Best Agrolife Ltd

Ladies and gentlemen, Good day, and welcome to the Q1 FY25 Conference Call of Best Agrolife Limited.

Thank you. Good afternoon, and welcome everyone to our Q1 FY25 earnings call.

Thank you, Vimal Ji. Good afternoon everyone, and thank you for joining us here today. So just to give the details on the financial performance, our revenue from operations for Q1 FY25 stood at Rs. 519 crores compared to 612 crores in Quarter 1 FY24. The decline was primarily due to our strategic shift on building the branded business and lowering the

Thank you very much. Our first question is from the line of Komal from AK Investments. Please go ahead.

Thanks for the opportunity. I just want to understand when you say branded and institutional sales, it means the institutional sales is basically B2B. Is there any trading revenue in these two reporting segments? That is my first question and can you elaborate on which is the high margin for you? I think the branded should be high margin and when you say Pyroxasulfone, does it sit in institutional sales and when you talk about all these patented, does it sit in branded? Can you explain this one?

Yes. So first question with respect to branded and institutional; branded is what we sell through our dealer network and also in case if we are packing the material in a final packed form to other companies, those are considered under branded material.

And you said in institutional sales only there is trading, right. Is my understanding correct? In institutional sales, you are recording trading also, correct?

There is some trading which we said within B2B, there is one portion which is manufactured and we manufacture and sell and a small portion which is trading.

Okay. So when you say institution sales, it has trading also, right?

Yes.

Okay and in the patented, for each and every category you have patented, but I do not see anything is reflected in numbers. Can you just throw some light when can we expect because I think the patented should be approximately 20 to 25% of EBITDA margin or 30%, when you say patented, then when can we expect to see meaningfully in the numbers? Can you guide on that?

So for last 3-4 months we had launched close to three patented products. So those we have launched recently. And also in June, there was delay in monsoon by 15-20 days because of which the sales got shifted. So all those patented products obviously you start seeing the results now, but these patented products are not only for this year but also would give a lot of benefit to the company over the years. But for this year, you will see much higher numbers reflecting from next quarter.

So next quarter, we would see in the branded more contribution, it would increase up and we will see the margin also improvement there.

Sure.

Okay and from the balance sheet perspective, okay, it is all bloated unless you do a write-off or you do a debt, there is no way we can revive our balance sheet. If the balance sheet is not revivable, I do not think so it will be attractive for shareholders. So what is your thought for revival on the balance sheet because it is very huge.

So yes, so presently we are in the growth stage, so you are right that we might have some initial teething issues with respect to financing, but if you still see my receivable are within good range of 90 days. So my credit period is 90 days and presently my receivable days is also 90 days. With respect to inventory, yes, because we were carrying inventory from last year due to very bad season. I hope you will be aware that last year it was really bad for the Agrochemical not only domestically, but also globally and almost entire industry was carrying very high inventory. So, those inventories will get liquidated during this season. So by September end and much more in December, you will see a lot of improvement in the balance sheet.

So how much inventory can we expect? So you are expecting no write-off in this inventory of roughly 950 odd crores you have in March 2024.

Yes.

So you do not expect any write-off here.

There would be normal write-offs, but those would be very small and normal parts and parcel of which we do every year. We keep certain positions as well and those would be within their provision where only we do not see any major write off being seen. Generally, the shelf life is close to 2 years.

When all agrochemical has reported the strongest set of numbers in the Quarter 1, but only we are sitting with the inventory, then why were we not able to sell the inventory? I mean why it is taking time? Because across branded all the Agrochemical companies have reported a very strong set of numbers and we have not reported and we have lowered the guidance also for this year. What are your thoughts here?

But not all industry, we can say they are performing well in Quarter 1. There are companies who are not performing well, but in case of Best Agro, our most of the product, you can say which is weedicide, which is insecticide, which is the combination of fungicide and insecticide which is our unique product and some of the new products also coming in the 2nd Quarter only and moreover, in Quarter 1, which product we sold, of course there was a margin. If you see as our purchase price and sale price, there is a huge margin we can see in another Quarter 1. But the problem what happened we were carrying the high-cost inventory, that is the main reason which is Q1 has fallen somewhere. Otherwise, if you compare today’s purchase prices and today’s sales price so of course we have good margin in Quarter 1 also.

