Rallis India Ltd

NSE:RALLIS

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Rallis India Limited Q1 FY '25 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, Mr. Desa.

[Gavin Desa]

Thank you. Good day, everyone, and thank you for joining us on Rallis India Limited's Q1 FY '25 Earnings Call. We have with us today, Mr. Gyanendra Shukla, Managing Director and CEO; Mr. S. Nagarajan, the Chief Operating Officer; and Ms. Subhra Gourisaria, Chief Financial Officer.

Before we begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature and more involved risks and uncertainties. A detailed statement in this regard is available in the results presentation. I now invite Mr. Shukla to begin proceedings of the call.

[Gyanendra Shukla, executive]

Thanks, Gavin. Good morning, everyone, and thank you for joining us today on our quarter 1 fiscal year '25 earnings call. As mentioned by Gavin, I have alongside with me, Nagarajan, our Chief Operating Officer; and Subhra, our CFO.

Let me begin the discussion by getting into the industry landscape initially, post which I will discuss Rallis' specific developments. On the industry side, we have seen an early sign of demand recovery after a long time. All of you know that a couple of years have been a little bad. In domestic market, there's a positive sentiment, primarily driven by monsoon prediction of IMD. But the deficient rainfall until June 24, that did impact quarter 1 fiscal year '25 sales. But off-late monsoon has started really picking up well and the kharif sowing is registering significant growth, about 10% compared to last year. If you look at key crops, paddy is about 21%, soya bean is about 30%, maize is 34% and [indiscernible] is about 191%. This is one crop that has seen significant increase in acres driven by commodity prices. From field reports what we are getting, cotton acreages have reduced significantly. In northern part of India, there's one particular pest called pink bollworm has been bothering the farmers. However, on the export front, recovery remains soft with the key markets like Brazil, U.S. SCA, all they have. So while volumes have started picking up, prices continuing to depress due to oversupply from China. We think that the ongoing season in Northern Hemisphere, including now U.S. should lead to some balancing of the inventory. And hopefully, things will start looking positively from there.

Coming to Rallis-specific developments. We have started the year with overall revenue being flat. I mean you say overall number when you compare with the last year, but there are some, I would say, green shoots are there. For example, our domestic Crop Care business has delivered a positive growth and seed, as we had indicated in the previous call, we had supply constraints. As a result, we had to take the degrowth. And Crop Care, I think, is largely domestic as well as international business, as I said, continues to remain under pressure because of the price EBITDA for the quarter stood at INR 96 crores. It is lower by about 13% compared to same quarter last year. The gross contribution margin of 30%.

And PAT for the quarter stood at INR 48 crores compared to INR 63 crores reported during Q1 of fiscal year '24. Getting more specific about the individual businesses. So starting with domestic Crop Care business, the crop prices are relatively better, particularly for pulses and oil seeds. And favorable monsoon was the primary good driver for the business. Input prices were relatively stable during the quarter, which in turn resulted in better margin profitability for the business.

In terms of product categories, I think I had indicated in the last call, the herbicide is one area which is growing faster, driven by the labor dynamics in the country, has performed well for us. Having said that, I think we still have a gap in our herbicide portfolio, which we are working on. On the back of it, Crop Care delivered a strong volume-led growth of about 8%. Growth was good in both domestic crop protection and crop nutrition business with year-on-year price drop impacting growth.

Now as we see domestic market, I think prices are stabilized. But our strategy is to continue to grow the business with more thrust on developing differentiated products. We are improving our front-end capabilities based on the theme of customer centricity I talked last time. And as we work more on this, we will start hearing more about this as we move forward. Our endeavor will be to build a more connected organization, leveraging digital. I think now digital will give us a scale and that's where we'll get closer to the customer. We have also progressed well in our supply chain management to strategy linking demand and supply planning with SAP IBP going live. It was just now launched in the month of August, so work is still going on. But this will help in driving efficiencies on all the fronts. Crop Nutrition had a very good quarter, and we had a growth of roughly 31%. As it was informed earlier, we also commissioned a water soluble fertilizer plant during the year. The crop nutrition, as I mentioned last time, is continuing to be our strong pillar for the long-term growth, and we'll continue to invest in this segment.

Coming back to International business, our revenue stood at INR 133 crores, which is lower by 5% compared to the similar period last year, though we had a decent growth of about 19%, but the price challenges are really impacting overall growth from a revenue perspective. We have some old products like acephate, hexa and pendi. The prices continue to remain muted with [indiscernible] prices actually are almost at the level of half compared to what they were 2 years ago. On the top of that, sea freight has also seen a steep hike as Baltic Dry Index has doubled over last year impacting margins. In terms of our key products, acephate continues to face challenges in Brazil and U.S. Pendimethalin operated at low capacity, but we are confident on long-term product of this technical. So we are more optimistic about Pendimethalin related to acephate in the long term. And metribuzin and hexaconazole exhibited a steady traction in the U.S. and Southeast Asian markets. We also progressed well in terms of commencing new relations with global majors for some of our old technical.

In contract manufacturing business, we are also working on expanding formulation alliances with global players to build a more resilient portfolio. This will help us improve the capacity utilization of our state-of-art manufacturing facility in the chemical zone in Dahej. We are confident that this business will meaningfully contribute to both top line and bottom line in the years to come. So that's on the chemical side. Shifting gears to seed business. As I earlier said, look, we had the seed supply shortage in several crops. And as a result of that, our revenue has dropped by 15%. But with the prudent cost management and pricing, we have been able to improve our GC by 4% compared to similar period last year. We also have invested in technology, a tool called [indiscernible], which uses AI and ML forecasting abilities to really ensure that optimal placement is happening in the market. I am also very happy to report that Diggaz, the hybrid cotton, which we have launched in North has seen a good volume growth, and this is on the top of that with significant lower cotton area planted in northern part of the country. As far as other crops are concerned, the liquidation trends are satisfactory as rains have picked up everywhere almost now.

