kilpest india ltd share price Management discussions


Economic Overview

Global Economy has experienced three major events since 2020

• Pandemic leading to contraction of global output

• Geo-political development in Eastern Europe resulting in a worldwide surge of inflation

• Action by Central banks across economies to curb inflation through interest rate hikes

Domestic Economy - India will continue as the fastest growing major economy. The Indian economy, however, appears to have moved on after its encounter with the pandemic, staging recovery in FY 2022-23 ahead of many nations. RBI in its Monetary Policy announcement during February 2023 projected 7% GDP growth for FY 2022-23. These optimistic growth forecasts stem in part from the resilience of the Indian economy seen in the rebound of private consumption seamlessly replacing the export stimuli as the leading driver of growth. The uptick in private consumption has also given a boost to production activity resulting in an increase in capacity utilization across sectors. The rebound in consumption was facilitated by the near-universal vaccination coverage overseen by the government that brought people back to the streets.

The growth rate reflects the strong fundamentals of our economy as it has emerged as the fastest-growing major economy in spite of the fact that India has also faced the challenge of reining in inflation as the Central Bank has taken measures on the policy fronts to manage the inflationary pressure. The RBI also projected the economic growth to slow down to 6.4% in FY 2023-24, citing risks from geo-political tension and tightening global financial conditions.

AGRICULTURE SECTOR

Agriculture activities remain an important component of the global economy in spite of the fact that its share of the global gross domestic product has remained around 4% and the share of the global workforce employed in agriculture has come down to 27% (866 million) in the last two decades. This trend is a reflection of the transformation of economies, especially in developing countries. Agri value chain partners have been playing an important role in this transformation across the world facilitating the intensification of agriculture leveraging irrigation, inputs such as seeds, fertilizer and pesticides supported by farm mechanization and other agriculture practices.

Agriculture having an 18% share of GDP engaging 42% labour force plays a critical role in providing national food security and stimulus to the Indian rural economy. Growth of other economic sectors in the last two decades reduced the GDP share of agriculture from 28% and employment share from 60% to its current level. The vision of a technology-driven and knowledge-based economy, as we march towards India@100, is expected to fuel the rapid transformation of agriculture.

The Indian agri-input industry includes a range of products and services that are used to support agricultural production, including fertilizers, seeds, pesticides, farm machinery and irrigation equipment. The industry plays a crucial role in the growth of the agriculture sector in India, which employs around half of the countrys workforce. The industry has experienced significant growth in recent years, driven by increasing demand for food, rising incomes and government support for agriculture.

Indian agriculture needs to address challenges associated with climate change, monsoon-dependent farming, fragmented land holding, food wastages due to lack of storage infrastructure, soil degradation, access to credit, price volatility and low farmer income, etc. through sustained and collaborative actions among the government, private sector, farmers, trade channel and the civil society at large.

Overall, the industry is an important sector of the Indian economy and its continued growth and development will be critical for sustaining food security and promoting sustainable agriculture in the country.

1. Industry structure and developments Agrochemical

The India Agrochemicals Market size is expected to grow from USD 7.90 billion in 2023 to USD 12.58 billion by 2028, at a CAGR of 9.75% during the forecast period (2023-2028).

The rising population in India, accompanied by rising affluence, is creating a shift in consumption patterns. There is a need to not just increase production to meet demand but also to ensure that the nutritional needs of an increasingly affluent population are met. Shrinking arable land and loss of crops due to pest attacks lead to wastage, posing a critical challenge to ensuring food and nutritional security. The agrochemical market is an important agriculture support industry, which boosts the agriculture output. These factors support the growth of the market.

Pesticide usage is high among other chemicals. Price premiums and innovative eco-friendly production methods are emerging steadily in the agrochemical market. There is an increasing need to balance the judicious use of the best chemicals and minimize the impact of that use. As the Central Government focuses on promoting sustainable agriculture practices, there is an increase in the use of biopesticides which now accounts for 15% of the market.

According to the Federation of Indian Chambers of Commerce and Industry, the Indian government recognizes the agrochemical industry as one of its top 12 industries to achieve global leadership, growing at 8-10% through 2025. Thus, the agrochemical sector in India is projected to witness growth during the forecast period.

