Best Agrolife Limited (539660) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Conference Call of Best Agrolife Limited. [Operator Instructions] This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. The statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. Today, from the management side, we have with us Mr. Surendra Sai, Executive Director; and Mr. Vikash Jain, Chief Financial Officer. I would now like to hand the call over to Mr. Surendra Sai for his opening remarks. Thank you, and over to you, sir.

Good afternoon, everyone. A warm welcome to all. Thank you for joining us today to discuss the Aagrolife financial performance for the first quarter of the current financial year. This year started with an apprehension regarding the monsoons, primarily driven by the early indications of 2026 and part of 2027 being a super El Nino year. The early predictions indicated that in 2026 itself El Nino could become the strongest event in the last 150 years and may push global temperatures to a record high triggering extreme weathers. The impact on monsoons and its cascading effect on [indiscernible] and agriculture was -- in the first quarter of FY '27, the key observations were delayed monsoon with irregular rainfall and above normal temperatures across several agricultural regions. Overall, as on date, the cumulative deviation from long-term average for rainfall is around 13%. The central region has hardly a deficit of 1%, while the deficit rainfall in the East and South is higher. We have been monitoring and adjusting our placements in alignment with the season dynamics. The current water storage situation across all reservoirs is at 81.5 billion cubic meters against the expected level of 87.6 billion cubic meters. These are positive signs to tide over the rabi season, especially in the South where reservoirs play an important role. As of now reservoir in the South are receiving inflows and we hope this will improve in the following months. Overall, the impact has been on seed treatment primarily the demand has remained subdued due to the delayed [indiscernible] while lower crop establishment reduced the requirement for the first round of herbicide and insecticide applications primarily in soybeans, cotton, vegetable, and these are major crops. Despite these seasonal challenges, I'm pleased to share that Best Agrolife delivered a resilient performance during the quarter. We are also cautiously optimistic about the healthy season and our next few quarters. The revenue from operations increased 4% year-on-year to INR 396 crores. More importantly, profitability improved significantly with EBITDA growing 70% year-on-year and doubling to a little -- a little bit more than doubling to INR 41 crores. Our gross margin expanded by 37%, while EBITDA margins reached 20%, reflecting on the strength of our differentiated product portfolio, disciplined pricing, operational efficiencies and our focused cost management. The improvement in profitability demonstrates that our strategic initiatives over the past few years are translating into better quality earnings rather than merely higher volumes. Our differentiated product portfolio continues to gain strong acceptance among the we also see the benefit of our digital outreach via social media as well as WhatsApp. We have been pruning our product portfolio with emphasis on patented products. And we have increased the brand contribution of our patent portfolio from 45% last year Q1 to 64% this quarter. Our products such as [indiscernible] key crop segments, including paddy, cotton, sugarcane and vegetable. We have been in touch with the farmers and ground level to be able to understand their feedback. And we have had consistently good feedback and this is encouraging. We are also observing the repeat purchases, and we hope to continue to increase as we consolidate our [indiscernible] Our recently launched products are also progressing well. And we have always been committed to continue to introduce key patented products and key specialized products, which will help our farmers product portfolio, [indiscernible] efficiency in the treatment. [indiscernible] Power has delivered promising field performance and is expected to contribute meaningfully during the second half of the financial Similarly, based on market feedback, we introduced a new PGR portfolio -- and while this witnessed a relatively slow start due to the delayed crop growth. However, as the crop enters active vegetative phase, we expect the demand to improve from the second quarter onwards. The ground feedback that we have been receiving for the PGR portfolio has been positive. Across the country, we continue to invest in farmer engagement through demonstration, farmer interact, and putting a lot of focus on our digital awareness programs. These initiatives are strengthening our brand and accelerating the farmer adoption of our differentiated technology. We are also -- we also continue to remain focused on improving operational efficiency. Our gross margin expansion was supported by a favorable product mix, selective price increases and disciplined procurement and manufacturing practices. At the same time, we maintained the tight control over our operating costs while continuing to invest in the market development activities. Working capital has remained an area of focus during the quarter, our inventory level reduced compared to the same period last year, reflecting our emphasis on inventory optimization and [indiscernible]. We continue to progress across key international markets with successful product registrations happening in Nepal, Thailand, Vietnam and Mexico. Our regulatory approval for patented products has also been approved for fast track in Sri Lanka. Looking ahead, the outlook remains encouraging. Monsoon activity has improved across most agricultural regions has gathered, as crops move into vegetative and reproductive cycles, we expect demand for herbicides, insecticides, fungicides, PGR to improve during the following quarters. Our strategy remains unchanged. We will continue to strengthen our innovation pipeline, extend our differentiated products increase market penetration across key crop segments, deepen farmer engagement and improve operational efficiency. We remain confident that these initiatives will enable us to deliver sustainable profitable growth while creating long-term value for all our stakeholders. Before I conclude and hand over to Mr. Vikas, I would like to thank our farmers, channel partners, employees, research teams, shareholders for their continued trust and support. With that, I now request our CFO, Mr. Vikas to take you through the financial performance for the quarter in greater detail.

