Sharda Cropchem Ltd
NSE:SHARDACROP
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Sharda Cropchem Ltd
Earnings Call Analysis
Summary
Q2-2024
In Q2 FY '24, Sharda Cropchem's revenues declined from INR 722 crores to INR 518 crores, a 20% drop from the previous year, despite a 19.7% increase in volume due to lower global product prices, affecting both the agrochemical and non-agrochemical sectors. Gross margins decreased to 25.1%, and the fall in raw materials and finished goods prices impacted gross profit by INR 13 crores. EBITDA was at INR 38 crores while profit after tax (PAT) saw a negative INR 28 crores. Geographic analysis reveals differing growth rates across regions, with significant volume growth of 18.8% in agrochemicals and 30.3% in non-agrochemicals. The company anticipates improvements in the second half of the year but experienced a net loss of INR 116 crores in H1 FY '24.
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Ladies and gentlemen, good day, and welcome to Q2 FY '24 Conference Call for Sharda Cropchem hosted by Antique Stock Broking. [Operator Instructions]
Please note that the conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. Thank you, and over to you, sir.
Thank you, Akshay. Warm welcome to all the participants on the Sharda Cropchem Q2, FY '24 conference call. From the management, we have Mr. R. V. Bubna, Chairman and Managing Director; Mr. Dinesh Nahar, GM Finance; and Mr. Jetkin Gudhka, company's secretary on the call.
Without further ado, I would like to hand over the call to Mr. Bubna for opening remarks post which we'll open the floor for Q&A. Thank you, and over to you, Mr. Bubna.
Thank you, Manish. Good afternoon, and very warm welcome to everyone present on this call. Along with me, I have Mr. Dinesh Nahar, General Manager of Finance; and Mr. Jetkin Gudhka, Company Secretary; and SGA, our Investor Relations Advisers. I hope you all have received our investor deck by now. For those who have not, you can view them on the stock exchanges and the company website.
As you are aware, we specialize in marketing and distribution, a wide range of formulations and active ingredients of agrochemicals. These encompass fungicides, herbicides, insecticides and biocides, catering to a diverse global customer base. Now it's expertise and through, sorry -- through its expertise and commitment, the company has established itself as a trusted partner in the agricultural industry worldwide. We prepare comprehensive dossiers and seek registrations in our own name we allocate substantial resources and establish our foothold in the market.
Our total product registrations stood at 2,885 as on 30th September 2013 -- 2023. Additionally, 1,130 applications for the product recessions globally are at different stages of approval. The CapEx for H1 FY '24 stood at INR 217 crores. For the full year, we expect a CapEx of around INR 400 crores to INR 450 crores. We have successfully maintained a strong relationship with third-party manufacturers in China and India, ensuring quality products at optimal prices. Over the years, we have built a customer network in global markets. Additionally, we are benefiting through the economies of scale and leveraging our prices to deliver value to our customers. For Q2 FY '24, revenues have degrown from INR 722 crores to INR 518 crores. We have seen a growth -- we have seen a volume growth of 19.7% Y-o-Y. Volumes from agrochemicals grew by 18.8% Y-o-Y, there is volume from non-agrochemicals grew by 30.3% Y-o-Y. Sales have degrown due to lower product price utilizations across the globe, across Europe, NAFTA and LATAM regions.
Gross margins have reduced to 25.1% in Q2 to FY '24. The raw material and finished good sales price have reduced substantially. This has led to stock revaluation as per our accounting policy and has impacted the gross profits and profitability to the tune of INR 13 crores in Q2 FY '24 and INR 84 crores in FY -- H1 '24. The company is seeing an improvement -- improving trend in the second half of the year. With this brief review, I would now like to hand over the call to our General Manager of Finance, Mr. Dinesh Nahar, for discussing our financial performances. Thank you very much.
Now I hand over to Mr. Dinesh Nahar.
Thank you, sir. Good afternoon, everyone. Coming to Q2 FY '24 performance, revenues stood at INR 581 crores versus INR 722 crores in Q2 FY '23, a degrowth of 20% year-on-year. Coming to the split, agrochemical business degrew by 23% year-on-year to INR 441 crores whereas the non-agrochemical business degrew by 4% year-on-year to INR 140 crores. Gross margin stood at 25.1% in Q2 FY '24 as against 27.3% in Q2 FY '23.
