Rallis India Limited (RALLIS) Q1 FY24 Earnings Concall Transcript

Rallis India Limited (NSE: RALLIS) Q1 FY24 Earnings Concall dated Jul. 17, 2023

Corporate Participants:

Gavin Desa — Senior Partner and Account Head, CDR

Sanjiv Lal — Managing Director and Chief Executive Officer

Subhra Gourisaria — Chief Financial Officer

Analysts:

Prashant Biyani — Elara Capital — Analyst

Tarang Agrawal — Old Bridge Capital — Analyst

Rahul Veera — Abakkus Asset — Analyst

Abhijit Akella — Kotak Securities — Analyst

Rohit Nagraj — Centrum Broking — Analyst

Viraj Kacharia — Securities — Analyst

Arjun Khanna — Kotak Mutual Funds — Analyst

Rohan Gupta — Nuvama Wealth — Analyst

Ankur Periwal — Axis Capital — Analyst

Chintan Modi — Haitong Securities — Analyst

Archit Joshi — B&K Securities — Analyst

Abhishek Jain — Arihant Capital Markets — Analyst

S Ramesh — Nirmal Bang Equities — Analyst

Vishnu Kumar — Spark Capital — Analyst

Gagan Thareja — ASK Investment — Analyst

Dheeresh Pathak — WhiteOak Capital — Analyst

Presentation:

Operator

Ladies and gentlemen. Good day, and welcome to the Rallis India Q1 FY ’24 Earnings Conference Call. [Operator Instructions].

I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you, sir.

Gavin Desa — Senior Partner and Account Head, CDR

Thank you. Good day, everyone and thank you for joining us for Rallis India Q1 FY ’24 earnings call. We have with us today Mr. Sanjiv Lal, Managing Director and CEO; and Ms. Subhra Gourisaria Chief Financial Officer.

Before we begin, I would like to mention that some statements made in today’s discussions may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation.

I now invite Mr. Lal to open proceedings of the call. Over to you, Sanjiv.

Sanjiv Lal — Managing Director and Chief Executive Officer

Thanks Gavin and good morning everyone. As mentioned, Subhra Gourisaria, our CFO, is also joining me on this call this morning. I will begin the discussion by providing a brief overview of the industry, post which I will comment on Rallis specific developments.

The agrochemical sector has encountered a rather challenging external environment, delayed progress of monsoons and uneven rainfall distribution [Technical Issues] except for Northwest India, other regions received below average rainfall compared to the long-term average. The monsoons have picked up with cumulative rainfall being 2% above normal till July 12. For the period after July 12, out of the 36 subdivisions, 15 have received deficit rainfall, 10 have received normal rainfall and 11 have received excess rainfall. We have seen monsoon picking up pace and are hopeful of a good rainfall for the remainder of the season, El Nino notwithstanding. The delayed onset of the monsoon had an impact on crop acreage, with paddy and cotton being most affected.

As per the Ministry of Agriculture and news reports, the overall kharif sowing is showing 4.29% lower than previous year same time. Paddy cultivation which constitute a sizable part of the Kharif crop cultivation, decreased by around 9.8% and cotton has decreased by about 5% compared to the previous year. On the other hand, the acreage for the major crops such as coarse cereals and sugarcane increased by 15.9% and 4.7% respectively compared to the previous year. With the improvement rainfall across regions, we can expect an increase sowing activity and hope things will reach normal levels by the season end.

In terms of international business, there were challenges due to excess inventory buildup and pricing pressures on major generic active ingredients, which has affected business sentiments.

Moving on to Rallis-specific developments, starting with our headline numbers, revenue de-grew by 9% over previous year. Crop care business de-grew by 13% and seeds business registered a 2% de-growth over the previous year. EBITDA for the quarter stood at INR109 crores as against INR113 crores last year. EBITDA margins came in at 14%, higher than the 13% of the previous year.

There were concerted efforts to improve margins through timely pricing actions, better product mix and control on fixed costs. Our actions of timely liquidation of high-cost inventory in the past have also helped us during these turbulent times. Profit for the quarter stood at INR63 crores as against a profit of INR67 crores reported during the corresponding period last year.

Moving on to the individual businesses, as mentioned earlier, domestic business was impacted by the delayed onset of monsoon. This impacted the sowing activities, coupled with excess channel inventory, which we have been indicating in our earlier calls as well, which has restricted the volume growth during the quarter. Channel inventory continues to be on the higher side, primarily due to higher carryover inventory from the previous year, led by low pest infestation in the Rabi season.

Due to the expectations of drop in prices, the trade is expectedly cautious and are more likely to decide on their purchases closer to consumption. Q1 is largely a placement season and clear liquidation trends will become evident during Q2. Besides new product launches, we have also been working towards expanding our distribution network and continue to work with e-com channels as well. Our distribution network for domestic crop care business stood at 4,700 with our retail footprint increasing to about 61,000 as of end June.

Moving on to international business, as mentioned earlier, excess channel inventory, coupled with sharp price erosion across major generic active ingredients, has impacted the overall growth sentiment during the quarter. Prices of certain key products like acetate and hexaconazole continued to trend lower. Prices for pendimethalin has been somewhat stable.

