India Pesticides Limited (IPL) Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the India Pesticides Q1 FY '27 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Mr. Nitin Raheja from Dolat Capital. Thank you and over to you, sir.

Thank you, Shruti. Good afternoon, everyone. On behalf of Dolat Capital, I would like to thank the management of India Pesticides Limited for giving us the opportunity to host their Q1 FY '27 earnings conference call. From the management team, we have with us Mr. D.K. Jain, Chief Executive Officer; and Mr. S.P. Gupta, Chief Financial Officer. Without further ado, I would like to hand over the call to the management for their opening remarks, post which we will open the forum for the Q&A session. Thank you and over to you, sir.

Thank you, Nitin ji. Good afternoon, ladies and gentlemen. I take pleasure in welcoming you all to the Q1 FY '27 earnings conference of India Pesticides Limited. I hope you and your family are doing well. I take the pleasure of welcoming you all to this conference and I trust you have reviewed the financial statements and earning presentation uploaded on the exchanges and our website. We commenced FY '27 amid a challenging operating environment in the international and domestic agrochemical market. During the quarter, the industry continued to experience subdued demand conditions, particularly in paddy and other crop protection segments. Despite these near-term challenges, IPL remained focused on operational discipline, customer engagement and maintaining efficiency across its manufacturing operations. During FY '27 Q1, consolidated revenue from operations was at INR 256 crores compared to INR 282 crores in Q1 FY '26. EBITDA for the quarter was at INR 39 crores with an EBITDA margin of 15.4% while PAT was at INR 23 crore. The performance during the quarter was impacted by softer domestic demand for the company's key herbicide namely Pretilachlor along with the higher employee and fuel cost. However, the company continued to focus on cost management, improving operational efficiencies and disciplined execution across business segments. From a business perspective, domestic market was impacted during the quarter due to lower demand conditions, deficient rainfall resulting in nonsowing or slow sowing during this period. Export revenue during FY '27 quarter 1 was at INR 89 crores contributing approximately 65% of total revenue. The company continues to strengthen its presence across more than 35 countries and maintains long-standing relationship with global agrochemical companies. Our ability to manufacture complex offpatent chemicals supported by strong quality standards and regulatory compliance continues to support our position as a preferred partner for global customers. A key milestone during the quarter was the receipt of Technical Equivalence approval from the European Union for one of our fungicide product. This approval represents an important step in our global expansion strategy and strengthens our ability to cater to international markets. It enhances our access to the European market and creates opportunities for expanding our export business over the coming years. This achievement reflects the strength of our R&D capabilities, product development expertise and continued effort or focus on meeting global requirements of regulatory point of view. Our manufacturing capabilities continue to remain an important pillar of our growth strategy. The company currently operates manufacturing facilities at Sandila, Hardoi, Dewa Road and with a combined capacity of 28,300 metric tons of technical and about 10,200 metric tons of formulated products. Development at our Hamirpur facility continues to progress as planned with 2 out of 10 blocks currently operational. The facility provides a clear pathway for future capacity expansion and will support incremental growth opportunities across specialty products. During the quarter, we continued to strengthen our backward integration initiatives and manufacturing capabilities. Our intermediate plant developed using in-house indigenous R&D technology supports supply chain stability and reduces dependence on imported intermediates. These initiatives are aligned with our focus on developing self-reliant manufacturing capabilities and improving operational efficiency over the long run. Research and development continues to be the key focus area for IPL. Our DSIR approved R&D facilities remain focused on process innovation, development of new molecules and intermediates, improving product yields and optimizing manufacturing processes. Our R&D and product engineering capabilities enable us to develop products from laboratory scale to commercial production while maintaining efficiency and quality standards. These capabilities continue to support the expansion of our product portfolio and strengthen our long-term competitiveness. Our formulation business continues to provide an important growth avenue supported by our expanding domestic presence and farmer engagement initiatives. With a formulation capacity of 10,200 metric tons, a sales network across 18 states, 24 depots and a team of over 370 sales professionals; we continue to strengthen our reach and engagement with farming community through direct interaction with farmers and participation in agricultural exhibitions. We remain focused on promoting awareness around the careful and correct usage of crop protection chemicals. Sustainability and community development continue to remain an important part of IPL's growth journey. Through initiatives such as Samagra Sudhar and Chuppi Tod; Halla Bol, the company continues to contribute to rural development, education support, child welfare and awareness programs. We remain committed to strong relationship and business practices and creating a positive impact across the communities where we operate. Looking ahead, we remain confident about the long-term growth prospects of our company supported by improving demand outlook across domestic and international markets, continued investment in manufacturing capacities and strong product pipeline. We will continue to focus on strengthening our product portfolio, expanding our global presence, enhancing operational efficiencies and building long-term customer relationships. With an integrated manufacturing platform, strong R&D capabilities and disciplined execution, we believe IPL is well positioned to deliver sustainable growth and create value for all the stakeholders. I now invite our CFO, Mr. S.P. Gupta, to take you through the financial details for the quarter. Mr. Gupta?