Raw material and finished goods sales prices have reduced substantially. This has led to a stock revaluation as per accounting policy and has impacted the gross profit and profitability to the tune of INR 13 crores in Q2 FY '24. EBITDA stood at INR 38 crores, which is mainly due to the decline in the gross margin and increased other expenses which are related to strengthening our global workforce to support future growth. PAT for the quarter stood at negative INR 28 crores.
In the agrochemical space, Europe degrew by 3%, NAFTA region degrew by 42%, LATAM region degrew by 21%, whereas sales in the rest of the world degrew by 40%. Europe contributes 53%, NAFTA 30%, LATAM 11% and ROW 6% of the agrochemical business for Q2 FY '24.
In the non-agrochemical space, Europe, degrew by 29%. NAFTA region grew by 3%. LATAM region degrew by 20% and ROW region grew by 13%. Europe contributes 16%, NAFTA 61%, LATAM 6% and ROW 17% of the non-agrochemical business for Q2 FY '24.
Now coming to H1 FY '24 performance. Revenues stood at INR 1,219 crores versus INR 1,546 crores in H1 FY '24 (sic) [ H1 FY '23 ], a degrowth of 21% year-on-year. Coming to the split, agrochemical business degrew by 23% year-on-year to INR 916 crores, whereas the non-agrochemical business degrew by 15% year-on-year to INR 303 crores.
Gross margin stood at 16.5% in Q2 FY '24 as against 26.3% in FY '23. Raw material and finished goods sales prices have reduced substantially. This has further led to a stock revaluation as per accounting policy and has impacted the gross profit and profitability to the tune of INR 84 crores in H1 FY '24.
EBITDA stood at negative INR 28 crores, whereas profit after tax for the half year stood at negative INR 116 crores. In the agrochemical space, Europe degrew by 13%, NAFTA region degrew by 29%, LATAM region degrew by 38%, whereas sales in the rest of the world degrew by 31%. Europe contributed 52%, NAFTA 33%, LATAM 10% and ROW 5% of the agrochemical business for H1 FY '24.
In the non-agrochemical space, Europe degrew by 51%, NAFTA region degrew by 14%, LATAM region degrew by 18%, whereas sales in the rest of the world region grew by 56%. Europe contributed 15%, NAFTA 56%, LATAM 6%, ROW 23% of the non-agrochemical business for H1 FY '24..
Working capital days as on 30 September 2023 stand at 120 days. Thank you we can now open the floor for questions. Thank you.
[Operator Instructions] The first question is from the line of Himanshu Badar.
I had a simple question. We have seen a volume growth of 18.8% and a fall in revenue of 23%. So can -- should we assume that overall average price fall is something like 40%. And is it -- what we understand is we are very diversified across the product segment, okay? But it's simple calculation, I do it seems that price fall is something like 40%, which I'm not able to comprehend.
Secondly, we say we are seeing improvement in the second half or expecting improvement. The improvement is on the demand side only? Or you are seeing the prices of commodity -- chemicals also increasing? And since -- both the things are improving. So can you elaborate on these questions?
Sir, I'd like to break your question into 2 parts. One, you said the drop in the price is to the tune of 40%. And my answer is, yes. There is a substantial drop in the prices of the products. In some products, the prices have fell down to even 30% of the original prices about a year back. Now the second part is there is an increase in the volume and will that also impact the prices? My answer is yes, here also. So it's all your question of supply and demand. There was abundant and excess supply from China and a lot of products in the pipeline, which led to a sudden crash in the prices and demand. Now once the demand is getting -- demand is improving, and the stocks in the pipeline are getting consumed, there would be some upward swing in the prices, but I don't expect it to be very sharp. It will be very gradual because the stocks available are in abundance.
Yes. And then my second question, then I'll join back in the queue. We are seeing inflation as challenge across the globe.
Mr. Himanshu, which company do you represent?
[ O3 PMS ].
I didn't understand.
No, the name of the company is [ O3 PMS ].
O3?
PMS.
Okay.
Can I ask second question?
Yes, please.
Yes. See, we are seeing inflation as challenge across the globe and almost all raw material prices are increasing, okay. But if I see the price of agrochemicals or the overall basket falling by 30%, 35%, is it that the capacity has expanded substantially for chemicals and hence this price fall is there? Or do you think capacities have not increased, it is just the channel which has so flooded that we are seeing such a price or abnormal price fall?
