Rallis India Limited (RALLIS) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Valis India Limited Q1 F527 Earnings Conference Club. We have with us today Dr. Gyanendra Shugla, Managing Director and CEO, Mr. Bhaskar Swaminathan, Chief Financial Officer. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation. As a reminder, all participant lives will be listened only more, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star 10-0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Dr. Shukla. Thank you, and over to you, Dr. Shukla.

Thanks. Good morning, everyone, and thank you for joining us today

on Rallis India Q1 Fiscal Year 27 Earning Call. As mentioned, I have alongside myself, our CFO, Mr. Vaskar Sominathan.

I will start with a synopsis of the industry landscape before addressing development specific to the company. Q1 was characterized by a weak demand environment and sustained pricing pressure in the Indian agrochemical space. While the supply chain was not materially disrupted, it remained fragile and cost sensitive with volatility in raw material availability, freight and logistics. Dependence on Chinese inputs continued to influence sourcing dynamics, while selective disruptions and inventory constraints created intermittent supply tightness. However, the market did not face a structural shortage. The key takeaway is that cost remained elevated while demand recovery was insufficient to support price hikes, resulting in continued margin stress across the sector. The Middle East war likely affected the agrochemical sector in Q1, mainly through higher feedstock energy and freight costs, which compressed margin even when selling prices were adjusted upward. That said, the price increases triggered by Middle East supply disruptions are expected to partially offset the volume-led track. Companies with imported intermediates or fertilizer-linked input exposure are more vulnerable than those with a stronger domestic sourcing. Margin pressure was likely strongest for businesses that could not fully hedge energy and freight costs or quickly revise realizations. The sector also faced uncertainty rather than a one-time swap because even a ceasefire cost does not immediately normalize energy and shipping costs. Additionally, at the start of the season, Al-Nino was described as a probable threat to a weaker monsoon because it tends to warm the Central and Eastern Pacific, which disrupts atmospheric circulation and can reduce the monsoon flow over India. Official and media reports said that IMD linked it below normal rainfall outlook to developing Al-Nino conditions, especially for the second half of the season. Market witnessed aggressive channel filling in March ahead of anticipated price increases, delayed onset of the southwest monsoon weighing on on-ground consumption, cumulative rainfall deficit below normal and lagging Kharif Sowing deferred placements. The late arrival of this year's monsoon at the resultant delay in Kharif Sowing impacted a great chemical uptake across the domestic market. As per IMD's latest available update, overall India's seasonal rainfall remained about 15% below normal. This was the data at 8th of July, and obviously there has been some recovery since then. IMD's latest long-range seasonal outlook for the 2026 southwest monsoon projects below normal rainfall for the country overall, most likely about 90% of the long-period average, with a model error of plus-minus 4%. Monsoon core zone is most likely to be below normal. The reason why the data suggests that central and western India has improved softly in early July, while east, north, east, and part of south continues to lag, especially in Karnataka. Rainfalls, shortfalls in July, in June and early July, slow to kharib sowing, especially in the rain-fed belts and for crops like paddy mage, pulses, soybean, and groundnut. If rains arrive and burst after it dries tart, farmers often resow, which raises seed and crop protection uses. Farmers tend to move towards shorter duration crops, drought resistance varieties, and move away from water-sensitive crops where irrigation is limited. Northwest and some eastern, southeastern pockets may fare better, while central, financial and core rainforest regions face higher soil and stress. As of end June 26, curry showing was significantly lagging last year with only 17% of the normal area covered, but as we move forward, I think there has been a significant progress as far as crop acreage is concerned. Based on the latest indication, it is about 17% behind. The crops like cotton and groundnut are probably the most significant, which are lagging behind. If you go by the water situation, a Central Water Commission report quoted on 17 July that reservoir level had risen to 34.4% by 16th of July from 26% on 2nd of July. A 10-year average is higher than the current level with current storage at 98% of the normal. So reservoir level minus Karnataka, I think, seems to be in a good situation. The fiscal year 27 Kharif MSP regime is broadly supportive of crop diversification, sharper hikes in oil seed pulses and cotton. It stands out while paddy and mage saw only modest increases. The government approved MSP for 14 different crops for the marketing season of 26-27 with estimated procurement of about 80 million metric tons and estimated payout of about 2.6 lakh crore. The pricing framework remains aligned with the policy of keeping MSP at at least 1.5 times the cost of production. The relatively stronger increase in oil seed and pulses suggests that an intent to increase sifting away acres from paddy and move towards more diversified crop mix. From an agrochemical perspective, this is constructive for demand diversification. It is particularly relevant for pulses and oil seeds, where input uses and crop protection needs to differ from those of paddy. Now, volume may shrink as acreages decline, but margins are likely to remain stable to slightly soft. Integrated firms with balanced portfolio, combining seed crop protection and a nutrition product are better placed to navigate the volatility. Market is also likely to favor low-cost producers with a broad export presence and disciplined working capital management. On the biostimulant category, regulatory framework, India has significantly modernized the biostimulant category framework. Under the HCO with standardized specification for humic acid, fulgic acid, and CVDX formulation, this move should help bring regulatory clarity, product reliability, and market formalization. For fiscal year 27, the cleaner consensus is that agrochemical are expected to grow around 6 to 8 percent in India, while seed is likely to grow mid to high single digit, but it will depend on the crop. Horton certainly will see a significant decline. The global crop protection market is estimated at roughly $70 to $80 billion in calendar year 26. Depending on the definition, it is expected to grow at 4.5 to 6 percent CAGR. Supported by rising food demand, limited arable land, and need to improve farm productivity. Global crop protection markets are being saved by tighter regulations, supply chain derisking, rising biological adoption, and continued innovation in formulation and new modes of action. Demand growth remains strong in emerging markets, while pricing, margin pressure, and climate-driven crop volatility continue to influence the sector. The near-term outlook remains dependent on the Middle East conflict, as well as the rainfall situation. That means that sector recovery remains uneven. U.S. demand is still supportive, but Brazil remains weak and key, agree linked in markets. China continues to drive pricing pressure and supply chain risk, especially for API and intermediates. There's no India stock buildup in the latest. This was state data, which likely reflects a balance sheet offset. Higher production was absorbed by demand and trade assumptions, leaving ending stocks broadly unchanged. Moving on to, so this was a general commentary, moving on to Rallis' specific development. We had a reasonable quarter one fiscal 27 performance, despite the fact that several factors impacted planning, including the war in West Asia, which led to panic buying of commodities with significant price increases in delayed monsoon in India. The overall demand was subdued. Severe heat wave in Q1 delayed showing due to delayed onset of monsoon farmer crop search. Reduction in crop acreage is coupled with extensive spread of illegal HDBT cotton. Create channel rust to secure fertilizer, which resulted in cash crunch for crop protection, causing conservative inventory stocking and slower liquidation. The domestic formulation, the growth was driven by aggressive placement, liquidation efforts, and volume scale-up. Talking about quarter one numbers, our revenue stood at 1022 crore versus 957 crore last year. EBITDA improved by 23% to 4 crore from 150 crore in quarter one of 26. Profit after taxes stood at 125 crore versus 95 crore of previous year quarter. Exceptional items include profit on sale of property of 2 crore. Our overall capacity utilization has slightly increased in Q1 in comparison to Q1 of fiscal year 26. A new launch initiative. During the quarter, we have launched four new crop care products, two herbicides, one insecticide, and one soil and plant health category product, very tailored, made for ginger and turmeric. In seed business, we have launched quite a few new products for North India, herbicide-tolerant, direct-seeded rice under the Dhania brand to promote direct-seeded rice, as well as short duration of Bajra variety. So in all, we have introduced nine new products in seed, digital marketing and intervenes, and continue to promote products through Anubandh age scheme, farmer QR code reward scheme, and enhancement. Sampark Plus program. Anubandaj initiative is a retailer-level digital platform to support retailer engagement and benefit schemes and enabling tighter integration between dealer and retailers. Retailer's registration as on June and cross 56,000. Farmer's QR code project sells in better product knowledge sharing with the farmer. Our initiative, Sampark Plus, continues to capture farmer-level demand signals to generate actionable insight and improve sales conversion. We had launched Idea2Impact platform in Q4 of last year to establish an open innovation ecosystem to source, validate, and commercialize agri-innovation. Still now, we have received encouraging participation of party applications, out of which two are in the pilot stage. We are continuously using tech-assisted marketing initiative to promote products and generate demand. Digital-led field AV-WAN campaigns balance focus on physical and digital connect with focus on key products drive. We are increasingly enabling digital-led engagement that strengthens data-driven decision-making and answers farmer outreach and advisor productivity. We are also shifting towards high-margin sustainable and farmer-centric offerings, including biological and next generation product. So, that includes my opening remark. I will now hand over it to Bhaskar, our CFO, for a detailed analysis of the financial situation. Over to you, Bhaskar.