Overall, volumes during the quarter have been significantly lower compared to the previous year and we continue to remain positive on pendimethalin, for which we have secured technical equivalence in EU. Also for pendimethalin, as we indicated in our earlier calls, raw material suppliers for the products have been secured and the outlook remains positive due to our new access to the EU market.

Moving on to contract manufacturing, the business remains steady with revival of PKK after a gap of nearly two years. Our teams continue to engage with overseas partners for further expanding contract manufacturing partnerships. As mentioned in the earlier calls, we had signed three new contract manufacturing opportunities and we have commenced the dispatch of one into [Phonetic] Egypt during the last quarter.

At Dahej SEZ, our MPP has been put to use in terms of trial production, which has started. We have expanded the capacity for one of our key hybrid formulations both for domestic and export markets. On the digitization front, we have strengthened our planning process by deployment of SAP Integrated Business Planning solutions. We expect this to enable more agile and precise decision-making while also digitizing many of our processes.

Moving on to seeds business [Technical Issues]…

Operator

Hi, this it he operator. Can you hear me sir? Hello, Mr. Arun Kumar? Sir, request you to unmute your line from your side. Mr. Arun Kumar, can you hear me. Hello?

Sanjiv Lal — Managing Director and Chief Executive Officer

As far as other crops are concerned, we are waiting to see clear trends in liquidation, with rates picking up only now. Our distribution network for seeds business stood at 2,750 and retail footprint increasing to 47,000 retailers as of end June.

To conclude, while the year has started on a challenging note, we are hopeful that the situation will ease in the second half of the fiscal. Our efforts are directed towards strengthening our product portfolio across businesses; our domestic formulation business, our seeds business, and international business as well. We are also working towards widening our distribution reach.

With these opening remarks, I will now hand over to Subhra for a detailed analysis of the financials. Over to you, Subhra.

Subhra Gourisaria — Chief Financial Officer

Thank you, Sanjiv. Good morning, everyone, and thank you today for joining us for our Q1 earnings call. Let me quickly walk you through our financial performance for the quarter, post which we shall commence the Q&A session.

Starting with the top line, revenue for the quarter was INR782 crores as against INR863 crores during the previous quarter, same period. The de-growth in the revenue was primarily on account of volumes and sharp price — sharp drop in prices, as mentioned by Sanjiv. As such, performance of both domestic and international business was somewhat benign.

Seeds business was broadly flat with revenue of INR262 crores during the quarter. EBITDA for the quarter stood at INR109 crores as against INR113 crores during corresponding period last year. While the absolute EBITDA is lower [Technical Issues]. INR67 crores for the corresponding quarter in previous year. PAT for the quarter up 8.1% vis-a-vis 7.8% in Q1 FY ’23.

Moving onto business wise performance, delayed monsoons coupled with high channel inventory impacted volumes and realization during the quarter. We had also indicated in our previous calls that the channel inventory has been higher and the sales growth will be impacted in the near term owing to the same. The trade is in a wait-and-watch mode and are likely to form up their decisions closer to the consumption period. We are committed towards improving our product mix by launching towards — new and innovative products. These new products are targeted towards not only strengthening our existing position, but also helping us plug [Indecipherable] regional gaps in our portfolio.

Moving on to international business, we remain cautious. Prices of input materials have been very volatile with some of the raw materials witnessing drop of more than 50% since they peaked couple of years back. As you can expect in this situation, it is exceedingly difficult to predetermine the right purchase price. We are working on shorter purchase and pricing cycles and are taking portfolio costs to liquidate inventory even at lower margins wherever necessary. Also globally, some of the players in the industry have been holding very high inventory and [Technical Issues] only by the end of Kharif season.

Our cash flows have improved with specific focus on inventory reduction and collections in the domestic and international markets. During the quarter, we also repaid INR25 crores for working capital loans. We envisage our spend for capex would be in the region of INR150 crores for the year.

To conclude, we are hopeful that the efforts towards improving product mix and distribution network, coupled with efforts towards lowering our dependency on China for raw materials, will contribute meaningfully in the coming years.

That concludes the opening remarks. We can now commence the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from the line of Prashant Biyani from Elara Securities. Please go ahead.

Prashant Biyani — Elara Capital — Analyst

Yeah. Thanks for the opportunity. Sir, 2% increase in crop care EBITDA in this sort of a subdued environment is quite commendable. What were the drivers in that, if you can just highlight for the start?

Sanjiv Lal — Managing Director and Chief Executive Officer

Prashant, the prices have been quite volatile, as you would have also got from your own network. So what we’ve been trying to do is taking more frequent pricing calls downwards where necessary, upwards where necessary, and also ensuring that we are not pushing too much into the trade because the trade is already overloaded, and — not with our product, but I’m saying generally, the trade is overloaded.

And we’ve also been taking these pricing calls and also been looking at our portfolio in terms of the more relevant products for the current period of time. So that is the portfolio choices that we are making for pushing appropriately. So largely, these are the actions. And we had already started the work on our network expansion a couple of quarters back, and we had spoken about it. And that is also helping and sort of increasing our reach and width of our network.

Prashant Biyani — Elara Capital — Analyst

Secondly, sir, how — post Q1, in the first 17 days of Q2, how has been the demand from the trade as well as the actual liquidation at the farmers’ end?

