Rallis India Limited (RALLIS) Q2 FY23 Earnings Concall Transcript

Rallis India Limited (NSE:RALLIS) Q2 FY23 Earnings Concall Oct. 20, 2022

Corporate Participants:

Gavin Desa — Analyst

Sanjiv Lal — Managing Director & CEO

Subhra Gourisaria — Chief Financial Officer

Analysts:

Unidentified Participant — — Analyst

S. Nagarajan — Chief Operating Officer

Aditya Jhawar — Investec Capital — Analyst

Tarang Agarwal — Old Bridge Capital — Analyst

S. Ramesh — Nirmal Bang — Analyst

Viraj Kacharia — Security Investment Managers — Analyst

Somaiah V — Spark Capital — Analyst

Yogesh Tiwari — Arihant Capital — Analyst

Darshita Shah — Antique Stock Broking Limited — Analyst

Presentation:

Operator

Ladies and, gentlemen, good day and. Welcome to the Q2 FY ’23 earnings conference call of Rallis India Limited. As a reminder, all participant lines will be in the listen-only mode. And, there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you, and over to you sir.

Gavin Desa — Analyst

Thank you. Good day, everyone. And thank you for joining us on Rallis India Limited’s Q2 FY ’23 earnings conference call. We have with us today Mr. Sanjiv Lal Managing Director and, CEO, Mr. Nagarajan, Chief Operating Officer, and Subhra Gourisaria, Chief Financial Officer.

Before we begin, I would like to mention that some of the 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 begin proceedings of the call. Over to you Sanjiv.

Sanjiv Lal — Managing Director & CEO

Thanks, Gavin. Good morning, everyone. I have alongside with me Mr. Nagarajan, our Chief Operating Officer and Mr. Subhra Gourisaria, our CFO. We will start with a brief overview of the industry before, I move to Rallis specific developments. On an industry level, Q2 was a challenging period for the domestic business as adverse monsoon pattern has impacted trade and on-ground activities. And, the effect of the monsoon as well-publicized. But just to recap, while the overall monsoon during the season demand 7% in excess of normal compared to be 1% deficit of the previous year, distribution remains erratic with 13 subdivisions experiencing excess rainfall, 17 receiving normal and 6 remaining deficit.

Delayed monsoon and erratic distribution impacted sowing, which was 1% lower compared to the previous year. Sowing activities, notably rice was down by 4% year-on-year, pulses was down 6%, oilseeds, down by 2% while [Indecipherable] was up by 5%, and coffee sowing was higher by about 6%. Despite uneven distribution during the monsoon season, water storage levels across reservoirs stood at a healthy level. Higher reservoir levels coupled with good soil moisture augurs well for a successful Rabi season.

As far as international business is concerned, the industry has had a good performance till now. Moving onto Rallis specific developments, starting with headline numbers, we reported revenue growth of 31% over the previous year, driven largely by our international business. The performance of domestic business as mentioned earlier was mainly impacted by monsoon [Indecipherable] which has led to lower spring activities in turn leading to lower-volume growth.

EBITDA for the quarter stood at INR118 crores leading to a margin of 14, — 12.4% percent. Margins has improved versus last year due to the higher-growth. PBT margins are lower with respect to last year driven by higher depreciation and lower investment and other income. While we did undertake calibrated price hikes during the quarter, the overall quantum wasn’t commensurate with the higher input prices leading to lower profitability, specifically in our international business. On the domestic front, we were able to maintain our margins through our focus on mix and pricing. Profit for the quarter stood at INR70 crores against INR56 crores during corresponding period last year.

Moving on to individual businesses, starting with domestic as indicated, the overall environment has been challenging for the industry as erratic monsoons lower pesticide strains due to access winds. And somewhat low, pest infestation across some regions impacted overall volume growth for the business. Three paddy growing sales in Eastern India, UP, Bihar, Jharkhand and West Bengal received deficit rains, leading to a decline in sowing area. In addition to paddy, we also had instances of coffee crop getting damaged in key states including Maharashtra and Gujarat, and Telangana as well due to excess rains. While herbicide, continued to perform well, especially in North India, sales of insecticides and fungicides remained muted. Some of our herbicides like Tata [Indecipherable] although have registered double-digit growth.

In terms of our initiatives towards introducing new products we have so-far introduced two [Indecipherable] products and four [Indecipherable] products during the year. These products are largely directed towards scaling up our business in cotton and paddy. Furthermore, we have also work — we are also working towards expanding our distribution network and also looking closely with the e-com channels.

Moving onto the seeds business, while, the overall environment remains challenging, I’m pleased to report that some of our newer launches, particularly Diggaz our cotton hybrid has seen a sharp pickup in volumes on a year-on year basis. While the overall numbers are small 1.7 lakh packets we sold versus 20,000 packets in the previous year. Another positive development in regulatory approval from two states for biosafety research level trial related with two of our genetically modified events in cotton and maize. Both these herbicide tolerant as well as in insect resistant. Furthermore, we have started trials on maize in Karnataka and hopeful of commencing trials on cotton in the subsequent Kharif season next year.

As far as international business is concerned, we are seeing a sharp growth in visits with volumes improving. Utilization rates for Pendimethalin, [Indecipherable] acetate remain elevated, underscoring a key demand for these products. Metribuzin sales has started showing early signs of pickup following normalization of inventory. Also as indicated in earlier calls, we continue to focus on growing branded formulation sales in Southeast Asia and Africa. We have submitted several applications for [Indecipherable] registration in Asia and are also engaging in business development discussions in U.S. and Turkey. In terms of contract manufacturing segments, we expect PEKK shipments to commence from Q4 after a gap of two years. The two recently one CM contracts, contract manufacturing business opportunities which is in a way, it reflects our commitment towards revising and going contract manufacturing business which will take two to three years to reach meaningful scale.

