BASF India — Q2 FY24 earnings call

Call held 17 Nov 2023

Management summary

BASF India delivered a resilient performance in Q2 FY24, navigating a challenging global environment characterized by soft demand and pricing pressure from China. While the top line saw a slight contraction on a half-year basis due to commodity price deflation, the Agricultural Solutions segment provided a significant profitability cushion. Management remains focused on maintaining high asset utilization (80-85%) and gradually increasing the share of own-manufactured products versus traded merchandise.

Highlights

  • H1 FY24 Revenue stood at ₹7,082 crores, a 5% decline compared to ₹7,470 crores in H1 FY23.

  • Agricultural Solutions segment profit surged to ₹300+ crores in H1, up ₹151 crores from the previous year.

  • Materials segment remains the largest contributor at 28% of total revenue, followed by Nutrition and Care.

  • Chemicals segment witnessed a significant 32% drop in top-line revenue due to crashing global prices, despite stable volumes.

  • Return on Capital Employed (ROCE) remained healthy at 12.9%, slightly lower than the previous year's 13%.

  • H1 FY24 EPS (before exceptional items) reported at ₹60 per share.

  • Inventory management improved with levels at 77 days, while receivables were maintained at 60 days.

Concerns

  • Chinese overcapacity and dumping

Key financials

2 periods

Headline

  • ROCE
    12.9%
  • Inventory Days
    77 days
  • Receivable Days
    60 days

H1

  • Revenue
    ₹7,082 Cr
    YoY -5.2% QoQ +3%
  • PBT before Exceptional Items
    —
    YoY -15%
  • EPS
    ₹60

What they filed

Q1 FY27: revenue up 28.9%, net profit up 146.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue4,248 3,635 3,189 3,752 3,904 −8%3,877 +7%3,453 +8%4,837 +29%
EBITDA201 170 63 222 154 −23%169 −1%112 +78%505 +127%
Net profit128 104 47 147 101 −21%105 +1%64 +36%362 +146%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Agricultural Solutions
    ₹1,200 Cr Revenue (H1)₹300 Cr Profit (H1)17% Revenue Share
  • Materials
    28% Revenue Share— Volume Trend
  • Chemicals
    -32% Top-line Growth— Volume Trend
  • Industrial Solutions
    -177% Segment Result Growth

Guidance & targets

Capacity

  • Capacity Utilization Capacity · Ongoing · High confidence 80-85%
    Optimum utilization is kind of 80 to 85% is the capacity utilization overall... and it's consistently held for a couple of quarters.

    — Alexander Gerding, Managing Director

Other

  • Own Manufacturing Share Other · Over time · Medium confidence >50%

    From 50% today

    Our own manufacturing product share in India Our intention and ambition is increase it over time.

    — Alexander Gerding, Managing Director

Capex

  • H1 Capex Spend Capex · H1 FY24 · High confidence ₹45-50 crores
    For the first half, it's around 50 crores 45 to 50 crores for the first half.

    — Narendranath J. Baliga, CFO

Risks & concerns

  • Chinese overcapacity and dumping

    high

    Excess capacity in China is leading to low-priced exports into India, putting severe pressure on margins in the Chemicals and Materials segments.

    Both acknowledged

  • Global demand softness

    medium

    Demand remains soft in major markets like Asia, Europe, and North America, impacting the global chemical industry context.

    Management

  • Energy price volatility

    medium

    Higher energy prices continue to put pressure on margins from the cost side.

    Management

Areas of evasion (3)

  • Specific future capex numbers
  • 3-5 year business roadmap/guidance
  • Specific revenue share of top 3 Agri products

Q&A highlights

2 direct
Agricultural segment outperformance and channel inventory Direct
Fortunately we don't have you know significant Channel inventory because we do not aggressively push into the channel since we place our products also to application timeline.

Confirms that the strong Agri performance is driven by actual demand and digital tracking (ACT shop) rather than channel stuffing.

Asked by Varun Bang, Bryanstone Investments

Inventory valuation impact on PBT Direct
For the September quarter we did not have any major hit to the inventory valuation... Q2 is more of a cleaner quarter that it's more representative margin what we are looking at.

Clarifies that the current margins are 'clean' and not artificially depressed by one-time inventory write-downs from falling commodity prices.

Asked by Sanjesh Jain, ICICI Securities Ltd

China dumping and competitive intensity Partial
We still see a very heavy competitive pressure uh but there's also some early indications that you know maybe you know the cycle is turning into the the right direction now.

Management acknowledges the severe pressure from Chinese overcapacity but hints at a potential cyclical bottoming out.

Asked by Rohit Nagaraj, Centrum Broking Limited

2 min read 5 chapters

Detailed narrative

Agricultural Solutions Anchors Profitability

The Agricultural Solutions segment was the standout performer, with H1 profits reaching ₹300+ crores, a significant jump from ₹160 crores in the previous year. This was achieved despite a delayed and dry monsoon, which management mitigated by proactively adjusting the product mix toward insecticides and herbicides. The successful launch of 'Exponus', a blockbuster insecticide, has helped the company capture market share in the large Indian insecticide market where it was previously weak.

Working Capital and Inventory Discipline

BASF India maintained a tight grip on its balance sheet, reporting net working capital of approximately ₹1,200 crores. Inventory levels were managed down to 77 days, which management considers an achievement given that 80% of materials are imported and require 2-3 months of lead time. Receivables were also well-controlled at 60 days, with overdues kept below 10%, reflecting a disciplined 'cash-before-sales' approach in challenging market conditions.

Navigating the 'China Factor' and Pricing Pressure

The Chemicals segment saw a 32% drop in top-line revenue, purely driven by price deflation as volumes remained stable. Management attributed this to global overcapacity and 'dumping' from China due to soft domestic demand there. While they see 'early signs' of demand picking up in China, they remain cautious, noting that the competitive intensity remains high across all segments except Agriculture.

Strategic Shift Toward Own Manufacturing

The company currently maintains a 50:50 ratio between own-manufactured products and traded merchandise. Management expressed a clear ambition to increase the share of own manufacturing over time to capture better margins, which are typically double-digit compared to single-digit margins in trading. Current capacity utilization is at an 'optimum' level of 80-85%, and incremental investments are being directed toward debottlenecking and expanding lines in Panoli and Mangalore.

Digitalization via 'ACT Shop'

A key highlight of the call was the success of the 'ACT shop' digital platform for the Agricultural Solutions business. Currently, 99% of all B2C orders are placed through this platform, allowing for real-time data tracking and inventory visibility across the country. This digital edge enables the company to move inventory efficiently to regions with high demand during erratic monsoon seasons, avoiding the 'gut-feeling' based distribution common in the industry.

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