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 Sumitomo Chemical India Limited Q4 and 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; Dr. Suresh Ramachandran, Chief Commercial Officer; Mr. Masanori Uzawa, Non-Executive Director; Mr. Kunal Mittal, Senior VP, Planning and Coordination Office; Mr. Anil Nawal, Chief Financial Officer; Mrs. [ Dipika Trivedi ], Company Secretary and colleagues from SGA, their Investor Relations advisers.
Now I hand over the call to Mr. Chetan Shah, Managing Director of Sumitomo Chemical India Limited. Thank you, and over to you, Mr. Shah.
Ladies and gentlemen, a very good afternoon to all of you, and welcome to the conference call to discuss the financial year '23 performance and our company -- of our company Sumitomo Chemical India Limited. Kindly, let me give a brief overview on the agri input industry landscape during the year.
Financial year '23 started with a very good first and second quarters. 25% growth in revenues as well as in profitability versus financial year '22. This was mainly due to good water level in the fields, pre monsoon showers, low-cost opening inventories, increased cost -- increasing costs varying industry and trade partners are building up inventories and overall positivity in the market in the first half of 2023.
However, the situation suddenly turned adverse in second half due to the following key points. Number one, low insect infestation and limited volumes of [indiscernible] in financial '23 caused by weather-related disturbances, such as late monsoons, erratic and uneven rain pattern excess range towards the end of monsoon period. All this resulted into higher channel inventories and overall pessimism in the market.
Second, Chinese market opened up post COVID and that we saw excess supply situation and the market prices started getting softer and softer. The above 2 factors caused double impact, low demand, higher inventory, excess supply and falling prices. Most industry players and channel partners attended to reduce inventory levels drastically in the second half of '23. The situation was further elevated due to similar trends in other key export markets like Latin America and some of the Indian players have sizable exports in this territory.
Due to a whole challenging factors, our domestic volume growth and margins were impacted in the second half. Large part of growth was witnessed due to price increases in all our portfolio segments. The modest growth can also be attributed to the decline in revenue from Fungicide segment. It is not the challenging situation in domestic market in second half, overall, it is setting It is reasonable performance in the domestic market.
We introduced almost 10 new brands, 4 in insecticides, 4 in PGR and 1 in fungicide during the year. Six out of this 10 brands are under Section 93 of the Insecticides Act, which means that it was not the first time introduction. Several of these unique 93 first time registering in India after years of efforts and expected to ramp up over the next few years, and we are looking forward to -- for robust growth in these brands. Even though exports were lower in the second half as compared to our internal estimates, overall, we achieved a very good growth in export market in line with our strategic direction to increase exports.
As compared upstate exports partially mitigated the decrease in domestic market. The company's recent capacity expansions are expected to support the positive momentum in export market. Overall, we are proud of our teams who work together in this challenging situation and delivered a respectable performance in line with our past trends and overall strategic direction. We look at this situation as a small pause, which gave us an opportunity to reflect on our strengths and business fundamentals with a strategic theme for the current year, which is called Back to the Core.
In near short term, our current assumptions are as follows: Efforts are taken to minimize impact of above-mentioned challenges are expected to start showing client reversal in near term. There should be limited adverse impact of El Nino weather situation, assuming current projection of 95% monsoon level and no impact on crop act categories . Growth is expected to be driven by volumes. This is a very clear message that during the year, the volumes of all our brands have to be increased, both for existing portfolio and the products which we have introduced recently. The input cost prices are at lower level and profitability should return to normal levels in next couple of months and then weighted average of inventories gross cost gets adjusted to current market levels.
However, these assumptions and market situation is expected to be dynamic, and we will need to monitor the same on a regular basis going forward in the next few weeks and months. It does not take -- we have this negative trend -- we hope this negative trend turns into positive trend as quickly as it take turn negative in the first place . By focusing on business fundamentals, our company will be ready to take best efforts to maximize the potential in any situation.
So with that, I will now hand over the call to Dr. Suresh Ramachandran to give more information on our operations. Thank you.
Good afternoon, everybody. Thank you very much for taking time out to join our call today. Hope for my voice is clear to all of you. Throughout the previous fiscal year, we implemented several strategic initiatives to fortify our business fundamentals. This included expanding our strategic marketing, demand generation function, product development, channel partner analytics team, as well as prioritizing the implementation of more rigorous commercial policies from a long-term sustainable business perspective.
Our portfolio comprises of 200 brands across the entire value chain, including 20-plus mega brands with strong brand recall. Our distribution network comprises of over 15,000 direct distributors and 60 depots and that also is across the country, making it one of the most extensive distribution network in the country with maximum number of brands. The growth of our Domestic agro Solutions business was primarily driven by price appreciation in FY '23 -- '22, '23. Notable growth in Animal Nutrition and Environmental Health markets can be attributed to increase in both volume as well as price. Export growth was driven by a combination of price as well as volume increase.
The company has successfully established enduring positions in several export markets. During the year, our company experienced good growth of sales in African and Latin American countries apart from shipments to our parent company in Japan. The company has received regulatory approval for selected products, which have exhibited robust demand and will serve as a strong base for expansion of our export business in the coming years.
Our insecticide, herbicide, fungicides and PGRs are experiencing good demand with our robust supply chain and renowned broad names, we are poised to capture market share from unorganized case . We anticipate good growth, stability and profitability in the herbicides, PGR and biorational Product segments. In order to mitigate the effects of seasonality on our company, we have diversified our product portfolio to encompass both Kharif and Rabi crops and are focused on augmenting our PGR segment's contribution. Our strategic plan includes upcoming product launches in this segment, which will further solidify our position as one of the top leaders in the industry.
