Godrej Agrovet Ltd
NSE:GODREJAGRO
Earnings Call Analysis
Q2-2024 Analysis
Godrej Agrovet Ltd
Godrej Agrovet has demonstrated remarkable tenacity, delivering robust year-on-year profitability with a 53% increase in profit before tax in Q2 FY'24. In the same quarter, revenues climbed by 5% and EBITDA margins expanded by 183 basis points. The company has managed to thrive despite intense market challenges. Notably, each business segment, except Astec Lifesciences, has contributed to profit growth, showcasing a balanced and resilient portfolio. The domestic crop protection and food businesses have performed well, with significant volume growth and margin expansion.
The animal feed business has seen a strong 16% year-on-year growth in Q2, with the cattle feed category leading the way. In the aqua feed category, the company reported a 15% increment in volume. This success is partly due to the softening of commodity prices, which enhanced the segment margins. Similarly, the vegetable oil segment overcame lower palm oil prices with a 17% volume growth in fresh fruit bunches. While palm and palm kernel oil prices dipped by 16% and 24% respectively, the stellar volume growth balanced the scales. The Company's crop protection segment outperformed with a 149% year-on-year surge in results and a notable segment margin of 29.7%. Yet, Astec Lifesciences faced hurdles with price erosion and sluggish demand impairing revenues and margins.
An optimistic forward guidance for Q2 indicates potential EBITDA per kg growth to about INR 1,700 per tonne, up from INR 1,531 per tonne in H1. The dairy business also pivots positively, from achieving EBIT breakeven to an EBITDA margin climb by 412 basis points. Expectations for CDMO revenues in Q2 FY'24 have been set at 3.5x the revenues of Q2 FY'23, signifying bullish forecasts for the contract manufacturing side of the business. These projections highlight Godrej Agrovet's focus on growth and efficiency, which is anticipated to sustain the upward trend in profitability.
The company is navigating through a complex market with sharp demand fluctuations in certain product segments, as seen with an almost 60% to 80% demand swing for some of their older products. The export market is further stressed with competitors from China pressuring prices downward. However, there are hopes of demand stabilization in key markets such as Latin America, North America, and Europe. As for the Indian domestic market, potential growth is anticipated despite currently suboptimal fungicide demand. The nuanced understanding of these market dynamics is guiding the company's strategy to weather the market storm and emerge stronger.
The company is quite bullish about their newly commissioned herbicide plant, which is expected to reach full capacity utilization within 2.5 to 3 years. This expansion supports the guidance of an asset turnover ratio of 1.6 to 1.8 times, indicating efficient utilization of capital for growth. Efforts to commercialize this plant are underway and are likely to contribute to the company's revenue stream in the near future. These investment initiatives reflect Godrej Agrovet’s commitment to sustained long-term growth, augmenting its value proposition to investors.
The company’s dairy business is continuing to experience positive momentum, slated to finish the year with gross margins between 22% to 24%. Management has also indicated that their dairy plants have adequate capacity to meet current demand. Thus, Godrej Agrovet appears to be positioned well, not only in terms of current operational metrics but also regarding their capacity to scale up to meet future demand.
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Ladies and gentlemen, good day, and welcome to Godrej Agrovet Limited Q2 FY'24 Earnings Conference Call hosted by Equirus Securities. [Operator Instructions] Now recorded I now hand the conference over to Mr. Siddharth [indiscernible] from [indiscernible] Securities. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on the Godrej Agrovet Q2 and H1 FY'24 earnings conference call. From the company, we have with us Mr. Nadir Godrej, Chairman of the company; Mr. Balram Yadav, the Managing Director; Mr. [indiscernible], the Chief Financial Officer; and Mr. Anurag Roy, Chief Executive Officer of Astec Lifesciences. We would like to begin the call with a brief opening remarks from the management, following which we will have the foster an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite [indiscernible] initial remarks. Over to you, sir.