As indicated in previous calls we are also working towards reducing our dependence on China for meeting all materials for some of our products and I am happy to report that we have made good progress in that area. We are now sourcing, 100% of our requirement of two of our products locally though these are relatively smaller inputs. Also for two of our more important intermediates for one we are now sourcing, 20% of the requirements locally and targeting sourcing, 80% of the other intermediates locally by year end. These two intermediates we used to import 100% earlier. We have entered our long-term understanding with the suppliers for one of these products and while the commercials maybe on par with the import cost, uncertainty or availability of raw materials will seize which will help us, better plan our production cycle and meet customer demand.

To conclude, we expect the business to pick-up pace in the second-half of the system. Higher reservoir levels should aid Rabi season and remunerated global agri commodity prices should aid the international business. As far as Rallis is concerned, we believe commissioning of new capacities, introduction of new products and wider distribution reach, positions us well to meet the requirements of our customers both locally and globally. With that, I will now request Subhra to give us detailed financials. Over to you Subhra.

Subhra Gourisaria — Chief Financial Officer

Thank you, Sanjiv. Good morning everyone and thank you for joining us today for our Q2 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 topline, our revenues for the quarter stood at INR951 as against INR728 crores generated during Q2 FY ’22 which is a growth of 31%. The growth was largely driven by the strong performance of our crop care business. Domestic business registered revenue of INR608 crores higher by 18.2%, primarily due to some price hikes undertaken earlier during the year. Volumes during the quarter were largely benign as far as domestic business was concerned as erratic monsoon resulted in lower sowing [Phonetic]. International business reported a growth of 67.4% led by both volume and value. Seeds business generated revenue worth INR28 crores during the quarter. EBITDA for the quarter stood at INR118 crore as against INR88 crores generated during corresponding period last year. Margins stood at 12.4% [Phonetic] as against 12.1%, higher, 30 bps largely on expected lines so the quantum of price increase wasn’t [Indecipherable] prices.

Profit for the quarter stood at INR71 crores as against INR56 crores for Q2 FY ’22, higher by 26%. Moving onto the business-wise performance, domestic business operated under the challenging environment and even monsoon distribution impacted sowing activities for key crops during the season predominantly paddy and cotton. Paddy constitutes a significant component in our portfolio and hence the overall lower sowing could have impacted our portfolio more than some of our peers. Herbicides continued to perform well for us. Sales of insecticides and fungicides were lower than our expectations. The growth in domestic business as such is largely value-driven as we had carry-forward pricing taken earlier during the year to offset the higher input costs. Despite external challenges, we continued to make steady progress in our attempts towards introducing new products, both 93 and 94 and expect the momentum to continue during the year. Furthermore, these products are targeted towards plugging the segment gaps in our portfolio.

Moving on to the seeds business, while Q2 is a seasonally small quarter for the business, we have seen revenue was INR28 crores for the quarter. Overall, business environment continues to remain challenging for the seeds business though some of our newly-launched products have done well. We have seen significant pickup in sales volume for [Indecipherable] over last year. Our strategy for the business as we mentioned in the previous calls continues to be focused on liquidation, cost optimization, and more robust evaluation of new product pipeline advancements. We also accounted for higher provisions on inventory in seeds adding up to INR25 crores durning the first-half of the year. We may see more of such effect coming during the course of the year as we streamline our operations and recognize such provisions so that the business can become more focused on new portfolio going-forward.

As far as international business is concerned, you’ve seen a good growth of 67.4% during the quarter driven by volume and value both. We continue to see good demand for our products, plant utilization rates so most of them being at optimum levels. Sales of Metribuzin as well as started to improve gradually, going forward growth could be largely volume-driven as realizations may trend lower with raw-material prices cooling off. Our strategy for this segment as we’ve indicated, it was increasing our customer-base [Phonetic] on-sales formulations which will help assure both volume and margin in the business. Last year we started sourcing raw materials for some of our products locally which not only helps us in lowering our dependence on China but also helps prepare better plan and production and inventory purchases.

As, you might have seen we have experienced challenges in working capital front, especially with the increase in receivables for domestic formulation business. Given the overall challenge of delayed monsoon and poor cash-flow in the market, our correction [Phonetic] days have gone up. However, we do not foresee any risk here and we continue to focus on efforts to improve it in Q3. Receivables have also been impacted by our decision to stop the discounting for one of our key international customer. Inventory has [Indecipherable] control several actions, including optimizing production, [Indecipherable] dynamics sales requirements production of lead-time above key verticals [Phonetic] and also lower impact of price setting in the inventory now. To meet the increased [Phonetic] cash needs we use short-term borrowings. There was release of cash from operations, we expect the cash-flow situation to gradually improve.

A quick word on capex before I hand it over to the operator. As indicated in the previous call our overall capex for the year should be INR250 crores of which we have spent around INR100 crores during the first-half. To conclude, I would like to [Indecipherable] that we are undertaking requisite steps towards growing both our business domestic and international, new product launches, local scaling of raw materials, scaling up of capacities and wider distribution reach, positions us well to grow our business and improve overall profitability going-forward. That concludes our opening remarks we can now commence the Q&A session.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Participants are requested to limit their questions up to two per participant [Operator Instructions]. Ladies and gentlemen we will wait for a moment while the question queue assembles. The first question is from the line of [Technical Issues] please go ahead.

Unidentified Participant — — Analyst

Yeah, thanks for the opportunity. Sir, can you bifurcate top-line growth between volume and — value and volume?

Sanjiv Lal — Managing Director & CEO

Subhra can you just help with that number, please?

Subhra Gourisaria — Chief Financial Officer

[Indecipherable] you can go ahead. I have just pulled that data. So as we said international business is largely split between both volume and value international business growth, but domestic business it was more price-led with volumes being in low single digits.

Unidentified Participant — — Analyst

Okay, and sir for the rabi season cost-wise do we have high-cost inventory vis a vis prevailing prices or we would be competitive enough vis a vis the current prices because prices have been trading downwards in China, so traders might have an upper hand if there is high-cost inventory.

Sanjiv Lal — Managing Director & CEO

More or less we have tried to work on our high-cost inventory Prashanth [Phonetic]. So. I think we are in a much better position today than what we were maybe three months back. Because we have had to it take some margin, — margins, especially for liquidating some what we high-cost inventory that we [Indecipherable].

