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Ladies and gentlemen, good day, and welcome to the Dhanuka Agritech Q4 FY '22 Conference Call, hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded.
I now hand the call over to Mr. Manish Mahawar from Antique Stock Broking. Thank you, and over to you, Mr. Mahawar.
Thank you, Sanjay. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of Dhanuka Agritech. From the management, we have Mr. MK Dhanuka, Managing Director; Mr. Harsh Dhanuka, Executive Director; Mr. Rahul Dhanuka, Chief Operating Officer; and Mr. VK Bansal, CFO, on the call.
Without further ado, I would like to hand over the call to Mr. Dhanuka for opening remarks, post which we'll open the floor for Q&A. Thank you, and over to you, Mr. Dhanuka.
Thank you, Mr. Manish. Good afternoon, ladies and gentlemen. Myself MK Dhanuka, Managing Director of Dhanuka Agritech Limited. I hope all of you are doing well and keeping safe. Thank you for joining us in the conference call for results of Q4 of FY '21/'22. I have with me Mr. Rahul Dhanuka, COO of the company; Mr. Harsh Dhanuka, Executive Director; and Mr. VK Bansal, CFO of the company.
As you know, Dhanuka Agritech is a leading agrochemical company in India, focusing on branded sales in the market. The company's strength lies in the manufacturing and marketing of formulated products. The product portfolio is spread across insecticides, herbicides, fungicides and plant growth regulators. Dhanuka Agritech is working with the vision of transforming India through agriculture. Our belief is that when we transform the lives of farmers by enhancing their productivity and quality and in turn, enhancing their income, we are making a small contribution in transforming India.
We work in all major crops in India and have implemented the best-in-class technology to ensure a smooth and efficient supply chain. Dhanuka has a pan-India presence through its marketing team and warehouses in all major states across India. With 3 manufacturing units, and 41 warehouses across India, we cater to around 6,500 distributors and dealers and around 80,000 retailers.
Through this extensive network, Dhanuka reaches out to approximately 10 million Indian farmers with its products and services. Dhanuka has more than 1,000 techno-commercial staff, supported by a strong sales and marketing team to promote and develop new products. It was due to efforts of the team, Dhanuka was able to secure higher growth in its focused products in comparison to generic products, which in turn helped us to protect the bottom line in a challenging year.
Dhanuka's strong R&D division has world-class NABL-accredited laboratory as well as an excellent team for new product registration and development. Dhanuka has international collaboration with 10 leading global agrochemical companies from the U.S., Japan and Europe, which helps us to introduce the latest technology in India.
There was adverse impact of weather conditions in the first half of the year, which has impacted the financials of H1 of the company. However, it was reversed from September and the conditions became favorable for consumption of agrochemicals. This has helped the company to recover its performance in the second half of the last financial year.
The growth in the second half of last financial year would have been much better if the South India would have not faced the 3 cyclones and the attack of the black thrips in the chilli crop. The chilli crop in South India has been destroyed because of the attack of black thrips and 3 cyclones has impacted the consumption of pesticides in South India, where the company got the dent in the growth.
As per IMD report, the monsoon is expected to be normal [indiscernible] year, which has brought the smile on the faces of the farmers. Also, the high commodity prices will encourage the farmers to protect their crops with higher investments, and we expect higher consumption of agrochemicals in this year.
Now moving on to the financial performance for the last quarter, I'm delighted to share that our revenue from operations stood at INR 318.30 crores in Q4 of FY '21/'22, versus INR 275.56 crores in Q4 of FY '20/'21, representing an increase of 15.51% over the corresponding period last year. And for the financial year '21/'22, it was INR 1,477.78 crores versus INR 1,387.46 crores which is 6.51%, up over last year.
EBITDA stood at INR 77.27 crores in Q4 of FY '21/'22 versus INR 73.36 crores in Q4 of FY '20/'21, representing an increase of 5.33% over the corresponding period last year. And for the financial year '21/'22, it is INR 296.97 crores versus INR 302.81 crores last year.
Profit after tax stood at INR 54.29 crores in Q4 of FY '21/'22 versus INR 48.64 crores, representing an increase of 11.6% over the corresponding period of last year and for the financial year '21/'22 it is INR 208.78 crores versus INR 210.56 crores in FY '20/'21.
The zone wise percentage share of turnover for financial year ended March 31, '22 is as follows for quarter 4: the North India is 27.49%, East India is 12.71%, West India is 22.42% and South India, 37.38%. Product category-wise share of turnover for Q4 of FY '21/'22, the insecticide is INR 44.56 crores -- sorry, 44.56%. The fungicide share was 19.49%, the herbicide share was 24.49% and others, including PGR was 11.46%.
