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Ladies and gentlemen, good day, and welcome to Rallis India Limited Q4 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gavin Desa. Thank you, and over to you, sir.
Thank you, Michelle. Good day, everyone, and thank you for joining us on Rallis India Limited's Q4 and FY '24 Earnings Call. We have with us today, Mr. Gyanendra Shukla, Managing Director and CEO; Mr. Nagarajan, the Chief Operating Officer, and Mr. Subhra Gourisaria, Chief Financial Officer. Before we begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature and may involve risks and uncertainties. A detailed statement in this regard is available in the results presentation. I now invite Mr. Shukla to begin proceedings with the call. Over to you, sir.
Thanks, Gavin. Good morning, everyone, and thank you for joining us today in our Q4 fiscal year '24 earnings call. As mentioned by Gavin, I have alongside with me, Nagarajan, who is our Chief operating officer, and Subhra who is our CFO.
Let me begin the discussion by delving into the industry landscape initially, post which I will discuss Rallis' -- its fiscal developments. But before that, let me provide you a brief overview of my background. I'm new to the company, but I have over 3 decades of experience. I have handled diverse roles and assignments across various regions. And I have spent about 2 decades at Monsanto and then my last job was at JK Agri Genetics before joining Rallis India. I'm excited to be part of the Rallis family and take our journey forward.
Moving forward in terms of domestic market, demand was sluggish with Q4 being a seasonably smart quarter, seasonably small quarter. Low reservoir levels and heatwaves in the southern region impacted overall demand. However, Northern and Western regions have seen good momentum. The outlook is positive with the news around [ El Nino ] We are expecting good rains. Export business continues to witness low prices and poor demand as channel destocking continues across the globe. Commentary from many global players also indicate that getting back to normal demands level may take longer than originally anticipated.
Moving on to the Rallis developments. Our sales for the quarter stood at INR 436 crores and we have a degrowth of roughly 17% over the corresponding period quarter last year. A large part of this degrowth was priceless with volume degrowth being in low single digit. If you further look into this, domestic crop care experienced a 9% degrowth solely attributed to the price drop with volume being flat. Export business experienced a major drop with 27% decline with a drop across both price and volumes.
The seed business had a growth over a small base of -- base in the quarter 4 with full year growth being 21%. So seed has really turned around this year twice well. During these times, our teams have been focusing on shorter calls on both procurement and pricing enabling improvements in gross margins.
This year, there was some work done on overhead optimization as a result, despite quarter 4 being a low seasonal quarter for us. Our expense around pricing and cost management have helped the business generate INR 6 crore of EBITDA. Loss for the quarter is around INR 21 crores versus the loss in the similar period last year, about INR 69 crores. Last year EBITDA was also impacted by INR 63 crores for the provision taken for slow-moving inventory and impairment of intangibles.
Turning our attention to individual businesses, starting with domestic business. Our efforts in recent years have been more directed towards having differentiated products, offering to solve farmers' needs. We have a robust exercise of the starting with the product test combination to identify the gaps and have the right product to fill them. The pace of new product launches has picked up meaningfully in recent years. In quarter 4, we have launched 3 new products in the Crop Nutrition portfolio, reaching to a total count of 19 new product launches out of which 13 are being under Crop Protection and 6 are under Crop Nutrition portfolio.
Our innovation turnover index has improved significantly to 15.9%. We recognize this is a key lever for growth and are taking various steps to scale up launches. You will see more efforts in the future increasingly getting directed towards it. We will continue our endeavor to increase the market reach in targeted geographies. Our distribution network for domestic crop care stood at roughly 4,500 dealers and retail footprint of about 60,000 as of March '24. We are also progressively increasing digital investment, both in the front and back-end to build a more connective, agile and effective organization.
Moving to the seed business. After a few challenging years, I'm very pleased to report that fiscal year '24 has been a good year for the business. Growth was robust at 21%, led by volumes on the back of good uptake for our Cotton hybrids, namely Diggaz and Aatish Express. In addition to Cotton hybrid, sales for the other crops like paddy, maize and millet also remained steady. Through several concerted actions taken during the last couple of years, we have been able to make the business more focused and optimized, helping to breakeven during the year.
Our efforts are now around building a promising portfolio pipeline. Deals are focused on Kharif '24 as we have -- we are already entering the season and working our best to address the industry challenges of shortages across hybrid seeds.
Moving on to international business. The lower prices in soft demand continued amidst channel destocking. We expect the situation to persist for some more time. Acephate is facing challenges in Brazil and price for all our key active ingredients continues to be soft.