In terms of our long-term strategy for the business, we are on the right path with sharpened portfolio choices and driving sustainability, profitability with measures being taken across the value chain. In conclusion, I think near-term outlook for the business, particularly International, remains challenging at least for the next 3 months at least. However, domestic business, with the rain and the commodity prices being good, looking positive. We are very confident and optimistic about the overall growth prospect in the medium to long term. Furthermore, our efforts are now directed towards improving, as I said earlier, customer connectivity leveraging digital, sharpening product portfolio choices. And when I said last time, I really meant that, look, we are going to work more on a differentiated product, also going to phase out some of the products that do not make money, too small and they bring supply chain complexity. We are working on new partnership and alliances to renew our portfolio. That concludes my opening remarks. Now I'll hand over to Subhra, our CFO, for a detailed analysis of the financials. Subhra, over to you.

[Subhra Gourisaria, executive]

Good morning, everyone. I will quickly walk you through financials. And after that, we can start with Q&A session. Our revenue stood at INR 783 crores as against INR 782 crores for the same period last year. Volume growth was encouraging at 9%. The price challenge, especially in international market, impacted the overall growth. Also as Mr. Gyanendra alluded, supply challenges in seeds has impacted the growth in the business. EBITDA for the quarter stood at INR 96 crores against INR 110 crores for the same period last year. PAT for the quarter stood at INR 48 crores as against INR 63 crores for the same period last year.

In terms of domestic business, Crop Care business, it had a good growth of 13% due to poor [indiscernible] inventory, which also we corrected during the quarter. However, now we believe sentiments have improved with new MSP and monsoon progressing quite well. As far as seeds is concerned, we did well despite reduced cotton acreages. We have made calibrated placements considering the inventory level and I'm hopeful that our liquidation trends will be better. International business, the high inventory and benign prices continue to impact sales and profitability.

In terms of performance of key businesses Mr. Gyanendra already spoke about, we are working on expanding our customer base and product portfolio to build a more resilient business in this front. Our efforts continue to be directed towards driving focused execution, both at the front and the back end, which includes portfolio optimization, territory rationalization, removing overlap [indiscernible] and looking at driving cost efficiencies and simplification across the value chain. Our actions around portfolio refresh continue and we have launched 5 new products in Crop [indiscernible] and 14 products in seeds during the quarter. We will continue to be relentless on improving capital efficiencies, both for working and fixed capital. We do have a very healthy cash balance as of 30th June as well with no external borrowings.

At CapEx, we are also very prudent in CapEx investment and envisage that our spends to be in the range of INR 100 crores. In summary, we're implementing various initiatives in our drive towards achieving consistent, competitive and profitable growth. That concludes the remarks. We can now start the Q&A session.

[Operator]

[Operator Instructions]. The first question is from the line of Viraj from SiMPL.

[Viraj Kacharia, analyst]

Just a couple of questions. First is on the gross margin. See, you talked about an increase in prices in seeds and cost management. So the margin in seeds is quite healthy despite the drop in sales. And if one looks at the growth in B2C business. One would think the overall gross margin per se, for the company as a whole should be better. But -- so the question is that, is it that the International business is making a negative margin or a loss in this particular quarter. And If you can just give some perspective, what is driving this loss because if I look at other industry B2B players, they are seeing an improvement in margins and recovery in sales as well. But for us, it seems -- if you kind of dissect, it seems the business has incurred a loss in the B2B business. So that is one.

[Subhra Gourisaria, executive]

Viraj, is there any other question? Or should we respond?

[Viraj Kacharia, analyst]

Maybe, we can start with this.

[Subhra Gourisaria, executive]

See, gross margin has come down not because of international business making any negative margin. So we didn't make negative margin in international business. We have mentioned in the earlier calls that we were taking swift actions in terms of liquidating old inventory. Overall spread has indeed compressed and hence, the margins are lower than what we have made historically, but we have not made any negative margins. The overall margin compression has come, a, because the mix has -- overall, every year, Q1 [indiscernible] larger proportion of the portfolio and seeds mix has come down, as you would have seen, seeds had a negative growth compared to Crop Care. So while the mix is positive in terms of domestic Crop Care versus international, it's adverse in case of seeds.

Secondly, certainly, in case of domestic and international, margins are relatively poorer than the historical margin. Does it help answer your question?

[Viraj Kacharia, analyst]

No, see. If you look at seeds margin per se, right? You did around 22% EBITDA margin in seeds as against 20%. The drop is hardly INR 4 crores on a year-on-year basis. So even if you adjust for the drop in sales in seeds, you have kind of done a far better job in terms of managing the profitability in seeds.

In domestic, if you look at the environment, the RM [indiscernible] are many, [indiscernible] you're reporting a very strong healthy volume growth. So one would think that the overall margin either at the EBITDA level would be relatively better. But that is not the case. So I mean the only thing which [indiscernible] is either a loss or the sharp compression in international business. So that's what I was just trying to come from. And the related part was -- see in other expenses also, you've seen a jump from 125 to 135 while sales is largely flat. So any one off there...

[Gyanendra Shukla, executive]

Yes. So let me first give you my perspective on this margin. So obviously, you see we are up. And as I said earlier, we're going to be managing seed profitability. Now when it comes to B2C or B2B in Crop Care, you've to understand that for us to significantly move margins, when I'm comparing with company A, B, C, we have to see the product mix they have or we have. We are a company where our herbicide portfolio, which really for most companies, in quarter will comprise most of their sales. Herbicide is one area where I would say we are not very strong. So that is something, as we work on portfolio in herbicide, I think that will start changing.

So I think it's always a combination of what product mix I have got and what others have got. So we are aware of this fact, and I think our attempt is to start looking at portfolio and start cleaning up so that we are continuously improving our margins. And that will only come from portfolio churn. And portfolio churn, it's a phase-out process. It's not a start/stop switch.

[Viraj Kacharia, analyst]

On the other expenses, sir.