Thank you, Dr. Ganendra. Good morning, everyone, and thank you for joining us today for our Q1 FI 27 learning talk. I will walk you through our financial performance for the quarter, post which we shall come and speak your invitation. Starting with the top line for the quarter, our quarter FY27 revenue stood at 1022 crores as against Rs.957 crore for the same period last year, resulting in an overall growth of 7%. Overall volume growth has been 2% with rising and growth of 5%. Overall EBITDA for Q1 FY27 stood at Rs.184 crore, higher by 23% compared to Rs.150 crore in Q1 of the previous year. Profit after tax at Rs. 125 crore versus Rs. 95 crore of Q1 FY26, which is 31% higher than the same quarter of previous year. Crop care segment grew by 7% to Rs. 697 crore in Q1 FY27 from Rs. 652 crore in Q1 FY26 due to both volume and price growth and new product promotion increased digital engagement as well. The volume growth is 2% and price growth is 5%. Within the crop care segment, the domestic B2C witnessed a 19% growth in Q1 FY27, registering Rs. 534 crore revenue vis-à-vis Rs. 449 crore in Q1 FY26, which was driven by volume growth of 15%. Crop protection category grew by 18% and registered Q1 FY27 revenue of 455 crore vis-à-vis Rs. 386 crore in Q1 FY26, which was driven by volume growth of 16%. Soil and plant health category grew by 10% to Rs. 62 crore from Rs. 56 crore in Q1 FY27 in comparison to Q1 FY26, driven by price growth of 13%. We applied prudent pricing approach to drive the margin of the categories. Exports top-line grew by 28% to Rs.110 crore from Rs.152 crore due to 35% degrowth in volumes, reasons for degrowth or due to lower demand for pendimethalin in euro coupled with competitive China market prices. The price competitors aggressively impacted volumes of ACFA, pendi, CF, and hexadonazole. There were delays and uncertainty in shipping timelines due to port congestion or logistical challenges. Our CS7 Q1 FY27 revenue displayed promising growth by launching 191% growth to 24 crore from Rs. 8 crore driven by rebound and peak Kiki sales holdings. Total B2B revenue student Rs. 163 crore, vis-a-vis Rs. 203 crore. As decline of 19% was primarily due to volumes, which de-grew by 26%. In the crop care segment, we are focused on expanding our customer base and product portfolio is enhancing go-to-market strategy. We are driving focus execution across frontline and operational functions by optimizing the product portfolio, rationalizing territories, eliminating overlaps, and simplifying cost across the value chain. We are continuously putting a bird. Into increasing customer centricity through digital initiatives to reach out to channel partners and customers, implementation of customer satisfaction surveys, and identifying new growth areas. Moving to SEED's business, SEED's revenue grew by 6% to Rs.325 crores in Q1 FY27 from Rs.305 crore in Q1 FY26 due to 6% price growth. We witnessed acreage drop in north cotton and intense competition in southern and central cotton. The overall seed supply in terms of volume was sufficient but delayed due to non-availability of dryers, processing facilities, and concentrated arrivals coupled with labor shortages on the supply chain side. We will have a clear liquidation picture to emerge by end of July. In the seed segment, our primary focus will be on five strategic crops. Cotton, maize, millet, mustard, and rice. A selective and concentrated approach in these crops is expected to drive operational scale and efficiency. Overall, we remain disciplined in improving capital efficiency across both fixed capital and working capital. At quarter-end, our inventory levels remain elevated in comparison to the same quarter of last year. Collection cycles remain smooth. We have healthy cash and liquid balance of rupees 309 crore as of 30 June 26. That concludes our opening remarks. We can now commence on the Q&A session.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets for asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Ankur Perival, with Access Capital. Please come back.