The Board of Directors has recommended 300% final dividend. That is INR 6 per equity share having face value of INR 2 per share. The Board has already paid 400% interim dividend to the shareholders as declared in its board meeting dated 2nd February, '22. The total amount absorbed in the payment of dividend for this year is INR 65.21 crores. The payment of final dividend will be subject to the approval of the shareholders in the 37th Annual General Meeting scheduled to be held on 2nd August, 2022.
As discussed last time, the company is working on its greenfield project at Dahej, Gujarat as per scheduled plan. Some new initiatives for business expansion that we have taken in the last financial year, our investment in drones growth manufacturing startup, establishment of a biological product division and a new export division for creating new revenue streams for the company for mid- to long-term growth.
In the last con call, we informed that the company has a strong pipeline of Section 9(3) products as the CIB RP has approved 3 9(3) registrations for the company's products. We are happy to announce that apart from launching 3 9(3) products, the company is also planning to launch 3 new [ lines of ] products under category 9(4) in this financial year. This will drive the revenue growth in coming years.
Being India's leading agrochemical company, we are at the forefront of introducing digital solutions and innovations, [ streamlining ] policies and collaborating with indigenous entities to boost that integration of technology across business segments. In the same endeavor, we have tried to boost our reach through online farmer interactions and aggressive use of TV advertisements for all our key products.
We are focused on expanding our market coverage through our network of distributors and our digital platforms where we engage with the end consumer. In the same endeavor, Dhanuka has tied up with upcoming online platforms like AgroStar, DeHaat, Gramophone and [indiscernible] for online sales of Dhanuka products through their platform.
We consider ourselves responsible, who are securing the farmers' welfare and preserving food security of the nation. We continue to strengthen our association with the Farmer Producer Organization, Krishi Vigyan [ Kendras ] and other critical institutions to increase our business expertise and boost our market presence. Thank you very much for your kind attention. We will now take the questions from you, which you may have. Thank you very much.
[Operator Instructions] The first question is from the line of Mr. Viraj with Securities Investment Management.
Congratulations for a good set of numbers under the challenging environment. I have just 3 to 4 larger questions. First is, if we look at our own brands or product sales performance over the last 7 years, the sales have grown by around 10% CAGR between 2014 and 2021. And if we exclude the high growth of 2021, the growth has still been a healthy 7% growth. So just trying to understand where are we seeing this growth coming to us from in the own product brands and products? And how much of this is volume led and is price led? So any perspective you can share on this.
I'll take that, Mr. Viraj. This growth is actually being driven by Indian agriculture and Indian farmers, I would say. And there are 3 dimensions to it when it grows. One, more and more land is coming under chemically treated or chemically protected. Two, farmer is using relatively high-value products for higher price of commodity that he's getting. And three, farmer is using more of the products to ensure that the entire life cycle of the crop is well protected in terms of both quality and quantity. These 3 dimensions are the ones which are bringing in the growth plugged in by a relevant monsoon and good commodity prices.
For us, this growth has been coming in from a very, very strong BD side portfolio right from Targa to Sempra and our last year launched ONEKIL and 2 more -- 3 more weedicide launches coming in this year. So a very strong weedicide portfolio, which matches this nonavailability of farm labor. So that's one.
And second is we have introduced a couple of very powerful fungicides for export-oriented crops, horticulture crops like pomegranate and grapes, which have been really well accepted. So this is what is bringing in the growth.
The internal dimension to add there is a strong channel, which picks up Dhanuka's generic products as compared to other companies as a preferential treatment to Dhanuka's quality and Dhanuka's service, which brings the growth to Dhanuka.
So 2 follow-ups on this. One is how much of this is -- I mean what will be the volume versus price mix when I look at this own product brand sales performance over say, 5 or 7 years? Any perspective you can share there? And do we have any further avenues, either in terms of increased coverage or more crop applications which can help sustain this run rate?
I mean, why I'm asking this is because what we understand is typically after any new product which we get exclusive supply for sale in domestic market, after the third or the fifth year, the new joiner competition kind of creeps in and one typically sees a significant price erosion. So for us, when we say the major products, how would have their volume versus price mix been? And how should one look at the sustainable run rate for growth, not in the near term, but if I to look at, say, next 3- to 5-year kind of a view?