Thank you. Good afternoon, everyone. I will now take you through the financial performance for the first quarter of FY '27. Despite a challenging operating environment during the quarter, we delivered a strong improvement in profitability while maintaining healthy revenue growth. Revenue from operations stood at INR 396 crores compared with INR 381 crores in Q1 FY '2[indiscernible] year on year growth of 4%. The significant improvement came at the gross profit level. Gross profit increased by 32% year-on-year to INR 146 crores compared with INR 111 crores in the corresponding quarter last year. Consequently, gross margin improved to 37% from 29%, reflecting a favorable product mix, selective price increases and our continued focus on procurement and manufacturing efficiencies. This improvement was further supported by our ongoing product rationalization strategy. During the quarter, we reduced the number of generic products, increasing the contribution of our patented portfolio to 65% from 45%. Despite higher raw material costs arising from the U.S. Iran conflict, we were able to successfully pass on a significant portion of the cost inflation across our product portfolio. We also implemented selective price increases for certain patented products. Combined with our strength go-to-market strategy, these initiatives position us to further incentivize our dealer network while supporting sustainable margin expansion. EBITDA for the quarter stood at INR 78 crores compared with INR 46 crores in Q1 FY '26, registering a growth of 70% year on year. EBITDA margin improved significantly to 20% compared with 12% in the same period last year. The expansion in EBITDA margin reflects the combined impact of higher gross margins, improved operational efficiency and disciplined cost management. Our brand business continued to demonstrate healthy momentum during the quarter, with volumes of branded sales to dealers increasing by 13% year-on-year. Within this growth, our patented portfolio delivered an impressive 37% increase in volumes, reflecting the strong acceptance of our differentiated products. On the other hand, sales of generic products declined significantly in line with the company's strategic decision at the beginning of the year to discontinue select generic products and sharpen its focus on higher value branded and patented offerings. Profit after tax more than doubled during the quarter to INR 41 crores compared with INR 20 crores in Q1 FY '26, representing a growth of 104%. PAT margin improved to 10% from 5% during the corresponding quarter last year, demonstrating the operating leverage in our business model. Operating expenses, including finance costs and depreciation increased only 4.5% year-on-year to INR 92.97 crores despite continued investment in market development and business expansion. This reflects our continued focus on cost optimization while supporting long-term growth initiatives. From a balance sheet perspective, we continue to improve working capital efficiencies. Inventory stood at INR 764 crores as of 30th June compared to INR 812 crores a year ago. Representing a reduction of around 6%. Inventory remains an important management priority and we expect further improvement as sales momentum strengthens during the [indiscernible] season. Overall, the first quarter demonstrates the resilience of our business model. Although weather-related disruptions affected the timing of market demand, our differentiated product portfolio, disciplined pricing strategy and operational efficiencies enabled us to deliver significant improvement in margins and profitability. Looking ahead, improving monsoon conditions, healthy crop prospects and increasing acceptance of our differentiated products provide confidence of stronger business momentum during the remainder of FY '27. We remain focused on maintaining profitability, improving working capital efficiency, optimizing cash flows and delivering sustainable returns to our shareholders. With that, we conclude our remarks and are now ready to take questions from the participants.