See, you have to go a little backwards, and see the background of the general industry during the corona time, the capacities have got shrunk and the prices have jumped up very substantially. Now after the COVID situation has got improved, the factories have restarted some people with enthusiasm, added additional capacities. So the production has increased substantially.
Okay. Okay. But are we still seeing the supplies to be in quite excess of demand or your expectation is that...
As of date, the supply is sufficiently in excess of the demand.
And hence, our assumption is that prices will move very slowly upward?
Yes. The movement is expected to be slow.
The next question is from the line of Sri Surya Kalagarla from Poddar Diamond.
I can see that our performance in top line from last few quarters is decreasing Y-o-Y. EBIT margin is also going down. We are shifting in losses from last few quarters, either it was ForEx fluctuation. Because of that ForEx fluctuation, it was decreasing performance. But now we can see the overall performance of the company itself is going [indiscernible], so just wanted to understand, I mean, what's the future of the company going ahead? Is this...
Sir, your voice is not very clear, and voice is cracking in between.
Am I audible?
Can you please switch to the handset?
Am I audible now?
Now you're audible.
So I was saying that your performance is decreasing for last 3 quarters in top line, EBITDA margins are...
Again, sir, the voice is getting cut in between.
Can you hear clearly now?
Yes, this sentence I heard clearly.
Yes, I was saying that your performance from last quarter's Y-o-Y...
Sorry for the interruption. Sir, your voice is not audible. Can you please switch to the handset or get in the queue.
Hello? Am I audible now, can I repeat the question?
Yes
Yes.
Our top line performance is decreasing from last 3 quarters, our EBITDA margins are shifting downwards. We are going into losses from last 2 quarters on net losses [indiscernible] impacted the company's performance...
No, sir. No, sir. The voice is not audible.
As the current participant is not audible, we'll now move to the next question from Sonal Minhas from Prescientcap Investment Management.
Hi, this is Sonal Minhas, Am I audible?
Yes, please.
Sir, I wanted to understand the volume growth that we have seen during COVID and right now. During COVID, we saw a very negligible volume growth, but the realizations were really going up. Now we are seeing that the volumes are up, while the realizations have stand by around 40%. So in a business where you say you're filing for specialized products, your product niche areas in which you're operating are going up.
As an investor, sir, who looks at your business quarter-on-quarter. How are we supposed to understand and connect the quality of your product vis-a-vis the volume that you basically are growing in because if we are filing with your filing for new products in U.S. and the products are in the niche areas where you have a reasonable presence, there should be some understanding of volume growing over time, sir? Sir, and I am a little handicapped here to understand that if the volume -- how I am suppose to understand the volume of this business, given that this is a specialty product that we are actually selling there, so just educate us a little because the gaps in volume is very difficult to understand.
Mr. Minhas, you must understand that we still have less than 5% of the total global volume of the business in. So at a global level, the scenario may be different, but at an individual level, our scenario is a little more brighter than the global level. You understand?
Sir, I appreciate that. And therefore, the potential looks bright. And I understand that for you to give guidance on volume and realization, it is difficult because this is not in your control. But I am questioning the fact that the products that you're filing, the niche areas you are entering, are these, these defensible because we are public market in nature. We have seen products, which are into niches and good quality areas. There is either a defense of margins or there is a defense on realization, which we don't see here, sir. So are we looking something in terms of understanding the product fundamentally because such things don't happen in defensible products.
No, that may be your experience. Our experience is that we are going into the products which are just going off patent, where the competition is very little. And again, after we get the registration, the competition is still very less because of the entry barrier of registrations, which is a very difficult, highly capital-intensive and time-consuming process. And the innovators still control about 75% of the market, even if the products go off the patent. So we feel that we are on the right track. And if we continue like this, we will continue to grow.
Okay, sir. So if we assume this COVID-related squeeze did not happen or supply constraint did not happen. And let's take, let's say, 12 months from hereon or 18 months from hereon, where all of this is behind us. Can we assume more linearity and more predictability in the volume of the business, just the volumes.
I think the volume will increase.
The next question is from the line of Rohan Gupta from Nuvama.
