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00:00Hello and welcome, you are tuned into the small and mid-cap show here on NDTV Profit.
00:13Thanks for tuning in.
00:14We have with us today two interesting managements.
00:16First off we have Mr. M. K. Dhanuka, who is the Vice Chairman and Managing Director at
00:21Dhanuka Agritech to talk to us about all the trends with regard to fertilizers and allied
00:27products as well as Dhanuka's own plans.
00:30So first off, welcome to the show, sir.
00:33So sir, talk to us first off just with regard to the outlook for FY25.
00:37You've guided for a slightly higher than mid-teens kind of growth.
00:43Talk to us about the exports versus domestic growth that you're looking to clock because
00:49the rainfall looks fairly solid at least as of now.
00:54Good morning, Harsh.
00:58I would like to say that June has gone fantastically well.
01:03And we also have given guidance of 18% top line growth for the whole year.
01:10But for the first quarter, we are expecting much more growth than the projected growth
01:17because of the anticipation that the season will be good and rainfall will be good, although
01:24the consumption will start from July and August mainly.
01:28But the dealer and distributor has started storing the material in anticipation of shortage.
01:35Because of the non-availability of containers and ships, the consignments are being delayed
01:42from China, although the Chinese prices are stable.
01:47But because of the non-availability of vessels, the freight charges has increased six times.
01:55Earlier from China, the container freight charges was $1,000, which has increased to
02:01$6,000, which is a big increase, which is ultimately increasing the prices of the products.
02:08Right.
02:09Mr. Danuka, Mahima also joining in.
02:12I want to understand from the demand side of things.
02:15The global demand for agrochemicals has remained down because of a lot of de-stocking from
02:22the US, Brazil, and so on.
02:23So going forward in FY25, how are you placing demand to be like and how much will this aid your revenue?
02:31Mahima, you know that Dhanuka was a purely domestic company till last year.
02:38Last year only we have started manufacturing of technical grade pesticides and now the
02:43export is possible.
02:45But for export of technical also, we need the registration in the countries where we
02:50want to export.
02:52So we are in the process of registration.
02:55So we don't expect much export.
02:57We have given guidance for 50 crores export this year.
03:01And we hope that by the end of the year, we will be able to achieve that 50 crores.
03:06You are absolutely right that global demand is less, but it is now picking up.
03:11As per information, Latin America, the inventory has been more or less exhausted and the fresh
03:18demand is coming from there.
03:21So you've spoken a little bit with regard to how global factors are playing out.
03:27So that was good perspective.
03:29But talk to us about how raw material prices are playing out on Dhanuka Agritech in particular.
03:39Where do margins therefore start to go?
03:41You guided for a slightly higher margin trajectory this year.
03:45Do you still feel reasonably confident that that will play out?
03:51You see, our 50 percent share is for specialty molecules, which we have a tie up with Japanese
03:58companies and American companies.
04:00So there is no impact of price reduction or increase on those 50 percent molecules because
04:07the price remains stable for the whole year.
04:10It is fixed. But the generic which we are importing from China or buying locally because
04:17of demand and supply gap, the prices in India for technical pesticides are increasing.
04:24So although we have inventory till July end, but if we have to buy further material for
04:32August, then we will have to have a buy at higher prices.
04:36So demand is now increasing.
04:38And because of the shortage of containers and vessels, the supply is delayed.
04:44So that's why there is gap in demand and supply and prices are increasing in India.
04:49Understood. So if you have to purchase them at a higher price, how will this impact your
04:54margins for FI25 then?
04:57Mahima, we will pass on the increase to the customer because it is not possible to absorb
05:04the price increase. If price reduction is there, that we also pass on to the customer.
05:09And if price increase is there, that is also being passed on to the consumer.
05:14Got it. And also, you know, you're launching a lot of new products which have high market
05:19potential and high values.
05:21You know, tell us more about that and how much of a revenue uptake are you expecting
05:25from these new products?
