Dhanuka Agritech Limited (DHANUKA) Q2 FY23 Earnings Concall Transcript

Dhanuka Agritech Limited (NSE:DHANUKA) Q2 FY23 Earnings Concall dated Nov. 01, 2022

Corporate Participants:

Mahendra Kumar Dhanuka — Managing Director

Analysts:

Manish Mahawar — Antique Stock Broking Limited — Analyst

Viraj Kacharia — SiMPL — Analyst

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Resham Jain — DSP Investment Managers — Analyst

Rohit Nagraj — Centrum Broking — Analyst

Anurag Patil — Roha Asset Managers — Analyst

Rohan Gupta — Nuvama Wealth Management — Analyst

Anika Mittal — Nvest Research — Analyst

Ayush Shukla — Nuvama — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q2 FY ’23 Earnings Conference Call of Dhanuka Agritech hosted by Antique Stock Broking. [Operator Instructions]

I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. Thank you. And over to you, sir.

Manish Mahawar — Antique Stock Broking Limited — Analyst

Thank you, Rutuja. I welcome all the participants to the 2Q FY ’23 earnings call of Dhanuka Agritech. From the management, we have Mr. M.K. Dhanuka, Managing Director; Mr. Rahul Dhanuka, Chief Operating Officer; and Mr. V.K. Bansal, CFO on the call.

Without any delay, I would like to hand over the call to Mr. Dhanuka for opening remark, post which, we will open the floor for Q&A. Thank you. And over to you, Mr. Dhanuka.

Mahendra Kumar Dhanuka — Managing Director

Thanks you, Manishji. Good afternoon, ladies and, gentlemen. Myself, M.K. Dhanuka, Managing Director of Dhanuka Agritech Limited. I hope all of you are fine and keeping safe. Thank you for joining us in the conference call for results of Q2 FY ’22, ’23 of Dhanuka Agritech. I have with me Mr. Rahul Dhanuka, Chief Operating Officer; and Mr. V.K. Bansal, CFO of the company.

Dhanuka Agritech is a leading agrochemical company in India focusing on branded sales in the market. The company’s strength lies in manufacturing and marketing of formulated products. The product portfolio is spread across insecticides, herbicides, fungicides and plant growth promoter. Dhanuka Agritech is working with the vision of transforming India through agriculture. Our belief is that when we transform the lives of farmer by enhancing their productivity and quality, in turn, enhancing their income, we are making a small contribution in transforming India.

We work in all major crops in India and have implemented the best-in-class technology to ensure a smooth and efficient supply chain. Dhanuka have Pan India presence through its marketing team and we are roughly in all major states across India. With three manufacturing units and 41 warehouses across India, we cater to around 6,500 distributors and dealers and around 80,000 retailers. Through this extensive network, Dhanuka reaches out to approximately 10 million Indian farmers with its product and services.

Dhanuka has more than 1,000 techno-commercial staff, supported by the strong sales and marketing team to promote and develop new products. Dhanuka’s strong R&D division has world class NABL Accredited Laboratory as well as an excellent team for new product registration and development. Dhanuka has international collaboration with 10 leading global agrochemical companies from U.S., Japan and Europe, which helps us to introduce the latest technology in India. This year, the rainfall has been very uneven. And although the overall rainfall is above average, East and North region have suffered from very less rainfall, whereas South and West have seen unprecedented rains resulting in flooding in many regions.

Coming to the financial performance for the quarter two of FY ’22, ’23, revenue from operations stood at INR542.9 crores in Q2 FY ’22, ’23 versus INR438.82 crores in Q2 of FY ’21, ’22. EBITDA stood at INR97.52 crores in Q2 of FY ’22, ’23 versus INR82.16 crores in Q2 of FY ’21, ’22. Profit after-tax was at INR72.02 crores in Q2 of FY ’22, ’23 versus INR63.37 crores in Q2 of FY ’21, ’22.

The zone-wise percentage share of turnover for Q2 FY ’22, ’23 is as under. North India, 26%; East India, only 8%; the growth and the top-line has sufferred majorly in East zone because of the deficit in rainfall; West zone, 37%; and South zone, 29%. Product category-wise share of turnover for Q2 of FY ’22, ’23. Insecticides, 37%; fungicides, 21%; herbicides, 31%; and others, 11%.

The Board of Directors of the company in its meeting held today has approved the proposal for the buyback of 10 lakh equity shares of the company for an amount not exceeding INR85 crores. At a maximum price not exceeding INR850 per equity share of INR2 each. The buyback is subject to all applicable statutory approval.