Unidentified Participant — — Analyst

Okay, sir just a related question. Other costs are broadly under control for us but, on the gross margin, by when do we think we can turn the tide because for the last three-four consecutive quarters we have seen a reduction in gross margin?

Sanjiv Lal — Managing Director & CEO

Naga, you would like to take that?

S. Nagarajan — Chief Operating Officer

I think we have to disaggregate our business into two-parts, crop care and seeds. So within crop care I would say if, you look at domestic and international again disaggregatedly if you look at it on the international front we have had challenges in Q2 and also in H1 partly contributed by the high-cost that we had some inventories in our hand and of course contributed also by the competitive position in our markets where the price level we could not kind of transfer the raw material cost increases. So the impact of the high-cost inventory like what was mentioned we have little down that inventory so that effect is something which is now behind us. However, of course in terms of the forward market, the competitiveness could continue in the international business. If you look at the domestic business, I think domestic Crop Care business, I would say that while we have not been able to fully pass the cost forward the cost themselves are abating right now so that is actually a little bit more positive situation.

Now separate from the Crop Care business in the seeds business — in the seed business, certainly, I think we have some distance to go. Like it was mentioned we are in the process of optimizing our expenses. So that we are able to improve the profitability and also we are also recognizing some of the inventory provisions and so that also has an impact in terms of the margin levels. So these are the broad drivers and these are the areas we are focused on specifically in terms of how long it might take it’s a little bit hard to say but I think, I would say domestic is little ahead. International is following and then the seeds behind in terms of the trajectory of improvement.

Subhra Gourisaria — Chief Financial Officer

Yeah, the other thing which impacts us when the price hikes when the raw-material hikes are high your percentage margin will always come under pressure because your pricing goes and sits in the denominator. In terms of percentage, it always look a bit slow compared to the earlier quarters.

Unidentified Participant — — Analyst

Sure and lastly ma’am internationally in which geographies are we seeing pricing pressure?

Sanjiv Lal — Managing Director & CEO

No there is definitely some pricing pressure which we are seeing in Brazil and otherwise. I think for most of the international business it has been, I would say a very good if you see the results and performance of many of the international companies. So but there has been pricing pressure for us at least in Brazil.

Unidentified Participant — — Analyst

Okay, thank you sir. Thank you for your time.

Operator

Thank you. The next question is from the line of Aditya Jhawar from Investec Capital. Please go ahead.

Aditya Jhawar — Investec Capital — Analyst

Yeah, thanks for the opportunity. Congratulations on good set of numbers. My question is again on the margin front. Now you know specifically if you can give us some light in the sense of few parameters, when you look at raw-material pricing, there is an expectation of freight cost-reduction and you mentioned that the inventory, the high-cost inventory overhang is no longer there. So, what could be the impact of expected pricing. So — that is one. Second on the same margin front in the export business, there is a big currency depreciation as well. So the pressure that we have seen is over and above the positive impact of currency depreciation of the currency depreciation impact is yet to come into our numbers.

Sanjiv Lal — Managing Director & CEO

The first question is on the margins.

Aditya Jhawar — Investec Capital — Analyst

Yeah.

Sanjiv Lal — Managing Director & CEO

Naga would you take the question on margins and Subhra you can take the question on ForEx.

S. Nagarajan — Chief Operating Officer

So margin yes, Aditya the [Indecipherable] inventory is pretty much behind us but I think in terms of — in terms of the margin pressures for us, we would say it is in specific pockets where we also have pricing challenges. As you would appreciate the combination of the products that we sell and the markets where we sell, that is really the combination that can determine you know the level of pricing flexibility that we could have. Like it was already mentioned in Brazil we do find pricing pressures for the products that we sell. We are also finding pricing pressures in the Southeast Asian market for another product that we sell and these are large products from our point-of-view and therefore the margin pressures are continuing there. However, for the products that we sell in the U.S. market as well as for the products in the European market, we have had much less impact, Europe — I mean U.S. has been pretty we’ve been actually having much better pricing flexibility there, Europe is following that. So that is — that is really the situation. So the improvement will also depend apart from our cost — cost of other things which you were right in pointing out, they all improving. It will also depend on the prices that we are able to charge in the market. And that is really the variable that’s a little bit hard to predict. So I wonder if that gives you some background to how we’re thinking about it.

Aditya Jhawar — Investec Capital — Analyst

Yeah absolutely but you know there is one thing to add on that. Do you expect that situation to start improving from this quarter and in second-half of the year and going into the next few quarters into the next financial year, are we seeing that the margin [Indecipherable] improvement this is the kind of bottomed-out margin for us.

S. Nagarajan — Chief Operating Officer

See that is little bit hard to say because there are two confounding variables at least, maybe there are many more. One is of course that the commodity prices are still continuing to be pretty high even in these markets, right. I think so to that extent you would expect the crop economics to be quite favorable. However, as you correctly pointed out there is the broader context of inflation, the broader context of these things playing through into the agrochemical market space itself, so as you know some currencies have in fact depreciated far more than the Indian currency. So that makes it that much more difficult in terms of affordability of the farmers in those countries and that actually feeds back through as pricing pressures to even suppliers. So that piece is a little bit hard to say. We are hopeful that in some pockets where things have not been good from a weather point-of-view, right view had droughts for example in Europe, we are hopeful that is something that will change but these are two or three of the things that influence the pick-up rate in the trajectory.

Subhra Gourisaria — Chief Financial Officer

Yeah.

Sanjiv Lal — Managing Director & CEO

Subhra you can take the Forex [Indecipherable].

Subhra Gourisaria — Chief Financial Officer

So most of our purchases and even the exports, imports, and exports are actually denominated in U.S. Dollars and as company, we are net exporters, so our export size is, much larger than the book size. So in fact the currency depreciation if you ask me works better for us especially because we are a net exporter of the company. As far as financial management is concerned, we have a policy signed by the Board of covering all imports and exports so we are fully covered in terms of the kind of exposures and, that’s why there is no further impact which is expected in the subsequent quarter but as Naga rightly pointed out, if Rupee continues to be holding much more spread versus other currencies versus Dollar there could be that in impact which we might see in terms of export growth. So that’s the only variable there, otherwise, since our exposure to other currencies is almost negligible, we do not have — dollars is almost negligible we don’t foresee any big concern there.