05:28You see, we launched three new molecules in this year.
05:31One was Microsuper, another was Lanevo and the third one was PARS.
05:37We are getting very good response for PARS and this Lanevo.
05:43There is short supply for Lanevo especially.
05:47It's a very versatile insecticide which kills most of the pests.
05:52So we are getting very good demand and ultimate consumption will start from July onward.
05:57But the distributors are very bullish about this molecule and we hope that we will be
06:04able to get 5% volume from the new molecules.
06:10Understood, sir. So when I'm looking at pretty much all the commentary coming through, I
06:16want to try and break down as to where margins lie.
06:19Your FY24 margins EBITDA was at 18.6% versus the 16.4% you clocked in FY23.
06:27So tell us how all of this is going to impact margins in FY25 in your view.
06:36We will try to maintain the last year margin because the margins last year was very good
06:41because of the low cost inventory in the system.
06:45But this year we have given guidance for 18% margin.
06:50So but we will try to maintain the last year margin EBITDA margin, especially around 18.5%.
07:01Mr. Tanuka, you know, I also want to understand your perspective on the recent GST norms on
07:07fertilizers and agrochem, one thing.
07:09And secondly, your expectations going forward with the budget that is going to come in July.
07:15You see, in the recent meeting of GST committee, they have only given relaxation from 18% to
07:2412% on the sprinklers.
07:26So farmers, a very limited number of farmers are using the sprinklers.
07:32So that is not going to have any impact on the agriculture.
07:36But from our association level, we are pursuing the government to reduce the GST from 18%
07:44to either 5% or 12% so that the farmers can get the pesticides at reasonable prices and can
07:54purchase them to safeguard their crops from pest and diseases.
07:59So we hope that in next GST committee meeting, the government will consider our request and
08:06will reduce the GST on pesticides and fertilizers.
08:12So what's your sense with regard to the impact of that from from a consumer standpoint, as
08:18well as from a producer standpoint, what's what do you believe that will add in terms of
08:24giving the industry a flip?
08:28You see, the demand will be much more because if the product is available at a cheaper price,
08:34then the farmer will be able to use more quantity of pesticides that will be the flip for
08:40the industry. However, from a margin point of view, because that the GST part will be
08:47passed on to the consumer.
08:49If GST is less, then it will be beneficial for the consumer, not majorly for the industry.
08:57OK, Mr. Danuka, you know, I also want to understand that you will invest a lot in the R&D
09:04space and going forward in FY25, how much of that R&D will be as a percentage to your
09:11total sales? And overall, what kind of impact are you expecting from it?
09:18You see, we have two types of R&D, one is field R&D, where the products are tried on
09:25various crops, various pests and diseases.
09:28So that is one R&D and another R&D is lab R&D, where the new product development and
09:36the improvement in the recipe of the already existing molecules.
09:41So these are continuous process and R&D goes both in lab as well as in the field.
09:48For field, we have established one Danuka Agriculture Research Center at Palwal, which
09:55was inaugurated by the then Chief Minister of Haryana, Shri Manohar Rajdikar in November
10:0122. So that is doing well.
10:04And in Sanand in Gujarat, we have established the R&D lab facility where we have around
10:1330 scientists working to develop new molecules, because presently we are manufacturing only
10:20technical at our unit, but in future we are going to add more products so that R&D is
10:27going on Sanand for new development of new molecules.
10:33So just want to try and understand where you are investing in terms of fresh capex, new
10:40products. Obviously, you've spoken a bit about the new launches, but talk to us about
10:44new products going forward.
10:46When I'm looking at forward looking, maybe three years from now, what's the pipeline and
10:51what's the plan like?
10:52That's one. And second is what's the kind of investment you're making?
10:56Fresh capex.
10:58You see, 9-3 molecule is very difficult to get the registration because that is the
11:05molecule which is first time introduced in India and it takes five to six years time.
11:10So always 10 molecules remains in pipeline.