The new products and brands that we launched during the last fiscal year have been accepted by the channel partners as well as distribution network and have had a decent beginning, given the limited time that these products had in the market over the last few months. As a part of our ongoing efforts, we consistently evaluate for our product portfolio to identify any gaps and work towards time. In that process, we are anticipating to launch at least 102 products in the current fiscal year.
Our company's robust field promotion initiatives have enabled us to establish direct connection with farmers where they're facilitating their access to optimal for management techniques. This, in turn, empowers them to enhance productivity and operate more efficient agri business. By leveraging real-time feedback, we have the opportunity to enhance our relationship with farmers, gain valuable insights into their needs , and drive growth as an organization. We have directly reached out approximately 4.4 million farmers and about 30,000 channel partners. Furthermore, we have implemented digital marketing as a supplementary to conventional marketing methodologies to enhance consumer product awareness and educate farmers on optimal form management practices. Our portfolio comprises of 23 websites across 9 local languages and multiple social media platforms, which are yielder and staggering 20 million digital engagements.
With that, I hand it over to Mr. Kunal Mittal our Senior Vice President, Planning and Coordination of his to take this to the next segment .
Thank you, Mr. Shah and Dr. Suresh. So first, we will start with our consolidated financial performance for Q4 financial year 2022, '23. In this quarter, our top line in financial year 2022, '23 Q4 was at INR 652 crores as compared to INR 664 crores in the previous year. The sales growth was impacted due to several headwinds in domestic agrochemical industry as explained in detail by Mr. Shah. Challenges in the domestic market were partially offset by export sales. Q4 is not a major consumption period for the domestic agrochemical industry, and we believe our performance is respectable in the current extraordinary adverse situation.
The Insecticide segment recorded a flattish growth trajectory. Fungicides and Metal Phosphide segment witnessed over demand, which was moderately compensated by strong growth in Animal Nutrition division and Environmental Health division . EBITDA was at INR 81 crores in Q4 financial year '23 as compared to INR 109 crores in the same period last year. Profit after tax stood at INR 72 crores as compared to INR 75 crores in the same quarter last year. While the margins at gross level were lower, our company quickly focused on controlling the overhead cost and the cost management. These efforts ensure that our overhead costs were lower. And at net profit levels, our margins were largely in line with our past trends.
Coming to our consolidated performance for financial year '22, '23, which, in our view, is a more reflective situation of the current situation. The revenues from operations in financial year '22, '23 were at INR 3,500 crores, which was increased by approximately 15% as compared to financial year '21, '22 when we had recorded revenues of INR 3,061 crores. In domestic market, a large part of the growth was due to price increases across our portfolio segment, whether it is Animal Nutrition, Environmental Health and whether it is export market. In all the segments, we delivered price increases. In export market, the growth was both on account of volume growth as well as price growth.
The sales growth in financial year '23 was primarily driven by impressive growth in Herbicide segment, which was contributed by multiple products and not just one particular product in Herbicide segment. And all in several of these products in Herbicide segment, we have very good market share. The share of exports in the total revenue increased from 22% in '21, '22, to approximately 25% in financial year '22, '23. This was on account of increase in exports to Latin America, Africa and some other important markets and increased shipments to our parent company in Japan.
In financial year '22, '23, Insecticides contributed to about 43% of the total revenue, while Herbicide was 24%. Land growth regulator and Fungicides both contributed approximately 9% each in our revenues. EBITDA margins witnessed a growth of 11% from INR 600 crores in financial year '21, '22 to INR 661 crores in financial year '22, '23. Our EBITDA margins were 19% in financial year '22, '23 as compared to 19.6% in the previous year. We were able to sustain our operating margin as a result of our initiative to pass on the higher input costs. This was further aided on improvement in our operating leverage, better product mix, cost optimization and better cost management, especially in the second half, and we continue to realize our synergies.
Tax for financial year '22, '23 witness a jump up 19% to INR 502 crores from INR 423 crores last year. We maintained higher inventory levels as compared to previous quarter on account of the approaching Kharif season. However, as compared to the March 2022 levels, inventories are at a much lower level, and this indicates our corrective actions in line with the dynamic and challenging situation in the market, especially in the near term. During the financial year '22, '23, our collections were at INR 3,676 crores as compared to INR 3,458 crores during financial year '21, '22.
This also indicates that our team's ability to generate ground-level demand and liquidation, which is followed by the actual collections. No sales in our sector should be considered final until the material is consumed and collections are realized. And our teams continue to keep this in mind and follow disciplined practices even under challenging situation.
Our net working capital stood at 124 days in financial year '22, '23 as compared to 133 days in financial year '22. This improvement is largely due to the lower inventory levels, which were partially offset by fall in payable days because we have been purchasing at immediate payment basis for some of our purchases. We have cash and cash equivalents amounting to INR 827 crores as on 31st March 2023.
On the manufacturing side, since our overall volumes were lower, our production levels were also lower, especially in the second half. However, all our operations team focused on the strategic cost optimization efforts, and this was our response to the challenging market situation. Our projects team expanded our manufacturing capabilities in line with our making India initiatives, which we had announced. We had earlier announced that we will be investing approximately INR 1.2 billion, which is about INR 120 crores for 2 made in India projects to develop several proprietary products for our parent company and our global affiliates.
