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Sharda Cropchem Ltd
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Ladies and gentlemen, good day and welcome to Sharda Cropchem Q3 FY '23 Earnings Conference Call, hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stock Broking. Thank you. And over to you, sir.
Yes, thank you, Lisa. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of Sharda Cropchem. From the management, we have Mr. R. V. Bubna, Chairman and Managing Director; Mr. Ashok Vashisht, CFO; and Mr. Dinesh Nahar, GM, Finance, on the call. Without further ado, I would like to hand over the call to Mr. Bubna for opening remark, post which we will open the floor for Q&A. Thank you. And over to you, Mr. Bubna.
Thank you, Mr. Manish. Good afternoon and a very warm welcome to everyone present on the call. I hope you all are keeping safe and healthy. Along with me, I have Mr. Ashok Vashisht, Chief Financial Officer; and Mr. Dinesh Nahar, General Manager, Finance. And our investor relations advisers are also on the line. Hope you all have received our investor deck by now. For those who have not, you can view them on the stock exchanges and company website. We are a global agrochemical company engaged in the process of marketing and distribution of formulations and generic active ingredients fungicides, herbicides and insecticides across the globe. We have also entered in the biocide segment to cater to the disinfectants market. Leveraging our product registration capabilities, we have -- we identified generic molecules, prepared dossiers, seek registrations and market them and distribute these products in wide range of agrochemical sectors. Sharda Cropchem's total product registration stood at 2,776 as on 31st December 2022. Additionally, 1,131 applications are in the pipeline, at different stages of approval. The CapEx incurred by us in the first 9 months of this year is around INR 300 crores. We maintained healthy relationships for -- with multiple manufacturers in agrochemical industry, mainly in China and India, sourcing from multiple [ manufacturers-held companies ] in getting quality products at optimal price, thereby derisking our sourcing capabilities. Over the years, we have built a strong brand franchise within our global markets. For Q1 2023, revenues grew by 16% to INR 1,017 crores. And for the 9 months of this year, the revenues grew by 19% to INR 2,563 crores. Growth was led by better product mix and price realization...
Sorry to interrupt. Sir, there's a lot of disturbance from your line.
[indiscernible] there was a aircraft flying over our building.
Okay, sir...
Now it has gone. Is it okay now?
So much better. Thank you.
So I was saying that the revenues grew by 19%, in the first 9 months, to INR 2,563 crores; and the growth was led by better product mix and price realizations. Gross margins in 9 months of this year have been impacted by weakening of euro against dollar leading to increased input costs and the impact of general inflation across the geographies. Major currencies have depreciated against dollar in the first 6 months of the financial year due to global [ micro environments ]. In Q3, we have seen a rebound of these currencies against the U.S. dollars. Over 43% of our sales in the first 9 months on the agrochemicals sector has been in the Europe, whereas the majority of the company's raw materials are sourced from China in U.S. dollars. These have impacted the company's gross margins and overall profitability. EBITDA has remained flattish, as we have seen margins declined. This was due to lower margins -- this was due to lower GP margins driven by weakening dollar-euro leading to increased input costs, general inflation and strengthening of global force. Profit after tax for 9 months was also impacted by ForEx losses. We have taken various measures to reduce the impact of ForEx going ahead. We have increased our sales focus in the NAFTA region, which is sold -- which is being sold in U.S. dollars. We are also optimally hedging our cross-currency exchange -- I mean cross currency -- all the currencies against dollar. With this brief overview, I would now like to hand over the call to our CFO, Mr. Ashok Vashisht, for discussing our financial performance. Thank you, everyone. Thank you so much.