So you are confident of reaching the EBITDA margin of 15 to 17% from the next quarter. I mean consistently can we consistently can we clock at quarter-on-quarter basis without any fluctuation?

Yes, yes. So next quarter onwards you will see, the next quarter possibly it will be a little higher. So our guidance is for the full year, so next quarter it will be much higher and because of the good monsoon last year, Rabi had washed out. But this year we feel we are pretty sure of the rabi season because almost all the dams are full, including you will be hearing news about the Tungabhadra being full and all the other dams of Andhra and Telangana are being full. So this gives the security of the rabi season which was lacking last year and last year also our Q3 and Q4 numbers were bad because the rabi was washed out. This year, we do not see those kinds of situations and our EBIDTA will be close to 15 to 17% as we had mentioned.

And do you plan to do any fundraise? I know the stock price has beaten so dilution becomes very ineffective for us, but to maintain stability or to maintain a good balance sheet, we would require funds, right? So how are you thinking of financing because if you take debt also, I do not think no one will provide at a decent rate? So how investors should have a confidence in the company. I understand you are making a right progress in patented, but seeing the balance sheet or the numbers, it does not give confidence. So can you throw on the fund raise or how can we see revival in the Best Agro?

Yeah. As of now, we cannot comment on it because we are not doing this kind of anything because we have inventory and we are thinking about that high level inventory which will be cleared in somehow in 2nd and 3rd Quarter and this year our target is high. So I feel 2nd and 3rd Quarter end of the 3rd Quarter there should be very less inventory. So when we will liquidate an inventory, so things will ease out and our balance sheet will be healthy that plan we have.

OK, sir, I wish you all the best and do report the trading revenue separately because that gives a clear picture as an investor right because trading will be less margin and institutional and branded I mean 10-12 and that is I think 15 to 20 right institutional and branding?

Yes, So we are giving guidance as part of the overall group business. So as I mentioned that trading we are reducing. So this pie would obviously get reduced in our sales of branded business will be much higher, which will give much higher margins.

But I think last year or 2023-2024 there was high amount of trading revenue, right?

Definitely. Thank you.

I wish all the best and hope for the revival in the next quarter and see strong set in the next year. Wish you all the best.

Thank you. Our next question is from the line of Deepak from Sapphire Capital. Please go ahead.

Sir I wanted to understand in terms of seasonality, I mean first half, how much percentage of your total profitability you do versus second-half?

So this is changing if you compare from last year, obviously the numbers will not match because last year was a seasonal failure, but otherwise mostly the first 6 months should give anywhere close to 65% of the business and next 6 months the balance.

First half should give about 65% right? Now given your guidance also, I mean if you have to take the lower end of the guidance of 15% kind of a top line growth and EBIDTA of about 15-17 let us say 16%, still you need to do about 350 crores of EBIDTA for this entire year out of which if 65% has to come, I mean ideally in the first half and 55 crores you have done in the 1st Quarter, so ideally your 2nd Quarter EBIDTA should be closed to about 171- 180 crores, which is a very big number. I mean ideally what we have been doing, even last year we have not achieved such kind of numbers. So some comment would be very helpful because already 1.5 months we are through into this quarter. So is this the kind of number that we will be targeting for the 2nd Quarter?

For the 2nd Quarter we are hopeful of pretty good numbers which we want to achieve, so it might not be near exactly 65-35% ratio, but we are pretty sure that the guidance that we are giving for full year with respect to the EBITDA margin that we will achieve.

For full-year guidance you are looking to achieve. So ideally if 2nd Quarter might not be that ideally then the second-half should be much better than what we have done in the past basically.

No. In fact, I want to say 2nd Quarter quarter definitely will be very good and because we are comparing from the last year 3rd and 4th Quarter, actually 3rd and 4th Quarter will be again good because of our product line because we got new patented products and because we have opened our South India market as well and major portion of the South India Market is for the 3rd Quarter. So that is the main reason we are hoping for the 2nd, 3rd and 4th Quarters, it all will be good. Of course, 2nd, we are hoping the best one, but the 3rd and 4th also will be very good as per our plan.

Ok and from the industry perspective, I mean, has the inventory destocking stopped, I mean what is the situation out there?

