Insecticides (India) Limited (532851) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Insecticides India Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sejal Bhattar from MUFG Intime. Thank you and over to you ma'am.

Thank you. And welcome to Q1 and 3 months FY '27 earnings call of Insecticides India Limited. Today on this call we have with us Mr. Rajesh Kumar Aggarwal, Managing Director, Mr. Sandeep Aggarwal, Chief Financial Officer, Mr. Devendra Kumar Ray, Chief Operating Officer and Mr. Dushyant Sood, Chief Marketing Officer. Before we proceed with the call, I would like to give a small disclaimer that this conference may contain certain forward looking statements which are based on beliefs, opinions and expectations of the company as on date. These statements are not guarantee of future performance and involves risk and uncertainties which are difficult to predict. A detailed disclaimer has been given in the company's investor presentation which is uploaded on the Stock Exchange. Now I would like to hand over the conference to the management for the opening remarks. Thank you. And over to you sir.

Thank you. This is Rajesh Aggarwal. Good evening everyone and thank you for joining us for the Q1 FY '27 earning call. The first quarter of FY '27 was shaped by an unusual start of the agricultural season. Channel activity started in March ahead of the anticipated point hike. A delayed and uneven monsoon coupled with high temperature across several regions impacted sowing activity and delayed demand for crop protection products. While this affected industry performance during the quarter, we believe that still there is ample opportunity to recover. With rainfall improving and acreage picking up, we expect agriculture activity to gain momentum in the coming months. Talking about IIL. IIL has established itself as a potential fully integrated agrochemical company. Even in slower environment, the quarter highlighted the importance of building a business that is not dependent on single crop or product strategies. Over the last few years, we have focused on creating multiple growth drivers through premium products, R&D, technology partnerships, Kaeros Research, international markets. These investments are helping us building a stronger and more diversified growth platform for the future. Within the core business, premiumization continues to gain traction with our Maharatna and Focus Maharatna portfolio contributing around 64% of the business. During the quarter, we further strengthened this portfolio through new product launches and collaborations. Granuvia and Spinoace, both launched in the collaboration with Corteva Agriscience, were introduced through extensive engagement with dealers, distributors, retailers and farmers across the country. We see these products as multiyear opportunities where increasing farmer acceptance can build meaningful contribution over the coming years. These launches are supported by our continued focus on R&D and technology partnerships. During the quarter, we continued working with Corteva, Nissan and OAT Agrio to access differentiated technologies and molecules while our internal R&D teams remain focused on developing products suited to the Indian market. Our work with OAT Agrio on a new molecule discovery is also progressing, helping strengthen the pipeline for the coming years. The next step is to translate this product pipeline into wider farmer adoption and this is where our distribution and field engagement become important. During Q1, we conducted more than 3,600 farmer meetings, 600 field days were organized, 1,400 demonstrations and over 15,000 farmer visits were made by the team of IIL, and these were all supported by more than 8,500 distributors and 70,000 retail customers. These engagements helped us to maintain strong farmer connect even as the season started later than normal. Talking about our IIL Crop Solution program, it is an important extension of this approach as it demonstrates complete crop solutions and their economics directly in the farmer field. Following short farmer acceptance and demonstrated ROI from the existing 36 plots, we are now planning to double the number of plots while expanding its presence across 15 states and 4 crops. Now rice, cotton, chili, soybean will be using these 4 farms. The objective is to demonstrate efficacy and economics at the field level and create stronger product pull for the differentiated portfolio. Along with the core business, Kaeros Research contributed to make progress during the quarter. More than 40 products are already commercialized. We are expanding its portfolio and distribution footprint while developing B2B and pack-to-pack opportunities. The focus remains on scaling Kaeros into a meaningful second growth platform over the medium term. Our international business also continued to gain momentum during the quarter, with registrations, partnerships, and customer opportunities being developed across Latin America, Europe, ASEAN. With this opportunity progressing through including trials, we are taking calibrated approach to establish these relationships before escalating them, with the expectation that successful engagement can develop into meaningful medium-term opportunities. Now the sales of the technicals is catching up and there is good acceptance of these technicals across the world wherever they are going, and we believe that along with the white labeling, our business of technicals is going to flourish in the international market and that will support us in increasing the sales volumes and the sales numbers. On the operating side, crude and petroleum-linked raw material costs remained an area of pressure during the quarter, impacting parts of crop protection value chain. We continue to address this through calibrated pricing, better product mix, and increasing contribution from the differentiated products while remaining competitive. Working capital discipline also remained a priority. June inventory was slightly elevated due to the slower start of the agriculture season, and we are focused on improving inventory turns, collections, and alignment between the placement and underlying demand. Our objective remains to reduce working capital cycle as the season is normalizing. Our manufacturing, the Dahej facility, is providing additional capacity and flexibility, while the Sotanala project is progressing as planned. The formulation facility at Sotanala is expected to commence around April, May next year, followed by technical production by Diwali, subject to the project schedule. Importantly, the investment made over the past several years are already supporting the business. Investments in manufacturing capacity, premiumization, R&D, and technology have strengthened our product pipeline, improved our ability to serve customers, and created the capacity required for the next phase of growth. We are now seeing these investments progressively translate into business opportunities, and as utilization improves, we expect their contribution to become increasingly visible in our operating performance. At the same time, we are approaching the end of this investment cycle. Once the current projects are completed, we expect annual CapEx to normalize around INR 30 crores to INR 40 crores of maintenance CapEx, allowing us to increasingly focus on utilization, cash generation, and returns. As utilization improves, we expect operating leverage and efficiency initiatives to support improvement of ROCE and ROE, with renewal initiatives, lower electricity and fuel consumption, and increasing use of AI and other advanced technologies provide additional efficiency benefits from Q3 onwards, I can say from September onwards. Looking ahead, while delayed monsoons impacted the first quarter, we believe the agricultural cycle has largely been deferred rather than lost. With rainfall improving, sowing progressing, and crop protection activity normalizing, we expect stronger execution over the remaining 3 quarters. Our focus for FY '27 remains on converting the opportunities created through our product launches, farmer engagement, Kaeros, international business, and investment in capability into stronger growth, while maintaining discipline on costs, working capital, and capital allocation. We believe the investment made in earlier years are now providing the foundation for the next phase of growth, and our objective is to convert the foundation into sustainable growth, stronger cash generation, and improving capital efficiency. With that, I would like to hand over the call to our CFO, Mr. Sandeep Aggarwal, who will take you through the financial performance. Thank you.