Molecular Diagnostic Kits Business

Incorporated in the year 2011, "3B BlackBio Biotech India Limited", a subsidiary of Kilpest India Limited, is engaged in Design, Development Manufacturing and Commercialization of qPCR tests, Rapid tests, NGS based Molecular Diagnostic Kits and Extraction Kits for reliable testing on patient samples.

With the largest range of CE-IVD products in the molecular diagnostics segment and our growing portfolio, we are considered as one of the leading molecular diagnostic kit manufacturers not only in India but also in the international markets.

We have been on a consistent growth trend year on year for our Non-COVID Sales which is evident from our sales figures (Non-COVID) for the past four years.

FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23
R 1,536.29 Lakh R 1,522.61 Lakh R 2,653.00 Lakh R 4,413.00 Lakh

Sales: 3B BlackBio Biotech India Limited - Standalone (Non-COVID)

However, the total sales including COVID was Rs. 21,421.35 Lakh in FY 2020-21, Rs. 6,682.77 Lakh in FY 2021-22 and Rs. 5,051.61 Lakh in FY 2022-23.

International Business / Exports

TRUPCR? assays have been well-accepted in over 35 countries across UK and Europe, Middle East, APAC, LATAM and United States of America. The subsidiary is continuously increasing our global footprints by adding more countries across South-East Asia and Middle-East through our channel partners.

The subsidiary is also in the process of getting our products registered in the countries where there is a good demand as per the respective medical devices regulations which will allow us easy access and preference in those markets.

We are participating in international tenders directly and through our distributors with which we have secured a few annual rate contracts for our assays in a few Middle-East, South-East Asian and European countries. These contracts are adding value to our business and giving a strong market standing to our products and brand globally.

We are working on expanding our reach to the yet untapped markets through our marketing efforts, which will yield results in the next financial year.

Our exports have been regularly increasing on a rapid scale which is visible in our figures.

FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23
R 7.22 Million R 19.78 Million R 60.58 Million R 86.80 Million

UK SUBSIDIARY / MANUFACTURING SITE

In line with our vision for growth and enabling further support to our growing customer base, TRUPCR? Europe Limited has moved to a new and larger, self-contained, state of the art facility with dedicated labs for Production, QC and R&D, along with a separate area for storage and dispatch handling. The UK Subsidiary is now ISO 13485:2016 accredited by BSI, UK.

START OF RAPID KIT VERTICAL BUSINESS

The Rapid Kit manufacturing plant is ready & we are optimizing the products in R&D which have market the potential, other than the COVID Testing Kits. We have received the CDSCO approval for Dengue NS1 and we will keep on adding products as and when they are ready from the R&D.

We have successfully completed the collaborative R&D of the Rapid Tests for Antimicrobial Resistance (AMR). The regulatory approvals are in process and soon, we will be launching In-vitro Rapid Diagnostic Tests for the Detection of antimicrobial resistance in carbapenemes and B-lactamases Resistance.

NEXT-GEN SEQUENCING (NGS) VERTICAL

The company started working on NGS Kit development in 2019 and had developed few parameters, but then COVID came and all activities were suspended. Now we are again reviving the NGS kits revalidations and also development of few more parameters, keeping in mind the global markets.

After extensive R&D efforts in the Next-Gen Sequencing Vertical which proved to be successful and we launched our NGS based "TRUNGS? Solid Tumor Panel" for Cancer Diagnosis and clinical management in the "European Society for Human Genetics (ESHG)" Conference that was held in Glasgow, Scotland between 10th June - 13th June 2023 for Europe.

The Subsidiary company has become a market leader in India. Subsidiary (Molecular Diagnostic Business) sales came down to Rs. 5,051.61 Lakh from Rs. 6682.78 Lakh and EBITDA came down to Rs. 3,546.36 Lakh from Rs. 4,277.86 Lakh; PAT came down to Rs. 2,602.35 Lakh from Rs. 3182.96 Lakh, which was mainly due to a drastic reduction in the COVID kits prices.

2. Outlook & Opportunities

Industry offers moderate opportunity for growth, due to increase in use of Agro chemicals by farmers and due to intensive farming of Pest prone crops like cotton, Chili, Paddy, Soyabean etc., subject to vagaries of monsoon.

Good export potential to adjoining countries exists, which has to be tapped and company is continuously getting new products registered in these countries to encash this opportunity.

