Heranba Industries Ltd
NSE:HERANBA
Heranba Industries Ltd
NSE:HERANBA
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Earnings Call Transcript
Transcript
Other Earnings Calls
Ladies and gentlemen, good day, and welcome to the Q2 FY '23 Results Conference Call of Heranba Industries Limited, hosted by Emkay Global Financial Services. We have with us today Mr. Raghuram K. Shetty, Managing Director; Mr. Raunak R. Shetty, Executive Director; and Mr. Rajkumar Bafna, Chief Financial Officer. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Rohan Ohri from Emkay Global Financial Services Ltd. Thank you, and over to you, sir.
Yes. Thank you so much. Good evening, everyone. I would like to welcome the management and thank them for this opportunity. I shall now hand over the call to the management for the opening remarks. Over to you, gentlemen.
Yes. Thank you very much. I'm R.K. Shetty, Heranba Industries -- Managing Director, Heranba Industries Limited. Thank you, everyone, for taking your valuable time for Heranba's Q2 FY '23 earnings call.
The company's revenue surged by 19.8% year-on-year to INR 4,233 million in Q2 FY '23 driven by strong performance in domestic markets, navigating uneven monsoon distribution. Our export business was impacted by the lockdown in China, coupled with volatile global macroeconomics. Our EBITDA margins were under check due to higher raw material prices and a rise in power and fuel costs. The domestic agrochemical industry is likely to do well in H2 FY '23 due to residual moisture, owing to late withdrawal of the southwest monsoon, higher reservoir levels and rise in MSP, minimum support price, of rabi crops for the upcoming marketing season.
We have spent INR 410 million on CapEx at our Sarigam facility during H1 FY '23, and will be spending additional INR 1,000 million in H2 FY '23. The commercial production of technical-grade pesticides and intermediates from the Sarigam facility is likely to commence from Q2 FY '24, adding meaningful contribution to the company's revenues. Heranba continues to look further to create sustainable growth for its stakeholders with its diverse product portfolio, R&D capabilities and prudent growth strategies.
We are on track to achieve 15% to 17% sales growth in FY '23, with EBITDA margin staying at 16% to 18%. The company is well poised to build on the strong operational competency developed over the last few years. I'm hopeful the company will continue to grow and surpass new milestones in the coming years. We continue to see FY '23 as an important year in Heranba's trajectory and are optimistic of the future.
I will now hand over to Mr. [ Raj ] Bafna, our CFO, to take you through the financials. Thank you.
Thank you, sir. Good evening, everyone. I would like to brief touch upon the key performance highlights for the second quarter ended 30th of September 2022, and then we'll open the floor for question and answer.
Now moving towards financial highlights for quarter ended 30th of September 2022. Revenue from operation increased by around 19% year-on-year to INR 4,233 million in quarter 2 FY '23 as compared to INR 3,534 million in quarter 2 FY '22. EBITDA grew by 6.2% year-on-year to INR 705 million during the quarter with EBITDA margin at 16.49% in the quarter 2 FY '23. Profit after tax stood at INR 477 million in quarter 2 FY '23 as compared to INR 456 million in quarter 2 FY '22.
The company's domestic export mix stood at [ 67:33 ] in quarter 2 FY '23 against [ 68:32 ] in quarter 2 FY '22. Heranba exports was [ checked ] due to lockdown in China coupled with global macroeconomic challenges. Our [indiscernible] continue to remain strong on medium-term and long-term basis.
That concludes the update on financials. Now we can open the floor for question and answers.
[Operator Instructions] The first question is from the line of Bhavya Gandhi from Dalal & Broacha.
Congratulations on good set of numbers. My first question is what is the capacity utilization right now? And with INR 41 crores of CapEx that we've done, what kind of asset turn are we looking? And is it comprised as the commercialization started?
So the capacity utilization currently is around the same as last quarter, that is around 89, 90 percentage. The CapEx that we have gotten is for the new site in Sarigam, and that is not yet commenced. It will be commencing in Q4 FY '23. So asset turns that we'll be able to see, it's somewhere around 3x.
3x of assets turn, in Technicals, you are mentioning?
It will not be immediately. We will not be able to see that kind of asset turns. But over the period, when it is at around 80%, 85% capacity utilization, we should be able to see something around 3x.
And in the -- this 89%, 90% capacity utilization you are mentioning for Technicals, right?