So most of the inventory destocking at least for Best Agro, if I say that 90% of all the issues with respect to the earlier stocks are closed now, that is why we are pretty confident of the next quarter with respect to industry also what we understand is most of the inventory from earlier period has been liquidated and now whatever is there in the market is mostly all the new inventory.

Ok, so when we speak most of the inventory destocking is done, what is the timeline benchmark, I mean we are talking as of June end or we are talking as of now. I mean last one and half months have we seen destocking to continue in the month of July and I mean 15 days of August?

So for Best Agro, most of it was closed by June and there was some portion say 80% got closed by June and another 10% by July. So that is why by end of July, 90% of whatever expensive inventory we had for few of the products where the prices have cashed, those all issues are over now.

Ok, those issues are over. Ok, but then, if 80% of your inventory is done by June, but still our inventory days are still very high as of June, right?

When I say 80% means the inventory where very expensive inventory, I am not talking about my overall 900 core inventory. I am talking about, there were few products where the inventory was at high cost. Those high-cost inventory, most of it we have liquidated. So that means my wherever the problem inventory those have been sold. I am not talking about the overall inventory.

Thank you. Our next question is from the line of Nitin Gandhi from Inoquest Advisors Private Limited. Please go ahead.

So taking my question, just continuing from the previous discussion, 950 crore inventory, so how confident we are by December, we should be clearing this with 15% EBITDA, 1100 crore revenue?

For the second quarter you are asking.

I think 6 months from June, so by December end I am saying.

You are asking for the 1100 number.

Correct.

Yes, in fact, we are hoping good numbers, but I think that it is not to say the number here, the exact number, but of course, we are hoping very good numbers for these 2 quarters, 2nd and 3rd quarters.

Ok, and past high-cost inventory is already over by June, right?

Yes.

Ok, that's good to hear. And these differentiated products which you have launched, so when you do this registration and all, what are the expected target turnover from each of these?

So see these are all commercially launched. We obviously have some internal plans for each of the products. We will not be able to give you how much each products will contribute. But this is for sure that all these patented products even what we have launched last year are the one which are the growth drivers for the company, not only for the top line, but also for the bottom line. So, there are various products which we have launched in last 1.5 years, out of which close to 3-4 products are coming only just 3-4 months back. So those will

Ok, so how many of these 6 products which you have introduced could be more than 100 crore turnover?

You are asking for the product, our patented molecule, we have many molecules which is more than hundred crore in a year.

So since we have already crossed 100 and the new products which we have launched, most of it the targets are above 100 crores only.

So that's a cumulative figure of every year figure?

So see, when we say patented, it is not necessarily supposed one product which we have launched, if most of the season is gone now, so it might not be in this way, it might be next year, it might be a soft launch, so not necessarily what we are talking about for this year, but since these are our long term strategy, wherever season are over and most part of it is over, then the numbers will be coming next year.

I am not saying even this year or next year, but after the 3rd year of launch from 4th year, each of these can contribute 100 crore minimum, that is what we are saying, right?

Yeah, already from our existing portfolio, there are 3 products which we had launched last year already 2 of them are contributing more than 100 crores.

Even one of our molecule which we have launched last to last year, that is contributing 1 product, even first year it was close to 90 or 80 crore. Second year, it crossed 100 to 120 crores. This year, it is crossing like maybe it can go up to 200 crores also, the one product. So each year because there is a patented molecule, we have to go in a strategy from the field level, so each year it will increase. Any of the our patented molecule which we have launched.

Right. OK. Then will it be better if you share contributions from last 3 years launch, last 2 years launch so that we also know how you are moving and how the launch products are performing. If that is the statistics, if you can share, it will be helpful.

I think last March, I can tell you what we had given was close to 25% of our business was coming mostly from the new products. So that percentage would remain in future as well.

Ok, you don’t think that can go to 30%?

Yes, surely because the number of products are increasing as Vimal Ji mentioned it was 3-4 products last year and now we have 3 products in 3 months. So this will certainly grow up because the other part what we are doing is a few months back we had discontinued 8 to 10 of our products. Those were more generic kind of products. So slowly we are trying to build a portfolio wherein our high-margin patented products take the much bigger share in the sales and trying to discontinue those which are lesser margin and not contributing much.