For Molecular Diagnostic Market it is in the nascent stage in India and lot needs to be done to put molecular diagnosis in the routine diagnostic protocol, like awareness, development of infrastructure etc. Currently, the molecular diagnostic market is dominated by multinationals and highly metro centric. But with the launch of economical indigenous kits and putting of new PCR diagnostic centers in smaller towns, the reach to people will increase along with awareness, which will spark huge growth potential in coming year. The subsidiary companys business has scaled up well and its diagnostics kits of several parameters are in good demand among the customers. 3B BlackBio Biotech India Limited is continuously working towards adding new diagnostics kits which are being demanded by the existing customers and new customers. So there is a possibility of increasing our footprints globally which we are already doing by expanding our reach to the international markets.

3. Discussion on financial performance with respect to operational performance/ Segment-wise or product- wise performance

Agrochemical Industry is facing challenging times currently due to back to back drought year and tough market conditions. Crop yields have been impacted and farmers net realization is also affected badly. In financial year 2021-22, Kilpest had received a special interim dividend of Rs. 75.00/- per equity share of Rs.10.00/- each (Rs.673.88 Lakh) along with a final dividend of Rs 25.00/- per equity share of Rs.10.00/- each (Rs.224.63 Lakh), from its subsidiary company, namely, 3B BlackBio Biotech India Limited. Dividend income constituted a major part of its total income. However, in current year 2022-23 only final dividend of Rs.25/- per equity share of Rs.10.00/- each has been received (Rs.224.63 Lakh), which is a major reason for lower Profit.

To ward off the risk of monsoon and dropping agro-products prices, the company has been increasing its focus on Public Health Business and Export. These two areas will help in warding off the risks associated with agricultural business.

However, this year hopefully the agricultural business will do well as several forecasts have predicted good monsoon. This year will end the back to back drought faced from the last three years by the industry.

The Subsidiary has made a wide range of diagnostic kits ranging from infectious diseases to oncology, which are being accepted by big names customers in diagnostic market. The Subsidiary company has become a market leader in India. Subsidiary (Molecular Diagnostic Business) sales came down to Rs. 5,051.61 Lakh from Rs. 6682.78 Lakh and EBITDA came down to Rs. 3,546.36 Lakh from Rs. 4,277.86 Lakh; PAT came down to Rs. 2,602.35 Lakh from Rs. 3182.96 Lakh, which was mainly due to a drastic reduction in the COVID kits prices.

Financial Performance (Standalone)

S.No. Particulars 2022-23 2021-22 % change
I Sales Turnover 1199.76* 1552.30* (22.71)
II Profit before Depreciation 295.51 875.36 (66.24)
Less: Depreciation 30.47 29.05 4.85
III Profit before Tax (PBT) 265.04 846.30 (68.68)
Less: Provision for Tax 49.07 45.57 7.70
IV Net Profit after Tax 215.97 800.74 (73.03)

Financial Performance (Consolidated)

S.No. Particulars 2022-23 2021-22 % change
I Sales Turnover 6183.60* 8064.61* (23.32)
II Profit before Depreciation 3617.25 4389.50 (17.59)
Less: Depreciation 86.30 67.17 28.48
III Profit before Tax (PBT) 3530.95 4322.33 (18.31)
Less: Provision for Tax 937.25 1102.36 (14.98)
IV Net Profit after Tax 2593.70 3219.97 (19.45)

*Net of GST

4. Risk and concerns

The Industry is depended on monsoon and pest attack. With global warming weather pattern is becoming unpredictable, which is a risk.

Agrochemical sector is monsoon dependent, but as your company is covering a wide geographic area and multiple crop products this vagary is warded off to quite a lot extent.

To some extent the ill effect can be ward off by focusing on irrigated areas, institutional business / warehousing corporation / public health program / exports.

Development of Molecular diagnostic market / Life Sciences is a slow process, as it requires investments to create new set ups / convince existing customers with free samples to switch their suppliers and brand establishing by word of mouth. Thus, one needs to exist for a long time period in this market to reap the rewards.

