Sharda Cropchem Limited (NSE: SHARDACROP) Q3 FY23 Earnings Concall dated Jan. 25, 2023
Corporate Participants:
Ramprakash V. Bubna — Chairman and Managing Director
Ashok Vashisht — Chief Financial Officer
Analysts:
Manish Mahawar — Analyst
Varshit Shah — Veto Capital — Analyst
Rishabh Shah — KR Choksey Shares and Securities — Analyst
Sameer Deshpande — Fairdeal Investments — Analyst
Rohan Gupta — Nuvama Wealth Management — Analyst
Dhruv Muchhal — HDFC AMC — Analyst
Akshat Mehta — Pioneer Investcorp — Analyst
Sachin Kasera — Svan Investment Managers — Analyst
Rohit Nagraj — Centrum Broking Limited — Analyst
Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst
Darshita Shah — Antique Stock Broking Limited — Analyst
Chintan Mehta — Prudent Corporate Advisory Services — Analyst
Archit Joshi — Batlivala & Karani Securities — Analyst
Yogesh Tiwari — Arihant Capital Markets Ltd — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Sharda Cropchem Q3 FY ’23 Earnings Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. Thank you. And over to you, sir.
Manish Mahawar — Analyst
Yeah. Thank you, Lizan. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of Sharda Cropchem. From the management, we have Mr. R.V. Bubna, Chairman and Managing Director; Mr. Ashok Vashisht, CFO; and Mr. Dinesh Nahar, GM Finance, on the call.
Without further ado, I would like to hand over the call to Mr. Bubna for opening remarks, post which we will open the floor for Q&A. Thank you. And over to you, Mr. Bubna.
Ramprakash V. Bubna — Chairman and Managing Director
Thank you, Mr. Manish. Good afternoon, and very warm welcome to everyone present on the call.
I hope you all are keeping safe and healthy. Along with me, I have Mr. Ashok Vashisht, Chief Financial Officer; and Mr. Dinesh Nahar, General Manager, Finance, and our Investor Relations Advisors are also on the line. Hope you all have received our Investor Deck by now. For those who have not, you can view them on the stock exchanges and company website.
We are a global agrochemical company engaged in the process of marketing and distribution of formulations and generic active ingredients, fungicides, herbicides and insecticides across the globe. We have also entered in the biocide segment to cater to the disinfectants market, leveraging our product registration capabilities. We identified the generic molecules, prepared dossiers, seek registrations and market and distribute these products in wide range of agrochemical sector.
Sharda Cropchem’s total product registration stood at 2,776 as on 31 December, 2022. Additionally, 1,131 applications are in the pipeline at different stages of approval. The capex incurred by us in the first nine months of this year is around INR300 crores. We maintain healthy relationship with multiple manufacturers in agrochemical industry, mainly in China and India. Sourcing from multiple manufacturers helped company in getting quality products at optimal price, thereby de-risking our sourcing capabilities.
Over the years, we have built a strong brand franchise within our global markets. For Q1 2023, revenues grew by 16% to INR1,017 crores and for the nine months of this year, the revenues grew by 19% to INR2,563 crores. Growth was led by better product mix and price realizations.
Operator
Sorry to interrupt. Sir, there’s a lot of disturbance from your line.
Ramprakash V. Bubna — Chairman and Managing Director
Madam, there was an aircraft flying over our building.
Operator
Okay, sir. You may please proceed.
Ramprakash V. Bubna — Chairman and Managing Director
Now it has gone. Is it okay now?
Operator
Sir, much better. Thank you.
Ramprakash V. Bubna — Chairman and Managing Director
So, I was saying that the revenues grew by 19% in the first nine months to INR2,563 crores and the growth was led by better product mix and price realizations. Gross margins in nine months of this year have been impacted by weakening of euro against dollar, leading to increase input costs and the impact of general inflation across the geographies. Major currencies have depreciated against dollar in the first six months of the financial year due to global macro environment.
In Q3, we have seen a rebound of these currencies against the U.S. dollars. Over 43% of our sales in the first nine months on the agrochemical sector has been in the Europe, whereas the majority of the company’s raw materials are sourced from China in U.S. dollars. This has impacted the company’s gross margins and overall profitability.
EBITDA has remained flattish, as you have seen margins declined. This was due to lower GP margins driven by weakening dollar-euro, leading to increased input costs, general inflation and strengthening of global force. Profit after tax for nine months was also impacted by forex losses.
We have taken various measures to reduce the impact of forex going ahead. We have increased our sales focus in the NAFTA region, which is sold — which is being sold in U.S. dollars. We are also optimally hedging our cross-currency exchange — I mean, cross currency — all the currencies against dollar.
With this brief overview, I would now like to hand over the call to our CFO, Mr. Ashok Vashisht for discussing our financial performance. Thank you, everyone. Thank you so much.
Ashok Vashisht — Chief Financial Officer
Thank you, sir, and good afternoon, everyone for the call. So, I’ll take you quickly through the Q3 FY ’23 financial performance and YTD December for the nine months financial performance.
Coming to Q3 FY ’23, our revenue stood at INR1,017 crores against INR880 crores in Q3 FY ’22, registering a growth of 16% year-on-year basis. Revenue growth for Q3 was led by better prices, product mix, as well as volume growth, mainly in agrochemicals. Gross margin stood at 30.5%. Gross margin have been impacted by weakening of euro against dollar, leading to an increase in input costs but it has improved from Q2 FY ’23.
EBITDA has de-grown by around 2% to INR197 crores, essentially driven by comparatively margin decline due to lower GP margin because of same issue, basically, weakening of euro against dollar as well as general inflation. PAT stood at INR108 crores versus INR102 crores in Q3 FY ’22. PAT was supported by volume growth and cost impact on forex.
