Sumitomo Chemical India Ltd
NSE:SUMICHEM
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Sumitomo Chemical India Ltd
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Ladies and gentlemen, good day, and welcome to the Sumitomo Chemical India Limited Q2 and H1 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. From the management today, we have on the call Mr. Chetan Shah, Managing Director; Mr. Sushil Marfatia, Executive Director; Mr. Masanori Uzawa, Non-Executive Director; Mr. Suresh Ramachandran, Chief Commercial Officer; Mr. Kunal Mittal, Senior VP Planning and Coordination Office; Mr. Pravin D. Desai, Company Secretary and Compliance Officer; Mr. Anil Nawal, Chief Financial Officer; and colleagues from SGA, the Investor Relations advisers.
I now hand the conference over to Mr. Chetan Shah, Managing Director of Sumitomo Chemical India Limited. Thank you, and over to you.
Thank you. Thank you very much. Ladies and gentlemen, a very good afternoon to all of you and welcome to the conference call to discuss the Q2 and H1 financial year '23 financial performance of the company, Sumitomo Chemical India Limited.
First, kindly let me give you a brief overview of the agri-input industry lending. The country overall receives 7% more rains than the long-term average during 2022 June-September monsoon season. However, overall terms of monsoon spread was erratic. Several regions received less than normal rainfall, while some other regions received normal to abnormally surplus rainfall overall, increased deficiency during the crucial sowing season.
Across several districts Bihar, Jharkhand, West Bengal sowing of Kharif crop was less than 75% due to deficiencies in rains. Farmers in the distant part of the country have lost 1 full season due to deficiency in rainfall during the ongoing Kharif season. However, the rainfall in September and October has helped in enhancing the soil moisture, good soil moisture and water reservoir level over well with the upcoming Rabi season.
The income of farmers has grown in the range of 1.3x to 1.7x, which is a very welcome sign. This is as per the State Bank of India Economic Research Department, which offers well for the Indian agrochemical industry as well. This has in turn led to a higher share of agriculture in the country's GDP since March 2019. Apart from enabling policy push, the growth is also attributed to the changes in various nutritional and eating habits by the general public.
Another growth driver was a steady increase of minimum support price, which are increasingly aligned with market linked prices. The minimum support price has increased by 1.5x to 2.3x, playing a pivotal role in ensuring better prices for farmers and leading to optimal price discovery. This has also encourage farmers to clearly move over to crop varieties that they have better yield and value.
For the Indian agrochemical industry per se, the higher placement of agrochemicals during the March and June quarter, coupled with slower on-ground activities, led by uneven rainfall, resulted in lower liquidation of inventories, particularly in technical category. The industry is also likely to report a below-par performance for the July-September quarter this fiscal year as uneven distribution of the monsoon impacted sowing activities due to lower pest infestation during the Kharif season. However, sales of herbicides and fungicides continue to do robust business.
We, as a company, witnessed a robust increase in sales of herbicides and better sales of branded generics last year as our active grassroot level marketing and activities continue to reap maximum benefits. Despite the agrochemical industry taking price hikes for new raw material prices from July '22 onwards amid the high-cost carryover inventories may likely impact gross margins of agrochemical companies.
EBITDA margins for the industry are also likely to be under pressure due to lower gross margins and higher other expenses on account of higher advertisement and promotional expenses, as this being the first normal year of operations post-COVID-19 restrictions. Working capital for the industry has remained stretched owing to higher cost inventory at lower receivables compared to last year.
However, fortunately in our case, due to constant 2-way communication between our teams and channel partners and joint efforts, we were able to fully pass on the rising cost, and hence, we could improve our margins against the overall industry trend. This gives us immense confidence in strength of our brands, demand generation activities and strong trusted relationship with our channel partners.
While our exports on the Indian agrochemical industry has recorded robust growth and outlook remains -- we, at Sumitomo, also have achieved export growth of around 53% in H1 this year compared to last H1. During the financial -- that the overall situation during the financial year for agrochemical industry looks positive, and we can only do better from this point of time.
I will, with that note, request Mr. Anil Nawal to take you through the consolidated financial performance of the company. However, before Anil [Foreign Language] take over, I would like to make one announcement. I'm sure everyone is eagerly awaiting the question-and-answer session on the subject of the new notification that the government has just introduced regarding Glyphosate to be spread only by pest control operators. What I intend to do is I would give you a small synopsis of what is going on prior to the question, answer session begins so that maybe you will have the automatic answers to your questions, or based on my note on the subject, you can ask specific questions to the points which I mentioned, if required.
Thank you. Over to you Anil.
Thank you, sir. So consolidated Q2 FY '22-'23 financial performance, we delivered strong top line growth of about 23% in Q2 FY '23 at INR 122 crores as compared to INR 910 crores in Q2 FY '22. The sales growth was primarily driven by impressive growth in herbicide segment and all around robust growth in both domestic and export markets. We have witnessed sales growth on account of both volumetric growth and improvement in some dilution.
EBITDA came at INR 278 crore in Q2 FY '23, recording a drop of 30% as compared to INR 215 crores in the same period last year. Operating leverage benefits kicked in, leading to incremental EBITDA margin, which came at 24.8% in Q2 FY '23, up by 121 basis points year-on-year as compared to 23.6% in Q2 FY '22.
Profit after tax stood at INR 202 crores in Q2 FY '23, up by 31% as compared to INR 154 crores in the same quarter last year. VAT margin stood at 18%, up by 102 basis points year-on-year basis with a risk 16.9% in Q2 FY '22.
Now coming to our consolidated performance for H1 FY '22-'23. Revenue from operation in H1 FY '22-'23 stood at INR 2,107 crores, up by about 25% as compared to INR 1,692 crores in H1 FY '21-'22. The share of exports in our total revenues increased from about 15% in H1 FY '21-'22 to about 19% in H1 FY '22-'23. This was on account of increase in export to Europe, North America, Southeast Asia and increased to shipment in our affiliate companies in Latin America.
In H1 FY '22-'23, insecticides contributed about 41% of total revenue, while herbicide a good regulator, and fungicide contributed about 27%, 10% and 9% of total revenue, respectively. EBITDA adjusted growth of about 13% from INR 365 crores in H1 FY '21-'22 to INR 466 crores in H1 FY '22-'23. Our EBITDA margin stood at 22.1% in H1 FY '22-'23 as compared to about 21.5% in the same period last year. we were able to maintain and, to some extent, improve our operating margin as a result of our initiative to pass on higher input costs. This was further added on account of improvement in operating leverage, better product mix, cost optimization and synergies.
Profit after tax for H1 FY '22-'23 which was a jump up 31% to INR 340 crores from INR 260 crores last year. We maintained lower inventory level as compared to previous 2 quarters on back of smoothening of input supply chain channels and decrease in input costs. During H1 FY '22-'23, our collections were INR 2,131 crores as compared to INR 175 crores during H1 FY '21-'22. Our networking capital cycle stood at 94 days in H1 FY '22-'23 as compared to 72 days in H1 FY '21-'22, mainly primarily due to sharp fall in rate space and related inventory levels. We have cash and cash equivalents executing to INR 800 crores as of 30th September '22.
I now request my colleague, Dr. Suresh Ramachandran, Chief Commercial Officer of our company, to give more information on our business operations.
Thank you, Anil. Good afternoon, ladies and gentlemen. Thanks for taking the time out to join this call today.
During last year, we have taken various strategic initiatives to strengthen our business fundamentals, such as expanding our strategic marketing team, demand generation team, product development team and channel partner analytics teams. And we are also focusing on implementing higher discipline across our commercial policies.
Currently, we have about 200 brands spanning the entire value chain of agrochemicals, including more than 20 mega brands that are a high level of brand recall. With over 16,000 direct distributors and more than 60 depots and warehouses located all over the country, we are one of the most extensive distribution networks to reach different parts of the country.