This is over and above the normal and routine CapEx, which we have been incurring for our existing products and businesses. Both these projects are progressing as per the expected time lines. One of the projects, which is a Bhavnagar facility for one important molecules has already commenced commercial operations in the last financial year and this is a very important molecule. For the second project, which is at Tarapur, which is a multiple product plant for mainly our EHD products, this plant is expected to start commercial production in the Q1 of financial year '23, '24. These projects are being implemented, both these projects, which we mentioned, Make in India projects, these are being implemented in our current facilities and the operating margins of these projects are expected to be in line with our company's existing margin range.
Both these projects are expected to contribute to the revenue growth in financial year '23, '24. However, it may not be the full capacity levels in the current financial year because one of the projects will be started in a few months' time. A variety of additional products that can be manufactured in India are also being evaluated and there are discussions at various stages. One -- and whenever the projects are approved by our Board for the further investments, we shall keep you updated.
Our R&D team is also involved in several product development, especially in the off-patent segments in the [ premier ] combinations and focusing on the products for the future demand in the Indian domestic market and also in the export market, and also in high regions such as Latin America, Africa and some Asian countries.
We would like to second what Shah mentioned earlier. We are very proud of all our teams who work together in the challenging situation and delivered a very respectable performance in this challenging situation. We have always maintained quarterly performance may sometimes have variations due to weather impact or seasonal impact, and the annual trends are more accurate reflection of the overall performance. Overall, our performance in financial year '23 is in line with our past tech recall, wherein we have delivered 1500,000 in the last 13 years since 2010 when we started focusing on the Indian market. And consistently since 2010, we have achieved growth every year during this journey. And this gives us a confidence that we have built up a fundamentally strong business.
As one of the most diversified platform in Indian agrochemical sector, and with a good track record of extraordinary year-on-year growth every year in the last 12, 13 years, even in some of the challenging year situation like last year, we continue on the path towards our strategic ambition to take the leadership position in the Indian agrochemical industry.
With this, we would like to take a pause, and we would like to open the floor for question and answers.
[Operator Instructions] The first question is from the line of Swati Hiroo from Ratnabali Investment .
Firstly, I just wanted to say that while I understand the entire industry has gone through a very challenging period, your team has still managed to outperform the entire industry. So I just wanted to say congratulations to the entire team. So my first question is that I wanted to understand if you could give us a basic sense of how many proprietary molecules are there in Sumitomo Japan and what percentage of that has been introduced in India?
All right. Thank you for your question. First of all, thank you for your acknowledging our teams good work. Thank you very much for that. To your specific question, well, the parent company has many proprietary products. And quite a few of them, we are already in Indian market in terms of importing the active ingredient and selling our brands of those active ingredient. So that would be at least 10 molecules, which we would be in the brand business of parent company. And we are manufacturing as of today, 2 active ingredients, which is a part of proprietary products of Japan, and we are in the process of starting the production of 5 other molecules by the month of end of June or beginning of July, which will add to that portfolio.
However, I must -- even in addition to that, I must say that India is being considered now as the production hub for Japan. And we are in talk with us for many molecules, at least 5 to 6 molecules further, which are the top class molecules, not the old molecules, and they are talking about getting them produced in India. So that is at the feasibility stage. But all in all, we have full support from our parent company to make India a very robust production based company.
Sir, I understand, but I just wanted a sense whether, say, 20% of the total basket has been introduced in India, 50%, 40%, and why are we bringing that entire portfolio to India at one go?
So it is impossible to do that, number one, because all the products have to go through a very, very rigorous bar efficacy test. We have to convert those products to be usable in India. We have to fix up the ratios, the type of formulation the strength of formulation, and it is a long drawn process. So I think we can take 2, 3 products at a time. The registration process again is a very long process. So it cannot be brought all in one go. And if you see the trend in the industry also of other multinational companies, nobody will bring the entire portfolio at one go. There will be only one or 2 maximum 2 products every year that will be coming in. So that is the way it works, Swati.
Okay. So sir, what percentage approximately if you could just give me a sense that we achieved so far?
I doubt if I can give you that because we have an actual [indiscernible] 17 products already. And Japan could have maybe 40, 50 products, so that way -- and also Japan continues to have pipeline products. So it's very difficult to give a percentage. But overall, I can assure you that we are on a very good -- in a very good situation of getting the products from Japan .
And this what, Swati, Mr. Shah mentioned is only from the marketing and sales side. From the manufacturing side, we have just started with a very limited number of products, and there is a very wide variety , as Mr. Shah mentioned, maybe 40 to 50 SEC products. And currently, we are only producing 4 or 5 products in India.
Understood. Understood. My second question was that Sumitomo Japan has recently made this acquisition in the biostimulant space. So I just want to understand how the Sumitomo India benefits from that? And does -- do these products in any way help India reduce, say, the fertilizer subsidy that we have?
No. This biorational product, this is a very interesting acquisition that is made by SEC. And we just have had one meeting with the global colleagues, including Japan and U.S.A. to understand what that portfolio means. And in coming months, there are going to be more definitive interactions of how to bring these products into Indian market. And I will request Uzawa-san who is here with me to throw some more light on this.
Thank you for asking that question. The company, we, Sumitomo Chemical, Tokyo acquired a very strategic one with the biosimilar business. And then so far, that business side is limited. And then the mortgage they're selling is almost only limited in the United States. However, we are expecting we can roll out that product globally as once we can get the registration in those regions.