Good afternoon, everyone. I welcome you all to the Godrej Agrovet earnings call. I hope you are doing well. Godrej Agrovet continued to deliver a robust improvement in profitability as profit before tax grew by 53% year-on-year in quarter 2 fiscal year '24 while revenues grew by 5% year-on-year. EBITDA margins improved by 183 basis points in quarter 2 fiscal year '24 as compared to quarter 2 fiscal year '23, except for Astec Lifesciences, all the segments delivered growth in profitability. The domestic crop protective business maintained consistent good performance in the second quarter on the back of good volume growth and realizations in the in-license portfolio. Our food business continued to deliver healthy volume growth in branded products along with sustainable margin expansion. The poultry business recorded exceptional profitability, while the dairy business achieved EBIT breakeven in quarter 2 fiscal year '24. In the Feed segment, cattle feed and aqua feed categories maintained strong volume growth. In the vegetable oil business, low-end product prices Lower end product prices were more than offset by growth in volume of fresh food punches. However, Astec Lifesciences continue to witness an extremely challenging external and market environment. Now coming to the key financial and business highlights of each of our business segments. The animal feed business recorded 16% year-on-year growth in segment results in quarter 2. The cattle feed category continued to gain market share and maintained growth momentum with 16% year-on-year growth in volume. The acid category also registered 15% year-on-year volume growth on account of higher fish feed sales. softening commodity prices and higher realizations in the capital and fish feed category led to significant improvement in segment margins in quarter 2. In the Vegetable Oil segment, a strong volume growth in fresh fruit bunches by 17% year-on-year was more than adequate to offset the lower food palm oil prices and marginal decline in the oil expection ratio. Group palm and palm kernel oil prices were lower by 16% and 24% year-on-year, respectively. The stand-alone Crop Protection segment continued to deliver an outstanding performance in the second quarter as well. Growth in quarter 2 was primarily led by the in-licensed portfolio and product mix rationalization. Segment results grew by 149% year-on-year with segment margin of 29.7% in quarter 2. In October 23, an in-license insecticides from Nissan Chemicals Corporation and was launched. This was a global launch for the first time in India. [indiscernible] will provide effective against a wide range of tests in the Chile crop, along with Hanabi and Gracia, the addition of [indiscernible] will enable us to serve the entire value chain of the [indiscernible]. In Astec Lifesciences, revenues and margins were impacted due to continued price erosion and sluggish demand for enterprise products, high levels of channel inventories in export markets and continued industry-wide destocking has further delayed recovery. However, the contract manufacturing segment maintained robust performance on account of a new product. the CMO category revenues in quarter 2 fiscal year '24 were 3.5x vis-a-vis quarter 2 fiscal year '23. The dairy business maintained positive momentum in quarter 2 as well and turned EBIT positive. Value-added product revenues grew by 19% year-on-year. With this, the salience of value-added products increased to 27% of total sales in H1 fiscal year '24 from 34% a year ago. a higher gross margin coupled with operational efficiencies translated into significant improvement in the EBITDA margin of 412 basis points. Godrej Tyson delivered another quarter of remarkable performance in quarter 2 fiscal year '24. The live bird category achieved better-than-expected results on the back of improved cost efficiency and realization being a seasonally weak quarter. The branded business reported healthy volume growth of 14% year-on-year. Our joint venture in Bangladesh, ACI Godrej, recorded revenue growth of 13% year-on-year on a local currency basis in quarter 2 fiscal year '24. This was mainly driven by higher quarter 2 fiscal year '23. That includes our business and financial performance update for the quarter. With this, I close my opening remarks. Wit this I would be happy to take your questions. Thank you.
[Operator Instructions] The first question is from the line of Abhijit Akella from Kotak Securities.
Congratulations on a good set of results. just in broad topics I wanted to understand. First, on the market share gains in animal feed, especially Cat and Aqua. If you could please just help us understand what exactly is the reason for this continued market share gain and whether this would -- you would expect to continue this across all the 3 categories going forward? And the other 1 was just with regard to Astec Lifesciences, given that is there some sort of discomfort that we might be encountering from customers with regard to our own domestic business when we sort of pitch for contract manufacturing tie-ups with them. Is that sort of a hurdle that we need to cross and if so, how do we overcome that hull?
Thank you for your question. So I'll answer the animal feed question, and Mr. Anurag will take the Astec Lifesciences questions. So two reasons why we have improved market share in fish feed and gas feed in fish feed, we commissioned the plant in UP last year, which came into full capacity year. So it is mainly because of geographical expense and our market share is increasing. Now we are present in UP, [indiscernible] as well as [indiscernible], and we are improving our presence in West Bengal. As far as [indiscernible] is concerned, again, I think our dominant position in Maharashtra is further strengthened because we commissioned 4 plants [indiscernible] per month capacity in June this year. and Maharashtra, we have more than 20% growth over last year in Q2 because of that new capacity. So we believe that we will continuously increase our market share in categories and fish feed category.