We are happy to inform that company has set-up the Dhanuka Agritech Research and Technology Center at Palwal, Haryana on six acre land, equipped with all laboratory facilities and a training hall with the capacity of 100 farmers. The R&D center will also be able to facilitate the demonstration of package of practice of various crops as per the season for increasing their quality, yield and income. The Honorable Chief Minister of Haryana, Shri Manohar Lal Khattarji has very kindly given his consent to inaugurate our R&D center at Palwal on November 4, 2022.

After initiation of the Export Department in September, we have started receiving queries from international markets for our current product portfolio. And we expect these leads to be used for export of product coming from Dahej plant as well. Further, we are ready for launching our new range of biological products in the month of November with an initial portfolio of six products. These products are currently being sold from the best third-party vendors in the industry.

Setting up of Dahej plant is progressing as per the schedule time, and we are expecting production to start from March end 2023. The company has obtained the registration certificate in CIBRC under Section 9(3) for the product, Decide 31% WG for the control of various insects in Chile and launched the product in Q2. We are getting very good response. And unfortunately, we were not having the technical, which was not planned, and we could not able to supply the material in the market as per demand.

I am happy to inform that the company was awarded in ABSA-2022 in the category, The Most Innovative Campaign on Horticulture. Further, myself received G Business Award for the contribution in agriculture sector, conferred by the Honorable, Shri Manohar Lal Khattar, Chief Minister of Haryana at MDU, Rohtak, on 15 September, 2022. The Ministry of Agriculture has issued notification restricting use of glyphosate through pest control operators only. The industry associations are approaching to the state government to discuss the effect, implementation, strategies and challenges of implementation of this order.

Being India’s leading agrochemical company, we are at the forefront of introducing digital solutions and innovations, streamlining policies and collaborating with various entities to boost the integration of technology across business segments. In the same endeavor, we have tried to boost our reach through online farmer interactions and aggressive use of TV advertisement for all our key products.

We are focused on expanding our market coverage through our network of distributors and our digital platforms where we engage with the end consumer. Also, Dhanuka has tied-up with upcoming online platform like AgroStar, DeHaat, Gramophone and Plant It for online sales of Dhanuka products through their platform. We consider ourselves responsible towards securing the farmers’ welfare and preserving full security of the nation. We continue to strengthen our association with the farmer-producer organization that is FPO, Krishi Vigyan Kendra, KVK and other critical institutions to increase our business expertise and boost our market presence.

Thank you very much for your kind attention. We will now take the questions from you which you may have. Thank you very much.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Viraj Kacharia from SiMPL. Please go ahead.

Viraj Kacharia — SiMPL — Analyst

Yeah, hi. Thank you for the opportunity, and congratulations on a good set of numbers in such a challenging environment. Just had few questions. First is on the overall sales growth for the quarter and for the first half. If you can just provide some perspective in terms of how is the volume price mix being pause? And a related question is, if I look at our contribution margins last quarters, it’s been trending considerably low. And despite the share of ITI increasing in overall mix, so I think in the first half it’s close to the proportion of overall revenue mix and it’s the highest in last three, four years. So in that sense, just want to understand how should one understand the overall contribution margin behaving for us in next couple of years for us? So that is one.

And second question is largely in terms of the operating costs which we have kind of been able to manage it much better despite the challenges in terms of the RM headwinds. So in which areas or avenues you’re kind of being able to contain the cost?

Mahendra Kumar Dhanuka — Managing Director

So first question is with regard to the value and volume growth, am I right?

Viraj Kacharia — SiMPL — Analyst

Yeah. And relatedly on the contribution margins.

Mahendra Kumar Dhanuka — Managing Director

You see, with regards to volume, there is a difference of around 7% value growth. Our value growth is more than 23% and the volume is more than 16%.

Viraj Kacharia — SiMPL — Analyst

Sorry, it didn’t — your voice was not clear. Can you repeat that if it’s possible?

Mahendra Kumar Dhanuka — Managing Director

You see the difference of value and volume is 7%. So volume growth is 7% — 16% plus in quarter two.

Viraj Kacharia — SiMPL — Analyst

Okay. So of 24%, volume growth is 7% and then rest is value?

Mahendra Kumar Dhanuka — Managing Director

So value growth is around 24% and volume is around 16%.

Viraj Kacharia — SiMPL — Analyst

Okay, sure.

Mahendra Kumar Dhanuka — Managing Director

And your second question was regarding the ITI index. So we have introduced new molecule; Bicide, Cornex and Zanet and Terminal. So we are getting very good response in three molecules out of four. And that’s why the ITI index has increased to 14.75% in comparison to 9.8% last year. So we have around 50% growth over last year in the ITI index. And we do hope that we will be able to get much larger share of these molecules in the coming year. And definitely if the — share will increase, then definitely, it will have impact on the margins also.