Well, I can't really answer that in terms of next 3 to 5 years because of the extreme uncertainty around the back-end supply chain for now, yet it will not remain that way for long. It will stabilize over a period. For us, a large chunk of the growth is driven by our specialty products, which have relatively stable supply chain and stable pricing from our principal companies. Now that's a tricky balance. Now overall, as a value growth this year, you know we have grown by 6.51%. The volume growth this year has been about 3.13%. And yes, I completely understand the price erosion possibility when the generics come in one after the other. And we try to ring-fence that by constantly upgrading the life cycle of the product by either developing new formulations or developing new variants. So that's what keeps us ahead of the competition. And that's also what keeps us in the fresh view of the farmer, wherein we are constantly trying to solve the farmer's next problem.
Just one more question, and that is largely on the ITI index. I mean, as you said, we have taken quite many initiatives over the last couple of years. I think as cutting the tail in the distribution network or running incentives or programs for the top-performing dealers and all. The launch pipeline has also been quite decent. But still somehow the ITI index continues to remain low end. This is before COVID as well.
So is it that the -- in terms of products which we are launching, they are more niche in nature? And whatever scope or opportunities we had, that has largely been utilized because incrementally whatever opportunities there are kind of conflicting in terms of product profile one may have and versus a potential pipeline from the partner. Any perspective you can share in terms of the ITI, how should one look at it going forward?
Yes. So there are 2 elements to the ITI index. One is the 9(3) registration. So there's some noise at the back end if we can mute the line? Yes. So 9(3) registrations have their long gestation period of 6 to 7 years since you're putting the pipeline to when it comes out and gets commercialized. So that is one thing. And second is various 9(4) or Me-Too products that we introduce. So when you say tail cutting, this is also one thing where we kind of decided to optimize after a peak of 20% ITI in '17, '18, where we realized that we have introduced some products which are not going to sustain beyond 3 years. So we kind of corrected our approach there, and we are now introducing relatively more stable products, which have relatively higher potential and market access. And we have kind of optimized the Me-Too introductions, the 9(4) introductions. And the 9(3) registrations have certainly got an impact of about 6 to 10 months extra because of COVID.
A few of our registrations, as you are aware, where delayed in the COVID cycle in 2020 and 2021. Also when the registration body -- registration committee did not meet or approve the registrations. So I think so that effect -- these 2 effects will rain out quickly, and you'll see a higher ITI index soon.
[Operator Instructions] Next question is from the line of Mr. Varshit Shah with Veto Capital.
First of all congratulations for decent set of numbers in Q4 despite the challenge. Sir, my question is on more so pertaining to second half of FY '23 and going into FY '24. If my [ seventh sense ] is correct, some of the technical prices in the forward markets appear that the prices will correct and normalize in the second half of FY '23. So in second half of FY '23, you will have, in terms of revenue, pressure in the form of deflation of sums, if not a major deflation. At the same time, your ITI index indicates that some of the new molecules are also lower. So the impact -- because of the mix impact you are higher on the revenue erosion.
So my question now is that do you see a kind of a flattish revenue growth at the industry level in H2 of FY '22 and FY '23? And would that have some impact on the overall EBITDA margin because of some loss at the inventory level or is it too early to call that?
So you answered that it's too early to call that, yet my take is different version. Can I get your, [ correct ] 2 questions? I really didn't get that.
Yes. Okay. So I'll repeat myself. So what I wanted to ask was that do you see revenue erosion in H2 because our mix is -- when I see the ITI index is more towards the existing molecules which you already have over the years and the pricing for them probably would be higher because of the normalization of technical prices.
So do you see that H2 revenue growth could be flattish on a Y-o-Y basis because of this deflation? Of course, I mean there's a different story at the EBITDA level.
Okay. So the deflation thing has kind of remained hanging since January. And in January, we were talking by -- after the Chinese New Year, we'll have deflation. In February, we were talking that now in April, we'll see that. In April, we are talking May, after the Japanese Golden week. And in May, we are already talking July. And the supply chain is choked due to relative erraticity of what's moving out from the global supply chain because of the nonavailability of containers and ships which are stuck in a traffic jam, as is cry from all the industries, not only agri input industry.
So this deflation thing is relatively a nuisance. Now deflation apart from the pricing function -- apart from the pricing is a function of two more things. One is demand based upon monsoons, and two is the commodity prices. Now these two things being favorable, I don't see that the deflation would have significant impact. If any, that should be compensated by the volume growth.
Understood. And sir, one clarification on the presentation, we have given the guidance of similar EBITDA. So is it an absolute guidance or is it a margin percentage guidance?
It is in percentage.
Okay. EBITDA is percentage guidance.