11:13Some are at two years level, some are at three years level.
11:16And we hope that 2-9-3 molecules we will be able to launch every year, first time in
11:23India. Apart from this Me-2 registration, under section 9-4, we will be introducing
11:312-3 such molecules.
11:32So 4-5 molecules every year we will be introducing in Indian market.
11:37From a longer term perspective, where do you expect the revenues to grow at?
11:42Like what is the CAGR you're expecting?
11:44And margins will sustain at the same level or do you see an upside considering the lot
11:49of contracts that are flowing in?
11:52So in my opinion, 18% margin are very reasonable margins and we would like to maintain
11:59these margins in future also.
12:02Regarding new investment sector, we hope that export is one segment where we are not
12:12present in India.
12:13This year we are targeting 50 crores, so definitely next year our target will be 100
12:18crores exports.
12:20And from new molecules, we expect the growth.
12:24So overall, if our growth depends on monsoon, if monsoon is good, definitely double digit
12:30growth is possible.
12:32But if monsoon is weak, then the growth is impacted.
12:37All right, lots dependent on the monsoon, lots dependent also on the budget, but lots
12:43to look out for where fertilizer companies are concerned.
12:45Thank you so much, Mr.
12:46Dhanuka for spending time with us and speaking to us and our viewers.
12:50Now, one company that is in focus today on the SMID show is SP Apparels.
12:56They have recently acquired 100% equity shares in Young Brand Apparels.
13:01The company basically manufactures intimate way for brands like American Eagle, Jockey,
13:06Marks and Spencers, Benetton, etc.
13:09Now to discuss more about this, we have with us today Mr.
13:12P Sundararajan, Chairman and MD at SP Apparels, who joins us on the show.
13:17Welcome to the show, sir.
13:19My first question to you is that, you know, you've acquired 100% equity in Young Brands
13:24Apparel. I want to expect what kind of synergies you're expecting from this acquisition.
13:30And what kind of top line growth are you expecting?
13:33Because FY24, if we see their revenues, they're almost 30% of your total revenues right now.
13:39Yeah, thank you.
13:41Yes, you know, Young Brand has been acquired now since the last week.
13:44We have, you know, totally we have taken the position completely.
13:49And this is a really, you know, the what do you call it is inorganic growth, like in terms
13:56of the products, which means that currently we are, SP Apparels is doing only on the on
14:03the outer garments, babies products and the kids wear products.
14:06But now by acquiring this company, Young Brand, we are we are getting into the new
14:12segment of the lingeries, you know, the innerwear kind of thing, intimate apparels for
14:17the for the babies, kids, men and the women, which is an additional business in addition
14:25to our existing business.
14:27And also we are getting more new customers from US customers are getting into the other
14:32customer portfolio.
14:35And we are expecting additional.
14:36So currently we are last year we closed a thousand two hundred crores, thousand fifty
14:41seven. And this year we expect this to be by bringing it then we will be expecting total
14:46as a consolidated one.
14:48We are expecting around fifteen thousand five hundred crores, two thousand six hundred
14:52crores.
14:53Understood. That's very strong growth.
14:55So I want to try and break this down a little bit.
14:59So what kind of a number can we expect from Young Brands given the synergies that they
15:04have with you? So from three hundred crore in terms of Young Brands is top line, where
15:09should that number go to?
15:11And we expect this to be a minimum of 10 percent increase, about three hundred and
15:15thirty crores.
15:16Understood. And the balance will come entirely from your current operations.
15:22Exactly. And in addition to that, we are now we have launched the operation from
15:27Sri Lanka as well, which is, you know, the current trend is, you know, for the customers
15:31because the customers are very keen in consolidation of the factories, the vendors, as
15:37well as, you know, de-risking from Bangladesh and moving some business from China.
15:42So that's a trend going on with all the retailers now.
15:45So they are looking at somebody who is a large scale operations, fully backward
15:50integrated and multinational presence in terms of the manufacturing.
