El Nino, Chinese dumping and channel destocking especially in the international markets badly impacted the Q2 FY24 performance, according to the management. But I will take this with a pinch of salt. For Sumitomo, 75 % of the revenues are from India and things were not all that bad in the domestic market. Dhanuka Agritech whose business is largely domestic reported revenue growth of 14 % (which means volume growth should be even higher). Even Rallis reported marginal volume growth. Sumitomo on the other hand reported 3 % de-growth in domestic volumes. Meanwhile, there seems no sign of company utilizing the huge cash pile it is sitting on, as there is neither any large capex nor big bang acquisition on the cards. No plans to returns cash to the shareholders either, at least there was no mention of that. Everything seems to be move very slowly in this company. Perhaps that is the Japanese style of working.
Anyway, some highlights from the concall:
-
Revenues were down 20 % YoY for the quarter overall.
-
Exports dropped almost 50 % in the first half, about 25 – 30 % in volumes and 25 – 30 % in price. Exports were contributing 19 % of revenues in H1 FY23 and now down to 11 % in H1 FY24. LATAM demand has been hit.
-
Domestic business showed 15 % total fall of which 3 % is volume and 12 % is price drop.
-
Company was able to consume all the high-cost inventory that it was carrying as of 31 March 2023 by the month of July
-
Two projects for 5 new products: The first project at Bhavnagar facility has commenced production for a global proprietary product. The second project at Tarapur facility involving multiple EHD products has started commercial production recently. Both these projects are expected to generate some revenue in FY24 but major ramp up only in FY25
-
In domestic business, we launched three herbicides, one insecticide and two fungicides in the first half of this financial year
-
One analyst said in the last 3 – 4 years, we have launched 25 to 30 products but they have not scaled up
-
Glyphosate volume increased 5 % during the year but prices dropped 23 %. Domestically in Glyphosate, there are hardly 2, 3 major players. Exports happen in H2 but they are not very big. The ban proposal will die its own death, most likely.
-
Animal Nutrition business volume increased 31 % in H1 current year
-
One analyst noted that the Environment Health business (EHD) has not grown much last one or two years. Management blamed it on destocking by clients like Godrej, J & J etc. and said things will improve in the coming months.
-
Barrix acquisition – one analyst noted that while the technology is not that new, the acceptance in the Indian market is also not that much. So it will have to be sold globally only. Management said in India this is approximately INR 400 crores to INR 500 crores market today, which is spread across several unorganized players and there is no single large player who is having a very good national level presence, having very good technology.
-
Normalized capex for the business is around 15 % of EBIDTA. Project specific capex if any will be over and above this.
-
One plant which manufactures Quinalphos and Tebuconazole was non-operative from the month of April to almost August end.
-
One example of destocking – We sell a huge quantity of Profenophos to Syngenta for global market. And what we were told that there is a full stop, to not increasing even 1 kilo of inventory till 31st December (Just a thought – what if Kumiai does this to PI)
-
One analyst said based on recent commentary or guidance downgrade by a couple of the global agrochemical majors, it appears that at least even in the near term the situation does not seem to be abating.
-
Cash in hand is Rs.1400 crores but no big bang acquisitions. May go for smaller niche companies rather.
-
Dahej land is very big and the capex will be around Rs.300 crores – spread across 2 – 3 years
-
Promalin – launched in March this year. Lot of hopes on it. It should transform how the apple farming happens in India.
-
The normal industry average growth in a normal year historically is somewhere between 8% to 10%
(Disc.: Holding)
| Subscribe To Our Free Newsletter |