Sanjiv Lal — Managing Director and Chief Executive Officer

See, actually what is happening is that the Northwest of the country where the sowing initially starts, as you are aware, that is having excessive rainfall, right? So the consumption of many of these chemicals is still going to have to wait. So I think consumption may take some time for picking up, but since the overall acreages have now increased and come to within 5% of the same period last year, I think the overall sentiment seems to be in the right direction. That gives us some optimism.

Operator

Thank you. Our next question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.

Tarang Agrawal — Old Bridge Capital — Analyst

Hi, good morning. Three questions from my side, mainly on the Diggaz seeds. What are the attributes of the seed which are driving offtake?

Sanjiv Lal — Managing Director and Chief Executive Officer

Well, I think what is driving offtake is that this is a slightly early variety, and it has shown very good yield. And this is what is finding favor with the farmers. Last year also, we had a very positive response, although the volumes, which we sold were limited by what we had, which was about 1.5 lakh, 1.7 lakh packets, and we had scaled up to about 4 lakh packets, which practically, we believe, have all got sold out. So this has come out as a good product and the farmers are appreciating the performance over the last two years, which is helping us scale it up, Tarang.

Tarang Agrawal — Old Bridge Capital — Analyst

Okay. And I mean, how do you see it for next year?

Sanjiv Lal — Managing Director and Chief Executive Officer

Well, we believe that this particular product is going to grow even further. So we are hopeful of being able to get enough acreages for planting for the next season. So that is the work currently underway for securing acreages for expanding the availability for next year.

Tarang Agrawal — Old Bridge Capital — Analyst

Okay. And how is it priced? I mean, is it priced at par, slightly at a premium?

Sanjiv Lal — Managing Director and Chief Executive Officer

No, no. This — we are not doing any value extraction through premium. It’s sort of priced at a similar level to what our products have been.

Operator

Thank you. Our next question is from the line of Rahul Veera from Abakkus. Please go ahead.

Rahul Veera — Abakkus Asset — Analyst

Hi, sir. Sir, just wanted to understand our new launches, Gateway and — Gateway GR. Are we making the technical by ourselves or are we procuring it from outside?

Sanjiv Lal — Managing Director and Chief Executive Officer

No, no. This is currently in-sourced. We are going to be making the technical, but that is some time away.

Rahul Veera — Abakkus Asset — Analyst

Okay, okay. And is it our domestic manufacturer?

Sanjiv Lal — Managing Director and Chief Executive Officer

Yes, yes. It’s the domestic supplier.

Rahul Veera — Abakkus Asset — Analyst

Okay, okay. And sir, coming back to the seeds portfolio, are you seeing a reduction of spurious seeds in the cotton where we are able to gain more market share? Because at an industry level data, we are seeing that the spurious is down by 12% versus our product has done extremely well. But is it also because of this spurious seeds going down. What has been the industry or channel saying, sir?

Sanjiv Lal — Managing Director and Chief Executive Officer

So Rahul, I am not very clear as to what is the level of the illegal cotton that has been sold this year. That we will know only more towards the end of this Q2, but certainly, I think there has been a mixed experience of the farmers. This is from what our understanding is that they have really not benefited from the illegal cotton that has been used by them. And all said and done, having seeds from a known company is giving a lot of assurance.

So that has been our experience where our products, at least in the north market, have moved well, and even Maharashtra, which is an important market for us, we believe that one of our very good hybrids, which unfortunately did not do very well in the last two years, has also done, I would say, reasonably well, although we will know the final figures after the liquidation only towards the end of Q2.

Operator

Thank you. Our next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.

Abhijit Akella — Kotak Securities — Analyst

Yeah. Good morning. Thank you. So is it possible to share the breakdown between price and volume between both domestic crop care and the export for the quarter, please?

Sanjiv Lal — Managing Director and Chief Executive Officer

Subhra, would you like to just help with some numbers?

Subhra Gourisaria — Chief Financial Officer

Yeah. So Abhijit, domestic crop care business, volumes were largely flattish, and price was the one which had led to this de-growth. And as far as international crop care business is concerned, the large part of the de-growth was led out of volumes because at our level of — with the mix of the portfolio, we were able to manage at an overall level the price, but large part of the de-growth was coming out by volumes.

Abhijit Akella — Kotak Securities — Analyst

Okay. So the extent of price decline, is it possible to share a rough range there for the export side?

Subhra Gourisaria — Chief Financial Officer

It would be sub-10%, Abhijit.

Abhijit Akella — Kotak Securities — Analyst

Okay, got it. And also just on the pricing actions now, were there further price reductions taken during the quarter? And should we expect any lagged impact of that for the upcoming September quarter as well?

Subhra Gourisaria — Chief Financial Officer

So there will be definitely carryforward because some of the price changes, as you know, Abhijit, the prices — or the material costs have been on a downward directory, and that’s where we will have a carryforward impact further in Q2.

Operator

Thank you. Our next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead.

Rohit Nagraj — Centrum Broking — Analyst

Yeah. Thanks for the opportunity. Sir, first question is from the demand from global market. So on the exports front, are there particular geographies where the inventories are higher and other geographies where it is normal? Any sense on this? Thank you.