Coming to split, agrochemical business, which grew by 16% year-on-year to INR842 crores, whereas the non-agro business grew by 12% year-on-year basis to INR175 crores. In agrochemical space, Europe grew by 9%, NAFTA region grew by 27%, Rest of the World grew by 17%, and LATAM, we, yesterday, showed a de-growth of around 5%. Europe contributes — in quarter three, Europe contributes 39%, NAFTA contributes 47%, LATAM 6% and Rest of the World 8% of the agrochemical business for Q3 FY ’23.
Coming to non-agro space in Q3. NAFTA region grew by 67%, LATAM grew by 102%, Rest of the World grew by 9%, and there was a de-growth in Europe by nearly 57%. In non-agro, Europe contributes 14%, NAFTA 66%, LATAM 5%, and Rest of the World 15%.
Coming to the nine months FY ’23 performance. Revenue, we registered INR2,563 crores against INR2,145 crores in nine months FY ’22, registering a solid growth of 19% on year-on-year basis. Our revenue growth was led by better product mix and price realization. Gross margin stood at 28% for YTD December 2022. YTD December 2022 margins are better by 170 bps over the first half of the year margins YTD September ’22. EBITDA has grown by 1% to INR414 crores and PAT stood at INR143 crores against INR172 crores in nine months last year. As you are aware, PAT was impacted by higher FX losses of nearly INR69 crores in nine months FY ’23.
Coming to the split, agrochemical business grew by 15% year-on-year basis to INR2,032 crores, whereas non-agro business grew by 38% year-on-year basis to INR531 crores. In the agrochemical space, Europe grew by 15%, NAFTA grew by 23%, Rest of the World grew by 18%, and we registered a de-growth in LATAM by 6%. Europe continues to be the number one region basis nine months at 43%, NAFTA 40%, LATAM 10%, and Rest of the World 7% of the agrochemical business for nine months FY ’23.
In the non-agrochemical space, NAFTA grew by 76%, LATAM grew by 86%, Rest of the World grew by 8%, and we registered a de-growth in Europe for around 7%. In non-agro Europe contributes 22%, NAFTA contributes 59%, LATAM 6%, and Rest of the World 13%. We continue to have a very strong balance sheet and liquidity. Our cash and cash equivalents as on 31 December, 2022 is at INR303 crores.
So with this, we open the floor for questions. And yes, we’d be happy to answer. Thank you very much.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question is from the line of Varshit Shah from Veto Capital. Please go ahead.
Varshit Shah — Veto Capital — Analyst
Hi, sir. Good morning — good afternoon. Sir, my first question is on the macro backdrop of Chinese supplies resuming and some overcapacity by Indian players in certain molecules. So do you see that post this environment of falling prices kind of stabilizes, there could be actually better days ahead for company like Sharda who do not own manufacturing entities?
Ramprakash V. Bubna — Chairman and Managing Director
You are absolutely right, Mr. Vatsal [Phonetic] I mean, we are seeing better times in this quarter and the year ahead because Chinese prices are stabilizing and the products are available on the demand and the world is facing a lot of uncertainties. So, there is some shortage in the world situation, which will help us to get better realizations also. Thank you.
Varshit Shah — Veto Capital — Analyst
Great. Great. And sir, just one question on the insecticides. I mean, in the presentation, we have reported a 42% decline in the insecticides segment. So what is the reason for such a sharp drop? And at the same time, there is a very sharp uptick in herbicide sale at 38% despite LATAM being weak overall. So, what is the reason for such outperformance also in the herbicide sales despite a weak LATAM?
Ramprakash V. Bubna — Chairman and Managing Director
Mr. Vatsal, frankly, we are not controlling this distribution between herbicides and insecticides. We are only catering to the demands of various markets. And if the market demands more herbicides, we supply them herbicides, but we don’t miss the loss of insecticide sector businesses. This purely happens because of the global environment and many factors, including the crop pattern in consuming countries.
Varshit Shah — Veto Capital — Analyst
Sir, I understand that. Obviously, we supply based on the opportunity, but just wanted to understand what is the end driver for such a sharp drop in insecticides. I mean I’ve been hearing this across the industry that the insecticides demand overall is very, very weak. So, any idea you have from your end customers? Is it related to weather? Or is it old inventory in the systems and any idea you have?
Ramprakash V. Bubna — Chairman and Managing Director
No, sir, we don’t get these kind of ideas and feedbacks from our customers and we don’t spend our energy trying to study these statistics. It is not impacting our business, and we are happy with what is happening.
Varshit Shah — Veto Capital — Analyst
Sir, one last question.
Operator
Sorry to interrupt. Mr. Shah, may we request that you return to the question queue?
Varshit Shah — Veto Capital — Analyst
Sure. Sure. Sure.
Operator
Thank you. [Operator Instructions] The next question is from the line of Rushabh Shah [Phonetic] from KRChoksey Shares & Securities. Please go ahead.
Unidentified Participant — — Analyst
Am I audible?
Operator
Sir, there is a lot of background disturbance from your line.
Unidentified Participant — — Analyst
Am I audible now?
Operator
Yes, sir. Please proceed.
Unidentified Participant — — Analyst
My question is, why do we call our business asset-light business when we spent more than 5% revenue on our new registrations. And if we include capex, intangible, free cash flow are not as good as seem to be, the growth [Phonetic] where we continue to invest [Technical Issues]
Ramprakash V. Bubna — Chairman and Managing Director
Madam, this question was totally inaudible. There was a lot of disturbance in the background.
Operator
Mr. Shah, can you move to a silent place?
Unidentified Participant — — Analyst
Am I audible now?
Operator
No, sir. There is still disturbance from your line.
Ramprakash V. Bubna — Chairman and Managing Director
Lot of disturbance.
Rishabh Shah — KR Choksey Shares and Securities, — Analyst
Sir, is it fine now?
Operator
No, sir, it’s still the same. We’ll request you to rejoin the question queue. Thank you. The next question is from the line of Somaiya [Phonetic] from Spark Institutional Equities. Please go ahead.
Unidentified Participant — — Analyst
Thanks for the opportunity, sir. Sir, first question is on the end market, both from NAFTA as well as Europe on three fronts. So one, any color on inventory in the system at this point in time? That’s one.
