Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rallis India Ltd (BOM:500355, Financial) reported a 9% volume growth, indicating strong demand in certain segments.
- The domestic Crop Care business showed a positive growth of 13%, driven by favorable monsoon and stable input prices.
- The company has launched five new products in the Crop Care segment, which could drive future growth.
- Rallis India Ltd (BOM:500355) has made significant progress in supply chain management, linking demand and supply planning with SAP IBP GreenLight.
- The company is focusing on developing differentiated products and improving customer connectivity through digital initiatives.
Negative Points
- EBITDA for the quarter stood at INR 96 crores, a decrease of 13% compared to the same quarter last year.
- Profit after tax for the quarter was INR 48 crores, down from INR 63 crores in Q1 FY24.
- International business revenues declined by 5% due to price challenges, despite a 19% volume growth.
- The seed business faced a revenue drop of 16% due to supply shortages in several crops.
- Gross margins were compressed due to a mix of lower-margin products and price pressures in the international market.
Q & A Highlights
Q: Can you explain the factors behind the gross margin decline and whether the international business is making a negative margin?
A: The gross margin decline is not due to the international business making a negative margin. We are liquidating old inventory, which has lower margins. The overall margin compression is due to the mix, with seeds having a lower proportion and domestic crop care showing better margins than international.
Q: How are digital and IT investments helping the company, and what is the expected run rate for these spends?
A: Digital investments are categorized into back-end ERP systems, AI and ML tools for forecasting, channel visibility, and customer connectivity. These investments help in better planning, forecasting, and operational efficiencies. The run rate for these spends is expected to increase as we focus more on customer understanding and manufacturing automation.
Q: What are the supply constraints in the seeds business, and when do you expect them to ease?
A: Seed supply constraints are due to drought conditions in Southern India over the past two years, affecting production. We are also raising quality standards, which sometimes leads to shortages. We are using AI and ML tools to better forecast demand and manage inventory. The constraints are expected to ease as we improve our planning and production processes.
Q: Can you provide insights into the export demand and pricing trends for key crops?
A: Export demand is picking up, but prices remain under pressure due to high inventory levels and competition from China. Products like pendimethalin have a good future, but others like acephate face challenges. We are focusing on becoming more efficient producers and building strong customer relationships to manage the situation.
Q: What are the strategic changes you are implementing to improve Rallis India's performance over the next three to five years?
A: We are focusing on differentiated products, portfolio optimization, and partnerships. Investments in R&D, digital initiatives, and manufacturing automation are key. We aim to improve customer connectivity and operational efficiencies. Leadership changes and organizational rightsizing are also being considered to drive higher returns on capital.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