[Subhra Gourisaria, executive]

The other expenses, Viraj, has gone up, one, obviously, because we spoke about the contribution to [indiscernible]. And there is also an element of increase in freight and some investments that we have done behind digital settings there, including migration to SAP HANA.

[Viraj Kacharia, analyst]

Just one question, if I may. If I look at 2024 as a pool. In the annual report also, we talked about around INR 30 crores of investment in payment from digital or IT spend. So can you elaborate how are these held or we expect to held either in terms of better sales throughput or cost efficiency? And how should we understand this run rate going ahead?

[Gyanendra Shukla, executive]

Can you just reiterate your question?

[Viraj Kacharia, analyst]

So if you look at, in 2024, in the annual report, we talked about INR 28 crores to INR 30 crores of spend in the P&L towards digital and IT spend. So the idea was to understand how these spends are helping us either in terms better sales throughput or cost efficiency. So if you can give some examples. And if you can also help us understand how should we understand this run rate of spend going ahead?

[Gyanendra Shukla, executive]

So if you look at all of the digital spend, actually, you can categorize into 4, rather 5 categories. One is obviously, back end is very, very important, which is SAP S/4HANA, where we are going through complete changeover of our ERP system, that obviously takes time and money. On our efficiency related, other efficiency related, we are building a tool called [indiscernible], and I think it has been talked about in the past, and that's where we're trying to develop how can we use the AI and ML technologies, leveraging satellite data, et cetera, to help farmers warn about flooding, drought, pest presence so that they can optimize uses of the chemicals on their crop and hence benefit. Because unless farmers make more money, none of the companies are going to be successful.

Other things are really our channel focused, where we call -- so we are investing a lot in really getting visibility. One of the challenge we and the industry faces is once product moves from distributor to retailer, there's hardly any visibility, and that shows up in the form of [indiscernible] at the end of the season. So there's something called Anubandh. It's a program we are investing in. It's again, digitally enabled to really -- two things. A, we start getting better visibility of what is happening at the channel level, one more step down beyond distribution and other also thing to expand our footprint of retail so that we are reaching to the unreached customer. And other areas where we have no seed say where we are trying to use -- planning to really say how we should plan and how much we should plan and we are trying to work on some of the leading indicators to really understand how much placement we should make of the seed, because seed is one category if you place too much, if it comes to that, it also leads to lot of write-off.

And the other thing is really -- another tool, which is more related to production planning, tracking, improving the efficiency, [indiscernible]. So there are 4, 5 initiatives and I think 6th one which I had been talking is really customer connect. So we're trying to look at a lot of internal things. So from a company perspective, ERP, strong ERP is important, then we have done something which are related to production and tracking and retailer distribution. And now we're talking about customers. So I think as we move forward, digital investment is going to further go up because we would like to understand customer. And it's very, very important to understand your business to get lead indicators ahead of time because that helps you in planning and forecasting business better.

And the other one we probably have not talked about it. I think manufacturing is one area where we are also evaluating various options and what kind of required automation we can bring and that can bring efficiency and timely delivery because everything is very, very important. So we are also looking at automation in manufacturing. And that has not been done yet. But customer and manufacturing, automation are 2 focus areas. Others have started, will continue to improve when invested in those areas. But these 2 are going to be fresh investment.

[S. Nagarajan, executive]

Also to add, Gyanendra, we also have last year -- since the reference was about last year, we had invested in a supply chain tool as well. SAP IBP integration called Plan Guru. We're branding it as Plan Guru internally. And of course, that is something that will help us in better forecasting, better logistics. So the question of how it will help us in improvement in operating efficiencies, we believe that this can actually help us in managing our stock flows much better and also be able to respond to demand changes that inevitably happen during the course of the season in a lot more agile fashion.

[Gyanendra Shukla, executive]

I mean in that sell, I can tell you. So for example, this year, nobody would have thought the farmers would not plant cotton in [indiscernible]. Such a significant drop will happen. In some of the areas, actually drop is to the extent of 50%. So what are the things we can do digitally to connect with the market better and can get some leading indicator to manage business better. I mean, pulses going up, toor planting going up by 200% is something very unprecedented.

Because land is limited in the country, they're growing so much of one crop. That means other is going to suffer.

[Operator]

[Operator Instructions] The next question is from the line of Darshita from Antique Stockbroking.

[Darshita Shah, analyst]

The first question was regarding the supply constraints that we've been seeing in the seeds business. If you could elaborate a little bit on these supply constraints, one? And two, when do we expect to [indiscernible].

[Gyanendra Shukla, executive]

So seed supply chain, if I may say, is very complicated. What I want to sell in 2025, for example, I should be taking production this year, right? And parents of those seeds, I should have produced in 2023. So it requires 2 years of planning. So that's one. And you need to have enough parents to produce. The second thing is seed production for majority of the crop we are dealing with happens in the rabi season of Southern India. So most of the seed is being produced in Andhra, Telangana and a little bit in Karnataka, Maharashtra and Tamil Nadu. Now last 2 years have seen significant drought right from the month of September all the way to November, December in this part. So there were 2 years where there was excess rainfall, planting got delayed. And then last year was a significant water shortage. As a result, farmers -- so there was a competition for what you call seed crop acres. So those are the things led to really less production.

The other thing is we are raising our bar on the quality standard. Because in seed -- so when seed comes back, you have to test it and check it for its integrity from purity and germination perspective. So all those things also sometimes lead to these shortages. The other thing is, this is one category where either I keep too much of inventory, right, in anticipation of demand, which also means I lock in working capital for a long period, which I think is not desirable. So we're trying to fine-tune in such a way and my colleague, Nagarajan, mentioned about some of the tools we are using to really forecast demand and produce accordingly.

So it's a combination things. A complicated supply chain. I think we're just trying to manage it, the whole business for profit rather than trying to say we'll just save the volume in this. Because seed inventory can come to haunt us very badly. It all becomes write-off.