Yeah, hi, sir. Thanks for the opportunity. First question on the exports market, you know, how are you seeing the product-wise, you know, demand as well as the pricing scenario there, given that, you know, Chinese competition on pricing sort of, you know, still keeps depressing. So, your thoughts there first.

Okay. We go one more. Yeah, so thank you, Ankur, for asking questions. I think export, I must say, it is challenging unless you have a branded business in the countries you operate. So as far as CSM is concerned, where you have a contract with the company, I think it is okay, still fine. Because you can discuss with the counterparty in negotiated terms and conditions. As far as catalog products are concerned, I think we have to remain competitive. And one of the products where we face challenges is really HFA. Because carometrol has to come from China, and then we have to process back and sell it to countries like Brazil and U.S. And China is also competing directly in those markets. So other than that, I think we are quite competitive. Now, we can copy it with China. And again, it only depends on the demand situation. CSM, not a challenge, because you have a contract. It is only the catalogue product where challenge becomes

significant.

Sure, sir. And on the other products, Pendi and, you know, other products are...

So, Pendi, Metropagene, Axeconazole, we are still competitive. I think we are able to compete. And metal, including metal-axil. So, I think other than S.E.F.A.T., it's not a big challenge.

Okay, great. On the CSM side, we were thinking of, or we had talked earlier that, you know, to increase the share of CSM here. Any luck there in terms of...

Yeah, so we did start making a product for a customer in US. First shipments have gone this year. And subsequent volumes. So, first shipment is well received, you know, from a quality perspective. And everything else. We are in the process of securing more customers, but as I've been saying in the past, that's a slow burn. It takes time to keep cultivating. There are three, four products we're working badly on CSM, and one will be already with an existing customer home where we make and supply one product. So we're going to be adding those products, but they're all a slow rate. On catalog category, we are going to launch. I would say three to four products in the next three years. And we are at different stages of either advanced registration or pilot production and trying to increase some commercial quantities.

Sure, sir. Just next bit on the domestic part. If I heard the initial commentary right, we are looking at a lower cotton acreage for this financial year, at least, given the macro, you know, the rainfall and the, you know, risk. And since our portfolio is slightly heavy on the cotton side, what are your thoughts on the domestic growth overall for this year?

So cotton, I would say anybody operating in crop protection sector. So we have stakes as far as cotton is concerned, both in crop protection as well as seed. Now, seed we have already factored in that this year, it is unlikely that cotton business will grow. So, two things have happened. We were pretty heavy on northern side and north side Punjab and Haryana cotton area significant decline. Even in South and Central, two factors are playing. A, it's a rain-fed area when it rains less. Farmers plant anyway less cotton. On the top of that, there has been a lot of spread of illegal HDBT cotton. So, I think we are looking at, you know, maybe as we hear the end, maybe flat ear, but we are focusing quite a lot on rice and maize and millet where we had launched quite a few product in last few years. This year, again, we have launched product in patty, maize and millet. So, focus has shifted right now for the current season to be more aggressive on other crops. I mean, cotton will remain important. In my view, cotton will recover. I mean, these kind of rain call situations happen once in a while. They do not happen every year.

Sure, sir. And just on the domestic crop protection group as well.

Yeah, so cotton is one crop will take a lot of sprays. Now, last year, if anybody remembers commentary, we said, look, cotton area, well, there was a lot of area. Farmers did not get a chance to spray the crop because it was raining too much, right? Now, while cotton area may go down, but sometimes this intermittent rain, whatever crop has been planted, cotton prices remain, I think, quite supportive. So, farmers, those who have planted, if they are able to... Do field operations, it may have only marginally impacted the end of the day. So, I mean, this is something looking at a crystal ball and saying what will happen from a rain perspective in September, October, August. It's very difficult to say, but I wouldn't be very pessimistic at this point of time. I would say sometimes, you know, good distribution of rain, even if it's marginally lower, even if 90-95% of the normal cotton acres get planted, might still lead to similar situation as last year.

Sure, sir. Thanks a lot for a retail answer. Thank you and all for this.

Thank you. Thank you. Next question comes on the line of Praneet with SJ Investments. Please go ahead.

Hi, sir. Thank you for the opportunity. So I wanted to understand in terms of the Alina effect that everyone's been really talking about, has it transpired in the ground or how is the sentiment on the ground as far as this point of time?

So, Alnino certainly is a reality. You know, country has seen deficient rainfall. But you have to understand, roughly 50% plus of the area in the country is irrigated, has some kind of source of water. It's only the 50%, which is highly rainfall. So, I mean, as we see, because of the delayed rain, there has been delayed snowing, but there's also been catch-up. Right, you know, farmers, because most of our farmers, they are not thousand acre, five thousand acre farmer. They are able to quickly plant their crop. The only thing which changes is crop set. So, for example, this year, pulses area has gone up, but we know for sure that groundnut area in Saurashtra has gone down because of delayed rain. We know cotton will be planted less, but rice seems to be on track. So, it varies from area to area. Maize, certainly, initially, it was thought that maize will not be planted, but maize is getting planted. It's some of the coarse-grained Bajra and all in the marginal areas in Rajasthan might get impacted.

So it's a mixed picture.

I still think that... Even in the worst case scenario, 90-95% of the crop will get planted. Clarity is yet to emerge what farmers would prefer. I mean, soybean has got planted. There are in-between soybean seed-related challenges, but farmers did plant all those crops. So, to me, if crop gets established, at least on those areas, you know, I'm sure farmers will try to protect because commodity prices are also firming up in anticipation of lower yields this year.

So putting on some volumes, do you think it will be more a flattish or a marginal degrowth for the year? Because I understand that if the sowing, it will happen, but the volumes might still take a hit right for the year.