Second, I mean in the recent, say, one year or so year, have you seen material market share shift into smaller players? That’s the second part.
And third, with respect to the price realization or improvement in price, this has been a function of supply chain disruption and a RM price hike getting passed on, that’s how has it been. And how do you see this going forward?
Ramprakash V. Bubna — Chairman and Managing Director
So, you’ll have to repeat Mr. Somaiya once again. What was your first question?
Unidentified Participant — — Analyst
Sir, first question was in terms of inventory in the systems, sir, currently, so how do you see that?
Ramprakash V. Bubna — Chairman and Managing Director
We are very comfortable with the inventory, and we have sufficient inventory to cater to our needs. So, there is no concern at all on the inventory front.
Unidentified Participant — — Analyst
Understood, sir. Second part was on market share shift into smaller players in the last one or one and half years, I mean, how has that been?
Ramprakash V. Bubna — Chairman and Managing Director
No, I don’t think so. The market is not shifting towards smaller place. In fact, the process of registration is becoming more and more difficult and more and more expensive. So, this should also restrict the entry of the smaller players. We do not see any obvious trend for shifting the market to the smaller players.
Unidentified Participant — — Analyst
So in the last one or two years for us, there has been incremental gains on market share, sir, would that be a good understanding?
Ramprakash V. Bubna — Chairman and Managing Director
Yes. There has been an incremental gain in the market share in the last one or two years. As and when we are moving forward, our products are finding better acceptability and our services are being appreciated by the customers.
Unidentified Participant — — Analyst
Understood, sir. The other part was on price realization. Generally, the industry has seen a lot of support from price realization in the last one and half years or so. I mean, is this largely a function of the supply chain disruptions that happened during COVID and also the raw material prices being higher? And if both of these are now away, so do you think the price increase could kind of either flatten or you could even see a decline from here?
Ramprakash V. Bubna — Chairman and Managing Director
See, it is difficult to comment on this, but I think the prices are fairly stable and they’ll continue at this level.
Unidentified Participant — — Analyst
Okay. Got it, sir. One last question from my side.
Operator
Sorry to interrupt, Mr. Somaiya. Sir, may we request that you return to the question queue.
Unidentified Participant — — Analyst
Sure. Sure.
Operator
Thank you. The next question is from the line of Sameer Deshpande from Fairdeal Investments. Please go ahead.
Sameer Deshpande — Fairdeal Investments — Analyst
Hello, Good afternoon, Bubna ji.
Ramprakash V. Bubna — Chairman and Managing Director
Yes, sir.
Sameer Deshpande — Fairdeal Investments — Analyst
Congratulations for the good numbers. And actually, the first six months were quite difficult for us due to the foreign exchange issues, but now it seems that the tide has turned in favor of euro versus USD. And it seems — the current ratio seems to be at around 1.08, 1.09. So, I think we had a foreign exchange income of INR12.4 crores versus the losses. Now if we compare overall our results for the year, normally, the last quarter of the year that is the coming quarter will be the fourth quarter, which is the highest profit-making quarter for the company, historically also.
So now in the nine months, if you exclude the foreign exchange loss, our profits have been quite steady. Despite rise in turnover, there is some compression in gross margins. So now we have reverted to 30.5% in this quarter, our gross margins. So what is the scenario expected for the next quarter? And we have a lot of the inventory pile up, I think INR1,427 crores is the inventory versus INR893 crores. So what is the reason for that and whether we will — the pricing, etc., affects us, the high inventory?
Ramprakash V. Bubna — Chairman and Managing Director
No, the pricing will not affect the higher inventory.
Sameer Deshpande — Fairdeal Investments — Analyst
Okay.
Ramprakash V. Bubna — Chairman and Managing Director
And I forgot your question because the question was very long. Can you repeat the first part of question once again, Mr. Sameer?
Sameer Deshpande — Fairdeal Investments — Analyst
Yes, yes. With the — now the euro currently seems to be in quite better position at around INR89 versus — to a rupee versus the USD of INR81.75 or so. So the ratio is around 1.09 now. We were in trouble when we had the ratio at around 0.97, 0.98 in October — September, October. Now it has reverted. So now we have a foreign exchange income this time versus the losses. Hence, last quarter, Q4 is the best quarter for the company, historically. So, what is the outlook for the Q4 with the present scenario of euro-USD?
Ramprakash V. Bubna — Chairman and Managing Director
I’ll ask Mr. Ashok Vashisht to reply to this question.
Sameer Deshpande — Fairdeal Investments — Analyst
Okay.
Ashok Vashisht — Chief Financial Officer
Yeah. See, as we have said you earlier, we maintain 15% to 20% growth year-on-year. So, you can do your math what it comes for quarter four. And you have rightfully commented that the euro is now again recovering and obviously, this will help the company.
Sameer Deshpande — Fairdeal Investments — Analyst
Yeah. That will help the company
Ashok Vashisht — Chief Financial Officer
In Q4 and then for the whole year.
Ramprakash V. Bubna — Chairman and Managing Director
But I would say, the recovery is not full. I mean, we were dealing where the time when it was $1.2 to EUR1, it was only $1.08, $1.09. But the experts are saying that euro is going to strengthen further and we wait and watch the situation.
Sameer Deshpande — Fairdeal Investments — Analyst
Okay. And the gross margins have diverted to 30.5%, which is a very encouraging thing this quarter. And so do we expect the similar scenario to continue going forward in the Q4 also?
Ramprakash V. Bubna — Chairman and Managing Director
Yes, sir.
Sameer Deshpande — Fairdeal Investments — Analyst
Okay. Quite good. So the guidance of our company of around 15% to 20% growth in terms of sales and profits continues?
Ramprakash V. Bubna — Chairman and Managing Director
Yes, sir.
Sameer Deshpande — Fairdeal Investments — Analyst
Okay. Thank you very much, and all the best.
Ramprakash V. Bubna — Chairman and Managing Director
Thank you.
