share would you potentially aspire to get in that?
Well, you're absolutely right, Abhijit, that this chlorantraniliprole is a fairly large market as far as India is concerned. And more recently, we've seen a number of products getting launched in this category. So we are also going to be participating in this particular segment with this particular product. So initially, we will have I guess a product introduction and we will maybe take a year to scale it up as you rightly pointed out, that many competitors have now come up with similar products.
And as far as the top few products are concerned, perhaps that may be a little difficult to share with you.
Yes, probably [indiscernible]. I don't think at the quarter level, we can look at the revenues for top products. But it's not that any of our product is -- it's not over invested in any specific product. So we have our top 10, 12 products, which contribute some 40% for the revenue, which are fairly diversified.
Our next question is from the line of Gagan Thareja from ASK Investment Managers.
Yes. Sir, last year, you took significant write-offs in provisions on seeds. I think there was something in the first quarter of last year as well. Would a reduction there or elimination altogether of that have -- had a favorable impact on seeds business for the quarter and for the full year this year?
So firstly, we didn't take any write-offs or any material write-offs in Q1. It was all in Q4. You would have seen the numbers. And we have not had any reversal of that in Q1. So nothing of one-off as Sanjiv mentioned, which is [indiscernible]. No write-back...
But for the full year, what budgeting...
Too early to say whether there will be a write-back or a further write-off, it will now depend on how kharif goes.
Our next question is from the line of Dheeraj [ Patek ] from [ White Oak ].
On the export market, where everybody and you are experiencing higher in...
Mr. Dheeraj may we request you to use the handset as you're not audible, sir?
I am using the handset. Am I better now?
Yes, we can hear you. Go ahead.
So for the export market, where the industry in general, and we are also experiencing higher inventory in the channel. So if you can give some better quantification let's say, acephate in Brazil, which being a larger market, if the base line of inventory channel for acephate in Brazilian market is [ equal ] to 100, where are we -- where in the industry in aggregate is at? Is it at 200? Is it at 150? Something like that would help you get a better sense of the magnitude and the severity of the channel inventory -- as everybody is saying there is too much channel inventory, but there is not enough understanding at least from my side. What is the extent of the problem?
I think Dheeraj that issue is certainly there. I mean, these all is qualitative information. This quantitative information is not available.
Sir that's why I'm picking a particular product and a particular market because that you would know, right, because you are -- so acephate in Brazilian market is an in important product for you, from the sales team, do you have some sense of what kind of channel inventory is there, right?
As far as acephate is concerned, Dheeraj the issue is not that we will not be able to sell the entire production volume during the year. The issue for us is largely the pricing, which is being forced downwards.
Due to time constraint, that was the last question of the question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Thank you, Nikkel. So as you would appreciate, we are facing significant challenges in the near term due to sharp price reduction and global demand reduction due to inventory overhang, and we discussed quite a bit about that during the call today, and we'll continue to monitor the volume-led growth across our portfolio. Price net revenue growth may not -- that's certainly going to be a challenge. However, our focus will be on improving realization through better product mix and dynamic pricing actions.
Our diverse portfolio with presence across domestic and international markets, crop nutrition and seeds business does offer the business enough stability to navigate through these challenging times.
Absolute EBITDA and cash flow will also continue to be a key priority across our teams, and we will further focus on improving collections across geographies in Q2.
Investments that we've been doing over the last couple of years in R&D, product development, manufacturing, will certainly enable us to drive our growth agenda in a sustainable way.
With that, thank you all for joining, and we will connect again 3 months from now with our Q2 outcomes. Thank you very much.
Thank you. On behalf of Rallis India, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.