Price increases were a major contributor to the expansion of our domestic agro-solution business. Both volume and price increases contributed significantly to our expansion in the Animal Nutrition & Environmental Health markets. As a result of both price and volume increases, exports grew nicely.
We have also established long-term footholds in a number of export markets. Our sales to Latin American and African countries expanded in H1. Half of our products have been approved for registration, and these are the ones on which we are seeing strongest demand. As a result, they gave us a solid foundation on which to expand our future export business.
The demand for our insecticides, herbicides, fungicides and PGR products continue to be strong. We anticipate taking market share from unorganized players, thanks to our really established supply chain and recognizable brand names apart from the reach to different parts of the country. Herbicides, PGR and biorational products are 3 segments where we expect to see the most growth, stability and profit.
To lessen the impact of seasonality on the company, we have expanded our product offerings for both Kharif and Rabi crops and intend to increase contribution from the PGR segment. We are planning some new product launches in this segment, while we expect to continue to grow as one of the leaders.
In H1 FY '23, we have launched 8 new products across all categories, about 3 insecticides, 3 PGRs, 1 metal phosphide and 1 fungicide. There are plans to launch a few more products in the upcoming Rabi season. As an ongoing process, we continuously take stock of the gaps in our product portfolio and strive to fill in the gap. Our newly launched 93 registration products have been accepted well by the China and end users and recorded sales in quarter 2. Our continuous focus in the coming period is to grow these new products in a robust manner.
These new products were launched successfully to the channel partners and farmers in physical meetings, as well as through many digital meetings in first half of the current year across different geographies of the country. Through our extensive field promotion activities, we are able to connect directly with the farmers, facilitating their access to best form management practices that will allow them to maximize productivity and run more efficient agri business. We can strengthen our connection with our farmers, learn about their needs immediately and grow as a company, thanks to the real-time feedback. Around 4.41 million farmers and 31,000 partners -- direct and indirect channel partners were directly reached out to us through [indiscernible].
In addition, we have developed digital marketing as a parallel support that should strengthen our digital marketing as a partner support traditional marketing system in order to raise consumers' level of product [indiscernible] and educate farmers on most of the effective home management practices. Our digital assets include 23 websites and various social major platforms through which we have generated approximately 17 million digital engagements.
With that, I'll hand over to Kunal to take us through an update on CapEx projects.
Good afternoon, everyone. In financial year 2021, we had closed plans to undertake 2 India projects with the additional capital expenditure of approximately INR 1.2 billion, which is about INR 120 crores. And the objective is to produce 5 SCC proprietary products for our parent company and our affiliates all over the world. This was additional CapEx in addition to our normal capital expenditure, which we do for maintenance and capacity enhancement in our existing products.
In terms of the time lines, the projects are on track. One project at our [indiscernible] for a very important global proprietary product has begun commercial production just recently. And we are expecting revenues from this product coming in, in the second half of the year and full revenues coming in the next year. The second project, which is being implemented at our Tarapur site, which involves multiple products for our parent company, is expected to begin commercial production in the first quarter of next financial year, financial year 2023-2024. These 2 projects are executed at our existing facilities, and the estimated operating margins from these products are comparable to the margin which our company is earning on similar projects.
As the global demand for these products increases in future, we have potential to expand capacities for these products in the future. In addition, several additional products are being discussed with our parent company and global affiliates as part of the Make in India initiative, and some of these products we are expecting to manufacture in India, depending upon various discussions which are currently ongoing. Once the projects and products have been selected, finalized and approved by our Board, we will provide you more information -- more specific information regarding some of these projects and our CapEx plan for these projects.
In addition to that, our R&D team in India is continuously engaged in developing processes and getting ready to produce several off-patent products, and some of the pre-mixture combination products for the Indian market and also for the global exports market, which also includes some of the high-growth regions such as Latin America, Africa and Asia Pacific reasons these products are targeted towards.
With this, now I request our Managing Director, Mr. Chetan Shah, to give a brief comment on a very important point which he highlighted. And after that, we will open the line for question and answer.
So ladies and gentlemen on 25th of October, the government of India decided to give us a Diwali gift by way of introducing a notification that Glyphosate, one of the important products of ours and also a product which is globally used as the largest consuming or largest selling product in the world.
So what is this notification? So my first positive point about this notification is that there is no ban on Glyphosate. As you may be aware that Glyphosate was always under the [indiscernible], whether it will get banned or will it not get banned, or whether we'll have to defend it, et cetera, et cetera. So one thing is very clear that the government authorities have seen the importance of the product to the farmers, and they only restricted the mode of usage as to how it can be used in the fields. So there is no ban. The only restriction is that the usage of this product has to be done by a pest control operator.
Now, of course, there are questions, especially in the very initial stages, even we had questions in our minds that how and what will happen. But as 5 days of -- Glyphosate -- the day of the notification, we are also much at ease in mind, and we see a lot of possibilities to ensure that our Glyphosate sales are not affected.
Having said that, I would like to give you some statistics of what is our Glyphosate situation for the year which we are discussing. That is H1 '22-'23 which we are discussing now. What has happened to Glyphosate in that period? So #1, our domestic sales of Glyphosate by way of volumes or quantities has come down by 40% as compared to the previous year. So whatever reasons we are seeing today is after taking into account a 40% drop in Glyphosate volume in any case.
The second important thing that has happened is that in the same H1 of this current year, our export of Glyphosate has increased by 451% as compared to the same period last year. The third important point is that H2, which we are talking about Rabi season, H2 is the period for Glyphosate for export market. Because every single year in H2, our export of Glyphosate all over the world is the maximum. So these are the 3 important points that we need to keep in mind when we are talking about H1 of this year vis-a-vis Glyphosate.
I also see many opportunities, new opportunities that will come up because of this notification. One being very clearly maybe we can offer a value-added solution to the farmers for our brands. Maybe we can have like -- many of these are doing sprayers and drones and things like that. Maybe we can have a value-added service given to farmers, making an infrastructure of our field staff to become a pest control operator, which is a very, very possible thing to do. Of course, all these things take time. Our main grievance on this new notification is that government has not considered giving any time to implement what they intend to implement. And the implementation cannot be done overnight as what they are seeing because there is no infrastructure available to an extent it is required. Of course, that infrastructure available, but not to an extent that it is required.
So we have now 3 to 6 months to develop this. At the same time, we will request the government authorities to give us more time. How much that is, only the time can say. But I don't think that -- as of today, we feel that even that Glyphosate comes out of H1 and what we can do and what we can prepare for, I don't see any problem in maintaining our Glyphosate situation.
I read some articles or some stuff message well. Also, it was suggested that the farmers will make them more arrangements of either getting the certified sprayers or PCOs or whatever. But farmers need this product, because it is so economical for them and so important to them that they are not going to give up on this product. And there is no replacement of this product Glyphosate like any other product that is likely to be available in the market. The way that Glyphosate works, no other product can work. So farmers are going to find their ways and means to use this product within the legal framework of the notification.
If you've seen the notification, you will see there is a remark that because of health hazard, the government has decided that it can be used only by PCOs. Now this is a little bit -- in our opinion, it is a little bit ill-founded logic because till date, with Glyphosate used here for the last 40, 50 years, till date there is not a single incident which has come to the light that Glyphosate has created any error in the health and safety of either the manufacturer or the user. So this is one point which maybe government wanted to take -- under this umbrella, they wanted to do something, it looks like that.
But even globally, as of today, in the last 1 year, we have seen that so many countries have openly supported Glyphosate. They've openly announced that Glyphosate does not cause any [indiscernible] and that it is safe to use.