Operator
Thank you. The next question is from the line of Rohan Gupta from Nuvama. Please go ahead.
Rohan Gupta — Nuvama Wealth Management — Analyst
Bubna ji, hi, sir. Good afternoon.
Ramprakash V. Bubna — Chairman and Managing Director
Good afternoon, Rohan ji.
Rohan Gupta — Nuvama Wealth Management — Analyst
Sir, a couple of questions. First is on this — can you provide the volume and price-led breakup for the current quarter revenue growth, sir?
Ramprakash V. Bubna — Chairman and Managing Director
One minute. You want for the current quarter?
Rohan Gupta — Nuvama Wealth Management — Analyst
Yes, sir.
Ramprakash V. Bubna — Chairman and Managing Director
The volume in Europe was INR3,590 units — crores, LATAM was INR411 crores, NAFTA was INR5,316 crores and Rest of the World was about INR970 crores. Total INR10,283 crores — not crores.
Rohan Gupta — Nuvama Wealth Management — Analyst
In lakhs, sir. Okay. Sir, I wanted more on this overall volume and price-led growth for the quarter, sir?
Ramprakash V. Bubna — Chairman and Managing Director
One minute. You said volume and…?
Rohan Gupta — Nuvama Wealth Management — Analyst
Not the region one, not the region breakup. Just, I mean, revenue growth, which was roughly 18% for the — 16% to 17% for the quarter, how much was price-driven and how much was volume driven?
Ramprakash V. Bubna — Chairman and Managing Director
One second. See, the growth was 6.7% on price and product mix and 9% on volume growth. And FX impact is more or less zero.
Rohan Gupta — Nuvama Wealth Management — Analyst
7% you mentioned is a price-led growth?
Ramprakash V. Bubna — Chairman and Managing Director
Price and product mix.
Rohan Gupta — Nuvama Wealth Management — Analyst
7% is price and product mix. Okay. So 10% was the volume growth?
Ramprakash V. Bubna — Chairman and Managing Director
9%.
Rohan Gupta — Nuvama Wealth Management — Analyst
9% was volume growth, okay.
Ramprakash V. Bubna — Chairman and Managing Director
[Foreign Speech]
Rohan Gupta — Nuvama Wealth Management — Analyst
Right, sir. Right, sir. Thank you. Sir, second question is on this, we moving more towards NAFTA market. I don’t know, sir, how easy would have been for you, because you very quickly moved towards NAFTA market as sensing the pressure in the European market. Quite commendable job by you and your team, sir. Just wanted to understand that how do you see this NAFTA market keeps moving and growth in a NAFTA area? And now when the euro-dollar sanity is coming back, will be back to again to European market because those are the highest margin market and what kind of a margin difference is there between European market and NAFTA market?
Ramprakash V. Bubna — Chairman and Managing Director
European market, the margins are much better. One minute. I’ll give you the figures. See, in quarter three, European gross margin was about 35.5%. NAFTA was around 28%. LATAM was 24%, and Rest of the World, 27%. Overall, 30.5%.
Rohan Gupta — Nuvama Wealth Management — Analyst
Fine, sir. So the gross margin, which you indicated is, which is 30% despite lower share of Europe and you expect that the gross margins are going to be maintained at 30% level even in the next quarter as well. And once we go back once again to the European market, do you see that the overall margin can improve further? What is the [Speech Overlap]
Ramprakash V. Bubna — Chairman and Managing Director
It would to some extent.
Rohan Gupta — Nuvama Wealth Management — Analyst
Okay. Sir, just last question from my side and I’ll come back in queue.
Operator
Sorry to interrupt. Mr. Gupta, may we request that you return to the question queue?
Rohan Gupta — Nuvama Wealth Management — Analyst
Okay. No problem.
Operator
Thank you so much. The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead.
Dhruv Muchhal — HDFC AMC — Analyst
Hello, sir. Thank you so much. Sir, first question is on the belting business, the — sorry, the non-agrochemical business. That seems to be doing very well, both on revenue and margins and seems the margins are also best ever. So if you can, sir, throw some light what’s driving this, how sustainable this is and is there any one-off there?
Ramprakash V. Bubna — Chairman and Managing Director
No, this is sustainable and the growth and our margins were improved, mainly because of the service and quality. Timely delivery of the goods in spite of hassles in the logistics, international freights and shipping space, we were still able to achieve timely delivery of the goods to the customers and better price realization.
Dhruv Muchhal — HDFC AMC — Analyst
Sir, this is primarily what, belting, or this is something more that you’ve started something additional there?
Ramprakash V. Bubna — Chairman and Managing Director
Mainly belting.
Dhruv Muchhal — HDFC AMC — Analyst
And sir, the belts go primarily into what? Is it mining? What are the categories? What is the category that it goes into? And what is [Speech Overlap]
Ramprakash V. Bubna — Chairman and Managing Director
See, the general term is for material handling. This can be in the mining, mainly in the mining, also on the ports, or even heavy industries where the goods have to be transported from one point to the other point.
Dhruv Muchhal — HDFC AMC — Analyst
Okay. Okay. Because here also margins are very strong. And I’m not very sure if there is — this is also a registration-based business like your agrochemical business. So, I’m just trying to understand how sustainable these margins are.
Ramprakash V. Bubna — Chairman and Managing Director
I think you have understood or I should explain? This is not registration based at all. This is purely a service and quality factors, which drive these businesses.
Dhruv Muchhal — HDFC AMC — Analyst
Okay. Okay. Probably, I’ll try to understand this better later. Sir, the second thing was on the margins for the agrochemical business. Now if I remove the FX impact, the margins seems to be a bit lower versus the last year. They have improved versus 1H levels, but still a bit lower. So how do you see this trend? I mean, any signals in terms of the improvement, what can drive the improvement and some color on that please, sir?
Ramprakash V. Bubna — Chairman and Managing Director
Mr. Dhruv, there will be and we look forward to some improvement in this.