Viraj Kacharia — SiMPL — Analyst

Sir, actually, my question was typically the new products — on the contribution margins, the new product sale is always higher. I mean, while they take time to mature and — in the initial years, one typically invest in brand building and all, so maybe the contribution at the EBITDA level is not much, but in terms of contribution level, the margin in the new products is always higher. So in that prospect, we see the increase in share of ITI. Despite that, our contribution margins in the current quarter has seen a moderation. We have seen almost 300 basis points moderation in gross margins compared to last year. So any perspective you can share what has driven that? It is the only under-recovery of RM or this business itself has seen a erosion in terms of margins? Any perspective you can share, how should one look at gross margin behaving for next couple of years?

Mahendra Kumar Dhanuka — Managing Director

Right. Your question is absolutely okay. You see the impact on gross margin largely on account of the liquidation of hardware inventory. As you know, the price were increasing on material in the month of April, May, June. And after that, the decline in sale was started. So there is a hit on the margin on account of the liquidation of hardware inventory and to some extent on amount of the product. In the quarter two, percentage share of the institutional sale and the bulk sale also increased from — say, from 2% to 5%. But because of that, the hitch in the gross margin and that will continue in Q3 as well this year. But going forward, after we see the — in couple of years, our gross margin we should be able to maintain around 35% to 36% gross margin level we should be able to maintain.

And you are right that in new molecules which are under Section 9(3) are the margins — levels are always higher. But in my four molecules or me-too products, the margins are lower. So this year, we have launched four products. So Terminal is one product, which is a me-too product. And that’s why the share in ITI index for Terminal is higher. So since it is not a 9(3) molecules, so margins is Terminal were lower. That is the reason that overall it has also impacted the margins.

Viraj Kacharia — SiMPL — Analyst

Again, sorry to harp on this. Just one follow-up on the contribution margin. Historically, we’ve done close to 37%, 38% or in 11 [Phonetic] years we have gone above 40% also in terms of contribution margins. When you say — I understand this year we had an impact in terms of high-cost inventory. But if you have to look at next three to four years, your communication may have that it should be around 35%, 36%. So just trying to understand where is the disconnect? I mean, as share of ITI improves, over a period of time, this should in the way kind of aid your overall contribution margins. But what you’re saying is, it will still largely be around 35%, 36%. So just trying to understand the disconnect.

Mahendra Kumar Dhanuka — Managing Director

Yeah. You see, when we are introducing new molecule, margin is good, but at the same time, our new [Indecipherable] we were introduced four years, five years ago, we are losing certain margins. So overall, we have [Indecipherable] confident to deliver gross margin around 35% to 36%. 38%, yes we delivered in the past, 38% to 39%. At times, it is because of even the trade is increasing price. If the price is increasing in a particular year, that particular quarter, we can deliver much more because we always get the advantage of the carryover inventory at that point of time. But largely, on a sustainable basis, I think 35%, 36% appears to be realistic.

Viraj Kacharia — SiMPL — Analyst

Okay. And in terms of operating costs, which elements we have seen savings or low-cost inflation? So again, last couple of years, both in terms of employee costs and other expenses, you’ve done a fairly good job in terms of containing this cost. So just trying to understand how we’ve gone about achieving those savings? So if you can elaborate?

Mahendra Kumar Dhanuka — Managing Director

In terms of cost, I think after COVID this year was absolutely a normalized year. Therefore, the increase was there. I think costs will — in this particular year, I think we’ll be able to maintain our cost in terms of the same percentage going forward.

Viraj Kacharia — SiMPL — Analyst

Okay. Fine, sir. I’ll come back in the queue. Thank you.

Mahendra Kumar Dhanuka — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Yogesh Tiwari from Arihant Capital Markets. Please go ahead.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Thank you, sir. I had a question on China. So there are some news of distribution — of lockdown in China. So just wanted to understand if there is any supply chain disruption from China like we had in Q1? And what would be the exposure — our exposure to China in terms of percentage?

Mahendra Kumar Dhanuka — Managing Director

This is my request to the operator. The voice is not very clear. Can you do something to make it better?

Operator

Mr. Tiwari, you have kept the handset nearby to you. Can you please keep it on the distance, because it’s sounding muffled?

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Am I clear now? Hello.

Operator

Yes. Please go ahead.

Mahendra Kumar Dhanuka — Managing Director

Better in terms of clarity, but if you could be louder.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Is it better now?

Mahendra Kumar Dhanuka — Managing Director

Yeah.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Yeah. So my question was on China. So there were news of lockdown in China. So is there supply disruption similar to what we had in Q1? And what would be your exposure to China in terms of percentage?