Bayer, as you may know, had many, many cases, only recently, they have won the fifth consecutive case against them on Glyphosate project. So even the courts are now believing that on the scientific data provided by the companies, that Glyphosate is not harmful. But today I'm just giving a note to you as an information because you are a stakeholder, you're part of our company, you should also not feel that we are manufacturing a product which is harmful to human beings. And that is my only purpose of giving this example of other countries and Bayer winning the case.
So having said that, I think I have clarified or touched upon certain points on this notification. And I've also told you that we are confident that we will see to it how to get -- come out of this situation. So if you have any questions in question-answer sessions, if there's anything new other than what I have said, I'll be very happy to answer. Thank you. So open the question and answer session, please.
[Operator Instructions] We have the first question from the line of Abhinav Chandak from Ratnabali Investment Private Limited.
Congratulations on a good set of numbers. Sir, I have one clarity to -- on this whole Glyphosate thing. Sir, in terms of our sales, we will continue to sell Glyphosate through the channels that we have been selling? Or the notification has to be read that we can only sell it to PCOs? How is the sale process happen?
Well, we have read the notification. I don't know how they see government or what they will do, but the notification is very clear that it should be sprayed by the pest control operator. So we expect that the sales to the trade or the dealers network will continue to happen and the farmers will be allowed to purchase from these points. It is possible that pest control operators will buy the Glyphosate from the company's stock and then they'll [indiscernible].
The point of the notification is that it has to be sprayed by the pest control operator. It doesn't talk anything about buying or selling by the pest control operator. So we are very clear that notification is only as far as the usage of Glyphosate is concerned has to be done by a pest control operator.
So distribution channel in terms of taking the products from our factories or from warehouses to the end-user areas where this needs to be used, even for that, we have established network, and we are not sure whether this investment of operators will have that as Chetan mentioned in terms of warehousing it or logistically moving these products to the farmers and those kind of infrastructure.
Okay. So now coming to business. So recently, I have noticed over the last 3, 4 years, our margins have expanded significantly, whereas our generic to proprietary or specialty product ratio has remained stable at 70-30. With the intent to move more towards specialty, at what margin levels should you be comfortable maintaining for the company in the long run?
With our sales expanding, if we can maintain the margin at current levels, the overall profitability will be much better. But that -- whether we can maintain or not, whether we can go higher or not, that all depends on the seasonal conditions, market conditions and the situation of competition.
Okay. So now my last question. So recently, we have received a few approvals for a few products from our Tarapur plant, that is for [ Pyriproxyfen ], [indiscernible] and one more product. Could you just elaborate on these products? What could be the margin? What could the revenue potential? What kind of products are these?
These are mainly -- Pyriproxyfen insecticide, which we have a very strong brand of. And also, we are developing certain combination brands along with Pyriproxyfen. So that is 1 insecticide. We are also expanding the capacity of our Pyriproxyfen over there in the same plant, which is nice for export as well as domestic markets. And then there are 4 other products which we are going to manufacture there, which are basically proprietary products of Household division of Sumitomo Japan. So these products will be manufactured and exported all over the world.
We have the next question on the line of [indiscernible] from [indiscernible] Capital.
You mentioned in your remarks that for 1H of this year, domestic volumes are down 40%. But can you also share on the total volume of that what percentage is domestic and what percentage is -- and why are domestic volumes down 40%?
The domestic volume is down 40% because of the -- purely because of climatic conditions. This year, what happened -- normally, we receive pre-monsoon showers. Now when pre-monsoon showers come down, the germination will start. This year, there was total lack of pre-monsoon showers. So the Glyphosate demand did not pick up end -- later in the month of June end. And otherwise, it's start from April onwards. That was the main reason.
And the second reason was continuously lack of rains during the month of June and July. And then very, very high amount of rain in the month of August and September. So climatic condition really gave a push down to Glyphosate as a molecule.
And of your total volumes that you sell in a year, roughly what percentage would you be selling in domestic and what percentage would be export of Glyphosate?
So domestic is very large. Of course, it's very, very large. So even though when I say that we have exported 451% more Glyphosate in the first half as compared to the previous half, still the overall value of that export would be -- let me see.
INR 43 crores.
Around INR 53 crores, INR 54 crores. So it is...
So roughly domestic is 90% and export is 10% of the Glyphosate?
No, second half will be majority of exports.
80% is -- mostly 80%.
So 85%. The ratio if we are looking at, it is 15%, which will go up to 17% this year. But otherwise, it is 85% domestic, 15% export.
Okay. In a normal year, on a full year basis, 85% is domestic and 15% is -- and this 40% decline in domestic this year, is it also because the base is very high for last year? Is that also the case?
Sorry, can you....
This decline you're seeing, if you also look at the base effect that last year, we did a very high, very good season of Glyphosate. Is it also the reason?
No, no, it wasn't. I think it was -- from the start impact what we saw was that the pricing of Glyphosate has gone up tremendously during this year. So I think if you compare the base of the price level in the previous year and this year, there was a huge difference. So while we, in our experience or what we saw in the market, while the farmer was not disturbed to use Glyphosate even at a higher price, it was mainly the trade who were scared to take a position on Glyphosate. So maybe some sales, a small percentage of sales dropped because of payers or the trade not seeing the position. But the review of the sales is only because of seasonal conditions.
Okay. Sir, one last question on Glyphosate. The revenue -- the mix you have given on revenue and volume. But in terms of profitability, is Glyphosate a more profitable product versus your overall portfolio? It is in line with company average or it's lower versus company average?
It is lower than the company average. In a normal year, the Glyphosate produces a gross margin of 25%. Last year, it has given a little higher percentage. And this year, that percentage is 37.5%.
At gross margin level?
At gross margin level.
We have the next question from the line of [indiscernible] from JM Financial.
Sir, my question is on the implementation of the government notification. One is, as you mentioned, there is no infrastructure in place. So I mean, we have the owners to develop infrastructure in the hands of the farmers or companies like you. I mean, I'm a little concern with respect to what is the qualification it requires for a PCO they are requiring, and how fast they can come up to see as far as the implementation?
So the PCO license is a very simple procedure. There is already a fixed selling trade that gives the training for 3 months. You could go to your city -- 15 days, now the training period is 15 days, you can keep...
There are 3 institutes in India who are authorized to train PCOs.
Yes. So the training is for a period of 15 days, the fees are very small and you can create infrastructure. As I say, we have 3 to 6 months to create an infrastructure. And I think we are good with that. Of course, I cannot say that will be 0 impact, but things are view that can be 30 days plus, minus it can happen. Maybe there is -- not take a decision for the next 15 days to 30 days to have a position on raw materials of this Glyphosate for the production.
But once we do this, our exercise is in 15, 20 days, 30 days, then we are back to normal actually.
Sure. Sir, my second question is taking from the previous participant. I mean, this is clearly a lower-margin business compared to our other businesses. If you look at -- as some concern, I mean, products like Biquit is there. I mean, it is also a possible [indiscernible] and can be probably, it might not be an apples-to-apples comparison, but could be relatively used if the excess use is kind of restrictive. So from that purpose, I mean...
No, I'm sorry, which product you mentioned, I couldn't hear that. Sorry.
Biquit, B-I-Q-U-I-T. It's basically from New Farm.
From New Farm. You're talking about out [indiscernible] are you talking about...
Yes. Yes.
Glyphosate.
No, no. And that's no...
So in our understanding, the applications are very different, so they're not directly comparable.
And the real spectrum of 240 is also a different comparison with Glyphosate.
Sure, sir. So there will not be any product which is there in our basket, which will have higher margins, which we can replace it for Glyphosate together?
We have a specialty to that -- in our portfolio, which we are selling as of today. But it's a very highly specialized product, very expensive. It cannot match the economics of Glyphosate. But we already are selling that product and expanding the sales of that product. We already have one product in our basket.