So, for example, I mean, so it's a very difficult question to answer. Assuming, including insecticide, fungicide, herbicide, and on a national area basis, on an average, say, three sprays are happening, and I don't know whether it's three or four or two. I'm just giving you an example. If on an average, three sprays are happening, and last year in 20-30% of the area, because of the weather factor, one spray got missed, so maybe three became 2.7, right, average. 90% area, if that crop gets sprayed more for farmers to protect their crop, we might still come back to the same number. I think it will be very situational. There are years where rainfall has been low, protection has still done well. So, too early to predict, I think if you ask me this question in the middle of August, I will be able to give you a better picture. It's too early to predict.

Understood, sir. Coming to the pricing, I think this quarter we took a large pricing increase and most of our growth was price. So do you think we're going to take more pricing increases going forward or have we completely passed on our raw material price increases to the farmer?

So, I think now focus has to be primarily be competitive in the market. I think price increase during the mid-season is generally very difficult. So, whatever price increases have to happen, have happened. And somewhere we have been able to pass on the full cost increase, somewhere partial, somewhere none. But on an overall basis, I would think there will be marginal positive impact from the price. Majority of the growth has to come from volume, and that's where your market excellence, your ability to work with the dealers, distributors, farmers, generate demand, be very agile on positioning stocks in the market, all of those factors will come to play. And as I've been talking in the past, we have been very active in that area, more active than probably would have been in the past.

I was actually referring to, because we had, in the last few months, we had a large price increase in the input commodities, right? Were we able to pass on, let's say, like 0.8 or 1, the entire part of it, or only like 80% of it? Where are we in the overall passing on level so far?

So, I mean, overall, we have tried to increase the path. But if you remember, I talked about when I discussed the April result in the March, we said, look, we are the first one to announce the price increase. We did. Until April, there was hardly any realization in the market. But of late, the market has moved on. And price increase is effective. It depends on the product. Having said that, will everything will translate to margin? The answer is probably no. Because you also have to make sure that you don't become uncompetitive in the market. We have to, at the end of the day, sell what we have produced. So will there be a price increase on an overall basis? The answer is yes. Will there be more volume increase this year? Our emphasis will be to sell more and capture markets there. Because I also believe this year might be challenging for quite a few small players where they might have working capital issues or money to promote and be aggressive in the market. And that's where players like organized players will try to take advantage.

But in terms of, let's say, channel inventory, I think we have a little elevated compared to last year. But how is the overall, like in terms of the market, how is the channel inventory so far?

So, channel inventory, I would say, is normalized. Now, it was more worrisome a month ago. I think off late, we have seen even in crops like soybean, but there's a, for example, there's a lesser demand for pre-emergence herbicide in soybean, but there's more demand for post-emergence herbicide. So in these situations, what happens? Farmers will wake. So if they have sown the seed soybean, they'll say, okay, let me ensure that my crop emerges first, then I'll put money on the import. So, this year, post-emergence herbicide demand is much more stronger than the pre-emergence. So, as I said, because of the situation, mix will change. How it will change, it will depend on the situation on the ground. But we have to be ready for all the eventualities.

So, but do we expect any more returns compared to last year, this year, extra because of the situation or like is the return level going to come down next?

So, return is another challenge, but I think every company, including ours, there's a method by which, you know, we account for returns. This year, we will be more cautious in accounting for returns. Probably we'll err on accounting more rather than less, right? Because you don't know the situation or situation you want. And so there's always a formula, which is also the AI-driven model, customer feedback, dealer-distributor feedback. We try to factor everything. My provisioning enough answer is yes. How much enough that is going to be enough, I don't know.

Oh, that's a fair understanding, because it's so uncertain, you just want to put as much product as possible, whatever offtakes, it's going to offtake.

Yeah, so we are cautious about that situation certainly.

Got it, sir. But you also mentioned this line of unorganized probably consolidating. So do you think how, like, what kind of impact can this have for organized players? Because you mentioned working capital issues this year is going to affect them badly. So do you think the organization, how much do you think it might grow?

So this is the sector that suffers from oversupply, right? So there's less supply in the market. It helps companies improve their return metrics and everything else. There's always more supply than the market can take. That's the reality of this market. I mean, be it seed, be it crop protection. So I think the largest challenge which we are not talking here is money getting stuck because of the fertilizer, right? Because when fertilizer deficit because of this war situation happened. Everybody stocked fertilizers, so money went to fertilizer, and then fertilizer liquidation got delayed because of the delayed rain. As a result, obviously, every company will have a delayed offtake of crop protection product and a subsequent impact on the cash flows.

So, but in terms of the raw material spiking, do you think it's stabilizing and going down or do you expect these levels to continue because crude and everything has been stabilizing?

So, about a month ago, when this MOU was signed between two countries, I think things have started looking, things have cooled down and prices have started trending towards norm. But the last five, seven days of development, I mean, at this point of time, there's enough inventory for Kharif, so nobody is panicking. As a result, it is not seen. But I think as fresh buying starts, we would see that and I have to, because we're not buying a lot now, we have stock enough for the Kharif season. And it's only when Rabi procurement will start now in the month of August, you know, we will see how the situation is. But I'm sure things which are directly correlated, for example, people buy cyclohexanone C9 as a solvent, that is actually linked to crude prices. People increase up and down as soon as, you know, crude prices go up and down. So is it a general trend? I think most of the people have stocked for the Kharib, so there's no panic at this point of time. And will the situation persist? Will people have to pay higher price? The Rabi input answer is yes.

Okay, so you expect a muster price to go up from here?

It depends. I mean, it depends how war will evolve.

Okay, but have you seen any tapering down, let's say, from the peak? Like what percent did you have been tapering down from the peak?

It is significantly tapered down. Right now, because demand supply situation is normalized, so you don't see that spike. It's only when people go for stocking for next season, things are starting to be there.

Got it, sir. In different competitiveness, you mentioned that we want to remain competitive and we don't want to raise the prices too much. Have you seen any new players or existing players getting more aggressive in the market now? That they're becoming more competitive and they're behaving more aggressive in the market?

I mean, not noticed. I think everybody has the same challenge. Everybody would like to optimize their income and profit. So, I haven't seen that kind of panic moment. Can that happen? We will see. At this point of time, generally, everybody is holding on. Everybody seems to be very optimistic.

Understood, sir. Thank you so much for your time.

Thank you. Next question comes on the line of Sonika Padulia, Billenipams. Please go ahead.

