BASF India — Q2 FY25 earnings call

Call held 21 Nov 2024

Management summary

BASF India delivered strong volume-led revenue growth in Q2 FY25, though margins faced pressure from rising input costs in the Agrochemical and Industrial Solutions segments. The Materials segment emerged as a star performer, significantly boosting H1 profitability. Management remains optimistic about India's growth trajectory, identifying it as a global 'advanced country' for the group, while navigating challenges like China's overcapacity and erratic monsoon patterns.

Highlights

  • Revenue for Q2 FY25 reached ₹4,248 crores, a 15% YoY increase and the first time exceeding ₹4,000 crores in a quarter.

  • Volume growth was robust at 12% for Q2 and 17% for the first half (H1) of FY25.

  • Q2 PBT (before exceptional items) declined 15% YoY to ₹171 crores, primarily due to higher input costs in the Agro and Industrial Solutions segments.

  • H1 FY25 PBT grew 29% YoY to ₹454 crores, driven by a strong performance in the Materials segment.

  • Materials segment H1 PBT surged to ₹110 crores from ₹15 crores in the previous year, contributing ₹95 crores to the bottom line.

  • Agricultural Solutions H1 PBT fell to ₹249 crores from ₹310 crores due to product mix and input cost pressures.

  • H1 EPS stood at ₹78 per share, a significant increase from ₹60 per share in H1 FY24.

  • Working capital increased by ₹450 crores since March 2024, which was entirely financed through internal accruals.

Concerns

  • China Overcapacity and Dumping

Key financials

2 periods

Headline

  • Revenue
    ₹4,248 Cr
    YoY +15%
  • PBT (Before Exceptional Items)
    ₹171 Cr
    YoY -15%
  • Receivables
    63 days

H1

  • PBT
    ₹454 Cr
    YoY +29%
  • EPS
    ₹78
    YoY +30%
  • ROCE
    14.3%

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

  • Materials
    ₹110 Cr H1 PBT Contribution₹600 Cr H1 Sales Growth (Additional)
  • Agricultural Solutions
    ₹1,400 Cr H1 Revenue₹249 Cr H1 PBT18% H1 PBT Margin
  • Industrial Solutions
    ₹237 Cr H1 Revenue Growth (Additional)

Guidance & targets

Capacity

  • Polyamide compounding capacity increase Capacity · Ongoing · High confidence 40%
    we are increasing our polyamide compounding capacities by 40% both in Panoli and Thane

    — Mr. Alexander Gerding, Managing Director

Working Capital

  • Receivable days reduction Working Capital · Q3 FY25 · Medium confidence 1-2 days

    Previously 63 days → 1-2 days

    still there is a scope to reduce it by a day or two which we will be doing in the December quarter

    — Mr. Narendranath J. Baliga, CFO

Market Share

  • India Growth vs Market Market Share · Long-term · High confidence Above Market
    our expectation is to grow above Market in India and to increase also our manufacturing and R&D capabilities in the country

    — Mr. Alexander Gerding, Managing Director

Revenue

  • New product contribution in rice segment Revenue · Next few years · Medium confidence Portfolio enhancement
    rice for example is a very important crop... I can tell you there will be there will be a portfolio enhancement in that segment as well in the next few years

    — Mr. Alexander Gerding, Managing Director

Risks & concerns

  • China Overcapacity and Dumping

    high

    Slow economic recovery in China leads to excess exports impacting Indian imports and pricing power.

    Both acknowledged

  • Erratic Monsoon Patterns

    medium

    Excessive rains in South/West/Central India vs dry North/East impacted insecticide application frequency.

    Management acknowledged

  • Input Cost Inflation in Agro/Industrial Segments

    medium

    Higher raw material costs and unfavorable product mix compressed margins in key segments during Q2.

    Management acknowledged

Areas of evasion (2)

  • Specific financial guidance/forecasts
  • Detailed breakdown of capex spending amounts

Q&A highlights

2 direct
Agricultural Solutions Margin Volatility Direct
April - September 2023 the last 6 months of last year the margin was around PBT was around 25% as compared to that now it is 18%... input costs have also gone up there's a product mix issue also.

Explains the sharp decline in agrochemical profitability despite strong sales, highlighting cost and mix headwinds.

Asked by Anshum Nadecha, Bryanstone Investments

China Dumping and Pricing Pressure Partial
we have not really seen a substantial recovery in China which then means that the over capacities that have been built... have to end somewhere right so this is why it's very difficult to see that the pricing pressure especially in the chemicals segment [improving].

Confirms that overcapacity in China continues to suppress global chemical prices, particularly in petrochemicals.

Asked by Rohit Nagraj, Centrum Broking

Capital Allocation and Inter-Corporate Deposits (ICDs) Direct
the intention is to deploy our surplus funds in the most productive manner so that we get better than what we get if we had placed it in a fixed deposit... these are kind of three-month deposits which gets renewed on a periodical basis.

Management defends the practice of placing ₹800 crores with group entities at 7.5% as a liquidity management tool rather than long-term financing.

Asked by Anshum Nadecha, Bryanstone Investments

2 min read 5 chapters

Detailed narrative

Materials Segment Drives H1 Profitability

The Materials segment was the primary driver of BASF India's 29% PBT growth in H1 FY25. The segment contributed an additional ₹600 crores to the top line and saw its PBT contribution jump from ₹15 crores to ₹110 crores YoY. This performance offset the margin compression seen in other divisions, particularly Agricultural Solutions.

Agrochemical Margins Face Headwinds

Despite a 14% revenue growth in the Agricultural Solutions segment for H1, PBT fell from ₹310 crores to ₹249 crores. Management attributed this to a 6-percentage point drop in PBT margins (from 25% to 18%) caused by higher input costs and an unfavorable product mix. Erratic monsoons also led to 2-3 fewer insecticide sprays in key regions, though reservoir levels remain positive for the upcoming Rabi season.

Strategic Pivot: India as an 'Advanced Country'

BASF Global has identified India as one of seven 'advanced countries' expected to drive 80% of chemical market growth over the next decade. This designation implies a strategic focus on growing above the market rate and increasing local manufacturing and R&D capabilities. The company is currently increasing polyamide compounding capacity by 40% at its Panoli and Thane sites to support this growth.

Navigating the China Overcapacity Challenge

Management highlighted the persistent threat of Chinese overcapacity, noting that slow domestic recovery in China is forcing excess volumes into export markets like India. This has placed significant pricing pressure on the Chemicals segment, particularly petrochemicals. Management does not foresee a substantial improvement in this pricing environment in the near term.

Liquidity and Capital Allocation Strategy

The company maintains ₹800 crores in Inter-Corporate Deposits (ICDs) with group entities, yielding approximately 7.5%. While analysts questioned this allocation versus higher-return investments, management emphasized that these are short-term (3-month) liquid instruments used to manage working capital needs and finance growth internally without bank borrowing.

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