Rallis India : Q3 FY 2021-22

Rallis India Limited

Q3 FY22 Earning Conference Call Transcript

January 20, 2022

Moderator:	Ladies and gentlemen, Good day and welcome to Rallis India
	Limited Q3 FY '22 Earnings Conference Call. Please note, that this
	conference is being recorded.
	I would now like to hand the conference over to Mr. Gavin Desa
	from CDR India. Thank you and over to you, sir.
Gavin Desa:	Thank you, guys. Good day, everyone and thank you for joining us
	on Rallis India Limited's Q3 and nine-month FY '22 earnings call.
	We have with us today Mr. Sanjiv Lal, Managing Director and CEO;
	Mr. Nagarajan, Chief Operating Officer; and Ms. Subhra Gourisaria,
	Chief Financial Officer.
	Before we begin, I would like to mention that some of the statements
	made in today's discussions may be forward looking in nature and
	may involve risks and uncertainties. A detailed statements in this
	regard is available in the result presentation.
	I now invite Mr. Lal to begin proceedings of the call.
Sanjiv Lal:	Thanks, Gavin. And good morning, everyone and wish you all a very
	Happy New Year. As mentioned, I am joined in this call, along with
	my colleagues Mr. Nagarajan and Subhra Gourisaria.
	A quick word on the industry before I move on to Rallis specific
	developments for the quarter and year-to-date. For the industry as a
	whole, after having grown in mid-single digits during the first half of
	the fiscal, Q3 has been somewhat challenging for the domestic
	market. While Rabi sowing area has seen about a 1% improvement
	over the previous year on account of healthy water reservoir levels
	and better northeast monsoon. Factors such as unseasonal rain, pest
	attack in chilli owing to black thrips, ban on hybrid paddy crop in
	Andhra and Telangana, etc., resulted in lower domestic demand
	especially in the southern region.

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The situation was further compounded by high input costs. Prices of certain input materials have seen an increase in excess of 50% on account of tight supplies from China during the month of October and November. However, over the long-term, we believe the China plus one strategy adopted globally across sectors provides a long growth runway for the industry.

Moving on to Rally specific developments,we delivered a revenue growth of 10% during the quarter. If one was to split the performance between international and domestic, our international business grew by 19%. Domestic crop care business owing to be challenges I referred earlier, had a growth of about 9%. Ban in states like Andhra and Telangana, as well as hybrid level challenges in our portfolio led to a decline in seeds of 31% year-on-year although on a small base.

Exports business has been fairly steady supported in part by favorable agronomic conditions, especially in Europe and Brazil, and higher crop prices as well. EBIT for the quarter was maintained at last year's level. Despite higher raw material prices and competitive intensity resulting from varying opening stock levels across companies our timely and frequent pricing actions have enabled keeping EBITDA margins at similar levels to last year. We're hopeful that the input prices should soften on the supply chain side as they start normalizing. We're also quite satisfied with our channel stocks at the end of Q3.

Moving on to the operational performance, I'm pleased to report that despite the challenging external environment, we have maintained focus and committed to our target of improving our product mix by introducing newer 9(3) products in the crop protection segment. After having added six and four products during FY '20 and FY '21 respectively, we have added two 9(3) products, two 9(4) products and two co-marketing products in the nine months of this financial year.

We're working towards launching environmentally sustainable products by leveraging our expertise in science and understanding of customers' requirements. We have also undertaken steps towards developing innovative and research-based crop nutrition products focused on the water-soluble fertilizers.

During the quarter, we launched a potash product, GeoGreen K Plus derived from agro waste, as well as a biological nematicide. As we have been indicating our efforts towards widening our product range to plug the gaps in our existing portfolio in crop protection, we are also introducing crop nutrition products to widen our category of offerings. We are hopeful that the portfolio augmentation should

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help us improve our market share in underserved regions like Madhya Pradesh, UP, and Rajasthan, and in select crops like soybean, wheat and certain crop pest segments in paddy. In addition to refreshing our portfolio, we are also working towards expanding our network by adding distributors and retailers to expand the domestic business.

Moving on to the seeds business. Performance during the quarter was impacted on account of state level actions on banning hybrid paddy in southern states and new requirements for maize sales in Bihar. It is now clear that the seeds industry has had a challenging few quarters. Overall, revenue from the business was lower by 31% for us in Q3. Despite the headwinds though, we continue to make progress towards improving our product mix by targeting new segments.

You will recall that we had indicated in the last quarter investor call that we are undertaking a detailed review of our seeds business. This exercise is now complete. While calibrating our growth plans, we have also sharpened the R&D focus areas on the key crop segments. Our portfolio development has taken longer than we had anticipated in delivering competitive hybrids. We are also adjusting our expenditure in line with our competitive position across key crops and geographies. We expect these actions to contribute meaningfully in the next couple of years.

