Dhanuka Agritech continuing with double digit growth and 18% margin guidance: MD

“Raw material prices are either stagnant or are reducing and accordingly, the impact is on the finished goods products. We have reduced the prices of the finished goods in some of the molecules where raw material prices have fallen,” says MK Dhanuka, MD, Dhanuka Agritech

Monsoon has been good so far. There are all the makings of a good bumper crop season. What impact can it have on your business?
Yes, in India only 40% of the land is irrigated and 60% is still dependent on rainfall. So, the monsoon plays a very important and crucial role in Indian agriculture. A good monsoon always plays a major role in the growth of the agriculture sector.

Overall, the monsoon is good, but a few states are facing flood-like situations like Maharashtra, Gujarat, MP, Assam etc. On the other hand, a few states still have deficit rainfall like eastern UP, Bihar, Punjab, Haryana etc.

It is not spread evenly but still we cannot expect that everywhere the monsoon will be evenly spread but I will say that it is good for agriculture. Somewhere the farmers will have to re-sow because of the flood like situation but it is good overall.

Do you have an idea of what is happening on the ground? Has sowing first been slower the way reports have been suggesting and can it be made up?
Yes, because of the delayed monsoon, sowing was also delayed in June but since July, the monsoon has onset all over India the sowing is in great progress and everywhere we are hearing that sowing is to the extent of nearly at last year levels.

As soon as the rain stops in Gujarat and Maharashtra etc, further sowing will take pace. Overall, the government is also expecting a very good food grain production in FY23 also and it will supersede last year’s targets.

The management commentary of your company for Q1 was low double-digit growth due to the erratic rains and subdued acreage of major crops. Has the growth outlook picked up when it comes to herbicides?
Yes, rainfall plays an important role in the consumption of agrochemicals because of the diseases and the pests that accompany rains. Higher consumption of agrochemicals is expected and the offtake is much better in July compared to June.

What will the management commentary be in terms of your growth? Is the low double-digit growth suggested earlier changing now?
We are continuing with the guidance for double digit growth for the whole year for March 23 ending.

Regarding your raw material prices as well as your own prices, you had taken a hike of 3-5%. How are the trends moving both with respect to the raw material prices as well as the pricing of your own products?
The situation in China is normal. We are dependent on China for import of raw materials. The prices of the number of molecules are coming down in China and so the imports are also becoming cheaper.

Raw material prices are either stagnant or are reducing and accordingly, the impact is on the finished goods products. We have reduced the prices of the finished goods in some of the molecules where raw material prices have fallen.

It is good to hear that you have reduced the prices but what does this mean for your margin picture going forward? Your margin profile in FY22 was close to 18%. Are you expecting it to inch higher for FY23 to 19% or 20%?
No, we have given the guidance that we will try to maintain the margin of last year around 18% only.

Have you been able to figure out and get a pulse of whether sewing patterns have changed or is there crop rotation from larger farmers or corporate houses?
Yes, some shift is happening. Wherever the farmer is getting better realisation for his crop, he is shifting the crop. For example, in Haryana, the government is giving Rs 7,000 per acre subsidy if the farmer is opting to shift from paddy to cotton as paddy consumes a lot of water. Also, the cotton prices are very high.

We are importing a lot of oil and there is huge potential for growth of oilseeds. So, farmers are opting for increasing the acreages for cotton, oilseed and pulses and reduction in crop acreages for paddy crop.

That is the reason I was asking the way cotton prices have been moving, the controls that have come in as far as wheat and rice go, the push towards oil seeds as well.
Yes, because we are spending a huge amount of our forex in importing edible oils, the government is also focussing and requesting the farmers to shift from paddy to oilseeds and pulses.