Thank you, sir. Good afternoon, ladies and gentlemen. Thank you for joining the India Pesticides conference call to discuss Q1 FY '27 results. Let me take you through the financial highlights for the quarter. Total revenue for Q1 FY '27 was INR 256 as compared to INR 282 crore in Q1 FY '26 reflecting a decline of 9.2% Y-to-Y. The decline was primarily due to softer domestic demand for company's products, key herbicides during the quarter. We registered EBITDA of INR 39 crore with an EBITDA margin of 15.4% compared with EBITDA of INR 52 crore and EBITDA margin of 18.4% in Q1 FY '26. The margin moderation was primarily due to lower sales volume, higher employee cost and increased fuel expenses during the quarter. Profit after tax for the quarter stood at INR 23 crore compared with INR 35 crore in Q1 FY '26 with PAT margin of 8.9%. On geographical split: revenue from export stood at INR 89 crore in Q1 FY '27 compared with INR 87 crore in Q1 FY '26 while domestic revenue was at INR 167 crore compared with INR 195 crore in the corresponding quarter last year mainly due to deficit rainfall. Export contribution remained stable during the quarter accounting for approximately 35% of total revenue. Revenue from chemicals and formulations stood at INR 181 crore and INR 72 crore, respectively, during Q1 FY '27. At the quarter end, our inventory level are higher in comparison to the same quarter of last year. India Pesticides Limited continues to maintain a strong balance sheet with a focus on generating operating cash flows. Company has healthy cash balance of INR 59 crore as at 30th June. The company also continues to make progress on its manufacturing initiative with the Hamirpur facility development advancing as planned and supporting future capacity expansion. Looking ahead, the company remains focused on improving operational efficiency, strengthening its product portfolio and expanding its presence across domestic and international market. With continued investment in manufacturing capabilities, a strong customer base and focus on innovation; IPL remains committed to delivering sustainable growth and creating long-term value for all stakeholders. With this, we would be happy to take your questions. Thank you.

[Operator Instructions] The first question is from the line of Sucrit D. Patil. from Eyesight Fintrade Pvt. Limited.

I have 2 questions. The first question for Mr. Jain. Just want to understand beyond the regular outlook, what are the top 2 to 3 execution priorities you are focusing on in the next few quarters and alongside that, what do you see as the biggest risk in demand shifts, regulatory changes or competitive pressure? And how are you preparing to manage them while strengthening India Pesticides' position in the agrochemical and specialty chemical space? That's my first question. I'll ask my second question after this.