Anurag here. For your question on Astec Life Sciences, I would assume you mean that our domestic sales coming in versus stick CMO business, right? That's what you were trying to ask whether there is a...
Yes. So just to clarify what I meant was that given that we have a domestic branded business as well, is that a source of discomfort for potential customers with whom we might be engaged in negotiations and discussions.
So just from [indiscernible] been our base business right from the start and Astec also been positioned within the fungicide thing and having our relationship with the [indiscernible] we do not see any conflict when it comes to getting more CDMO business for Astec Lifesciences primarily because way of working with the innovators are completely based on relationships, complete transparency, also leveraging the unique [indiscernible] platforms, which Astec has. So we have been very clear in those communications right upfront with our customers, giving very clear indication on what PPB brings to the table and what Astec brings to the table. And as most of us are there, we are a [indiscernible] company. In a lot of cases, we have very clear firewalls also invite wherein there has been no exchange of information. And in a few of the cases, our contracts are also set in such a way, where we have very clear clause that there will be no conflict going from B2B to B2B to B2C unless and until approved by the customer. So as of now, we haven't seen any of those as a thing. And I think our approach would be to work with transparency with the innovators and highlight all our strength in both businesses area and then move forward.
The next question of Lokesh Maru from Nippon India Mutual Fund.
I have to start with feed segment. What is the EBITDA per KG at this point for the segment? And what is the outlook going forward into Q3 and Q4 on margin?
EBITDA per KG?
Yes, sir.
So this quarter, was EBIT per kg was about INR 1,531 per tonne. So normally, we have seen in EBITDA is about 10% to 12% higher than H1. So we believe that we may average anything between INR 1,700 per tonne in H2.
Sure, sir. Understood. And sir, cattle field segment, obviously, is doing quite good consecutively for the last 2 years. But what's happening in the broader and [indiscernible] segment, which is driving the performance of this [indiscernible]
I think one thing which is happening is, which also is reflected in our Creamline Dairy businesses, number of cattle increase, which was not the case for us. That is why you saw secular increase in milk prices. The second thing is that milk prices are still okay and [indiscernible] Maharashtra has also added to our market share. As far as poultry is concerned [indiscernible] don't ever said you [indiscernible] keeps on going up and down, and you know that the market is also shrinking because of increased integration. In layer feed, we still have profile position and are but on a 2, 3 years, it happens when the egg prices go down, there is excessive culling of players. So we support because of that, and that is why you see 17% degrowth in layer. It is not that people have dropped eating egg. It is just that there is a gap in production right now. My sense is that within this quarter itself, you will see our volume growth in the layer feed happening. So worry is only broiler feed and [indiscernible] for other segments, we are okay.
Sir. Last question from my side is on the oil palm segment. Our volumes have been up 17%, but average realization has been down equally. But still if you see the segment results, they have been positive, right, 10%. So what is the -- what is -- where is the disparity in these two numbers? I mean the decline in realization is enough to offset the gross volumes. So how are we still growing 5% on topline and 10% on [indiscernible] palm oil?
So for us, the realization came down by almost 16% per metric tonne in CPO and about 24% per metric tonne in PKO, but segment revenue has grown by 1.5% because of increase in FFB volumes by 17%. That is point number one. Point number two, we had some leftover inventory from Q1, which was disposed off in this quarter. And our small part has been contributed by now we are not a CPO [indiscernible] palm oil player. We are a refiner now to get slightly better realization from the output of refining CPO, which is steering only in [indiscernible].
So this segment should continue to grow better results as we have started refining now?
Yes. So one thing which I must tell you that what refining has done for us is that every year, we used to have a lot of discount on the base because the demand would be very patchy. When we carried the oil in our tax for some time, the FFA increase, and there used to be a discount for higher FSAs. So there is no discount this year. So that is point number one. And point number two is also that the number of customers for Olin, et cetera, much more than number of customers we had for CPO. So that is one advantage so the price realization and price discoveries is better.
[Operator Instructions] The next question is from the line of Rikin Shah from Omkara Capital.