Yes, that's right.
And sir, one last question from my end and I'll come back in the queue. If you see our inventories, it has not increased drastically from a Y-o-Y basis. And going by the pay -- inventory and higher [ amount ] and higher payables in the balance sheet. It appears that probably we have done higher placements post the 31st March in the channel, is that assessment correct? And if yes, what is the current channel inventory versus what you want from a normalized [ one ]. So assuming your normalized long-term perspective.
We are not making any kind of placement. That is not the Dhanuka's policy. Dhanuka is supplying in time material to the dealers and distributors as per their demand. So no major placement has taken place in Dhanuka, whatever supplies has been made they are basically in line with the current requirements of the farmers and dealers and distributors.
So I don't foresee any major inventory for Dhanuka in the channel. But you are right that some of the peer companies, they definitely make placement of the material in the month of March to basically complete their targets for the year. So there the inventory levels will be a little bit more. But overall, as Rahul ji was sharing, the Shanghai port was closed for 1.5 months, and we are still dependent on China for import of technical grade pesticides as well as the intermediates, which are used by the technical manufacturers in India.
So demand is more and the supply is less because of the China factor. So I don't foresee any reason that there will be less demand because of the high channel inventory.
Sure. I think this is helpful. So just to clarify on that, I think our inventory levels have been higher by 17% on a Y-o-Y basis, absolute. And of course, I mean, a lot part of it is attributed to price rise. So from a volume basis, we are largely at the same level, probably plus minus 2%, 3% on a Y-o-Y. Is that assessment correct?
You see it is not on the same level. You are absolutely right because of the price increase and the cost will increase. But in my opinion, the volume level there will be an increase of around 5%, 7% type. And 10% to 12% on account to the price.
The next question is from the line of Mr. Trilok with Dymon Asia.
Just from a gross margin perspective, where do you see this settling down? So you have already added about the EBITDA margin guidance this year. But do you see any challenge in context of [indiscernible] taking further prices and offtake by the farmers? And second, is the -- how is the placement -- how is the season going? What's the outlook for the -- for next year, at least, particularly the first half? If you can sequence these 2 aspects.
You see as far as gross margins are concerned, we are expecting that gross margin would be in line with this year gross volume. They should remain almost similar to the '21/'22.
Are there going to be further pricing increases after the last quarter?
No, no, I'm saying on annualized basis.
Fair enough. Yes. And with respect to the outlook for the first half and how the placement has been, if you can just talk about it, that is helpful because for Q...
The outlook is really good because of the normal monsoon. We are expecting this year the growth would be good one in the first half of the financial year, absolutely.
And when you spoke on the initial comments about the 9(3) and 9(4) products, do we expect any sort of sales come through in this year? Or obviously, it will -- what kind of targets are you thinking from those products?
Yes. So we are expecting introduction of about 3 new 9(3) molecules in Q1. And 3 new 9(4) molecules, again in Q1. So total 6 products in Q1, we are expecting an introduction. So they will definitely contribute to the revenue in this financial year.
Sure. But obviously, a large portion will be only happening next year itself.
[Operator Instructions] Next question is from the line of Rohit Nagraj with Emkay Global.
And congrats for a good Q4 and overall good performance for FY '22. So the first question is in the -- in the presentation, we have said that we have established a biological product division and the new exports division as well. So if you could just elaborate on when do we see the biological products division coming out with the first set of products? And the exports trend, where have we progressed given that probably the first phase of our facility will be ready by end of this financial year?
Right. So the biological team is right now doing a market survey and study and they are trying to pick up the right elements for enhancing our portfolio and also in the right integrated and comprehensive solution to the farmer, coupled with the chemical solutions that we are already and conventionally offering. I hope to see something taking shape by year-end on that front.
And of course, on one side, our Dahej plant is coming up, which will boost our export initiative. Yet we are starting it now in anticipation of Dahej, as well we'll be doing other generic and formulated exports this year itself. So these 2 divisions have just come up recently and they would contribute for the future growth of the organization.
Right, sir. Just one clarification on the exports front, have we talked towards any of our existing relationships with the global MNCs for the opportunity given that we'll be ready with the plant in the next 1 year?
So those are in talks, yes. And not that I can share something in this group but we are working on that to leverage our relationship with various multinational organizations.
Got it. Good to hear. Sir, second question, again on the China front that there have been again cost inflation issues which are cropping up. So have you been able to take on the price increases comparing to the increase in the cost pressure and whether we have been able to pass it on completely through the price increases?