Hi, Sandeep Agarwal, CFO of the company. Welcome to the call. So this is regarding the performance of Q1. If you compare, see the year-on-year result, the revenue from operation has decreased by 12%, so from INR 691 crores to INR 612 crores. And gross profit has decreased by 4% from INR 201 crores to INR 193 crores. Though the gross profit percentage has increased from 29% to 31.6%. If you see the EBITDA, so there is a decreased of around 20%, and percentage-wise it has come down from 12.2% to 11.1%. The PAT margin has also come down from 8.4% to 7.2%. And if you see some mixture, then the premium product sales has increased during this quarter. Last year it was 58% of total B2C contribution. This year, first quarter, it is 64% of the total B2C contribution. If you see the segment-wise sales, the B2C sales in this quarter is 64%, B2B is 34%, and export is 2%. Whereas last year, B2C was 75%, B2B was 23%, export was 2%. If you see the performance of the newly launched products, so during this quarter we launched 2 products. The sales from these 2 products during the quarter was [ INR 5.50 crores ]. If you see the products which we launched last year, so the total sales of those products last year was first quarter INR 1.67 crores, this year it is INR 2.29 crores. Revenue from in-licensing products, last year first quarter it was around INR 36 crores, this year first quarter it is around INR 46 crores. Revenue from patented products has come down from INR 97 crores to INR 70 crores. This has mainly happened due to the reduction in sales of Acetamiprid. And then contribution from combination products has come down from INR 124 crores to INR 98 crores. So these are the some highlights. So now we can open the house for question and answer session. Thank you

[Operator Instructions] The first question is from the line of Prashant Biyani from Elara Securities.

Yes. Hi, Rajesh ji. Sir, on the Sotanala formulation and technical plant, how much are we investing separately for formulation and technical? What is the total investment and how much have we invested till date?

It will be a project total investment -- the total investment will go roughly about INR 200 crores, out of which I think about INR 50 crores will be going in the formulations and INR 150 crores will be for the technical. And the total investment made so far is to the tune of about INR 70 crores.