Yes. It's around 55 percentage.
55 percentage. Because as I see your Formulation revenue contribution to overall revenue has increased drastically. So still the utilization is at 55% level only?
Yes.
Okay. And sir, you have any update on the China situation, how is it -- what is the demand scenario out there? And has the supply constraints over? Or is it -- are we still facing it?
No. Actually, the Chinese season usually now will start from Q4. It's generally Q4 and Q1. So currently, we'll not be able to properly say, but there are issues in China because of COVID-19. And we'll have to wait and watch. We cannot give a concrete answer now.
So in this quarter, have we supplied anything to China?
Yes, yes. That is the usual business, but the major business usually starts in Q4 and Q1. It is usually in Q4 and Q1.
Okay. And sir, you've given a revenue guidance of 15% to 17% for this year. So our Q1 was not that great. Q2, we've been able to sort of recover. And so in the H2, what are we planning to reach the annual revenue guidance because the capacity utilization is at peak in Technicals?
Well, we should be able to maintain a similar kind of EBITDA margins as well as the revenue growth.
So what sort of growth triggers are there in H2, if you could quantify?
So overall growth from exports as well as local. So we are into 4 segments. And today, even the local business is doing well. And exports, usually Q4 is when we see good sales coming in from geographies that we are strong in, the Asia Pacific, including China. So we'll have to wait and see how things pan out.
Okay. And have you taken any price hike in the current quarter?
In the current quarter, yes, in a few products we had taken in Q2.
So if you could quantify maybe on overall revenue?
Overall revenue, the impact may not be much because we cannot take overall in all products. But in few products, we could pass on. And it also -- even the raw material prices came down. So overall, we could get that benefit in Q2.
Okay. And with respect to higher employee cost, if you could explain, is it because are we starting to ramp up the facility at Sarigam? Or we have hired new employees? Or what is it like?
No, no. For this quarter, we have employed around 10% [ high-grade ] total employee numbers in that due to some -- you can see the regularization of some employees that was not on the payroll earlier in this quarter and this quarter we have [ consolidated our businesses ].
So how do we see that going forward? Are we going to get back to sort of 18% sort of EBITDA margin?
No. Going forward for this next -- first half, as we guided for that, it will be around still 16% to 18% margins, and we are sticking to that.
[Operator Instructions] The next question is from the line of Yogesh from Arihant Capital Markets.
So sir, I had one question regarding Q3. So normally, our Q3 is very strong in exports. Last year, about 44% of revenue came from exports. And Q2, we had only Q2 -- 32%. So just wanted to know what are the drivers for strong export growth in Q3, given that there is a lockdown in China? So do we think that Q3, again, exports will be strong like last year?
No, it will be more or less in that range only. We will not say it will be -- no, it will be very strong or something. We are trying our best, and we'll be able to match somewhere around the range that we have mentioned, that is around 15% to 18%. But domestic business is actually doing better. So that's how we are able to cover whatever shortfall that we had in Q1.
Going forward also, we feel the balance of both domestic and export would be able to drive that growth and not just the export market. Because globally, there are a lot of things happening currently. So we'll have to factor that as well while considering the growth in export market.
Sure, sir. And so it's like it was more like 44% in last -- in Q3 FY '22, so will we actually achieve that sort of number this time? Or it will be more domestic driven?
We'll be able to achieve that number, but growth we are seeing more from the domestic side. This year, especially, we are seeing more growth from domestic side. Monsoon has been good in Q2, and we foresee a good rabi now season now as well in India.
And sir, last question on the guidance. So if you see 1/2 -- our margins are about 15.5%, and we had guided for 16% to 18% for full year. So do we maintain this guidance going forward? Or we'll be [ reversing ]?
Consider around 15% to 17% kind of EBITDA margins, with around 15% to 17% of revenue growth.
[Operator Instructions] The next question is from the line of Bhavya Gandhi from Dalal & Broacha.
Sir, with respect to rabi portfolio, do we have rabi mix in our portfolio? Because generally, H2 is rabi season. So what would be the revenue mix from rabi?
So when there is good rainfall -- usually, what happens is when there's good rainfall, there's a good paddy plantation. So we will have that into -- we'll have to consider that as well, which usually does not happen when there are water issues. So overall, we will have better mix in domestic market because of this mix. This will be one difference. So I hope that answers your question.