Biquit is regular, by the way.
Not Biquit, not 240.
Yes. Sure. That's largely...
[indiscernible].
We can take the next question.
We have the next question on the line of Ankur Periwal from Axis Capital.
Congrats for good numbers. Just continuing with Glyphosate. You did mention H1 of this financial year witnessed a significant growth in the exports. Any specific reason here? Or is it largely the global network benefiting us? And if this is more sustainable and how you are...
So we got the registration of -- we have currently 1, which is one of the brands of Glyphosate in Sudan. And we could sell very good quantities over there. So that is a good market for us, and we are looking forward to expanding that market.
Also, I think typically in the previous year, in the first half because the volumes in the domestic market is so high. So our entire focus was to supply the domestic market. And this year we got the volume. So it is down as compared to previous years. So we had additional capacities and volumes to be supplied to both market also.
Sure. And continuing with the same logic, if there will be a restricted supply in the domestic market, and as you mentioned, H2 is slightly heavy on the export side for Glyphosate, then the entire capacity or at least most of the capacity can be compensated from exports here.
Yes, yes. So in the second half, typically, what we do is we cater to export markets, plus, say, at least 2 to 3 months, we also make ourselves ready for the Kharif season, actually Kharif season to keep us off, because such large volumes, we cannot move within a short period of time. So we prepone our manufacturing of Glyphosate brand for domestic market from the month of February.
It is high, so high, it's 85% versus 15%. So I don't think it will be possible to cover it fully within a very short period of time, but these efforts will be taken from us. So what you mentioned that can we replace the entire domestic loss, though that may not be possible immediate basis. That will be over a period, maybe we will provide.
But we are not, as of today, on 25th October, I cannot say that I was -- I would have seen the same thing, but on 31st I'm saying that we don't see much of a challenge to maintain our numbers of Glyphosate in domestic market as well.
Sure, sir. And will it be fair to assume that margins, whether in domestic or export, the product will be earning the similar margins in both the markets?
No. Domestic market margin will be better than the export market by a few percentage points.
Yes. But it will be in a similar line of what they are -- they will be in the similar line.
Sure. Sure. And just secondly, on the pricing front, the RM inflation you mentioned is still slightly elevated. And your thoughts on the competitive intensity here given that, historically, over the last few years, we have been pretty aggressive in terms of passing through all the RM inflation probably at the cost of volume growth as well. But how do you see the competitive intensity and whether the competition is also taking as aggressive stand from the RM inflation pass-through?
I think everybody will -- if they want to maintain the margin, they will have to be aggressive on this front. We have seen some companies doing it, some companies not able to do it. But we are very clear, and we have given a very clear communication to our team as well as channel partners that this has to be in the manner in which the raw material prices move. So even if the raw material prices come down, we are willing to drop the prices. We don't want to take undue advantage of the pricing levels to -- with the farmers or with the trade at all, but we want to maintain our profitability, our margins, our volumes. We'll be able to see that even as the price, we don't drop the volumes.
We have the next question from the line of Chintan Modi from Haitong Securities.
My first question is with respect to the INR 800 crores of cash that we have in books now, which may probably go up further by the year-end. So if you could highlight some on how do we plan to use this cash. And also in this context, we have got 2 large land passes also. So if you could highlight some of your long-term CapEx plans, that would be help.
Yes. Sure. I think being in this position is definitely advantageous, not only for the future CapEx, but also for running of our day-to-day business. I think we can leverage the raw materials inventories in a much more effective manner as compared to competition because of this advantage. And of course, our ultimate plan is to use this surplus funds in expanding the production activities.
So as you rightly say, we have now actually finished our Tarapur expansion in the first quarter of '22-'23. We are immediately -- we are already on the drawing board as far as the products to be manufactured at Dahej is concerned. And we will take up that once this expansion of Tarapur plant gets over. So I think you can expect that from '23-'24 that activity will start. And in '25-'26, we'll see that quite a major chunk of investment will be made in the new facilities in Dahej.
Also, we are talking about Bhavnagar plant, Bhavnagar manufacturers which we intend to use to expand our -- any of the plants at Bhavnagar today, where we will have to increase the capacities like sales capacity for Tebuconazole. If our global demand of Tebuconazole, because of the new launch of a combination product with a proprietary product of Sumitomo Japan, it kicks off well, the demand is going to be double than what we are able to manufacture today. So we are also going to keep that land free for expanding Tebuconazole capacities.
So at least we can assume that your CapEx regression will increase going ahead compared to what we have seen in last 2 years?
Absolutely.
Secondly, with respect -- again, with respect to Glyphosate. Can you highlight what is the size of market in India?
And secondly, I believe that this notification is also to do with judicious use of the product by the farmers in order to control this. Do you think this market can shrink?
So this Glyphosate molecule is about INR 1,100 crores to INR 1,200 crores at the company level, right? At the farmer level, it will be maybe another 30%, 40% more than that. See, this whole new development is based on safety, health concerns as Mr. Chetan said at the beginning, which was founded and the government has taken a decision with this notification.
But Glyphosate is such an important molecule for the farming community to control the breach, which is expanding year-on-year due to various reasons. We'll definitely find a way and then government will also cooperate to establish the infrastructure, to enable spraying of this molecule. So there won't be any shrinkage. Probably there could be a temporary setback for next 30 days or 60 days. But overall, this molecule will be normal in the coming months and years.
Okay. Okay. And one last question from my end. This 40% decline that you mentioned in volumes of Glyphosate, and despite that, if you look at the overall domestic sales has grown at a decent pace. So could you highlight which are the products which would have kind of replaced or offset that impact, negative impact?
See the growth is mainly on account of 2 reasons. One is a good price increase across the portfolio and volume, major volume increase in many of the insecticides, as well as herbicides. All these portfolios, volume and price growth together across the portfolio have given us this overall growth.
And just to clarify regarding Glyphosate, while the volumes are down, but the overall amount wise, there is not so much of a negative impact.
That is only because of the price rise. Also another important point is that whatever growth we are seeing inside of Glyphosate being down, those products are not replacement of Glyphosate. But Glyphosate didn't do well because of, as I said, because of clarity conditions. But the other products or other pockets or other areas, we could increase our sales of other products. That is why you are seeing the sales growth despite of Glyphosate being down.
Okay. Okay. Sure. And just one last, if you may comment. In Latin America, our sales were a little slow this year or this quarter, like about 8% growth, I believe. Any specific reason for that? And do you expect the growth rate to increase going ahead?
As a matter of fact, we have increased our Latin America exports this first half of this year.
49%.
By 49%.
No, I'm talking about this particular quarter.
First quarter's growth was good.
So yes, I think we have heard the news, what you mentioned, that recently, I would not say the quarter, but maybe last 1 or 2 weeks or 3 or 4 weeks we have started seeing some reports here and there, some a little bit of a slowdown in Latin America. But so far, whatever our products are, we are not seeing any impact even the orders and everything which we have, we are not any seeing major impact as such in the second half. And Masanori Uzawa from our side and reached, I think, from our parent company at Sumitomo. So Masanori if you have any more intel information of our Latin market over growth. Do you want to add anything?
Yes, this is Masanori Uzawa speaking. As you can imagine, the demand in that region is very strong. And particularly, and this for the year, especially the first half of the fiscal year, the appetite of the vertical input by [indiscernible] in that region was so strong. So that was the part of the reason why we can drive our export to that region. So probably, the strength of that is kind of the demand could be why the current very strong situation. However, we preload and then confidence about the future sustainable growth in that region. That will be strong health for our expertise.
Does that answer your question, Mr. ?
Yes. Yes, yes. Sure.
We have the next question on the line of Swati Hero from Ratna Investment.