The geopolitical situation further adds uncertainty to the timing of recovery even during these turbulent times. Pendimethalin continues to show good traction, especially in the U.S. and EU. We have already announced our plan to scale our production capacity, which should become operational by the end of fiscal year '25.
Our custom synthesis and manufacturing business was up during the year. We finished the production of new [ CM ] material for our multipurpose plant and reading the plant for the smaller batches of an intermediate for another innovator. We continue to engage with prospective customers, including their visits to our plants, and we are hopeful that some of these will translate into meaningful future opportunities.
Even though industry and business are navigating through near-term challenges, we are committed to our longer-term strategy and are making necessary investment towards it. On a positive note, I'm happy with the advanced collection in our seed business and the continuing good response for our cotton seed, Diggaz and other hybrids which are being sold in northern part of India.
That concludes my opening remarks. I will now hand over it to Subhra for a detailed analysis of the financials. Over to you, Subhra.
Thank you. Good morning, everyone, and thank you for joining us today for our Q4 and FY '24 earnings call. I walk you through our financial performance for the quarter before which -- post which we shall commence the Q&A session.
Starting with the top line for the quarter, our revenue stood at INR 436 crores as against INR 523 crores for the same period last year, which is lower by 17%. A large part of this drop was due to the pricing drop of 13%, with the sharp meltdown in input costs.
Export continue to be under pressure with the quarter degrowth being 27%. EBITDA for the quarter stood at INR 6 crores against a total loss of INR 65 crores for the same period last year. Loss for the quarter stood at INR 21 crore as against the loss of INR 69 crores during the previous year.
Moving on to business-wise performance. As far as exports are concerned, volume growth remains benign on the channel destocking. Demand trend across the key markets remains muted. In addition to the weak demand, we also witnessed sharp moderation in the prices of our key products during the fiscal with rates for some of our key input raw materials dropping in the range of 40% to 60% from the seed levels. As far as seed business is concerned, we had a fairly good year underpinned by the strong performance of Cotton hybrids, [indiscernible] significant growth in volumes.
Besides including the product portfolio, we are also committed to keeping lower inventory covers to increase our agility. And inventory levels in seeds have significantly reduced. We're also using technology and design solutions, which we believe will significantly help in reducing sales [indiscernible] efficiency in operations.
Our efforts in cost savings have also helped us [indiscernible] during the year. Our volume growth was flat in domestic business with price degrowth contributing to the overall degrowth of 9%. Despite these timely actions and efforts towards improving the mix over the years have helped in improving gross profit to more than 30%.
We continue to reach shorter calls and with shorter pricing in [indiscernible] calls and with strategic inventory only after this relevancy. Our actions around working capital have continued with good efforts on inventory and debtors. We have close to INR 280 crores of liquid balance as of March 31st with near [indiscernible]. This healthy cash position can help us instead and help us navigate these volatile times. We're also taking several steps to improve the asset utilization levels by building necessary flexibility. We expect the CapEx to be in the range of INR 100 crores to INR 150 crores.
That concludes the opening remarks. We can now commence the Q&A.
[Operator Instructions] The first question is from the line of Viraj from SiMPL.
Just a couple of questions. First is on the domestic business, if you can just probably give some perspective in terms of the volume in this particular quarter? And how does our inventory in the market compare versus the overall industry? So that is first.
So if I got you right, Viraj, you wanted to know the inventory position in the market. We think that our inventory is a little on the higher side compared to our previous year. However, we think it is comparable to what we find in the industry. We have had some difficulties in the quarter 4 of last year in terms of liquidation, which has contributed to this. As far as the volume growth in the domestic business.
It has been flat.
Volume growth has been flat.
Okay. Second question is on the contribution margins for the company as a whole, right? And so if I look at the period between, say, 2014 to 2018, right, the company used to earn average contribution margins, gross margins of around 44%, 45%. And if you look at each of those 2 businesses, seed, crop care and so on upwards of 40% to 43%, seed used to be close to 50% gross margin. But since 2019, since we don't publish, if you look at the period between 2019 to 2024, that moderation has come down to 40% in gross margin.
So if one to just understand the factors which contributed to a higher contribution margin in that period between 2014 to 2018, and the reason for moderation in last 5 years. So why I'm asking this is because if I look at Q4, particularly, we reported a contribution margin of roughly around 44%, which is the highest it has been in the last 6 years. So if one can just give a perspective the reason why we used to earn such a high margin in the past and the reason for moderation and how one should look at contribution margin behaving for us in the future?