Sir, what is rabi as a percentage to our sales, maybe rabi mix in our portfolio product basket?
It should be around 60-40.
60-40. 60 rabi and 40 would be kharif based?
No, no, no. 60 kharif, 40 rabi. But because of crop pattern change, there could be some difference. So what we had seen in the past, maybe we would see a different kind of business this year.
Okay. And with respect to U.S. market, what is the scenario out there in U.S.A.? Are we supplying -- have we supplied anything beyond that 50 metric tons that we had already done?
This year also, we've received good business from U.S. and our business in U.S. itself must be 2x compared to last year.
Okay. And over there, we have got only one registration. We had certain other registrations in pipeline in Europe, LatAm. Any new registrations have we received anywhere else?
We -- registration assets is a continuous process. So we have received one registration in Europe in Q2. And maybe in Q4, we may receive 2 registrations in U.S. as well.
Okay. Two registrations in U.S., sir? Could you just repeat that?
In Q2, we received 1 registration in Europe and in Q4, we may receive 2 registrations in U.S., which will drive next year's growth.
The next question is from the line of Jay Modi from EIML.
Yes. Sir, so I have 2 questions. The first one was on margin. So amongst Formulations -- between Formulations and Technicals, which portfolio is a better margin portfolio for us?
Usually, it is through -- as a [ portfolio associate ], Technicals were better margins for us. But now because the base in the Formulations branded business is less. That's why Formulations had lower margins, gross margin. And now our business in the Formulations also has increased over the last year, over the last 2 years, in fact.
And with that, the fixed cost or semi-variable kind of costs remain the same, more or less. So that has increased overall EBITDA margins at the branded level also. So domestic formulation business margins have improved over last year, which may, in the future, I don't know, we may be able to see somewhat similar kind of gross margins in both Technicals as well as Formulations.
So is it fair to say that once we have commercial placed through Sarigam facility for Technicals we'll see -- we'll continue to see an improvement in gross margin levels?
We'll try our best. For now, we'll say we'll be able to maintain something like 18%, 20% kind of EBITDA margins going forward.
Okay. And when you see our other expenses, we've seen this 25% increase. So all of it is predominantly to do with freight and fuel cost? Or we've got some preoperational expenses as well in our other expenses?
No, no. The major contributor are energy cost and the labor cost side, because our energy cost and other expenses increased by around 35% to 37%, and labor costs also gone up in [ recent years, 20%].
And incrementally, how are we seeing our energy cost? Are we see prices coming up or continuing to be at...
No. This is not -- prices are for the energy cost and [indiscernible]. No further increase in that -- we have seen in that. Prices have not come down this year.
Okay. And last question was on commercialization of Sarigam facility. So our total CapEx in this facility stood at INR 140 crores. Is that correct?
Yes.
And you said that we expect asset turn of 3x until utilization. So how long does it take for us to fully utilize an asset?
1 year.
Okay. So within -- so by FY '25, we'll have around 3x asset turn from Sarigam facility?
Yes.
Okay. And beyond, is there any other CapEx plan that you have lined up?
Pardon?
Beyond Sarigam facility, do you have any other CapEx plan?
No CapEx plan at our Saykha unit, which is -- around CapEx will be around INR 150 crores plus impact, and which will be come in the FY '24, FY '25 period.
This is the FY '25 commercialization?
Yes, we are hopeful to that. We are on the same [indiscernible].
Okay. And even here, we expect similar asset turns?
Asset turn will be the same in the 3 to 3.5 by next quarter.
Our focus is usually like that, to have around 3, 3.5 kind of asset turn. We can consider 3x at capacity utilization of around 80, 85 percentage.
Got it. And Saykha has also do with Technicals? Or it's a blend of Technicals and Formulations?
Technicals. Technicals only.
Okay. And would this unit cater to export plan -- export revenue? Or we'll be looking for domestic sales as well?
Usually both, domestic as well as exports.
[Operator Instructions] We move on to the next question, it's from the line of [ Rajesh Jain ] from [ NB Investments ].
Sir, my first question is, if you see your presentation, Slide #10, where you have given revenues from Technicals and Formulations. For FY '22, the revenues from Technicals was INR 9,669 million. Whereas the Formulations is INR 4,677 million.
Right.
But if you think of H1 FY '23, the Technicals is only INR 2,982 million. Is there a human error in that?