[Operator Instructions] First question is from [indiscernible] from Sapphire Capital.

A couple of questions, sir. First, we've seen very strong gross margin improvement and EBITDA margin improvement. So you alluded to the fact that it was because of the product mix. Could you elaborate a bit more on what has worked for us? And we've seen 37% increase in the patented products volume. So where are we seeing the most traction? And how sustainable are these margins?

So with respect to product mix, so there were 2 points. One is there are many products which we decided to discontinue. So that portfolio went down. And secondly, we also launched new patent portfolio of products. So in addition to our previous 9 products, we launched further 3 new products. So as of today, we have around 12 patent products. And the increase in this patent portfolio went up by 37%. [indiscernible] also 1 of our key products, which is [indiscernible], less our 3 new products contributed at a much higher sales, resulting in CCR [indiscernible] portfolio of branded -- last year, it was around 45%. And this year, we in patent sales within our branded. So this was the reason that the margins went up. And this will continue because this is part of your second question that sustainable will be sustained because the portfolio of generics, obviously, once we have discontinued will be lower. And then when we are launching newer products, the proportion of rating will obviously go up and then the margins will remain at higher levels. Your very valid point is about sustainability. Now what happens towards the round field and farmers and dealers is that there is a preponderance of wanting to have a basket of availability. And a large number of the specialized and picking products require the presence of each basket to be available. But generally, what happens with the market of generics is that it goes cold on the profitability and they pulled out the gross margin. What we have been observing on the ground and what's happening at the farmer level infact is the growing adoption of the specialized products and is helping us to avoid taking on the generic and we will continue to focus our marketing strategy and sharpening our marketing strategy as well as our digital outreach to ensure that there is only a relevant and meaningful percentage of generics that we carry along with our specialized portfolio and we hope this will help us to be in a sustainable manner where we are able to deliver higher topline as well as a better bottom line. Please I think you may have had another question.

So for first quarter, I think 54% of the sales came from the patented products. So where do we see this percentage going to for this year? And what is the target for the next year? And any of new products launches that are in pipeline for this year also? So could you elaborate a bit more on that?

So in a sense, In our previous calls as well, we had given an indication to see that the company is moving towards more specialized products. So our patent portfolio across over the last few years has been going up. And this year, in addition to launching 3 new products, the cut [indiscernible] the low-margin generic products. So we believe in current year or in future should be anyway higher of 60%. Now depending upon Centro, it would really -- so we believe it will be anywhere between 60% to 70%, where our patent portfolio should remain out of our total branded sales.

And any such launches planned for this year, sir, except for the period you've already done?

So these launches this year have already done have been already there in the market. As of now, no new products for the current year because once we have launched, it would obviously take care of the current and the next season. But yes, there are pipeline for which the product will come. Now it could be tenant it could be next year or as well it depends upon the into how quickly we get. But we are already we are in the pocket and pipeline is already there.

Okay. And just last question from my side. In terms of the demand and what sort of overall growth should we expect for this year and for the next year, how are you seeing the overall demand environment?

See, in the sense, if you have spoken to me in 10 days back, then we would have been worse situation because we don't fall this lesser as compared to what we are today. So within a span of 10 days, we see a lot of coverage, which has happened. So obviously, still the situation is difficult in a few of the pockets of the country. But we believe at least we are better off than what we were 15 days earlier. And what we understand is it should get better in next 10, 15 days. So if all this goes pretty well then you will see the consumption also following and the growth also comes in the same manner.

Next question is from the line of Rehan Syed from Plata Asset Managers.

Sir, my first question is around your patented portfolio of 5. So you say 18% now contributing 54% of the take in case versus 45% last year, while branded [indiscernible] increased 39% from 35%. So what is the medium-term target for product contribution and these [indiscernible] so -- and can you focus 75 to 85 benches over the next 2 to 3 years, like what you are seeing.