Okay. And sir, in technicals which molecules do we plan to manufacture here?

If we talk specifically of Sotanala, we are going for a dedicated plant, which means fully automatic plant. So some of the insecticides and fungicides where we have the expertise, they will be transferred to Sotanala from Chopanki, and Chopanki will be handling the new AI actually. So we have identified 50 products which will be moving in first phase, and then there will be addition of new AI technicals here in the second phase.

The next question is from the line of Ramesh from S.J. Investments.

Am I audible?

Yes, yes, clear.

Yes sir. Nothing, sir, I just wanted to understand in terms of the ground, I understand rains have been uneven and everything and El Nino overhang with us. So, and sales also translated to that. How do you see the demand environment right now going forward?

If you talk about August, we are seeing good rains across the country. The reservoir situation is improving and the crops are very healthy. The only gap what we see is majorly in the South India where the rice sowing is little delayed in many parts where the dams are not full, but the dam situation is improving now. 40 odd percent of rice is pending I believe to be sown in Karnataka, Andhra, and Tamil Nadu. Little dry environment in MP and some eastern states. Broadly things are okay. This year we are also seeing the reduction in cotton and maize crops, but other rabi crops are improving. So we are seeing increase in attraction in oil seeds, pulses, I would say, groundnut, and also chili. Chilies are going to be the major crop for South this year. So both the all the 3 states, Andhra, Telangana, and Karnataka should show a good increase in the chili crop, which should be very good for the industry.

Got it, sir. So overall basis, South is a little compared affected. And right now over the year, where do you think we'll end up in terms of sales growth sir?

Difficult to give the number, but we should be positive and that positive impact should be visible from Q2 itself I believe.

Got it, sir. And one question regards to just understanding the customer, final customer, the farmer. So we have co-branded products which are more expensive and Maharatna products compared to our other generic products. Could you explain how the farmer is different from our new brand segment, co-branded segment versus Maharatna? Could you just give a broad perspective on who is which bucket of farmer fits for each type of brand?

Like it is a matter of awareness. What we are doing is we are connecting with lot of farmers. We are developing the 2-way communication system with the farmer. We have developed farmer app, retailer apps. We are trying to take the technology to them. So we have to show the ROI. The farmer is not different. He has to believe that he is investing INR 100, what type of benefit he gets. If we are able to show him the benefit, even the small farmer sometimes agree to buy the expensive products. Generally it is believed that the expensive products will be bought only by the progressive farmers who have large base of land. Yes, that is true to an extent. But even the smaller farmers, they have shown good interest to the technology and we have seen that all type of farmers have accepted these technology really fast. Because if I see my recent launches which has happened in last 5, 6 years, though they are contributing about 1/3 of the sales in totality, which means that yes, the interest of the farmer is going up for the new technology products. And it is the sentiment of the retailer and the network which is important and of course the efforts of our team. If we are able to take the technology, yes, it is accepted very well.

Sir, could you give a broad perspective on how each brand is segmented just to understand how the value chart is for the company and what they want each brand to turn like expand into, the ideal vision?

Difficult to talk brand-wise, but here I can talk that 5 years back we had started this exercise when the contribution from the premium products was 48%. Now we have reached to 60 plus percentage already and the target is to reach to 70% in next 3 years to 4 years time. So 64% is achieved in this quarter which was a difficult quarter and in the last fiscal also the achievement was 62% plus from the premium products. Which means that company's overall energy is going towards promoting these premium products and the [Technical Difficulty] So we are developing these products across segments [Technical Difficulty] And we are also pushing around certain KPIs in this segment.

Hello, sorry to interrupt sir, your voice is a bit muffled.

Okay. No problem. So do I need to repeat the answer?

No sir, now it's clear.

No, guy is clear or you need me to repeat?

No sir, your voice was audible, but it was a bit muffled.

Okay.

Yes sir. So just one last question sir. Sir, you mentioned the fact that depending on the awareness the farmer chooses the brand, right? So just trying to understand during the initial stages when you're trying to make them try an innovative product, what do they trust more? Is it usually our Maharatna brand or is the foreign brand with our co-branding on it?

Please come back again.

Sorry sir, am I audible?

Yes. Yes.