Operator

Sorry to interrupt you, Mr. Jhawar. May we request you to please fall back [Phonetic] in the queue?

Aditya Jhawar — Investec Capital — Analyst

Sure.

Operator

Thank you. The next question is from the line of Tarang Agarwal from Old Bridge Capital, please go ahead.

Tarang Agarwal — Old Bridge Capital — Analyst

Hi, good afternoon I have a couple of questions. One first on the seeds business. You spoke in your opening comments about some new variety of cotton seed where versus 20,000 package of sold 1.7 lakh packets, did I hear it correctly and if so was it a like-to-like comparison versus the full period of last year and this year?

Sanjiv Lal — Managing Director & CEO

No, you heard it correctly Mr. Agarwal. It is now one of our newer hybrids. And this has actually performed very well. And we believe that the sentiment in the market for this particular hybrid is also extremely positive which is encouraging us for scaling it up. But we will be scaling it up gradually not dramatically so we are out looking, doubling our sales in the next Kharif. And this is again Kharif cultivation so whatever we had to do for the year has done.

Tarang Agarwal — Old Bridge Capital — Analyst

Got it and you know overall on your seeds business, I mean I was looking at our performance for H1 since. H1 FY ’20. The business has lagged quite a lot and if I recall in Q2 of FY ’22 there was some indication about our strategic rethink on the business. So if you could give us some sense on what’s happening and what are the challenges that you’re seeing on-ground except the hope is that paddy sowing this half year was lower and it’s the biggest proportion of your overall seeds business?

Sanjiv Lal — Managing Director & CEO

Yeah so, in fact some of our hybrids which has been doing very well they seem to be losing favor so our replacement products, have been coming into the market but they are yet to scale so that is one — one issue that we’re dealing with. The other issue is related with vegetable seeds business which has not been performing in the manner that we had expected despite forming separate line-of-business with a separate focus on that. So this also been reviewed and we will be scaling back on this specific line-of-business and merging it with our field crop business so these are some of the decisions that we will be operationalizing during the course, of the year.

Tarang Agarwal — Old Bridge Capital — Analyst

Okay. On balance sheet, if you could explain why did allude to the cash cycle in the domestic market was poor so that led to [Indecipherable] expansion but if you, could just give us some more details in terms of your debtor days say on 30th September 2021 in the domestic business versus what it is today. Because it seems quite a lot. So what is happening on-the-ground which has led to and if I were to sort of juxtapose it with the fact that your overall crop protection business has only grown 8% and that too largely pricing led. In an environment, where cost push has been significant on the raw materials front. If I just combine those two factors the on-ground situation seems extremely difficult. So just can you give us some more nuances, it will be better for us to be able to understand what’s actually happening on the ground and so far as the domestic business is concerned.

Sanjiv Lal — Managing Director & CEO

Do you want to…

S. Nagarajan — Chief Operating Officer

Yeah so on the domestic front there is certainly an increase in terms of outstandings compared to last year. And that is certainly more than a proportionate increase which you would expect based on the sales increase. So there are certainly pockets in the market where we are finding stress in terms of collections. So that is right. However, like it was mentioned in the opening remarks, we think that it is not something which is bound to create a risk from our point-of-view we do expect to collect this there is an elongation of the collection cycle and that has been contributed by multiple factors. As you as you know one of course is in terms of the eastern part of the country there has been a reduction in terms of rainfall, there is a deficit of rainfall, liquidation has got hampered there and unfortunately, some parts of the western side of the country have also got impacted because of excessive of rainfall and therefore leading to skipping of [Indecipherable]. So at one-level there is pressure that is coming from the sales — liquidation let us put it this way, liquidation that is that is hampered.

Secondly, even from our own approach we had moderated some of our payment incentives in the beginning of the year which of course have since improved upon so to that extent we also feel some of that may have also played a part. But having said this we think that this is something that should provide rabi we are still hopeful off and some of these elongated cycle on the receivable days should settle down. This is our [Indecipherable]. With respect to your question on the overall balance sheet, I think it’s a combination of domestic as well as exports the receivables there, in addition of both and they’re like it was again mentioned in the opening remarks, compared to last year we had decided to not discount the receivables from one of the international customers and that is a sizable effect also. So I think these two factors broadly come the overall [Indecipherable].

Subhra Gourisaria — Chief Financial Officer

Yeah the only one last one is also international customers, the mix of the customers because the customers with leading credit period and given that international customer in export sales was relatively high in the Q2 that also plays in terms of the amount which is sitting on the balance sheet as on 30th September. But International customers there no overdue as just [Indecipherable] mentioned.

Tarang Agarwal — Old Bridge Capital — Analyst

No pardon me, on harping [Phonetic] on this, hello…

Operator

May I request you to please rejoin the queue. We have participants waiting for their turn. Thank you. Participants in order to ensure that the management is able to address questions from all participants, please limit your questions to two. The next question is from the line of S. Ramesh from Nirmal Bang. Please go ahead.

S. Ramesh — Nirmal Bang — Analyst

Hello, yeah good morning and thank you very much. My first thought is again going back to the increase in debt and the receivables. So and if you’re saying that some of this is because of the varying credit period is the international business which has been growing, so if the international business continues to grow at this pace, which seems to be the trajectory you’re likely to achieve. When do you think that, you’ll be able to bring the receivables under control and bring down your gross and net-debt? Can you give us some sense of what you are doing with respect to bring it under control?

Subhra Gourisaria — Chief Financial Officer

See first and foremost we’re looking going to look at working capital overall because. There’ll be some production which will be — inventory will also be optimized. But overall what we said is in quarter three we will be focusing more on receivables reduction and also, looking at how do you optimize the overall inventory levels. Coming back, to that we did have some interim data as I said during the quarter and there might be requirement or more entering that during the course of the quarter but we expected cash-flow from operations to gradually improve towards the end-of-the year.