You see it is not passed on completely, but you see it is for everyone because we are expecting that will be passed on some part in Q1 and remain by Q2 definitely.
Right. Got it. That was very helpful.
Next question is from the line of Jay Shah with Capital PMS.
Congrats on a good set of numbers. Sir, my broad question is based on the business strategy that now the full China Plus One is taking shape, just wanted to know how does the management think going forward, do we even plan to get into procuring actives locally because now a lot of Indian companies are also making the actives for even these multinationals that we have tied up with? Or do we even think of going backward and make the actives on our own because formulation asset is our -- has been our strength and the key area? So what is the business strategy going forward? I just wanted to know.
There are 2 elements products. One element is China Plus One. So that China Plus One is for a while, I would say, is a myth created by some interests. So let it be, nothing against it. Yet for Dhanuka, what we see is we want to leverage our opportunities very carefully. And one of them being is the chemical production in India, for which the current government and everyone has been working aggressively irrespective of China, which goes on from the AatmaNirbhar Bharat perspective, which also goes on from the PLIs being offered for various initiatives in the country.
So with this the efforts to boost up manufacturing in the country irrespective of what segment it is, which has been really neglected for long. So manufacturing is going to take a boost and Dhanuka is going to participate there. As far as sourcing is concerned, we source the right quality so long as it is available at the right prices from wherever it is, be it the domestic suppliers, which constitute a very, very large percentage of our procurement or from China and of course, the exclusive products from Japan and Europe.
So we are balanced out in terms of where we get the generics from. Yes, the specialty products, the 9(3) registrations are mostly coming from the R&D hub of Japan.
Okay. Okay. So basically, going forward, even if you get into manufacturing, you'll be more into innovative formulations rather than going directly to the intermediate of actives [indiscernible].
So those are 2 different segments, which will work independently for independent and exclusive success, exclusive of each other. Yet wherever synergies are possible between the 2 businesses, we will certainly leverage that. So backward integrated manufacturing setup means that we are able to service our channel and our farmers better on the selected products. At the same time, a strong formulation and distribution setup means that we are not disturbed by erraticity in short term. So we are going to leverage on both the fronts.
Next question is from the line of Rohan Gupta with Edelweiss.
Congrats on a good set of numbers in a challenging environment. Rahul ji first question from you -- for you, you mentioned that volume growth for us was close to 3.5% for FY '22. From your estimates and being close to the market, what do you think that would have been volume growth for the entire industry in the current year? That's first question.
That's really a challenging one, Mr. Rohan. The industry is talking of not growing in the value terms. So a few companies do talk of growing in the range of 8% to 9%. Most of them talk of negative to flat growth. That is as far as the value grow -- goes. Now it's a guess when the volume growth is at 3% for us, then my guess is, and I don't have a breakup, I don't have an informed guess here but the volume growth would anything be between 2% to 4%.
Okay. Sir, second is that raw material challenges still remain there. And as you rightly mentioned that the inflation is not stopping, and we had just only been expecting that the prices will fall down, but they haven't been. Even the logistics challenges have been constantly growing. And that kind of environment that Dhanuka always had a strategy in place to procure raw material well in advance to stock -- to have sufficient raw material inventories. But sometimes that has led to have a negative impact on our margins earlier if the price falls.
I just want to know that how you are building up your current year strategy in terms of procurement of the raw material and keeping the inventories in the current scenario when the raw material prices are continuously on rise and logistics still remain a challenge?
You have put in something there about Dhanuka, which I'll not take it on face value, sir. Dhanuka, the strategy is neither to front-load our raw material stocks nor is to run dry. We try and maintain a right balance in partnership with our suppliers and vendors. So Dhanuka has really long relationship with most of the generic suppliers, be it in India or China and our relationship with multinational companies run very deep when it comes to planning our procurement, lifting and the price fluctuation.
So we adopt a very, very balanced approach. Yes, once in a while, one or the other product would hit a cycle wherein we get benefit of a price escalation due to our inventory or wherein we get a de-benefit of price de-escalation, if at all, in the situation. Now this is, again, very unpredictable.
So we are going to go aggressively with 1 approach, which is this customer-centric approach. If Indian farmer needs to protect his crop, he will find a Dhanuka product on the shelf. That is for sure. That is what we live with, and that is what we will do.
And sir, being so close to the market and what you have already mentioned in your presentation, the year looks pretty strong as far as the farmer profitability and high agri commodity prices are concerned. So you did mention your growth target of double-digit growth on a back of volume growth of 7% to 10%. Can you also share something on the industry, how you see that the industry growth this year? Will it be in line with what you guided or it is likely to be lower or higher?