Firstly, congratulations on yet another great quarter. So my first question is that because of this particular order, what kind of an incremental expense will a farmer have to bear? Because I've recently read somewhere that the plantation industry has already asked for some sort of an exemption thing because of like affordability issue.
Here, we have also heard that the plantation, people have asked for exemption, and they are going to represent also to the Industry of Commerce on the subject. The spring cost by the farmer, which if you count...
INR 300 to INR 500 per hectare.
INR 300 to INR 500 per hectare, even in case of -- if they hired assistance or that they hired somebody to spray their field. They spend anything between INR 300 to INR 500 per acre.
Per acre.
Per acre. So I think that -- I don't think that the cost is going to go up more than what they are already spending.
You [Indiscernible] the second point is some farmer spray their own field. They don't engage labors. If they are engaging labors, the cost may not increase significantly. If they are spraying on their own, if they have to hire a PCO, for example, then their costs would go up.
So that is where I also stat that the ad opportunity to give a value-added service to farmers.
My second question is around this bio-rational business that Sumitomo Japan has a lot of focus on. So what kind of a market share do we have in that business globally in India? What role is Sumitomo India potentially going to play in that?
Well, India is a very important market for this bio-rational dream of Sumitomo, and we are constantly discussing with them. This bio-rational come from -- mostly from U.S.A. from the Valent BioSciences , which is the subsidiary of Sumitomo Chemical Japan. And we are in constant discussion with them to introduce new products, newer products.
We have -- we have as of today, we have light up 3 products, which we would like to register over here at the work for which has already begun. As you know that now these products are going to be registered by under fertilizer debt. And we have some about some minimum requirement of data to be submitted, which we are already in the process of submitting.
And so these products will come in -- as a matter of fact, will come in or can coming quicker than the registration process of insecticides or plant growth regulators or which is covered on an insecticide debt. But now that the government has very clearly bifurcated that this product should be registered under fertilizer debt, these bio-rationals, it is much weaker. So we are already -- we have narrowed down 3 such products. The mine efficacy work and the field trial, everything is completed. We have fantastic results on these studies. And I think we should be introducing them in '23, '24.
Yes. That's the...
That's the plan.
Target, yes.
We have the next question from the line up Amit Bhivani, an individual investor. Mr. Amit Bhivani, can you hear us? Can you hear me, right?
Yes. Can you hear me?
Yes. We can hear you now.
My first question is that the stance of the government is rather confusing in the sense that in October, we had GM Master, which was approved, and they also had -- I don't know what stage it is, but I think it kind of also gave interesting approval of HBCD cotton. If I'm not wrong, HBCD cotton is basically has to be used with glyphosate. So if the government wanted to like reduce the consumption of glyphosate, why would they legalize HBCD cotton?
I don't think the intention of government by this notification is to reduce the usage of glyphosate. What they are only saying is use whatever that you really want to use, but get it sprayed by a certified as control apparatus. So you are right, he's actually HBCD cotton is approved. Of course, glyphosate usage has to be there.
Isn't that correct? I mean you have to -- the usage of glyphosate would go up in the country if that happens, right?
Yes. You are right. Logically, yes.
So this is quite a confusing notification. And the other thing is that, is it in -- basically, is it like the government is scared of some Yavatmal kind of incident happening again. So they want to like kind of just put their hands up and bring the state machinery that you did not implement our notification. That -- this was not supposed to be...
I don't think so because we have not seen any annual report on glyphosate. I mean Maharastra itself is one of the largest consumer of glyphosate. And there is no report at all of any harmful effect of glyphosate anywhere in past. Gujarat is another stage when the is high. There is more important...
Yavatmal incident, right, the Yavatmal incident, where 60 farmers died.
That was not glyphosate. That was a completely different product.
Okay. Okay. I'm very sorry about that. I'm very sorry about that. The second point is that, I mean HBCD cotton illegally is being used abundantly in this country even today, and it's not even legal. So actually, I mean, stopping a product which can be legally sold like glyphosate, how are you going to stop -- implement this pest control notification and they can't even stop the illegal sale of -- sale of an illegal seed?
Yes. I mean you are right, there are certain -- I mean these type of questions are very, very logical. And one would wonder as to -- if you're going to allow then feel them right. Put this restriction, but you and me cannot control what government is thinking and how they will pan out the notifications or how they pan out the policies.
But I think there -- somewhere down the channel or somewhere down the tunnel, this light will be seen. And maybe something will come out. Maybe another thing that will come out is -- there will be any number of use in the villages and all these rural areas will be in lots of numbers. They will become official pest control on papers.
With regard to HBCD cotton, that is governed by Ministery of Environment and Forests, where this is done by Ministry og Agriculture. Probably they will start coordinating.
Yes.
Okay. Okay. And coming to your -- the point that you made on every individual -- a lot of individual in villages going to become pest control retention fee. I was reading that you need about -- you need to be a graduating agriculture to get their license, and you need to [indiscernible] et cetera. Is there too much of a speed bump? Or do you think that a lot of people are graduates in agriculture and...
No. They need not be graduate in agriculture. Currently, it is saying they have to be graduate in chemistry, okay? But the definitely no. There will be discussions. Probably there will be relaxation of this even chemistry graduate requirement for PCO license as per the [indiscernible] graduate and chemistry.
[indiscernible] chemistry is a responsible person.
The license would be given to that person.
So license, when you take a license as a company, you have to have a graduation in chemistry on your payroll. But say a sprayer or the person who goes to the house to spray, he is not a graduate. So the company needs a graduate but not the sprayer. That is what the setting of the act is.
One second. He is not agriculture.
Yes.
[indiscernible] which is more prevalent.
Yes.
We have the next question on the line of Bhavya Gandhi from Dalal & Broacha Stock Broking.
Am I audible?
Yes. We can hear you.
Yes. Sir, I just wanted to understand that glyphosate is banned in a few countries outside India and few states also in India. So over there, what is the product which is being used by farmers on ground level to remove weeds or maybe herbicides and...
So see, the thing is that wherever this is back in our country in some states where like Punjab, they say that we have no use for glyphosate. Now the state has come to us, and because we are also in a herbicide business. So the Punjab government has approached us saying that the rat population in our state has gone up so graphically up. Can you help us?
Now the reason for that population going up is because they are not spraying herbicide glyphosate in the periphery of the field, where the weeds lose everything. It's not a broad area, but around the field, itsell there are so many weeds and there is a home to rats. So the population [indiscernible] at is bound to go up.
So even we don't have any free usage about glyphosate. That could be correct. But what about the periphery? What about the areas -- other areas where the crop is not...
Non-crop areas.
Noncrop areas. You can't have a real line around, right? So there are problems like this. And other countries -- you know the Sri Lanka story very well. Sri Lanka banned glyphosate. The whole economic collapsed, the key industry collapsed, the rubber industry collapsed, and they have to get back again to say that ok, you can [indiscernible] in rubber and key with the government license. So these kind of [indiscernible] reactions always results into some terrible situation. And then the government has to come back and think that, yes, this is what is required to be done.
Okay. And sir, is glufosinate a substitute by any means because that is what being flagged everywhere?
So it cannot substitute glyphosate in all the weed spectrum that glyphosate is used for. So it is not a direct replacement. There are many herbicides available in the market, including [indiscernible] than...
These is a old 248 [indiscernible] also old [indiscernible]. But they cannot match the effectiveness and the pricing of glyphosate. And we cannot control the entire spectrum, of which glyphosate can control.
Also wanted to know like this glyphosate is sprayed on key rubber plantation. So can you provide some mix, like what would be the mix for plantation and rubber plantation and so on?
No. I wouldn't have that data as of [indiscernible] Ratio. But sorry, offhand, I don't have these figures.
Okay. And sir, do we see this as a very big hiccup going forward? Because now government stands about having PCO, maybe restricting older molecules or sort of older compounds. Do you think that this will affect other products in our portfolio basket? Maybe early assessment at your end.