So we are targeting some regions, for example, Latin America and Europe and, of course, here in India as the potential market. So we're excited to expand that business we acquired into all of the regions, especially the fastest-growing market here in India.
The next question is from the line of Kapil Agrawal from Itus Capital.
So historically, you've been able to protect margins better to the industrially even today, you continue to do so. So for the first time, we are seeing pressure, both on the margin front as well as on the revenue front. You mentioned China opening up your side business. We would like to understand what you're seeing on the ground? And based on your experience from history, how would you look at the situation for opportunities?
Well, and as I mentioned in my opening remarks, the situation or the conditions of business turned adverse very, very rapidly. And without any warning, we have to act very fast in terms of controlling our inventories, definitely controlling the prices and not eroding the sales rise to an extent that the market has fallen.
Just to give you an example, our -- compared to the last year -- last financial year, fourth quarter, where we had strategically imported more raw materials for stocking because we saw the price trend going up, and which actually happened in the first quarter of financial year. As compared to that, we reduced our purchases from -- for stocking of purpose almost by 20% as compared to the previous quarter. So that is what action we took.
And the ground reality is that prices are falling every week until now. I think we are seeing some stability of pricing as of the beginning of the month of May, but still [indiscernible] line, the prices were drastically falling every week. I think now the prices have bottomed out. I don't see any further erosion of prices in this sector. And we are trying our best to liquidate whatever limited high-cost inventory that we have as quickly as possible and move on to lower cost inventories Also, every month on the basis of average costing principle, we are reducing our cost every month, price from January, February, March, April and May. And going forward, we see the same trend. So I think we should be fine in a couple of months.
The next question is from the line of Anand Sawant from PGIM India AMC.
For the year -- Financial year 2023 what would be the contribution of glyphosate as a portion of your overall domestic business and export business? And if you could give some color on what kind of margins would this product be going for the -- for this fiscal year?
So see, the glyphosate, what we had in the current year, our volumes of glyphosate came down by 17%, but the value of that -- even the reduced volume went up by 50%. So it was quite a volatile situation. The prices have corrected as of April 1. We can predict that prices will still correct somewhat additionally. And I think it should settle down on the onset of monsoon.
And we expect to grow our volume to our previous levels, so we are expecting growth of glyphosate both in domestic market as well as in export market. We have got some new registration in African countries for our glyphosate 71% formulation. And we have started the export of this, which also we feel that will increase in the current year '23, '24.
Just to add here and supplement whatever Mr. Shah mentioned, the overall proportion of glyphosate sales in financial year '22, '23 was approximately 18%, which was as, Mr. Shah mentioned increased due to the higher price evaluation . Historically, If we see last 2, 3 years, it used to be about 15% level.
Okay. And this 18% would have come at higher than corporate average margins, given the core of the price increase?
Margins would largely be in line with our company lower margins.
Half the margins are high in the second half, it was slightly lower. So overall, it will be around the corporate line.
Okay. Okay. And how do you see the on-ground situation in India currently given the lack of clarity or some confusion with regard to the government regulation for the product?
So we don't see any issue in that. I said that, first of all, the important thing to note is that government is not talking about tightly restriction in usage of [indiscernible] hey are only talking about the mode of using that, how it should be or by whom it should be used. So as you must be aware, the matter is in the court and government has given a date of 19th of July that they come up with some solutions. And we don't see any solution to this situation. So it will get again postponed or maybe the relaxation in the circular.
Okay. And with regard to the LatAm market in the presentation, you had mentioned that there is some sort of a channel high inventory in the market. So in the current scheme of things, or if I look at fiscal '24, how should we look at the overall export business for the company? And specifically for the LatAm business, how should we look. For LatAm one of the fastest-growing piece for Sumitomo the last couple of years?
You are absolutely right, and we are concerned about this situation. However, the LatAm situation is also a matter of that. I think it is not a year , say or anything. It is absolutely true that they are stuck with very high inventories. And what we see is that during the first half, that is up to August, the demand may be slow, but we are certain that as the season starts from June, a lot of inventories will get liquidated, and we should be back in normal business condition with LATAM in the second half.
Okay. Okay. And with regard to the pricing for your supplies to subsidiary from just a concerns of your patent in the export business, would the pricing -- transfer pricing would be in terms of margins, or it's a cost-plus kind of a pricing that happens or it's more of a market determine pricing to the extent that in case there is a sharp fall in the pricing, you will have to take some of it on the margins also?
No. So it is on the margin basis, it is not cost-plus basis , number one. Number two, the prices, if it goes down, I think for those molecules, I don't think we face that kind of situation. And this type of situation is more in generics like glyphosate, [indiscernible] But these are the different product lines, and we don't face any such volatility in pricing in terms of input costs as well as our selling price.
Okay. Okay. So if I look at FY '24 in terms of growth and margins, how confident are you of maintaining that 19% plus or minus 1% margins that you -- the guidance that you had given previously would be able to maintain FY '24?
When our endeavor will be progressed to maintain it, apart from the exterior situations and circumstances, our endeavor Will be to maintain this type of margins.
Okay. But any recovery that should ideally in the current scheme of things, it should be more in H2 kind of recoveries? what one should ideally build in, in the current scheme of things that you're seeing on ground?
I'm sure that in a part of H1 also, we'll see a turnaround. So maybe this situation could be a little bit on a lower side in Q1, but we expect Q2 to bounce back to numbers.