Mahendra Kumar Dhanuka — Managing Director

Okay. So the supply disruption in China is actually a new norm. And we have now seen it happening in 2020 in COVID then that continued in ’21. And ’22 also, every month, the disruption has showed up itself in a different form. And now the supply disruption is not a Chinese factor alone. The supply disruption is because of logistics, because of the supply chain disruption at the back-end in many manufacturing units, availability of key basic materials. So many things are impacting the supply chain in different form. Our new update on China every morning, sometimes talking about disrupting microchips or sometimes disrupting iPhones or sometimes disrupting chemical plants is we have to take that in stride. Normally this means a delay of 15 to 20 days and nothing else.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

But is this delay leading to increase in cost for the company?

Mahendra Kumar Dhanuka — Managing Director

Could you repeat that?

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Yeah, yeah. Just to repeat, so as you told that there is a delay of 15 to 20 days for raw materials from China. So is this leading to any cost increase because of this delay?

Mahendra Kumar Dhanuka — Managing Director

No. Cost increase, I don’t think so is much there because of the delay. It is the opportunity loss that sits in.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Okay. And my second question is on the upcoming season. How do you see the demand for the upcoming season given there was the erratic rains and uneven rains? So what is — how do you see the demand?

Mahendra Kumar Dhanuka — Managing Director

So widespread rains across the country has actually elevated the groundwater as well as the soil moisture. So this is really favorable for the favorite crops wheat right now. So we are quite hopeful of wheat acreages going up significantly across the country. Demand of oilseed means that the mustard acreages will also remain high. So these are the two crops certainly going to take up space. In South India, Kharif paddy acreages were lower, which now due to availability of water, should come up aggressively in South India as well as in East India. Crop damages in Kharif prompts the farmer to go for his earnings protection through Rabi planting. So again, we are hopeful of Rabi planting and Rabi acreages to be overall higher.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Okay. And in the last quarter, basically in the last 15 days of September, there was heavy rains and flooding in North India, basically Uttar Pradesh, and we have a huge exposure in North India. So were there any sales affected because of this erratic flooding in the last half of the — of Q2?

Mahendra Kumar Dhanuka — Managing Director

So erratic rains, especially if heavy, then they do impact the consumption at the farmer end, his spray opportunity is lost. That is one. And standing water in the field means that the further spray opportunity even if the rain has stopped gets impacted. So yes, this heavy rain has certainly impacted consumption for the farmer and for the industry.

Operator

Sorry to interrupt you, Mr. Tiwari. May we request you to please rejoin the queue, we have participants waiting for their turn.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Sure.

Operator

Thank you.

Mahendra Kumar Dhanuka — Managing Director

Thank you.

Operator

[Operator Instructions] The next question is from the line of Resham Jain from DSP Investment Managers. Please go ahead.

Resham Jain — DSP Investment Managers — Analyst

Yeah, hi. Good afternoon. So few questions. First one is on inventory levels. At the industry level for agrochemicals, what is your sense? Given that the Kharif season has not panned out as expected, how are the inventory levels and the situation currently at the marketplace?

Mahendra Kumar Dhanuka — Managing Director

I would feel that the inventory levels could be substantially higher, relatively higher for sure, both at the channel as well as the industry end. So industry would be holding relatively higher inventory.

Resham Jain — DSP Investment Managers — Analyst

Okay. And what is the situation for us, at Dhanuka?

Mahendra Kumar Dhanuka — Managing Director

So in channel, we normally don’t hold high inventories, but at our end, yes, our inventories are relatively higher.

Resham Jain — DSP Investment Managers — Analyst

Okay. Got it, sir. And do you think because of the better outlook of Rabi things should be — things should get normalize in six months or some of the molecules may get used only in the next Kharif season now?

Mahendra Kumar Dhanuka — Managing Director

Some of the molecules are very specific. But as of now, I don’t see which one would be impacted. In fact, most of the products which are specific are rabi specific. Kharif products will still have opportunity in rabi also. So most of the kharif products will have rabi opportunity in South India as well as in East India.

Resham Jain — DSP Investment Managers — Analyst

Okay. Understood. And sir, the second part is on the technical plant at Dahej. You mentioned that from March ’23 onwards, it will commission and production will start. But any more further insights on it compared to what you were envisaging, let’s say, 6 months or a year back? Is the overall — in terms of expectation of the kind of products you were thinking about manufacturing and any other opportunity which is emerging there?

Mahendra Kumar Dhanuka — Managing Director

Actually, the plant will open up many opportunities in the new world order and a huge traction on China Plus One overall chemical demand. So we are banking on all that traction around us. As of now, our narrative is that we start production, we go live in March and then play from there.

Operator

The next question is from the line of Rohit Nagraj from Centrum Broking.