My question is for Anurag. I wanted to understand what the inventory positioning was as of March '23 versus now? So we had INR 295 crores of net inventory as of March '23 and INR 214 crores now. I wanted to understand how much was high cost inventory back then and how much remains now?
Yes. So from quarter 1, as you would have seen, there's been almost INR 85 crores to INR 90 crores of depletion in the inventory levels, which we have seen. And at a very broad level without getting into the specifics, I would say almost 40% to 50% depletion has happened for the high cost inventory, and the remaining is for CDMO inventories, which we were carrying. So that's the overall picture from the inventory perspective.
Okay. Got it. And in terms of spreads for the enterprise molecules now so have the -- are the RMs currently suitable to make a good EBITDA margin at current pricing?
Clearly, the RM prices on most of these enterprise products have also come down significantly -- so if we look at the domestic market based on the existing RM prices, you could still make a single digit contribution margins, assuming that the players are vertically integrated to a particular degree. But on export markets, still the RM prices are not low enough to make positive contributions. So that's the situation right now on some of these enterprise products.
The next question is from the line of Ajay Lakhani from [indiscernible]
My first question is for Anurag. Anurag, could you [indiscernible], could you just call out what exactly is happening at end customer level from a stocking/restocking/destocking perspective, please?
See, I think there has been a very common question, which we are getting from the last 2, 2.5 quarters. And we are also accumulating lot information based on our primary research with the customers or what we are hearing from the market. So as we see right now, we still see some amount of destocking happening in the global markets. seems like September, October, at least on the price front, the bottom has been reached out. In Latin, primarily in Brazil, which has been the root cause for all these destocking from a year or so it seems like it should even out and that's again based on some of the customers we have been talking in some of the industry [indiscernible] that by, say, end of this quarter or early next quarter, as the demand starts picking up, destocking or the exit stock in the market, at least for the Latin followed by the Europe market should be more or less evened out. U.S., we are getting mixed response from our end customers as well. In a few of the cases, they are still not coming back with the 100% level of the volumes they were historically buying from us with ranging anywhere from 30% to 50%. So just based on our limited customer profile, it's giving us an indication that the destocking or the inventory levels, at least in the U.S. market might take at least 2 more quarters to even out. So that's how the situation is on the destocking level, demand, there has been a positive signs on demand potentially coming back, say, December, on on the season for these markets. And obviously, it's been muted for almost the entire previous season. So there's an expectation that demand is likely to come back. But we would still see significant pressure on the prices. So that's how the things are on the supply-demand side, the destocking by various regions and what we are picking up from the customer.
Got it. That's helpful. And secondly, the run rate that you have seen on the CMO side, can we expect the run rate to go into the second half? Because typically, second half is better than your first half. So your comments on that. And then going into '25, how should we think about the CMO business? And at what sizes reach capacity that you'll require capacity to grow there on?
So our goal, as we get into H2, is at least to get to our H1 numbers for CDMO because on H1 as well, we have really pushed the pedal on CDMO. So we are expecting that we do H2 as good as H1 as we get into this year. But as we have indicated in our previous calls as well, our focus is heavily on CDMO. There is a good amount of pipeline business, which we have generated now based on our new R&D center as well. So we continue to maintain these growth rates. Obviously, we have been doubling our CDMO business over the last 2 years. It was from a smaller base. So as we move forward, anywhere say in between 25% to 40% year-on-year growth is what we expect on the CDMO side of the business. And in terms of the bottlenecks, we have been realigning our existing asset footprint, which we have primarily in Mahad to bring out as much CDMO as possible with new investments in the herbicide plant. But clearly, we would need more investment in [ greenfield ], which we have announced or spoken about in the previous investor calls as well. And as we move forward over the next year or so, we would definitely need to commercialize some of our greenfield investments. So that's how we see the CDMO business growing 25% to 35% year-on-year. That's our target and investments then when we keep scaling up the business year-on-year.
Got it. Balram sir, my next question is for you. One is just a data point, if you could speak about what is the OER today? And since you've been gaining market shares in cattle and vegetable oil is on a good footing with the outlook quite clear in terms of FFBs and the refinery. And the traditional Crop Protection business is in good stead today. I want to speak to you about capital allocation on your dairy and the Tysons Food business. So as you are aware that it's been employing a lot of capital and not generating returns. And the trajectory that you've exhibited is quite you're following that path. But when can we expect the segmental improvement so that the capital employed is justified there?