Sanjiv Lal — Managing Director and Chief Executive Officer

So Rohit, in terms of our portfolio, pendimethalin is one of our important herbicides, and demand for that, we have seen largely stable although there has been some price correction. On the insecticides, which — where acephate is one of our big insecticides, we export to — largely into Brazil where we find that the price erosion has been very, very significant as well as the inventory of herbicide, our understanding is also on the higher side, although metribuzin is a smaller volume for us in that market presently.

Rohit Nagraj — Centrum Broking — Analyst

Right. Got it, sir. And sir, second question is in terms of the entrance of Chinese generics in the domestic market. So what is your sense how this is affecting the domestic market? And will it have a significant impact during the Kharif season because it’s just a placement quarter and second quarter will be see the actual impact in terms of any returns? Thank you.

Operator

[Technical Issues] This is the operator, sir, can you hear me?

Sanjiv Lal — Managing Director and Chief Executive Officer

[Technical Issues] overload of inventory in the market. And if the consumption picks up as the season progresses, then I think the industry will also have a positive outcome.

Operator

Thank you, sir. Our next question is from the line of Viraj Kacharia from Securities Investment Manager. Please go ahead.

Viraj Kacharia — Securities — Analyst

Yeah. Hi, thanks for the opportunity. Am I audible?

Operator

Yes, sir. Please go ahead.

Viraj Kacharia — Securities — Analyst

Yeah. So first question is on the inventory part. If you can just probably give some perspective both in India and international markets, what is the extent of inventory in the system? So if an annual consumption is 100, then are we at 30 or 60? So any perspective you can give more for the market or key regions, India and abroad and for us?

Sanjiv Lal — Managing Director and Chief Executive Officer

So Viraj, for — already as mentioned in my earlier comment that for the products that we are dealing in, we are finding that the pendimethalin, the demand is stable. Plus, we’ve also expanded our technical equivalence in EU. So that is also helping in us being able to maintain the volumes as far as pendimethalin is concerned. We do have issues with acephate more so on the pricing, and hexaconazole, which is another big molecule of ours, which we are selling into Southeast Asia, we are seeing some revival in terms of consumption, offtake in particular. So this is largely it, and metribuzin is, I would say, more or less flat with maybe some slight uptick in terms of volumes that we are expecting going forward.

Viraj Kacharia — Securities — Analyst

Okay. So basically what I was trying to understand is, so Q1, if you see our — specifically domestic business, so we — the factors which you have outlined, I mean, product mix, more dynamic pricing, and the — but product mix per se doesn’t change in a quarter like. I mean, I understand we’ve been planning to launch new products and trying to scale them up, but there is also a factor of what was the key product prices, especially in generic being on a downward trajectory. So in terms of Q1 performance figures, were something — I mean, were there any one-offs in this or how should one really understand [Indecipherable] the performance in domestic business, which helped us. What did our sales and profit [Indecipherable]?

Sanjiv Lal — Managing Director and Chief Executive Officer

Viraj, I don’t think we’ve had any one-offs. There are no one-offs. I would just say that we’ve tried to be a little prudent in terms of how we are doing our pricing. Also on the procurement side, we’ve been reducing the quantities that we have been buying at any particular point in time so that it has limited impact on the — in case the prices come down further. So we’ve been trying to navigate through this in a manner, which, I would say, has been helpful. And what I had also — what has also been mentioned is that last quarter, we were sitting on higher-cost inventory, which we had liquidated even at the very, very nominal margins. So that has also helped.

Operator

Thank you. Our next question is from the line of Arjun Khanna from Kotak Mutual Funds. Please go ahead.

Arjun Khanna — Kotak Mutual Funds — Analyst

Sir, thank you for taking my question. Just on the exports front, we were — we talked of in the previous quarters export of PEKK, the molecule coming back for the aerospace. Has that come through or do we expect it to take further time?

Sanjiv Lal — Managing Director and Chief Executive Officer

No, no. I had also mentioned that we will be exporting some of the PEKK during the current financial year. From practically zero in the last two years, we will be doing some volume this year. And our understanding with our customer is that this volume is expected to steadily pick up over the next couple of years back to where it was before this pandemic started. So it is, I think, in the right direction now.

Arjun Khanna — Kotak Mutual Funds — Analyst

Did we see any revenues in the first quarter?

Subhra Gourisaria — Chief Financial Officer

Yeah, yeah. We saw revenues in first quarter. In fact, we commenced this practice from Q4.

Arjun Khanna — Kotak Mutual Funds — Analyst

Sure, sure. No, because we’ve yet de-grown 30%. So I was just wondering, obviously the scale is smaller. Sure, but that —

Subhra Gourisaria — Chief Financial Officer

Yeah, the scale is smaller, [Indecipherable]. Yeah.

Arjun Khanna — Kotak Mutual Funds — Analyst

Sure. The second is, in terms of the MPP that’s come through, in terms of the products we’re going to fill it in, do we have a sense of roadmap when we could reach peak sales and which products we are going to fill in?