Thank you, sir, so much for giving me this opportunity. My question is about long-term value creation, like the agrochemical industry remaining quite competitive. So, I wanted to know, like, few years from now, what do you believe will be Valleys India's strongest competitive advantage?

So, I mean, two things. One thing is our brand, I think, is our biggest strength, I must say. The other thing, we are actually working on the portfolio because brand alone will not be enough. We are not able to supply a product which farmer will need at the competitive price. So our focus on R&D is much more sharper than in the past. And we continue to put more effort on increasing our R&D output, our collaboration efforts. I think combination with these three things and really our customer outreach now more trackable with a lot of digital investment. These three core areas, as we have articulated, and being a little bit more aggressive on seed as well as soil and plant health, which are high margin business. I think combination of these things and being on the top of fixed costs. I think these four, five factors should ensure that we remain competitive in the marketplace and a formidable player. And as I said, look, these businesses' margins cannot be tracked on a quarter-on-quarter basis. Two years ago, we said we want to deliver 500 basis points over a period of five years. EBITDA margin, I think we're on the track.

Thank you, sir. Now, talking about R&D, like Rallis has been consistently investing in R&D, product registration, and the capabilities, manufacturing capabilities. Like, you have taken a difficult decision of impairing. Certain development assets, then how do you ensure that whatever has been invested, like, that gives, like, how do you go with the project evaluation so that every rupee invested today generates superior returns?

So, I think two things fundamentally I've talked about in the past. A, focusing on R&D. So, a few things we stopped doing. We said we'll not research vegetable seeds. Because, you know, we were not competitive. We will not invest money on GM crops. We stopped that. So we got very focused on only doing R&D when it comes to seed. Five crops. Soil and plant health business primarily was dependent on third-party products. So we took a conscious choice to build capabilities in that area. To that extent, we have started taking steps. So while we will continue to insource products from other R&D and provide them market access, but we would build our capabilities on soil and plant health segment as well because I believe that's very critical, not only for Indian agriculture, but also bringing robustness to our portfolio and offering more comprehensive solution to the farmer. And even in soil and crop protection, we actually have focused on two areas more. One is Really being very sharp, laser focused, and we have in portfolio department, which has been strengthened, we have added a layer of product development team between marketing, R&D and sales, so that we have more rigor in what we do, how we do. And then we also have a strong B2B team, which is focusing and reaching out to global collaborators to access new products. So a combination of things will ensure that we remain competent.

Thank you so much, sir. Sir, my last question, like as a shareholder, if I meet you again after three years, so what are the measurable outcomes that you would want me to see in Raleigh India that would conclude that there has been some structural transformation that has happened and that it has been transferred into a higher quality business delivering sustainable growth and superior shareholder.

Let me ask you a question. What would be your expectations three years down the line from us?

Here down the lines, I want to see Rallis as the only company that is coming to everyone's mind when we think about investing in this sector or segment.

Okay, so rally should be top of mind, that's what I hear. I mean, obviously, all what I said I am doing, that's a single aim that we should be seen as a significant player in transformation of agriculture at the same time, delivering superior return to shareholders. I mean, that's all we are working for. And that will not come unless we manage our back-end process as well, be it R&D, product advancement, be it cost competitiveness, collaborations, manufacturing operations. So I think those are the components, how part of it, our goals are very aligned with your aspirations. And ultimately, shareholders look for delivery of margins, right? So we want to be a consistent company which delivers 15% plus EBITDA margin even in a bad year. So that kind of consistency and stability we want to bring in.

Thank you so much, sir. Thank you so much.

Thank you. A reminder to all the participants, please restrict yourself to two questions. Next question comes from the line of Rajakumar Vedjanath with RK Investments. Please go ahead.

Yeah, good morning. Thanks for the opportunity. Can you hear me?

Yes, I can hear you. Yeah, good morning.

So, just two questions. So, the first question is, this rupee depreciation, how much it has improved the competitiveness of

Yeah, I think it's a double A support because when you buy raw material in dollar, you also end up paying more rupees. But I think because we are a net exporter, net net it is positive for us.

No, I know it's positive, but I'm asking because you're still saying that you're facing competition from Chinese. So, I just want to know, has it not helped you improve your competitiveness?

I mean, it does on an overall basis, and that's the reason in spite of delivering lower volume on export, our profitability contribution to the business has grown.

So, but do you see yourself bettering the competition go forward with the current 2P levels?

See, I think, look, so we are competing with Chinese players as well as Indian players in overseas market. So, obviously, when it comes to Indian players, I don't think our situation gets any worse. Right? With Chinese players, it is product-specific. So, for example, I keep saying SF8 is a problem. Because SF8, I have to buy raw material from the same supplier who also produces SF8 and sells to customers in Brazil and US. So, I think there are one or two products that is a specific issue. But otherwise, by and large, in other products, it is complicated.

Okay. Okay, got it, sir.

So, the second question is, I want to know what is your outlook on the sugar cane and the chili crop, and I also want to know what, how much contribution you get from these two crops.

So, chili is an important contributor to us, not only to us, but in general for crop protection industry. One of our product was badly impacted last year. Last year, we sell because of chili and because commodity prices were very low. This year, chili planting intentions are positive. Even commodity prices are high. So I think this year, chili should see recovery. Now, sugar cane, I think, as of now, it's a crop which takes a lot of water. Right? While planting is there, how water situation will evolve, I think, but as of now, I would say sugarcane is also broadly positive.

Okay. And this improvement in chile, will it improve your top line in sales? I mean, significantly?

It should, yes. I mean, the products which are specific to Chile have suffered last year, it should lead to positive sentiment. Now, it is all going to happen in quarter two, so I can't really say how things will evolve, but by and large, quarter two and three where Chile products go, I mean, at this point of time, I have no reason not to be optimistic.

Okay. Sorry to label on the same question. So, I just wonder whether this chili, improvement chili, will it help you in terms of showing the growth on the domestic crop care segment?

Yes, it should. I mean, if everything goes from here on as expected.

So, it will be a game changer.

And it's a general answer that Crop, whether crop is there or not, whether farmers have enough resources in terms of water to raise the crop or not, and then pest pressure, and then commodity prices. So farmers, if commodity prices are strong and they do not have any risk of not able to grow the crop, they tend to invest in the input.