[Darshita Shah, analyst]

Got it. Second one was, just it was a clarification. I think, Subhra mam mentioned that. We have seen a margin compression in the domestic market as well. Did I hear it correct?

[Subhra Gourisaria, executive]

Yes. Relatively, yes, you're right, Darshita. Because also I said that we corrected inventory from rabi and rabi's inventory made higher margins for us. In terms of the kharif placement, we are well on track. In terms of the margin as well as the plan that we had. But now monsoon is picking. Hopefully, the liquidation should be improving.

[Operator]

Our next question is from the line of Abhijit Akella from Kotak Securities.

[Abhijit Akella, analyst]

Maybe just start with a couple on the seeds side. Would it be possible to give us some flavor of the cropwise breakdown of the seeds business, just rough numbers would also be great. And in terms of the Y-o-Y growth, the decline that we have seen, is that coming primarily from the non-cotton categories? How should we think about that?

[Gyanendra Shukla, executive]

So if you see our business, the 2 areas where we had supply challenges, primarily was hybrid maize as well as hybrid paddy.

[Subhra Gourisaria, executive]

So cotton grows indeed actually, Abhijit, South -- North cotton [indiscernible] had very good momentum. South and West cotton, we have to yet see how the liquidation progresses, but it's not a big part of our portfolio. So paddy and maize were the bigger [indiscernible].

[Gyanendra Shukla, executive]

And they are a significant part of our revenue.

[Subhra Gourisaria, executive]

Yes.

[Abhijit Akella, analyst]

Okay. Understood. And just on the context of this pink bollworm infestation in the North, what's your early sense about how Diggaz and your other hybrids are sort of coping with the challenge of the pest attack over there? Do you see them sort of withstanding the attack and thereby maybe generating better demand for next season from the farming community?

[Gyanendra Shukla, executive]

So I think it's a very, very difficult situation for the farmer. Because each company has a common denominator of Bollgard [indiscernible] as their technology platform. So seed per se cannot control pink bollworm, right? So whether it's Diggaz or anything else, any competitor product. What we are looking at is because our seed in the last 2 years has performed very well in the farmers field, in the comparable situations, it's always related performance. Everybody has pink bollworm or bollworm issue. I think what we're trying to do, our team is on the ground, and we're trying to really educate farmers what kind of strategies they can adopt from crop protection perspective to save their crop. And every company is trying to do that. But given everything else being at par, I think Diggaz has performed well and that's why demand was very high this care.

[S. Nagarajan, executive]

If I can add a little bit, Gyanendra, I think -- yes, so I think, Abhijit, the purchases for this year have been very, very encouraging. And obviously, the purchases for this year are driven by the performance and experience over the prior years. And therefore, if you kind of recall, we had moved from 2 lakh packets a couple of years back to about 4 lakh packets last year, clearly demonstrating that the proposition of a shorter duration to kind of beat the pink bollworm impact has been very well received, and that is what has played out in this particular quarter for us. We believe the liquidation also will be very high.

In fact, it is in some of the pockets where it is complete. The experience of the farmers this year is going to be very critical for the future. So the key monitorable from our point of view and which of course, we will really be focused on, is the experience in terms of the yield after 2 pickings, for example, and kind of see how it compares with various other brands. So I think that's really where we are. And we are positive at this point in time.

[Operator]

[Operator Instructions] Next question is from the line of Ankur Periwal from Axis Capital.

[Ankur Periwal, analyst]

First question on the export demand, especially for our key crops. If you can highlight the pricing and demand trend there. Because I think in the initial comments, we did mention that pendi had a lower capacity utilization, wherein, if I'm not wrong, we were planning to expand the capacity. So if you could highlight some comments there.

[Gyanendra Shukla, executive]

So of all the molecules we produce, I think pendi is one which has a good future. It has continuing demand. Having said that, I think industry is still dealing with the oversupplies from the previous productions, right? And so other products where I think we face challenge is really acephate. Because that product now not only could come under significant regulatory review, but suffers from the same fate as it is only sold in certain markets, not sold in certain markets. So how the supply situation is in those markets can determine at what price we can sell. So I would, at this point of time, say acephate is a larger challenge than pendimethalin, because, I mean, we like it or not, China will be there. They will continue with supply. So we also have to start internally looking how do we become more efficient producer of that and be competitive.

[Ankur Periwal, analyst]

Sure. So from a full year growth perspective, given the pricing is what it is, would it be fair to say that large part of the growth will be volume led while pricing may still be an overhang in terms of overall revenues for exports.

[Gyanendra Shukla, executive]

So it's very, very difficult to say what will happen in 10 months from now, 11 months from now. But what we see is, if you start splitting our business into segments, as I said, domestic formulas and demand is looking good for the various factors I mentioned. See the majority of our season is over. We are primarily now -- bulk of the business happens in kharif. And the only adjustment would be related to how much return comes versus what we have estimated. So that adjustment you will see probably in the subsequent quarters. And domestic season is actually coming big. Then you have, obviously, CSM business. I think CSM business also has the same dynamics as International business, while contracts are slightly different.

On International, I guess, if you go around world commodity prices are low, but consumption is taking place, prices have not improved. So I guess a little bit of this inventory in the system. Nobody is able to predict nor either I'm able to predict. There's no crystal ball in my hand to say what will happen. Having said that, I think we have to start becoming efficient on our cost and customer relationship and that's the only way to manage the situation. And start looking for new molecules, new products and phase out some of the older ones.

[Operator]

[Operator Instructions] Next question is from the line of S. Ramesh from Nirmal Bang.

[S. Ramesh, analyst]

Good morning, and thank you very much. So if you are looking at the current progress in the monsoon, is it possible to give us some indication of what is the kind of volume growth you can expect in the domestic market, and is the 19% volume growth you reported in exports kind of sustainable over the next few quarters? What is the sense here?