Sanjiv Lal — Managing Director and Chief Executive Officer

Yeah. So this year, we’ve already commenced with difenoconazole. That is currently being — trial production is currently going on, and all going well, we will be doing one contract manufacturing molecule towards the end of Q3 in the same plant. And again, there is another intermediate that we are doing — going to do in that plant. So that may also happen towards Q3. So Q2 will largely be difenoconazole in the multipurpose plant.

Operator

Thank you. Our next question is from the line of Rohan Gupta from Nuvama. Please go ahead.

Rohan Gupta — Nuvama Wealth — Analyst

Yeah. Hi, sir. Good morning and thanks for the opportunity. So a couple of questions. Sir, one is on this sharp fall in prices and especially our supplies, which are coming majorly from China where we have seen sharp price reductions. Are we seeing that — definitely the — when the high-cost inventory is over, do you see the benefit of low availability? I mean, this low cost Chinese material will help us in margin expansion or do you see that it will — everything will be passed on in the current competitive environment and no opportunity for the margin gain?

Sanjiv Lal — Managing Director and Chief Executive Officer

So Rohan, the prices have been coming down quite sharply, and practically, there has been new pricing, which is being offered on a day-to-day basis, right? So the issue is that even the customer has seen the declining price trend, and for our products also, they’re demanding lower pricing. So in a declining market, it becomes very difficult to sort of get any kind of upside, if that’s what you are alluding to, Rohan. And our view is that in this kind of a uncertain market, it’s maybe better to take shorter procurement costs rather than taking a position and then you find that the price has fallen even further.

Rohan Gupta — Nuvama Wealth — Analyst

Sir, my question was more basically we at least procure close to 45% to 50% of our raw material requirement from the China market, so — which is pretty high compared to other peers. So when the Chinese prices have corrected so much, so I was just expecting that are we in a position to gain some benefit in terms of the low pricing environment because we are still dependent on China market?

Also another question is that we have backward-integrated in intermediates of pendi and metri. In the current environment, do we see that the Chinese raw material availability is much attractive price than manufacturing by ourself or in terms of, if we have to keep running our plant, we may lose in terms of the pricing advantage which otherwise would have been offered from China?

Sanjiv Lal — Managing Director and Chief Executive Officer

So Rohan, this is again that question of make versus buy. So if there is a better pricing that we are getting from imports, we will certainly look at that. And wherever we’ve got commitments, because we’ve developed a domestic manufacturer, we will stick to our commitment only. So that is very clear. There could be some lower pricing that may be happening out of China, but we have certainly tie-ups and commitments with some of our partners and we also are discussing with them about the correct level of pricing for the intermediates that we have shifted from import to domestic.

Subhra Gourisaria — Chief Financial Officer

And Rohan, to your first question, I think the prices will ultimately reach to a level of equilibrium. So I don’t think that anybody having a index to a major source will help over a period of time. It will be market-determined pricing.

Operator

[Operator Instructions] Our next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.

Ankur Periwal — Axis Capital — Analyst

Yeah. Hi, sir. Thanks for the opportunity. First question on the overall revenue growth, both in the domestic as well as international market given the ongoing scenario in terms of elevated inventory. What are our thoughts both on domestic and international considering that there are certain product launches that you had done already and probably are planning going ahead also?

Sanjiv Lal — Managing Director and Chief Executive Officer

Ankur, so I’ve understood your question. It is on revenue growth.

Ankur Periwal — Axis Capital — Analyst

Yeah. More focusing on the volume part here — is a pricing function there, so…

Sanjiv Lal — Managing Director and Chief Executive Officer

Yeah, yeah. So in terms of revenue growth, pricing growth, I think, is unlikely to happen in the near term because currently where the prices are. The main thing is volume recovery, right? So that is going to be a key driver for overall growth. And for the international market, we are a little cautious because the inventories are on the higher side which is really putting a huge amount of pressure on all pricing. And as far as domestic is concerned, we expect that as the season is progressing, the consumption of these chemicals will start happening, these products will start happening, which will help in bringing back the volume growth. So we are really pushing for volume growth with new product being introduced as well.

Ankur Periwal — Axis Capital — Analyst

Sure. And the contribution from the new product especially in the domestic market will still be hovering around 10%, 12% or it will be revenue?

Sanjiv Lal — Managing Director and Chief Executive Officer

So we’ve been tracking what we call as the Innovation Turnover Index. Last year it was at around 13, and as mentioned in earlier calls that if you’re able to get to about — ITI of about 15, we will be in a good position. So we are still very much focused on getting our new products to be scaled up. And in that context, not only in the crop protection business we launched some new products this season. Also in the crop nutrition category, we’ve launched as well as in the seeds category, we have also launched. So we are looking at across our portfolio to be able to bring in new products for driving the Innovation Turnover Index.

Operator

Thank you. Our next question is from the line of Chintan Modi from Haitong Securities India Private Limited. Please go ahead.

Chintan Modi — Haitong Securities — Analyst

Yeah, sir. Thank you. Sir, the de-growth that we have seen in the international market, do you think this is more or less in line with the market trends or do you think that the Chinese companies have got very aggressive in gaining market share there?

Sanjiv Lal — Managing Director and Chief Executive Officer

So Chintan, I don’t have a very clear answer. I guess that will emerge as the time progresses, exactly who is winning and who is losing, but I’m sure you also come across these various news reports of very serious inventory and pricing even with the multinationals which is likely to impact their overall revenues and growth during the current calendar year.