Thank you. Our next question is from the line of Raj from Arjav Partners. Please go ahead.

Sir how much have you expected to grow in FY25?

So we are expected to grow from anywhere between 15 to 20%.

Alright and how much is the EBIDTA rate?

EBIDTA is in the range of 16 to 17%.

For the full year?

For the full year, yes.

And how much CAPEX are we intending to incur?

CAPEX, we are still in planning, so we already have certain thing in our mind. So we are just about discussing the way financing has to be done. So once that happens, we are all set to do the CAPEX. So it all depends upon how the financial discussion goes on.

The expansion mostly will go for the debt or by ourselves.

All right and sir for Q2, are you also expecting EBIDTA in the same range of 15 to 17%?

As per scenario as in today because 1.5 month already passed for the 2nd Quarter, it should be more than that.

Thank you. Our next question is from the line of Hemant, an individual investor, please go ahead.

Sir, I wanted to know the revenue of Sudarshan this Quarter.

So Sudarshan this quarter was close to 100 crores.

100 crores, ok. So based on the presentation that you have released today, I did some maths. So last year, you have done around 620 crores and this year you have done 520 crores.

Even last year, we had shown Sudarshan as a 3rd party, so we had similar sales of around 80 crores to Sudarshan. So earlier it was coming as a third party and then we picked it over and now 100 crores is coming as our own subsidiary. So that way the numbers earlier 80 crores was coming as a third party sales and now 100 crores are coming as our own subsidiary.

So the third party sales will come in B2B or B2C.

It will come under B2C because we were giving them the back material.

Ok, so in that case, our branded revenues were flat this year?

Yes, that is the main reason our branded sale are increasing and our institutional sale and trading are reducing.

So branded is also flat because there was a 20% price variance because of the price crash in China and much higher competition in here. So if you see my volumes went up, so there was a higher volume of course this year because of much better season. So volumes were higher by close to 21% and there was a price erosion of close to 19%. So as you mentioned, yes it is flat or just about 1 or 2% increase in the branded business.

10-12% increase in branded?

1 to 2%.

1 to 2% okay. Sir and my 2nd question is related to our H2 business. So because of our low top line and higher expenses majorly because of the interest cost and employee expenses and all, from the past two years, we are actually showing minus EPS. So can you throw some light on that? So how will be your H2 this year? My question is related to our H2 business. So if we see our past two years business majorly in H2, our top line is less and our expenses in terms of interest cost, employee expenses have risen a lot in the past 2 years because of that we are showing minus EPS in the H2 specifically Q3 and Q4. If we continue to do less than 500 crores of business in Q3 and Q4 that would continue this year and even Q1 EPS is very less this year by compared to last year, Rs. 39 versus Rs. 9. So usually if I compare everything based on last year's performance, our earnings per share would be negative by end of this year.

Yes in fact, when we are talking about our expenses. higher finance cost, of course it is correct. You can see the balance sheet the number is there for the 1st Quarter as well. But in other term, we can say that is kind of investment also like because when we are talking about the expenses, that expense is not for the 1 quarter or not for the 1 month this is for the entire year, like if we have South India market, if we are opening various market and international markets also. So everywhere we have to expand and of course we have to make expense there. We cannot say it is an investment in terms of balance sheet, but actually the results will come in the coming quarters only like if for example I will give you for the South India, 2nd Quarter, but the major shares will come in the 3rd and 4th Quarter.

Hemant just to add here what you mentioned that in case so what you see number for our Q3-Q4 500 crore is actually 500 after sales written-off 151 crores which came much higher because of the Rabi season was washed out. So 500 is not our number when the rabi was fully washed out so you can assume a much higher sales which we are expecting especially when we know that the dams are full and the Rabi season is guaranteed.

Ok. Sir, as you mentioned regarding this South India, I am also from South and my father is a farmer. So I wanted to know one thing Best Agro is the recent company in South India. You have been here maybe from last 1-1.5 year. So what kind of investments you want to do here so that most of the farmers know about Best Agro patented products, mainly Orisulam and different products that you have launched this year.

Yes Nemagen and Defender in the paddy crops, there are (Inaudible) 0:43:07.4 South India. There are many products which we are doing well in South India and investment which you can say expenses you can see in our 1st Quarter that is through the people. We have now big team in the entire South India, any part of South India you talk about now our presence will be there.