So Viraj, firstly, I think, given the seasonality of the business, you should only look at annualized numbers, not look at quarter numbers in terms of gross margin. On a longer-term basis, I will first address the longer-term point that you had made. So longer term, over the last 4, 5 years, your assessment is right that the gross margins have indeed come down. And it is a combination of raw material inflation, which was not fully absorbed through prices. We have a volatile situation globally.
In the last few quarters, I would say, in last year, we have done relatively better in terms of improving our price versus cost mix. And certainly, the other big factor which influences gross margin is crop care versus seeds. You picked up that crop, seeds makes relatively better margins also mix in the portfolio keeps stopping, which is what has happened in the last 2 years and gross margin has also come down as a result of it.
The next question is from the line of Abhijit Akella from Kotak Institutional Equities.
Just a couple. First on the financials, the finance cost seems to be a little bit on the higher side this quarter, about INR 8 crores, even though we've paid down all the debt basically on the balance sheet. So just sort of wondering what might be driving that?
And then on the CapEx number for the year, I believe it was about INR 80-odd crores. Was that a little bit lower than your original plans? If so, were there any project deferrals? And then what do we expect the next year's CapEx to be spent on which projects in particular?
Yes. Abhijit, on your first question on finance costs. So you're right that there's no -- practically no borrowings. So this finance cost is more of Ind AS ROU and the factoring that we do for export receivables. So that's what is the factoring -- that's what is sitting in the interest cost.
As far as your question on CapEx is concerned, the large part of our CapEx was completed, I would say, the CapEx slightly was completed towards FY '23. What you see in FY '24 is more of the residual CapEx for multipurpose plan, which we commissioned in the mid course of the year and more around sustenance CapEx.
Given that the last part of the CapEx item, I believe it's now complete out of the original plan that we had decided. FY '25 CapEx, that's why I mentioned in the opening remarks as this should be in the vicinity of INR 100 crores to INR 150 crores. We have a bigger exercise to now get maximum utilization from the assets commissioned.
Okay. So that will be primarily maintenance CapEx again, right, going forward?
Primarily, sorry I missed your words?
Primarily maintenance CapEx.
Yes, yes.
Maintenance CapEx. Plus we want to invest something in R&D.
Yes.
Okay. Understood. And also just to follow up on the finance cost. So given that this is largely factoring of receivables and then the Ind AS impact, should we expect this to be a sustainable run rate going forward on a quarterly run rate basis?
It will drop to a certain extent that you can take -- Abhijit, it would be in the similar range. You would have seen that in our balance sheet or you would have seen the ROU assets have also gone up. So this is more around depreciation and interest and in COGS, you see some contra impact. So INR 3 crores, INR 4 crores you will see that.
The next question is from the line of Ankur Periwal from Axis Capital.
So first question on the domestic crop protection side. You did mention launch of new products. And so wanted your comments in terms of how should one look at new product ramp up or new product launches going ahead? And for FY '24, broadly, how has been the contribution from older products versus the new products?
So as far as FY '24 is concerned, as you may have seen in the investor deck, the ITI index, which we actually calculate based on the last 4 years introductions, what kind of revenue they contribute to the base that has actually reached about 16%, which is higher than the previous 2, 3 years figures.
In terms of the products that we have launched in FY '24, is some of the crop production -- crop protection products have received a very, very encouraging response. We do believe that there is a significant opportunity to scale up. Clasto is one of the brands that we are really hopeful of scaling up sizably in the years to come. Some of the other products have had relatively satisfactory kind of scale up, but not in the same...
Okay. And secondly, on the seeds business, while this year, we saw a good growth on the revenue front. And in the initial comments, we did mention on ramp-up in terms of overhead being lower and margin uptick. Just wanted to get your thoughts on both revenue growth as well as on the margin side and whether the revenue growth will be only led by cotton or there are some more initiatives across the other crops?
Cotton is certainly a very important component, and we are very hopeful that because we'll further scale up. In terms of the immediate situation, as we have mentioned, there have been challenges in the production quantities in the Rabi of last year. But if you discount that and kind of look at it over a longer timeframe, we certainly believe we have opportunity to scale up in both paddy, maize -- I mean, in paddy, maize and in bajra, all the 3 crops.
The next question is from the line of Rohan Gupta from Nuvama.
Sir, my question is that in the last 4 to 5 years, we had a vision of almost CapEx of INR 800 crores in driving the capacities in different verticals in the company, has that exercise is broadly over now, however not much reflected in the bottom line of the company, but at least the CapEx cycle is over.