Rohit Nagraj — Centrum Broking — Analyst

Congrats on a good set of numbers. Sir, first question is in terms of the high-cost inventories which impacted our 1H performance. So have we exhausted all the inventories and now we have come to the low-cost inventories in Q3?

Mahendra Kumar Dhanuka — Managing Director

Actually, it is not because, you see, the declining trend is continuing. You see, the inventory which was procured in the month of June, largely liquidated. But whatever we procured in July or in August, there is a decline in trend. So in the quarter 3, there will be impact on the high value inventory as well.

Rohit Nagraj — Centrum Broking — Analyst

All right. Sir, second question is in terms of exports. So we have recently started in the month of September our export unit. So have we started feeding the market based on the products that we plan to manufacture in our new facility or the products where we have got inquiries from the exports market? So have we started sending samples and getting those approved before the commercial supply starts?

Mahendra Kumar Dhanuka — Managing Director

Yes. So we are exploring the export markets from all these angles and we are really hopeful to catch some elements there very aggressively, and more so, once our technical plant comes up.

Rohit Nagraj — Centrum Broking — Analyst

Right, sir. Got it. Just one clarification on the guidance. So we have said that revenue guidance will be double-digit growth. And as I understand, the EBITDA margins will be at the same level as it was last year. So effectively, our top line growth will also reflect absolute EBITDA level growth as well. Is the assumption right?

Mahendra Kumar Dhanuka — Managing Director

You see, in terms of percentage, there will be decline in EBITDA margin.

Operator

The next question is from the line of Anurag Patil from Roha Asset Managers.

Anurag Patil — Roha Asset Managers — Analyst

Sir, for our Dahej plant, is there any upward revision in the total project cost?

Mahendra Kumar Dhanuka — Managing Director

Not significantly. Earlier, we were expecting we will invest till March around INR210 crores. Now as per our estimate, it is going to be INR225 crores.

Anurag Patil — Roha Asset Managers — Analyst

Okay. And sir, what would be the revenue potential of this plant? A very broad number —

Mahendra Kumar Dhanuka — Managing Director

[Foreign Speech]

Anurag Patil — Roha Asset Managers — Analyst

Sir, what will be the revenue potential from this plant?

Mahendra Kumar Dhanuka — Managing Director

You see, we are working on it. We’ll share in the last quarter call.

Anurag Patil — Roha Asset Managers — Analyst

Okay, sir. Okay. And sir, one last question. What was our glyphosate revenue contribution? Is it material enough to affect?

Mahendra Kumar Dhanuka — Managing Director

No. Glyphosate contribution in our portfolio is hardly 2%. And as such — there are 2 parts to it. One, the contribution in our portfolio is hardly 2%. Two, the order doesn’t stop us from selling glyphoste. So we continue to sell. And as we see it and as we interpret it, we’ll continue to sell going forward also. And the regulation doesn’t stop us from selling. The regulator only — the regulation only says that it is to be used by PCO. So this is an ecosystem which the state governments are working on. Industry has provided all the required support to the state governments to create a PCO network and ecosystem so that the farmer, Indian agriculture is not deprived of glyphosate applications.

Just to add to it is another dimension. This could be an example of how 2 different departments work, but eventually will converge. Recently, GM mustard has been approved, genetically modified mustard. And the genetic modification there in the mustard is weed control, weed control by application of glyphosate. So that opportunity very much exists. The scientific community acknowledges that. So it is there to stay. It is only that the relevant ecosystem has to come together to make it move.

Operator

The next question is from the line of Rohan Gupta from Nuvama Wealth Management.

Rohan Gupta — Nuvama Wealth Management — Analyst

A couple of — first, one clarification. You mentioned the volume growth for the quarter is 16% while the balance 7% is value-added growth.

Mahendra Kumar Dhanuka — Managing Director

Right.

Rohan Gupta — Nuvama Wealth Management — Analyst

Sir, isn’t it that the price increase has been much higher and sharper given the increase in chemical prices? Or it is that in our value-added product basket or efficiency product basket the price increase has been very limited and most tight increase has been in generic product strategy.

Mahendra Kumar Dhanuka — Managing Director

Yes. The price increase mainly happens in generic category. As shared earlier, the prices for the specialty molecules are fixed usually for 1 year. In 1 year, the price is not increased. But unfortunately, because of the devaluation of rupee — our imports are in dollars. So ultimately, our costing increase because of the forex losses. So that is the reason that it has impacted the margins. Apart from the high cost inventory, the increasing of the dollar rate has also impacted the margins of the company.