15:55So we are very much into it.
15:57So we expect, you know, by stepping into the Sri Lankan operation, our capacity
16:01constraint will be no longer there.
16:03So it's a plenty of capacity available in Sri Lanka and it will be looked at by the
16:08retailer customers like India and Sri Lanka as one as a one country kind of thing,
16:13because all the raw materials are moving from India to Sri Lanka.
16:17We ship it to Sri Lanka and they do the only the job working.
16:20So which is what we are currently doing in India.
16:22So it makes no difference from customers perspective.
16:26And so then in terms of margins, because, you know, around March 22, your margins
16:31were at 18 percent versus that of 15 percent in March 24.
16:35So considering the acquisition, the capacity expansion in Sri Lanka, where do you
16:40expect your margins to go in FY 25?
16:44Let's say by the end of FY 25.
16:46Yes, you know, we are yet to see that the numbers, you know, because we just
16:50started the launch, the operation from out of Sri Lanka, Sri Lanka, you know, for
16:55importing countries, EU and the UK, the duty free, it's duty free.
17:00So the duty free benefit will be passed on to the customers definitely.
17:04And in addition to that, their wage cost is slightly higher, but their efficiencies
17:10are better, so that will offset the wage increase difference.
17:14So we expect to maintain more or less the same EBITDA margins, including Sri Lanka
17:20operations. So that's the end.
17:23The customer will gain about three to four percent extra extra benefits landed
17:28costs. Understood.
17:31And so just with regard to trying to break down margins between both your entities,
17:36between young brands and your current operations.
17:39So current operations, roughly 15 percent is what you're expecting.
17:43What about young brands?
17:44Is it a margin, a creative acquisition for you?
17:49Yes, you know, it's like this, you know, in SPFLs, the main company, the other
17:53company, we always try to maintain 18 percent plus for EBITDA on a standalone
17:59basis, provided our spinning, our backward integration, the cotton price has been
18:04stabilized this year. So we expect to maintain 18 percent this year.
18:08And whereas in the young brand, that quite a company, there needs to be a lot of
18:14improvement. So we will use all our all our experience and our systems and the
18:19people. So everything will be put into that business.
18:23And we I'm sure currently the EBITDA is about 13 percent.
18:27I'm sure we'll be able to improve it by another about three percent next to one year
18:31time, 12 months time easily, because we have noticed there are many areas, areas
18:35where we can improve the margins.
18:37So I'm confident in two years time from 13 percent, it will go up to close to 18
18:43percent. OK, so one last question in terms of your revenue growth, when you say
18:501500 to 1600 of revenue is what you're expecting in FY25, how much of it is volume
18:55versus value? If you can give us that number one thing.
18:59And in terms of the overall garment industries, you know, they've seen certain
19:02headwinds. What are you expecting in FY25?
19:06Yes, it's to in volume terms is very difficult to quote because it starts from the
19:11babies products to adult, you know, men's and ladies' pajama things.
19:14So volume, I don't think volume will be a right thing to mention about to measure the
19:21growth. But in terms of value, yes, you know, we will be on one more thing here is
19:26that currently we are our capacity utilization is only about 72 percent and we
19:31expect this to cross 80 percent by end of FY25.
19:36So that itself will be an additional growth within the same existing setup.
19:41So it will be without adding any new factories or without Sri Lanka operation or
19:46without the young brand operations.
19:49So there is a good chance of growth in the next six months time.
19:55Thank you so much, Mr. Sundararajan.
19:57It's been a pleasure speaking with you, breaking that down and wishing you all the
20:01very best for the rest of FY25.
20:05Well, that's the management of SP Apparels breaking the acquisition down for us as
20:09well as FY25 Outlook.
20:11But with that, completely out of time on this edition of the SMID show from Mahima,
20:15myself and everyone who puts the show together.
20:17Thanks so much for watching.
20:18Stay tuned to NDTV Profit, more action on the other side.