'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.

Outlines

00:00

🌱 Agrochemical Industry Outlook and Challenges

In this paragraph, DK Jen, CEO of India Pesticides, discusses the challenges faced by the agrochemical industry in the previous year, including geopolitical issues, overstocking by multinational companies, and adverse weather conditions. Despite a difficult year, Jen expresses optimism for the current year, anticipating an improvement in one to two quarters due to better geopolitical situations and normal monsoon predictions. He also addresses the company's financial performance, with a significant drop in EBITDA margins and net profit, and outlines expectations for a rebound to 17-20% margins in the upcoming quarters, driven by improved domestic demand and export orders.

05:00

📈 Capacity Utilization and Future Expansion Plans

The second paragraph delves into the company's production capacity and future expansion plans. DK Jen explains that the current utilization rate is around 50% but is expected to increase to 70-75% in the coming year. The company is also adding new products to augment capacity and realign plant capacities for product mix. Capital expenditure plans are detailed, with 110 crores budgeted for the current financial year, including investments in an intermediate complex and subsidiary Shalby Specialities. Jen also discusses the company's strategy for backward integration to reduce dependency on Chinese imports, particularly in the production of fungicides, and provides a revenue outlook for the financial year, expecting a 20-25% increase with an aim to achieve 17-20% operating margins.

Keywords

💡Agrochemical industry

The agrochemical industry refers to the sector that produces and distributes chemical products used in agriculture, such as fertilizers and pesticides. In the video, it is mentioned that the industry faced challenges last year, indicating the video's focus on the sector's performance and outlook.

💡Geographical situations

Geographical situations pertain to political and economic contexts that affect global trade and business operations. The script mentions that geopolitical situations were a challenge for the agrochemical industry, suggesting trade disruptions or policy impacts on the sector.

💡Overstocking

Overstocking refers to having an excess of inventory or stock, which can lead to financial strain and reduced profitability. The script indicates that multinational companies (MNCs) overstocked, which was a contributing factor to the industry's challenges.

💡Monsoon

Monsoon is a seasonal wind pattern that brings significant rainfall to certain regions, affecting agricultural productivity. The script suggests that normal monsoon predictions are a positive sign for the agrochemical industry, as it implies favorable conditions for farming.

💡Demand

Demand refers to the quantity of a product or service that consumers are willing and able to purchase. The script discusses the anticipation of increased demand for agrochemicals, which is central to the industry's potential growth.

💡Margins

Margins, specifically gross and net profit margins, are financial metrics that measure profitability. The script notes a significant drop in Abida's margins, indicating a decrease in profitability that is a key concern for the company.

💡Export orders

Export orders are requests for goods to be shipped to another country. The script mentions an improvement in export orders, which is a positive development for the company's international business.

💡Product mix

Product mix refers to the variety of products offered by a company. The script indicates a change in product mix to meet domestic demand, suggesting a strategic move to cater to market preferences.

💡Capacity utilization

Capacity utilization is the extent to which a company is using its production capacity. The script discusses plans to increase capacity utilization, which implies a more efficient use of resources and potential for higher output.

💡Capital expenditure

Capital expenditure, or capex, is the funds a company spends to acquire or improve its fixed assets. The script mentions a significant capex planned for expansion and integration, which is crucial for the company's growth strategy.

💡Backward integration

Backward integration is a strategy where a company begins to produce its own raw materials or components. The script discusses the company's efforts to reduce dependency on imports by producing intermediates, which is a form of backward integration.

Highlights

CEO of India Pesticides, DK Jen, discusses the potential in demand going forward despite a challenging year for the agrochemical industry.

Jen predicts positive traction in the industry within one or two quarters due to improving geopolitical situations and better weather conditions.

Authorities predict normal monsoon, leading to Jen's expectation of good and growing demand in India.

India Pesticides' net profit and EBITDA margins were negatively impacted by the challenging year, dropping significantly.

Jen expects EBITDA margins to improve to 17-20% in the coming quarters, up from the current 3%.

Good export orders and a change in product mix are expected to boost volumes for India Pesticides.

Jen sees a 50-50 split between domestic and export market volumes for Q1 and the next financial year.

India Pesticides has a total production capacity of 24,200 metric tons per year, with utilization expected to increase to 70-75% in the coming year.

The company plans to add new products and realign plant capacities for product mix to augment capacity.

A capital expenditure of 110 crores is budgeted, including adding an intermediate complex and investing in subsidiary Shalby Specialities.

Backward integration efforts aim to reduce dependency on Chinese imports, with recent integration for a major herbicide and fungicide intermediate.