[Gyanendra Shukla, executive]

So obviously, I can't give you a percentage, and I must say it is very difficult to say what percentage. But given the sentiments, we are expecting a significant growth, and you have seen that has happened in the past quarter as well. Because when the prices are decent and planting is there, rainfall situation, certain farmers do try to maximize their yield in return and that's where crop protection plays a very, very important role. So our attempt would be to try to take full advantage of the situation, which is in front of us.

[S. Ramesh, analyst]

So in terms of the export volumes, do you see the trend continuing.

[Gyanendra Shukla, executive]

so export, I think, no. So obviously, from a volume perspective, things have started moving. Pricing is something nobody knows. And again, it depends on the molecule because one of your colleagues did mention a question on the call that others have seen. So it depends on what molecule we are talking. Because every molecule has its own [indiscernible] in market.

[S. Ramesh, analyst]

So in terms of margin, is there some sense you have in terms of when you can see margins achieve what you did a year ago, so it could take a full year?

[Gyanendra Shukla, executive]

So I cannot give you numbers, but all I can tell you, the initiatives we are taking and some of these initiatives for us being a seasonal business, you don't see in a very short period of time. So fundamentally, we are trying to look at our organization differently, trying to get it more focused on the business units. We are double dialing up on the partnership and collaborations. As I said, we are looking at portfolio. But you also have to understand portfolio, you have to do analysis and you have to make sure you are able to exhaust inventory. So a transition to more profitable, differentiated product itself as a journey which means you have to identify old products, do that proper analysis, phase out them. But I felt the crop nutrition is looking very attractive, and this is something we want to -- it's relatively higher margin and seed also is a higher margin, and we want to manage for profitability.

[Operator]

[Operator Instructions] Next question is from the line of Rohan Gupta from Nuvama Institutional.

[Rohan Gupta, analyst]

The question is on this -- you mentioned that the rationalization of the portfolio in agrochemicals, where you want to focus more on herbicides portfolio which you did. So what strategies you are looking at, whether you are getting into more collaboration with the global partners. Global players are going to develop their own molecules launched by yourself, more in generic or in special categories or speciality chemicals. So what is the strategy you are going to adopt to strengthen your product [indiscernible].

[Gyanendra Shukla, executive]

So I said 2 things, not only herbicide, crop nutrition, I also said even in insecticide and fungicide, which is our larger chunk of the portfolio in Crop Care. There also our attempt is to slowly phase out low margin and start bringing new and differentiated products where margins are relatively better. Now obviously, we are not looking at doing everything on our own. Even if that means we have -- and I have been talking about partnership and collaboration as important part of the strategy, so that we are able to partner with the companies, both global as well as Indian companies to bring those products and refresh the portfolio.

Now these things do take time. It's not something you can do overnight. So it's combination of things, not one thing.

[Rohan Gupta, analyst]

Okay. So you mentioned that definitely, you will be looking at more of the collaborative partnership. I mean, that's coming with that global player.

[Gyanendra Shukla, executive]

I think we are moving to a mindset to say, we have to make a smart decision, make versus buy, right? In a world where so many supply chain and product partnerships are available, we have to be very prudent in making decision. So whatever is financially better that's the decision we should make. And obviously, there's a point on supply chain certainty. So our decisions are more going to be based on make versus buy, pure economical decision combining with making sure there's a certainty of supplies.

[S. Nagarajan, executive]

Just to add, the product that we launched in this quarter, one of the products we launched Mark Plus [indiscernible] product, which is in collaboration with one of the majors. So I think there would be examples on like what Gyanendra said, it will be a combination of both partnerships as well as prudent buys and in-house products as well.

[Rohan Gupta, analyst]

Sir, similarly in our export market also, you mentioned like products like metri and all have seen a significant price drop, almost half. However, you have seen a significant volume-led growth of almost 19% in exports. So just wanted to know that this very solid volume-led growth, which is seen in the current quarter, is it driven by what inventory restocking happening globally or the demand has picked up globally. What is driving this? And second, with such a sharp price drop in some of the molecules which we are making intermediates, do you see that the gross margin in this business remain at the lower end only and probably will drag the overall profitability. It was also surprising to see when Subhra mentioned that we didn't have any inventory-led losses in core business despite such a heavy price drop. So if you're not able to figure out the math that what earlier participants also asked that we had a seed business, which is a 22% margin in the current quarter. Domestic business should have a better margin, but still we had a 12% overall margin, which should be only the concern of that International business would have been in the red. But still not able to figure it out that how the margins are actually in the International business or in export business, which is such a...

[S. Nagarajan, executive]

So maybe I can provide you some color on that if I may, Dr. Gyanendra?

[Gyanendra Shukla, executive]

Yes, please go ahead.

[S. Nagarajan, executive]

See, I think you are right. I think the volumes have actually been better on the International business for most of our products except the 2 that Dr. Gyanendra called out. One of course pendimethalin and acephate. What is driving the volume growth in these other products, I think the farmer level demand because of, let's say, destocking that has played out. The farmer level demand has actually been fairly robust continuously. But I think the intermediary level demand, I mean, the stock levels have influenced the volumes that people like us are able to accomplish. So I think that has certainly changed, and we are finding that for the other products, the volumes have picked up. However, prices have continued to remain under pressure. And that is why the margins -- the contribution levels, for example, in the case of the International business have been lower than last year.

With respect to your query about the math on this and the earlier caller's question as well, I think one way I can try and help you with that is if you look at our quarter 1 EBITDA at INR 96 crores, last year was INR 110 crores. So there's a drop of about INR 14 crores, right? You can see this in the investor deck, actually. And there is a INR 4 crore drop in seeds, which already Subhra explained, leaving you with a INR 10 crore drop in the Crop Care area. And a large contribution to this INR 10 crore EBITDA drop is coming from the International business gross contribution drop, which I just now alluded to. But despite that drop, the profitability, that is EBITDA of the export business, because INR 10 crores is a drop, but it doesn't really make it negative. So that's really the math to kind of reconcile the fact that the business has remained profitable. And of course, we have had specific deals where we have had, let's say, prices with very, very little margin because of the inventory that we were holding. But we have not, as an export business, lost money is what we would say, at the EBITDA level. I hope it helps.