Thank you, sir. And good afternoon, everyone, [ for the call ]. So I'll take you quickly through the Q3 FY '23 financial performance and YTD December for the 9 months financial performance. Coming to Q3 FY '23. Revenues stood at INR 1,017 crores against INR 880 crores in Q3 FY '22, registering a growth of 16% year-on-year basis. Revenue growth for Q3 was led by better prices, product mix as well as volume growth, mainly in agrochemicals. Gross margins stood at 30.5%. Gross margins have been impacted by weakening of euro against dollar leading to increase in input costs, but it has improved from Q2 of FY '23. EBITDA has de-grown by around 2% to INR 197 crores, essentially driven by, comparatively, margin declines due to lower GP margins because of same issue basically, [ due to weakening of euro against dollars ] as well as general inflation. PAT stood at INR 108 crores versus INR 102 crores in Q3 FY '22. That was supported by volume growth and cost impact from ForEx. Coming to split, agrochemicals business which grew by 16% year-on-year to INR 842 crores, whereas [ the non-agro business ] grew by 12% year-on-year basis to INR 175 crores. In agrochemical sales, Europe grew by 9%. NAFTA region grew by 27%. Rest of the world grew by 17%. And LATAM, we registered a growth -- a small degrowth of around 5%. Europe contributes -- in quarter 3, Europe contributes 39%. NAFTA contributes 47%, LATAM 6% and rest of the world 8%, of the agrochemicals business for Q3 FY '23. Coming to non-agro space. In Q3, NAFTA region grew by 67%. LATAM grew by 102%. Rest of the world grew by 9%. And there was a degrowth in Europe by [ nearly ] 57%. In non-agro, Europe contributes 14%, NAFTA 66%, LATAM 5% and rest of the world 15%. Coming to the 9 months FY '23 performance. Revenue we registered INR 2,563 crores against INR 2,145 crores in 9 months FY '22, registered a solid growth of 19% on a year-on-year basis. Our revenue growth was led by better product mix and price realization. Gross margin stood at 28% for YTD December 2022. YTD December 2022 margins are better by [ 170 ] bps over the first half of the year. [ That is ] YTD September '22. EBITDA has grown by 1% to INR 414 crores. And PAT stood at INR 143 crores against INR 172 crores in 9 months last year. As you are aware, PAT was impacted by high FX losses of nearly INR 69 crores in 9 months FY '23. Coming to [ the split ]. Agrochemical business grew by 15% year-on-year basis to INR 2,032 crores, whereas non-agro business grew by 38% year-on-year basis to INR 531 crores. In the agrochemicals space, Europe grew by 15%. NAFTA grew by 23%. Rest of the world grew by 18%, and we registered a degrowth in LATAM by 6%. Europe continues to be the [ #1 region this ] 9 months at 43%; NAFTA 40%, LATAM 10% and rest of the world 7%, of the agrochemical business for 9 months FY '23. In the non-agrochemical space, Europe -- NAFTA grew by 76%. LATAM grew by 86%. Rest of the world grew by 8%. And we registered a degrowth in Europe of -- for around 7%. In non-agro, Europe contributes 22%. NAFTA contributes 59%, LATAM 6% and rest of the world 13%. We continue to have a very strong balance sheet and liquidity. Our cash and cash equivalents as on [ 31st December 2022 ] is at INR 303 crores. So with this, we open up the floor for questions, and yes we will be happy to answer. Thank you very much.
[Operator Instructions] The first question is from the line of Varshit Shah from Veto Capital.
Sir, my first question is on the [ macro ] backdrop of Chinese supplies resuming and some overcapacity by Indian players in certain molecules. So do you see that, post this environment, the falling prices kind of stabilizes, there could be actually better days ahead for a company like Sharda who do not own manufacturing entities?
You are absolutely right, Mr. Varshit. That's, I mean, we are seeing better times in this quarter and the year ahead because Chinese prices are stabilizing and the products are available on the demand. And the world is facing a lot of uncertainties, so there is some shortage in the world situation which will help us to get better realizations also. Thank you.
Great, great. And sir, just one question on insecticides. I mean in the presentation we have reported a 42% decline in the insecticides segment. So what is the -- what is a reason for such a sharp drop? And the same time, there's a very sharp uptick in herbicides sale at 38% despite LATAM being weak for overall, so what is the reason for such outperformance also in the herbicides sales despite a weak LATAM?
Mr. Varshit, I'll -- frankly, we are not controlling these distribution between herbicides and insecticides. We are only catering to the demands of various markets. And if the market demands more herbicides, we supply them herbicides, but we [ don't list ] the loss of insecticide sector businesses. This purely happens because of the global environment and many factors, including the crop pattern [ in many ] countries.
Sir, I understand that obviously we supply based on the opportunity but just wanted to understand. What is the end driver for such a sharp drop in insecticides? I mean I've been hearing this across the industry, that the insecticides demand overall is very weak. So any ideas you have from your end customers? Is it related to weather, with own inventory system? And any ideas you have...
