Thread by @ValueEducator

Key highlights from #IndiaPesticides Q2FY23 concall 🧪🧪

CMP - ₹259

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-The reasons for drop in gross margins has been the carry over of high-cost inventory and the increase in operating and fuel cost. The company plans to utilize and sell it’s entire inventory in this quarter itself. The company expects it’s gross margins to stabilize at 50% in the

next 2-3 quarters which was 48.5% in the 1st quarter and 43% in the current quarter. The company does not expect further deterioration in their GM post the 43% level

-Reasons for drop in EBITDA margins are the logistics problems faced by the company, the increase in the price of raw materials which the company buys outside of India and in India. To avoid production loss, the company bought more raw material than it usually does

and is now stuck with a high cost inventory for which it has not been able to pass the prices fully to it’s end customer. The green fuel which the company uses for it’s energy consumption has also seen a threefold rise in prices. Excluding the herbicide category, the company has

been able to pass most of the price increase to it’s end customers. In herbicide, they have been partially able to pass on the raw material increase.

These factors put together have dented the profitability margins of the company in spite of a good revenue growth

-The company plans to keep an operating margin of 25% once it’s new products are launched as the company would face high initial costs for product launch which will take some time to stabilize

-Rs 70 crore capex has been planned for additional capacity expansion of 4000MT at Sandila, UP plant for FY23 which will take the technicals capacity from 23500 MTPA to 27500 MTPA.A herbicide and an intermediate are planned to be added in this.

This capacity will be added in phases. The herbicide block is expected to come online in November and the intermediates block will come online in Q4FY23.The herbicide project which was to come online on October faced some delays as the company took some time in decision making

to procure the hastelloy lining special equipment for this plant. This herbicide will be mostly used for domestic sales and major use will be for rice. The key intermediate required for this herbicide is imported to the extent of 90% which the company has substituted the import

by doing backward integration and making that intermediate in-house

-The company has a plan to launch 14 molecules once the Sandila expansion is completed. Out of these 14 products, for around 5 products the company is backward integrated and in other products one of the key raw materials is being sourced from China which the company plans to

mitigate by doing backward integration and developing its own technology. There are some few bulk products which is completely out of their range that they try to import from China or other sources. The new products which were added in this quarter have given the company

Rs 52 crore in turnover and the company expects to do Rs 100 crore in turnover for this year.

Given the capex plans and new product launches which will happen in this year, the company plans to achieve a revenue of around Rs 1000 crore by FY23.The company had clocked a revenue of Rs 716 crore in FY22 so the target for FY23 can be achieved

-The company sources most of it’s raw materials locally and is backward integrated in most of it’s products. Almost 90% of the key raw materials required by the company are being sourced outside China. The raw material for their product Captan is mostly sourced locally and a

miniscule amount is sourced from China. The company plans to go for backward integration for some of its products which will help them to reduce the raw material import dependency on China. The company imports around 35% of their total raw material purchase and 20% of the total

raw material purchase is imported from China

-The company’s strategy would be to try to reduce the dependency on imports as the intermediates required by the company is produced by nobody in India. The company plans to develop the technology required to produce these intermediates and reduce dependence on imports

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