Jen provides a revenue outlook for FY25, expecting an increase of 20-25% this year and similar growth in the coming years.

Operating margins are expected to comfortably achieve 17-20%, though exact profits are difficult to predict at this stage.

The interview concludes with an optimistic view on the future of India Pesticides, considering normal or above-normal monsoon and increasing demand.

Transcripts

we have DK Jen chief executive officer

at India pesticides with us Mr Jen good

morning thank you so much for joining in

a view on potential in demand going

forward uh well I we've been looking at

uh you know the the year gone by it it's

not been the most encouraging at least

as far as Q4 is concerned but do you

think that we can start seeing positive

traction going in yes sir last year it

has been a very challenging year for all

the agrochemical industry but this year

now the things are getting uh better and

we feel that in one or two quarters it

should improve a

lot last year it has been really a very

challenging year in terms of

geopolitical situations overstocking by

the mnc's

and slightly better bad weather

conditions in many parts of the world

and also in

India but now the authorities have

predicted normal Monsoon so we feel that

Indian demand will be reasonably good

and it will grow and similarly the

geopolitical situations are getting

slightly better and we are getting

better orders now for exports

also Mr JN just you know you you talked

about um how it has been a challenging

year and that's clearly showing in your

numbers your Abida margins I would say

crashed in a sense from 21% to 3% year

on year net profit was also hit let me

just talk about where you see margins

improving too you're saying demand will

come in because monsoons um are seeming

fine in India maybe more focus on Rural

India from the new government Etc where

do you see Aida margins going back to

yeah Aid Marin Madam it is very

difficult to tell exactly where we are

going ahead but it will be better than

what we are having present we expect at

least 17 to 20% of hi margin uh in the

coming quarters okay so you're going to

jump from 3% back to 17 to 20% and where

where will that boost come from because

your volumes which you were expecting to

improve in Q4 also did not quite improve

so where what is the reason that you're

expecting those volumes to come back as

well volumes we are getting good export

orders now last year one of two of our

major volume products uh the demand was

very very less but this year we are

getting good demand and we have got good

orders on hand and uh for these products

and apart from this uh we have slightly

changed our product mix and in this we

are getting good domestic demand for

some of our products so the volume would

come from domestic as well as from

exports the mix You're Expecting split

between uh domestic and exports in your

volume mix for q1 and for the next

financial year yeah it will be Madam

about 50% export and 50% domestic Market

it has been like that only last year it

has slightly changed the revenue because

export Market was down very much but

this year again we it is going to pick

up and we would be reaching around

50% right uh Mr Jen can you tell us a

little bit more about your current

install capacity the utilization levels

uh so from our understanding is that you

budgeted about capital expenditure of

about 110 crores in F525 uh can you tell

us how this actually pans out for your

overall uh you know capacity as well

yeah the our capacity total production

capacity is 24,200 metric tons per year

and our capacity utilization this year

has been by quick low about 50% but the

coming year uh it will increase to about

70 to

75% and we have also adding new products

so that will augment the capacity by

realigning our plant capacities uh for

product mix so so where is this 110 cres

of capital expenditure go towards what

areas uh sir in this we are adding one

intermediate complex in our existing

plant at sandila and 60 crores we are

spending in our subsidiary 100%

subsidiary by name shalby specialities

which is coming up at hamirpur so we

will be doing a capex this year of 60

crores and we have planned a capex of

about 400 crores in the coming 3 to four

years at sandila at hamur

side and so you've also commissioned an

intermediate plan towards backward

integration now this backward

integration is towards fungicides

primarily am I correct so what are your

plans in this particular area yeah no it

has been our Endeavor to reduce our

dependency on Chinese Imports so we

normally do all backward integration of

our products and it is a step in that

direction last year also we did for one

of the major products for a major

herbicide we did the backward

integration and we started producing the

intermediate in India and this year we

have added one more molecule in the

direction in the for funi side and this

intermediate normally has been imported

in India so we have started making this

intermediate now in our

plant all right will reduce dependency

on China right so and final question

from my end sir can you give us an

Outlook uh based on your revenues for

the FI for fi25 going in this is of

course assuming that the monsoons are

normal or slightly above normal uh then

demand picks up what's the way forward

as far as your revenues are concerned

and your operating

margins uh revenues uh s we are

expecting revenues of increase of about

20 25% this year and we expect to have

the similar range in the coming years

also and uh profit of course as I told

is difficult to tell exactly as on today

but we feel that 17 to 20% margins we

should be able to achieve

comfortably okay all right Mr Jen we

leave it at that thank you so much for

joining us and talking to us here on

NDTV profit

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