I'll just look into that. Currently, the total -- if you see the Technicals revenue comes to around INR 450 crores plus.
That is what I was worried because it is showing [ the uncertainty ] in Formulations. But is the Formulations for the H1, is it INR 478 crores?
No. Currently, Formulations is around INR 300 crores, first half. As far as the Technicals, it's around INR 475 crores and the remaining is around INR 300 crores is the Formulations.
So we'll look into that percentage.
Okay. Fair enough. I think it looks like it must have got reversed, the 2 showing is showing -- okay. So that means we were having a target of doing more than INR 350 to INR 400 from the Formulations? It looks like we would be achieving that during the current year?
Pardon?
We had a target of doing -- I think you have shared somewhere of doing around INR 400 crores in the Formulations business in a year. So that looks like it may happen in FY '23 itself?
Maybe somewhere close to that target, yes.
Okay. Fair enough. Sir, now regarding the commencement of Sarigam facility, so I have heard 3 different dates. One in the investor presentation, it says Q1 FY '24. And the -- sir, in the opening remarks, you said Q2. And you said, Mr. Bafna, answering to someone, you said Q4 of this financial year. So can you just clarify?
No. [ Q4 financial ] only.
Q4 of this financial year?
Yes, yes, yes. At least it is not a thing [ yet valued ]. Maybe in the Q4, in the first -- you can say the end of the March or the -- you can see the first, second week of April in the meanwhile.
So even in the last meeting also, last conference call also, we had mentioned Q4 FY '23 plus minus [ reference ].
That is okay. So what I'm trying to ask is, so let us say this will start contributing to the revenues from next financial year?
Yes, yes, yes.
Being the first year of operation, we can expect around 50% capacity utilization. That's what you said, right?
Yes, yes. That's also correct.
Yes. Okay. Sir, regarding the approvals from U.S. and European customers, so have they visited our plants, inspection is over and have they approved and all that process is completed?
Yes, yes. So we've had a few visits, few inspections this year. A few in quarter 2 itself. So our business has also started. We've got an order from U.S. That's why in a previous question, I mentioned that the sales was also -- as compared to last year in U.S., the sales has doubled on a lower base, though, but sales has double compared to last year. So similarly, we'll be able to see some more such approvals that we'll get maybe this year or where we'll be able to see some business next year.
Okay. Sir, if I remember properly, I think last year, we had done around INR 20 crores for U.S. market.
Yes, around INR 15 crores or so.
Around INR 15 crores. So how much we are expected to do next year for U.S. market?
Next year, we'll be targeting somewhere around INR 50.
5-0. Sir, we were told that in U.S., the market is controlled by a few distributors, 3, 4, and they have been supplied from a few Indian players, which is very difficult to break through. Now we hear slowly and steadily, Heranba is getting foothold there and you're giving very strong indication of getting sales from there. So could you tell us what is making Heranba to achieve all this?
One is because our customer has already approved us as a source. And it is already known to them that we are strong in the products that we make. So we have got a registration. And we have good relations with few of them. And it's not a very big target as such, because we had a very small base in U.S. And from a business of [ INR 15 ] to business of [ INR 50 ] by next year, and it's not a very big target that we need to worry about. Plus/minus something, but we will be able to see something around [ INR 50 ].
So going ahead in the next 3 to 5 years, can we expect around INR 300 crores from U.S. market?
It depends on how we get the registration.
Okay. Okay. Sir, regarding Europe market, what is the status, sir? You had applied, and you had received few registrations.
Europe this year has been dull for us. We have not been able to see a lot of movement in U.S. -- in Europe. So we'll say it is at par to last year. So not -- there is no growth that we have seen in the European business.
So since we do not have much sales to U.S. and Europe market, the current recessionary trend, which is going to happen, will not affect much to ourselves. Is that assessment is right?
No -- yes. Yes.
Okay. Sir, lastly, we had launched a new product for the Indian market. Any update on that? How is it is doing in the market?
It is doing well. We've been able to sell double what we had sold last year. Last year, we started as a small pilot campaign base. This year, we went like 2.5x to our last year's capacity. And it has been well accepted by our customers. So next year, we'll try to expand from there.
Okay. Sir, is it possible to know how many products you're planning to launch during the current year and next year for the domestic market?
Is it in the Formulations or the Technicals?