[ No, sir ], we don't get these kind of ideas and feedbacks from our customers. And we don't spend our energy trying to study these statistics. It is not impacting our business, and we are happy with what is happening.
Sir, one last question...
Sorry to interrupt. Mr. Shah, may we request that you return to the question...
Sure.
[Operator Instructions] The next question is from the line of [ Grushap Shah ] from [indiscernible] shares and securities.
Am I audible?
Sir, there's a lot of background disturbance in your line.
Am I audible now?
Yes, sir. Please proceed.
My question is why do we call our business asset-light business when we spend more than 5% revenues on new registrations? And if we include CapEx on intangibles, the free cash flows are not as good as it seems to be for growth, where we continue to invest very heavily [indiscernible].
Madam, this question was totally inaudible. There's a lot of disturbance in the background, so...
[ Mr. Grushap ], can you move to a silent place?
[ I think ] -- am I audible now?
No. There's still disturbance in your line.
A lot of disturbance.
Is this fine now?
No, sir. It's still the same. We'll request you to rejoin the question queue. The next question is from the line of Somaiah from Spark Institutional Equities.
So first question is on the end market both from NAFTA as well as Europe, on 3 fronts. So one, any color on inventory in the system at this point in time? That's one. Second, I mean, in the recent, say, 1 year or so, you have -- have you seen material market share shift into smaller players? That's the second part. And third, with respect to the price realization or improvement in price, this has been a function of supply chain disruption and the RM price side getting passed on. That's how has -- it been. And how do you see this going forward?
[ So you'd have to ] repeat, Mr. Somaiah, once again. What was your first question?
So first question was in terms of inventory in the systems currently. So how do you see it?
We are very comfortable with the inventory. And we have sufficient inventory to cater to needs, so there is no concern at all on the inventory front...
Understood. The second part was on market share shift into smaller players in the last 1 or 1.5 years. I mean, how has that been?
No, I don't think so. The market is not shifting towards smaller players. In fact, the process of registration is becoming more and more difficult and more and more expensive, so this would also restrict the entry of the smaller players. We do not see any obvious trend of shifting the market on the smaller players.
So in the last 1 or 2 years, for us, there have been incremental gains on market share. Would that be [ a quick understanding ]?
Yes, there has been an incremental gain in the market share in the last 1 or 2 years. As and when we are moving forward, our products are finding better acceptability and our services are being appreciated by the customer.
Understood, sir. The other part was on price realization. Generally the industry has seen a lot of support from price realization in the last 1.5 years or so. I mean, is this largely a function of the supply chain disruption that happened during COVID and also the raw material prices being higher? And if both of these are now away -- so do you think that price increase could kind of either flatten? Or you could even see a decline from here.
It is difficult to comment on this, but I think that prices are fairly stable and they'll continue at this level.
Okay, got it, sir. One last question from my side...
Sorry to interrupt, Mr. Somaiah. Sir, may we request that you return to the question queue?
[ Certainly ].
The next question is from the line of Sameer Deshpande from Fair Deal Investments.
Congratulations for the good numbers. And actually the first 6 months were quite difficult for us due to the foreign exchange issues, but now it seems that the tide has turned in favor of euro versus USD. And it seems the current ratio seems to be at around $1.08, $1.09, so I think we had a foreign exchange income of 12.4 crores versus the losses. Now if we compare overall our results for the year, normally the last quarter of the year, that is the coming quarter, will be the fourth quarter, which is the highest-profit-making quarter for the company, historically also. So we'll have -- in the 9 months, if you exclude the foreign exchange loss, our profits have been quite steady. Despite rising turnover, there is some compression in gross margins, so now we have reverted to 30.5% in this quarter on gross margins. So what is the scenario expected for the next quarter? And we have a lot of the inventory pile-up. I think INR 1,427 crores is the inventory versus INR 893 crores, so what is the reason for that? And whether we will -- the pricing, et cetera, effects of the high inventory.
No. The pricing will not affect the high inventory. And I forgot your question because the question was very long. Can you repeat the first part of your question once again, Mr. Sameer?