The next question is from the line of Gagan Thareja from ASK Investment Managers.
I hope I'm audible.
Mr. Thareja Please use your handset phone.
Yes, I am on the handset. Is this better? Can you hear me?
I can hear. We can hear.
Sir, the first question is on the tax rate for quarter 4, it is low. Any explanation on why that is the case?
Yes, that is because we got some refunds of the previous [indiscernible] going on. And I think there was a substantial amount. So there is a difference of around 2%, 2% or 2.5% about INR 12 crores, we got refund, so that's why you see the lower tax in the sheet.
And the 5 molecules that you will start your contract manufacturing for you have indicated that the potential could be around INR 200 crores to INR 250 crores. Up to what proportion of that peak potential do you foresee yourself peaking in this year?
In this year, since we started the production same by July, and we will have only 9 months and taking into account certain illustration delays or something of that sort. I think we will achieve at least 50% of our target to this year.
I will be somewhere will be more than 50%, but at this point of time, it is very difficult to predict because the plant has not started the commercial production. And if everything goes well, it could be slightly higher. But the reports Mr. Shah mentioned, a lot of uncertainty that when it will start. And hopefully, everything can start and order administration globally can be in line, and then we can achieve I think our targeted revenues either this year or certainly by next year, we should be exceeding the comp.
So we are attempting -- we are trying to achieve atleast 50% this year. And also, let me tell you, I mean, for the entire group who is listening that the revenues of '22, '23 does not include any revenue from our [indiscernible] Plant, which we started in Q3 of 2023 in Bhavnagar . We have produced -- we are producing the materials, but we have not commercially build any material in the revenue. So it doesn't come in the revenue of this year. So for '23, '24, we also expect that, that will -- what revenue will be coming in.
So that production, we are continuing. And the only reason why we could not invoice or export that product is because of some delay in U.S. for the approval of the label and the final registration copy that they have to receive. So now it will -- it is all clear and we'll start commercial shipments during the year.
Right. So this will be in addition to the other 5 molecules?
Right .
No, this is part of those 5 molecules. So there are 2 projects, one project already started the commercial production during last year. As Mr. Shah mentioned no revenue has been achieved. It is always the commercial production and inventory buildup, which we have done so far. And the second project, which involves 4 multiple products will start -- the plant will start operations sometime this year, in the next few months. And both of these projects should give us some revenues during current year. And that is why we are confident as Mr. Shah mentioned that we will have revenues and all of these revenues in the current year will be incremental because there was no revenue from this project in last financial year.
This year has been strong for your exports, 30% growth, given the situation in Latin America with the channel inventories being what they have. Would it be possible for you to give us some idea of where your exports growth settle in '24? On the one hand, you have this issue of slowdown in South America and at the same time, you'll ramp up your speed, how should we think of the exports growth? And for that point also on the domestic piece, since you've introduced new molecules last year, while the environment is a little subdued between the new introductions and the environment, how should we think of the domestic growth.
Thank you. As Mr. Shah mentioned earlier in his comments, yes, the LatAm market is facing challenges currently. But our estimated that the current inventory should get liquidated or cleaned up by the end of first half latest . And second half normal demand should come up and we could start significant upsides. Or some upside at least during the second half of the year, while the first half still is not 0, some sales would have continuity... .
While that has been the LatAm situation, our focus is also on growing the African market, where we have recorded good growth last year. We've got a couple of new registrations, which we want to build on. And another one is Asian market, where we are focusing to grow. So overall, the exports market will continue to grow, including LatAm. That's our anticipation at this point of time.
Now coming to domestic market, the new launches. We launched about 6 new [indiscernible] our 6 new -- 93 registration products, which were launched sometimes starting from July of last year and could not get the full season somewhere launched as late as in February and 1 product Butadiene in April. Some of these products got full season last year, It goes all like 3 months, 6 months, 2 months. There is always a craze for new technology among the farmers in this country. So whatever we have launched, we have delivered whatever our internal targets were for '22, '23 underway channeling conditions.
There's quite a bit of field promotion activities, Brand building activities, digital marketing initiatives. All of those things are not let it go despite the challenging condition in -- we knew that these are our new products we had to invest, and we did all the groundwork whatever was supposed to be done during any launch year. And our team's full focus is on ramping up these new products in the current year. We are quite confident that whatever feedback we are getting either from the channel on the farmers, they've all been accepted well and the products have gone as per the plan. And this year also, it could -- despite the challenging conditions, people would look for new technologies, and these products would definitely record growth in the coming year .
Then we would also like to highlight that, see, this one year or 2 years could always be variation sometime. But as a strategy and as a trend and direction, what we have been saying since last 2, 3 years that we will be growing our off-patent molecule growth in exports market in Latin America, Africa, we have achieved and we will achieve it in the future. And in addition to that, manufacturing of the proprietary molecules under Make in India expansion of that portfolio and making more products and exporting it to our parent company and also domestic businesses.
So all of this continue to be growing and one year could be up and down. That's I think we are seeing the current situation. But as a trend in medium to long term, we are on that strategy, and we will continue to achieve and deliver those strategy next medium to the long term.
Right. And you also talked about 5 or 6 more additional molecules, which are under discussion to be bought for production in India. Just to understand, we've got -- we've been giving some idea of the scale that the first 5 can achieve. Is it possible for you to give us some idea of the scale that the next 5 or 6 can achieve given that you're talking of the being relatively larger if I understood it correctly, relatively larger molecules.