Which one will drive us with more business in the domestic market?
Both. Because in Brands, Formulations, we'll drive business. Where you already -- if you see -- last year, we've mentioned we closed our Formulations business at around INR 250 crores, and we may be able to see a good jump in our Formulations Branded business this year. And Formulations, we have launched around 10 to 12 products, and Technicals, we will launch around 2 products this year.
Okay. So this -- whatever you're seeing good growth in the domestic market, is it from the Formulations business or the Technicals?
Currently, it is from the Formulations.
Okay. So this you expect to grow better in the coming years also?
In the coming years, both will be good, and that is because we will be coming up with a new Saykha and Sarigam, and that will drive both Technicals as well as Formulations growth going forward.
Sir, generally, Technicals had higher margins, whereas the Formulations, because of the higher base -- fixed cost, used to have a lower margin. But with the increase in the sales in the Formulations segment, the margins there also should be improved, as CFO has suggested to some of the participants. So with that in mind, so can we expect a better margin in the coming years?
Yes. In the Formulations, we should be able to see better margins with higher turnover as well as better product mix. In Technicals, also this year anyway, it is known in the industry that there was raw material price hikes, but there was some demand issues and also there were -- initially, there were some margin issues because the utility costs also went up a notch.
But in a normal case scenario, even Technicals contributed good margins to our business, this year being a different year, an unusual year as compared to...
Unusual. Okay. No, no, my question was in the coming years, Formulations are also going to get higher margins. So normally, we stick to EBITDA margins of, let's say, 16% to 18% or so, your guidance. So that should go to the next slot, maybe 18% to 20%, is what I was trying to ask you.
Usually, we may say our margins are in the range of 18% to 20% only. This year, because of the situation, we have revised our guidance to 16% to 18%. Otherwise, we have maintained that 18% to 20% guidance. On usual scenario, we'll try and maintain that kind of margins on the 18% to 20%.
And the guidance for revenue growth would remain 18% to 20% only for next financial year also?
Yes, yes.
[Operator Instructions] The next question is from the line of Vaibhav Gogate from Ashmore Group.
Could you highlight what capacity would be post-Sarigam and post-Saykha going online?
We should see around -- an expansion of around 15,000 to 20,000 tonnes overall, both Sarigam and Saykha.
Okay. And for Sarigam?
Sarigam, see, first phase is what we've said is around 5,000 tonnes.
Okay. Okay. And what is the timeline for Phase 2 at Sarigam and let's say, Phase 1 at Saykha?
We should -- we'll have to consider like around -- for Sarigam, Phase 2 would be Q3 next year, and the Saykha would be kind of Q1 of FY '25.
Got it. And how would this 30,000 capacity be divided among Formulations and Technicals?
Tonnage is very difficult to -- this number [indiscernible].
Tonnage is not the correct way to assess, because there's a different price line. See, some products are INR 200, some are worth INR 5,000. So tonnage -- based on the tonnage, you will not -- it is very difficult to get a correct idea in this business.
Got it. You highlighted that you have not been able to make much headway into Europe. So what could be the possible reasons behind that?
Global scenario assets this year has not been that great. So global scenario as in European scenario itself has not been that great. There has been drought situation there.
So basically, we will be able to see business in this quarter, but we've not been able to see a lot of inquiries from European market. But as a geography, Europe has not been a very big contributor in Heranba's revenue until date. So it's not much to worry.
Got it. And how does that product basket in U.S. look? Let's say, after these 2 new molecules get launched, what percentage of pyrethroid market would we have captured in U.S.?
That is very tough to -- initially, we have not considered percentage-based market share. So we are tapping more customers in U.S., meeting them, building the relations. So as I mentioned in the earlier question, we've taken a target of INR 50 crores in the next year -- by next year-end.
It could be higher, but we feel [ INR 50 ] is more achievable. There's $700 million market for pyrethroids. That's overall pyrethroids. But we will be getting 2 product registrations in pyrethroids by this year-end.
Got it. Got it. And what sort of product basket are we looking at Saykha?
Saykha will be a purely herbicide facility. So we've already completed one -- we have already completed 2 products in our R&D phase of this herbicide, which we are planning in Saykha. And there will be one multipurpose facility, where we will be making the smaller herbicides for Indian as well as global consumption perspective.
The next question is from the line of Vicky Waghwani from YES Securities.