Yes, yes, yes. It is with the -- now the euro currently seems to be in quite better position at around INR 89 versus the USD of INR 81.75 or so. So the ratio is around $1.09 now. We were in trouble when we had the ratio at around 0.97, 0.98 in October -- September, October. Now it has reverted, so now we have a foreign exchange income this time versus the losses. And last quarter, Q4, is the best quarter for the company historically, so what is the outlook for the Q4 with the present scenario of euro, USD?
I'll ask Mr. Ashok Vashisht to reply to this question.
Okay.
Yes. See, as we have said earlier -- so we've maintained 15% to 20% growth year-on-year. So you can do your math when it comes for quarter 4. And you have rightly -- rightfully commented that the euro is now again recovering, and obviously this will help the company [indiscernible] for the whole year.
That will help the company, so...
But I will say this is -- the recovery is not full.
Yes.
We are still -- I mean we were dealing, we had a time when it was $1.2 to a euro. [ And we are only ] $1.08, $1.09, but [ it is ] the experts are saying that euro is going to strengthen further. And we'll wait and watch the situation.
Okay. And the gross margins have reverted to 30.5%, which is a very encouraging thing this quarter. And so do we expect the similar scenario to continue going forward in the Q4 also?
Yes, sir.
Okay, quite good. So the guidance of our company of around 15% to 20% growth in terms of sales and profits continues.
Yes, sir.
The next question is from the line of Rohan Gupta from Nuvama.
Sir, a couple of questions. First is on this -- can you provide the volume- and price-led breakup for the current quarter revenue growth, sir?
One minute. You want for the current quarter, no?
Yes, sir.
The volume in Europe was 3,590 units -- crores. LATAM was 411 crores. NAFTA was 5,316 crores and rest of the world was about 970 crores; total 10,283 crores, not gross.
In lakhs, sir, okay.
Yes.
Sir, I wanted more on this overall volume- and price-led growth for the quarter, sir.
One minute. You said volume and...
Not the region one, not the region breakup; just, I mean, revenue growth, which was roughly 18% for the -- 16%, 17% of -- for the quarter. How much was price-driven and how much was volume-driven?
One second. See, the growth was 6.7% on price and product mix and 9% on volume growth. And FX impact is more or less 0.
7% you mentioned is price-led growth.
Price and product mix.
7% is price and product mix, okay, so 10% was volume growth.
Yes. 9%.
9% was volume growth, okay. Sir, second...
[indiscernible].
Right, sir, right. Sir, second question is on this we're moving more towards NAFTA market. I don't know, sir, how easy it would have been to -- for you. Because you very quickly moved towards NAFTA market as -- sensing the pressure in the European market. Quite commendable job by you and your team, sir. Just wanted to understand that how do you see this NAFTA market keeps moving and growth in a NAFTA area. And now when the euro-dollar [ sanity ] is coming back, we'll be back to -- again to European market because those are the highest-margin market. And what kind of margin difference is there between European market and NAFTA market?
European market, the margins are much better -- one minute. I'll give you the figures. See, in quarter 3, European gross margin was about 35.5%. NAFTA was around 28%. LATAM was 24%, and rest of the world 27%; overall 30.5%.
Fine, sir. So the gross margin which you indicated which is 30% despite lower share of Europe. And you expect that the gross margins are going to be maintained at 30% level in the next quarter as well. And once we go back once again to the European market, do you see that the overall margin can improve further? What is the...
It would to some extent.
Okay, okay. Sir, just last question from my side and I'll come back...
Sorry to interrupt. Mr. Gupta, may we request that you return to the question queue?
Okay, no problem.
The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund.
Sir, first question is on the belting business, the -- sorry, the non-agrochemical business. That seems to be doing very well both on revenue and margins. And it seems the margins are also best ever, so if you can, sir, throw some light what's driving this, how sustainable this is. And is there any one-off there?
No, this is sustainable. And the growth and the margins are improved mainly because of the service and quality and the delivery of the goods. In spite of hassles in the logistics and international freights and shipping space, we are still able to achieve timely delivery of the goods to the customers and better price realization.
Sir, this is primarily what, belting? Or this is something more. You started something additional there.
Mainly belting.
And sir, the belts go primarily into what? Is it mining? What are the categories? What is the category that it goes into? And what...