S. Ramesh — Nirmal Bang — Analyst

So what is the kind of debt to expect say by the end-of-the year compared to what you reported or September?

Subhra Gourisaria — Chief Financial Officer

I don’t think it will be a significant increase maybe INR50 crores increase maybe for INR5,200 crores.

S. Ramesh — Nirmal Bang — Analyst

Okay and then one last thought. In terms of your capex, when do you see the capitalization of these assets adding to our topline and EBITDA? Can you give us some sense of the timeline?

Sanjiv Lal — Managing Director & CEO

We expect this to start kicking-in from next financial year. We’ll be commissioning new NCP [Phonetic] plant this year, towards Q4 so we expect to the revenue streams to start from FY ’24 Ramesh. Thank you, thank you, thank you [Indecipherable]. All the best.

Operator

Thank you. The next question is from the line of Viraj Kacharia from Security Investment Managers please go ahead.

Viraj Kacharia — Security Investment Managers — Analyst

Yeah, hi, thank you for the opportunity. Just have two questions. First on the international business, you doing that in some regions you kind of raise pricing pressure in some of the reasons we’ve actually seen a good healthy growth in volumes and prices [Indecipherable]. So if you kind of talk a little bit more in detailed terms of what are those molecules on those regions where you kind of seeing a pressure and similarly for [Indecipherable] U.S. or Euro. What we understand from the commentary of the global [Indecipherable] region also is — kind of type situation in those markets as well and that’s also led to a lot of inventory buildup for those markets. But our commentary has been quite contrary otherwise, so just wanted to understand what is the — where is the disconnect?

Sanjiv Lal — Managing Director & CEO

No, see Viraj, you are right. They have some drought conditions and it could potentially be the pressure points for us. There are pricing patrons coming from — as we mentioned earlier from Brazil and Southeast Asia for two of our products which is basically Acephate and Hexaconazole for these two markets respectively. And while Europe is certainly had a period of drought our understanding is that the sowing is unlikely to get affected in Europe. So I think it is still work-in-progress so to say. So we will of course continue to focus on getting our capacity utilizations by positioning the [Indecipherable] in the market appropriately.

Viraj Kacharia — Security Investment Managers — Analyst

Any perspective you can share on the inventory situation in these markets? I mean is there inventory kind — at optimum level we will see only for a sizable inventory for our key molecules in those markets?

Sanjiv Lal — Managing Director & CEO

Viraj, I don’t think we have that kind of full understanding but qualitatively the comment that you made that the inventory levels are high is also our understanding.

Viraj Kacharia — Security Investment Managers — Analyst

Okay, and the second question is on the international market again. You know you talked about pricing pressure but generally the RM environment has also been sitting on the downward trend so simply by far the inventory is now out-of-the window for us. How should one understand the margins part especially on the international business for us?

Sanjiv Lal — Managing Director & CEO

Yeah, so I think the material prices are certainly trending down, the freight costs are also trending down. So there are — one-way to understand it might be that in certain products which we are selling in those markets where the impact on pricing our pricing is not really high for those certainly the margins should be improving. For those markets where we continue to face either an inventory overhang as you put it in the market on pricing pressure for variety of reasons Hexaconazole as we said, there the raw-material price drop may have to be shared with the customer to stay with the — to stay competitive in terms of our pricing. So it would boil down to the mix of revenues that we are able to secure from all these different geographies in terms of the blended margin where we might end-up, and in fact it was an earlier question that is why it was a little bit difficult there are many factors that influence this, and therefore it’s little bit difficult to predict the movement as we go forward. But as you can appreciate our focus is to try and maximize what we can in these markets where we have a relatively benign situation.

Viraj Kacharia — Security Investment Managers — Analyst

If I can squeeze in one question you talked about the CMO to new products being launched. So are they from new customers or existing customers any perspective you can share, what kind of a [Indecipherable]?

Sanjiv Lal — Managing Director & CEO

We had mentioned that — actually we had mentioned this, I think in the previous quarter only. This is where we have finalized one contract manufacturing opportunity for a formulated product and the other is for an active material which will get commercialized during FY ’24 all going well because the registration has to be done by the customer including adding the hedge and see that as the source. So that is, that’s why I had mentioned that will take about two-three years for getting the revenues to start flowing in from these contacts.

Subhra Gourisaria — Chief Financial Officer

And these are, new customers.

Sanjiv Lal — Managing Director & CEO

Yeah, these are new customers.

Viraj Kacharia — Security Investment Managers — Analyst

Okay, thank you. Good luck. Thank you. The next question is from the line of Somaiah V from Spark Capital please go ahead.

Somaiah V — Spark Capital — Analyst

Thanks for the opportunity sir. My question pertains to Pendimethalin and Metribuzin. So can you give a broad range of what is the Y-o-Y price increase in these two molecules that you have seen? That’s the first part, and second part is in terms of the volume growth in these two molecules is it — how much of this is led by the end-market growth, and is there a market-share shift that you’re seeing in these molecules? Yeah, so in terms of the pricing, I think it may not be very prudent for us to share that because we are very customer-specific. Pendimethalin growth has been fairly good during H1 and — we are seeing the business is coming back because there has been an issue over the last couple of quarters where we were unable to get the kind of volumes that we are capable of producing. So we are seeing some of the battery [Phonetic] demand coming back. Pendimethalin, we may see some softness in H2 but we are trying to work-through that with other customers as well. Would you like to add anything more Naga?

S. Nagarajan — Chief Operating Officer

Maybe though we can’t share the price rate change I can share with you that we have more than 60% growth. It’s for H1 in terms of Metribuzin revenues and we have more than 20% growth in Pendimethalin. [Technical Issues]

Somaiah V — Spark Capital — Analyst

Thank you sir one more question so pertaining to exports only I mean let’s say from FY ’22 where we are around INR800 crores, I mean let’s say 3-year timeframe, so is there a target that, we’re looking at probably doubling of revenues, anything like that mean and is there a model that, we’re looking at probably more focus on [Indecipherable] or in the current international business itself, adding more capacity. Any path that you would take to kind of achieve whatever the vision that is there for the export billings?