I have a couple of questions. First is, we have not seen much growth in Technicals segment this year, specifically H1 and domestic Technicals. Any specific reason?
No. As such, in -- anyway, as we have mentioned that export has been a little dull this first half, but domestic business has done better as compared to the export business. So that way, we've tried to maintain. And there were some price pressures in the initial phase. So we did not focus on grabbing more orders based on lower prices and so on. So we try to maintain our product margins. That's why we've seen some hit in the Technicals side.
Okay. Sir, I just wanted to know, we got 1 registration in Europe and expecting 2 registrations from U.S. So these are from pyrethroid basket itself?
No. 1 herbicide and 1 insecticide. 1 pyrethroid and 1 herbicide.
From U.S.?
From U.S. And Europe we have 1 herbicide.
Europe with 1 herbicide. Okay. Sir, how much CapEx we have done to H1, overall CapEx, including Sarigam?
Total CapEx is around INR 50 crores plus.
Okay, around INR 50 crores. And how much we are expecting for total financial year '23?
Financial '23, INR 100 crores more will that next half.
Additional INR 100. Overall, INR 150 crores in financial year '23?
Right.
And for '24, any guidance?
The same, INR 150 crores.
Okay, sir. Sir, I have another question. We have seen recent resignations from director in last 3 to 4 months. Any specific reasoning? And how do we see both position going ahead?
We are reducing the Board size actually. So there's -- as in our earlier calls, investors have only guided us that there are a lot of family members in the Board. So with the resignation of family members there has been the resignation of independent directors as well.
Okay. Sir, I'm just confirming, we are expecting commercial production of Phase 2 Sarigam from Q3 financial year '24?
Yes. Q3 financial year '24.
Okay. Additional 10,000 metric tonne capacity, which is going to come?
No, around 5,000. Phase 2, 5,000.
The next question is from the line of Yogesh from Arihant Capital Markets.
Can you please tell me what is the contribution of China to the overall sales?
It was around 22% last year. Currently, it's around 18% on that sense, first half.
And then sir, any strategy to lower this to single digit going forward? How will the company approach lowering this dependency on China?
No. Actually, we are not having any strategy to lower our dependency on China. We have a lot of products registered in China. And we started exporting an intermediate also in China. In fact, we are -- for us, China is a good market and they are good buyers as well. So we've not thought of reducing China exposure in any way.
Sure. And sir, which will are you -- be the major products in the Indian market for you, the top 4, 5 products in the Indian market?
The pyrethroids only.
It will be cypermethrin and others, right?
Cypermethrin, and then there is one product called profenophos. It has a good market in India. Then we have another product called permethrin, which has a good market in India. So these will be the top 3 products. We have now -- actually instead of permethrin, you can say lambda cyhalothrin has a bigger market as compared to permethrin. So these will be the top 3 products, cyper, lambda and profenophos in our basket.
Sure, sir. And in terms of the Sarigam facility, which is coming in Q4, like this will be all pyrethroids?
In which...
In the Sarigam facility, which is coming up in Q4.
No, it is -- it is not pyrethroids. It will be a mix of both insecticides as well as fungicides. We are launching 3, 4 fungicides in the Phase 2 product. And Phase 1 will be mix of pyrethroids and 2 other insecticides.
And the mixture will be like 50-50, 50% fungicides and 50% insecticides for Sarigam?
Yes, 50-50, you can say, insecticides and fungicides.
And sir, one thing on the margin. So if we look historically, we had very strong exports, like 45% of the revenue approximately was exports. And at that time, the margins were about 18% to 20%. In this year, exports has come down. And therefore, our margins have also come down. I assume that there are higher margins on exports. So going forward, if our focus remains on the domestic market, do you think that it will impact our margins, that 18% to 20% the long term?
No. In the long term, it will -- we'll be able to maintain 18% to 20%. So as we had -- we've always said that we are focused on maintaining this kind of margins. This year, globally, there has been issues both because of geographical or political issues, as well as -- because of political issues, there has been demand issues.
So because the demand has been lower, that's why the price expectation of the party in the export market had been lower this year. So we focus more on markets where we had better margins, including India. And also one reason for the exports is not connected -- because the currency devaluation of the other countries also happened in that.
Or availability also.
Or availability of the currencies also, yes, [ made it worse enough ].
A lot of countries are having dollar availability issues.