Sir, first question is on our segmental losses in agrochemicals. You mentioned definitely roughly INR 13 crores is attributable to inventory-led losses because of the liquidation of high-cost inventory. But however, there is an EBIT loss of INR 58 crores. So rest, is it because of the continuous pricing pressure and then we have to sell it at lower prices or the scenario will continue or it is just only high inventory, which we had and then we had to sell it and that this loss is over now?
Unfortunately, the inventory was not created by yes and the planning. We have received firm purchase orders from our customers, mainly in North America. We delivered the goods to them and then the prices started crashing. So the customer say, you please take back the goods. We will not be able to pay you. And even if you leave it to our ground, you'll have to pay us rent. We were forced to take the goods back and that added to our inventories. And now those inventories are getting offloaded. We are moving towards the normalcy, and this is what leads us to give us a little bit of optimism about the performance of the company.
So when you say the INR 13 crores is the inventory losses, it includes with all the goods which you have taken back, including that also?
One minute, sir. Rohan ji, it is mainly the revaluation of the stock which are in our possession.
Revaluation of the stock, which is already -- which is with us only, right?
Yes, it has. And the prices have shrunk.
So this is basically including primarily the material, which we have taken back from the distributors.
Yes, sir. Yes.
Okay. And so there is no commitment from the distributor side and if the prices fell even they have taken the material, and it was -- I mean, it was a sold material, we were bound to take it back. Isn't it a some kind of breach of the contract or the -- the trade of the terms?
It is a blatant breach of the contract, and we have to go through it.
Just because we want to maintain the relationship with the dealers?
Sir, we had no the choice except to take them to the court of law, which is a very difficult process and not advisable and was happening across the industry. Every customer or purchaser has gone back on his commitments and raised his hands up.
Okay. Sir, does it have sole impact on our relationship or our derisk model to -- with whom we were doing the business. And we have also gained a lot of market share in the last 2 years, especially in the European market, when the prices were going up and many regional player in Europe was not able to meet the demand, and we gained the market share that actually helped us in post pandemic environment. So is it that the returns are more from the new traders, new dealers or with the old relationship, it was not visible or it is across, and how it is going to have impact on our market share going forward?
Rohan Ji, your question has been very long, and it is comprised of many questions. First of all, I was able to get the grasp of your first part of the question. Whether it has led to sort the relationship. My answer is no. In fact, we have gained a lot of respect and confidence from our customers that we are stood by them, and we help them to come out of the situation. And it will definitely also increase our customer base. I don't know if that answer all your questions or if something remains, please repeat it.
Sir, I was saying that we have gained a lot of market share in post-pandemic era because when the China prices were going up and material was not available, many of the local European guys could not cater to the market, and we gained the market share. And in that process, we added new dealers. So if the return is more from the new dealers, which we have added in the last 2 years or is it at cross?
Very difficult to distinguish. We have, in general, received more respect from most of our dealers and customers that we are a company, which is able to support them in a tough time.
Okay. Sir, just last question, and I'll come back in to queue after that. Sir, we have seen a very solid volume growth. However, we have seen that there is a huge inventory destocking going on? So in that kind of scenario, how you were able to push the inventories in the market? I mean how we could gather report this kind of volume growth? And what are it to you?
So this is a very difficult question to answer. But the customers have approached us, we approach the customers and that bought the goods from me -- goods from us.
Sir, it may be like that because -- sir, it may be because you have not taken the materials back. So all the high cost inventory they have given you back and then repurchase the item at a lower price, right?
Yes, sir. And in some instances, they say the inventory can stay with us, but we use a discount from the sale price to prevailing market price. And we've also complied with that request of them. So physically, some incentives have not come back to us, but we have given them a credit note or discount.
Okay. So in terms of volume growth and the kind of margin which we have seen in first half, how do you see that the recovery in second half, more importantly in terms of margins? Is this high cost inventory liquidation and impact on the profitability and the higher discounts asked by the dealer, all that is over, or there is still some pressure on margin fronting second half?
Sir, the customers are also aware what are the prevailing prices at the source, which is China. It's a very transparent system. So we have to also leave within those constraints. And if somebody was selling at $100, and if I'm earning 25% margin, then the gross profit for me was $25. But if the same product is being sold at $30, and I'm earning 25% margin still, then my gain is only $7.50. So this is making a big impact. And that's why I would say that there would be a very slow improvement on the profitability.