Rohan Gupta — Nuvama Wealth Management — Analyst

Okay. Sir, second question is on our buyback. So I understand and you have also earlier mentioned that the company will be on a capex mode given this Dahej plant and how you want to go ahead non-stop adding the capacity and also have shown your intention to cater to the export market. Given that, you still have decided to go with the buyback of up to INR80 crores this year. So I thought that the company may go slow on the distribution of income to the shareholders. Don’t we have any aggressive capex plans over the next couple of years beyond this — the full capex which we are already putting in the manufacturing?

Mahendra Kumar Dhanuka — Managing Director

So apart from investment in Dahej unit, immediately we don’t have any plans because for the bio-division and the export division, we don’t need any capex. So except Dahej, immediate capex plans are not there. And then every year, we are going to basically earn profits of around INR200 crores. So that way, we don’t need any funding and we will be able to manage our capex from the internal accruals only.

Rohan Gupta — Nuvama Wealth Management — Analyst

Okay. And sir, just a third and last from my side, is significant increase in receivables from March to September in the first half. There has been significant increase in receivables, which is there. Any particular delays from the dealers you are seeing? Or by — such a sharp increase in receivables from — is it only that delays in — because of the poor monsoon in the prior season.

Mahendra Kumar Dhanuka — Managing Director

If you kind of repeat that?

Rohan Gupta — Nuvama Wealth Management — Analyst

Sir, we have seen that your receivables have gone up significantly from March to September from almost INR280 crore —

Mahendra Kumar Dhanuka — Managing Director

You’re not at all — Operator, Mr. Gupta is not at all audible.

Operator

Mr. Gupta, may we request you to please speak a little bit louder.

Rohan Gupta — Nuvama Wealth Management — Analyst

Sir, is it better now?

Mahendra Kumar Dhanuka — Managing Director

Yes.

Rohan Gupta — Nuvama Wealth Management — Analyst

Okay. Sir, I was saying that there has been significant increase in receivables, in debtors’ levels in the first half. Any particular reason for that?

Mahendra Kumar Dhanuka — Managing Director

You see, there was a — basically cash flow was a little tight in the Q2, because of which the debtors level has increased. But you see, overdue outstanding is a little bit in control, which means the collection is better now in November, and December, we are expecting a good collection. So by the end of Q3, debtors will be in line with the growth of the company.

Operator

The next question is from the line of Anika Mittal from Nvest Research.

Anika Mittal — Nvest Research — Analyst

Sir, my — sir, I have only one question. Can you provide the overall Indian agrochemical companies’ outlook towards the ongoing energy crisis in Europe due to which many companies — many agrochemical companies in Europe has been curtailing their production? So sir, how are you seeing this situation? Will this situation benefit the Indian agrochemical companies? And how are you seeing this as an opportunity, not only in terms of exporting to Europe, but also to other territories where earlier Europe was exporting?

Mahendra Kumar Dhanuka — Managing Director

Your question kind of trailed off for me. So I understand you’re asking about the opportunities, but in reference to what? Would you come forward and louder —

Anika Mittal — Nvest Research — Analyst

Sir, opportunity due to energy prices in Europe.

Mahendra Kumar Dhanuka — Managing Director

Yes. Yes, got that. Due to energy prices in Europe, yes. So Europe is in a completely different situation. It has various challenges to deal with right now in terms of energy required for keeping the houses warm and in terms of their own food supply coming from Ukraine and Russia, which were the large suppliers of wheat and sunflower for sure, but a lot of other food items as well. So Europe has to struggle to get food supply, their fuel supply and for running their chemical plants, both in terms of basic raw materials as well as the energy. So this does open up opportunities in many ways for Indian agriculture as well as Indian chemical manufacturers. Yet this is still opening up. These dimensions are still opening up. So this is not very clear as to how this opportunity will shape up. But certainly, India will have a big role to play both in terms of global food security and supplying basic raw material and key manufacturing chemicals for pharmaceuticals as well as for agrochemicals.

Operator

The next question is from the line of Ayush from Nuvama.

Ayush Shukla — Nuvama — Analyst

Am I audible?

Operator

It is better, Mr. Ayush, if you can speak a little louder.

Ayush Shukla — Nuvama — Analyst

Sure. Is it better now?

Operator

Yes. Please go ahead.

Ayush Shukla — Nuvama — Analyst

Yes. So firstly, congratulations on a good set of numbers. My question goes back to the gross margin decay issue. So we’ve seen 6 consecutive quarter of gross margin decay. Firstly — earlier on in the call, you alluded to some mix change towards in TCs on bulk sales —

Mahendra Kumar Dhanuka — Managing Director

Sorry, you’re not — I’m sorry, you’re not audible.

Ayush Shukla — Nuvama — Analyst

Sure. Just give me one second, please. Yes. Is it better now?

Operator

Can you speak a little louder, Mr. Ayush?

Ayush Shukla — Nuvama — Analyst

Is it better now?

