Rallis India held a conference call on 22 April 2022 to discuss the results for the quarter ended March 2022 and way forward. Mr. Sanjiv Lal- Managing Director & CEO and Ms. Subhra Gourisaria- Chief Financial Officer of the company addressed the call.

Highlights of the Concall

• EBITDA during the quarter was impacted by the opportunity loss due to the non availability of raw material for a key technical and export facing and international business for a key customer impacting about Rs 10 crore. Also the company took provision of Rs 7 crore for slow/non moving inventory in line with the market demand

• Domestic business growth was largely aligned with the soft rabi season during the quarter given that the same was impacted by erratic climatic conditions. Additionally, resurgence of covid cases during the initial parts of the quarter resulted in limited in person interaction. Furthermore, the growth was largely price driven given the price revisions undertaken to offset the impact of rising prices.

• The domestic business has seen a number of challenges over the last few years. Firstly with the pandemic led supply chain disruption and availability of key raw materials. Secondly, untimely and excessive rainfall across certain regions has impacted product off take. Third the rising input and raw material prices over the last two years have further resulted pressure on margins.

• On the exports front demand for agrochemicals continue to remain strong driven by remunerative crop prices and supply shortages from China

• The company believes the agro chemical sector offers a good growth potential. Weather predictions from Skynet and IMD indicate a normal monsoon. Kharif season also is expected to be good with crop prices ruling higher than last year. In the long run as well the channel plus one strategy augurs well for the Indian agro chemical industry

• The company has added around 6 new products in FY 20, followed by four new products in FY 21. And in FY 22 it has introduced several new products in the crop protection segment. Of the seven products added during the year 3 were 9(3) products 2 were 9(4) products and two were through co marketing. The company aims to introduce at least two 9(3) products annually.

• The company believes new products will help it deal better market share in certain underserved markets such as Madhya Pradesh, Uttar Pradesh and Rajasthan across crops such as soyabean, wheat and certain segments of paddy.

• Domestic herbicide business grew well at 20% year on year in Q4FY22 while insecticides and fungicides category grew at about 5%.

• Retailer count of the company in the crop care segment was around 55000 and distributor count was around 4100 at FY22 end compared to 47000 and 3900 respectively during the previous year end.

• The crop nutrition segments within crop care continues to do well, with a Q4 year on year growth of 17% and an annual growth of 20% over the last year. In FY22 the company has added six new product in the crop nutrition segment - 4 in house and 2 co marketing.

• Growth momentum continues to be robust for its crop care business while the seeds business faced challenges during the year.

• The company reported 25% plus growth in domestic crop care in Q4FY22 driven on the back of prices and volume. The company showed resilience in managing pricing transition, high volatility and ensuring that the inventory remains at a manageable level.

• Growth in international business could have been in strong double digit in Q4FY22 but, for extreme raw material shortage of one of its key products coupled with phasing issue with one of its international customers which led to de-growth. Growth for international business continues to be buoyant with positive demand outlook across customers and geographies

• Q4 is a small quarter for seeds business while the company is more focussed on Kharif 2022 strategy.. Seeds business de-grew by 13% in FY22 over last year, since the addressable markets were affected across crops and seasons due to reasons like crop shift, state Govt. bans, illegal cotton seeds etc.

• The company retail footprint in the seed business was 38000 compared to 31000 during the previous year end.

• Raw material costs have been trending higher particularly since November 2021. The company has taken calibrated price increases. Its realizations improved by around 5% in the domestic crop protection segment and 14% in the international business. However, these are not sufficient to fully offset the cost increases, which have resulted in margin compression. The company is focusing on value engineering, cost reduction, careful sourcing and calibrated price increases to deal with the challenging scenario.

• The company has also been working on diversifying its supply sources for some of key raw materials. While the percentage of raw materials procured from China is still in the 50s range, the company now has very good viable options from within India for some of its key raw materials.

• The company expects the market volatility to continue on input availability and raw material pricing front.

• The company did capex of Rs 185 crore in FY22 and expects Rs 250 crore in FY23.

• The company is on track towards commissioning the MPP at Dahej during FY23.