Just wanted to understand that at the management level, do you have any certain thought process. So you gave us some number of next year CapEx of close to INR 100 crores. But do you have sight over next 3 to 4 years, what kind of investment you want to make in the business? And if not, then we are still a very healthy cash flow generating company. So what are the expected uses of the free cash flow we are going to generate over the next 3 to 4 years?
Yes. So thanks, Rohan. I think as far as CapEx is concerned, manufacturing side, I think we have done enough and as we said, will be sustenance only. On R&D side, we believe that we need to ramp up. And so the current year CapEx, we are looking at really more directed towards R&D.
And I think R&D, our ability to launch new product and then our ability to produce, these are the 2 fundamental things. Now going forward, I guess our focus is going to be shifting more towards improving enhancing our customer connect how -- probably spending or increasing our marketing spend where we can actually get more stickiness with the customers because now back-end is ready, we have to focus on the customer.
So in terms of the CRAMS business, which we have yet not seen any significant ramp up in last 2 to 3 years, also in B2B, where the -- some of the product prices have been weak. Do you see that, that part of the business where the investment in FPC and all has already gone. And the prices have globally has stabilized. So is that business showing some kind of recovery? And do we expect that over next 2 to 3 years, do you see there any major ramp-up can be seen in the CRAMS business and also in the B2B category, where we had couple of products.
So you're right. I think -- so we are almost getting out of a very difficult cycle industry has gone through and is still -- if you look at the commentary which has come from the global companies, still there's some residual challenges left. And the way this plant is designed with the variety of reactions we can do and variety of few things we can do. I think now really, we're going to focus on B2B customer and say, look, how we can generate extra business.
And part of the purpose is that we can do different kind of products. So I guess that's the next focus. And I guess it doesn't reflect right now because the situation itself is very difficult. But going forward, the purpose for which is created, I'm sure will have more opportunities on our way.
The next question is from the line of Archit Joshi from B&K Securities.
Sir, I have a couple. Firstly, on the active ingredient pricing, I think we have seen a fair bit of stabilization happening in some of the key AIs. Sir, do you think that this is kind of bottomed out here and from here on with improvement in pricing, especially on the international business going ahead, let's say, maybe a couple of quarters down the line, we should start seeing a pickup on the pricing front and on the volume side?
Well, I mean, I don't have a crystal ball to predict. But all I can say, yes, there has been -- I mean, the steep decline which was happening that has slowed down. And it varies from molecule to molecule. Some molecules have almost stabilized and so on marginal upward trend. But by and large, I would say, stabilized. A lot will depend on how this inventory starts getting consumed globally because they're all part of the global network. These molecules are traded across the globe. So how agriculture consumption goes around the world, that will depend a lot on that.
Sure, sir. Sir, my second question is, sir, with your experience with a very successful seed franchise like Monsanto, have you had any strategy for Rallis' seeds business, which is just -- which is at the cusp of being turned around, especially in FY '24. Anything that you have identified as a strategy for Rallis' seeds business going forward, picking up cues from your previous experience on one side?
So I think seed business, basically, what I call is a germplasm business, right? And I have just resumed here, I'm in the process of reviewing the details of the business. But I believe we have good fundamentals in place. And what works for seed companies around the world is really focus, right?
I think we are going to really focus on important segments, important markets and important crops, and there's no reason. I mean, obviously, we're all part of the cyclical business, things will happen. But I think the kind of focus we give and the kind of investment we make in the technology in germplasm that will define future success and growth. Obviously, we had short-term challenges. And sometimes they cannot be foreseen because the way rain can derive and customer mood can swing. But yes, we have a thought process. It's too early to comment on that. But yes, there's a thinking going on.
The next question is from the line of Darshita from Antique Stockbroking.
I hope I'm audible. I have two questions. One was regarding CRAMS, I think we commercialized one formulation and one intermediate last year. So I wanted to understand the scale-up and the plan for FY '25, if you have any? And I think there was one more product that we were to commercialize in CRAMS, so probably some update on that?
And second, on the MPP capacity utilization. How was it by the end of FY '24? FY '25, you've given a guidance of 60%. So do we expect to achieve that? And apart from difenoconazole how many more products do we have in the pipeline to be launched at the MPP for FY '25?
Yes. Naga, do you want to take that?