See, the general term is for material handling. This can be at the -- in the mining -- mainly in the mining, also on the ports or even in heavy industries where the goods have to be transported from one point to the other point.
Okay, okay. Because here also margins are very strong. And I'm not very sure if there is -- this is also a registration-based business like your agrochemical business, so I'm just trying to understand how sustainable these margins are.
I think you've understood -- or as you referred, this is not registration-based at all. This is purely a -- service and quality factors which drive this business.
Okay, okay. Probably I'll try to understand [ a little better later ]. So the second thing was on the margins for the agrochemical business. Now if I remove the FX impact, the margins [ leaped -- seems ] to be a bit lower versus the last year. There -- they have improved versus [ 1x levels ] but still a bit lower, so how do you see this trend? I mean, any signals in terms of the improvement, what can drive the improvement? And some color on that, please, sir.
Mr. Dhruv, there will be -- we look forward to some improvement in this.
Sir, the line for the current participant has dropped off. We'll move on to the next question. That is from the line of Akshat Mehta from Pioneer Investcorp.
Sir, I would like to know that -- within our agrochemical business, could you provide a break as in what would be the mix between sale of formulations and sale of AI? And the margins for the same.
Listen. The formulation gives a much better realization and much better margins. In AI, there is not some other value addition, so the margins in the AIs are definitely lesser.
Margins in AI are better...
Margins in AI are not better if you compare them with formulations.
Okay, okay, sir. Any number you could provide, as in what percentage mix or something like that?
If you break that: Around 97% for the quarter are formulations, 3% AIs. And for 9 months, 93% formulation, 7% AI.
7% AI, okay.
The next question is from the line of Sachin Kasera from Svan Investments.
Congrats for a good set of numbers. Sir, on Slide #18 in the presentation, you have given some key initiatives the company has taken basically to offset the impact of this weak euro. So if you could -- which is basically higher focus on NAFTA, sourcing in euro currency, optimal hedging and seeking price increases. If you could give us some more insight or a little more granular details about all these 4 initiatives that will help us appreciate the numbers much better.
Just one minute. This is Slide #18. Okay, the measures we have mentioned here are increased sales focus on the NAFTA region. I think this doesn't require any further clarification. Spending more time and pushing the customers then optimal hedging of currencies. See, we do not like to speculate or take positions in the case of what currencies also. And now if we do [ a little common sense versus ] hedging, it is helping us, yes, and giving us good rewards.
So sir, can you tell us, sir, before you took these measures, what percentage of your exposure you were hedging and how much increase now you have taken in? For the whole [ fiscal year, are we hedging ] 0 or 10%, 20% only? Are we now like hedging 50%, 60% of exposure? If you could give us some numbers, that would be helpful.
So numbers are difficult to give, but I want to tell you that, when the euro was going down, we were not seeing an opportunity to hedge. If it was 1.05, we were thinking that, when it starts going up, we will sell, but on the contrary, it used to go to 1.04 or 1.03, so the hedging was much lesser. And now when it is going up, we feel more motivated and encouraged to sell it forward. And this is the strategy that we are applying now. It is also dependent upon the trend of the exchange rates, not just our desire.
And sir, the sourcing in euro currency. So before this euro crisis -- what type of sourcing we're able to do in euro. And currently what percentage of our sourcing will be happening in euro?
I would say almost 0 or very negligible in euros, but when euro was going down, we would try to source it in euros. But the suppliers were also very conservative. If the rate is EUR 0.96 to a dollar, they will try to give a price based on EUR 0.94, which was not very comfortable for us. So the sourcing in euro was very negligible, and we are happy that we did not source much in euros. Mainly the sourcing is in dollars.
Sure. And sir, just one last question...
Sorry to interrupt. Mr. Kasera, may we request that you return to the question queue? The next question is from the line Dhruv Muchhal from HDFC Mutual Funds.
Yes. Sir, sorry. I got disconnected. Sir, my question was that, if I adjust for the FX gains this quarter and also the previous year quarter, the margins for the agri business are still a bit low. The adjusted is 17% last year, which is currently 10% this year. So sir, what is driving this impact? Is it just the euro and USD issue, where you have still not been able to pass on the full price -- the cost impact? Or is there something else? And any trend on the improvement, sir?
Mr. Dhruv, there is no other trend. Mainly it is the exchange rates.