Dhruv Muchhal — HDFC AMC — Analyst
Sure. But [Technical Issues]
Ramprakash V. Bubna — Chairman and Managing Director
Hello?
Operator
Sir, the line for the current participant has dropped off. We’ll move on to the next question. That is from the line of Akshat Mehta from Pioneer Investcorp. Please go ahead.
Akshat Mehta — Pioneer Investcorp — Analyst
Hello. Good afternoon, sir, and thank you for the opportunity. Sir, I would like to know that within our agrochemical business, could you provide the break as in what would be the mix between sale of formulations and sale of AIs and the margins for the same?
Ramprakash V. Bubna — Chairman and Managing Director
Listen, the formulations gives us a much better realization and much better margins. In the AIs, there is not so much of value addition, so the margins in the AIs are definitely lesser.
Akshat Mehta — Pioneer Investcorp — Analyst
Margins in AI are better?
Ramprakash V. Bubna — Chairman and Managing Director
Margins in AI are not better if you compare them with formulations.
Akshat Mehta — Pioneer Investcorp — Analyst
Okay. Sir, any number you could provide as in what percentage mix or something like that?
Ashok Vashisht — Chief Financial Officer
See, if you break that, around 97% for the quarter was formulations, 3% AI. And for nine months — and for nine months 93% formulations, 7% AI.
Akshat Mehta — Pioneer Investcorp — Analyst
7% AI. Okay. Thank you, sir.
Ashok Vashisht — Chief Financial Officer
Yeah.
Operator
Thank you. The next question is from the line of Sachin Kasera from Svan Investments. Please go ahead.
Sachin Kasera — Svan Investment Managers — Analyst
Yeah. Good afternoon, sir, and congrats for a good set of numbers. Sir, on slide number 18 in the presentation, you have given some key initiatives the company has taken basically to offset the impact of this weak euro. So if you could — which is basically higher focus on NAFTA, sourcing in euro currency, optimal hedging and seeking price increases. If you could give us some more insights or little more granular details about all these four initiatives that will help us appreciate the numbers much better.
Ramprakash V. Bubna — Chairman and Managing Director
Just one minute. You said slide number 18. Okay. The measures we have mentioned here are increased sales focus on the NAFTA region. I think this doesn’t require any further clarification.
Sachin Kasera — Svan Investment Managers — Analyst
Yes.
Ramprakash V. Bubna — Chairman and Managing Director
Spending more time and pushing the customers, then optimal hedging of currencies. See, we do not like to speculate or take positions in the case of currencies also. And now if we do a little common sense based hedging, it is helping us and giving us good rewards.
Sachin Kasera — Svan Investment Managers — Analyst
So, sir, can you tell us, say, before you took these measures, what percentage of your exposure you were hedging and how much increase now you’ve taken in? For example, if you are hedging [Phonetic] 0% or 10%, 20% only, are you now like hedging 50%, 60% of your exposure, if you could give us some numbers that would be helpful?
Ramprakash V. Bubna — Chairman and Managing Director
The numbers are difficult to give. But I want to tell you that when the euro was going down, we were not seeing an opportunity to hedge. If it was $1.05, we were thinking that when it starts going up, we will sell, but on the contrary, it is to go to $1.04 or $1.03. So the hedging was much lesser. And now when it is going up, we feel more motivated and encouraged to sell it forward and this is the strategy that we are applying now. It is also dependent upon the trend of the exchange rates, not just our desire.
Sachin Kasera — Svan Investment Managers — Analyst
And sir, the sourcing in euro currency, so before this euro crisis, what type of sourcing we’re able to do in euro? And currently, what percentage of our sourcing would be happening in euro?
Ramprakash V. Bubna — Chairman and Managing Director
I would say almost zero or very negligible in euros. But when euro was going down, we would try to source it in euros, but the suppliers were also very conservative. If the rate is EUR0.96 to $1, they will try to give a price based on EUR0.94, which was not very comfortable for us. So the sourcing in euro was very negligible, and we are happy that we did not source much in the euros. Mainly the sourcing is in dollars.
Sachin Kasera — Svan Investment Managers — Analyst
Sure. And sir, just one last question.
Operator
Sorry to interrupt, Mr. Kasera. May we request that you return to the question queue? Thank you. The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead.
Dhruv Muchhal — HDFC AMC — Analyst
Yeah, sir. Sorry, I got disconnected. Sir, my question was that if I adjust for the FX gains this quarter and also the previous year quarter, the margins for the agri business were still a bit low. The adjusted is 17% last year, which is currently 10% this year. So, sir, what is driving this impact? Is it just the euro and USD issue, where you are still not been able to pass on the full price — the cost impact? Or is there something else, and any trend on the improvement, sir?
Ramprakash V. Bubna — Chairman and Managing Director
Mr. Dhruv, there is no other trend. Mainly it is the exchange rates.
Ashok Vashisht — Chief Financial Officer
Only and only that, Dhruv.
Dhruv Muchhal — HDFC AMC — Analyst
Okay. So — which is getting reflected in your gross margins. The exchange rates which you reported separately, that’s separate. I mean that’s [Speech Overlap]
Ashok Vashisht — Chief Financial Officer
That’s on the quadrant position gained off [Phonetic], but it goes through the gross margin as well.
Dhruv Muchhal — HDFC AMC — Analyst
Got it. Perfect. Sir, the second question was now, we see some of your peers, your global large peers are talking about high system inventory across the globe, even in North America and LATAM America, also the agrochemicals. And also — we also see the agrochemical prices, the technical prices out of China are also declining.
Ramprakash V. Bubna — Chairman and Managing Director
Mr. Dhruv, can I interrupt? Can you speak little louder?
Dhruv Muchhal — HDFC AMC — Analyst
Yeah, sir. I think this should be better.
Ramprakash V. Bubna — Chairman and Managing Director
Now it’s better.