Yes, I think as far as the introductions of last year are concerned, we have more or less been completed. There is one of the products which we'll be completing in April. In terms of scaling up for those, certainly, they are also susceptible to the kind of global challenges in terms of inventory which the customers are also sort of experiencing. So we are in discussions with the customer in terms of the volume requirements for the upcoming year.
As far as the MPP itself is concerned, we have an opportunity to do an intermediate for an innovator company, which we have mentioned in the opening remarks, which is what we are next getting geared up for. Certainly, I think as the requirement for the different AIs and intermediate volumes stabilize, there is an expectation that our MPP utilization will also improve. At this point in time, certainly, it is a bit uncertain, and we are working through that. We are working with the customers to improve the utilization levels.
Okay. Any guidance for FY '25 towards the utilization or we'll probably comment later on that.
I don't think, Darshita, we can work on the utilization because it depends on which products that are being manufactured. Suffice to say that we'll work on maximizing the utilization.
The next question is from the line of S. Ramesh from Nirmal Bang Equities.
So if you look at the results, despite the fall in top line, there is an improvement in the margins in the domestic business. So is that something of a silver lining? Is it kind of trend like sustained in FY '25? And what is the kind of ballpark volume growth you can expect assuming that the monsoon is as good as expected based on the met forecast?
So margins, I don't think -- see, we are trying to do at whatever is best in terms of managing the cost versus price competitively and looking at, how do you do it in an agile manner to ensure that gross margin keeps improving but it's difficult to, I would say, give any forward guidance in this respect. Monsoon, yes, there's a positivity around it currently. But yes, how it's wet specially and how good in terms of timing needs to be watched out but certainly, there's a lot of optimism around it at present in terms of domestic market.
So is there any indication from the channel in terms of their willingness to take additional material in anticipation of demand? Or we have to wait till we see the monsoons in May, June? I mean how does the season look as we stand today?
Yes. So I think it's too early for crop protection business, but yes, seed, we have seen increased interest on the trade channel, and that is also reflected in some of the advances we collect from the market. So seed, yes, optimism and a good seed purchase good planted acres and supported by good rainfall, generally, in normal course would lead to a good crop protection season.
Okay. And what would be the current capacity utilization in all your AI plants, both for domestic and exports?
So it differs between plants to plants. For instance, [ 2013 ] we are seeing positive uptake, and that's why the capacity utilizations will be better. Acephate, we'll have to ensure that the crops dynamics are taking care. Otherwise, the demand levels, I would say, we mostly end up using for the full capacity levels. Make sure, yes, there's the capacity utilization is currently lower, and that's why we're working on in terms of how do we flexibilize the capacity utilization. Hexaconazole is more or less around the fixed capacity utilization.
Okay. And Mr. Shukla, welcome to Board and wish you all the best.
Thank you very much.
The next question is from the line of Somaiah V from Avendus Spark.
First question is on the domestic market.
Sorry to interrupt. Sir your voice is a little bit muffled. Sir, kindly use your handset, please?
Yes. Is it better now?
Yes. Please continue.
First question is on the domestic market, sir, from a pricing standpoint, so we've seen a decline last year. So I mean, do you think that we're almost bottoming out there, and then we do expect price increase for rest of the year? Or what is the status there on the domestic price?
If you're referring about crop protection, I would say, look, from a very what we call unfavorable weather for last 6 months in the country, which has led to certain inventory buildup. And the next consumption cycle of crop protection, the big one really starts after the rains. So I think still there's a pressure on the market. As I said, one question was asked by Ramesh, that things have to -- I mean, things are looking positive from seed offtake perspective, but then it has to translate into a good crop later on.
Understood, sir. Second on the Pendimethalin capacity that we are referring to, you were referring to increase by end of FY '25 some capacity additions. So what is the capacity addition quantum here? And what will be by the end of FY '25? If you can give the capacity in total for Pendi and the Metribuzin could be by end of FY '25?
So we have anyway put it in the communication as well. So kindly Pendimethalin is where we're looking at capacity expansion and it should go in the vicinity of around 7,000 tonnes. Metri will be in -- is -- we are not looking at any capacity expansion -- Metribuzin at the current capacity, which is around 3,000 tonnes.
The next question is from the line of Ravi Purohit from Securities Investment Management Private Limited.
This is the question for Mr. Shukla. Sir, you've been part of Mahyco Monsanto for a fairly long period of time. And I think our new Independent director, Mr. D. Narain also has been part of the Monsanto Group and BayerCropscience subsequently for a longer period of time. So we have two very strong experienced people who have joined Rallis, one as an independent director and one as a Managing Director.
