BESTAGRO - BEST AGROLIFE LIMITED Share Price

The management of Best Agrolife Limited has provided an optimistic outlook for the Kharif season in FY 2025-26, emphasizing a strategy aimed at improving profitability, reducing sales returns, and enhancing operational efficiency. They noted a modest performance this quarter, with total revenues declining by 27% year-on-year, from Rs.519 crores in Q1 FY'25 to Rs.382 crores in Q1 FY'26. This dip was attributed to a strategic shift in their sales policy, focusing on in-season execution rather than pushing inventory ahead of demand, which has resulted in improved gross margins rising from 24% to 30%.

Key forward-looking points include:

1. Targeted annual revenue for FY 2025-26 is estimated to be between Rs.1,600 crores to Rs.1,700 crores, factoring a reduced sales return rate from the previous 20%-24% to a targeted 10%-12%.

2. Profit margins are expected to improve, with EBITDA projected to exceed 15%. Last quarter, EBITDA was Rs.46 crores with a margin of 12%, signaling growth potential as they implement new performance strategies.

3. A significant reduction in sales returns is anticipated in the upcoming quarters. This quarter's sales return provision was conservatively set at Rs.50 crores, despite expectations that actual returns will be lower.

4. Around 45% of Q1 sales came from patented products, compared to 29% in the prior year, demonstrating a transition towards higher-margin offerings.

5. Encouragement from successful launches during the season, such as Shot Downs and Hustler, covering over 5 lakh acres, indicates a growing farmer trust in their innovative products.

Overall, the management's focus on disciplined sales strategies, targeted inventory management, and an emphasis on patented products position the company for a more sustainable growth trajectory in the near future.

Question & Answer Summary - Best Agrolife Q1 Earnings Call

1. Hemant: Why are we not focusing on technical sales to match our branded sales?
Vimal Kumar: We have technical sales, but they yield lower margins compared to our branded products. Our focus is on profitability, and we're implementing policies to stabilize our brand business. We aim for a more sustainable approach rather than just increasing sales revenue.

2. Hemant: When will we supply patented products to other B2C players?
Vimal Kumar: We are cautious about partnerships with B2C players until our patented products are firmly established in the market. We want to ensure farmer confidence in our products before expanding distribution partnerships, particularly with larger companies.

3. Hemant: How do you view the cotton and chilli market ahead, given their current trends?
Vimal Kumar: Q1 typically lacks sales in South India. We expect increased sales in Q2 and Q3 despite current situations with cotton and chilli. Our strategy avoids excess placements, focusing instead on sustainable sales volumes.

4. Hemant: Can you repeat the sales return numbers for Q1?
Vikas Jain: We had sales returns of Rs. 13 crores in Q1 this year versus Rs. 35-40 crores last year. We've also made a provision for sales returns of about Rs. 50 crores due to cautious placement policies.

5. Hemant: How will our B2C revenues compare to competitors in the long run?
Vimal Kumar: Currently, our distributors are generating lower revenues compared to competitors due to our focus on patented products. However, we believe this will change as we grow our market presence, with many customers already achieving higher sales volumes.

6. Hemant: What are your projections for revenue in the next five years?
Surendra Sai: We see significant global opportunities, especially in patented formulations. However, precise revenue predictions are challenging. We will focus on expanding our market reach, and our strategy over the next few years will drive revenue growth.

7. Nishant Bhat: Is it correct that we may see a decrease in revenue continuing into the next quarter due to strategic changes?
Vimal Kumar: Yes, your understanding is correct. Our strategy requires recalibrating our sales cycle, which might mean reduced revenue in the short term, but we project the benefits will materialize in FY'27.

8. Saket Kapoor: Regarding the projected turnover of Rs. 1,600 to Rs. 1,700 crores, what sales return factors into this?
Vikas Jain: We estimate that our sales returns will be reduced to 10%-12%. The expected revenue accommodates this adjustment, anticipating a focused increase in patented product sales and controlled generic sales.

9. Saket Kapoor: Can you elaborate on the impact of OPEX in this quarter?
Vikas Jain: We reduced marketing expenses by around Rs. 8-9 crores this quarter. For the full year, we expect OPEX to decrease by Rs. 30-40 crores compared to last year, resulting in a healthier bottom line.

10. Sanjay: Why has there been a lack of press releases about product launches?
Vikas Jain: We continue to announce product developments but may have been less visible recently. We will enhance our communication strategy moving forward, ensuring our stakeholders are informed about our innovations and market activities.

The answers are concise, reflecting key points and offering clarity on the company's strategy moving forward.