Dhruv Muchhal — HDFC AMC — Analyst
Yeah. Sir, I was saying that some of your global peers are talking about high system inventory across some of the major regions. And also, the second part was that the agrochemical prices out of China — the technical prices out of China have started to decline. We see most of the molecules, the prices are declining. Sir, in that context, do you still believe that 15%, 20% growth guidance can be achieved for the next year? Or do you think there could be a downward revision?
Ramprakash V. Bubna — Chairman and Managing Director
And what was the last part of your question?
Dhruv Muchhal — HDFC AMC — Analyst
Sir, the agrochemical prices, the technical prices from China on the glyphosate has been declined and all. Many of generic molecules have declined.
Ramprakash V. Bubna — Chairman and Managing Director
Yes, yes.
Dhruv Muchhal — HDFC AMC — Analyst
So as you pass that on to your customers, I’m not sure, I mean, fully pass on will happen, not happen. So, just wanting to understand, will it have any implication on your growth guidance and the margin guidance or that should be achieved?
Ramprakash V. Bubna — Chairman and Managing Director
Not significant. Not significant. And even for the passing on, we have to first dispose off the inventories that we have. So it will be a very slow process.
Dhruv Muchhal — HDFC AMC — Analyst
Okay. Okay. So, perfect, sir. Great. All the best, and thank you, sir.
Ramprakash V. Bubna — Chairman and Managing Director
Thank you.
Operator
Thank you. The next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead.
Rohit Nagraj — Centrum Broking Limited — Analyst
Yeah. Thanks for the opportunity. Sir, as I understand, LATAM is one of the largest markets globally and our market share in terms of the geographies are relatively more. So how are we going to tackle, or how are we focusing on this market? And is there any room for generic products that we are marketing across other geographies in the LATAM market? And what is the registration pipeline that we’re looking at? Thank you.
Ramprakash V. Bubna — Chairman and Managing Director
Mr. Rohit, I think this is news to us that LATAM is the largest market. LATAM is not the largest market, sir. In my opinion, LATAM comes at the second or third level. And the LATAM market is driven mainly by the economies of each individual country and the exchange rates of their local currency versus dollars. All the transactions that happen with these countries are mainly in U.S. dollars. And if the currencies are depreciating, then the players there feel very much hurt by the drop in the currency and they have to send — they have to, I mean, check out more local currency to meet the same demand for dollars. So because of this factor, the LATAM market is still declining and going down.
Rohit Nagraj — Centrum Broking Limited — Analyst
Sure. Sure. Thank you. Apologies, maybe my assumption was wrong. Sir, second question in terms of the operating — opex, which has come down and we have started getting those benefits of lower transportation costs or freight costs. So do we expect incremental benefit during — I mean right from Q4? Because last quarter also it was probably transitory in nature where the freight cost and other costs were declining and now probably they have stabilized. So, we will see a little more impact — favorable impact from the opex point of view?
Ramprakash V. Bubna — Chairman and Managing Director
Yes. Marginally, yes.
Rohit Nagraj — Centrum Broking Limited — Analyst
Sure. That’s all from my side, and best of luck, sir. Thank you.
Operator
Thank you. The next question is from the line of Bhavya Gandhi from Dalal & Broacha Stock Broking. Please go ahead.
Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst
Yeah. Can you hear me?
Operator
Yes, sir. Please proceed.
Ramprakash V. Bubna — Chairman and Managing Director
Yes, please.
Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst
Yeah. Sir, I just wanted to understand on the gross margin front because since now euro has already appreciated like one year — two quarters back, we were at 1.1 and now again, we are at 1.09. But gross margins on Y-o-Y seems to be on lower side. So is it high cost inventory? Or what is it if we remove the forex impact?
Ramprakash V. Bubna — Chairman and Managing Director
Mr. Gandhi, please understand the currency rate does not have an instant impact on the business. You understand?
Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst
Okay. Right.
Ramprakash V. Bubna — Chairman and Managing Director
The benefit will come in the forward — going forward when we will start getting better realizations.
Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst
Okay. And as of now, we don’t have any forward contracts or hedging of a euro currency, right?
Ramprakash V. Bubna — Chairman and Managing Director
We do have forward contracts. We do have forward contracts for 1.04, 1.05, 1.06. You understand? And we are very happy at those rates when we have seen the earlier rates of 0.99 and 0.96. Today, they look short [Phonetic], but then we have to live with them.
Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst
Okay. So how much would be our forward contracts in terms of NAFTA — in terms of Europe sales? Is it possible to quantify?
Ramprakash V. Bubna — Chairman and Managing Director
No, difficult to quantify, but overall, I can tell you that — and overall, it’s getting benefitted, I mean the company is getting benefitted.
Bhavya Gandhi — Dalal & Broacha Stock Broking — Analyst
Okay. Fair enough, sir. Thank you so much. Thank you so much. Yeah, that’s it from my end.
Operator
Thank you. The next question is from the line of Rushabh Shah from KRChoksey Shares & Securities. Please go ahead.
Unidentified Participant — — Analyst
Am I audible now?
Operator
Yes, sir. Please go ahead.
Ramprakash V. Bubna — Chairman and Managing Director
Yes.
Unidentified Participant — — Analyst
Sir, my question is why do we call our business asset-light business when we spend more than 5% revenue on new registration? And if we include the capex on intangible, the free cash flow is not [Speech Overlap]
Ramprakash V. Bubna — Chairman and Managing Director
There is some disturbance in the background. So, you have to speak little slowly and more loudly.
Unidentified Participant — — Analyst
Okay. So why do we call our business an asset-light business when we spend more than 5% revenue on new registration? If we include the capex on intangibles, the free cash flow are not as good as seem to be and for growth, we need to invest very heavily in the business.
Ramprakash V. Bubna — Chairman and Managing Director
Mr. Rushabh, you can call it anyway. What we are saying is that we are not investing into tangible assets and the business is very much — we are nimble footed. So, you can use any other technology. Nobody is stopping you.
