Q4FY21 Concall Notes
- (Future growth drivers): Launched a new CRAMS product. Herbicide CRAMS plant will be a key future growth driver. In the process of constructing a SOTA R&D facility which will enhance our capabilities manifold. Facility will be completed by July 2022.
- (Merging agrovet and Astec): Looking at the option of merging astec into godrej agrovet. In the long term it would be beneficial since we also have agrochemical business. But no plans in the immediate/short term future. Godrej agrovet is also fast growing and will also get high P/E multiples. So we dont see any problem in merging astec into agrovet. Both are agri related businesses.
- (New herbicide plant): got delayed a bit. Plant is ready, waiting for govt permissions. Commissioning by early june. 25-30% utilization in FY22. 100% utilization by FY24. 50% revenue from CMO and enterprise product in 1st year. At 100% utilization, CMO business will be a higher contribution.
- (New molecules): Last year we introduced 3 new molecules. This year we plan to introduce 4 new molecules. 2 in CMO. 2 for enterprise products. We are working on the biggest triazole fungicide. Will bring it out next year. Best cost position.
- (Operating Cash flow): is slightly negative due to increased WC due to increased domestic sales. Wont sacrifice profits to get cash.
- (Guidance) Guidance of Compounding profits at 20%. Expect that EBITDA margins of 20%+ would be maintained. CMO is 20% of sales. Will try to bring it to 30% in 3 years. Once R&D facility is there, the whole scenario could change.
- (CMO/CRAMS business): had a decline. Key customer had inventory. Didnt order that much. 6.8% decline in CRAMS business this year. This year, we’re gonna make it up with new products and when inventory expires for the client.
- (Capex) 180cr in coming year for R&D center and a new plant will be constructed. New plant will do both CMO and enterprise products.
- (R&D Center): Fluorination will be the first chemistry we will get into in the new R&D center. That involves KF and HF chemistry. We will be more customer and product led. Not very married to chemistry.
- (Concerns about triazole fungicides): were about the older products and chemistries. The remaining/current ones are good from a safety standpoint.
My takeaway: Biggest concern as minority shareholder I have is regarding merger with agrovet. This remains the key risk to investment thesis. Apart from that, astec is a multi year story. New R&D center should accelerate the path to new products, new chemistries and higher profit margins and growth.
Disc: Invested