So first question was about OER. So quarter 2 FY'23 OER was 18.41%. Quarter 2 FY'24, that is [indiscernible] is 17.91. And if you remember in my last call, I said that there's erratic rainfall. It started early, then there was a gap in happened effects OE. But I must also say that there is a very smart recovery month-on-month, and we crossed 19% in October. In October, we crossed 20%. In September, we closed 19%, and we are holding above 20%. And the good news is that it is, again, rained in some of our plantation areas. And if this continues for another 3, 4 days more, we're likely to have more SMB and better OER in whatever season is remaining. So that's point number one. Point number two, you asked me about capital employed and capital allocation. INR 256 crores been capitalized this year. We have made investments of that -- major chunk have gone to [indiscernible] plantation and in the Astec Lifesciences business. with a new herbicide plant. And as Anurag said that we would need this capacity once we grow CDMO business, which is just around the corner, and we are very confident that we will. In the oil palm, we did it in refinery and [indiscernible] section plant. And I told you earlier about the benefits we are getting in terms of better price, no discount because of FFA, et cetera. And we believe that these investments will pay much faster than we had envisaged because the efficiencies are very good. Lastly, the dairy business. The dairy business, I must say, EBIT positive -- EBITDA positive in Q2. And there is a major improvement largely because of efficiency improvement, if you want some number I can give it to you that last year, our contribution in H1 was INR 54 crores -- INR 55 crores, and we have gone to about INR 92 crores this year. Half of it has come from definitely reduced milk prices, but also the other half has come from volume growth and debt efficiency improvement and product mix. I must also say that we are [indiscernible] help or consultant for the last 7, 8 months to improve Epicel it is only the efficiency of about INR 15 crores, INR 16 crores have come only from August onwards when the project has been implemented. My view is that not only we will turn profitable this year -- breakeven this year, but we'll also turn profitable. However, the focus will always remain on value-added products, and that is where you will get maximum bang for the buck. And we are glad to say that as compared to last year, our salience in the first half has gone from 34% to 37% in spite of the fact that it has not been a very good year for beverages because of [indiscernible] a rate we see the unit speak, so it affects all this. So we are very cautious about capital allocation. I can definitely say that no further investments in plan in both the food businesses, animal feed business, aquafeed business. Only the focus is oil for plantation and assets. And as said, definitely, we believe that we -- once we kind of traction we are getting in the CDMO business, we will continuously invest in capacities in the future because that is more insulated and more sustainable than the enterprise business. So that failure has to go up here in the year.
Got it. And sir, just one last question on the traditional crop protection side. See, you have now the portfolio of Gracia, the new product that you launched [indiscernible]. So is it the same sales channel or are you expanding the sales channel as well? And is it the same dealer network? Or are there different sort of distribution touch points?
So I must tell you that both have happened. One is because of these wonderful products, our quality of distribution has definitely improved. And of course, quality looks good because we suffered last year. And after that, we have put a lot of controls in the business. So we are ready to suffer loss of scale but not create toxic inventories and better. So that is the moto we are doing with. But I must also tell you that because of [indiscernible], which are coming, these are infective sites, which are for vegetable crops and we got label claims for Chile already, which consume 10% of the total inside sales in this country. So we are making forays into vegetable crops, which was a big area for us. So I think in those areas, we will increase our distribution in numbers also. I'll tell you that I think it has taken some time to get registration, et cetera. So COVID had taken a toll on a lot of our hygiene issues, but all this is behind us. And there is a decent pipeline of products we have right now. So we have almost 6 products to be launched in the next 3 years.
So this is in license, right? Incrementally?
Yes. So some are announce also, which are the mixes and some are in license.
And sir, you mentioned that the quality of distribution has been enhanced. Could you give me some color on what that really means?
Quality means that the size of the distributor is very important. Because if you really ask me an agri business distributor is also the bank account.
The next question is from the line of Viraj from SiMPL.
Just a couple of questions on the [indiscernible] business. Especially on [indiscernible] what you talked about in the contribution margin, which you are earning right now? So in the past, we talked about 3, 4 major players from China, which [indiscernible] drive the overall market dynamics. So if you can just probably give some color in terms of overall capacity, are you seeing any further addition [indiscernible] molecules and generally also in [indiscernible]. And any signs into the market adjustment you've seen so if you can comment on that.