Chintan Modi — Haitong Securities — Analyst

Sure. And the second is with respect to the MPP. When should we expect this to be like full utilization levels?

Sanjiv Lal — Managing Director and Chief Executive Officer

So this year, we are outlooking maybe we’ll get to about 60% to capacity utilization, and next year, it should be much better. So this is the first year that we are going to be using it. So we have to bring in the new products, and I had mentioned that one, we’ve already started and one more intermediate and one more molecule, we will be producing towards Q3.

Operator

Thank you. Our next question is from the line of Archit from B&K Securities. Please go ahead.

Archit Joshi — B&K Securities — Analyst

Hi, sir. Thanks for the opportunity. Just one question. Sir, can you give us some general sense of the situation in China? And when do you see this entire inventory problem subsiding? Any thoughts on the situation.

Sanjiv Lal — Managing Director and Chief Executive Officer

Well, Archit, I can only sort of go with what I have heard and also some of the imports that we have received following the CAC [Phonetic], which was, I think, very well attended by many global companies as well. So the sense is that the Chinese industry is also trying to get back to a growth path, which, I think, is for us putting a lot of pressure on availability out of China, but with the inventories being where they are globally, that is sort of pushing prices downwards. So I guess there will be some amount of stability, which will come once the inventory of many of these input materials in China also starts building up because unless there is consumption of these intermediates, they will also have to curtail the production.

If they all continue to produce the way they are, then there’s going to be a serious issue on even inventory of some of these materials in China. So our sense is that there could be some price stability that may start emerging in the next month or two. We’ve already seen it in some of the products, which seem to have now touched the bottom because some of the offers that are coming are at a slightly elevated price. So there seems to be some stability that is now coming at least for some of the intermediates.

Archit Joshi — B&K Securities — Analyst

Sure, sir. Sir actually, there were a few companies, obviously global companies, some of them saying that the inventory situation can alleviate a bit probably in the first half of this calendar year, and there are some companies who are calling out for a complete washout for this entire calendar year or probably financial year. So I know that this will go really product-specific and it might differ from one product to another.

For our company specifically, whatever we are exporting in the international markets, for that, do you see, as you mentioned earlier, would that — in some situations like acephate maybe the bottom has already reached, would that be like a safer assumption going forward and there may not be anymore deteriorations in terms of prices?

Sanjiv Lal — Managing Director and Chief Executive Officer

So Archit, as far as the season in Brazil is concerned, it is going to be picking up now in Q2. So if that season goes well, then there could be a huge demand coming back. And as far as our portfolio is concerned, I would say that we need to be a little watchful largely for acephate. The others, I think we will be able to manage. So acephate, the price erosion has been fairly sharp, and we are a little cautious on that particular product, but others, I think we should be able to navigate.

Operator

Thank you. Our next question is from the line of Jyoti Singh from Arihant Capital Markets Limited. Please go ahead.

Abhishek Jain — Arihant Capital Markets — Analyst

Hi, thank you for taking my questions. This is Abhishek Jain here, sir. Sir, two questions. So what has been the incremental revenue from the capex completed in Dahej, if you can throw some light on the same? Second question on the — apart from Dahej capex, what is the additional timeline for next two years, if you can — maybe this is more of an accounting. Thank you, sir.

Sanjiv Lal — Managing Director and Chief Executive Officer

So Abhishek, the revenue from our new MPP, there is nothing in Q1 in terms of revenue from the new product because we have started the trial production in the month of June. So there is no revenue, but it will start accruing from Q2 onwards. And as far as capital is concerned, we expect to be incurring a capex of about INR150 crores odd during FY ’24. We will be spending some part of that on our new R&D facility as well and also for perhaps some debottlenecking that we would like to do for one or two of our products where we see some good opportunity. And largely that’s it, Abhishek.

Abhishek Jain — Arihant Capital Markets — Analyst

Sir, going forward, any numbers like, what kind of revenue or like asset turnover you will be looking out going forward [Indecipherable] maybe in next few years?

Sanjiv Lal — Managing Director and Chief Executive Officer

So Abhishek, typically as we mentioned in the earlier calls also, we look at our investment decisions slightly on the longer-term using the internal rate of return for the investments that we make. So the asset turns and all, we have to see in a slightly longer period of time, Subhra, unless you like to add something.

Subhra Gourisaria — Chief Financial Officer

No, no, no. So, see, this is a multipurpose plant, and it’s for seeding new opportunity. So it will take some time, as we said, to reach the full capacity utilization. So I think it will be early for us to talk about asset turns on this plant now.

Operator

Thank you. Our next question is from the line of S Ramesh from Nirmal Bang Equities. Please go ahead.

S Ramesh — Nirmal Bang Equities — Analyst

Good morning and thank you very much. So in terms of the gross margin expansion in the first quarter, can you explain how you have been able to achieve that? Is it because of the decline in the international business where you may possibly be enjoying lower margins? What is the reason for this?