Are you planning for any farmer engagements?

Yeah, of course. There are many farmer meeting we are doing for awareness.

So generally just one more point to add Hemant here is with respect to farmer engagement, we have around close to 500-600 people whom we call field staff or Demand Generation Executive. Their work is to meet the farmers. So they meet them in the morning, they meet them in the night, do farmers meeting. So in case if we have to build our products especially we are having patented products. We need to have close interaction which we are religiously doing since last 1 year.

Ok. One thing I liked about Best Agro, most of the established Agro Chemical companies in India, they were not launching patented products, patented formulations, but you have been doing very well in the market, you have launched around 4 products this year. So number itself breaking, but only thing as an investor, we are hopefully hoping to see those numbers maybe in the next 1-2 years from Best Agro.

Yeah, definitely it will be there and each year when we launch any product each year there is an increase in the quantity and the value.

Thank you. Our next question is from the line of Utkarsh Gupta, an individual investor. Please go ahead.

Sir, my key question is that since we have pivoted the business model from institutional sales to branded, so I want to understand there will be a replacement in the sales distribution or it will be a new addition in the business. So are you closing our institutional sale and just doing B2C now or will it be continued the B2B part and there will be new addition in the B2C site?

So Utkarsh we are not going to close the institutional part, it is only that the branded business keeps on increasing and percentage of institution is go down. But under institutional also we want to keep certain very good molecules and very good products which we want to sell to others and to remove products which are of lower margin. So institutional

OK, understood. The second question is regarding the new patent launches.

You are talking about which product we are going to launch in the future?

Yeah, so basically the market size on Namagen and defender and upcoming 2 launches, one is the mix of three molecules is Haloxyfop…..

Yes Mr. Utkarsh, each product have a different market size, different in terms.

So product-wise number of the market.

As a whole you are talking about number, or each product you are talking about number.

Each product, the number for each product, what is the market size of each product?

No, the same I am telling you, like if any product I suppose sucking pests segment is very big in India. If we talk about only India, the Indian market of sucking pests is more than 5000 crores but because its market is increasing in India as well as global, the margin is increasing. If you talk about if you are having share of starting from the first year like 2 to 3% in that segment, so it is coming around like any of the new molecule in 1st year, we launched it will be like 60-70 crores . So next year, we will jump into directly maybe double also if the product is very good because first year is also we have to push more. We have to do more efforts in the marketing because any of the product you have, even the very good product or very nice product, is still need to market and still it has to be coming to the knowledge of the farmer and farmer also want the results in the field because they are not like we are talking and they are buying. They need result in the field. So first year they will test, trial. It is a kind of trial also. It is a kind of sale also, but it will be a trial for the farmers, but next year, when they are confident on that product, it will be sometime goes double. We have an example of one of our products, Ronfen. First-year to second year, we have 50% growth, second year to third year, we can see it will be around 200 crores. So within the 3 years,220 crores also it can be. So within the 3 year, your 70 to 80 crores you are now 220 crores. So each product, each year we will increase which have potential and most of the products which we are commercializing in our presented portfolio that all will be in a commercially valuable and it will be give each year growth will be….

Fair enough sir. And lastly, about the international sales, the international sales are largely generic sales, are these B2B or the branded ones also have potential in the international market?

In fact, parallelly we are opening our international market, but right now we cannot say there is any good number of sales. There are very few, that is a small number but definitely we are opening in a different way, our branches in the international market and mainly because we are into the regulatory business and entire world in each country, different kind of regulations for each of the products. So if you talk about any market in South Asia like Thailand, Myanmar, you know, Indonesia, all these markets if we talk about each market, each country we have to go and register our product as per their regulatory requirements. So that we are doing. The results will come for this product at least by 2025 end you can say.

Fair enough. Sir just last question. So one thing which I observed that there was some sales return in Q3 and Q4, so just as that perspective have you thought about introducing any sort of lending partner with you to mitigate that risk rather than doing the credit sales, maybe bringing the lending partner and you know mitigating risk from your books of this risk of sales return.