Yes sir. So basically I was asking, you mentioned that the farmer chooses the brand based on the awareness generated in the market. So just trying to understand during the first phase when there is no Insecticides India product used by the farmer, do they start with the international brand, co-branded brand that we sell with Nissan and OAT, or would it be Maharatna brand the first time they take something?

It all depends on what solutions are we giving and they come by the usage pattern and the awareness level of the farmer. Because if it is a herbicide generally it is used first, so it can be from my own R&D or the imported products, so both have their acceptance. Generally farmer also knows that the imported products or the collaboration products are little expensive than the normal products. So sometimes the earlier question you asked that if it is very expensive product, then of course the traction comes from the big size farmer or the progressive farmer. But if it is reasonable, reasonable means generally it costs INR 200, INR 300 per acre. If your product is in the range of INR 500, INR 600, then even a small farmer can afford it. But if it crosses 3 digits, then definitely the traction is more from the larger farmer. But again, it depends on the awareness and the cost benefit ratio. So we are able to convince the farmer, definitely the small farmer also shows the acceptance and the larger one also. And there is interest for everything actually. So market for everything and that is one reason we are increasing our collaboration continuously. And that does not mean that if I am increasing my collaboration that I am not launching the products from my own R&D. So we are continuously working in our own R&D, we are making more AI and also launching new formulations. At this moment you might be finding our speed little slow, but I can tell you that there are more than 30 products which are in pipeline to be launched in next 2 years. So our pipeline is very, very strong actually for which we are already working. There are mixtures, there are new AI, everything is there. So the investments are very, very high in this because we are developing a huge range of products actually to be launched in future.

Understood sir. So just one last question with regards to capacity, we mentioned that we are putting up a new facility. So just trying to understand without that capacity what can be the sales, maximum sales we'll be able to generate? And with the new capacity, how much more sales can we generate at peak utilization? Just trying to understand the capacity.

It's a continuous effort what we are putting to develop the capacities and to develop the sales. The idea is to double ourselves. In the past, we used to double in 3 to 4 years. Now I believe that we should be able to double in 4 to 5 years. So the product mix is important, the technical manufacturing is important, to take care of the international business is also important. So looking at that we are developing our production capabilities. So we try to increase certain AIs, we try to backward integrate in certain cases. So everything is a mix. So very difficult to tell exactly, but broadly you can say that we wish to double ourselves in next 4 to 5 years.

And this one plant would be sufficient to add the capacity we need?

The expansion today, if I talk about today's expansion, we have just completed Chopanki expansion. Dahej is on its way for completion. More than 70% we have already commercialized and another 20%, 30% whatever is pending will be commercialized soon. Next year we are going to bring Sotanala. Sotanala again is going to be in 2 phases. Phase 1 will be complete, I already told you by Diwali, and then there will be 1 phase 2 also for which we are erecting the building now, but not putting up the equipment because we have to decide on the products which we are going to manufacture there in the technical plant. The formulation capabilities we are going to increase in Dahej also and that is in the final phase, Dahej expansion, where we are doing 1 spray ground and also 1 formulation facility. Then we have also invested a little in the Pithampur where we are differentiating between herbicide and insecticide plants. So some investments are going to go there also which also we are going to complete within this year. So I mean to say that expansion is a continuous process. I don't say that I will not have any expansion after this. But yes, I have enough space now in Sotanala, also in Dahej. So which can take care of further expansions also if they are going to be there. So planning today that what expansion I am going to have after 2 years is difficult. But it's a continuous exercise. Once you complete one thing, then you start working on the next step. So at this moment since there were many projects in place, I want to complete them one by one and after I complete a few, then I plan the new ones.

Understood, sir. Got it. Just one last technical, just I was trying to understand. So when we are partnering with.

Yes, continue.

Yes, I was just asking about so when we partner with our international collaborators, so when we get the product, is it that they send the formulation we have to repack it here or do we directly get the packaged product here and then we just stamp our logo? How does it work?