Subhra Gourisaria — Chief Financial Officer

So one factor, as we said, is of course the mix, which is domestic versus international, but more importantly, it is within the products that we sold within the international business and the domestic business. So that has helped in terms of margin expansion. Plus, as we mentioned earlier, what we have been able to do is sell off our high-price inventory. We do have a small proportion even now, but not a significant one, and that has helped in terms of not coming under pricing pressure in terms of being on a very low margin. So we have indeed taken some pricing calls at a low margin, but at a portfolio level, we have been able to be at a similar margin level or slightly better.

S Ramesh — Nirmal Bang Equities — Analyst

As a follow-up, are we in a position to sustain this gross margin reported in the first quarter for the rest of the year adjusted for seasonality, of course? And on this base for next year, will you be able to maintain this sort of margin assuming prices are stable so that if there’s a volume growth, you can show earnings from a broader trajectory perspective?

Subhra Gourisaria — Chief Financial Officer

See, you yourself have put there are multiple factors which are going to dwell on margins. Plus, more importantly, we should remember that Q1 is a seeds business, where the margins are relatively better. So if the business — if domestic business does well, which makes better gross margin for us, the margins should continue to improve, but it’s too early, also premature to say because it’s dependent on various factors.

S Ramesh — Nirmal Bang Equities — Analyst

And just one last thought. So if you’re looking at the MPP and the new products, incrementally — I understand these are long-term decisions, but incrementally, do we see growth coming more from volume growth or would you also we expect — able to improve your margin profile?

Sanjiv Lal — Managing Director and Chief Executive Officer

I think in the near term, it will be more of the volume growth, Ramesh, because the price volatility is such, I don’t think we can get a huge revenue growth coming from pricing at least in the near term.

Operator

Thank you. Our next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead.

Vishnu Kumar — Spark Capital — Analyst

Thanks for your time, sir. Wanted to understand how is the current demand trends, especially the fact that we are still facing excess rainfall in certain regions and very deficient rainfall certainly from the southern central. If you could just help us understand on this.

Sanjiv Lal — Managing Director and Chief Executive Officer

Vishnu, I think you’ll just have to wait for some time because the consumption really needs to start now. Q1 largely is placement for crop protection, and it is the main season for our seeds business, which, as we already said, has gone off well in our context. So the agro chemical consumption will just about now be getting started.

Vishnu Kumar — Spark Capital — Analyst

So any early trends that you are picking up, sir, because, at least in the southern markets, the rainfall deficiency seems to be much higher.

Sanjiv Lal — Managing Director and Chief Executive Officer

That is true. So actually if you see the offtake by trade, I think that is now picking up slightly because in anticipation of good planting which is happening, the trade is also picking up material now. So we expect things to become clear in about a week, 10 days’ time.

Vishnu Kumar — Spark Capital — Analyst

Got it, sir. And also, sir, you mentioned that the price erosion is continuing. Is it more or less passed through at the retail level or you still expect that the retail pricing can come down a little bit further to accommodate for the price reduction that is happening?

Sanjiv Lal — Managing Director and Chief Executive Officer

So in terms of our inventory in the market, I think we are okay. There will be no further reduction that we will see because we had sort of, as I mentioned, done very, very measured placement in the market with the pricing that we believe is right.

Operator

[Operator Instructions] Our next question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.

Tarang Agrawal — Old Bridge Capital — Analyst

Hi, thank you for your time again. Just a couple of questions on the technicals business. This has more to do with trying to get a sense on acephate and pendimethalin where you guys are big players. So on the market, the global market, right, is the pricing impact on account of incumbent manufacturers liquidating the stock that was already lying in their factories maybe because of COVID, they were not able to supply? Or is it because of some sort of aggression on their part wanting to garner higher market share irrespective of whatever price it comes at? That’s one.

Number two, I mean, given your scale in manufacturing these technicals, right, you all are fairly well aware of the cost structures and the current pricing and how they both interact. So at current prices of acephate, pendimethalin, do you think these are sustainable prices for any player?

Sanjiv Lal — Managing Director and Chief Executive Officer

No, in terms of pendimethalin, I think the pricing has been a little more stable. So there is — we don’t see any major issue there, but yes, in terms of acephate, we have seen a very, very sharp reduction in pricing. Just to give you a sense of some numbers, the DMPAT, which is one of the key starting materials for acephate, the price has come down by over 40% since its peak last year, which has led to the price of the product itself declining very very sharply. So I would say that the price for acephate is largely being driven off the price of the starting material, which is sort of forcing the products to be sold at much lower pricing.

Tarang Agrawal — Old Bridge Capital — Analyst

Okay. And do you see this — I mean, whatever action that we are seeing, whether it’s on the technical or the intermediate, that action is on account of the manufacturer trying to liquidate the stock that was already lying or is it on account of some aggression of them wanting to come back on the horse and really gain market share irrespective of whatever price they gain market share at?

Sanjiv Lal — Managing Director and Chief Executive Officer

No, I think there is some additional capacity, which has come up, and some of the — perhaps the newer players are trying to establish themselves with some of these intermediates, which is also adding to the lower pricing.

Operator

Thank you. Our next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.

Abhijit Akella — Kotak Securities — Analyst

Thank you for the follow-up. Just one question. For the domestic crop protection business, could you — possible to share the percentage of revenues from the top five products? And second, just on the new products, chlorantraniliprole, the two formulations that we are launching, if you could just help us understand your outlook for that market. I believe it’s very large, but there’s probably a lot of generic competition that’s getting in now. So what sort of market share would you potentially aspire to get in that? Thank you so much.