So you're saying that even in the percentage margin may come back to [ 25%, 30% ] at absolute level with the fall in 30% to 40% realization absolute EBITDA or absolute gross profit will be significantly under pressure in second half or maybe even next year as well?
I would say in the second half, I don't want to make a guess with your guess in the next year. I would say in second half, yes.
The next question is from the line of Resham Jain from DSP Asset Manager.
Am I audible clearly?
Yes, yes, you are very much audible.
So sir, I have 3 questions. First question is, typically, we have seen general behavior of a distributor whenever prices are falling, they hold up their purchases and reverse is also to when price goes up, demand suddenly goes up. So at this point of time, obviously, prices have come down, but what are your experiences, let's say, of the past, whenever this kind of situation has occurred in the past?
Resham ji, this kind of situation has not incurred in the past, which is a very unique situation, which we feel is in the history of our company's existence that the prices have dropped and crashed so severely and so quickly. And I do not think that such unique things happen very often.
Understood, sir. Very clear. Sir, second question is, as you clearly mentioned that this kind of situation are unique and since Sharda has a very strong balance sheet, it could sustain all the kind of losses and maybe even could sustain even more quarters, but a lot of smaller marginal players who might be present in this market even some of the larger companies are facing a kind of balance sheet-related issues and all. Are you seeing any consolidation happening at the smaller. Obviously, there are very few smaller players present, but any consolidation in the marketplace?
Resham ji, we have no active role in these things. So whatever I say would be just a guess, we don't spend much time on what is happening with the smaller players. It could happen. My answer to you is that it could happen, but it may not happen.
Okay, understood, sir. That is also clear. Sir, lastly, this is not a financial question, but generally an observation. Over the last 3, 4 years, what we have seen is that there have been multiple changes in the CFOs at the company since if I, let's say, '18, '19, there are like 3, 4 CFOs, which got changed in a very short interval and CFO as a designation for a listed company is a very important role, especially. So any thoughts there? How do you see this with the new selection of a new CFO selection over there?
Mr. Resham, we are talking about human beings. Human beings have the same nature, but what I can tell you is that everybody who has come and gone, he has gone with a very big prospectus. So he finds that his tenant in Sharda proves are lucky to him, and he gets a better opportunity and better offers, which we are also happy that people are prospering. But we have not forced -- we have not created any situation for any CFO to quit our company. We have been able to make the best use of mature CFO who has joined us, and he has helped us to grow the company.
The next question is from the line of Darshita from Antique Stockbroking.
Good afternoon...
Darshita ma'm, your voice is not audible. Can you please switch to the handset.
Is it better now?
Yes, ma'm....
Slightly better, but needs to be still better madam.
Is it better now?
Yes.
So my first question was regarding the prices. I wanted to understand how the prices are moving currently? I mean, do we expect any stock revaluation taking place in the second half of the year as well? Or have you already taken the impact of it in the first half itself?
Madam, we have taken care of the -- we did get some stock revaluation also in the first quarter, assuming that, that would be the end of the thing, but it did not happen. We have, again, get the revaluation, the impact has been much smaller than the first quarter. And we feel that right now, there's not much of a scope for further prices going down and our necessity to do any stock revaluation in the third or fourth quarter.
Okay. Okay. That's helpful. Very clear. The second question was regarding -- so our competition in the regions where we lastly operated, that is your Europe and NAFTA would be MNCs and also a few Chinese players. So when we say that China has been dumping the inventory in the market, what is the kind of discount at which they are dumping as compared to what we are selling at?
Madam, I would not call it as dumping. They are making goods available at the prices. And if they are not able to sell it, they reduce the prices on their own. And this is happening right at the source. If some customer goes with them and pressure them for some further reduction, considering their own situation, they comply with that. They are also suffering. They're not very happy. Many of them have closed their manufacturing plants and sitting on inventory, and they are also losing very heavily because they have bought the raw materials at a higher level, and now they are forced to sell at a loss. They are not very happy to do that. They are not doing it willingly. But if they have to stay in business, then they have to do these in.
Right. So does this scenario like this is result in a market share loss for us of any kind?
Market share loss, no, not for us. Because of the entry barrier of registrations, the Chinese players can play any role within China or outside the territories where goods are selling. Inside the territories, the scenario is different. They cannot go and dump anything into any country without the registration.
