'We Expect At least 17-20% Of EBDITA Margin': India Pesticides CEO On The Next Quarter Results

Summary

DK Jen, CEO of India Pesticides, discusses the challenges faced by the agrochemical industry in the previous year due to geopolitical issues, overstocking, and unfavorable weather. However, he is optimistic about the future, anticipating an improvement in demand with better monsoon predictions and a balanced product mix for domestic and export markets. The company aims to enhance capacity utilization and reduce dependency on Chinese imports through backward integration. Revenues are expected to grow by 20-25% with an operating margin target of 17-20%.

Takeaways

• 🌱 The agrochemical industry faced a challenging year due to geopolitical situations, overstocking by multinational companies, and adverse weather conditions.
• ☀️ Authorities predict a normal monsoon this year, which is expected to improve the demand for agrochemicals, particularly in India.
• 📈 DK Jen, CEO of India Pesticides, anticipates a significant improvement in demand within the next one or two quarters.
• 📊 The company's net profit and EBITDA margins were negatively impacted, dropping from 21% to 3% year-on-year.
• 💰 Mr. Jen expects EBITDA margins to rebound to 17-20% in the coming quarters, driven by improved demand and better product mix.
• 🌐 There has been a shift in the company's product mix and an increase in domestic demand for certain products, along with improved export orders.
• 🔄 The company aims to achieve a 50-50 split between domestic and export market volumes in Q1 and the next financial year.
• 🏭 DK Jen's total production capacity is 24,200 metric tons per year, with utilization expected to rise from 50% to 70-75% in the coming year.
• 📊 A capital expenditure of 110 crores is planned for FY25, including investments in a new intermediate complex and subsidiary Shalby Specialities.
• 🔄 Backward integration efforts are underway to reduce dependency on Chinese imports, with the company now producing previously imported intermediates domestically.
• 💹 Revenues are expected to increase by 20-25% this year, with a similar outlook for the coming years, and the company is confident about achieving 17-20% operating margins.

Q & A

What was the general sentiment of the agrochemical industry in the past year according to DK Jen?

DK Jen described the past year as very challenging for the agrochemical industry due to geopolitical situations, overstocking by multinational companies, and adverse weather conditions.

What factors does DK Jen believe will contribute to the improvement of the industry in the coming year?

DK Jen expects improvements due to better geopolitical situations, normal monsoon predictions for India, and an increase in demand for their products both domestically and through exports.

How has the challenging year affected the company's financial performance, specifically the Abida margins?

The Abida margins have significantly dropped from 21% to 3% year-on-year due to the challenging year, impacting the net profit as well.

What is DK Jen's forecast for the Abida margins in the upcoming quarters?

DK Jen anticipates a recovery in Abida margins, expecting them to reach at least 17 to 20% in the coming quarters.

What strategies has the company adopted to improve its product demand and volumes?

The company has received good export orders and has slightly changed its product mix to cater to the domestic demand for some of their products.

What is the expected split between domestic and export volumes for the next financial year?

DK Jen expects a 50-50 split between domestic and export volumes for the next financial year.

What is the total production capacity of the company and what is the expected utilization level for the coming year?

The total production capacity is 24,200 metric tons per year, with an expected utilization increase to about 70 to 75% in the coming year.

How will the company's capital expenditure of 110 crores be allocated?

60 crores will be spent on a subsidiary named Shalby Specialities, and the rest will be allocated for adding an intermediate complex in the existing plant at Sandila.

What is the purpose of the backward integration initiative, and how does it relate to the company's dependency on Chinese imports?

The backward integration initiative aims to reduce dependency on Chinese imports by producing intermediates in India, which were previously imported.

What is the company's revenue outlook for the financial year 2025, assuming normal or above-normal monsoons?

The company expects a revenue increase of about 20-25% and aims to achieve operating margins of 17 to 20% comfortably.

What are the company's plans for capital expenditure in the next 3 to 4 years?

The company has planned a capital expenditure of about 400 crores at Sandila at Hamirpur in the coming 3 to 4 years.