And especially -- and the two more successful seed brands also, right Dekalb and BT Cotton. So if you could just share your own vision for Rallis India now that you've joined here as an MD for the next 5 years, do you have any vision in your mind as to what are the things that you would like? Or where would you like Rallis to be in 3 years or 5 years from now? And what are the segments which you think could lead that growth for the company?
The seeds have that kind of potential. Today, we are only about INR 300 cores, INR 400 crores in revenue terms, whereas the market itself is like very, very large compared to that. So if you could just spend some time and just share a vision with all the listeners today, it will be helpful for us to kind of see this forward.
Yes. Thank you for asking a question on around the strategy. Thank you very much for that question. The two things I would say, look, if you look Rallis as a company, I think we have a very strong parentage and our brand is very strong, and we have done a good job of enhancing our manufacturing capabilities.
There has been also some work done on improving the quality of the seed research. We have a very extensive distribution network and I think the important thing is from here on how we direct some of the resources towards R&D. I think our R&D capability needs to be further enhanced because both businesses we are in, our ability to launch new products and scale them fast will actually define because it's a very competitive segment. There's no dearth of player and everybody is trying to do same thing. It depends who does things faster and better. I think speed matters and our ability to really innovate faster. So our focus is going to be shifting more towards how effectively we connect with our customers, so how do we deepen our relationship with the customers and how fast we basically bring the new product because we get those two things right, I think our ability to launch big and then scale up the volume will significantly enhance. So if you say focus, focus is really R&D and customer connect as we move forward.
Okay. And sir, if we could also kind of share a little bit about our strategy on CRAMS, some of the products that you mentioned in the last quarter that we've started for one intermediate, one formulation. And there was also one product which we had started supplying after a long period of time, right?
So generally, what kind of scale-up can we see in this segment of the business over a longer period of time? What kind of potential does it hold? We've been working at it for a long period of time. So when do we actually see the fruits of all the investments and all the time and effort that has been put out in this business?
Yes. So difficult to predict the time line, but this CRAMS business primarily depends on our efficiency, our ability to deliver efficiency to the customer. So that aspect, certainly, we are particularly looking at it. Another thing is really developing our relationship with the potential customer. I guess a lot of these customers as part of, I would say, China plus One strategy also would be attracted to India. It's a question of who gets them first. I think we have good capacity, good credentials backed by our group parentage. I think we are the right candidate for those customers. We have to just -- I mean it's not a rocket science. I think we have to reach out to more customers and demonstrate them our capabilities and develop some long-term relationship to make that business successful. So that's all I would say from a strategy perspective.
The next question is from the line of Rohit Nagraj from Centrum Broking.
So first question, again, slightly delving on the new project Rallis Science and Technology Center. So what could be different from what we have been doing till now? And given that R&D will be a relatively high gestation period, project or segment. When do we see any fruitful outcome of these, given that it may take 2 years, 3 years down the line to actually come out with new technologies or so.
And just if you can give us where we are currently lacking in terms of technology or R&D capabilities and which are the areas which we want to strengthen? Like whether it is the new molecule development ourselves or the molecules which are currently going off patent, so we would like to enter into those areas. Just a little bit more would be really helpful.
Yes. So look, so one thing is very, very important to understand, Rallis is doing R&D, right? So we have been investing in the R&D and significantly enough. Now we are developing a new center because we want to move to a better center, which has a better working environment and also the potential scientists and technical people will be working there. So the R&D investment from that perspective is more directed at improving infrastructure.
Now from a focus perspective, as we said, if you look at crop protection side, I think one of the areas, probably we have not invested in the past is some of the new chemistries, which have come up on the fluorination and all. So that's where our focus is going to be.
On the seed side, I guess, we were focusing on seed research, biotech and everything else, but there is a lot of attention shifting globally to leveraging more modern breeding tools like genomics, pan-omics. Those kind of tools. So we are going to reorient our R&D to more modern tools, because that brings more -- a better product and it also reduces the time needed for the innovation.
So that's how we are going. I think at the end of the day, R&D infrastructure is part of the thing, but the kind of people you get and the kind of direction they get and what kind of tool we can provide. So our focus is really more people and tools enabled R&D building is just a part of it.
Sure. That's helpful. Sir, second question is in terms of the current environment. In terms of the pricing has more or less bottomed out. However, you also mentioned that there have been inventories in the system, both in domestic market as well as global market.
So even if we assume that the rainfall is normal and it leads to volume growth, is there any possibility that since last year average pricing was relatively higher? And given that we are at the bottom of the pricing, it may not get reflected in strong revenue growth despite a strong volume growth led by monsoon during the next Kharif season, your perspective?