Right. Right. And just one last thing on pricing. I mean if we look at the -- you mentioned that there is almost a 40% decline on realization during the quarter. If you look at that number, it looks like the prices are way below the pre-COVID levels also. I mean if we compare that to your FY '21 realization number versus right now, it looks like the prices are below pre-COVID levels, significantly below pre-COVID levels. So I mean, are we not expecting any jump at least, I mean the prices coming back to the main level, if not going above that? Or I mean, at least reaching the pre-COVID levels?
Madam, I have not understood your question very well. But I only understood the remarks that the prices have gone down to a pre-COVID level. The answer is yes. And now a lot of manufacturers are sitting with a high quantity of inventories. And they are also eager to -- they also need cash flow. So in the need of their needs, they are trying to increase the price. But then again, they have to also see if customers who will increase -- buy them at that higher price. So it's very open and transparent question of supply and demand.
Right. And the on-ground demand...
Supply is still there. Absolutely there.
Got it. And the on-ground demand continues to be strong on pharma level?
Pharma level, yes. pharma level -- because if you have -- I mean, I'm sure you are doing these studies also. The agriculture productions have not gone down. The demand of agri products have not gone down. And even in countries like Ukraine, I would let you know that the agriculture activity is fairly normal. We are selling to Ukraine and our sales during the war time has been slightly higher than the previous year.
Right. Got it. And just 2 data-related questions. If you could give us the agrichemical volume, region-wise agrichemical volume.
Yes, 1 minute. Yes, region-wise agrochemical volume. In Europe it is 3.6 million, LATAM 0.8 million, NAFTA 2.6 million, rest of the world 0.5 million.
Okay. And the gross margins region-wise?
Gross margin, 1 minute. Gross margin Europe, 34%, LATAM 28%, NAFTA 5%, rest of the world 45%. So NAFTA has been the biggest affected region, and that constitutes also a substantial part of our business.
Right. And could you give the different -- I mean, the distribution between volume price exchange, I just wanted to understand if there was any exchange benefit.
Madam, your question got blurred. What was....
Volume, price and exchange. I mean the distribution of volume, price and exchange.
Volume has grown. This is globally. Volume has grown by 20%. Foreign exchange impact as of about 5%. Price and product mix is minus 45% and total growth is minus 19.5%.
The next question is from the line of Dhruv Muchhal from HDFC AMC.
Sir, what was the sales reversal that we would have booked in 2Q?
Q2? One minute. Sales reversal in Q2 has been in the range of about INR 70 crores.
And sir, when you give this volume price and FX split, where does the sales reversal come in? Is it negative on volumes? Or I mean, where does it fit in?
It fits into the volume growth.
Okay. So had the sales reversal have not been there or volume growth would have been, whatever percentage is higher, that is the right way to think of?
Yes.
Okay. Sure, sir. And sir, your inventory even in the -- I mean at the end of 2Q, it still seems a bit high in number of days, if I compare it versus the history for the 2Q period, it's still a bit high. So is there any worrying signs still that inventory that we carry can create some pressure?
See, this is a result of all those reversals that we had to do and collecting the goods back from our customers. But that process is more or less dried up now. So the inventories will get consumed in the next quarter.
Okay, okay. And all these inventories are mark-to-market to the current technical prices. So there is no further loss that can come on these inventory?
No. It's mark-to-market.
And sir, 1 thing you mentioned about the U.S. distributors of yours returning goods...
Please speak loudly.
Your U.S. distributors returning these goods because of the pricing impact. Is the same situation also in Europe or Europe is adhering to the commitments? I'm just trying to understand the intensity.
In Europe, it is not -- it's very insignificant. In Europe, the only request for extension of the payment terms or some small discount, but not be so much blunt. In the U.S., it has been the other way.
And sir, in U.S., what we see, is it specific to some molecules that we had some exposure to and hence, the impact is large or it is across many -- I mean many technicals?
I would say across. It again depends from molecule to molecule. If some molecules productions have gone up and the demand has been normal than that, then the drop has been very significant. In some molecules, it's not so bad.
Sir because when we see the data, whatever data we get, it seems the price impact and volume impact for U.S. is mainly in glyphosate and probably some other herbicides. So I'm just trying to understand, is this very particular to specific molecules? Or I mean, as you said, it is across many molecules?