Right. So I can talk broadly, not specific to these two products, but in terms of the [indiscernible] market segment, Clearly, we do not see more capacities coming in the market. In fact, over the last couple of quarters, we have seen a reduction or in terms of closure of some of the plants or the capacities because of the reduced demand over the destocking that has been happening in the industry. So there has been muted demand on one of these old products which you talked about, wherein the demand has not come for the last 3 quarters. The swing is almost 60% to 80% in terms of demand uptake. On the other products, or I would say, in some of the old products, you still have demand that has come back, but there's an overcapacity situation from China. And China, particularly in the export market has completely [indiscernible] the price point. just to take out more volume. So that has also led to a lot of these companies not able to sell into the export market. or sell at margins, which are even less than their production cost or even at negative contribution. So I think the entire [indiscernible] type segment, if you would see the current growth scenario, they are the worst [indiscernible] the domestic market had some green shoots, but the first season has not kind of pushed the fungicide market too much. The second -- the coming season, there has been some good hope that there could be some green shoots coming in within this segment or the whole segment from the domestic market. And as the season open up for Latin, North America and Europe, we might see some demand evening out. But prices might take a little bit longer to still come back to the previous level. So extremely challenging market conditions, which we are facing in the gold segment, might take another quarter or a couple of quarters for us to get back on the margins, which these products were fetching us historically.
You talked about the overall -- you see in the last couple of quarters, you already see some amount of capacity adjustment happening. Still you're kind of seeing the current prices players not making any money at the contribution level in exports. So what is the level of the overcapacity you are seeing in the marketplace? And other than China, I say in the last 3, 4 years, have you seen any other capacity? Or have you seen an increase in number of players in the overall [indiscernible] space?
And the biggest question which all of the companies are toying with, how much amount of excess capacities are there in the market? And that's where the destocking, which we are seeing. So I think we also got the assumptions wrong as according to the [indiscernible]. We were thinking excess capacities could be 20%, 30% of the total global market. But what we are finding out is we are almost at 60%, 70% and still we are talking about destocking. So it would let me to believe that almost 1 year, 1.5 years long of stocking has happened with onset of COVID period and due to the supply-demand shock over the last year, 1.5 years. But again, these are just being [indiscernible] analysis or our position right now and very difficult to comment anything beyond this.
Okay. Just two more questions. Again, there's no other Chinese players, there's no other change in the number of players neither from India or outside India, China, in the sort, do you see any -- is it more new players have entered the space in the last 3, 4 years? Or there are the same players with maybe the expanded capacity from existing players?
The whole new player, we can confidently say at least in this China [indiscernible] January when they came on board sales then increase in their capacities, particularly for the export market because I think they came up with a strategy that they have to just slot these markets on whatever demand such as out there by crush -- so they increase the capacity to start time because historically, a lot of these China plants are running at tower utilization as -- but after that, I think what we have also picked up is [indiscernible] have also sat down or curtailed on these capacities. So slowly and steadily with the destocking happening, the slide demand situations are returning back to the original position as we have seen historically.
And in the enterprise CDMO mix, if you can just give for H1 on this quarter. And it's CDMO, ifyou can just give some more color in terms of how many molecules and how many customers we [ cater to ] to existing what we have [indiscernible]
I think, historically, what guidance we have given is 3 or 4 new molecules every year is what we kind of work with the target with the new R&D center coming have bumped up to the new molecule target to almost double, and that's the goal which we are working on right now. So we plan to have 6 to 8 at least molecules at any point of time. So that 20% to 30% of that, we could easily commercialized year-on-year basis. So that's the goal of the plan which we are working on.
CDMO enterprise. And also in terms of the existing business, which we already cater to, how is it spread in terms of the number of molecules or customer base? Yes. So we could even connect offline for more details on discussions on this. On the existing one, as you clearly know, we hard politic molecules, which are in different stages scaling up. So there are a couple which are almost -- at this stage of commercialization, there are others which are almost getting to the stage of commercialization over the next 1, 2 years. But we can take this offline in more detail to [indiscernible]
[Operator Instructions] The next question is from the line of [indiscernible]
This is [indiscernible]. I have one doubt on [indiscernible]. What is the time line for getting getting commissioned? And what is the peak capacity, which can we can do? And what is the topline and EBITDA margin [indiscernible]?