Operator

Yes. Please go ahead.

Ayush Shukla — Nuvama — Analyst

Yes. So yes, my question is for the gross margin. We’re seeing a sixth consecutive quarter of gross margin decay. Earlier on in the call, you alluded to some mix change towards bulk sales and TC sales. So I mean — I would just like to understand how that — or the quantum of impact that it may have going forward on the gross margin? Secondly, on the Dahej plant which is coming up, if the bulk of the production is for captive consumption, can we not see some gross margin advantage coming from that? And thirdly, how are we placing ourselves when it comes to exports? I’m really sorry to bunch up all my questions, but then I would appreciate if you could take them.

Mahendra Kumar Dhanuka — Managing Director

You see, the impact on gross margin is basically because of 2, 3 reasons. I’ve already shared the major impact in this financial year first half is because of the high price inventory liquidation, one. Second, the impact of the rupee depreciation and product mix. As far as the share of, you see, increase of institutional in bulk, impact is not significant. The overall impact could be 220, 233 basis points in the full first half of the financial year, right?

Ayush Shukla — Nuvama — Analyst

Okay.

Mahendra Kumar Dhanuka — Managing Director

And second question is with regard to captive consumption of Dahej’s production, right?

Ayush Shukla — Nuvama — Analyst

Yes, that’s correct. Yes, sir.

Mahendra Kumar Dhanuka — Managing Director

We cannot share this thing now because we are evaluating and making this program. So probably, we will be in a better position to share this thing by the end of the — during con call to be held in the month of February.

Operator

The next question is from the line of Viraj Kacharia from SIMPL.

Viraj Kacharia — SiMPL — Analyst

Just had 2 questions. First is on the export part. So you said in the early part of the call, sir, that you have started receiving inquiries. So both in terms of existing portfolio where you’re seeing inquiries, I mean where are we in the registration of those? So just trying to understand that come March 23 when we are commercializing the production, we would be having the registrations for these in place? Or the registrations would be owned by the customers? So just trying to understand what — where are we in terms of registration both for this — and second, is in terms of the pipeline for new products for exports. So how is that taking shape?

Mahendra Kumar Dhanuka — Managing Director

Right. That’s absolutely a very industry-specific and an insightful question, I would say. So registration has 3 dimensions mostly. There are countries and export opportunities where registration is not required, or based upon Indian registrations, we get access to those markets. So to begin with, we are exploring these markets where the registration process is not long drawn or complex. Then our easy registration markets where we have applied for registration and we’ll get probably access to those markets in next few months, so those will be our next target.

And third one, we are working on the investment and registration in different countries, which we will expand towards the end of this financial year. So these are the 3 ways in which we are exploring the export market. So we already have opportunity with some of our existing products, existing formulated products as well with which we are going for the export market access. Meanwhile, we are working for developing products and formulations and recipes relevant for export market, and we are working on that aggressively.

Viraj Kacharia — SiMPL — Analyst

Okay. So for exports, is the — I mean, what we understand, the larger part of the focus was on technical rather than formulations. But I think what you’re saying now is we are looking at exporting formulations in totality. So I mean what changed, just trying to understand?

Mahendra Kumar Dhanuka — Managing Director

What? Come again? What —

Viraj Kacharia — SiMPL — Analyst

I think what you mentioned right now is that we’re looking at exports of formulations largely other than — and I think your earlier communication was largely in terms of exports of technicals.

Mahendra Kumar Dhanuka — Managing Director

Right. So this is very interesting. As we ventured into exploring the market for technical grade, what we discovered is there is a huge opportunity available to us for export of formulations also, for which we already have capacity as well as capability. So we are just leveraging that.

Viraj Kacharia — SiMPL — Analyst

Okay. So irrespective of Dahej, we can actually look to scale up exports in a material way. I mean — so just commercialization of Dahej itself doesn’t restrict us in terms of scaling up of the formulation piece, right, for exports?

Mahendra Kumar Dhanuka — Managing Director

That’s right, that, in respect of Dahej, we have a play in export market is what we realize and understand. Yet the export market, which is more of a B2B market, we will certainly need specific levers to stay strong, where Dahej comes into picture. So our in-house production are some of the key levers which we’ll use to get bigger in exports. Formulation export, we feel and still we are discovering is not long term or independently sustainable without a technical data, but we are still learning.

Viraj Kacharia — SiMPL — Analyst

Okay. And usually, when we talk about formulation exports also — so typically, these are 2 distributors in, say, countries which have less regulatory barriers? Or these are primarily to the MNCs? Just trying to understand so that — because the idea was to over a period of time to leverage the relationship which we have with some of the MNCs and eventually cater to them for the specialty molecules.