Sanjiv Lal — Managing Director and Chief Executive Officer

Well, you’re absolutely right, Abhijit, that chlorantraniliprole is a fairly large market as far as India is concerned, and more recently, we’ve seen number of products getting launched in this category. So we are also going to be participating in this particular segment with this particular product. So initially we will have, I guess, product introduction and we will maybe take a year to scale it up. As you rightly pointed out that many competitors have now come up with similar products. And as far as the top few products are concerned, perhaps that may be a little difficult to share with you.

Subhra Gourisaria — Chief Financial Officer

Yeah, yeah, yeah. So Abhijit, I don’t think at the quarter level, we can look at the revenues for top products, but it’s not that any of our products is — it’s not over-indexed on any specific product. So we have top 10, 12 products which contribute some 40% for the revenue. It’s a very diversified distribution.

Abhijit Akella — Kotak Securities — Analyst

Okay. Got it. Thank you so much. All the best.

Operator

Thank you. Our next question is from the line of Gagan Thareja from ASK Investment Managers. Please go ahead.

Gagan Thareja — ASK Investment — Analyst

Yeah. Good morning. I hope I am audible.

Sanjiv Lal — Managing Director and Chief Executive Officer

Yeah.

Gagan Thareja — ASK Investment — Analyst

Yeah. Sir, last year, you took significant write-offs and provisions on seeds. I think there was something in the first quarter of last year as well. Would a reduction there or elimination altogether of that have had a favorable impact on seeds business for the quarter and for the full year this year?

Subhra Gourisaria — Chief Financial Officer

So firstly, we didn’t take any write-offs or – any material write-offs in Q1. It was all in Q4. You would have seen the numbers. And we have not had any reversal of that in Q1. So nothing of one-off, as Sanjiv mentioned, which was held above that, no write-back.

Gagan Thareja — ASK Investment — Analyst

But for the full year…

Subhra Gourisaria — Chief Financial Officer

[Speech Overlap] too early to say whether there will be a write-back or a further write-off. It will all depend on how kharif goes.

Gagan Thareja — ASK Investment — Analyst

All right. Thank you. That’s all from my side.

Operator

Thank you. Our next question is from the line of Dheeresh Pathak from WhiteOak. Please go ahead.

Dheeresh Pathak — WhiteOak Capital — Analyst

Thank you for taking my question. For the export market, where everybody and you are experiencing higher inventory —

Operator

Mr. Dheeresh, may we request you to use the handset as you are not audible, sir?

Dheeresh Pathak — WhiteOak Capital — Analyst

I am using the handset. Am I better now?

Subhra Gourisaria — Chief Financial Officer

Yeah. We can hear you. Go ahead.

Dheeresh Pathak — WhiteOak Capital — Analyst

Okay. Thank you. So for the export market, where the industry in general and we are also experiencing higher inventory in the channel, so if you can give some better quantification, let’s say, from — let’s say, acephate in Brazil, which has been a large market, if the baseline inventory in the channel for acephate in Brazilian market is, let’s say, 100, where are we currently — and in the industry in aggregate at? Is it at 200? Is it at 150? Because something like that would help me get a better sense of the magnitude and the severity of the channel because everybody is saying there is too much channel inventory, but there is not enough understanding at least from my side about what is the extent of the problem.

Sanjiv Lal — Managing Director and Chief Executive Officer

I think Dheeresh, that issue is certainly there. I mean, it is all qualitative information. This quantitative information is not available.

Dheeresh Pathak — WhiteOak Capital — Analyst

But that’s why I am picking a particular product and particular market because that you would know because you are so — acephate in Brazilian market is an important product for you. So you would — from the sales team, you would have some sense of what’s kind of channel inventory in there, right?

Sanjiv Lal — Managing Director and Chief Executive Officer

As far as acephate is concerned, Dheeresh, the issue is not that we will not be able to sell our entire production volume during the year. The issue for us is largely the pricing, which is being forced downwards.

Operator

Thank you. Due to time constraint, that was the last question of the question-and-answer session. I would now like to hand the conference over to the management for closing comments.

Sanjiv Lal — Managing Director and Chief Executive Officer

Thank you, Vico. So as you would appreciate, we are facing significant challenges on the near term due to sharp price reduction and global demand reduction due to inventory overhang, and we discussed quite a bit about that during the call today. And we will continue to monitor the volume-led growth across our portfolio. Price-led revenue growth may not — that is certainly going to be a challenge. Our focus will be on improving realization through better product mix and dynamic pricing actions.

Our diverse portfolio with presence across domestic and international markets, crop nutrition, and seeds business does offer the business enough stability to navigate through these challenging times. Absolute EBITDA and cash flow will also continue to be a key priority across our teams, and we will further focus on improving our collections across geographies in Q2. Investments, which we’ve been doing over the last couple of years in R&D, product development, manufacturing will certainly enable us to drive our growth agenda in a sustainable way.

With that, thank you all for joining and we will connect again three months from now with our Q2 outcomes. Thank you very much.

Operator

[Operator Closing Remarks]