Mr. Dhruv, glphyosate is known to be a very volatile product and the biggest product in the agrochemical business. So even in the normal cases, the fluctuation in the glyphosate has been more imminent, more obvious. Other products, there are many other products which has faced these thing, and it is not -- they are all non--glyphosate.
Okay. So it's not only glyphosate...
Glufosinate ammonium, which is having similar applications of glyphosate. That product has seen a very big drop this year in prices.
And sir, one last thing is probably 2 things, sir. You mentioned that in enthusiasm, a lot of Chinese have set up new capacities also. Sir, is there a significant increase in new capacities in China based on whatever your ground checks are saying. I mean, say, for example, I'm not sure how you put it, but some qualitative comments there sir? What is the quantum of capacity that have come? What is the new supply that has come up in China?
I was there in China about 3 months back, there's an acquisition. And I'm also going to China tonight for another exhibition, which are annual. Last time when the manufacturers came they said they shut down their plants. One like said -- he said that they have 7 plants, and they've shut down 4 of them because they cannot afford to run them. So now I think the situations are getting more normalized. The shutting down process may not be so abrupt. But I get the feedback from them, when we talk to them and communicate with them that they're still sitting with a lot of inventory. I've heard new plant is -- nobody is daring to put up a new plant.
So they already put it seems a lot, so many. So yes. Sir, last question is...
The biggest problem would be to restart the plant that they have shut down if the demand goes up, which is not happening so far.
And sir, last question is, sir, any guidance you can give for sales growth for the full year -- this year and the EBITDA growth -- EBITDA margin probably that you're are just expecting. Or you just put it 2 ways, what is the growth that you're expecting and EBITDA margin.
I think we'll have to wait and watch the situation. If I'm going to give you something, this is going to be a guess, which I prefer to avoid.
[Operator Instructions] The next question is from the line of [ Vishnu Kumar from Avendus Spark ].
Over the conversation, you mentioned high inventories across manufacturers, China and also the Indian market. So when we look at over the next 2 quarters to 4 quarters or 12 months or so. How should -- how are we thinking in terms of planning our inventory, how -- purchases? Or when do you think the situation in your opinion will normalize because you also said this is a unique case. And so -- when we are really getting into the market, how are you thinking the market will change.
Mr. Vishnu Kumar, this process is very simple for us. And one of the reason probably is being so simple for us is that we are a very nimble footed. We are not manufacturing. So we very easily can switch from 1 product to the other product without any botheration of any restrictions at all. Most of our planning is guided by the discussions, which we have with our distributors, our customers, consumers. And they give us a feedback at this season, this product is likely to, and then we plan to source them. We are not planning so much in an advance that this thing will happen. We always get a feedback from our customers and then we do the planning.
Understood, sir. Sir, current feedback that you have, at least when do you think this excess inventory situation will normalize, at least whatever feedback you have on an industry or more -- this is more from an industry question, trying to understand when this excess inventory will probably change in your opinion?
See, some customers who must have bought 10 containers from us are asking for only 2 containers now. But they're asking for some product quantity. So this gives us an indication that earlier it was out of excitement out of greed and now they are being more practical.
The question we are presuming at least the end level customers, distributors, they are not speculative. You understand? Chinese are obviously not speculative because they're already suffering with the inventories. So this gives us an impression that slowly that things will come back to reason and normality on logic.
Got it. Just a time line, if you have anything that you think could change this finally, what you said, if there is any time when you think it'll improve?
I have already said that this is moving towards normality. And that speed is not very big. Speed is normal or less than normal.
Understood. Sir, first half is most...
Sorry for the interaction, Vishnu sir, may we request you to return to queue.
The next question is from the line of Rohit Nagraj from Centrum Broking.
Sir, my first question is, again, harping on China. So what is your assessment from Q1 to Q2 in terms of the supplies coming from China and the pricing of products? I mean how it has changed on a Q-o-Q basis? Your thoughts on that?
Mr. Nagraj, this depends from product to product. You cannot generalize it. In some products, there is an excess capacity or excess stocks, the normalizing process is very slow. Some products, it is getting faster. That's the only thing I can say. It's very difficult to generalize.
Sure, sir. That is helpful. Sir, second question is in terms of weather-related challenges in any of the geographies. Are we seeing it across any geographies and for particularly some crops in those geographies.
