BASF India Ltd

Hi good afternoon I hope I am audible. yes very well please go ahead thank you, so much thanks for the opportunity so first question is on the agrochemical, we've seen that the last couple of years Exponus® has been doing extremely well for us and we launched Effico® during the season how has been the broader performance of both these product during the first half and just to give a get a perspective on the overall industry what is your thought in terms of the overall industry dynamics currently and I mean in terms of the inventories in the system and our inventories in the system thank

Thank You Rohit for that question. I hope that I got you right it's about Exponus so the agricultural market and inventories there as well so first I'm happy to share that our market share growth in the insecticide segment which as you know is a largest segment when it comes to crop protection round 50% of the market over the last few years since the launch of Exponus has been very solid. We've been able to gain market share from almost close to zero to today almost close to 5% yeah with Exponus but then also as you know we have also launched Efficon and actually two more insecticides there Al together four insecticide launches in the last two to three years has enabled us to make inroads in the most important segment most important Market um insecticides what we see this season and I've mentioned it a little bit on the macro slide we have seen that especially in central India Western India Southern India there has been excessive rains and extended Monsoon whereas in the North and East it has been rather dry yeah so it's been sort of a mixed picture this year in the country and that has also led to less insecticide applications yeah especially in the central western and southern part of India so that is that is felt uh when you look at the insecticide market and obviously we have felt it as well yeah having said that though these additional rains have also led to a situation where most of the reservoirs we have more than 150 reservoirs in India are quite well filled yeah above average so when it comes to uh the rabie season I think reservoir levels are good moisture on the ground should be good especially in those areas that received quite some rains yeah so it's sort of yes there has been an impact on the on the insecticide market but you know although we don't make forward-looking statements uh you know. I'm cautiously optimistic that going into the rabie season now monsoon and reservoir levels are quite positive yeah so that's a little bit on the overall context and our specific performance when it comes to insecticide development, difficult to mention the channel inventory, I mean I can't speak for our competitors what I can tell you is that obviously we always have a very strong eye on this situation when it comes to working capital as well and we feel confident that with the portfolio that we have with the current rabbie expectations that we see um we'll continue to have a strong development also moving forward.

Yeah, thank you for that question Rohit, I mean the chinese situation see, it's difficult to make predictions here as well what we have observed is there hasn't been really a sustained significant recovery when it comes to consumption in China right, I mean people are saving more I think the government in China is trying to support and stimulate the market remains to be seen if this stimulation is going to be a lasting and sustained effect in the market but we have not really seen a substantial recovery in China which then means that the over capacities that have been built and continue to be built in China, those capacities somehow and the volumes that are produced with those capacities have to end somewhere right so this is why it's very difficult to see that the pricing pressure especially in the chemicals segment, I think we have seen the material segment as also Naren explained I mean the material segment has done very well both performance materials and monomers but the chemical segment is still especially when it comes to petrochemicals under quite some pricing pressure and I don't see this really improving substantially yeah but I hope that you know the markets also in China will eventually pick up again, I mean there is GDP growth in China but it's not it's not really to a level

where it was before and the market is still quite impacted by that yeah but that's a bit you know my answer to that to that question yeah thanks a lot for answering person all the best thanks Rohit Am I audible now yes please go ahead yeah hi Alex hi Manohar hi Naren I think it's great interacting with you over a period of time, I have few questions the first one is on the agri side so I missed initial five minutes of the presentation so please pardon me if some of these questions you have already answered but if I look at last six to eight quarters, I mean me we have seen very significant improved margin for the agri segment especially with for the quarters which are seasonally strong quarters and I think on the last call you did mention that you know you continue to focus on profitability steering better product mix shifting from low margin products to new Innovative products then again you alluded to the insecticide segment wherein you have had good launches. You also said in the past that you have been very cautious in pushing inventory in the system due to erratic monsoons now when I look all at all these factors and when I look at the seasonality I think last three four years we have never seen a seasonally strong water report so significant downturns in margin, I mean Q1 and Q2 are typically static in terms of margins on the agri side and this score year it has been very different and I mean Q1 and Q2 has been contrast in terms of margins so I just wanted to understand what went wrong in this particular quarter so that you had a significant dent in the margin and as I have asked in the past as well how should we look at margins on the agri side in the near term and structurally in the medium term so that's the first question.