Mahendra Kumar Dhanuka — Managing Director

At this stage, I would just say that export is a good opportunity. We have just recently learned and are getting into it.

Operator

The next question is from the line of Yogesh Tiwari from Arihant Capital Markets.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Am I clear, audible? Hello?

Operator

I would request, Mr. Tiwari, to speak a little bit more louder.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Is it okay now? Hello?

Operator

Yes, please go ahead, sir.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Just wanted to understand on glyphosate. I understand it is only 2% of the revenue. But the prices had gone higher in the last few quarters. So are the prices still higher? Or is there any correction you can see in glyphosate?

Mahendra Kumar Dhanuka — Managing Director

For last 3 months, prices have been correcting down south, yes. The price has been moving downwards.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Sure. And the other one is on a patent which you — no, which we have received and the commercialization is in FY ’23 — sorry, in 2023, the herbicide, which has a base in metribuzin. So it would be helpful if you can share what would be the opportunity from this patent? What are the demand dynamics in India for metribuzin?

Mahendra Kumar Dhanuka — Managing Director

Well, the patent that we have received is for a herbicide, and it will find its application in sugarcane. Given the current global scenario, sugar prices are up and also sugarcane factor has ethanol opportunity. So these are the 2 specific dimensions which will keep sugar markets buoyant and our products will find huge opportunity and space in yield management in sugarcane. So that is where we see to have a play.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Yes. But this will be like domestic focus?

Mahendra Kumar Dhanuka — Managing Director

Mostly domestic focus, yes. Most of our focus is domestic, yes.

Yogesh Tiwari — Arihant Capital Markets Limited — Analyst

Okay. And lastly, on the insecticide portfolio. So if I look at the split, this time, the proportion of insecticide has declined compared to the same period last year. So is there any softening of demand related to insecticides in India?

Mahendra Kumar Dhanuka — Managing Director

No, not really. I would say that it was due to heavy rains that the insecticide application did not find adequate opportunity, which also translated conversely into more of herbicide consumption, thereby both in absolute terms as well as relative terms insecticide having come down. So this is just a specific rain dependent pattern, and this is not a long-term pattern in the Indian market.

Operator

The next question is from the line of Rohit Nagraj from Centrum Broking.

Rohit Nagraj — Centrum Broking — Analyst

Just one question in terms of the capex and buyback. So we have INR225 crores of capex for Dahej in FY ’23. There will be INR85 crores of buyback and maybe INR15 crores, INR20 crores of maintenance capex. So effectively, INR325 crores of investment. Just wanted to know how we are planning to fund this entire investment based on the current cash on hand and the cash flows that we’ll receive in the second half?

Mahendra Kumar Dhanuka — Managing Director

You see, in terms of Dahej, investment of INR225 crores to be happened in the year ’21-’22 and ’22-’23. So effectively, in the year ’22-’23, it would be around INR160 crores. And rest happened in the year ’21-’22. And with regard to the investment of Dahej and the buybacks, that will managed from internal accruals plus — you see, we are holding, say, in the beginning of the year, treasury around INR300 crore. So out of treasury plus internal accruals for this year, that will be managed.

Operator

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Manish Mahawar for closing comments.

Manish Mahawar — Antique Stock Broking Limited — Analyst

Thanks, Rutuja. On behalf of Antique Stockbroking, I would like to thank the team of Dhanuka Agritech for providing us an opportunity to host the call. Dhanuka, would you like to make closing comments, sir.

Mahendra Kumar Dhanuka — Managing Director

Yes, sure. First of all, I would like to thank all the participants who participated in this con call organized by the Antique Broking. To summarize at last, Dhanuka continues to demonstrate our ability to overcome challenges and emerge stronger despite uncertain business environment. We will aggressively roll out new formulations in the upcoming quarters and would ensure that it reaches to the consumer. I reassure our shareholders that we are committed to the task of transforming the landscape of agriculture in India and will play an integral role in rewriting the future of a better and new India. Recently, Dhanuka has started a campaign, India ka Pranam Har Kisan ke Naam.

We presume that the farmer has not got that respect which he is entitled to because he is working hard in the field, in 50-degree temperature and 0-degree temperature. Because of his hard work, we are able to get the food. And we are only self-sufficient in food now, but we are in a position to export. A lot of countries are suffering for the shortage of food supply. Recently, we heard about Lanka and now in Europe also the inflation rate has crossed 10%, more than that. So we are thankful to our farming community, and I salute them that because of their hard work we are able to get the food. So this corporate theme, India ka Pranam Har Kisan ke Naam, we are basically made an ad, which we are playing on various TV channels and newspapers and magazines, et cetera. So we hope that this will continue in times to come. Wishing you all the health and safety. Thank you very much.

Operator

[Operator Closing Remarks]