Dhanuka is likely to gain from the expected consolidation in crop protection industry. India has been one of the smaller consumers of agro-chemicals, but the trend is changing now. This augurs well for established player like Dhanuka, says RG Agarwal, Chairman of Dhanuka in an interview to CNBC-TV18 adding the situation will aid Dhanuka to raise its blended market share
However, farmers have been at the receiving end of untimely rains during the Rabi season which destroyed most of the crops. It will take time for the farmers to gain back the lost purchasing power, he said. But with normal monsoon, Dhanuka Agritech is posied to grow 15-20 percent in revenue this year, Agarwal says.
Meanwhile, Dhanuka has entered into herbicides as it sees an increasing demand for horticulture, he said.
Below is the edited transcript of RG Agarwal's interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.
Reema: Recently there was a note which came out from HSBC where they say that they expect the crop protection industry to consolidate with the top players gaining market share. What would be the blended market share of Dhanuka Agritech and how much do you think it will increase and what will be the factors which aid consolidation for incumbence?
A: At present, Dhanuka share in branded market is approximately five percent and this will grow as more farmers are getting to understand about agro chemicals and they are increasing their consumption. At present, our consumption is one of the lowest in the world and we are ranked 44th in the word. Our consumption is just 570 gm per hectare while Japan consumption is 11 kg per hectare. So, this way there is potential available.
Latha: We have heard a lot about rural purchasing power having declined over the past year, is there an impact of the past poor monsoons, un seasonal rains and lower minimum support prices (MSP) reducing the demand simply because there is less purchasing power?
A: You are very right. You see, in last Rabi season-February, March, April, untimely rains have destroyed the crops which have reduced the purchasing power of the farmers.
Latha: So, what have you seen in terms of demand shortfall?
A: In rural area, when farmers do not have the purchasing power, then definitely the purchasing power will be less then demand for fast moving consumer goods (FMCG) and other goods.
Reema: Coming to the monsoon, very recently when we had spoken to you, you indicated that if the monsoon is deficient this year, then you do not expect the company’s growth o be more than 10 percent. Considering that the start of the monsoon season has been on track, in fact a little more than average as well, if the monsoon is normal, in that event, what will be the company’s revenue growth?
A: If monsoon is normal, then company will have a growth of 20 percent. In the past also, whenever monsoon has been normal in last five years, our growth has been in the range of 20 percent and so far, as you rightly said, monsoon has started very well.
So for June, it is more than 13 percent than average. So, starting is really very good and we expect when starting is good, monsoon should be good this year.
Latha: Well, your fourth quarter revenues itself were flat and earnings before interest, taxes, depreciation and amortization (EBITDA) was also flat. Will you say that in FY16 you will be able to register both revenue and EBITDA growth? If yes, how much you think?
A: All of it will depend upon monsoon. If monsoon is normal, then definitely we will be in a position to maintain our last year’s EBITDA margin or higher.
Reema: We understand that the company is looking to increase their presence in the herbicides segment. Currently, how much does it contribute to your revenues and what is the rationale for increasing your exposure to herbicides? Does it have higher margins?
A: You see, in horticulture, rather our vegetable and food crops production has crossed our food grain production. So, demand for vegetable and horticulture crops is increasing. So, that way the share of horticulture crops is around 30 percent and as demand is increasing, horticulture share will increase. So we are focusing on horticulture sector to increase our market share.
Latha: Can you not at least give me a range in terms of your revenue growth? You did seven percent revenue growth in FY15. If it is a good monsoon, how much will you do? If it is an average monsoon, how much will you do? Can you give us a range in revenue growth?
A: We are expecting 15 and 20 percent growth in a normal monsoon.
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