Yeah, Utkarsh you can club your this question to my last answer. In fact, when we are launching any of the new products, we have to take some risk because of how much forward success will be there and we have to work very hard as some of the expenses if you talk about in the time of balance sheet, there will be expense, we will have marketing expense will be higher, sales expense will be higher and there is a possibility of the return. But in any of the way we are fixing the provision in the balance sheet in the same quarter when we are selling. It is not like there is a surprise that the 3rd or 4th quarter returns are so high. Last year there was some you can say end of the second quarter, there was a kind of season failure, that is a different situation, but we are hoping this year will be very good and each year will not be like last 2 years, you can say 3rd Quarter.

Thank you. Our next question is from the line of Udit Segal, an individual investor. Please go ahead.

You are talking about segment wise or the inventory levels you are talking about.

Yes sir.

Yes, definitely in the first quarter, major sale is herbicides you can say if our total sale number is 520 after internal sale (Inaudible) 0:53:17.4. The final commodity number is 520. So out of the 520, you can say herbicides because that price has dropped that is why the results are B2B but we can say approximate, I do not have real number in front of me segment wise. But in my idea there will be more than 300 crores of the herbicide and other will be fungicide and Insecticides.

So basically, there are turn around. It will be dependent on whether how the sale of insecticides and fungicides will be in the coming quarter.

Of course, generally we see like this way only if you see in 2nd and 3rd quarter majorly insecticides and fungicides.

And suppose our margins are also higher in insecticides and fungicides?

Yeah, we have most of the products which we have our patented molecules that is mostly. Of course, we have herbicides also, but herbicides we have only one which we are this year Orisulam and in the 4th quarter also we are launching the new product that will come Shot Down. But that will come in the 4th Quarter FY25. But in the 2nd and 3rd Quarter, the major sale will be our major molecules like patented molecules which is insecticide and fungicide combinations and of course insecticide combinations.

Okay, so sir what are the conditions I know nobody can predict, but what are the conditions which aid insect attacks or like fungus? I mean it's a humidity or the rainfall or some other conditions. How do we track whether there is going to be an insect attack or major insect attack or fungicides, I mean, how can we think about that?

In fact, these 2 different questions, but I can explain you know if you talk about fungicide of course fungus comes mostly in the rainy season, if we talk about. But in general disease if we talk about the pest, it is not directly we can say there is a white fly, there is a fly so it will come or it will not come, your question like this way. But generally if you see in last 30-40 years pattern has changed and climate is also changing. But there is no year where you can say there is a crop and there do not have pest or fungus you can say like this way in a general way because otherwise I have elaborate very long. Generally you can say this.

And sir you are mentioning that our sales would be good for the rabi.

Yeah, I mean, you can see the history of the agriculture on the pesticides, so then you will know there is no season because if we talk about 9% growth in the industry so each year it is coming if you see of course, if there is no pest or there is no fungus, so how it come. In general, I am talking about. If I elaborate, I know everything, but I do not think that time will permit us to elaborate that way.

And sir, you are talking about the Rabi season. So what kind of sales do we do in the Rabi season that would be in the 3rd Quarter typically?

Yeah typically 3rd Quarter, Rabi season is typically 3rd Quarter, some goes in January also, but mostly in the 3rd Quarter.

What kind of products do we sell during the Rabi season? It is again herbicides?

Yeah, it is herbicides only because Rabi season also have insecticide and fungicide that will go into the 4th quarter, but if we talk about major weedicide which again in Rabi season mainly is the wheat that will be in 3rd Quarter only. You can say 3rd Quarter sales, so the Rabi season will be for herbicides and 4th quarter sale for insecticides and fungicides will be in the 4th quarter.

So do we expect like.

And for Rabi, major big market in South for pulses, for chili, those also we have good products.

Ladies and gentlemen, that was the last question for the day. I now hand the conference over to Mr. Vimal Kumar for Closing Comments.

Yes. Thank you everyone. We are excited about the future of Best Agrolife Limited. Our commitment to quality, innovation and farmers satisfaction remains unwavering as we continue to push the boundaries of what is achievable in agriculture for the prosperity of our farmer. If you have any other questions, please feel free to contact with Adfactors our PR and our Investor Relationship team. Thank you all for participating today. Thank you very much.

Thank you. On behalf of Best Agrolife Limited that concludes this conference.