I think it would be unfair for me to give you the number, but I can assure you that we are in discussion with SEC Japan. And these are all the molecules. We are talking about the new technology, new molecules and very, very bright futuristic growth molecules. So they are all new generation. So it's -- nothing is generic. It's a new generation products and with the type of forecast that japan has for these products in the global markets, it would be a very, very good situation for Sumitomo Chemical India to be in manufacturing these products.
Like any time lines you could provide as to when you see this testify I understand you have to ramp up the first 5, but any time lines roughly to work with or...
We are going to start our development work of direct site sometime in 2023, '24. And if you take the registration process and installments of plants and machineries, I would say 3 to 4 years.
So final question, the INDIFLIN , I think a patented molecule, while LATAM is in a bit of a difficult situation, it's probably more from the point of view of generic molecules. So I wanted to understand if INDIFLIN is going to do well irrespective of the situation there, in which case for you, tebuconazole and will therefore that also irrespective of the current situation go well?
Your understanding is correct. We don't see any slowdown in INDIFLIN . And indeed, as a matter of fact they have projected very good volumes. So we expect very good orders of tebuconazole in the second half.
And you have more capacity constraints I think there was some issue we call in the earlier quarters of 2023, you indicated you sort of at full capacity there. Have you added capacity for Tebuconazole ?
No. We have increased the capacity, and we have enough capacity to cater to the demand of INDIFLIN plus Tebuconazole.
Mr. Thareja, may we request that you return to the question queue for follow-up questions. [Operator Instructions] The next question is from the line of Chintan Modi from Haitong Securities.
Sir, firstly, we had a fire incident in Bhavnagar site in February. So if you could highlight whether there was any one-off impact because of that in the fourth quarter? Or we are likely to see some impact in first quarter?
Yes, there was an unfortunate incident of fire in our Bhavnagar plant. And I wouldn't say that we had any impact on -- due to that in the fourth quarter or the first quarter because what we have done is both the products, the 2 products which were manufactured in that plant, we have enough raw materials in our books. And we have got that same converted into finished KIs by a very reputed 2 companies on top of basis. So we are being able to fulfill our domestic as well as export demand of these 2 products as of now. However, one of the product Tebuconazole is primarily the second half product . And [indiscernible] is another product. We are continuing -- continuously exporting it to Asian markets. So there is no impact on revenues because of this.
Sure. Secondly, with respect to CapEx, this INR 120 crore CapEx, which we had for these 5 molecules, I think that will get capitalized in first quarter itself. Can you tell us beyond that, what kind of CapEx one should expect for FY '24 and maybe for FY '25?
So just to correct part of the CapEx has already been capitalized in last financial year, financial year '22, '23 and part of this will be capitalized in current financial year once the plants start the commercial production. And in terms of the forecast for our CapEx, as we have mentioned that annually about 12% to 15% of EBITDA, we look to invest in our CapEx projects annually for various activities like debottlenecking, sustainability, making the products more efficient, modernizing our plants.
In addition to that, whenever something extraordinary, like a project specific CapEx is approved, we will do additionally. And as Mr. Shah mentioned that I think even if we do something in later this year or next year, it will take 3 to 4 years for those kind of projects to come up. So we do not have the estimates right now that how much that additional CapEx would be. But as and when the Board approves this, we will keep you informed.
But this quarter we [Foreign Language] .
But yes, this will be larger. I think as Mr. Shah mentioned, the large CapEx cycle for this project, which we did was INR 120 crore investment with a revenue potential of INR 200 crores to INR 250 crores, so the next cycle is expected to be hopefully bigger and more I think important for the high-value products. So the CapEx cycle could also be larger for development of our Various site, some products for SEC hopefully, the revenue potential should also be larger as compared to our last cycle, which we are about to complete now.
The next question is from the line of Ankur Periwal from Axis Capital.
One question and one clarification. A question on the export side. You did mention that there are potentially more molecules from the parent, Sumitomo Japan which can potentially come to India. Is there any filter or short list or any technicality in terms of chemistry specific understanding and hence, the target universe will be limited or the technology, et cetera, can be transferred and there is no restriction on that?
There's no restriction on that. I think the entire technology transfer can be made. No restriction on that.
Sure. And from a time line perspective, it's just a matter of time, as you mentioned, since they are looking at India as a core manufacturing base?
Right.
Okay. And a clarification on the domestic side. You did mention slightly higher inventory in the system. Wanted to clarify whether that is a scenario both for our specialty range of products as well as the generics? And by what time frame should we expect things to normalize?
So it is not pertaining to specialty at all. It is pertaining to only generics. That is number one. Number two, as I mentioned, that every month, I mean luckily or fortunately, by grace of god , we did not carry huge inventories in this particular fourth quarter of '23. And our levels of inventory at high cost is coming down every month because we are replenishing the new price raw materials every month to a limited extent. So we are seeing that our average costing is coming down in month of May from April and our June prices are also coming down as compared to May. So by end of June, I don't think we'll have any old high-cost inventory.
The next question from the line of [indiscernible] from [ Avendus ] Wealth.
Quick 2, 3 questions. Sir, I just wanted to understand, Sumitomo Japan, they might be -- they are going to shift -- they are going to manufacture $1 billion of molecule, right, the new [ patented ] ones. So that -- and the formulation, if the value is $1 billion, so can we assume that 30% would be the technical contribution and will that be the addressable market size? I understand we may not have registrations or technical capabilities, but broadly speaking, possible to quantify that?