[Operator]

[Operator Instructions] Next question is from the line of Bhavya Gandhi from Dalal & Broacha.

[Bhavya Gandhi, analyst]

Just two questions. One with respect to how much was the price decline when it comes to domestic markets. We had a volume growth of 13%. Was there any price decline in the domestic market? You've not given this split.

[Subhra Gourisaria, executive]

In domestic business, price decline was upwards of 10%, and this is Y-o-Y decline though the quarter-on-quarter decline has come down. But obviously, the Q1 was on a higher price last year. It's 14% [indiscernible].

[Bhavya Gandhi, analyst]

Right. And with respect to the 13% volume growth, if you can share which products have worked better and with respect to price decline also which products have not worked better, if you can just throw some light on that as well?

[Subhra Gourisaria, executive]

So a large part of the volume growth is coming from herbicides, albeit it's a small part of our portfolio, but we have seen good momentum in herbicide business in our domestic portfolio. But some of the recent launches we called our [indiscernible] as well. Some of the recent launches has picked up well. So that's how the volume growth has come through.

[Bhavya Gandhi, analyst]

Okay. And where have we seen the price decline?

[Subhra Gourisaria, executive]

So price declines are coming in parts of the portfolio where we compete directly and we have to be priced as far as the market is concerned. So that's where the price declines are coming. So we have a fair bit of metrics in which we split our portfolio. Portfolio, which is not very differentiated and where we have a not a great share in terms of brand is where the price decline is largely coming from.

[Operator]

Next question is from the line of Ravi Purohit from SiMPL.

[Ravi Purohit, analyst]

Most of my questions have been answered. Just one broader question Mr. Shukla for you since it's been now 4 months that you have been in the company. If you could just share what have been your learnings so far? I mean, Rallis is probably the only Tata Group company, which where profits are same where they were 10 years back, even today. So what changes are you looking to make? What has gone wrong over the last 10 years? And how should investors look forward to relish with your experience? What should we expect over the next 3 to 5 years? If you could just share that will very helpful to investors at large to understand where the company is headed to over the next 3 to 5 years.

[Gyanendra Shukla, executive]

Yes. So one of the things I can reiterate, as I said last time, was that group is committed to this business and there is a lot of support. And I've been saying this is the only direct farmer-facing business we have. So there's a lot of commitment to grow this business. And I probably might be just reiterating what I've been saying is -- so we're in the right businesses. Seed is a business, if it is run for profitability, is a very good business to be. Crop Nutrition is a very good opportunity where I see growth as well as a healthier margin because beyond bulk fertilizer, there's a lot of scope to grow the business and help farmers make more money because any company unless can help farmer make more money is not going to win the heart of the farmer.

So those two areas, from a business sector perspective, very important. And coming to crop protection, I think we have been weaker on herbicides. We are working on it. And even this year also, as Nagarajan has mentioned, we have launched a product. And so we will continue to focus on that because that is driven by labor dynamics of the country where labor is available. Mostly, it's not available and if available, it's becoming very, very expensive and their herbicide user has come to play. Having said that, fungicide and insecticide will also remain very, very important.

So from a portfolio perspective, we are in the right segment. I think what you would see over a period of time, we'll launch new differentiated products. We will transition to new product by slowly phasing out old products, which are less. They do not contribute to profitability and they unnecessarily create supply chain complexity. So that process we'll start seeing. Obviously, it's a phase out. When I say phase out, it doesn't mean it will happen next month, it does. It's a process, right?

Now from a product sourcing perspective, we do have our own R&D. And as we have reiterated in multiple calls in the past that we are trying to now build an integrated facility which should be ready in 2 years of time. We bring our 2 R&D capacities together at one center in Bangalore. So we'll continue to invest in R&D in the right areas. And from a product sourcing perspective, we are going to be very, very thoughtful about partners, even collaborations. So the mindset of I should do everything on our own. I think we are moving away from that to be a more collaborative partner for global companies as well as domestic companies because I personally believe we have a very strong Tata and Rallis brand in the market, which works very well for us. So same product launched by us can get a faster and better traction in the market compared to a relatively unknown company. So partnerships and collaborations are going to be a key pillar.

I also talked about investing in customer-facing digital initiatives. So I think a lot of work has been done, and we'll continue to augment that, which is more internal efficiency, planning and accounting and everything else. But tracking retail and customer and spending time with the farmers, leveraging digital because digital give us a scale. I mean, there are only so many people the company can deploy in the marketplace and get access to the farmer and get a consistent message.

So we're going to be investing on more customer side digital investment, that includes training, marketing material, leveraging them to get lead indicators that helps in planning our business better. So that's on the digital side. And as I said, look, manufacturing also, we are going to have a deep dive to really see how do we make sure each of our products remain profitable and competitive in the market. And that's where we are not only looking at the product -- our product life cycle at what life cycle they are in global regulatory frame where things understand. We're also going to invest in automation to really bring efficiency in our production and supply chain.

So those are broadly areas, and the last but not the least is investment in people. I think we're moving -- we are looking at some significant leadership changes wherever required to bring some fresh thinking. And also looking at not only from the perspective of what is the right, also rightsizing the organization. And some of those things, as you move forward, you will start seeing, Ultimately, the goal is that we should be able to deliver higher return on capital to the shareholders.

[Operator]

Next follow-up question is from the line of Abhijit Akella from Kotak Securities.

[Abhijit Akella, analyst]

One is actually just on the cotton seeds business that you were discussing earlier. So just to sort of check versus the 4 lakh packets that we did last year, what's an approximate number we would look to maybe end this year with, obviously, assuming there is no significant sales returns. Second thing is just on the innovation turnover index, the ITI number. Given the kind of traction you're getting with Clasto and certain others, is there a broad number of ballpark where you could expect that index to end up with for fiscal '25. And finally, just your sense on how are the margins of Crop Nutrition compared with the margin of the overall Crop Care business?