No. The entire industry on this motivation is to gather only because of the fear that if this can happen to glyphosate, it can happen to any other product. And nobody wants that because that will be too cumbersome. They're bringing more than one product at times, then it will be even more cumbersome.
Now this is a single product. We are trying to find a way out. We are trying to see how it can be done. It is one molecule. Probably, we'll be able to handle -- not probably I mean, surely, we'll be able to handle. But I think more and more such things may come on. It is going to disturb us.
Right. And sir, talking about the PCO license, what would be the average cost for it? Can our dealers become PCO sort of -- they can take license and maybe go and sprinkle it on behalf of farmers? Is it possible? Or is it like...
Yes. That is possible. It is not...
It is not an expensive proposition. Yes.
It's not expensive, right. Because I think if they are taking this stance for one product, maybe they want to increase the -- for the product as well, maybe going forward. That is just a speculation that we can maybe sort of. And also talking about this new product turnover. Going forward, is it possible to mention in the investor presentation like what is the turnover from the newer products that we've introduced so that we can get a gist of how the new products are moving in the market?
So the reason why we are not mentioning this quarter-to-quarter is generally on the investor calls and whenever we have this, the time we provide this information. That's.
For this quarter, is it possible, sir, like what is the new product contribution to the overall sales?
I think it's about INR 30 crores.
Yes. So we do not have this information right now handy. I think in the next time onwards, we will see if we can provide this information.
We have the next question from the line of Himanshu Binani from Prabhudas Lilladher.
So sir, my first question was recently on the gross margin side. So what we are seeing is that there has been a gross margin contraction...
Mr. Binani, would out kindly come in the handset mode. We are not able to hear you very clearly.
Now...
This is good, yes.
So my first question was pertaining to the gross margin side. So what we are seeing is that there has been a gross margin contraction despite we have been like fully able to pass on the inflated cost, while there has been an absolute decrease into the OpEx. So that is down on a year-on-year as well as on a sequential basis. So just wanted to have a sense on how this has moved and outlook going forward.
Gross margin -- see gross margin from H1 last year, it was 32.8%, became about 31.8% of sales. The oughts in line with the activity year. If you're talking other operating expenses, as [indiscernible], it has gone up mainly because of sales and marketing costs. Third would be clouding promotion predevelopment acquisitive as well the gain power and fuel costs. So those are the reason have increasing other operating expenses from [indiscernible] right.
period last which was not in this quarter for activities where...
The business had on mainly because of marketing efforts and other is because of incision energy costs.
We have the next question from the line of Manish Mahawar from Antique stock broking.
I hope I'm audible. Hello?
Yes. We can hear you.
Yes. Just in terms of a glyphosate again. I wanted to know, you said a market size is around INR 1,100 crores to INR 1,200-odd crores right in India. So what is our market share in domestic?
About -- around 35% to 40% -- a little bit over 30% in terms of that.
Okay. And again, you said 40% decline in terms of volume on 1H for glyphosate. Can it possible to share the revenue, maybe growth or decline in H1?
Almost at flat level.
Okay. It's flat. Okay. And last glyphosate, basically the -- in terms of industry or being we are one of the large players in the glyphosate, do we basically have a thought poses internally or maybe with the discussion with the industry like to take some more time from the government to implement this notification on an effective basis going forward?
I think as discussed earlier, yes, industry is together in this to -- some of it a way forward for this notification. These are all too early to comment in the very early days of the notification, just about a week. Yes, all the related stakeholders are in discussion to see how to resolve this on way forward.
Okay. So anyway, the industry will definitely will take it forward with the government, right, your team, that approach going forward?
Yes. Yes. Sure.
Okay. And second question, in terms of a CapEx perspective, I think sat the initial remarks, Kunal has highlighted, there is 2 molecules, 1 molecule we are commercializing in the second half of this year, I think. So we are starting commercial production. And one project with the multiple products we are starting the first quarter of the next year, right? So this is over and above the 5 products what we are doing a CapEx of INR 120 crores? Or this is a same product?
Okay.
Okay. So this is included in INR 200 crores to INR 250 crores of turnover, what you said right, this product can make? This is included in that?
[indiscernible]
We have the next question from the line of Prashant Biyani from Elara Capital.
Sir, one question on glyphosate. How much will be our total capacity? And on the export side, to which geographies do we have registrations for glyphosate?
We have registrations in Europe, but we are not selling in Europe. We have registrations in African countries, which is our main export market. In a lot of countries in Africa, like Sudan, Ethiopia...
Nigeria.
Nigeria, there are a lot of countries over there where our brand is very popular. And we are selling our spot in these countries of our plants and not the technical. So we make the brand and sell over there.
And sir, what would be your glyphosate capacity?
So that is a confidential information, which we generally prefer not to disclose.
Okay. And sir, on this -- in the opening remarks, Mr. Suresh had just highlighted on the long-term footholds that we are taking in Lat Am. So if you can elaborate on that within the affiliate company and outside of that for the larger market as a whole, what are the steps that we are taking to grow that market?
This is mainly our foothold in Lat Am growth is on account of our subsidiary companies where we have received a couple of registrations last year. And as Mr. Sushil mentioned earlier, with the Brazilian and launching a new combination product just this year, they are launching and it is expected to grow further in the coming years for which that team would be so -- likely to be sourced from India. And also a couple of other external players, we are waiting for some of the approvals to move ahead. So all these things will help us to grow the Lat Am market.
I may also add over here that we have just recently received 2 registrations of formulation -- formulated products in Brazil which Sumitomo as a supplier or endorsed as a supplier. So we are likely even to start these 2 brands financial year -- like financial year. So that will again be a substantial boost to our exports to Lat Am to revenue.
That you had alluded to on the hedge CapEx, that CapEx will be for the parent business or ex of parent business?
It can be both. Basically, it will be for the molecules, which are offset and which our R&D has been working on. It in those products, which has both the domestic market as well as export market. So those products might -- I mean that pipeline will be basically for domestic as well as exports but not necessarily a [ deflation ] of products from pacing.
Right. And sir, for Q2, in particular, we have seen our glyphosate volumes being down. And despite that, we have seen a very good gross margin expansion also, even though we are sitting on a very high base. So what is driving this? And how sustainable this is in your view?
Well, I have been saying is that if you are looking for sustainability, you can definitely bank on us. I think we will be there for any sustainable growth forever. The only thing I cannot expect to do, we just got just some very high numbers have come down. But as far as sustainability is there, we are very confident that we are in a position or we have tuned our sales in such a way that sustainable growth will be -- will remain sustainable for sure.
All right. And sir, any indication of CapEx plans for FY '24, how much it can be?
Well, I just say, we are still on the drawing board stage. And this expansion, if I look at the tire side and whatever number of products are there, my personal guess, this is not discussed with anybody or with the Board or with Sumitomo Japan, my personal guess, yes, would be around INR 250 crores to INR 300 crores.
Okay. INR 250 crores to INR 300 crores.
The normal CapEx, which we do every year for the maintenance, for bottle debottlenecking. So what Sharon mentioning is additional CapEx for development of the new site and the new.
Additional CapEx of INR 250 crore to INR 300 crore.
This could also be over a period and...
Yes. Sir, again, while this was a personal guess...
Why I say that this is my personal guess since question.
Sir, I would request your personal guess also on how much could be the asset turn on this sort of CapEx.
I mean the personal guess -- it's not a personal guess, but it is -- so that we do get INR 2 revenue for INR 1 investment, I would rather not invest.
Sure. Sir, just lastly on the sales to Lat Am, do you see any hiccup because of any change in currency or interest rate there? Or the sales are largely in rupee and we are insulated from all those things?