Mr. Alexander Gerding, Managing Director, Mr. Narendranath J. Baliga, Chief Financial Officer Okay Anshum, thanks a lot and again when you look at the agri performance, you know it's important to look a little bit over time right, I understand that the specific question is now this most recent quarter but I think as also Naren said you have to look at the performance over time so if you look at six-month performance and especially also over the years I think you know the team has done very well to expand the portfolio launch Innovations and as you also said you know ensure the quality of the business being very solid and healthy as we expand also our market share in the in the country having said that what I mean what we experience now in this in this last quarter is there was a product mix effect on the one hand side but also higher input cost and you know as mentioned you know the I think the expectation going into the season you know was that you would have a good monsoon and what we realized is that the situation was sort of a mixed bag again central western and Southern India very heavy rains which led to the insecticide Market sort of being impacted by that and insecticide sprays two to three less insecticide sprays and then a very dry north and east so obviously that has impacted also not only the market but also our situation when it comes to insecticides and that's what you see reflected there but having said that I think if and again I don't make any predictions for the future but I think the portfolio we have now with the insecticide launchers we've had recently with the fungicide fungicides that we have in the portfolio with the herbicides we have in the portfolio is very solid is robust it's balanced and you we believe that we will continue to be able to um have a very strong position in the market and continue to expand our Market presence and share also moving forward and that's in the focus while at the same time obviously making sure that we continue a very heavy eye on our profitability and our working capital situation so that's what I would say Anshum to answer you and add to what Alex said Anshum, June was exceptionally good quarter of course but then September is not that bad a quarter we had a PBT percentage of 12% for the September quarter so if you take the six months together 18% PBT for Agro so it has been a very good six months very good season for us yes not comparable to the June quarter which was exceptionally good so again two things if I can ask in continuation of that particular question you did allude to erratic monsoons and the impact but when I look at the sales number on the agro side sales numbers have been very strong right so if I would have actually you

know had it been that kind of a thing logically to me sales would have been little lower but again I'm not questioning you know you've done a great job with margins just the volatility in last two quarters and when I look at last five six quarters the profitability has been generally higher so I mean 50% drop in profitability for a seasonally strong quarter is something which I could not understand while I got your points but still I mean if I do my math any business for the kind of business that you guys in do in agree I mean those things probably you know don't answer most of the part I mean why should it happen that way sorry for the reputation but I mean it's a valid question April - September 2023 the last 6 months of last year the margin was around PBT was around 25% as compared to that now it is 18% so there is a 6 percentage point drop in the PBT percentage for agro so that’s a correct observation but what I'm saying is also that 18% is not a small number it's a very strong performance and the business unit has done very well at the top Line we have maintained but like Alex said the input costs have also gone up there's a product mix issue also all that put together slightly lower profitability but what your observation is correct and so to take it forward then little bit structurally where do we see margins I mean is 24% a better band or 18% more sustainable band how should we look at agro margins in medium term I'm not talking about one or two quarters right if I take say FY 26 if I look at F27 or you know sustainable margins where do we stand on agro side and it's difficult to answer I mean you know if we can predict also weather patterns you know we I think will not be sitting here I mean what I can tell you is if the insecticide market you know continues to develop, I mean we will continue to participate there and on average also it's a higher profitability that we generate when insecticides are strong given our innovations that we have we have launched, it's difficult and again we don't make forward-looking statements here but you know we have a clear ask also to the teams and our ambition is obviously to continue to grow profitably yeah and that's going to be our focus area.

Okay fair, enough fair so again on the second question related to agri, if you could help us understand a little bit about our product pipeline which is there in agri segment probably for the forthcoming year and how do we see it I mean we have launched two three very differentiated products in a year last few years so directionally do we see similar kind of product pipeline on the agri side in terms of new product launches and again in this context how would we our new product contribution to our top line probably this year and how do we expect it to be going forward Also there Anshum sorry that I cannot you know, do forward-looking uh statements here but what I can tell you is the product pipeline is strong on all fronts, I mean the innovation power that we've had in the agro division remains there and rice for example is a very important crop also from the an insecticide perspective I can tell you there will be there will be a portfolio enhancement in that segment as well in the next few years yeah so we'll continue to expand our portfolio and formulations and uses in the agricultural segment not only in insecticide but in all indications so that that will certainly continue when it comes to I mean our ambition is to continue to grow our market share and our presence in the country I mean we are now I mentioned around 5% market share and insecticides overall we're between 7 and 8% market share so obviously there's still there's still headroom for us to continue to expand our market share uh in agriculture so that is that is our ambition that's the ambition of the team while at the same time keeping a healthy sustainable and profitable development as well yeah so that's as much as I can say.

