SUMITOMO CHEMICALS Q2FY23 Earnings Call Highlights

• Witnessed a robust increase in sales of herbicides and better sales of branded generics last year as active grassroot level marketing and activities continue to reap maximum benefits.

• Despite the agrochemical industry taking price hikes for new raw material prices from July '22 onwards amid the high-cost carryover inventories may likely impact gross margins of agrochemical companies.

• EBITDA margins for the industry are also likely to be under pressure due to lower gross margins and higher other expenses on account of higher advertisement and promotional expenses, as this being the first normal year of operations post-COVID-19 restrictions.

• The sales growth was primarily driven by impressive growth in herbicide segment and all around robust growth in both domestic and export markets.

• The share of exports in total revenues increased from about 15% in H1 FY '21-'22 to about 19% in H1 FY '22-'23. This was on account of increase in export to Europe, North America, Southeast Asia and increased to shipment in affiliate companies in Latin America. Half of the products have been approved for registration, and these are the ones which are seeing strongest demand.

• Currently, have about 200 brands spanning the entire value chain of agrochemicals, including more than 20 mega brands that are a high level of brand recall. With over 16,000 direct distributors and more than 60 depots and warehouses located all over the country, one of the most extensive distribution networks to reach different parts of the country.

• Price increases were a major contributor to the expansion of domestic agro-solution business.

• Demand for insecticides, herbicides, fungicides and PGR products continue to be strong. Anticipate taking market share from unorganized players, thanks to really established supply chain and recognizable brand names apart from the reach to different parts of the country. Herbicides, PGR and biorational products are 3 segments expected to see the most growth, stability and profit.

• In H1 FY '23, have launched 8 new products across all categories, about 3 insecticides, 3 PGRs, 1 metal phosphide and 1 fungicide. There are plans to launch a few more products in the upcoming Rabi season.

• One project for a very important global proprietary product has begun commercial production just recently. Expecting revenues from this product coming in, in the second half of the year and full revenues coming in the next year. The second project, which is being implemented at Tarapur site, which involves multiple products for parent company, is expected to begin commercial production in the first quarter of next financial year, financial year 2023-2024. As the global demand for these products increases in future, have potential to expand capacities for these products in the future.

• In addition, several additional products are being discussed with parent company and global affiliates as part of the Make in India initiative, and some of these products are expected to be manufactured in India, depending upon various discussions which are currently ongoing.

• R&D team in India is continuously engaged in developing processes and getting ready to produce several off-patent products, and some of the pre-mixture combination products for the Indian market and also for the global exports market, which also includes some of the high-growth regions such as Latin America, Africa and Asia Pacific reasons these products are targeted towards.

• There is no ban on Glyphosate. The only restriction is that the usage of this product has to be done by a pest control operator. See a lot of possibilities to ensure that Glyphosate sales are not affected.

• Domestic sales of Glyphosate by way of volumes or quantities has come down by 40% as compared to the previous year in H1.

• H1 of this current year, export of Glyphosate has increased by 451% as compared to the same period last year. H2 is the period for Glyphosate for export market. Because every single year in H2, export of Glyphosate all over the world is the maximum.

• See many new opportunities that will come up because of this notification. One being very clearly maybe to offer a value-added solution to the farmers, can have like sprayers and drones and things like that. Maybe can have a value-added service given to farmers, making an infrastructure of field staff to become a pest control operator, which is a very much possible.

• Point of the notification is that it has to be sprayed by the pest control operator. It doesn't talk anything about buying or selling by the pest control operator.

• Developing certain combination brands along with Pyriproxyfen. So that is 1 insecticide. Also expanding the capacity of Pyriproxyfen over there in the same plant, which is nice for export as well as domestic markets. Then there are 4 other products which we are going to be manufactured at Tarapur, which are basically proprietary products of Household division of Sumitomo Japan. So these products will be manufactured and exported all over the world.

• In a normal year in glyphosate, 85% is domestic and 15% is export.

• In a normal year, the Glyphosate produces a gross margin of 25%. Last year, it has given a little higher percentage. And this year, that percentage is 37.5%.

• Got the registration of one of the brands of Glyphosate in Sudan. Could sell very good quantities over there.

• Already on the drawing board as far as the products to be manufactured at Dahej is concerned. Will take up that once this expansion of Tarapur plant gets over.

• If global demand of Tebuconazole, because of the new launch of a combination product with a proprietary product of Sumitomo Japan, it kicks off well, the demand is going to be double than what Sumitomo is able to manufacture today. So going to keep the bhavnagar land free for expanding Tebuconazole capacities.

• Have narrowed down 3 biorational products, should be introducing them in '23, '24.

• New product contribution to the overall sales for this quarter is around 30Cr.

• Have Glyphosate registrations in Europe, but are not selling in Europe. Have registrations in African countries, which is main export market. In a lot of countries in Africa, like Sudan, Ethiopia, Nigeria..etc

• Recently received 2 registrations of formulated products in Brazil which Sumitomo as a supplier or endorsed as a supplier. Likely even to start these 2 brands this FY.

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