Unidentified Participant — — Analyst
But sir, because if we look at registration fee [Speech Overlap]
Ramprakash V. Bubna — Chairman and Managing Director
As far as the asset light comes, when we spend on the tangible assets or fixed assets, which we are not doing, then registrations are considered to be an intellectual property and nobody calls them tangible.
Unidentified Participant — — Analyst
Okay, sir. If you look at registrations, we have from 2019, when you were at 2,300, now you are nearly at 2,700 and pipeline has increased from 1,000 to 1,100.
Ramprakash V. Bubna — Chairman and Managing Director
Yes.
Unidentified Participant — — Analyst
And despite our spending — despite us increasing our spending on registration materially on INR200 crores to INR400 crores, what should we understand from this data?
Ramprakash V. Bubna — Chairman and Managing Director
You understand from the data as it is given, and you can give at any terms to the business. We have no objections. People call it as asset light and we agree with them.
Unidentified Participant — — Analyst
My last question is, if for two years to three years, the profitability is less and you spend less on the registrations, can it materially impact our business growth and profitability in the future?
Ramprakash V. Bubna — Chairman and Managing Director
In the future, yes, it will, because we have to be in line with what is happening with the global trend. And more and more new products are coming into this business, We have to stay with them. Otherwise, we will lose — we’ll lose the business market share in future.
Unidentified Participant — — Analyst
Okay, sir. Thank you so much.
Ramprakash V. Bubna — Chairman and Managing Director
Thank you.
Operator
Thank you. The next question is from the line of Darshita from Antique Stock Broking. Please go ahead.
Darshita Shah — Antique Stock Broking Limited — Analyst
Hello? Hi. Am I audible?
Ramprakash V. Bubna — Chairman and Managing Director
Yes, please.
Darshita Shah — Antique Stock Broking Limited — Analyst
Hello, Bubna ji. Thank you for the opportunity. My first question was regarding the price hikes. Have we taken any price hikes on sequential basis?
Ramprakash V. Bubna — Chairman and Managing Director
What is it? I’m not able to catch that word, Typhoid [Phonetic]. It looks like Typhoid.
Darshita Shah — Antique Stock Broking Limited — Analyst
Price hike. Price hike. Have we taken any price increase on sequential basis?
Ramprakash V. Bubna — Chairman and Managing Director
Madam, I think I’ve explained in the past, we cannot decide the price on our own. The price is set by the multinational companies who are having a major share of the market. The innovators are still controlling more than 75% of the market share, and we try to tag our price a little behind them at a maybe 5% to 10% discount.
Darshita Shah — Antique Stock Broking Limited — Analyst
Right, right.
Ramprakash V. Bubna — Chairman and Managing Director
[Speech Overlap] we can, but this is a trend.
Darshita Shah — Antique Stock Broking Limited — Analyst
No, no. So, my question was, as compared to second quarter and the third quarter, have we taken price increase? That is what I was — so why I am trying to understand this is that after China has resumed operations, we have seen that the raw material prices have started to come off. So what I’m trying to understand is that this benefit that we have from pricing, for how long will it continue, be it for MNCs or for us, for how long will it continue?
Ramprakash V. Bubna — Chairman and Managing Director
Madam, we have not check to answer your question. We have not taken any conscious price increase. We are maintaining the same prices and if there is a small drop in the sourcing prices that is a benefit. If it is a better exchange rate, that’s a benefit to us.
Darshita Shah — Antique Stock Broking Limited — Analyst
Okay. Okay. And looking at the current situation from China, I think you would be the best person to answer that. That looking at the current situation in China, given that the prices are coming off, in any time in FY ’24’, like is there any kind of guidance that we get as to when will the benefit of price increase start flowing into — like, will stop flowing into the top line growth as in the 7% number that we have seen in third quarter, will it start reducing as we go forward?
Ramprakash V. Bubna — Chairman and Managing Director
Have you understood the question? Madam, I’ll ask Mr. Ashok Vashisht to answer this question.
Ashok Vashisht — Chief Financial Officer
See, 7% is not only price hike, it’s a product mix and price. So it’s major — I would say it’s the product mix, which is leading to 7%.
Darshita Shah — Antique Stock Broking Limited — Analyst
Okay. All right.
Ashok Vashisht — Chief Financial Officer
Yeah. Yeah.
Darshita Shah — Antique Stock Broking Limited — Analyst
My second question is regarding the tax rate expectations for FY ’23. Where do we see the tax rate being for the year?
Ashok Vashisht — Chief Financial Officer
25% to 27%, around that, because we are into new tax regime now, between 25% to 27%.
Darshita Shah — Antique Stock Broking Limited — Analyst
All right. Okay. Sure. Thank you. And the last question was regarding the registration and the pipeline breakup, if you could provide the region-wise registration and pipeline breakup?
Ramprakash V. Bubna — Chairman and Managing Director
I’ll give you, first, the registrations. In Europe 1,490, LATAM 750, NAFTA 290 and Rest of the World 243. Total 2,776. What was the next question?
Darshita Shah — Antique Stock Broking Limited — Analyst
The pipeline breakup.
Ramprakash V. Bubna — Chairman and Managing Director
Pipeline. Europe 700, LATAM 175, NAFTA 150, and Rest of the World 105.
Darshita Shah — Antique Stock Broking Limited — Analyst
Okay. Thank you so much for the opportunity. Thank you.
Ramprakash V. Bubna — Chairman and Managing Director
Thank you.
Operator
Thank you. The next question is from the line of Chintan from Prudent Corporate. Please go ahead.
Chintan Mehta — Prudent Corporate Advisory Services — Analyst
Thanks for the opportunity, sir. Sir, I have a question that how we build our inventory, for example, on what basis, like what demand is in which region or any statistical data we done?
Ramprakash V. Bubna — Chairman and Managing Director
You see we have to take a judgment after talking to our customers and we are in regular touch with our customers. They give us a feedback that this product is having better demand and this is the situation. We design our strategy, mainly based upon the feedback that we received from our customers.
Chintan Mehta — Prudent Corporate Advisory Services — Analyst
Okay.