Thank you, I think that was great. Another question which is related to broader strategy, it is though it also pertains to agri, we spoke about BASF looking to steer agri segment, I mean differentiated steering for the agri business solutions, so has to enable us to compete against the pure plays like

Syngenta, Bayer Cropscience, etc. now last quarter if I understand correctly parent is talking about listing agri business separately at probably parent level so how it is likely to play out at the Indian entity level what will be the timelines if the same is to be done for the Indian entity. If you could throw some light on this and again this is directional question it is not something that I want you to forecast something about directionally how do we look at you know what happens to this segment Yeah thanks a lot for that question and you've been very observant of our announcements I mean we have announced a new strategy end of September globally where correctly as you mentioned differentiated steering is one Element and AP, the agricultural division is also part of it since as you also said you know we're competing in that segment more against pure play companies.

Yeah so which is a good thing that you know we are allowing the business increasingly to be differentiated meaning having different sets of KPIs different resource allocation based on the needs and also potentially a different ERP system moving forward yeah so this is all part of the differentiated steering project too. Early for me Anshum at this point to say concretely how it will look like in BASF India limited, I think we're working on that together with the headquarter on making sure that we take the right decisions here for the business for our shareholders and this is as much as I can say today.

Okay fair enough, the next question is again at the broader strategy level last year around the same time you spoke about a significant increase in activity level in terms of visit at the highest level from the parent to Indian entity and there was an expectation that it should result in some meaningful business opportunities for the Indian entity over a period of time but at the same time if I look at last 6 months there have been change in strategy from the parent side they have reduced the capex guidance significantly which was there earlier in the past and the KPIs have also shifted significantly in terms of a mix of roc's profitability and sales growth so given the interplays and the potentialities of opportunity especially on the electronic electrification and renewable sides in India where do we see meaningful opportunity to the Indian entity to drive capex say in next three to five years. yeah thanks a lot and and you're very observant as well I that's excellent so a few points here one is I mean we have been investing and I mentioned also some example we continue to invest in capex on the ground in India be it our Performance Materials Division, our dispersion division, you know multiple examples that we also shared today so capex investments continue to happen already now when it comes to our strategic direction, you might also have observed that you know what we see in the next 10 years 80% of the chemical market growth in the next 10 years will come from seven countries all seven countries in Asia, one of them being India a very strong one so if you have observed you know we have globally identified the BASF group has globally identified India as an advanced country what does that mean that means that our expectation is to grow above Market in India and to increase also our manufacturing and R&D capabilities in the country so Asia and specifically also India will certainly benefit long term from the group company's focus and direction moving forward um so that that's I think a positive signal and it it's another star that is aligning on you know I always said and I've mentioned this before the stars are aligning for India and also for BASF in India now some of these I what I can tell you is we have some projects under development but these take time to mature right ,I mean we don't especially potentially larger Investments you know we have to do the right investment at the right time at the right location with the right business case and this this takes time to mature within and ripe within the country within the business and Company so this is as much as I can say we have a clear expectation of BASF growth in India in the next 10 to 15 years we have some

interesting projects that we're working on but too early to announce anything here because you know we're working we're working on it yeah so that's as much as I can say.

Okay last two questions from my side, one is regarding your Inter Corporate Deposits that we have placed with BASF Catalysts, BASF Chemicals and some of the other entities of the parent and it's a significant amount given that we would be generating about Rs. 800 crore of an annualized basis just wanted to understand the broader thoughts around Capital allocation priorities because our business typically generates around 25% ROCE and giving this money to parent entities even though they group entities at 7.5% not sure that the best thing to do so if you could just share your thoughts around the capital allocation and the necessity for this particular thing Mr. Narendranath J. Baliga, Chief Financial Officer Thanks yeah you're right we have this Inter Corporate Deposits to the Group Companies in India but the intention is not to kind of finance them the intention is to deploy our surplus funds in the most productive manner so that we get better than what we get if we had placed it in a fixed deposit with the bank because these are short-term loans right I mean this is not for 10 years till we have an opportunity to deploy it we want it to be kept somewhere safe and as soon as we need the funds it should be available so these are kind of three-month deposits which gets renewed on a periodical basis so the situation today is we have some surplus funds and it has been placed with the entities the moment we need that we take the money back and then deploy it one example is the working capital situation which I described both receivables and inventory went up with the increase in operations and we could finance it from our internal cash generation we did not have to go to the bank because we just reduced the ICDs to the group companies and placed it with and finance the working capital.

So that way has the limited point which I want to make is see typically we have some surplus cash we'll be generating a good amount of cash I mean we have been generating and I don't see any reason why we can't generate Rs. 800 crores of cash each year from the business right and we have certain Capex plans that we have disclosed right that is the amount of typical capex that we do if I net this off right logically then the dividend should go up or there should be significant growth opportunities that should we should be talking about right so I think that is the bigger question to me in terms of capital allocation I mean how do you use Surplus cash which is on the treasury side is your discretion and I mean it will be wrong on my part to point towards that but my broader question is towards Capital allocation given the nature of the business the cash flows and our capex plans.