So see, this what you mentioned is the sales potential with SEC has mentioned for some of the new latest generation molecules which have been -- and this is the estimates on a good case basis once the products become mature. But some of these products have just been commercially launched in some geographies. The second product will be launched. So this is a multiple 3, 4 products to be launched across the avoid and ramp up to be seen And hopefully, SCC can achieve those kind of [indiscernible] projections they have given.
In terms of the manufacturing potential, how many of these can be made in India and where if and when, I think that is not yet decided because I think what we have seen in the past is typically for some of these new molecules, the first facility is set up very close to the R&D facility.
And once the ramp-up is happening to a very mature level over 3 to 5 years, that is a time when it can be decided whether to set up those capacities in Japan and India. So I think it is very difficult to give you that kind of estimate that out of this $1 billion or $1.2 billion mentioned, how much of this will come to India. It is too, I think, premature to give that kind of estimate right now. But certainly, I think, as Mr. Shah mentioned, the talks are on that is some of these mall molecules and chemistries can be made in India, that kind of thought is certainly on the direction, if we will look at it for sure. But how much and what percentage, what amount, it is too early to commit, I mentioned.
Okay. But I just wanted to understand that INDIFLIN and all those newer patented molecules, I think they've taken almost 1 and 2 years into their cycle, right? So what time will they reach the peak cycle? Is it in the third, fourth year? Or is it in the fifth, sixth year because I think no new capacity is going to come in Japan, right? Or they are going to expand because the older molecules gradually they'll have to shift to India because India is the only technical facility, right? So if you can throw some light on that?
So what I told you precisely that as per the estimates of Japan, these products will require more active ingredient in 3 years, 4 years' time. And that is why we are talking today, and we are trying to match that gap of 3 to 4 years, whereby we should be ready with the production to cater to the global demand or increased demand. So that is precisely why we are starting to talk now and ensuring that when they require that additional volume in 2 year , second year, third year, fourth year, at that time, we have the production facility to cater to that demand.
[Operator Instructions] The next question is from the line of [ Ramesh from Nirmal Bank Equities ].
Thank you, and good evening My first part is looking at the reduction in the inventory values and overall price table, This would be a reduction in the top line for first quarter and -- So if you're looking at volume growth, how have you seen the outlook for margins? Are you looking at margins per unit being maintained and whereby be Sumitomo helping you achieve the percentage margins or are there benefits from the new launches, which will give you some improve because if your top line is going down, logically the margins will fall. So that's all the end question.
Yes. So it is a combination of a few things. Definitely, we'll increase the volume of new launches. That is number one. Secondly, the prices which are falling, obviously, the top line will be affected. So our strategy is very clear that whenever top line, the prices have fallen off the product. Our plan is to increase volume substantially in those products, so that total margins at the end of the day It is maintained.
Okay, makes sense. And the second question is if you are looking at BioSolutions I think you started launching some products. So what is the total production from that? And to what extent you will be able to get the benefit of the percent that if we have to value biosciences many [indiscernible] Bioproducts.
Yes, we are -- every year, we are having some product order even this year. In the late fourth quarter, we launched [indiscernible] product in this segment, and we got maybe half of the season to cater and the product is very well accepted in the market.
So we are looking forward to the full season for this product, which is meant for Apple in this financial year. Also, there are 1 or 2 other products, 2 products [indiscernible] which are under registration. We hope that we get the registration this year, that will also be launched.
So yes, Bio is a -- this segment is very strategic for not only us but Sumitomo Chemical Japan, and they are very, very insistent on this segment to grow. And that is why they are making a lot of investments in M&A opportunities of bio companies. And as I mentioned earlier, this new acquisition that they have made, we have to make a lot of studies as to reach of the products of that new acquisition can be brought into India.
So all that discussion will start in maybe in the second quarter and I think there is a meeting, global meeting on this subject in the month of July, I suppose, and that it will be ruled out. So it is going to take time, but surely, we are both Sumitomo and Us both are looking forward to having some good products out of that range to be introduced in India.
[Operator Instructions] The next question is from the line of [indiscernible] from [ Tunga Investments ].
Two questions. First is, that I understand that we don't have any royalty payment towards our parent right . So what's the thought process there because almost all of that Japanese companies that are listed in India have royalty payments. So how do you think about it? Do you roll out royalty for the next couple of years? What's apparent?.
Well, I think I can best answer this question that Sumitomo Japan is very clear about the focus in India. India is a very, very important and strategic country for them. They have deliberately not asked for any royalty so far, even for technology transfer products. And -- however, I cannot say for sure what will happen in future. But I'm sure that the royalty, even if we have to pay will be such that it will not even hurt us at all. So It can be token royalty or it can be nominal royalty or it can be anything.
But of course, yes, your assumption is right, as of today, we are not paying any royalty to Japan. I can only assure you that I will, on behalf of this company, I'll try to maintain that status forever, but I cannot say that what japan will think. But I'm sure that Japan will -- as India is strategic for them, I think royalty is not on their minds. What is on the mind is how to grow Sumitomo Chemical India, how to make the best advantage of manufacturing base over year and how to supply the products globally at an economical rates and how to increase the volumes. I think that is the strategy.