I think so. Industry growth is something I really won't be able to forecast. This industry is driven by commodity prices and by the favorable amount. So those 2 things being favorable, the industry should look positive in any case.
So also, don't you think that your -- given the current stage of the industry on a low base of last year, your guidance are slightly on a conservative side with the 7% to 10% kind of growth. Do you -- or you think that it's going to be pretty easily meeting those targets and you will be surprising on a positive side?
On one side you are saying are they conservative and we'll be meeting easy on the other side. So no take on that one. No take on that one. What we are giving is very, very realistic. What we feel we are committed to deliver, what we feel the market would accept as in our customers would accept and would bring the value to the table. The customer will bring that value to the table and Dhanuka will bring that value to the customer's table. So that's what -- that's how we look at the growth opportunity, and that's how we look at our robust double-digit growth.
Next question is from the line of Ankit Kumar with Alpha Capital.
Sir my first question is on growth guidance as when we are saying double-digit growth. So will that be evenly divided over the year or we expect 1H to be much better because of low base of last year?
We are saying for the year.
Sorry, sir?
For the year, we are giving the guidance.
Yes, sir, I am asking whether that the growth will be equally divided over all the 4 quarters or first half as well as second half? Or we think first half will be much better because of the low base of last year?
Okay. So we are expecting much better in the first half of the financial year as compared to the second half of the financial year.
Sure, sir, that's nice to know. And we earlier used to do buyback. We did it in '19 as well 2020 also. Now we've stopped doing that. Any change on policy on that front?
I think it is to be decided at the Board meeting, I cannot comment just now.
Sure, sir. And last question would be on. I think there are a lot of commodity price hikes. And then also we are saying we'll be able to maintain FY '22 margin. So any color how are we going to maintain those kind of good margins?
When you say commodity prices, you are talking about chemicals or you're talking about end produce, agriculture commodities?
Agricultural commodities and all. So everything -- our raw materials also would have gone up. So how do you think we will be able to maintain our margins.
So there are various elements in which we are going to maintain that is, one, our thrust is constantly on our specialty products. Our thrust is continuously on servicing the channel and servicing the farmer. Now the service to the channel and the farmer brings him back to choosing a Dhanuka product vis-a-vis the other options available on the table or sometimes not even available. So that's how the value would come in. Now the higher commodity produce -- price is what will motivate the farmer to invest in his crop and go for additional protection and a proper protection for crop, which stands to benefit the industry, which just tends to benefit Dhanuka. Our raw material prices going up, of course, the effort here is to pass on the price increase as much as possible. And we continuously create a balance between what the farmer is accepting in terms of the price increase and what it is not. And we modify our approach to meet the farmer's requirement on the ground.
The next question is from Somaiah V with Spark Capital.
My first question with respect to the RM cost. So excluding freight, how do you see the supply situation from China? Do you see that getting better in coming months? That's the first part. And second part, what is the impact of freight cost to your overall RM?
You see we are importing the raw materials on CIF basis, that is cost, insurance and freight. So Dhanuka is not directly paying freight on the import, the freight is being paid by the exporter only in case of our import supply. However, the indigenous materials are on both the terms. They are on [ for- ] delivered basis also and some products are on ex-factory basis also.
So we are not spending much amount on the freight cost on account of the raw material procurement. However, the freight is incurred on stock transfers from factories to zonal warehouses, zonal warehouses to the [indiscernible] warehouses. That freight is definitely incurred and that is substantial amount.
The supply situation in China, do you expect that to get better in the next few months?
Yes, it is expected that the Shanghai port has also -- has started working and some shipments are being taking place from Shanghai. And the importers who are importing mainly from China, they are talking that from June 1st week onwards, the supply situation will be much better. The orders which were placed earlier and which were delayed, now they are saying that in the month of June, we will be able to execute your pending orders. So we do hope that the supply will definitely improve from June onwards.
Understood, sir. I was also trying to understand from the angle that the utilization levels and plants there are -- you're seeing some kind of an increase and that will bring more supply in. So just trying to look from that angle.
I cannot get that question. Could you please repeat it?
No, I was looking from the angle that probably the utilization levels in the recent months have been on the lower side. Is there a possibility of that to kind of improve and then more supply coming in from China?
In general, various sectors put together, the supplies would increase. Including the utilization, opening up of the ports, deblocking of the supply chain. So all these points put together, the supply will improve.
Understood. Last question, can you just help us on your CapEx plan for this year and next year and also touch upon a bit on your -- the project status, when it's expected to come online and also the asset turns, which you have spoken earlier?