Yes whenever the capex comes up and there's a need for cash this is the cash that will be deployed but I understand your point agree with that yeah and just to complement I mean you saw also working capital situation in cash flow situation that also Naren described on one of the slides right so when it comes to inventories when it comes to accounts receivables we are grow in growth mode right so we are growing uh you know 16% in the six month view we want to continue to enable the company and the businesses to grow and that's why the deployment of you know having sufficient funds also to manage working capital is key besides capex obviously.

Okay fair enough I mean it doesn't answer my questions but it gives me a certain perspective for sure uh last question and then I have couple of suggestions so it is too premature at this point in time but there are enough indications that we might see significant tariffs from us targeted at imports from China and other countries including India we also have a situation in China wherein there are surplus capacities and those things probably fail to die down in terms of dumping and incrementally when you take a five years view I think there could be some challenges there so again this us thing doesn't impact us there but it can have impact on market pricing both on RM and on the finished good side at the international level while some of the changes can be transitory for us in terms of price adjustments and inventory there could be some cases wherein it can be potentially little more structural impacts which could be there on the product side making certain products or finished goods little unsustainable are there any segments in our business with which potentially can get adversely impacted or vulnerable or is it too premature to be asking such a questions I mean how do you as a management react to some of those things which are going around.

Yeah thank you Anshum for that question I mean it's very also there very difficult to predict what might happen with Trump, you know being the President Elect now in the US and taking office next year I think the India- US ties have been very strong I always look at the at the fundamentals of the of the market in India right I mean you have the largest population and aspiring population two-thirds of GDP is domestic consumption I think the domestic consumption will continue to rise which is always what we look at right because if we if we are locally present in India for active in India for more than3 years Incorporated since the last 80 years we are catering to the local demand in the country right and I think this will remain robust also moving forward the situation and the and the potential as you mentioned the potential higher tariffs against China with a China plus one could actually be beneficial for India as well moving forward so I think there's probably positives and there's probably potentially negatives yeah it's very it's very difficult to predict this but um I remain convinced about the robustness of the consumption for the next 10 20 years I think this is India's time yeah um added to that also a political stability and continuity and confidence and Trust which will certainly also influence a foreign direct investment in India and with China plus one anyway so I'm what I'm trying to say is I'm quite confident in the future of India and we look at always when we look we look at long-term Trump will be President from four years yeah so um we look at long-term so our strategic imperatives remain intact um for the long run and India specifically okay okay fair enough just a couple of suggestions I mean one thing which I've also spoken about in the past is we have kind of also hybrid meetings but I mean ever since you have been there we've just had virtual meetings and this is something I requested last time as well that we can have physical interactions those are much better that gives a better perspective we can have little elongated discussions as well on certain things so again a request that uh you know just keeping it in a virtual mode continuously I think that's a bigger thing second is on the guidance side I mean this is again something I have requested in the past parent has been very proactive in giving guidance and they have been doing it over years and at Indian entity level we have not been doing it so again a request that you know given the nature and complexity of the business you understand the nuances of the business much better than we can understand so I think that is one thing if you can do it will be very helpful for some of us who are uh probably invested and keep tracking BASF .

yeah thanks and should we acknowledge your comments yeah thank you thanks and last thing uh is I just wanted to understand how long you are there Alex you have done phenomenally well so we want you to be there for a longer term just a little bit of understanding about your term Here see I've the years to not make any predictions for the future but I can tell you I'm uh thank you for your comments and I'm very happy to be here I'm also staying here for a while entrance so there's no plans there is no plans for me changing for now but you know you never know in the future right I as long as we continue to do well I hope that I can also stay here.

Yeah thanks for the follow-up uh was two questions so one is again unfortunately happing on the agricultural solution part so you mentioned that we had challenges in terms of the raw material product uh was there any challenge even from the pricing front on some of the products and that has also led to an impact on the overall margins.

Thank you I think I just repeat Rohit that it's a mixed situation so one is a product mix and second is higher input cost specifically affecting us in this last quarter but if you look at a again a longer term perspective and also year-over-year development we've done we've done quite well yeah um and I'm very confident of the you know the performance of the team also moving forward Mr. Manohar Kamath, Director – Legal, General Counsel (India) & Company Secretary Is there anyone else who has a question or any comment ask okay so that not being the case I think thanks for all your questions and for patient listening to us and I wish you a very nice evening and thank you for your attendance and participation today thank you.

Looking forward to the next session thank you very much thanks