Got it, sir. Thank you so much.

All the best.

Thank you. Next question comes from the line of Rohit Nagaraj, which is 61 Capital. Please go ahead.

Thanks for the opportunity. So, first question is, due to the shift in cotton and short duration crops, will there be any impact on the agrochemical consumption for us and generally for the industry? Thank you.

So, I think it depends. As I said, as a thumb rule, So last year, a lot of cotton was planted. I mean, certainly significantly higher than current year. And rainfalls were also very good. But then what happened? It rained a lot in the month of August and September. As a result, in spite of a standing crop, farmers did not get time to spray. And then we said, okay, insecticide business in many crops has suffered because there was a low commodity prices or farmers did not get time to conduct the operation. Now, so 5-10% less crop with an open window to farmers, those who have already planted the proper 90% of the acre, actually can nullify the impact of lower crop. I think what is important is a decent moisture environment for farmers to continue to grow crop actually might turn out to be more positive than what we think it could be in reality.

So, the second is on the biological biofertilizers. So, last year it was impacted because of the ban. So, prior to that, what could be the percentage of sales from biological biofertilizers in the total revenues? And will we see a material traction during the ongoing quarter and in Q1 from the biological perspective? Thank you.

I think overall... I would say biological should do better than, significantly better than last year.

Right. And any understanding in terms of the overall sales, what could be the contribution?

So, it's a smaller segment relatively, but obviously it's more profitable. I mean, for example, in quarter one, it has grown by 10%. Now, this was also a quarter where crops flowing, crop sowing was slow. So as crop sowing picks up and farmers come back to, you know, apply various micronutrients and biostimulant, biofertilizers, water-soluble fertilizer, I think I expect this to certainly. Pick up faster than what it has done in the past because there has been a lot of positive regulatory development. As of now, we do not have any challenges from our portfolio perspective from not able to sell. So it should become even more positive in my view.

Perfect. And just one last clarification in terms of the delay in monsoon, would it have any impact on the seeds production for us? And maybe for the next year's season, we may have some scarcity of seeds?

So, I mean, this is a very interesting question because I can tell you in my more than three decades of career, nobody has been able to predict the future in this. So, if you remember, in 24 and 25, we said we could have sold more. Because we were getting less seed from production and it was happening because there was too much rain in the month of October and November and seed harvesting, seed planting getting delayed as a result, harvesting our industry's inability to supply on time. Last year, so majority of the seed other than cotton gets planted in the month of October. Cotton production is already in the field, and in fact, we have taken a proactive step to reduce the production acre this year because each company will carry forward cotton seed inventory, which is good enough to meet, if not all, at least 30, 40, 50 percent of the next year requirement. Right? So, from a seed production perspective, cotton companies will not have a challenge. Now, if there's a significant failure of cotton seed production in the current season, this could become a challenge, but nobody can predict. We'll only know in October, November, and December. Now, all maize, rice, bajra, and other crop production season begins in October, and crop comes from harvest in the month of. March and April processed, packed and sold, and some stored in the cold storage for future. Last year, monsoon ended in the month of September. As a result, there was a significant planting because the industry had suffered for last two, three years because of the shortage of the seed. There was a lot of planting of seed crop and rains also cooperated. As a result, this year, actually, industry has excess production of everything. So there's enough corn, rice, everything is available. But again, it is not enough to cover the next year. Again, seed companies will go for next planning season in the month of September. So if it continues to rain in the month of October, November, planning will get delayed and you get into a challenging situation. In normal course, I would say seed actually in the seed industry is sitting on the surplus this year, which should help us in better managing next season.

Perfect, sir. Thanks a lot and all the best.

Thank you. Thank you. Next question comes from the line of Kunjan Sharma with Guruji Associates. Please go ahead.

Hi, am I ordering?

Yes, hi.

All right, thanks for the opportunity. So my question would be for the seat segment. So first of all, what is the position of our inventory in comparison to the last year? In addition to cotton, which crops are majorly responsible for this variance, and what would be the reason for the saving?

So, as I said, inventory situation is comfortable. I would say last year our hero was cotton. Our hero is going to be rice, maize, and millet, and hopefully mustard because oil seed prices are also come, but mustard season will come in the month of September. This year, because of the factors I explained earlier to the question, cotton is going to be subdued. Because not cotton did not get planted where we had very high stake with the catch. South and central also cotton area is lower. And also... There has been a spread of illegal HD cotton in the northern area. So cotton, I do not expect much growth as we, I mean, when I look at

the year in forecast, but other crops, we should grow significantly over last year.

And I mean, that's the advantage of diversification in seed soil and plant health and crop protection. One of the other things works. So last year, cotton took us where we reached. This year, probably we'll have to rely on other crops.

Right, but I asked, which crops are leading to the higher inventory versus last year?

Cotton primary. Cotton, I mean, everybody had planned for the production, and planting got delayed. I mean, not only delayed, also reduced. And then illegal HTBT cotton came in the market.

Other crops are on similar lines of inventory?

So, other crops have a, so sometimes, I mean, in rice and corn, Some extra inventory is a good problem to have.

All right. And so, second question, would be that EBITDA margin in C-percent has gone up from 26 to 30 percent. So, what are the key factors that drove this improvement?

So, I think the key factor really is the mixed chain. So, what happens, cotton, because of the government price control, margins are always lower. Whereas, you know, margins on rice, maize, and millet are higher. So, when proportion of these products go up relative to cotton, margins improve. So, those are the, it's basically product mix.

Product mix, right. And so, how do we compare the yield of this year as compared to the earlier year?