We are now already working on few more products. One is fungicide we are focusing on which is primarily imported from China in India. So we already put the facility and we are strengthening the manufacturing of that. That will be one of our major focus area. Number two, we are building up a multipurpose herbicide plant in our new subsidiary at Hamirpur. So these are the 2 major activities what we are going to undertake during the coming 2 quarters. And on the competitive pressure, of course we know that the market has become very competitive and Chinese products are coming at relatively much lower prices. So we are trying to improve our operational efficiency and trying to compete with Chinese imports and that is where our R&D team is working regularly to optimize further the process conditions and we are also optimizing in engineering to reduce the overall project cost.

My second question to Mr. Gupta is from a financial point of view, I want to understand what key risk or challenges do you anticipate in the coming quarters? And what specific measures are being taken to manage margins, cash flow and strengthen the balance sheet especially in areas like raw material cost volatility, receivables and compliance?

As already explained, we are improving operational efficiency to counter this Chinese competition and other object has been not to take any term loan in BFSI for its expansion and we have already a very healthy cash balance sheet. So we will be funding our CapEx through internal accruals only. As far as our working capital cycle is concerned, inventory level has gone up slightly because of lower sales. We are monitoring very closely our inventory and receivable space and our receivables, they are coming on time. So we are confident our cash flow will be better. And currently, the raw material prices has also gone down as well as finished goods prices have moderated as well as raw material cost has also gone down. So we are confident that we will be able to make reasonable margins in this quarter.

The next question is from the line of Yogan from Mittal Analytics.

Am I audible?

Yes.

Sir, one question on the margins front. So this quarter we see that the gross margins were quite good while our operating margin was still lower both quarter-on-quarter and year-on-year. So any one-off was there in this? Why did that happen?

Yogan ji, other expenses included onetime write-off of export receivables of INR 2.5 crores. And secondly, our other expenses also included increased job work charges paid for conversion of raw material that is also higher by around INR 6 crore. So because of this and slightly higher increased fuel cost, our operating other expenses has gone up.

Got it. So just one follow-up on this. So the INR 6 crore higher job work charges, is this for the upcoming season that we have prepared some inventory and kept because if the volume growth was low this quarter, then higher job work, how does that help us?

In anticipation of higher sales in first quarter, we have incurred this. Of course the month-on-month sales has declined, but it has already been incurred in anticipation of higher demand.

And sir, challenges that we saw in terms of growth, how are we seeing it now? Are we seeing some benefit and some revival in Q2 or we are still seeing some dullness? And also if you could share how has Pretilachlor and other key molecules doing for us?

Pretilachlor is the key molecule of course is right. But this year the demand has been slightly subdued because of the irregular rains across the country. Somewhere it rained very heavily, which has damaged the crop and somewhere the rains are so shortfall that the sowing is delayed or destroyed. But Pretilachlor will remain very good product for paddy and we hope that we are the major player in this field and we will continue to do so.

Got it, sir. If I may squeeze one more question. So on the Hamirpur side, you mentioned that you'll be putting up a multipurpose plant for herbicide. And last con call and I think in presentation, we've been maintaining that 2 blocks will be added. So this is over and above that or this is MMP is one of the blocks that you are seeing?

So the 2 blocks what we told, 1 block is for herbicide, the work is already going on. One is for herbicide and one will be for the fungicide at Hamirpur. But broadly, we are taking first the herbicide complex.

Okay. This year do we see some INR 70 crore to INR 100 crore of business coming in from Hamirpur? Is that a possibility or do you see that coming in lower?

Maybe it's not INR 70 crores to INR 80 crores, but it will be somewhere around INR 50 crores to INR 60 crores. It will be there, no doubt about it.

Okay. And sir, one last question on the new China product that you are saying. So 2, 3 questions on it. First, how big is this product and do we have any other manufacturers of it in India? And will this be a domestic product or an export? And also this will be made in Sandila or in Hamirpur?

This will be -- primarily this product will be imported presently and there are not any manufacturer in India as we understand. There could be 1 or 2 small people which are not so significant. But as we understand, there is no major producer of this product in India. We will be the major producer now in India for this product and this will be produced at our Sandila facility.