Only and only that, [ there is ].
Okay, so which is getting reflected in your gross margins. The exchange rates you report [ are reflected as separate ]. I mean that's...
Yes...
[ That sounds like you've ] [indiscernible] [ still give us ], but if you go through that [indiscernible].
Got it, perfect. Sir, the second question was now we see some of your peers, your global large peers are talking about high system inventory across the globe, even in North America and Latin America, for the agrochemicals. And also we also see the agrochemical prices, the technical prices, out of China are also declining.
Mr. Dhruv, can I interrupt? Can you speak a little louder?
Yes. I think this should be better.
Now it's better.
Yes. Sir, I was saying that some of your global peers are talking about high system inventory across some of the major regions. And also, the second part was that the agrochemical prices out of China, the technical prices out of China have started to decline. We see, most of the molecules, the prices are declining. Sir, in that context, do you still believe that 15%, 20% growth guidance can be achieved for the next year? Or do you think there could be a downward revision?
And what was the last part of your question?
Sir, the agrochemical prices, the technical prices, from China are also declining. We see glyphosate has declined and all. [indiscernible] declined, so as you pass that on to your customers -- I'm not sure, I mean, fully pass on will happen, not happen, so just wanting to understand, will it have any implication on your growth guidance and the margin guidance? Or that should be achieved.
Not significant. And even for the passing on, we have, first, disposed off the inventories that we have, so it will be a very slow process.
The next question is from the line of Rohit Nagraj from Centrum Broking.
Sir, as I understand, LATAM is one of the largest markets globally. And our market share in terms of the geographies [indiscernible], so how are we going to tackle or how are we focusing on this market? And is there any room for generic products that we are marketing across other geographies in the LATAM market? And what is the registration pipeline that we are looking at?
Mr. Rohit, I think this is a news to us, that LATAM is the largest market. LATAM is not the largest market. In my opinion, LATAM comes the second or third level. And the LATAM market is driven mainly by the economics of each individual country and the exchange rates of their local currency versus dollars. All the transactions that happen in these countries are mainly in U.S. dollars. And the -- if their currencies are depreciating, then the players there feel very much hurt by the drop in the currency. And they have to send -- they have to, I mean, [ take out ] more local currency to meet the same demand for dollars [indiscernible]. So because of this factor, the LATAM market is still declining and going down.
Sure, sure. Apologies. Maybe my assumption was wrong. Sir, second question, in terms of the operating OpEx which has come down. And we have started getting those benefits of lower transportation costs or freight costs, so do we expect incremental benefit during -- I mean, right from Q4? Because last quarter also it was probably transitory in nature where the freight costs and other costs were declining. And now probably they have stabilized, so we will see a little more impact -- favorable impact from the OpEx point of view.
Yes, marginally, yes.
The next question is from the line of Bhavya Gandhi from Dalal & Broacha Stock Broking.
Yes. Can you hear me?
Yes, sir.
[ Clearly ]...
Yes. Sir, I just wanted to understand on the gross margin front because since now euro has already appreciated. Like 1 year back -- 2 quarters back, we were at $1.1. And now again we are at $1.09, but gross margins on Y-o-Y seems to be on lower side, so is it high-cost inventory? Or what is it if we remove the ForEx impact?
Mr. Gandhi, please understand that currency rate does not have instant impact on the business. You understand.
Okay, right.
If benefit will come in the forward -- going forward, then we will start getting better realizations...
Okay. And as of now, we don't have any forward contracts or hedging of euro currency, right?
Yes, we do have forward contracts. We do have forward contracts of 1.04, 1.05, 1.06. You understand. And we are very happy at those rates than when we have seen the earlier rates of 0.99 and 0.96. Today, they look soft, but we have to live with them.
Okay, so how much would be -- are forward contracts in terms of NAFTA -- in terms of Europe sales. Is it possible to...
It's difficult to quantify, but overall I can tell you that overall is getting benefit. I mean the company is getting benefited.
The next question is from the line of [ Grushap Shah ] from [indiscernible] shares and securities.
Am I audible now?
Yes, sir. Please go ahead.
Yes.
My question is why do we call our business an asset-light business when we spend more than 5% revenue on new registration? And if we include the CapEx on intangible, free cash flow is not...