No. It is not in rupee. It is in dollar terms. But I mean, you may be aware that in the entire turmoil post Ukraine, Brazil is 1 of the 2 or 3 countries where the currency has appreciated and not -- they are not depreciated at all. So we don't see any risk. And even that -- even if that is a local risk and nothing to do with the -- our sales to Lat Am.
Also fundamentally, Brazil as a country is importing a large part of the technical their domestic capacity for manufacturing, technical is very low. So for them, the choice is more between different international markets. And in most of the markets, it will be a similar risk from currency point of view in U.S. dollar terms.
Yes. Sir, on the domestic side, this glyphosate sales will be more tilted towards HariforRabi?
[indiscernible].
So maybe in the next 6 months, if we have plans, then we can set up our own or ask our team to have own PCOs and largely the glyphosate sales for next year may be more or less not so materially impacted. Is that you -- correct?
Yes. I would -- that is what I think what intention is, and that is what we are aiming at. And...
We are some time 3 to 6 months to find a way forward to protect our sales.
And is the declining price of glyphosate in the international market hurting our profitability?
No. There's marginal decline, but there's not a materialistic decline in terms of beating the profitability.
We have the next question on the line of Kaan Thareja from ASK Investor Ages.
Am I audible?
If you are better to, kindly come closer to the mic. Your voice is not very clear.
Yes. Is this better? Can you hear me now?
Yes.
First question is a clarification. You indicated that Sumitomo has received -- recently received 2 registrations in Brazil and for which you will be -- Sumitomo India will be the supplier of product. Are these 2 products in addition to the 5 contract manufacturing products that you have or are these part of those 5?
No. These are 2 new products.
These are 2 new products?
Segment and the 5 manufacturing products are more in the proprietary segment of SCC innovative products. These products, we are talking more about the off-patent businesses which we have.
Okay. Is it possible to understand the sales of Sumitomo for the 5 products? I'm talking about the parent company, Sumitomo, of the 5 products for which you will be doing contract manufacturing? What's the scale of sales for the parent company in those 5 products?
So sales will be will be much, much larger because we are not manufacturing 100% of the ability for all the products. But some maybe. But for some of the products, we are manufacturing only a small part of the -- I mean some part of the global capacity.
Is there scope for you to enhance the scale of supply and basis your cost competence going ahead in these 5 products?
Yes. Yes, some of the products for sure, over a period, we have the potential. And also many of -- some of these products are growing at a very fast pace.
Okay. And the GAC has recommended HTBT, and the other one was mustard. Has HTBT been approved or it's just been recommended yet?
Number of mustard is approved for environmental release. I mean recommended for to Ministry of Agriculture Environmental Release. HTBT cotton is expected for recommendation to manage agriculture in the near future. It could be as soon as next month also, in the next GAC meeting. That's what all the reporting.
And if this goes through, which seems very likely, what is your assessment of the requirement of glyphosate going up? Because obviously, this will be taken up in a big way from down pretty cotton will be taken up in a big way from the pink Volvo-related product. What could be the scale of growth in glyphosate volumes in India because of that?
It's difficult to estimate. Let's say, India has got about 12 million hectares of cotton. Even if 70% turnoff cotton, which will take time because the needs to be produced and supply to 70%, which may take 2 to 3 years. It depends on the government approvals are they going to approve 1 variety or 2 hybrids or 5 hybrids. We don't know the mechanism, how it is going to change.
Assuming 70% of the area is going to be HTBT cotton, so we can imagine about 1.5 liters per acre approximately. So 70%, let's say, 8 million hectares into [ 1.5 ] liters. So that would be about its tee at maturity -- peak sale maturity. It's going to be over a period of time. Gradually, the seed needs to be made available to the farmers, technology needs to be put on the ground, the pricing has to be affordable. So there are many factors. Clearly, and potential is about 12 million [ liters ].
And what's the current volumetric consumption of glyphosate in the Indian market?
Current would be about -- if you're adding 30, about 30,000, it is [ 30 million liters ] -- [ 3 million hectares ].
So the market can go up by 1/3 because of it?
I mean that's a theoretical calculation. We'll have to see how the adoption, pricing and et cetera, et cetera.
Okay. Right. Also, you were talking about the regulatory developments. Apart from glyphosate, I think there was another regulatory development where CIBRC has decided that registration of pesticide technical to the mandatory, wherever formulations are being registered under either import or indigenous manufacturing route, which basically means that a company like Sumitomo or Bayer, whenever they introduce a new product on [ 93 ], will they have to also submit field trial data for the technicals? And therefore, this becomes a sort of -- makes competition in -- generic competition in these products relatively simpler than what it was in the past?
Not exactly. You are right. The government recently recommended, as you know, any formulation import needs to be accomplished by the registration of the technical. That is the recommendation that needs to be given to the court. This is one of the earliest cases where the CBRC recommended it.
But if you look at that later, there's no field trial for technical registration. It's more of a toxicology data, chemistry data, packaging data, those kinds of things, shelf life data, which anyway the government -- so the companies are submitting it, and they would have to seek the registration. Till now, the registration was not sought. And most of these products -- the new products are patented. So there is no risk even if the technical is registered since it's all going to be patented.
So you don't have to submit field trial data?
There is no field trial data for technical. For formulation, yes, field trial data should be submitted. For technical, there is no field trial data. It's more of chemistry and toxicology studies.
Expense even as of today, even if we are not seeking the registration. For the import of formulation, we have to submit the entire dossier around technical department.
We are already doing that.
We're already doing that. The only difference is that you're giving the dossier, but you are not taking registration. So there is no difference between the new and the old rule, even if it comes into practice. Now we will submit the data as or the registration. That's all.
Okay, sir. And the 2 products that Sumitomo has gotten approval for recently, what's the market size there for the formulations? And just trying to understand potentially what could be the contribution of these 2 products for you. I presume this could be a material opportunity for you. Just trying to understand to whatever degree possible the scale of opportunity here.
Well, since I cannot give figures but both are -- both the registrations which we have obtained, the potential is very, very large. It's a very good-sized business. And we would be very much interested in taking part on these 2 products expansion into Latin America.
Technical...
For emulation exposure of technical apps. These are all -- both are formulation exports. So we have already whatever is required from the formulation capability point of view. That work is already going on. And I think we should be ready by first quarter of '23.
[ '23 ].
First quarter -- I mean last quarter -- sorry, last quarter of '22-'23, we'll be ready with the facility. And in the first quarter of '23-'24, we are planning to commercially export these 2 items.
Sir, finally, your exports in 1H have grown at north of 50% [ too ]. Second quarter, I presume, was more like 33%, 34%. What could be sustainable? Is the 1H number sustainable for the full year and going ahead? Given you're coming off a small base and you've got these sizable opportunities going ahead, should we -- would it be reasonable to assume that the exports growth rate that we've seen can be sustained?
Sir, as a matter of practice, we generally do not give any forward-looking statements or estimate on the future growth. But our internal targets are that both in domestic market and export markets are kind of a premium growth, which we have been generating. And yes, for a period of, say, quarter, 6 months, it could be up and down. But over the last 3 to 4 years, whatever growth we have shown in domestic market and exports to replicate that kind of growth in future.
So also one thing which I would add over here is that you cannot compare quarter-to-quarter growth because see, these are all seasonal products. So there's some of the mine reason is in the third quarter or second quarter. That will not be the season everywhere around the world. Around the world, maybe they will require the product in the third quarter or the fourth quarter for them to be ready as process or a formulation to cater to their markets.
So I don't think that the quarter-to-quarter comparison is a very scientific way to compare. Yes, overall, for the year compared to last year for the full financial export was this and how much we have grown. That is fine.