Sanjiv Lal — Managing Director & CEO

Mr. Somaiah actually this has been articulated by us regarding the share of international business with the domestic business. Currently, we are at around 33% to 35% of our crop care — crop protection business is coming from exports and by FY ’26, we expect it to be at around 40% and this is really manufacturer led exports business so this will include contract manufacturing as well as what you may refer to as catalog sales from our current portfolio and the new AI that we will be commercializing starting FY ’24.

Somaiah V — Spark Capital — Analyst

Got it sir, thank you.

Operator

Thank you. The next question is from the line of [Indecipherable] please go ahead.

Unidentified Participant — — Analyst

Yeah, can you hear me?

Operator

Yes [Indecipherable], please go ahead.

Unidentified Participant — — Analyst

So how do [Technical Issues] bio-fertilizers and [Technical Issues] the next ESG environment? There is so much emphasis on the clean and carbon-free environment coming in. How — what is our percentage revenue and like five years from now what do you see this as a percent of revenue?

Sanjiv Lal — Managing Director & CEO

Sir, I’m sorry. I couldn’t quite get your audio through correctly here but my other colleagues if they have understood it they would add to — that what is it that we are doing on the biological is it?

Unidentified Participant — — Analyst

Yeah, the biologicals, what is the total percentage of revenue at this point of time and what [Technical Issues] four to five years hence and how do you see whole space [Technical Issues].

Sanjiv Lal — Managing Director & CEO

Yeah, so understood. So actually we are looking at biologicals as part of our crop nutrition portfolio within our crop care category. And this category has been growing quite nicely over the last two years for us even this year the growth has been fairly decent during — almost 30% growth has come from this category of crop nutrition which is a combination of biological products, soil health products as well as water-soluble crop nutrition products and micro-nutrients. So this category we are considering as the crop nutrition category and this has been growing quite nicely. It is an area of focus for us. Last year I think we did about INR145 odd crores and the outlook is 20% growth in this category even during the current year. We’ve added products in this category, [Indecipherable] type of products. We’ve added, bio-stimulants. We’ve added some new products, to this category and we will also be coming up with certain products related with the mobilization of [Indecipherable] from the soil during the course of this year if not for Kharif next year. So there is a very focused plan that we have on this category and we see it as a future growth engine.

Unidentified Participant — — Analyst

And sir how fast [Foreign Speech] could we have higher teens ROE ROCE kicks in the rallies?

Subhra Gourisaria — Chief Financial Officer

ROCE in the short-term obviously is under pressure for because the fact that we are investing in newer capacities which will take some time to start delivering the full returns and also we spoke about the working capital is at an elevated level. However, if you ask us our mission, our mission is certainly to be in high-double digit in terms of ROC.

Unidentified Participant — — Analyst

Would it be possible [Technical Issues].

Subhra Gourisaria — Chief Financial Officer

It’s difficult to give a time horizon but as the capacity starts getting used up, the ROCE will progressively keep improving.

Sanjiv Lal — Managing Director & CEO

And we also keep investing further. We have so far committed only about INR550 crores out of our INR800 odd crores, so our intention is to keep investing in the manufacturing capacity as well.

Unidentified Participant — — Analyst

And what is the capicity utilization in all the plants?

Operator

Mr. [Indecipherable] may we request you to please rejoin the queue, we have participants waiting for the [Speech Overlap].

Unidentified Participant — — Analyst

Thank you so much.

Operator

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

Yogesh Tiwari — Arihant Capital — Analyst

Thank you, sir. My first question is basically regarding the Brazilian market.

Operator

Yogesh may we request you to please speak little bit louder, we cannot hear you clearly.

Yogesh Tiwari — Arihant Capital — Analyst

Am I audible now?

Operator

It’s very low sir.

Yogesh Tiwari — Arihant Capital — Analyst

Is it better?

Subhra Gourisaria — Chief Financial Officer

Yes, yes. Go ahead.

Yogesh Tiwari — Arihant Capital — Analyst

Yeah, my first question is basically on the Brazilian market, if you can give me an approximate split of the product mix between herbicides and insecticides for the Brazilian market?

Sanjiv Lal — Managing Director & CEO

So Yogesh for us the biggest product that we export into the Brazil market is Acephate. And we have got registration for our Metribuzin-formulated products in the Brazilian market. So Acephate is moving fairly well and our formulated herbicide formulation has also started picking-up quite nicely. We see expansion of that during the next, few years. We’ve also got registration of our formulated Acephate product where we will be starting business now.

Yogesh Tiwari — Arihant Capital — Analyst

So it’s like Acephate, we have already started, Metribuzin will take time.

Sanjiv Lal — Managing Director & CEO

No, Acephate technically we are already selling. Metribuzin formulation we have started and Acephate formulation we will be starting.

Yogesh Tiwari — Arihant Capital — Analyst

Okay, so there is some pricing pressure in the Brazilian market. So is it like there is more pricing pressure on insecticides versus herbicides?

Sanjiv Lal — Managing Director & CEO

I don’t think…

S. Nagarajan — Chief Operating Officer

I think it is hard to generalize like this only from our point-of-view in our portfolio like Sanjiv mentioned insecticide is the dominant portion [Indecipherable] formulations which we are selling will constitute a very small proportion of the total revenues that we make from Brazil. We are witnessing pricing pressures in Acephate.

Yogesh Tiwari — Arihant Capital — Analyst

Sure sir, one last question on the crop nutrition business. So just to understand if the margins on the crop nutrition business, we’ll be in-line with the overall company margin or it would be higher?

Sanjiv Lal — Managing Director & CEO

So I think generally they will trend a little higher than the overall margins Yogesh.

Yogesh Tiwari — Arihant Capital — Analyst

Okay, thank you sir, that’s all from my side.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aditya Jhawar from Investec Capital please go ahead.

Aditya Jhawar — Investec Capital — Analyst

Yeah, thanks for the follow-up. Just looking at this changing backdrop between the domestic market and international if you can give us a sense that what is the current margin differential between both the businesses?