So on the [indiscernible] plant, the second herbicide plant has been -- from the capacity perspective, it's exactly the same as the first one. And our guidance remains the same as we had put it for the first herbicide plant that we would fully utilize this plant in 2.5 to 3 years with an asset turn of 1.6 to 1.8. So we stick to those guidelines as we commercialize this second herbicide plant. And we are working -- our teams are doing a great job on commercializing or bringing it to potential commercial levels over the next 3 to 4 months. So we still keep that indication that by end of this financial year, we should be able to commercialize our second herbicide plant.
So what is your top 10 margins can generate?
We normally do not get into those details. But as I mentioned, if you are bringing in INR 100 crores, INR 120 crores of investment, if you look at the asset turn of 1.6 to 1.8 and CDMO business roughly 5% to 7% higher contributions as compared to enterprise. So you could do the math yourself there. That's how we kind of look at it at a very broad level. But obviously, our goal is to bring in the molecules wherein we could have maximum asset turn coming from our plants and, obviously, fetch the maximum margins and utilization. But that's the base [indiscernible] Yes.
Yes. Last question, you have mentioned that you are expecting CDMO business to grow 25% to 45% year-on-year. Is we can -- like can we take this for the next 3, 4 years or 5 years? Or you are mentioning that for the next 2, 3 years?
See, at least for the next 2, 3 years because you will also appreciate we were growing from a very small base 2, 3 years back our numbers were in only 2 digits less than INR 50 crores, INR 40 crores. So initially, you could easily double it up and you could grow at 40%, 50%. But then from that base, we get to higher than the industry growth rate numbers. So if we now see is growing at 10% or 12%, we'll aim to grow at 15% or so. That's how we see it from the growth perspective.
The next question is from the line of Rikin Shah from Omkara Capital.
So I just wanted to ask on the CDMO. What kind of molecules are we now being able to target with the new R&D coming again? And earlier, we were targeting $10 million to $15 million proprietary generic molecules. So now in terms of the current basket and the new one company in, like how -- does that change?
Sorry, I missed out the last part. You mentioned earlier, we were targeting $10 million to $15 million.
Sized proprietary generic molecules. And now with the new R&D coming in, does that change the size of the molecule that we are targeting?
Okay. See, one is on the size of the business or the size of molecules, yes, historically, we have been -- we haven't had a proven molecule or a CDMO project, where we have looked into large volumes, scaling up to, say, thousands of metric tons. So now with the new R&D center, we definitely are in that position to even focus or target those molecules. And that's at top of our list to get some of those molecules and are -- so that's to answer your later part of the question. Your first part of the question was what kind of CDMO business at a very broad level there are three components of CDMO business, which we are targeting based on our new R&D centers. One is with the innovators starting with the contract development holding the write up to commercial fees. So that's one innovative pipeline business, which we are targeting. The second one are some of these enterprise products or generic products, which are to be licensed out by the innovator. We could be either exclusive partners or one of the few partners from these innovators. So that's the second pillar of our CDMO business. And then third is one-off unique chemistry business coming in from innovator either in the enterprise space, or could be the innovator space. So I think those are the 3 different categories of CDMO business, which we are targeting across the innovators. Historically, Astec has done a good job in developing relationships in Japan. We have further deep dive into it. We have recently increased our foot strength in Japan as well to get closer to our customers in Japan with a local presence. And then we have also actively started working on CDMO players in the western geographies, in U.S. and Europe markets.
The next question is from the line of Manish.
First of all, congratulations for a good set of numbers. Sir, my question is to Balram. Sir, can you tell me how much growth can we expect in the oil palm business in terms of mature plantations is in acreage, you can tell?
So there'll be two phases of growth if you talk more long term. So we will have close to about 8%, 9% organic growth in FFB arrival and about 2%, 3% added to it because of our productivity improvement initiatives through our one-stop shop [indiscernible], proper fertilization, proper management. So next 3 to 4 years, you will see a 12% to 14% CAGR as well as FFB arrival. With the start of [indiscernible] scheme last year, we have upped our game in terms of area coverage. In FY'23, we were covering 3,500 to 4,000 acres hectares net -- and from this year onwards, we'll be covering 10,000 to 12,000 hectare net because we got more allocation in Telangana and Northeast. And to give you a flavor is that our industry capacity in the first half of 2 was about 1.2 million. And today, it is about 3.2 million [indiscernible] So you will see a growth big growth coming in when these plantations come into production 5 years from now. So 12%, 13% will come to 17%, 18% in the 4, 5 years.