Today when we are partnering with different companies, our major interest is to develop the mixtures for the -- because if you look at the world, today the farmer needs the one-shot solutions. So we are able to mix one of our products with their product and launch a mixture. So that is our capability which we have developed and that is the expertise. So very recently we have signed 2 collaborations in last 1 year, I would say. And we are developing various products with these companies, I will not name them even if you ask because they are still confidential. As I launch the product you will know that. And even with our older partners like Nissan and some others, we are doing the same. So we are not only developing their single molecule but also giving them the facility of developing the mixture, which will have more traction in the market and better results than the single state product. And farmer also wants the multiple solutions at one time, like one medicine with better control for whatever disease or whatever infestation we see in the market. So that is the demand of the day and we are working accordingly. So we are developing both 2-product mixtures and also 3-product mixtures in the market. And we are manufacturing some of these formulations by ourselves. Sometimes yes, when we work with Nissan, we get some ready-made formulations, but we also manufacture some products by ourselves. And we are building the facilities for these manufacturing and we are eyeing the CDMO business also with some of our partners. So that is also in pipeline.

[Operator Instructions] The next question is on the line of Madhur Rathi from Counter Cyclical Investments.

Sir, thank you for the opportunity. Sir, I see that our B2B business has grown like by 10% this quarter I think. So sir, what was the inventory gain? Sir, was there any inventory gain because of the pricing increase because of this war?

There was a good opportunity, but what brought is like there was an unexpected increase in the price of metal, plastic, solvents, emulsifiers, and also some of the technicals. And there was a complete supply chain disruption because the time taking from China for travel was even more and because of the scarcity of containers and the freight increased. So that completely disrupted the thing. There might be some advantage we would have got because of the high inventory. But yes, still at the end of this quarter we were sitting on inventories. There was an increase in the gross profitability of the company. So we sometimes say it has happened due to our traction for the new generation molecules. You can say that some portion might be because we were having some older inventories. But yes, it was a mixed bag actually because some products were coming expensive, some were cheaper. And market is very, very fluctuating at the moment. So difficult to comment exactly how much was the contribution from this huge increase in the price.

Right. And sir, for our B2C business, sir, what kind of price hikes have we taken for the Focus Maharatna and Maharatna products and for the commodity or the generic products?

We tried like, as I told you that there was a big expectation of price hike in the month of March. We had taken 1 hike in March, 2 hikes in April, and I believe in May also we tried to take 1 hike but somehow we had to roll it back because the market was very much delayed and the sentiment of the network was very weak. So there were some rollbacks continuously till the month of July. And after that the market has settled and now the demand is there. So apparently the impact we'll understand later. But I can say that there was no much price hike. Only the strategic whatever was there in the like cost increase, that we could save and that is visible in the results also. But extraordinary hike could not be taken in this market because the demand pattern was low. So it could not be taken.

Got it. And sir, for the coming quarter, so Q2, because all of these raw material pricing increase, sir, is the industry, so apart only, not only Insecticides or is the industry throughout not taking any price rise and that might affect our margins for the B2C business going forward or we expect to at least maintain that or we have sufficient inventories? If you could help us understand on that front.

Again, it's a mixed bag, very difficult to say. Like the variations are very, very high. Like solvents are like there are fluctuations of 25% to 30% in the solvent prices week-to-week, day-to-day. So very difficult about talking about individual companies. But we since are focusing around lot of interesting products actually, the premium products. So I don't think that our profitability is going to get impacted in this difficult time also.

Got it. Sir, just final question from my side. How is the, whenever we take a price hike, sir, how is the pricing like friction between Focus Maharatna and Maharatna products and generic products? So if you could help us understand, are we able to pass on whatever raw material cost increases we get for the Focus Maharatna and Maharatna products or even that is facing some kind of friction from the market?

It depends on product to product because if something is not doing well, then yes, there can be issues. Or if there is a competitive product which comes into the market and puts pressure in your molecule, it varies from product to product. But generally I always tell that FMs are the products which has even higher profitability. Maharatna has reasonable profitability in between and generics are sold at a low profitability. If you have the price advantage over any generic, you can make some good profit than the normal because normally generally you end up selling the generic at 10% to 15% gross margins. So there can be cases where you make 20% to 25%. Maharatna we sell at around 30 odd percent. Sometimes the profit can go down to 20%, 25%. In the same manner, FMs are something which attracts 35% plus type of margins. So special case even there is 40% plus. In a low case it can be 30%. So since there are multiple products in all these ranges because I have 18 Focus Maharatnas, about 16 to 18 Maharatnas are also 40. So in one word I cannot explain the complete range, but yes, it varies from product to product and the range functions as I told.

Got it. And sir, are there any plans for a buyback because I think this is a down cycle and we can reduce the equity base for our company. So any plans on buyback?