Subhra Gourisaria — Chief Financial Officer

It’s hard to obviously call-out that what is the specific margin difference because it depends on the products that we’re selling, but overall yes the margins are slightly lower in the international market versus domestic market but as and when we start including our share of formulation business we expect the margins to gradually improve.

Aditya Jhawar — Investec Capital — Analyst

Okay, thanks for — secondly in the international business what is the current split of revenues between our own branded formulations that some the contract manufacturing that we have recently started developing and the legacy business?

Sanjiv Lal — Managing Director & CEO

On the contract manufacturing, we not give that split but just generally, you know as we are trying to build our formulation building our business in the export business portfolio, so that is about 20% of our export business is currently formulated products Aditya.

Aditya Jhawar — Investec Capital — Analyst

Okay sir, 20% formulated and is there any other split that you can share between 80% of export business Sanjiv.

Sanjiv Lal — Managing Director & CEO

I think we’re limited to that because we don’t have too much opportunity or too much business in contract manufacturing so splitting it may be a little problematic for us.

Aditya Jhawar — Investec Capital — Analyst

Perfect, perfect, that’s it from me, all the best.

Operator

Thank you, very much. The next question is from the line of Darshita from Antique Broking, please go ahead.

Darshita Shah — Antique Stock Broking Limited — Analyst

Hi, I guess I am audible.

Sanjiv Lal — Managing Director & CEO

Yeah.

Darshita Shah — Antique Stock Broking Limited — Analyst

Yeah, so I just had one question regarding the EBITDA of the seed business. I wanted to understand what will the positioning [Indecipherable] for the second-half of the year for FY ’23. And also what kind of EBITDA or EBITDA loss that we have currently? What is the quantum of loss, if you could provide some [Indecipherable] the year as in for effect when it seems like FY ’25 if you could some range and for the second-half of the year, what is the kind of provisioning are we seeing?

Subhra Gourisaria — Chief Financial Officer

See Darshita, first thing we do not give forward-looking estimates and it’s difficult to give what the EBITDA would be. But Q3 and Q4 for [Indecipherable] is relatively smaller for us and hence if you look at even the historical trends you would have seen that we make loss during this period because the revenues very small and hence the — because of the cost, it comes as a loss and on-top of it as we mentioned we are looking at a complete review of the all the costs and there could be some additional provisions that maybe necessitated as a part of this exercise.

Darshita Shah — Antique Stock Broking Limited — Analyst

Like, is there any number in mind? I guess the first-half is about INR25 crores. Is there a new guidance that you can reveal some kind of number [Phonetic].

Subhra Gourisaria — Chief Financial Officer

No, we are working towards that Darshita because we have taken whatever was required at this point of time as part of Q2. So we’ve already taken [Technical Issues] but we are working through the numbers and, we’ll come back maybe sometime later. Alright, [Technical Issues] thank you.

Operator

Thank you. The next question is from the line of S. Ramesh from Nirmal Bang Securities, please go ahead.

S. Ramesh — Nirmal Bang — Analyst

Hello, thank you very much. So we had the growth numbers in Metribuzin as 60% and Pendimethalin as 20% and you are having a plan to set-up an MPP [Phonetic]. So in terms of the transfer business, what is the headroom you have in Metribuzin and Pendimethalin in terms of available capacity, you have not utilized, and secondly, can you give us some sense in terms of what is the kind of revenue or additional tonnage you can sell from the MPP. It will be useful for us to build that into our model.

Sanjiv Lal — Managing Director & CEO

So, Ramesh the MPP as you’d be aware that we are going to be doing a couple of products there including the contract manufacturing products that we have. We will be starting small as expected because of the need for registration and all which is already commenced. So we will see the revenue coming from the MPP a little later in FY ’24 and ’25 and scale-up only thereafter. As far as Pendimethalin is concerned and Metri is concerned, you’ll be aware that we had sort of separated these two plants and individual plants for Pendi as well as Metri. The net result is that we’ve landed up with getting I would say low-cost debottlenecking happening, so we have now good headroom in Metribuzin plant as well as the ability to scale-up even the Pendi and Metri capacity with minimal investment.

S. Ramesh — Nirmal Bang — Analyst

Okay, thank you very much.

Operator

Thank you. The next question is from the line of Tarang Agarwal from Old Bridge Capital, please go ahead.

Tarang Agarwal — Old Bridge Capital — Analyst

Thank you and thank you for the opportunity again. Just on the domestic business the manner in which the crop protection business has moved is the on-the-ground situation — how would you rate on-the-ground situation this year versus say the situation last year or the year before? That’s one, number two, in terms of your receivables for your exports business. If you could give us the number of days that were probably say on 30th September last year and what would that be on 30th September 2022?

Sanjiv Lal — Managing Director & CEO

Mr. Agarwal, so this is a good one. In terms of on-the-ground domestic business between this year and last year. I think I would say that it is more or less similar. If you’ll recall last Kharif also there was this whole issue about consumption because of the way the rainfall was playing out in a way the same thing has played out even this year. Last year we had seen a fairly large rollover of inventory into H2. And it is our assessment that there’s going to be a lot of rollover of inventory of all [Technical Issues] companies into H2 as well. So there is going to be a considerable amount of pressure in terms of liquidation of agrochemicals in the market. What is good is that the ground-level activities at least for us is at very good level in terms of engagement with the farmers and engagement with the trade. Sometimes we had sort of dialed down last year because of the pandemic situation which is not playing out this year at all. So our ability to engage at the field-level, pharma level and distributor level et-cetera is much better this year for us. And I guess for the other peers as well. So that is I would say, similar to what was there last year, but in a very different. Naga would like to add something more.

S. Nagarajan — Chief Operating Officer

No, I think that is right Sanjiv.

Subhra Gourisaria — Chief Financial Officer

On the international customers, you asked that what is the impact of the debtors days on hand so as we said there is one impact of the higher proportion of sales plus the mix of customers plus the discounting that we have stopped for one of our key customers so I would say that is at least 30% to 40% days on-hand is higher compared to the previous year so there is a significant increase in debtors that you are seeing coming on account of that.

Operator

Thank you. The next question is from the line of [Indecipherable] please go ahead. Mr. [Indecipherable] please go ahead with your question. Your line is unmuted.