So if I understand correctly, 1 of the question was whether our portfolio of patent will go up to 80%, right? -- then?

Yes, yes, yes.

0 Yes. So In the sense, since we are to provide an entire portfolio of products and how it happens is even starts with Genrex. So our team has to engage with dealers and start with dealer products followed by specialized products. So it's very difficult for any company to just work only on specialized products. So the ratio would continue at around 4%. Yes, yes. So patent portfolio will continue at that proportion of 60%, 65% and balance would be generated. So this will remain more or less. This was -- sorry, we couldn't -- if I understand this was with respect to margins, you are asking on the [indiscernible]

Yes, That yes.

Yes. So I think you can see from the margins what we have reported this quarter, itself justifies to say that the margins on the patent portfolio because those are specialized and also we need to do a lot of work at the fee level to create a business among farmers. So the margins are higher here. And we generate, obviously, we are in competition and has to do as per the market price. So till the time we are selling higher patent, our margins will obviously be on the higher side.

Sir, my second last question is on your market share regarding about car experience. So consenting the strong growth in bitnespite we care season -- can you please quantify its current market and intended crop protection market. And it and what do you expect this to be over next 3 years.

The season it generally happens on like a day-to-day basis to say that, okay, today, the good rain for in any part of the country. So the decision on the sales team picks up there and then start selling and the liquidation happens. It's never about a general condition, but the improvement in rainfall ensure that it improves in the business. So -- and also, as I said, 15 days back, we was in lots of good situation, but since we are eating today, we are a little better off. So -- and we are confident that within next 10 days, it could be further better. So it all depends upon the monsoons and how it is covering the country. And the best part about our core product portfolio, we are there across almost all the states, covering most of the crops and providing better solutions. So wherever there might be a few pockets, for example, 1 or 2 of our patents, the sales was a little lower, but we are better off in other 4 products. So that will continue. So just to add on to an your query, I think maybe you're also looking from a perspective of a longer-term growth prospects. Would that be the right understanding. You're looking for that information.

Yes, yes, what are for the long term dividing this kind of post production market, like how you are [indiscernible]

Yes. So from a macro perspective, while the crop protection market growth in India has been relatively on a modest scale, there are a lot of intricacies on a crop by crop or a region-by-region sort of a situation. The more detailed sort of analysis on that will take a longer time. But on a very high level, there are 2, 3 things which are happening. One is, of course, the [indiscernible] business. Although the ITM sort of methodology has been promulgated by the government and the attention is to be followed by a lot of farmers. The integrated protection and the base to be able to juggle among different pesticides to be able to maximum yield with a very modest set of pesticide is formulated. It is being difficult to be [indiscernible] what is essentially a in 1 line, there is an increasing amount of test resistance. Attempting to be able to cancel that retesting which is of a challenge. There are 2 ways of solving this challenge. A is increasing a little bit more usage of the generics, which is not a really great idea. Other options is gone and your voices, which have a lower toxicity, higher efficiency and also are working on different worth of action -- and this is what -- this is the sort of segment that we are targeting, and we are trying to actively counter the ongoing test resistance by introducing new formulations with the newer technical. So while the overall projections of the crop protection market in India might be anywhere between 4% to 6%, we are hoping to be able to do a little better. Where the challenge has been is always on the market option and ability for us to be able to get the farmers to be educated to continue with their focus on our fashion portfolios. This is also 1 of the reasons why it farmer acceptance we are able to prove our generic portfolio and be able to push our great intel portfolio loan. We hope to continue to work on this. Farmer education is very important. And thank you for this question because it's sort of relatively tells us how we are in a differentiated segment.

[Operator Instructions] Next question is from the line of Amit from Robo Capital.

Sir we started tracking the company recently. And we see that last 3 years, I mean 3 years back, we used to do almost INR 190 crores of PAT and last 3 years our revenue as well as bottom line has dropped substantially. So could you just quickly summarize what were the challenges for the last 3 years?