There is some disturbance on the background, so you have to speak a little slowly and more loudly.
Okay. Why do we call our business an asset-light business when we spend more than 5% revenue on new registration. And if we include the CapEx on intangibles, the free cash flows are not as good as seem to be. And for growth, we need to invest very heavily in the business.
[ Mr. Grushap ], you can call it any way. What we are saying is that we are not investing into tangible assets, and the business is very much we are nimble footed. So you can give it any other [ technologies ]. Nobody is stopping you.
Sir, [indiscernible] -- so if we look at registration...
And as we said, asset light comes when we spend on the tangible assets or fixed assets, which we are not doing. And registrations are considered to be an intellectual property, and nobody calls them [ intangibles ].
Sir, if we look at registrations we have from 2019, we were at [ only 300 ]. Now we are nearly at 2,700. And pipeline has increased from [ 1,000 to 1,100 ] and despite us spending -- despite us increasing or us spending on registrations materially from 200 crores to 400 crores, so what should we understand from this data?
You understand from the data is -- as it is given. And you can give any term to the business. We have no objection. People call it as the asset light and we agree with them.
My last question is, if for 2, 3 years the profitability is less and you spend less on the registrations, can it materially impact our business growth and profitability in the future.
In the future, yes, it will because we have to be in line with what is happening; and that is a global trend. And more and more new products are coming into this business. We have to [ stay with them ]. Otherwise, we'll lose the business market share in the future.
The next question is from the line of Darshita from Antique Stock Broking.
Am I audible?
Yes. Please...
My first question is regarding the price hikes. Have you taken any price hikes on sequential basis?
What is it? I am not really -- catch up well. Price hikes, did you say price hikes?
Price hike. So have you taken any price increase on a sequential basis?
Madam, I think I've explained in the past we cannot decide the price on our own. The price is set by the multinational companies who are having a major share of the market. The innovators are still controlling more than 75% of the market share. And we try to peg our price a little behind them at a maybe 5% to 10% discount. [indiscernible], but this is the trend.
Right, sir. My -- no, no, sir. My question was, as compared to second quarter, in the third quarter, have we taken price increase? That is what I was -- I am trying to understand [ better ] that, after China has resumed operations, we have seen that the raw material prices have started to come up. So what I'm trying to understand is that, this benefit that we have from pricing, for how long will it continue? Be it for MNCs or for us, for how long will it continue?
Madam, we are not fit to answer your question. We have not taken any conscious price increase. We are maintaining the same prices. And if there is a small drop in the sourcing prices, that is a benefit. If it is a better exchange rate, that's a benefit to us.
Okay, okay. And I'm looking at the current situation from China. I think you would be the best person to answer that, by looking at the current situation in China. Given that the prices are coming off, in anytime in FY '24, like is there any kind of guidance that we get as to when will the benefit of price increase start flowing in -- like will stop flowing into the top line growth? As in the 7% number that we have seen in third quarter, will it start reducing as we go forward?
[ Will you answer ] the question?
Madam, I'll ask Mr. Ashok Vashisht to answer this question.
See, 7% is not only price hikes. It's product mix and price. So it's major -- I will say, is product mix vis-à-vis the 7%.
Okay, okay, all right.
Yes, yes.
My second question is regarding the tax rate expectations for FY '23. Where do we see the tax rate being for the whole year?
25% to 27%, around that, because we are into [ new ] tax regime now. So between 25% to 27%.
Okay, all right, got it, sir. And the last question is regarding the registration and the pipeline breakup, if you could provide the region by registration and pipeline breakup.
I'll give you, first, the registrations: in Europe, 1,490; LATAM, 750; NAFTA, 290; and rest of the world, 243; total, [ 2,776 ]. What was the next question?
The pipeline breakup.
Pipeline. Europe, 700. LATAM, 175. NAFTA, 150. And rest of the world, 105.
The next question is from the line of Chintan from Prudent Corporate.
Sir, question is how we build our inventory. For example, on what basis, like what demand is in which region or any statistical data we've done?
You see we have to take a judgment after talking to our customers, and we are in regular touch with our customers. They give us feedback that this product is having better demand and this is the situation. We design our strategy mainly based upon the feedback that we receive from our customers.
So we take indicative forecasts, if -- you can say. That's what he means.