Unidentified Participant — — Analyst

Yeah. I mean, how is it [Technical Issues] create better value for the shareholders because you know it is almost like a 1.5 [Technical Issues] previous notes in the 2009 [Technical Issues] So how is it that we will create such value because now we are also being valued as a [Technical Issues] pure commodity. [Technical Issues] is there is a sort of buyback [Technical Issues] concerned.

Operator

I am sorry you might have to repeat your question, your voice was not coming very clearly.

Unidentified Participant — — Analyst

[Technical Issues] How is it that we can create better value for the shareholder because we are now being quoted at a market cap to sales of almost 1.4 which is like a commodity valuation whereas what we are doing is clearly not a commodity, and secondly as far as patents are concerned how many patents do you feel that will come in our favor in the next one or two years? And how is the [Indecipherable] acquisition really helping us in getting more patents over the last two to three years?

Sanjiv Lal — Managing Director & CEO

Okay so. In terms of the first question, I think from an operational standpoint we are focused on trying to improve the performance metrics and whether it is in terms of revenue and profitability or return on capital employed and we think that is…

Subhra Gourisaria — Chief Financial Officer

What shareholders will get the [Speech Overlap]

Sanjiv Lal — Managing Director & CEO

That’s the way that we would work towards improving the shareholder value. As you know we also have a fairly large capex program which is underway INR550 crores out-of-the INR800 crores that we have announced we have already committed or even invested and the balances is yet to know, so therefore, we would be utilizing the cash generated in the business for investment in the business of the past for [Technical Issues] dividend. With respect to patents, the number of patents that we have and how much we are expecting, maybe we can get back to you in terms number of patents that we have [Technical Issues] recall the number of patents that we already have.

S. Nagarajan — Chief Operating Officer

[Technical Issues] I don’t have that number.

Sanjiv Lal — Managing Director & CEO

But we can revert on this number. With regard to the seeds operation, yes there are a few patents that we have in the seeds operation also, however, as you know in the last year — couple of years you can say we are finding that there is a need for us to get the operations of the seeds business improved in terms of profitability and that is what we are focused on. We have had some challenges in terms of inventory levels, we have had certain other challenges which we are working through. So that is really the focus right now and that is why we are having the kind of you know provisioning and so on that we are going through at this point in time. But seed business we are confident that we will come through this phase and we should have some good outcomes over a period of time.

Unidentified Participant — — Analyst

And sir this is a new INR850 crores capex will it lead to around INR1,000 crores revenue to you then?

Subhra Gourisaria — Chief Financial Officer

[Technical Issues] Some of this has already got commissioned out of this excess INR850 and Sanjay has mentioned some of the bottlenecking had happened at lower-cost which has already started yielding in terms of returns. But 850 to 1000 correlation is difficult to establish, so these investments are across in different pockets.

Unidentified Participant — — Analyst

And what is our capacity utilization in this quarter two all the plants combined?

Sanjiv Lal — Managing Director & CEO

For example our Acephate plant the utilization is 100% Pendimethalin has been pretty much close to about 90%. Hexaconazole has been slightly lower because of a lot of inventory of Hexaconazole in the Vietnam and Chinese markets so the utilization there has been a little lower. Contract manufacturing plant has been effectively running well, so we are [Technical Issues] utilization and contract manufacturing facility. PKK has been shut for the last few years and we will be restarting the plant in Q4, because some orders have started now coming back for this polymer PKK. So that’s a good signs — a positive sign for one of the other products which is important for us in CM portfolio.

Operator

[Technical Issues] May we request [Indecipherable] to please rejoin the queue sir, we have participants waiting for their turn. Thank you. Ladies and gentlemen this will be the last question for today which is from the line of Somaiah V from Spark Capital. Please go ahead.

Somaiah V — Spark Capital — Analyst

Yeah, thanks for the opportunity sir. Sir, what would be our current Pendimethalin and Metribuzin capacity, in metric ton? So Pendimethalin would be close to 5,000 tons per year and Metribuzin close to 3,000 tons per year. And also one follow-up on that. In terms of Pendimethalin and Metribuzin, I mean we have been doing this RM backward integration can you just give some color between these two molecules to what level is the backwardation done?

Sanjiv Lal — Managing Director & CEO

So as far as spending Pendimethalin is concerned what we are doing is we have entered into a long-term supply arrangement with an Indian manufacturer of the raw-material. At this point in time their plant is coming on-stream but we are getting about 15% to 20% of our requirement from them. We do expect that that will trend upwards to 70% to 80% of the requirement. As far as Metribuzin is concerned, we are in Phase-III dependent on imports.

Somaiah V — Spark Capital — Analyst

Understood, sir. Thank you.

Operator

Thank you. Ladies and gentlemen this was the last question for today I would now like to hand the conference over to the management for closing comments.

Sanjiv Lal — Managing Director & CEO

Thank you thanks for all the questions and I trust we were able to provide clarity to our Q2 results. And whilst we’ve had a satisfactory performance during the first-half of the year, external challenges as we mentioned are on the increasing side because of some drought conditions and also inventory levels. Our international business had a good run till-date, however, because of the drought conditions we experienced in many parts of the world there is an increasing customer skepticism. And even we are seeing some overhang of inventory as well as we discussed. We will continue to pursue all efforts to drive maximum utilization of our plants and get volume-led growth. [Indecipherable] growing could become a challenge as you see it. On the constant side Rabi augurs well and the crop prices are also quite favorable. For seeds, H2 was a relatively small period for us and they are the priority for us in our seed business is really the focus on Kharif hybrid seed production and market development activities for a good Kharif season next year. We are trying to review all areas of cost and optimize them to develop a more focused and agile seeds business. In the process of this review there could be cost-related to inventory and other items for which there be requirement of provisioning which we will continue to assess during the course of the year. Our long-term strategy of driving competitive growth remains on track and we will keep reviewing all opportunities as relevant. With that, we will close the call now and wish you all a very safe and prosperous Diwali. All the very best.

Operator

[Operator Closing Remarks]