Yes, you see in case of Dahej, the CapEx plan this year is around INR 120 crore. And other than Dahej, our CapEx plan is around INR 20 crores for this [ financial ] year.
Sorry, sir, I didn't get the part other than the Dahej.
INR 20 crores.
And the projects, sir, the status of the projects?
You see, project status is absolutely almost in time. So we are expecting the commercial production will start from March '23.
Understood, sir. And also the current year revenue guidance that you had given, anything is factored from the new projects also the new line of business that you had referred to?
No, it is absolutely [ mix ].
Our next question is from the line of Saurabh with AMSEC.
Sir, if you can give the volume growth for Q4?
Yes, Q4 volume growth is 11%.
Okay. And sir, we mentioned there will be price hike in Q1 as well as in Q2. So what kind of quantum of price hike we are looking at over the next 2 quarters?
In the Q1, I'm expecting the price hike as compared to the previous year, we will -- into the range of 3% to 4% and Q2 might be around 2% type.
Okay. Sir, any specific crop where we are finding difficult to pass on the higher cost.
Every month we are passing on the cost to the consumer because the prices are not rising in one month, they are rising on month-to-month basis. So every month, we have our price meeting in which the CFO, the CEO and MD participates apart from the senior team members, and we take the price decision on the basis of the prices of the competition in the market, our increase or decrease in the costing and accordingly, the volumes which we have been able to do in the last month against the [indiscernible] growth, which we have achieved in the last year -- last month.
So these are the basis for taking the decision for a price hike or reduction. If the raw material cost is reducing, we reduce the price. And if the right raw material cost is increasing, we increase the price. But sometimes it happens that you are not able to pass on the complete cost increase in one go. So you take 50% cost increase in one month and 50% will be deferred to the next month.
Okay. And sir, my other question is on export, you mentioned you will start formulation exports. So will it be in FY '23? And have you received the registration for some of the molecules?
Actually, the person who has been basically selected for the post of GM export, he will join in next month end, by June end. And since he is already having exposure to the export, so he will take the decision, some of the registrations we already have for the export and export registration are being granted by the Ministry of Agriculture also in a shorter period.
So he will advise which of the molecules can be exported on immediate basis without registration in those countries. So those registrations, we will apply. And our R&D team is confident that within 3 months, we will be able to get the registration for the exports.
Okay. Sir, my last question on the profitability and the outlook on e-commerce. So what is the sales percentage which comes from e-commerce right now? And how is the profitability to this channel versus the traditional channel?
So on e-commerce platform, there is no difference in profitability as of now. They are at a very nascent stage in agri domain for now. But growing very fast. Various models are there which are servicing farmers and retailers through direct service to them. And currently, we are working with 4 or 5 such online platforms and many more new such platforms are coming up. We don't see any immediate impact on the margin for the organization as we are working closely with them and focusing on providing the proper services to the farmers and training to the retailers.
Next question is from the line of Abhijit Akella with Kotak Securities.
I have 2 questions. First, on your Dahej project. So if I recall from your previous guidance, it is about INR 300 crores CapEx with about INR 350 crore revenues and 12% to 15% EBITDA margins. So I just wanted to confirm if these numbers are correct. And if so, the return on capital on the investment seems to be a bit on the lower side, only in the low double digits or so, say, 10%, 12% pretax. So is that the case? And if so, what is the thought process behind going for this investment?
Yes. You see in terms of investments, you are absolutely right. The investment will be in the same line, basically up to the FY '23, '24, around INR 300 crores, that is there. And in terms of revenue, the projection is [indiscernible] in the last 3 years, right?
Sorry, sir I thought you said INR 350 crores on this INR 300 crore CapEx.
Yes, INR 350 crores in the third year.
At peak, at peak, yes.
Right, right. The basis behind investment in Dahej in technical manufacturing with the low margins was that the question was whether chicken first or egg first? So when we were approaching our Japanese partners to give us some specialty molecule for manufacturing in India. So they were talking that you don't have any technical plant and you are discussing about the product. So we waited for some time. And then finally, we decided that let's just start with the generics. But our ultimate goal is to go for the specific specialty molecule of the multinationals. So ultimately, the good margins will be coming from those molecules which will be shared by our Japanese partners. Initially, we are starting with the generics where the margins will be lower.