Sir, how much area is matured just a flavor of that, how much area is exactly generating revenue?
About 60% of our area is mature and about 20% is between 4 to 8 years and about in 0 to 4. But this segment of 0 to 4 will grow in a big way is from net -- from this year onwards, FY'24 onwards.
And sir, Crop Protection business is doing quite well. I'm just concerned that margin are sustainable to the margins which are showing right now, are these margins sustainable for the coming quarters also?
I think it also depends on season. I must say that we had very good season for our in-house product, particularly Hitweed and Hitweed Maxx, and we broke all records. I think one of the reasons is that it rained on time and it did not rain on time also because plenty of we used to have a problem that ended not raining on time. And when it ran a lot so that the harbor could not go for spring. So we were a bit lucky year. So we had a very minimal return -- the other big thing happened was this a proved to be a blockbuster product, we were left with 0 inventory at the end of the season. And most of the sales was either on cash or on very control credit. So I think a lot of things have gone right. We would like to believe that with the introduction of new molecule year-on-year we will be able to probably keep the ballpark margin came in time to come. Having said that, I must also use a caveat that it is also dependent on weather.
For next half, can you just tell me how much the business is spreaded in first half and the second half of the year, like for last 2 quarters?
Yes. Just hold on. First half is to be business. With 2 more molecules, first half will be subsidy like 60%. And second half will be about 40%. And my sense is that in case [indiscernible] gets full, we get more label claims and we get to full potential, it might become 50-50.
The direct proposition, what is the percentage there? Have we increased some percentage in direct [indiscernible] of the milk?
Just hold on. I will give you exact of protection. So in H1 FY'23, direct procurement was 19%. In H1 FY'24, it is 28%. No, this is a focus, I'm telling you, most probably next year H1 will be more than 40%. I won't be surprised [indiscernible]
[indiscernible] according to our gross margins, according to our peers in the particularly dairy businesses or there is something left in?
So there are 2 things which we should keep in mind. One is the level of value addition and scale. So the people we compare with our header heritage and Ronda. All of us are bigger in scale as far as we is concerned and attendee amount of valuate. So just to give you a flavor that [indiscernible] is about 29% gross margin. Heritage is about 18% gross margin. Heritage group margin has topped because they sold some bulk also. So maybe they will be at 20% to 23%. [indiscernible] at about 22%. And this quarter, that is Q2, we have reached about 21.2%, which is a 5.3% jump over the same quarter last year. And my case with efficiency benefits coming in. I think on a overall year basis, we will finish between 22% to 24%. And I think next amount of improvement will come from increased sales because most of the efficiency benefits will factor in this year.
Especially our dairy plants are working right now. So we have enough capacity to cater the demand? Or do we need to put some more capital into the...
I think that all we did, and I answered all the questions you asked on capital allocation also that time. So we have adequate capacity in both value-added products and in milk. And whatever capacity is needed for some short shelf products hardly cost everything, maybe 2 crores, INR 3 crores a year, [indiscernible]
Can you just give some guidance for the top line and PBT margin?
So one thing I must say is with our efficiency improvement drive. We have dropped some volumes also in milk [indiscernible] geographies when we were stretched in terms of supply. Now milk cost [indiscernible] very, very [indiscernible] say, benign. It was a profitable business for us, but no longer with build costs and logistics was both going up. So my caseless year, we might grow about 11% to 12% topline and we will cross breakeven most probably easily by January or February.
[indiscernible] level, the consolidated guidance, if you can provide any on the PBT margin on a consolidated chunk?
[indiscernible] I don't think the black box we have with [indiscernible] Lifesciences. And most of our assumptions have gone wrong in terms of in terms of estimates of what kind of inventory over and we have. So I would refrain from taking any guidance here because I think what we assume for Astec [indiscernible]. But let me just tell you one thing is they're significantly better than last year.
Ladies and gentlemen, we take that as the last question. And I would now like to hand the conference over to the management for closing comments.
Thank you. I hope we have been able to answer all your questions. If you have any further questions or would like to know more about the company, we're happy to be assisted. Stay safe and stay healthy. Thank you once again for taking the time to join us on this call.
On behalf of Equirus Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.