So, productivity-wise, I mean, we can get you the details, but I think this year the challenge at the time of harvest happened was that because of gas, so all seed which gets harvested has to be gas-dried, and majority of the drying capacity is located in and around in Hyderabad, and seed intake starts coming in from the month of March. When war begins in the month of End of February, there was a suddenly gas crisis, if some of you remember, right, including domestic and industrial. As a result, gas was not available in farmers or harvesting crop and saying, take away your crop. So we had to actually do what we call pad drying, what we call open field drying of the seed, not only as many companies because enough seed capacity was not available. And the harvest was much bigger than the previous year to the extent of 50 percent in some crops. So, while yield was higher, but that may not translate to cost-benefit because when you dry the seed in open field, your recovery is less. So, whatever gains came from the yield improvement probably got neutralized by the cost of extra drying in the field as well as lesser recovery. So, we haven't done that math. I think that seasonal work is still in progress. We would be probably able to give you more clarity maybe later. Maybe you can send an email to Chhiji. We can provide a greater clarity, but we are still working out those numbers. I mean, as soon as harvest comes out primary... Focus becomes on whatever is recovered. Please process, pack and sell and send to the market. So, what has happened, we don't worry. The post-mortem and analysis is done later on.

Sure. Just one last question, sir. Feed business has grown well this quarter. I believe earlier you mentioned this was led by price improvement.

So, cotton, there's a volume drop. But there's a price, price, price as well as some marginal improvement, I mean, some improvement in the volumes of rice, maize, millet.

Okay, and what about the price improvement, sir?

So, if you look at the mix, I think we have about 6% overall improvement. I would say a lot of it is actually driven by price.

All right. That will be awesome, Aishwarya. Thank you so much.

Thank you. Next question comes from the line of Abhijit Akela with Kotex Securities. Please go over.

Yeah, thank you so much. Sir, there's a 35 crore provision reversal within employee cost, I believe, this quarter, which is shown in footnote 6. Adjusted for that, the employee cost would be 87 crores, which is up quite sharply, both year on year and sequentially. So, if you could please just help us understand, you know, what the reason for that is, as well as the sharp increase in other expenses as well that we see this quarter.

Yeah, I will ask Bhaskar to give you the details.

Yeah, yeah, hi.

As far as the 35 crore number is concerned, 10 crore of that would be more only Q4 of last year versus Q1 difference, but like-to-like quarter June last year versus this, it's not a difference IDD, okay? So that leaves us only with 24 crore, which is more a one-time correction only of this year. This is not likely to repeat at all.

Sorry, just to clarify, you said the year-on-year difference is 34 crores because of the provision reversal.

35 is the number, right? Out of that, around 10 to 11 is a difference which was there in like-to-like quarter last quarter as well as last June as well as this June. So, we do not need to take that for comparison because it happens every year. But, 24 crores is a one-time thing which is specific for this year, you can say, but this is not likely to repeat in any other quarter. This is a one-time thing which is happening, that's it.

I see. So, it happens.

Yeah, exactly. So, the increase in the cost would be around 12%, which is normally an inflation which always happens year on year.

Okay, okay. So, one queue of every year tends to have some of these, you know, items which don't recur in the other quarters. Yeah, exactly. Okay, understood. And how about the other expenses? Those are up by about 13-14%. Is that also fairly normal?

See, in certain cases, we have had certain one-time costs which also may not be repetitive.

Okay, and this 35 crore provision reversal, if you could please just help us understand what exactly this item is related to, I mean.

As I mentioned, about 11 crores is more about the performance incentive, right? At the year end, when we see what is to be given, so we understand what is to be given, and then what is not given is reversed in the first quarter, because the payouts happen during the first quarter, so any provision difference is settled in the first quarter, and this is more a recurring thing, you can say. This would be happening in every Q1 of, you know, every year. However, the balance, 24 crores, what is there as a reversal, that's more to do with the restructuring and retirement stuff, which doesn't happen in every year, actually.

All right. Thank you so much. And for Mr. Shukla, just one question here. Sir, if I heard you correctly in your opening remarks, I think you mentioned that for the crop protection domestic market, you're expecting, or rather the industry is expected to grow at, say, 6 to 8% this year and seed somewhere in the mid to high single digits. Is that really a reasonable estimate for the year ahead?

Mid to high minus cotton.

Sorry, mid to high minus cotton.

Yeah, cotton you have to exclude from the cornaceous, and cotton is a challenging game. Right, right.

But agrochemicals, you still think 6-8% is possible for the year?

Because I think when price increase will be a reality, right? So it's quite fair to assume because that's an average cost, input cost increase unless it becomes so competitive, so much of inventory in the market that people resort to. So, unnecessary discounting. At this point of time, I haven't seen any panic in the market. That means demand supply is probably fairly balanced. So, the price is increased alone. So, take care of that 68% growth.

Understood, sir. And just one last thing. Is there a spillover of sales for either of our businesses for prediction or seeds from 1-2 to 2-3?

Actually, we are very careful because, I mean, the way we close our ears, we try to, I mean, the only thing happens is sometimes return provisions, right? Because that is very, very difficult to estimate what we have sold in the month of, say, March. Now, when you relook at, so other than some here and there adjustment, we are very calibrated and careful about what we say and what we deliver. I mean, there will always be some, I mean, some, but it will be part of the normal course of business.

Okay, sir. Thank you so much and wish you all the best.

Thank you. Next question comes on the line of Himani Padetia with ICSF Potential. Please go.

Hi, sir. Thank you for taking up my question. Sir, you mentioned in the opening remarks that the working capital, it has increased on the industry-wide. So, just wanted to understand what is the working capital that we have with Tralys this year in the June versus last year in number of days.

So, okay. Yeah, first, go ahead.

Yeah, so working capital, net-to-net, it has kind of increased by around, you know, 15 to 20 days.

Okay.

So, yeah, so if you ask me the reason, the reason is more like, you know, the fertilizer availability, the shortage which was there, people flocked to buy that and book that actually. Farmers had blocked their cash first into the fertilizer. So that's when they have rationing issues for the other agri inputs which they need to spend on. This is pretty much the same, you know, situation for most of the people in this industry.

Okay. Sir, the next question that I wanted to understand was, so, sir mentioned on the sales return side that it is difficult to predict what could be the sales return or it is an industry-wide phenomenon because while we have placed it into the channels, it is not very clear as to we can have a 100% liquidation of the scheme. So, until 21st of July as we are sitting today, have you seen any sales return until now?