This is for domestic market you're saying.

This will be primarily for domestic market, yes. We are trying to have a blend for that where almost 50% is domestic orientation and remaining 50%, we have few products which are exclusively for exports so that we can have a good blend of export as well as domestic sales.

Sir, do we have an understanding of how much is the import of this product in India [Foreign Language] and what will be the realization of this? And are we competing that we'll be able to match Chinese first?

That's what we are trying our best. And the import what we saw from the data last year, it is around 4,000 tons to 5,000 tons and we should be able to get from this at least 2,000 tons of our capacity.

And what would be the price of this molecule, sir?

Price is about INR 500 to INR 600 per kg.

And for you, sir, we'll have existing [Foreign Language] or will we need to set a new block for this because Sandila will be too much space, right?

[Foreign Language] with some balancing equipment. [Foreign Language] We'll be able to produce this so that our overall capacity utilization will improve.

[Foreign Language]

[Foreign Language] available in the market. We will be making almost [Foreign Language]

And this is which crop, sir? [Foreign Language]

[Foreign Language] It is widely used as fungicide and goes very well into [indiscernible].

And will you be asking too much if I ask you to name it as of now?

We already started manufacturing small quantity of this and we are already testing the market position for this.

Fair enough, sir. Whenever you're comfortable sharing the name, we'll look forward to it. And lastly, sir, if you could just broadly share what is your thought process given the delayed monsoon and the challenges that we have seen? Do you see some bit of growth in FY '27 or do you see that FY '27 would be a tough year in terms of growth?

[Foreign Language] We know very well the overall situation of the monsoon and erratic -- monsoon is there, but it is very erratic. So that's why it is disturbing a lot. [Foreign Language] Long-term strategy point of view, we are intact. [Foreign Language]

Looking forward to the promise though that we have anticipated. Hope that comes soon.

[Operator Instructions] The next question is from the line of Kaushal Sharma from Equinox Capital Venture Private Limited.

Am I audible?

Yes.

So my question is on your Sandila plant like in the last call, you were saying that the second block is being done and INR 70 crores to INR 80 crores is expected from this financial year. So are on track on this?

We are on track, sir. That's what I explained to the other investor friend that we are giving on priority wise. Now we are concentrating on the herbicide complex first in our Hamirpur facility so that that can start functioning as early as possible. And then we will go for the second block -- I mean third block because already 2 blocks are operating. This will be the third block for the herbicides and 1 more fungicide block we will be adding. But priority-wise, first we are adding herbicide block.

Okay. And sir, in Hamirpur we are expanding [indiscernible] what kind of revenue potential from these 2 molecules as of now and the EBITDA margin are we expecting from this.

EBITDA margin presently telling is very difficult because it is still in ongoing stage. But we are expecting about INR 50 crores to INR 60 crores of revenue this year from our Hamirpur facility.

And overall potential if you can tell me?

Overall potential,sir, when we put up 8 to 10 blocks, we comfortably should get almost INR 1,000 crores from our Hamirpur facility. It will take 3 to 4 years from now.

3 to 4 years. And on the Sandila facility where you have guided for INR 1000 crore potential. And sir, could you explain what is our current or existing capacity installed capacity that we have and the [Technical Difficulty]

The present capacity is very small because we have stared 1 plant. Block 1 is now under commissioning and the herbicide block would be starting in this financial year. So these 3 blocks and then 3 years we will be adding 2 more blocks. So with this cumulatively, we feel we should be able to get at least INR 1,000 crores in coming 4 years.

And what is our CapEx plan if you can guide on this?

See, CapEx we already told that we are doing a CapEx of INR 70 crores to INR 100 crores per year at Hamirpur facility and we are doing some CapEx at our Sandila about INR 25 crores to INR 30 crores for our add up systems there.

This is for the financial year '27 or per year basis you are saying for next 3 years.