And just to add here, I think the supplementary information, I think, as Mr. Shah mentioned, this is a philosophy of our parent company, SCC Wherever transitions are involved, we are not at all talking about royalty. However, in some cases, where there are no transactions between our company and our parent company, and we might be using some of the intellectual property of our parent company, there might be from the compliance and asset pricing point of view, there is some token royalty required, which may not be like any amounts or any kind of a token amount just from the tracker pricing pricing compliance front of view.
There are no transactions, but only use of the intellectual property of our parent company. Those kind of things can certainly be looked into in the future to make sure that we are 100% compliant, but apart from that, from a fundamental point of view, as Mr. Shah mentioned, there is no expectation from our parent company to make any kind of money or revenues out of the royalty from India.
The next question from the line of Prashant Biyani from [ Elara Securities ].
My question is for Mr. Uzawa. You -- in your interaction with the SCC management from Japan, how do they plan to use the surplus cash of Sumitomo? And secondly, can SCC association with Sumitomo India extend beyond agrochemical business?
Mr. Biyani, on the lighter note, you have asked a wrong question to right person, give me all the division back. Sorry, Yes, please.
Yes, sure. As you know, India management mentioned a couple of times here in India market is a very strategic one for Sumitomo Chemical Apparent company Tokyo. So what we are thinking now is spend the money by ourselves. ourselves means to India to accelerate the growth here in India. So invest in manufacturing, invest in new technology, invest in new products, that's the expectation from SEC Tokyo.
And second question was money , will cover the second question as well., I think. So if you have further questions, e-mail to SCI later.
We'll take the next question from Rohit Nagraj from Centrum Broking.
Am I audible?
Yes, sir .
Sir, again, my question is for MR. Uzawa Sir how much of the global outsourcing for Agrochemicals does SCC Japan do? And second is, again, a Light question. Now [indiscernible] mention of the cost project, outsourcing project. Why are we taking so much time to consider for the next project, given that there will be a [indiscernible] time for say, 3, 4 years before we commission the [indiscernible] high-value projects are [indiscernible] project? So between this [indiscernible]
[indiscernible] Sir, we are not able to hear you.
Yes. [indiscernible] Sumitomo Chemical Tokyo have not put [indiscernible] to transfer [indiscernible] here in India. Then the reason why the time is the market evaluation is so important and then product should fit here in India. From the marketability viewpoint as well as the manufacturing, we need to carefully take a look at that part and then once we build up the facility, we do not want to stop that operation after 3 years or 5 years, whatever. So that's why we carefully see those minimum 2 points.
And also [indiscernible] It should be a goal in line with the manufacturing plant. Sorry, I'm saying -- and then we are not relying upon the third-party manufacturer. Strategically, the manufacturing site in Japan and manufacturing type here in India are the 2 pillars for Sumitomo Chemical globally. So maybe, yes, it might be [indiscernible] what we keep the [indiscernible] high priority on those 2 countries, Japan and India as the manufacturing side.
We'll take the next question from the line of [ Nitin Shakdher from Green Capital Single Family Office ].
And first of all, congratulations to Chetan bhai, Uzawa and the entire management. So we have [ INR 20 crores, INR 70 ] crores of cash. I understand [ INR 75 crores ] got into maintenance, about [ INR 1,140 crores goes ] into the plant CapEx. And [indiscernible] indicated the plant CapEx over the last 2 or 3 quarters, in relation to -- can you give you exact specifics on the Tarapur expansion, which is supposed to be completed by the first quarter of '23,'24?
And is that things on the Dahej. And then specific to the [indiscernible], so how much are we on and exactly what's the state of the CapEx in terms of the large cash position?
So we have already capitalized around INR 40 crores of [ another ] plant in the previous year in '22, '23 and around INR 80 crores of CapEx will BEE capitalized for the plant in Tarapur, which will go on stream in latest like the month of July. And over and above that, of course, as Kunal also mentioned, that we have a regular CapEx for improvement in process or capacity expansion or something of that sort, that will also continue. So all in all, that is a CapEx distribution. And for the Dahej side, we feel that over a period of time, like [ 3 to 4 ] years, starting from this year or later this year, I think we'll have the CapEx flow of almost INR 300 crores to INR 400 crores.
Thank you. Ladies and gentlemen, due to time constraint, we will take that as a last question. I would now like to hand the conference over to Mr. Sushil Marfatia, Executive Director, for closing comments.
Everyone, thank you for asking some interesting questions, and thank you to our colleagues for replying the same. We hope We would have addressed your queries to your satisfaction. While the commercial forecasters IMD predicted below average range, the IMD predicted normal range for the current year . The IMD forecast is encouraging news, especially in light of the current uncertainties. It's not only just bodes well for the agrochemical sector but also for the whole Indian economy. The performance of the agrochemical industry in the upcoming Kharif season will be determined by various factors, including timely onset of the monsoon, its progress across the country and equal distribution.
The Indian agriculture industry currently accounts for a modest portion of the global agrochemical production. The Indian agrochemical industry is poised for growth driven by the furnace among the farmers about benefits of using premium agrochemical products. This trend is expected to result in higher crop yields and improved crop quality, which in turn will enhance the profitability of the farmers, the government and authorities efforts to enhance the agricultural productivity through various reforms, and initiatives are expected to yield long-term benefit for all stakeholders, the company's strategic initiatives to optimize its product mix, expand its distribution network and increase products and capacities are expected to set performance forward.
We will continue to the situation and take best efforts to hedge our growth. Thank you for taking your time and participating in the first call. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of Sumitomo Chemical India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.