[Gyanendra Shukla, executive]

So I think there's a normalized margin and the margin we make. Our attempt is to move from the margin we make to the normalized margin, right? So if you say normalized margin as a sector, seeds generally has higher than Crop Nutrition and Crop Protection is just below Crop Nutrition. Now the caveat here is that on the mix of portfolio, if you get a differentiated product which is well received in the market, your margins could be very higher. But on a macro level, I would say, Crop Protection followed by Crop Nutrition followed by seed.

[Subhra Gourisaria, executive]

So Abhijit, maybe I'll answer your question on cotton. So cotton, overall, I think -- we are hopeful that this year we'll do highest ever cotton packets, between North cotton and Southwest cotton. Obviously, Southwest cotton liquidation trends are yet to be seen. North cotton, looking at the liquidation trends, again, we are hopeful that we should be able to get significant growth over last year's actual liquidation. And this was also in a way constrained by the packets that we got in terms of production. So if it was unconstrained, we would have got further high volumes on cotton. Crop Nutrition, I think Mr. Shukla already alluded that it does make better margins. And given the fact that we share common resources in terms of crop protection and nutrition in terms of front end, we do get a significant benefit in terms of bottom line.

[Abhijit Akella, analyst]

[indiscernible] on the ITI, please, Subhra if possible?

[Subhra Gourisaria, executive]

So ITI, Abhijit, is difficult to say because this last 4 years, how contribution of it versus the overall portfolio, and we do expect the overall portfolio to grow as well. Having said that, our ambition is certainly as we said earlier as well that ITI should start moving to high teens and which is where we have seen an uptick happening in first quarter as well.

[Operator]

Next follow-up question is from the line of Darshita from Antique Stockbroking.

[Darshita Shah, analyst]

Yes. So you've heard that there has been an increase in the technical prices in the domestic market, largely due to the freight issues that we've been seeing. So if you could -- something like that is happening with us as well. And if this would put some pressure on margins probably sometime in the second or the third quarter in the domestic market.

[S. Nagarajan, executive]

I can take that, Dr. Gyanendra?

[Gyanendra Shukla, executive]

Yes, please go ahead.

[S. Nagarajan, executive]

Yes, I think we have to look at the time scale. Actually, if you compare it with last year, that is Y-o-Y, that may not be necessarily correct. But if you're comparing it in short term, that is, let's say, M-o-M or Q-on-Q, what you're saying, yes, there are certain technicals where certainly the raw material prices as well as the technical prices are creeping up. We will have to really see product by product, in some products where the brand strength is there to absorb these increases, it would be possible. But certainly, there would be some where it may be leading to some kind of margin compression. It's hard to say at an overall level.

[Darshita Shah, analyst]

Got it. And one question on, if we have taken any price hikes probably on a sequential basis, especially in the domestic market ever since the monsoon has picked up.

[S. Nagarajan, executive]

Our pricing has actually been very, very product specific. I mean I think there are products where we increase, there are products we reduce. That is more dictated by the strengths of our product and the demand that we are out looking for that product. So to answer your question, some products, yes. But most of the products, I would say, have actually had a reduction, most of the products. If you compare it -- I would say Y-o-Y is a better comparison because if you compare sequentially, the products that go into kharif and the products, I mean, there's a difference. Right now, we've had more of herbicides than all of that going. So Y-o-Y, I would say pretty much most products, there would have been a decline.

[Operator]

[Operator Instructions] Next question is from the line of [indiscernible] from Yogya Capital.

[Unknown Analyst]

So my first question is regarding the overcapacity in China. So we are hearing from other players that there is -- many capacities in the Chinese Mainland has been shut down. And their inventory levels are also on the higher side. So can you comment regarding that?

[S. Nagarajan, executive]

Yes. I think that is correct. I think we have also got a lot of inputs about high capacity. Yes, some of them have closed down, but I think the supply is pretty high, which is what is creating a lid on the price to move even if there is a volumetric demand at the farm level, which is robust. So yes, I think that is true.

[Unknown Analyst]

Yes. And with regard to inventory levels, like distributor and retailers, in domestic and international markets. Can you comment on that as well.

[Gyanendra Shukla, executive]

So international supplies certainly continue. There's no dearth of material. North America is going through a big season and then Latin America. These are the two largest markets that will consume, including China, Asia and India. I think at a domestic level, I'm sure you're aware, that many companies were stuck with inventory, and that's one of the reasons and our prices are still subdued because everybody is trying to convert that inventory to cash and also make sure their products are available during the season. But having said that, I think as monsoon progresses sentiments are positive, I believe companies also have been very careful in planning subsequent inventories. So I think at a domestic level, situation to only improve, not get worse.

[Operator]

Okay. Next follow-up question is from the line of S. Ramesh from Nirmal Bang.

[S. Ramesh, analyst]

So if there has been an inventory impact in the first quarter. Is it possible to give a value to that inventory impact? And secondly, in the Crop Care business, the revenue was INR 428 crores. Can we have a split between domestic crop protection and the crop nutrition, either in numbers or in percentage?

[Subhra Gourisaria, executive]

So we keep doing this inventory. We look at trade inventory and look at what is it that is sustainable and do the inventory correction at periodic levels. As I mentioned, there was, in some parts of the market, higher inventory which we did a correction in the quarter, but I don't think that it's a sizable number to be called out. As far as your question around crop protection and nutrition is concerned, you already called out that it is, for instance, in the last year, we did around INR 180 crores of crop nutrition business. So it is currently around maybe 15% of our overall domestic Crop Care business, barely 15%.

[S. Ramesh, analyst]

Okay. And secondly, if you're looking at, say, FY '26, '27, do you see any additional levers for growth like your manufacturing business? Or would it still depend on the export business improving and the domestic business improving in terms of pricing and margins. How do you see, say, FY '26, 27' from where we are today.