Sure, sir. And sir, this 19% approximately growth in Q2, this might be a repeated question, how much will be attributed to product mix and how much to volume growth?
50-50.
Okay. And the product mix will be like a mix of insecticides and herbicides? How would be that -- or within insecticide itself, what...
Insecticides and fungicides. We're not making herbicides now. On the new site, we plan to have a dedicated herbicide facility to avoid contamination issues that -- according to our customers' requirements.
Yes, sir. And lastly on the initial commentary, you said that there was some margin pressure from higher raw material cost, which is now like -- it has normalized. So are we expecting any price rise -- price hike in this quarter to offset any pending pressure from higher raw material costs earlier?
No. We've -- our prices we have kept at the same base that we had last quarter. And for our products, unfortunately, prices have not gone down much from last quarter. So the products -- the raw materials that we need are yet in that range itself.
So we are not looking at any price hike in this quarter?
No.
And sir, lastly on China. So China is all Technicals, right, there's no Formulations from over there, all Technicals applied?
Technicals and Intermediates.
Okay. And this is all pyrethroid, entire product basket to China is pyrethroids? Or it consists of...
On production, yes. Intermediates is not pyrethroids.
So what would be like product basket like -- in terms of insecticides or herbicides and fungicides for China?
It's a bromine-based product, the intermediates, that we are exporting. One of them is a bromine-based product. One is an intermediate which is needed in insecticides, and the rest are pyrethroids.
The next question is from the line of [ Rajesh Jain ] from [ NB Investments ].
Sir, my question is regarding the CapEx. So you have mentioned that around INR 150 crores this year and again another INR 150 crores next year. So all this CapEx would be done through the internal accruals only?
Most of the internal accruals. If we need some term loan, we can look into that. But then as of plan, we are -- stick with the internal accruals on that.
Okay. Sir, for the Sarigam both Phase 1, Phase 2, you have mentioned, around 10,000 metric tonne capacity will be added, right?
Yes, yes.
Yes. And for the Saykha, so we have 2 plants. Out of it, the 34,000, one is where I think we are doing the next CapEx. So there also, will you be doing the -- in Phase 2s or it is in 1 Phase only?
In the 2 phases only. We'll start with 1 and -- we start with 1 and then the multipurpose plant will follow.
Okay. But both for Phase 1 and Phase 2, the CapEx requirement is INR 150 crores?
Almost, sir. Almost.
Almost. Okay. So you had mentioned Q1 FY '25 is the completion for Phase 1. So can we expect maybe Q3 or Q4 may be the next one, right?
Yes, yes.
Okay. Sir, for the next plot, whatever you have posted, the latest one, 57,000 square meter. So for that, have we received any approval from the environment ministry?
No, no, no. Not yet approval. We are in process to get approval in that.
So that means once you complete this, the plan is to go for the next plot, right?
Yes, yes, yes. It will take -- because the approval takes time. It's around 1 year to 1.5 years.
Good, good. Correct. Correct. Sir, just want to know both these Saykha plots would have to be -- the CapEx would be done under Heranba Organics Limited, correct?
Still not decided, but in the same -- because it is a subsidiary company in that. Because Organics is the name of the -- Heranba Industries Limited in that, but we have a CapEx planning for the overall group vehicles. As a group, we will be spending around -- as a group, the group will be spending around INR 150 crores.
And sir, the reason why I was asking whether it is in Heranba Organics, so that you can avail the lower income tax rate.
That's [indiscernible].
Yes, yes. It's still not, because lots of formalities is still to be done in that.
Okay. Sir, we do not have any PLI scheme for our segment?
No, no. The government has not introduced any PLI schemes or connected to that for India.
Got you. Okay. Sir, lastly, for all these new CapEx, we will be launching a few new grades and then a few of them we would be exporting to the U.S. and European markets in the coming years. Is it fair to say the margins of all these products from Sarigam and Saykha would be at the higher margin ones?
We'll say we'll maintain 18% to 20%, because the base that we are at to the growth that we are mentioning, after a point, it may become tougher. So as a whole, maintain -- have higher margins. So that's why we are -- we are not committing higher margins. Instead, we are maintaining this 18% to 20% kind of guidance.
The next question is from the line of Chintan Patel from Satco Capital Markets.
Sir, how much price hike we had taken in the first half?
In 2 products, we have taken price hike. It's not across products, we have not taken price hikes.