Yes. So that's what I'm asking. Would the annual growth rate that you've shown in exports be sustainable going ahead? And if that is the case, then the mix obviously will keep shifting towards export sales. And what could be the consequences of that for your margins?
Our end goal will be to sustain this growth because export is a very important market. We are doing a lot of things to increase our market share of exports. So not only in developed countries or not only in countries like Latin America, but we have plans to even double our sales in countries like Africa or neoantigen countries where we are registering new products and things like that. So yes, our focus is definitely there to sustain this growth, and we are confident that...
In African market, we have grown this year by about 50%-plus. So it is not as only the Latin America, which is growing in many of the strategic ADRs, as Sata mentioned, we are trying to grow.
Yes. So my related question was that as you're going to grow higher in exports, clearly, the salience of exports will keep moving up. Last year was 15%. This year, 1H is 19%. Obviously, it keeps on going up. Would it have any material impact on your margin profile as the salience of exports moves up?
We do not believe so because in the past also, we have repeatedly clarified that even in domestic market, feel that the group potential is much higher. We do not restrict ourselves that, okay, if industry is going in a disease, we will not grow. And even in domestic market, like in the current year, we have seen the numbers in the situation where the monsoon situation and everything was not in a very good favorable situation.
Sorin domestic market, the product launches, which we have done in this year, the kind of a pipeline which we have for the future of the biorationals and PGR, which we spoke about. The domestic market also has a lot of potential to grow. Exports might be easier and slightly more higher, but it will not significantly change the profile. Like say, if we have 70-30 export-domestic, it will not significantly change our breakup of the revenue and also our margin profit.
We have the next question of the line of same from Nirmal Bang Equities.
And thank you, Jean, for giving us the at the left notification. So just to take the discussion forward. You mentioned about the strategy to increase market share from the unorganized sector. So can we get some sense in terms of what is the potential increase in market share you can gain if you were to take away market share from our omni sector? And the second thought is if you're looking at the 2 registrations in Brazil and the new products you launched in the first half, what is the kind of potential peak market size you can hope to achieve and over what time frame?
These are all -- we don't have to seek the market. The market is in place for all these products. So in a lighter range, if I say, don't worry or glyphosate going down. We have enough products to cover the glyphosate caravan in coming months. No, it was just on a lighter note. But we -- as I said, we are not going to let the glyphosate also go. So overall, yes, we'll have this -- all these new things are happening with the additional turnovers.
Is it possible to...
For some manufacturing products, the new 5 products, which will be manufacturing, that revenue, I think we have already given the potential is more in the range of INR 2 billion to INR 2.5 billion. And for various at products, we are not in a position to give a particular, I think, numbers right now. But again, this will not be about us gaining the market share in this export because this market is already there, as Sartan mentioned. It is being replaced from other suppliers or other countries to India -- other countries to India.
Okay. So in terms of your reading of the market, the general consensus is the crop prices are likely to sustain. But in case there is a correction in commodity prices and your top line falls in line with you passing on the cost, in terms of the asset, turn will come down. So you are going to maintain the absolute margin per unit volume.
Is there a risk that in some quarters in future you may have to take some reduction in margins as the top line declines for the industry? So just to get a sense in terms of how the industry performance will move if there is a reduction in the overall input cost and the price realization for the products, what is your reading on that? And how are you going to offset that to maintain your margins?
To see the demand for food in the world is not going to come down. And the farmers are not going to stop growing crops. I don't think -- we -- in India, we are at such a low consumption of pesticides per acre that -- I mean it is a least quantity that Alba needs to spray to safeguard his field. So I don't think that a price increase or anything of that sort is going to bring down the overall demand.
And even if the prices are lower, the idea is that at a lower prices, you have to maintain your margins. So even if the -- and if the prices go down, you will increase the volumes. So you cannot have a drop in the overall top line, and you can not have a drop in overall volume line. You cannot just have that situation. So if the prices are going down, your overall turnover is coming down. You need to increase revenues by introduction of new products or increasing the volume of those products at a cheaper price.
Okay. Understood. So if you're looking at the process for Rabi compared to the base of last year Rabi, how do you see the prospects for volume growth for the industry in your company?
Well, see, last year, Ravi was also exceedingly good. So we are comparing the high standard of last year's Rabi to the growth of this year. Now situation on the ground is favorable as of today. There is a lot of merchants. The water is amply available. There will be no cutdown on water supply to the field, et cetera, et cetera.
So the platform is very good. Now we have to see how the price movement, how the pest condition, price effect, et cetera, et cetera. And I think we should have for a season as compared to what we are experiencing in the curve. So I think we -- whatever plans of growth in the wi season that we have drawn up internally, I think we are pretty much confident of achieving that.
Okay. So if you're looking at the channel inventory and the working capital and the collection, there are some concerns that the high-cost inventory can be a challenge the prices come down. And secondly, the collections are proving to be a bit difficult because of the reduction in liquidity. So while I understand your company, you've been able to manage that well, how do you see that impacting the industry in the second half? And how are you preparing yourselves in terms of the -- your own inventory and your own working capital requirements?
We are very much okay with our inventory levels and given our consumptions, et cetera. So we are not carrying a large inventory in the market. But what I have heard is that there is some inventory level in the market, which will impact the sales for the first 2 months of where we see the is October and November. And once these inventories are gone, yes, then the fresh supply will start at new price sells.
Okay. So one last short in terms of the cropping pattern and your own product profile across the categories like insecticides, herbicides, PGR. So do you see any structural shift in terms of India's cropping pattern in terms of the share of across crops? And do you see your overall share of insecticides coming down and herbicides are going up, say, in the next 2, 3 years? And what is going to be the impact on your margins if it all that happens?
There may not be a significant materialistic change in terms of crop shift. Now cotton and fruits and vegetables, these are the top 3 crops -- or 4 crops for the groin inventory will continue to remind that way. Like this piece and this care season, there was a significant deficit rainfall in Eastern states, Northeastern states. And the repair has gone down by [ about 2 ] million hectares. 40 million, 43 million hectares, 2 million hectares is just a small portion. So overall, it's not going to shift materialistically in terms of dropping cotton.
Year-on-year, season on season, there will be plus or minus 5%, 10% variation. That's about it, okay? In terms of insecticide, since the base is large and India being a country of a lot of insect population attacking the crop, insecticides would continue to be having the major share in terms of roccal industry.
Herbicides because of labor shortage and convenience, yes, herbicide market is growing, and that would continue to grow. That's the macro level. And I think that trend will continue to be there in the future also.
That was the last question. I now hand the conference over to Mr. Sushil Marfatia for closing comments.
[Foreign Language], everyone. Thank you for all for you asking some very interesting questions and our colleague replying the same. I'm sure we could have addressed here all the questions. The domestic crop prices have risen, beginning -- bringing them closer to the global counterparts, having this positive outlook going into the Rabi season is a plate for the agriculture-run economy as a whole.
The soil is more moist than usual because of the September and October rains. This, in addition to the water storage levels bode well for the upcoming Rabi season. Therefore, in FY '23, demand for elected remain high, thanks to favorable weather conditions and rising farmer incomes. Today, India's agriculture sector uses a relatively small fraction of the world's total agrochemical output.
As a result, the general outlook for the Indian agrochemical is expected to improve as farmers becomes more aware that using high-quality agrochemicals products help them achieve higher yields of higher-quality crops, increasing their chances of making more profit. Everybody stands to benefit in the long run from the government's and authorities' various reforms and initiatives and then boosting the agricultural productivity.
We have been able to sustain our recent growth, thanks to the diversified business model we have developed over the past few years, and we expect to continue seeing success as we expand into a new product categories. Thank you for your time and participating in our conference call. And I lastly wish you all are very successful prosperous and healthy new year. Thanks.
Thank you. Thank you, everyone.
Thank you. On behalf of Strategic Growth Advisors Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.