5. Threats

S.No. Threats Description Impact on Mitigation Measures
a. Environmental Health and Safety • Changes in EHS rules and regulations

• Explosion and fire hazards

• Failure of mechanical, process safety and pollution control equipment

• Contamination, chemical spills and other discharges or release of toxic or hazardous substances

• Reputation

• Market share

• Regulatory shut down

• Imposition of fine/ penalty

• Staying updated on proposed changes in environmental laws

• Proactive planning to adjust with the anticipated EHS changes

• Ensure adequate allocation and up gradation of safety tools

• Ensure regular checks for spills and chemical discharge

• Develop robust awareness initiatives, foster EHS focused culture

b. Changes in market dynamics • New market entrants

• Change in marketing strategy by competitors

• Increase in competitive intensity

• Emerging and disruptive technologies/marketing practices viz. genetically modified/hybrid seeds, digitisation, biotechnology, organic farming, online sale of crop protection products, and so on

• Revenues

• Profitability • Market share • Reputation

• Obsolescence

• Sustainability

• Day-to-day business operations

• Wide product portfolio to address varying customer needs globally

• Broader and less concentrated customer base in every country

• High intensity regular farmer and customer engagement to understand evolving requirements

• Gathering relevant and top-notch market intelligence

• Continuous investment in latest technologies

• Partnerships with players with expertise in newer technologies

c. Regulatory changes • Increased regulatory oversight and adverse changes to regulations in key markets

• These changes can impact operations at the front-end (ban on sale/reduced usage of products) as well as backend (ban/restrictions on manufacturing)

• Revenues

• Profitability

• Market share • Reputation •Obsolescence • Sustainability • Day-to-day business operations

• Stay abreast of proposed changes in regulations

• Organized planning to fine-tune and adjust product portfolio in accordance with anticipated changes

d. Climatic conditions • Frequent weather changes- drought, dry weather, and floods • Revenues

• Profitability

• Efficient and agile supply chain capabilities enabling requisite and timely adjustments to product supplies depending on weather conditions
e. Liquidity • Capital market volatilities could impact our capital access • Profitability

• Day-to-day business operations

• Cash flows

• Regular monitoring of cash flows across business units and putting in place early warning systems to address liquidity issues well in time

• Ensure sufficient credit lines are in place across subsidiaries in the required currency

f. Tax . • There could be diverse interpretations of these regulations • Profitability

• Cash flows

• Reputation

• Day-to-day business operations

• Regular monitoring of the tax framework and ensuring compliance of respective tax rules and regulations

• Keeping abreast on key proposals for changes in local tax regulations

6. Internal control Systems and their adequacy:

The company has an elaborate system of internal controls to ensure optimal utilization of companys resources and protection thereof, facilitating accurate and speedy compilation of accounts and management information reports and compliance with laws and regulations. The company has a well-defined organization structure, authority levels and internal guidelines and rules for conducting business transactions. The internal Auditors and companys internal audit department conduct regular audits to ensure adequacy of internal control system, adherence to management instruction and compliance with laws and regulations of the country as well as to suggest improvements.

7. Human Resources

The Company firmly believes that Human Resources and knowledge capital are vital for business success and creating value for stakeholders. The Company recognizes the fact that people drive business success, strengthening its efforts to build leadership at all levels. It emphasizes on the freedom to express views, competitive pay structure, performance- based reward system and growth opportunities and internal job opportunities, critical assignments within the organization for career options for the employees. The industrial relations at both the units have remained quite cordial with total dedicated efforts from employees.

The total number of employees as on 31st March 2023 was 49.

8. Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefore, including:

Sr. No. Ratios FY 2022-23 FY 2021-22 Explanation for significant change
a. Debtors Turnover 0.86 1.09 -NA-
b. Inventory Turnover 3.94 5.84 Decreases in gross Revenue
c. Interest Coverage Ratio 18.90 28.55 Net profit decreased.
d. Current Ratio 5.97 4.12 Current Ratio improved
e. Debt Equity Ratio 0.08 0.11 D/E Ratio improved
f. Operating Profit Margin (%) 26.28 57.08 Decrease in Other Income
g. Net Profit Margin (%) 18 51.58 Decrease in Other Income.

9. Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof

Sr. No. Ratios FY 2022-23 FY 2021-22 Explanation for significant change
a. Return on Net Worth (%) 8.92 33.46 Profit decreased during the year

10. Cautionary Statement

The Management Discussion and Analysis report containing your Companys objectives, projections, estimates and expectation may constitute certain statements, which are forward looking within the meaning of applicable laws and regulations. The statements in this management discussion and analysis report could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operation include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in the governmental regulations, tax regimes, forex markets, economic developments within India and the countries with which the Company conducts business and other incidental factors.