Sorry, sir. If you can repeat...
We make indicative forecasts; if you don't know, feedback for our various customers.
Okay. And sir, can't we make hedging strategy a disciplined process for the future? It's looked like we are doing hedging on human bias.
Hedging on...
[indiscernible].
I mean a standard process for our hedging. I mean we are doing hedging just on human bias currently, it's looked like. I mean, do you have any risk team who are running something?
Look. We are evaluating this, and we may take [ some new costs ] on that shortly. We are evaluating. And we have already started taking a few positions which is already implemented.
I mean -- okay. And sir, there is so much [ intel ] in terms of registrations, so can't we slowly increase our receivable days or, I mean, improve our life cycle of the business...
So we can't. As you know, this is -- this sector is -- it works like that. And in fact, we are one of the best-performing companies in terms of working capital. So even innovators [indiscernible] for a year, but we are still -- we try to maintain as less as possible. But yes, there is a scope and we are very mindful of that and we are improving on that. And the numbers [indiscernible] which we are seeing for quarter 3, especially inventory: As you guys are aware, quarter 4 for the company is the biggest quarter, so barely -- because of that, there are low inventories, [ even hindsight ]. And towards end of this year, it will be significantly lower.
Okay. And sir, is there any number against [ our current trade disable ] how much we have hedged?
[ Are you thinking percent ]?
Yes, yes, against our [ current trade disable ], how much percentage of -- we have hedged.
We are actually -- you know what, generally if the trend is kind of going on, there's a natural hedge, but we do not actually go by very specifics. We take a general hedge and not [ for those of ] customer specifics.
The next question is from the line of Archit Joshi from B&K Securities.
I might be asking this question again. I missed the point that you made earlier about the sourcing strategy that we have had. We have mentioned in the presentation that we have moved on to buying in euro currency. And you earlier mentioned that we were not doing it earlier, so just one question here. How much percentage of our COGS will now be denominated in euro currency? Is there something more that is left for us to completely start buying into euros? And will this be -- yes, yes, sir.
Yes, Archit, when we implemented this interim strategy buying in euros, this was essentially because of the decrease of euro. And we have reached [indiscernible] by the first half of the year, so around 10 -- 8% to 10%, but now with the euro coming back towards normal, still [ it has been to be lost ]. So we have -- we are not sourcing in euros. So majorly -- again I will say mainly the buying and sourcing is in USD only. So we had done that in the interim period. And if -- again if some situations similar to that which happened until end of September happens, so -- we may again start that, but as of now we are doing -- have started doing all the sourcing in USD only.
Understood, sir. Sir, how easy or difficult it is to have these ad hoc decisions whether or not to buy in euro or in USD -- is it easy to...
[ This -- it can be incremental incentives ]. I mean [indiscernible] most times. When you are -- because we are -- when we are negotiating prices -- we do not have long-term contracts. We have short-term contracts with our sourcing partners. So at that time, [ we can do that ] if need arises, so we -- it can be implemented, in a short period.
The next question is from the line of Yogesh Tiwari from Arihant Capital.
Sir, my first question is if you can share the gross margins for your herbicides, fungicide and insecticides portfolio for Q3.
Sir, we do not have that kind of analysis and we don't go into those details. We look at the overall picture.
Sure, sir, but directionally can we say that herbicide is -- has more margins compared to insecticides and fungicides? Any direction view?
No. It's difficult to comment. It depends on individual products, product to product.
Sure, sir. And sir, the second question is if you can share some details on the demand and pricing environment of metribuzin in the U.S. market.
No, sir, we cannot comment on individual products. And we do not have that information.
Ladies and gentlemen, that's the last question. I now hand the conference over to Mr. Bubna for his closing comments.
I want to thank all of our investors who have taken so much of time to attend this call. And it has been a good experience. We also [ learn ] from the questions. I want to thank everyone else for joining us, and I hope we have been able to answer all your queries. We look forward to have such interactions in future as well. We hope to meet your expectations in the future. In case you require any further details, you may contact us; or our investor relations firm, [ SG ], Mr. [indiscernible]. Thank you so much once again.
Thank you. Ladies and gentlemen, on behalf of Antique Stock Broking: That concludes this conference call. We thank you for joining us. You may now disconnect your lines. Thank you.