Sumitomo Chemicals ~ After Excel Crop Care Acquisition

FY23 Q2

Results
Investor Presentation
Concall Transcript

Note: This was a marathon call, spent 1:41 minutes, gave detailed explanation on Glyphosate and many new learnings about the industry

Weather/Industry Updates

• 2022 June – September 7% more rain than previous year (several regions received less than normal and others more than normal so monsoon spread was erratic)
• Income of the farmer grown from 1.3 times to 1.7 times
• Minimum support price (MSP) raised by 1.5 to 2.3 times
• Higher placement of agrochemicals during the March and June quarter coupled with slower on ground activities led by uneven rainfalls resulted in lower liquidation of inventories, particularly in insecticide category
• Sales of herbicides and fungicides are robust
• Working capital for the industry is stretched due to high raw material costs

Business Updates

• Top line growth of 23% (1122 crores) – aided by massive growth in herbicides along with growth in domestic and export markets
• EBIDTA grown by 30% ( 278 crores) EBIDTA Margins at 24.8% (up by 121 basis points)
• PAT grown by 31% ( 202 crores) margins at 18%
• Successfully passed increased RM costs
• Exports grown by 51% (H1 FY23 vs H1 FY22)
• H1 FY22 LATM exports increased by 49%
• Maintained lower inventory levels
• CFO H1FY23 – 2131 crores vs 1875 crores (H1FY22)
• Cash / Cash equivalents of 800 crores
• 200 Brands across the agro chemical value chain , 20 mega brands , 16,000 direct distributors, 60 depots all over the country
• Most of the growth from India is from price increase
• Sales in Latin America and African countries are pretty good
• Herbicides, Bio Rational Products and PGR are the key products to drive the growth this will reduce the seasonality in the business
• One 9(3) product is launched and it is doing well (Tarapur plant received approvals for Pyriproxyfen , Diafenthiuron , this product is technically equivalent but different combination of Ronfen of Best Agro, many other Indian players makes these insecticides )
• Very clear message given to the dealers and passed on all the input costs almost instantly
• HTBT cotton and GM Seeds falls under Environment and Forest Ministry, they in turn recommend to Ministry of Agriculture
• Most of the export sales in dollar terms
• Due to late rains, the upcoming rabi season looks favourable, enough water, and enough moisture in the soil

Capex / New Projects progress

• One proprietary product for a global customer started production at Bhavnagar site , revenues will start coming from H2FY23
• Tarapur – MPP (5 parent molecules) progressing well, production start from Q1 FY24 – 200 to 250 crores opportunity
• Margins of these new projects / products are in-line with current margins
• Discussion are on with parent to make more additional products and also discussing with global affiliates (more clarity will be shared in upcoming quarters about any additional Capex etc… )
• Two land parcels available for additional Capex ( Expecting the demand for Tebuconazole will pick up that might trigger to do Capex to ramp up the production )
• Very bullish on launching bio rational products with the strong backing from Valent USA (3 products are lined up on this segment for registration aim to launch in FY24 ),these are registered under fertilizer act (take less time to register )
• Will be launching two products in Brazil in FY24 ( These are off patent , Registration already done by parent and supplied from India, this are in addition to the 5 proprietary products going to be sold in Brazil)
• Aiming to double African market sales

Glyphyosate

• India market size is 1200 crores
• As per the new new notification Glyphosate can be sprayed only by pest control operators (PCO)
• Volumes come down by 40% compared to last year in domestic market (this is mainly due to poor monsoon conditions, during monsoon shower germination of weeds start, during this time farmers apply herbicide, due to delay in rains this product was not picked up in Q1 but q2 the demand picked up) , the standardised mix is 85% domestic and 15% export
• Exports increased by 451% (main contributor is Sudan) on low base
• H1 is domestic market and H2 is for export market (every single year for the company H2 exports of Glyphosate are more )
• We are considering this is an opportunity to offer the service of PCO to the farmer (not sure at the moment this is possible / allowed by the government )
• This molecule is used since 40-50 years , recently Bayer won the case in US ( Bayer wins fourth Roundup weedkiller case in U.S. | Reuters )
• Gross margins for this product is 25% (this year it is 27.5% mainly due to price increase)
• Alternate product is available and being sold by us in the Indian market but it is very very expensive (name ? )
• Mera 71 is the brand name of Glyphosate in Sudan market
• Margins are better in domestic market than export market
• Recent approval for GM Mustard (and proposed HTBT cotton seeds approval ) these crops have to use Glyphosate
• Maharashtra and Gujrat are the states use highest % of Glyphosate
• Glufosinate is not a like to like substitute
• Domestic market share is 40%
• Have registrations in Europe but not selling
• Major export market is Africa (Sudan, Ethiopia, Nigeria)
• Current volume of usage in entire India is 3 Million litres, with BT Mustard and Cotton this usage will go up by another 1/3 of this 3 million ( a wild calculated guess)