Ashok Vashisht — Chief Financial Officer
So, we take indicated forecasts basically, you can say. That’s what he’s meaning.
Chintan Mehta — Prudent Corporate Advisory Services — Analyst
Sorry, sir. If you can repeat.
Ashok Vashisht — Chief Financial Officer
We make indicated forecasts, basis those feedback from our various customers.
Chintan Mehta — Prudent Corporate Advisory Services — Analyst
Okay, okay. And sir, can’t we make a hedging strategy, a disciplined process for the future? It looks like we are doing — hedging on a human bias.
Ashok Vashisht — Chief Financial Officer
Hedging on?
Chintan Mehta — Prudent Corporate Advisory Services — Analyst
I mean, a standard process for our hedging. I mean we are doing hedging just on human bias currently, it looks like. Or we have any risk team who are running something?
Ashok Vashisht — Chief Financial Officer
No. We are evaluating this and we may take some calls on that shortly. We are evaluating, and we have already started taking few positions, which is already implemented.
Chintan Mehta — Prudent Corporate Advisory Services — Analyst
Okay, okay. And sir, there are so much entry barriers in terms of registration. So, can’t we slowly increase our receivable days or I mean, improve our life cycle of the business?
Ashok Vashisht — Chief Financial Officer
So, we can. But these strategies works like that and in fact, we are one of the best-performing companies in terms of working capital. So even innovators give credit period of, say, for a year, but we are still — we try to maintain as less as possible. But yes, there is a scope and we are very mindful of that and we’re improving on the action. And the numbers which basically which you are seeing for quarter three, especially in inventory, as you guys are aware, quarter four for the company is the biggest quarter. So barely because of that, the inventory is on higher side. And towards the end of this year, it will be significantly lower.
Chintan Mehta — Prudent Corporate Advisory Services — Analyst
Okay. And sir, is there any number against our current receivables, how much we have hedged?
Ashok Vashisht — Chief Financial Officer
Repeat your question.
Chintan Mehta — Prudent Corporate Advisory Services — Analyst
Sir, against our current receivable, how much percentage we have hedged?
Ashok Vashisht — Chief Financial Officer
So, we are actually — generally, the current trend is going on, there is a natural hedge, but we do not actually go by very specifics. We take a general hedge and don’t go customer specifics.
Chintan Mehta — Prudent Corporate Advisory Services — Analyst
Okay. Okay. Thank you so much, sir.
Operator
Thank you. The next question is from the line of Archit Joshi from B&K Securities. Please go ahead.
Archit Joshi — Batlivala & Karani Securities — Analyst
Good afternoon, sir, and thanks for the opportunity. I might be asking this question again. I missed the point that you made earlier about the sourcing strategy that we have had. We’ve mentioned in the presentation that we have moved on to buying in euro currency and you earlier mentioned that we were not doing it earlier. So just one question here. How much percentage of our COGS will now be denominated in euro currency? Is there something more that is left for us to completely start buying into euro? And will this be — yeah, yeah, sir.
Ashok Vashisht — Chief Financial Officer
Yeah. Archit, when we implemented this interim strategy, buying in euro, this was essentially because of the weakening of euro and we have reached in the [indecipherable] in the first half of the year. So around 8% to 10%. But now with the euro coming back towards normal, still it has to improve a lot. So, we have not found looking in euros. So, majorly, again, I will say, mainly the buying sourcing is in USD only. So, we had done that in the interim period. And if — again, if some situation similar to that which happened till end of September happens, so we may again start that. But as of now, we are doing — have started doing all the sourcing in USD only.
Archit Joshi — Batlivala & Karani Securities — Analyst
Understood, sir. Sir, how easy or difficult it is to have these ad-hoc decisions whether or not to buy in euro or in USD? Is it easy to switch between [Speech Overlap]
Ashok Vashisht — Chief Financial Officer
See, it can be implemented instantly. I mean in a month’s time because we are — when we are negotiating prices, we do not have long-term contracts. We have short-term contracts with our sourcing partners. So at that time, we can implement if need arises. So it can be implemented in a short period.
Archit Joshi — Batlivala & Karani Securities — Analyst
Understood, sir. Understood. That clarifies a lot. Thank you. Have a good day. Thanks.
Operator
Thank you. The next question is from the line of Yogesh Tiwari from Arihant Capital. Please go ahead.
Yogesh Tiwari — Arihant Capital Markets Ltd — Analyst
Good afternoon, sir. Sir, my first question is if you can share the gross margins for your herbicide, fungicide and insecticide portfolio for Q3?
Ramprakash V. Bubna — Chairman and Managing Director
Sir, we do not have that kind of analysis and we don’t go into those details. We look at the overall picture.
Yogesh Tiwari — Arihant Capital Markets Ltd — Analyst
Sure, sir. But directionally, can we say that herbicide has more margins compared to insecticides and fungicides? Any direction view?
Ramprakash V. Bubna — Chairman and Managing Director
No, it’s difficult to comment. It depends from individual product, product to product.
Yogesh Tiwari — Arihant Capital Markets Ltd — Analyst
Sure sir. And sir, the second question is, if you can share some details on the demand and pricing environment of Metribuzin in the U.S. market?
Ramprakash V. Bubna — Chairman and Managing Director
No, sir. We cannot comment on individual product, and we do not have that information.
Yogesh Tiwari — Arihant Capital Markets Ltd — Analyst
Sure, sir. Thank you from my side. Thank you, sir.
Operator
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Bubna for his closing comments.
Ramprakash V. Bubna — Chairman and Managing Director
I want to thank all of our investors who have taken so much of time to attend this call, and it has been a good experience. We also learn from the questions. I want to thank, everyone, for joining us. And I hope we have been able to answer all your queries. We look forward to have such interactions in future as well. We hope to meet your expectations in the future. In case you require any further details, you may contact us or our industrial — Investor Relations firm, SGA, Mr. Deven Dhruva. Thank you so much once again.
Operator
[Operator Closing Remarks]