As far as international business is concerned, we registered revenue growth of 19% during the quarter, demand continues to remain encouraging for most of our products with Metribuzin as well showing early signs of reviving. We expect demand for Metribuzin as well to be picking up in the coming year.

As mentioned in the earlier call, we have completed reorganization of Metribuzin production in a single location and expect the plant to be fully utilized by Q2 of FY '23. Besides Metribuzin demand for other key products, namely Pendimethalin and Hexaconazole continue to remain strong. Capacity expansion undertaken in other key AIs has also started contributing to the overall growth of the business. We will be commercializing one new active ingredient from the MultiPurpose plant next year. Besides expanding capacities for existing AIs and introducing newer AIs, we're also working towards improving the mix by increasing the share of formulations in our international business, which should result in further margin expansion for the business.

As mentioned in the previous call, we have been successful in registering formulation for Acephate in Brazil and the recurring variants of the virus continue to pose challenges to the aviation

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industry in turn, which is affecting the performance of our PEKK business. This is part of our contract manufacturing business that we do.

As far as the overall contract manufacturing business is concerned as we have indicated in the past, it's an important area for us. We have taken steps towards building a separate dedicated team and scaling up the business and we are hopeful that the division will start contributing to the overall growth of the business over the next two years. We are in advanced stage of finalizing two contracts during Q4. While these are small contracts, they are important from our perspective, as we build our order book in this category.

Quick word on Capex, before Subhra gives an analysis of the financial performance, I'm pleased to announce that we have commissioned the first phase of our plant in Dahej, CZ and dispatches have commenced from the plant towards the end of December. Our revamped pilot plant has also been commissioned for the piloting of the first products in early January and construction activities for MultiPurpose plant are on track for commissioning during FY '23.

With that may I request Subhra to give us an overview of the financial performance. Over to you, Subhra.

Subhra Gourisaria: Thank you, Sanjiv. And good morning, everyone. Thank you for joining us today in our Q3 earnings call. Let me quickly walk you through our financial performance for the quarter post which we will commence the Q&A session.

Starting with the top-line. Our revenues for the quarter stood at Rs. 628 crore as against Rs. 570 crore which we generated during Q3 of FY '21. This is a growth of 10.1%, the growth could have been higher, but for the challenges in the domestic market, as we all have seen. This growth is split between 13.3% growth in crop care business and 31% de-growth in seeds business. Even within the crop care business, our growth is 12% YTD December. Domestic business grew by 9%, international business actually grew by 19%. And our international business growth will be 23% for the nine months ended 31st December '21 without considering the spillover impact, which we had spoken of earlier.

While EBIT margins have remained flat over the previous year, PBT margins before exceptional items have seen a compression of 140 bps owing to higher input costs, and also lower export incentives and investment income, which have impacted our other income. We have undertaken calibrated price increase to achieve the dual objective of protecting our margins, while at the same time ensuring that there is

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no demand disruption and the price value equation is maintained. Hence, PAT for the quarter stood at Rs. 40 crore at against Rs.46 crore in the previous year.

Moving on to business wise performance, domestic business performed well and faced lot of challenges in the wake of rising input prices. Despite the headwinds, though, we have been able to deliver growth of 9% on the back of improved product mix and wider distribution network. We introduced two new crop nutrition products in the quarter, taking the overall count to 10 products during the nine months ended FY '22, six crop protection and four crop nutrition.

While introducing newer products was one of our stated objectives, our efforts are equally directed towards ramping up sales and marketing efforts to help them achieve their true sales potential. Higher sales for these products will help improve the sales and margin profile and also help in increasing the innovation turnover index for the business.

Moving on to the seeds business. FY '22 has been a challenging year for us, muted performance as alluded by Sanjiv was largely due to illegal cultivation of herbicide tolerant seeds, government bans etc. We are confident that many other steps which we are taking will help us in reviving our business.

Moving on to international business, demand momentum continues to remain good for most of our products. Metribuzin as well has started showing early signs of improvement. We continue to work towards introducing new products and registering them across our new geographies. Furthermore, we are also focusing on improving the share of formulation in the overall product mix.

As far as contract manufacturing business is concerned, performance during the quarter was lower as expected with the sales of PEKK continuing to remaining soft. We're however undertaking necessary investments with the dedicated team for the business making encouraging progress. We're hopeful that efforts with start producing the desired results over the coming years.

A quick word on Capex, before I hand it back to the Moderator. Our overall Capex for the year should be in the region of Rs. 250 crore and we're happy that we commenced dispatches from our new formulation facility Dahej, CZ during the quarter.

That concludes the opening remarks. We can now commence the Q&A session.

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