[Gyanendra Shukla, executive]

I think I have already articulated as part of my broader strategic intent that we want to make sure because we -- so there's always B2B which is important, is not less important. But our focus, big day is going to be in B2B and 3 segments, as I said, are important, growing crop protection and within that, making sure our [indiscernible] portfolio gets beefed up. We start putting extra foot on nutrition and seed to manage the profitability. The one more thing I want to really talk about at Crop protection because of sentiments around the pesticide in general based on what has happened recently in what we call the spices market. We are also conscious of that fact. And we are also going to be investing in new edge portfolio, which is more based on peptides, enzymes and biologicals. And that eventually will become 4 segments as we move forward from a customer perspective.

[Operator]

Next follow-up question is from the line of Viraj from SiMPL.

[Viraj Kacharia, analyst]

My question is largely on seed business. Just three specific questions. First is, do we expect any sales return to happen in Q2 or the rest of the year based on the placement we have made in Q1. Secondly, if you look at the R&D spend, which we did say in FY '24 also, it's something like INR 30 crores of R&D expenses and that was in last 5 years. Now of this [indiscernible] roughly half, around INR 30 crores we have done in seed. So that roughly translates to almost 8% to 10% of the seed business. So question is what [indiscernible] in our new product selection and R&D approach for [indiscernible]some sense on the efficiency of [indiscernible] spend. But in the case...

[Operator]

Viraj, sorry for the interruption. [indiscernible] voice is breaking.

[Viraj Kacharia, analyst]

Am I audible now?

[Gyanendra Shukla, executive]

Yes. Can you please repeat the question?

[Viraj Kacharia, analyst]

Yes. The question is that we have seen a good amount of spend happening in R&D with the seed portfolio. So at [indiscernible] we did something like 8% to 10% of our sales has been in the seed business. And this is a business where in the past also, we've done a lot of spend, but we've seen a good amount of intermediate [indiscernible]. So the question is what correction either in terms of the selection process in new products or in the process which we have done, which gives you the confidence that we'll see a better efficiency on the [indiscernible]. So that's the second question. And third is, do we expect this target to continue going forward.

[Gyanendra Shukla, executive]

So I think, look, two investments are very critical for us. So one is related to R&D and second one is related to investing in the people. So these two areas, we will continue to invest. Now your question is whether our R&D in the seed has been efficient or not. There's not much I can tell you now, but there's a work going on to say, how do we get more focused in R&D and what are the new tools of R&D we can deploy to improve the outcome of our R&D.

[Viraj Kacharia, analyst]

The average age profile of the product portfolio in seeds and what avenues we think we have in the interim which can drive growth because R&D itself is -- I mean, in seeds, it can take somewhere between 7 to 10 years from ID to actually commercialization. So if you could just give some...

[Gyanendra Shukla, executive]

As I said, look, in normal course, you're right. I think -- now it cannot be 7 to 10 years, because there are a lot of modern bidding tools are becoming available. And our attempt would be that get that money focused on few things rather than things [indiscernible]. Second thing is also investing that money wisely in the newer technologies so that we can reduce the time of product development and launch. Because 8 to 10 years is really very long and no company can get into that and hope to be successful. Because by the time you develop product, competition moves on. So we're looking at both the aspects and what we do in a very focused manner and what kind of new technological tools we deploy to make R&D more efficient.

[Operator]

Ladies and gentlemen, will be the last question from the line of [ Rajkumar Vaidyanathan ], individual investor.

[Unknown Shareholder]

Sir, my question is regarding the exports. So if I see the percentage increase, there is a 19% volume growth and leading to 5% value decline. So that means approximately there's a 20% price decline. So I just want to see, given that you reported negative growth in Q2, Q3 and Q4 of last year on exports. So does it mean that sequentially, we are seeing an improvement in terms of the pricing.

[Subhra Gourisaria, executive]

See it also depends on the portfolio mix. So I don't think we can just add up the numbers and say that. But having said that, I mentioned in the earlier call as well that the year-on-year price lock is now going to get anniversalized , so we will start seeing hopefully not such steep price decline. This should probably manifest in better growth number. But the situation is quite volatile, and it's difficult for us to say how Q2 or Q3 will plan out.

[Unknown Shareholder]

Yes. Mam, because in Q2, you reported 50% decline in export and Q2 and Q4 also had significant decline, so compared to that, in current Q1, you are reporting only 20% decline in price. So that is why I'm asking this question. So the question then you should have seen an improvement, right, from a pricing stat?

[Subhra Gourisaria, executive]

Sequentially, price drops have stabilized. So sequentially, price flows at least you should price, I would say, moderation, you will start seeing.

[Unknown Shareholder]

Okay. And also, there was a point mentioned about the buy versus make decision. So my question is, so are we looking at any asset-light model when it comes to exports because if you take companies like Sharda Cropchem. So they have been able to kind of mitigate this price decline because of asset-light model. So I just want to know what do you think that you are kind of late into the kind of the export market by pursuing the manufacturing led strategy.

[Gyanendra Shukla, executive]

Yes. So look, we have already made significant investments in the manufacturing and our attempt is to really make sure we sweat it out better. Having said that, as we get more relationships abroad, we are going to be making more prudent decisions that whether we have to make on our own or we can do things differently. It's not a one approach cast in the stone. We are going to be flexible. I think the whole idea is that how do we grow business and how do we generate better return on the capital employed.

[Operator]

Thank you very much. Ladies and gentlemen, we will take that as the last question. I will now hand the conference over to the management for closing comments.

[Gyanendra Shukla, executive]

No. So I just want to say thank you very much for all your questions. I think they're important to us. They always keep us on the toes to make sure we live up to your expectations. So but you have to understand, we are in a very complex business cycle and there's a lot of external variables. Our attempt to certainly bring more certainty to the business. Thank you for your time.

[Operator]

Thank you very much. On behalf of Rallis India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.