For 1 quarter, we are eating to over 2 years, it will be a much longer discussion, but which if I summarize 1 of the year, we had a challenge with respect to China price-in price crash. So just years before that, we launched in a big gain B2C segment, which is through dealership network, our own brands within portfolio. And and we had a very good year. So also our inventories were higher, our procurements were higher. And suddenly, there was a price crash, so which affected our existing inventory and it became like we had to sell at much lower gross margins. So next year, majorly I say was because of the seasonal factors, we got a lot of sales return and that also impacted our numbers. So also in our factory operation, we were trying a lot on newer products and the products which are not easily available in India and trying to compete on a cost-competitive basis with China. So we spend a lot of time on those products. And the capacity is got utilized there, which otherwise would have gone in other products and our turnover could have been a lot higher. So these 3, 4 issues happened over last 2 years because of the numbers top line level as well as bottom line level went down. But you see in the sense we are pretty new in the B2C segment. So we are learning in the last 3, 4 years, but we are Also, we are 1 of the fastest growing in this segment, wherein if I say that in 3 years from branded business, we went up from INR 400 crores to INR 1000 crores and with the strategy of reducing B2B. So we went higher in branded products, our own and reducing the B2B business, which is more of a generic kind of portfolio. So yes, these few factors resulted. But now after 3, 4 years, we are more experienced you can say, with respect to the kind of issues we face. So we are able to tackle it much better. On expense front also, we had spent a lot because if you are coming with newer patent products, you need to have much larger efforts on the market on the field. So that also we spent higher in the last 3 years, but now we are trying to manage that at a reasonable level. So yes, these were the factors, but we are that whatever learnings we had, we are back to our growth phase wherein we will continue to push sales of our patented products, improve the top line as well as bottom line.

Sir, when do you see our top line reaching, say, INR 1,500 crores? And also for a sustainable margin, is it fair to say that about 13% or 13%, 14% will be a sustainable margin for the business? I'm not asking for a specific year, but in general, how do you see like sustainable margins for the business?

Yes. So as I said, the reasons for each of the years were obviously different because of which -- and as I mentioned that we were pretty new in the sense because we keep on comparing ourselves with years who are 20, 30, 40 years in the industry. obviously, we have to be, but we have our own challenges which we face and which we improve. So what you mentioned is right at EBITDA levels of we have achieved earlier as well at much higher of 15% as well. So 13%, 14% is a pretty reasonable ask to achieve for us under normal circumstances, and we are pretty confident that at each of the years, we should be able to have this level of 13%, 14%. Not a specific guidance for this year, but yes, we are pretty confident that seeing that our Q1 went good and including July numbers, which already ending today, which we see the results, the sales are going pretty good as per expectation. So that number should be achievable. Even turnover as well, we are pretty confident not touching it, but okay, if we are even closer also, the point is till the time our specialized portfolio is higher, we'll ensure that profitability will be higher. So top line could be a little here and there, but yes, we are confident of easily achieving 14%.

Right, sir. And my last question is on the revenue growth on a slightly longer-term basis, like 3-, 4-year basis, what do you think will be like a revenue CAGR? Or what is the internal aspiration to grow revenue at what rate?

So we have mostly bottomed out last year in March '26. And from year on, we should be in a sense the plan is to easily achieve a growth of 10% to 15% each year. Now there could be years where it could be a little higher and then a little lower as well. But yes, on an average CAGR should be anywhere between 10% to 15%...

Next question is from the line of individual investor.

Congrats on good set the Q4 have been doing in last year the nature...

Yes. So in the sense, obviously, the products initially would have sold our patented products. But still because of the delay in the season, our patented portfolio and especially a few of the products are and the season starts from August itself and also there is a delay. So the sales of patented products will continue not only just in Q1, plus in Q2 also. And with respect to Q3, Q4, obviously, those are the time when the season gets over and we get some sort of sales return. This year, we have been more careful as we have been doing with respect to sales return provision. So we have created a buffer for the sales return provision, which we expect that will start coming from September, October. So that trying to reduce that to happen in last 3 years. So hlly,tail4 we are conservative to that extent and we have...

Next question is from the line of Gunit Singh from Counter Cyclical PMS.