So you're right. I guess, market is generally carrying a little high cost inventory and market price realization may not be seen. But I guess the situation we are entering is better than what we were in. We have to be optimistic, and we have to work towards it.
And if you say that the anniversary of pricing will take some time. But I think we should look at more result and whether we are able to ensure that the price versus cost is correct. So there could be a temporary maybe in one quarter and in part because of the price anniversary.
The next question is from the line of Arjun Khanna from Kotak Mahindra Asset Management.
Sir, the first question was regarding the fertilizer piece. I do see Slide #6, where we have talked about a water soluble fertilizer, et cetera. Just wanted to understand, are we looking at nano urea nano DAP, is there any R&D going on, on that front?
So you already know that we are not in the bulk fertilizer and nano urea also basically is part of the same segment. We are not looking at that segment as of now.
Sure. And there's no R&D efforts going out on that front?
So our R&D and collaboration efforts are more directed towards crop nutrition, what we call, which are more speciality products, biosimilars...
Biopesticide.
Exactly. That helped in unlocking some of the locked nutrition in this way.
No, fair enough. It's just that there's a line in the presentation, complete focus on nonsubsidized fertilizers. So I figured that since the nano side is nonsubsidized, anyway fair enough.
The second query is regarding, if parentage, so you did mention strong parentage on Tata Group, and that is held through Tata Chemicals, which has also recently increased stakes. So are there any linkages in terms of our R&D efforts, et cetera, with their spec chem facilities? And how do we look at our relationship with our parent Tata Chemicals?
I think across the company, our relationship remains very strong. We always keep looking at synergies. And as and when needed, obviously, we look at the capabilities they have got, and we're always -- I mean we would never get into a situation where different companies are creating the same capacities. We would internally leverage whatever we have.
The next question is from the line of Abhijit Akella from Kotak Institutional Equities. .
The seeds inventory situation as of -- on our books, I am saying, the inventory that we are carrying for the upcoming year. Will it possible to just quantify how much that is up by on a year-on-year basis?
You were talking about seeds, Abhijit?
Yes. So basically, the seed inventories that we've got ready for sales in the upcoming Kharif season, if it's possible to just quantify how much that might be up year-over-year?
It's actually down, Abhijit, for the reasons that you mentioned, the two reasons actually. First, we liquidated some of the old inventory. So we actually took a call in terms of winding on the combo focus in terms of inventory procurement for assets, which were low in terms of offtake. And secondly, as we mentioned that there were production challenges in terms of some of the crop protection, paddy, et cetera. So the inventory levels are actually lower than that.
Got it. And just the other one was -- there was a mention earlier on in the call regarding an increase in advanced bookings in the seed business. So if it's possible to share some color around which crop this is on? Is it mainly on cotton? And if so, how much would be the increase in bookings year-over-year?
In general, because the industry, I think trade probably understands that inventory is going to be in short supply because it's just not our problem. In general, productions have been lower because of the water, rainfall challenges in the seed production areas. So this channel actually -- channels way offs trying to secure supplies for them.
It's higher than -- significantly higher than last year, Abhijit and it's also driven the buoyancy towards the Cotton hybrid demand that we have.
The next question is from the line of Viraj from SiMPL.
Yes, three questions. First is on a follow-up on the gross margin. If I look at last one year itself, and if you look at way [ RMS ] behaves. A lot of other B2C companies have seen a sizable expansion in gross margin. So for us, when we say the RMS held with, when we say overall reported numbers, the expansion has not been to that extent. So what has been the drag, or what factors you think have dragged the expansion in gross margin?
And just a part two on that is for us to kind of, if we look at the overall balance sheet, which we have, on a net cash basis and given the way the RN prices are now behaving stable, is it -- are we kind of looking at maximizing the spreads at least in the domestic B2C business in terms of, say, buying out inventory in bulk. Is that one of the things we maybe looking at going into 2025? So that is one.
Second is on the overall financials, if you look at '24 as a whole, we have something close to INR 19 crores, INR 20 crores in terms of say provision for doubtful debts and impairments on intangibles. So is this for the sustainable run rate one should expect going forward? Or there were some one-offs in '24 as well?
So, in terms of gross margin, the pure play B2C players might have had, but I think what we do is, we balance out long-term and short term. So we will not significantly increase the pricing if that's not competitive. Plus, of course, there's a dent in the margin, which has come because of an international business because margins for crop care as a whole, while the domestic formulations have done better, and I mentioned that the gross margins have improved there, but it exposed because of the intense competitive intensity, the margins are lower. I think your -- the other question was around one-off...
