Rallis India held a conference call on 20 July 2022 to discuss the results for the quarter ended June 2022 and way forward. Mr. Sanjiv Lal- Managing Director & CEO, Mr. S. Nagarajan- Chief operating Officer and Ms. Subhra Gourisaria- Chief Financial Officer of the company addressed the call.

Highlights of the Concall

• The company mentioned that monsoon had a slow start till July first week. However, the monsoons have picked up with cumulative rainfall being 11% above normal till July 13 on an overall basis. However, uneven spatial distribution is a concern with 53% of the district's receiving deficient or large excess rainfall.

• Revenue growth of 16.5% in Q1FY23 on a YoY basis was driven by 11.6% of price growth and 5% of volume growth. Crop care revenue growth was 26.5% while seeds revenue remained flat.

• OPM was down 330 bps to 13.1% led by lower margin in seeds business while it saw improvement in crop care margins.

• Crop Care revenue grew by 26.5% for the quarter. Domestic crop care grew by 17.1% while international business grew by 50.8%. Crop nutrition segment grew by 25.6%.

• Crop Care EBITDA margin improved 150 bps to 9.6% leading to 48.1% growth in Ebidta to Rs 57 crore. Margin was driven through growth and calibrated price changes to absorb cost inflation.

• The domestic crop care business grew by 17.1% in Q1FY23 over previous year quarter despite delayed rains in several parts of the country. Cash flow in market is low due to fertilizer price hike and delayed monsoon. The margins were maintained despite pressures due to cost inflation, high cost inventory and competitive pricing. Positive market sentiment helped in effective scale-up of key products across markets. It launched new herbicides in paddy and cotton crops.

• The company has undertaken medium price hikes in domestic business of 4% to 5% during the quarter to offset the impact of higher raw material prices.

• The company is specifically working towards gaining market share in certain underserved markets such as MP, UP and Rajasthan across crops such as soybean, wheat and certain segments of paddy.

• Export business grew by 50.8% in Q1FY23 over previous year quarter. It has also recorded more than Rs 100 crore businesses in a month (June) for the first time and registered 50% growth in formulation business. It commercialized 2 branded products in Myanmar and 1 in Uganda. Asataf formulation registration in all 27 states of Brazil was completed.

• Seeds revenue at Rs 267 crore remained almost same as previous year. Placement plan is executed well across markets while the liquidation is being affected across crops due to delayed monsoon and paddy de-hybridization. Scale-up of Diggaz (Cotton), a new hybrid has progressed well with a liquidation of 1.75 lakh packets against 20,000 in previous year. The company launched new products in Paddy (8336 - bold, 8101 - early, 8375 - medium) and Tomato (Shambho) to boost market share and growth.

• Seeds business EBITDA margin decreased 990 bps to 30.9% leading to 32% fall in Ebidta to Rs 56 crore. Seeds margins were impacted due to higher provision on stocks and slower liquidation due to segment shifts in paddy. Seeds business continues to be under pressure.

• The company demand for cotton seeds is impacted due to delayed monsoon in Maharashtra affecting sowing activities and increased usage of illegal HD cotton seeds. However, it is pleased with the growth of its new cotton hybrid as it increased the volume to 1.75 lakh packets compared to 20,000 packets last year in Punjab and Rajasthan.

• The company has revised its strategy for the seed business with greater focus on the liquidation, cost optimization and more robust evaluation of new product pipeline advancements.

• The company continues to drive growth momentum. Overall sentiment for monsoon is good. Inventory in market across industry is high and the company plans to focus on judicious liquidation of stocks.

• Export business is buoyant and the company expects investments made in capacity expansion will support growth momentum.

• Raw Material pricing has started to abate in few materials and managing volatility will continue to be a priority for the company. The company plans to take judicious pricing actions to manage volumes and overall profitability.

• The company focus will be on ensuring production whilst optimising the overall working capital over the year

• The company plans to tie-ups with domestic suppliers which will reduce its dependence on imports and supply chain issues that it had experienced in the last two years.

• The company expects capex of Rs 250 crore in FY23

• The company expect business to pick up pace from H1FY23 onwards, especially on margin funds on the back of new capacities, new product launches, better product mix, and a wider distribution network.