Sir, those things are also the fact and reality. In some European territories, the weather has not been so good, and our customers and distributors are sitting with the unsold stock. But this has not been the case, you cannot generalize it. It is happening in some pockets of the Europe, some pockets of also U.S.
The next question is from the line of [ Anuj Sharma from M3 ].
Sir, 2 questions. One is, our model has been challenged for...
Sorry for interruption. Anuj sir, can you please come closer to the handset.
Yes, I am on the headset actually. Is my voice audible?
Yes, please go ahead.
Yes. So I was saying that our model has been challenged for the first time, considering the price falls. Do you intend to have any changes to the model? Or what are the key changes you'll bring about after this price falls?
See, Mr. Anuj, we don't see any reason to change our model because of this. We feel that this model is the most flexible one, and we would like to continue with that.
Okay. Just in terms of how do you deal with your customers, any changes? Or these are -- this is part of the rejection of goods? Anything you can bring about in that or that's part of that?
I think it's a part of the game. And this does not happen very often as I've told some of your colleagues that this has -- we are facing this for the first time in the history of our company. I don't think these things are very -- they are going to be normal or usual.
Okay. My second question is on the non-agrochemical segment. Now the behavior also in terms of pricing seems to mimic the agrochemical segment. Now I understand these were more manufacturing-oriented stack. How is the pricing so much varying in the non-agri segment, especially in Europe...
Variation has not been too much. And for your information, many of our non-agro products are giving us better margins than the agro products at this point of time. The only factor which were affecting the non-agro chemical business were the logistics cost, the transportation cost, which became very significant and transportation has increased more than 10 to 12x. Those prices -- the freight and transportation costs are coming down, but we are -- non-agro business is net to order. It's not keeping inventory and then selling, so the inventory problem has not been very severe in non-agro.
Okay. Yet when I look at your slides, it seems to indicate the pricing fall in even non-agro in the first half is more than 20%, and I was wondering how does that function?
Mr. Anuj, that price includes the cost of freight. And the freight has come down from, say, $100 to $10 now back to the pre-COVID times.
The next question is from the line of Siddharth Gadekar from Equirus.
Sir, my question is specifically to the North American market. Sir where we have seen a significant drop in our gross margin, can you just highlight that how much of the contribution on glyphosate and glufosinate to the overall drop, one? And secondly, in terms of the end demand, are we still seeing inventory built up there? Or are things likely to go back to normal in the next 2, 3 quarters?
Sir, your voice was getting cut in between for the first part. So can you repeat the question once again? Louder and speed should be a little slow.
Sir, in North America, specifically, we have seen a sharp drop in our gross margins. How much of that would you attribute to glyphosate and glufosinate, one. Secondly, in terms of the inventory levels in glyphosate and glufosinate, is there still a significant amount of inventory build up even for FY '24, how should we look at it?
Sir, now I'll answer your question. Glyphosate forms a very small part of our total business. Glufosinate, yes, but most of the inventories have been taken care of. Nobody is sitting with a significant inventory. In fact, we are buying something for a new requirements at a price, which is about 20% of the original prices that we paid and selling it with about same margins that we are earning, but the absolute margins are much lesser.
Sir, is it fair to assume glyphosate is still below $10. And even for the third quarter, we are not seeing any recovery in those prices?
You're very intelligent and you know all the things. Yes, you're right. Glyphosate selling at $10 -- less than $10, which was otherwise selling at $45.
Okay. Okay, sir. Sir, in terms of cost of production, you will have any sense, what would be the cost of production in glyphosate? Or that you can get a sense and when can we see recovery?
How does it help us? We can get into a lot of details, but it didn't help us. We have a lot of better things to do, look at our business than looking at the manufacturers business. Manufacturer is crying, manufacturer is very unhappy with these prices. He is forced to sell it at these prices because he also needs some cash flow. What is his raw material prices now and at that time? That's a very long thing for us to go, which is not necessary for us.
The next question is from the line of Dhruv Muchhal from HDFC AMC. Hello?
I can hear, but probably he's not able to hear you.
Hello? Hello?
I think you must have put it off.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comment.
Thank you, everyone, for joining us. I hope we've been able to answer all your queries. We look forward to such interactions in future. We hope to meet your expectations in the future too. In case you require any further details, you may contact us or Mr. Deven Dhruva from SGA, our Investment Relations Advisers. Thank you once again, and have a nice evening.
On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.