Yes, we do -- we do by strategic, what we call strategic procurement in order to take advantage of what we think is the pricing outlook for different raw materials. But that's the normal thing that we have been doing over the last few years.
But we don't take any very long call.
We don't take long calls. We take only calibrated and careful calls.
We'll not take long calls, this is difficult to [indiscernible] whether it's still the bottom out or not. And I think it's important to be in the market as I would say, with the market rather than play long calls. The last one, in terms of provisions, yes, there could be some provisions, which would have come because the receivables have gone up, but nothing specific to be called out in terms of any one-off.
The next question is from the line of Rahil Shah from Crown Capital.
Firstly, I believe you mentioned about some capacity expansion. I just missed for which line of product was it? I think you mentioned some 7,000 tonnes by end of FY '25. Can you just repeat?
[indiscernible]
What was that?
[indiscernible]. Yes.
Okay. Okay. And what are your strategies for CRAMS? I believe you also spoke something about developments there. So what is your strategy there? And now overall for FY '25, what can one expect going ahead in terms of overall business growth, considering you -- the pricing improvement you are seeing, the rainy season expected ahead and the R&D strategy, we'll be adopting given the new facility and the expansion. So please if you can just elaborate on that.
Well, so as I said earlier, I don't think we are putting a number at this point of time. These are all positive signs. We are coming out of a very difficult season. So we are calibrating those things. Not in a position to give you a guidance on the numbers.
And CRAMS strategy certainly to get new contracts, to get new meaningful contracts and all work has been done towards it.
The next question is from the line of Nirbhay Mahawar from N Square Capital.
Just a follow-up on the seed business. We have achieved roughly around INR 415 crores size. And still, our margins are around 4%, which is significantly lower than the industry standards. So how do you see it changing over the next 2, 3 years? And why our margins are significantly lower than the industry?
So for the -- when you look at the performance for FY '24, I think we should take into account that we did have some hybrids, which we were aggressively getting rid off because we did not want them to later on come back and bite us. So therefore, I think this is something which has impacted the overall margin levels. As we go forward, I think the margins will have to clearly depend on the point that Dr. Shukla mentioned about differentiated hybrids coming out of good germplasm and coming out of our R&D efforts. So that is really the way forward for us to improve both the business size as well as the margin size.
This is a generalistic answer. I'm trying to get specifics over a period of last 3, 4, 5 years, if you look at our margins have been significantly lower. If you look at the listed competitor with a INR 1,000 crores size is operating at 27%, 28% margins. Our margins are low at times, we are barely breaking even. So what are we doing wrong in terms of? We have got Tata parentage. We have got -- started different team, but still we are not able to track this business. And we have been very evasive over the last 3, 4, 5 years about this business.
So I think seed is one business where product performance depends on market, right? And seed is one business, if you get a blockbuster product, you can scale up this proportionately your business. And if you don't have a -- if you don't get a blockbuster product then you stay where you are, I think in past, not that we have not been putting research. Our research has not yielded products, which could be significantly differentiated from a volume scale-up perspective.
So what happens in this kind of business is you have to continue to invest in R&D and continue to have your produce in the market, and it has a cost depending on your portfolio, some spread is needed. So margin expansion happens when you get a good product and you can sell to more customers in a concentrated market. And that's why I was emphasizing that look, our R&D efforts need to get refocused so that we were operating in 4, 5 critical crops. If we start getting on a regular basis, some differentiated product that will allow us to significantly ramp up the revenue and then margins can expand. There's a basic cost, one has to keep investing in the seed business and continue to improve R&D and then you have to wait for your time.
The next question is from the line of Rohan Shukla from Anand Rathi.
I guess I just have one question.
I'm sorry to interrupt. Sir, your audio is not clear. May I request you to kindly use your handset, please.
Hello. Am I audible now?
Yes, sir, please continue.
So I just want to know about how much does the export contribute to a top line now? And what does it look like in the next few quarters going ahead?
It's in a vicinity of 35% to 40%, 35%, I would say. And this is because the numbers this year we have seen a degrowth. But we are working towards how we achieve the longer-term strategy.
Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to the management for the closing comments. Over to you.
So I really want to thank everyone for asking the questions. With that, we can conclude. Thank you very much for your time. We look forward to interactions in the future.
Thank you, members of the management. On behalf of Rallis India Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.