Okay. So how much you -- how much of price hike you had to take?
Pardon?
Sir, what is the impact on that overall mix?
Your voice is not clear, actually.
I'm not? Am I audible?
Yes.
Okay. So for a few products, how much price hikes we had taken? And what is the impact on overall mix?
The overall mix impact may not be very much. The price hikes would be somewhere around 5% or so in few products. But as a whole, it may not have a major impact [indiscernible].
And sir, can you quantify the revenue contribution from private sale portfolio?
Private sale portfolio. Annualized we have, but for first half, we will have to get back.
Okay. Okay. And can you give some color on pyrethroid portfolio demand outlook?
Pardon?
Can you give some color on the demand side for pyrethroid portfolio?
So domestic, there has been -- the demand has been normalized as it has been in the past. But in export, not just pyrethroid, but the entire -- the products list, we are facing -- from few geographies, we are facing some demand issues.
Because of the global situation is being brought, as well as political issue, COVID issues. Currency availability is another issue. So because of that, there has been some demand slump, not because the demand for the product has gone down, but globally, there has been a lot of uncertainties happening.
Okay. And any -- what -- how much product pipeline for the pyrethroid portfolio?
Around 7 products.
7 products. And these 7 products, we are going to launch in FY '23 and FY '24?
No, no, not launch. This is an existing pyrethroid basket.
Okay. Existing. And any new products for the pyrethroid product portfolio?
We make around 13, 14 products, out of which 7 products are pyrethroids. And pyrethroids, we are fully backward integrated where we make our own intermediates as such.
Okay. And sir, lastly on capacity expansion. Can you shed some color on our Saykha and Sarigam facilities' overall capacity?
Sarigam facility first phase will be started by the end of this quarter whereby 5,000 tonnes will be added capacity. Next phase will be around another 5,000, will be commenced on the third quarter of the FY '23 -- FY '24.
FY '24. And so Sarigam have around 10,000 tonnes of capacity. And Saykha?
Saykha will be around same, 10,000 capacity, and with '24, '25 we'll be adding.
But one thing, as it was already mentioned in a previous question, that tonnage should not be considered as a base when we are considering a project. Because when we consider high-value products or when we are doing backward integration, this tonnage may come down. So it depends on product to product, the tonnage may also change. We can make 20,000 tonnes also from this plant. But the products that we are focusing on, we may be able to touch only 10,000. That's our focus.
And can you -- sir, can you provide some color on the formulation margin?
If you see the gross margin, it will be in the same range. But if you see the EBITDA margin, it will be here by around 1% or 2% here or there from the Technicals segment.
And going forward, if Formulations will contribute more revenue, so how we will manage the margin for particular Formulations business?
Yes, yes. Formulations business, because the fixed costs remain same in that, if you increase your volume, it will be definitely boost our margin in that.
Plus product.
I mean a lot our distribution network for the formulation business?
We have around more than 21 sales points in India, across India, for the distribution point [indiscernible].
We have around 21 sales point and around 8,000 dealer distributor network.
And can you quantify the revenue contribution for -- region-wise in India?
Of?
Reasons. Reasons.
Because if you say the east or west contribute more in that, and south and you can say the north, which contributes around 50-50 -- 45% to 50% premium.
We have not done this breakup yet, so we can get back to this question later.
Okay. And sir, can you quantify in [ recent scale ], we have export in China. So like China, in the previous quarter, you have said that we are -- we sold our material to [ Shanghai Board ] and then your distributor will sell the product. So any color on the -- which region that we have strong revenue for China country?
We are selling it to companies -- we are selling the Technicals to companies who have their brands in China or who are like traders who in turn sell to other companies. So we have both models, but we are not selling it directly to distributors in China.
Okay. Okay. So any number? Because it seems we have a strong revenue from China.
Any number?
Any number or any percentage of sales of China? And in which region we have a strong revenue from China?
We only have country-wise breakup. So we just do is we sell it to companies who then have their brands across China or something like that. So we do not have geography-wise breakup also in the Chinese market. We are only selling Technicals. We don't do Formulations business in China.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Yes. Thank you so much for taking interest in this con call. I wish you all the best. Thank you so much.
Thank you. On behalf of Emkay Global Financial Services Ltd., that concludes this conference. Thank you for joining us. You may now disconnect your lines.