I understand, sir. And the second question I had was on the drone investment we have made, IoTech Avigation. So if I have my numbers correct, I think the valuation of that company is somewhere around INR 150 crores that we have made. So just wanted to check if you could share the headline revenue and EBITDA numbers of the entity? And also just to check, whether an investment in that entity was necessary or we could have got the drone facility by just partnering with them as a technology partner or something like that?
So I'll take the 2nd one first. We do see the drones as a growth -- a very good growth opportunity. And you would probably like to look at it from 2 different perspectives. One, investment in a start-up. Two, investment in a strategy to start-up where there is a possibility of leveraging the services, leveraging the technology in the existing business. So yes, the Board, the organization, everyone felt convinced about going ahead with this investment. And we are really looking forward to the drone landscape, so to say, drone airspace changing dramatically with huge thrust coming in from the government, industry and the farmer looking forward to it.
Okay.
It was absolutely necessary.
I see. And just on the financials, if it's possible to share something.
Financial will say a little later.
The next question is from the line of Himanshu Binani with Prabhudas Lilladhar.
I just have one question, and this is regarding to what we have actually mentioned in our presentation by [indiscernible] due to the red triangle products. So just wanted to have a check back, can you please name the products and...
I can't get you. Your voice is very hazy and disturbed. Could you repeat that?
Yes. So sir, my question was pertaining to the point which we have actually mentioned into the presentation of taking a INR 20 crore hit into the revenues due to the red triangle products. So just wanted to have a sense that the name of the products? And secondly, are these products to do with the 27-odd molecules which the government has actually notified in the past? So our -- those molecules, there were 3 molecules, which I believe, have fell into the red triangle category. So are these products which we are referring to? Or is it something else?
No, no. So, yes, now I get the question, I'll answer that is out of those 27 products, there are 3 products which the government concluded to ban were already banned in the country for all practical purposes. I recall Methomyl and Phosphamidon and one more product. So these products were not available in the country for the last 4 or 5 years in any case. So that ban was a national thing to happen, and that's perfectly all right.
The other products the government has not moved and probably the entire thing has been shelved and close. The product that we closed is a red triangle product, and that was the only red triangle product left in our portfolio was monocrotophos. So we wanted to really come out of the red triangle chemistry, and we closed this. All the other products out of the 27 selected products by the government at that point of time, none of them are red triangle products, except for the 3 the government chose to ban.
So sir, this is the decision which we have taken as a company or this is a mandate from the government or something other.
No, no, we have taken this. This is an executive decision of the company to come out of it.
Due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Manish Mahawar for closing comments. Please go ahead.
Yes. Thanks, Sanjay. I have just a few questions, 2 or 3 questions on the company. One, in terms of the price correction in this situation, I suppose, you said like June onwards you are witnessing. Are you expecting that supply to improve, right, if the source of raw material correct? Do you think like formulation player, formulator or player like us will benefit in terms of -- in the case of price correction?
I don't foresee because as I told you, every month, we take the decision on the price front. So if the price is basically reduced, we are passing on the reduction to the ultimate consumer. And if the price is increasing, we are passing on increase also. So we don't foresee that there is going to be any major impact on the financials of Dhanuka because of the price increase or decrease.
Okay. And second, in terms of -- in the latest, I think the CIB registration meeting, I think there is one of the regulations which is 9(4) FIM registration, right? I think that consent letter is not required. So Rahul ji, can you highlight what was the impact on the industry? And do you think like 9(4) as a product will come under pressure or marginally impacted going forward?
I think we are still studying the impact and we are taking a legal opinion also and consulting CIB also in terms of the interpretation of that. So too early for me to respond. But yes, after this call and once we have understood this, we can certainly talk about it, Manish ji.
But this has been approved, right, by the CIB?
Yes, yes.
Okay. And last one, Bansal ji, can you give me a reason of this other income -- higher other income for the quarter?
Other income higher is because of [indiscernible] income from the insurance company on account of the [indiscernible] policy.
Okay. Understood. Sure. This is from my side. Mr. Dhanuka, you would like to make a closing comment, sir?
Yes. Just to add better -- to summarize in the last, Dhanuka continues to demonstrate its ability to overcome challenges and emerge stronger despite uncertain business environment. Last year was a challenging year, but in spite of that, Dhanuka has really done good. We will aggressively roll out new formulations in the upcoming quarters and would ensure that it reaches to the consumer.
We are confident of achieving double-digit growth in FY '22, '23. I reassure our shareholders that we are committed to the task of transforming the landscape of agriculture in India and will play an integral role in rewriting the future of a better and new India. Wishing you all health and safety. Thank you very much.
On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you, Manish ji. Thank you all the participants. Thank you.
Thanks, everyone.