So, yes, I mean, we do. For example, cotton seed for North India would have taken back in the quarter one itself, right? So, it's crop specific, product specific. Now, for crop protection, I think majority of the returns will not happen by June. But whatever was maybe supplied for Rabi season before December quarter, and that does not get sold and there's no opportunity, or in the March quarter, there's no opportunity to sell in, curry will obviously be taken back. So it's product crop specific. All the pre-emergence herbicide business for rice, soybean, ground nuts, so everything will be taken back in this quarter. So it changes from crop to crop and product category to category. But it again is a very normal thing because there's no point in leaving product which is not going to be consumed and unnecessary having receivables on the book.

Right. Also, sir, one last thing. You also mentioned on the capacity utilization that it has slightly increased from the last year. So, could you just help us with what are the levels current year versus last year, and also the kind of KPIs that we have had in the past, what is the incremental sales that we are getting from that?

So, I think this is a lot of detailed question. I would ask, you know, Chirjeev to get back to you with the detail because there are multiple plants we have. This plant-specific product is specific. He can provide the detailed version of it.

Okay. Awesome. Thank you.

Thank you. Next question comes from the line of Viju with Antic stockbroking. Please go.

Yeah, I thank you for the opportunity. First question regarding the, some of the media reports suggest that in North India, especially for the PADI costs, farmers are doing DEA's sowing. So what can, like, how that can impact in terms of post-demand herbicides consumption, and if we have any portfolio, like, if we have any strong product there, like, how do you see that as an opportunity in this season?

So as a thumb rule, when farmers move from transplanted rice, To direct seeded rice, consumption of both pre-emergence, early, post, and post-emergence increases. So your question is, do we have a portfolio? Yes, and we are launching new products. Even this year, we have launched a new rice herbicide, including we have started participating by licensing a direct seeded rice technology, and we have already sold on a pilot basis some quantity, particularly in Chhattipur region. So, yes, we are participating in that segment. We are adding product.

But do we have any kind of, you know, existing product that can, you know, existing or strong brand that can take the opportunity or, like, grow in the herbicide segment, since until now, herbicide revenue was not that much, you know.

Yeah, so two years ago, I said that, look, our herbicide is our weakness, and we have started adding products, but as we speak this year, if you say this quarter, just this quarter, actually herbicide is the largest contributor, followed by insecticide and fungicide, and our herbicide business has grown by 12%.

Okay, okay, understood. Understood. And in terms of second question, I think in both you, you have mentioned that we are, like, we have done, you know, some pre-buying for the inputs or inputs material in the month of, say, about early March and July 5th. So, was there any kind of a positive impact that we have recorded this quarter, and if you could quantify the same?

So, you're right that we did say and we did procure, started procuring inventory because when war started, nobody had a clarity where it is heading and prices were going up every day. So, we had to secure inventory for Kharib season. So, we did that. And as a result, you know, at the end of the day, how season will end, I must say, at the end of the season, I'll be able to give you a clear answer, what was our weighted average, because something you would have bought lower, and again, at a higher price and all, and then prices are stabilized, and I think now, prices might again start firming up again, given the war situation. But yes, I think we do track of what is my weighted price increase. And at that point of time, because we had a cash, we were also able to negotiate better discount. I think overall it should have positive impact.

And also, one last thing I would like to clarify with you is that we have seen some of the price hike in the month of March to May, maybe 15-20% kind of price hike that we have seen in the channel. So, how that scenario, if you look at prices in the month of March or May and in the month of June, how much will be that price hike already there in the system, and how much we have to take back in terms of, like, due to the lower conjunction, and also, how was the generic product import during those periods because of increasing prices?

So, I would say price and volume is always seen in combination depending on how much you want to sell and what you want to sell. So, when we started buying product at a higher price, we also were probably one of the first few to go and increase the price. Price increase This was not... Accepted by the market till really May. It is really in the June when a lot of material already stocked, maybe prior to March quarter, got liquidated. Price acceptance, reality of price increase became a reality. But I think for us, what I believe is that it's a combination of, when we report the number, it's a combination of volume as well as price, which is helping us. So just to give you a... So, whatever you sold in quarter one probably also had a carry out from the previous low season prices, very very difficult to estimate. But given the challenges in the season, our priority will remain to strike a fine balance between volume and price, but give a precedence to volume if you have to make it up to season.

Understood. In terms of the imports of genetics products by this trader, and what about the actual killing inventory by the importers of genetics?

So, I think it's normal. Initially, it looked like they may not be very active, but a delayed monsoon also gave them opportunity, you know, some extra time. So, at this point of time, I wouldn't say industry is sitting with very high inventory. Industry is sitting with the normal inventory. And if things go as per the plan, I think we'll be, I mean, if season cooperates, I think we might be in a decent situation. We might end up in a very decent situation.

Understood. Understood. And, sir, I think you have clarified in terms of crop shape and all. So, if I look at in terms of May's price and cotton price, so over the last one-year period, I think May's price is continuing to trade at a lower level compared to MSP and still trading at a lower level across the Monday. While the foreign prices have seen roughly around 40-50% jump over last year period, so how do you see in terms of profit in this season or maybe in next season, and if there is not enough profit available from maize to other crops? So what is the reason that format still, you know,

So, as a thumb rule, palmers, so if you are, say, sitting in Vidarba region, right, you have only two choices. Either you can grow cotton or you can grow soybean. In Vidarba, they will not grow normally corn, right, because these two crops are, so sorry, it is cotton or soybean. Now, depending on the rainfall situation, they can switch, right? Now, the switch could also be a combination of rainfall and commodities, but if they end up planting more of soybean, there is going to be increased consumption of herbicide and less consumption of insecticide and fungicide. If they end up planting cotton, there may be reduced use of herbicide, but insecticide will be sitting on the top, maybe 60-70%, even fungicide might be lower. So I think situation is evolving. What we know that cotton has gone down, soybean and maize has gone up, pulses have gone up. But again, in pulse, if they end up planting, poorer than moon is a short duration crop, lesser sprays. If they end up planting, tour is a long duration crop, more sprays. So I think I can give you a general principle of how farmers operate. And even if there's a long duration, crop pressure is lower, like last year, too much of rain, farmers couldn't spray. So how things in the world is very, very difficult to say.

Understood, understood. Thanks, thanks. I think that's all from my name.

Thank you. Ladies and gentlemen, we take that as the last question and conclude the question in another session on behalf of Rallis India Limited. That concludes this conference. Thank you for joining us. You may now disconnect your lines.