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PI Industries Ltd
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Ladies and gentlemen, good day and welcome to the Q2 FY '23 Earnings Conference Call of PI Industries Limited. [Operator Instructions]
I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you.
Thank you. Good afternoon, everyone. And thank you for joining us on PI Industries Q2 FY '23 earnings conference call. Today we are joined by senior members of the management team, including Mr. Mayank Singhal, Executive Vice Chairman and Managing Director; Mr. Rajnish Sarna, Joint Managing Director; Mr. Manikantan Viswanathan, Chief Financial Officer; Mr. Prashant Hegde, CEO Domestic; and Mr. Atul Gupta, CEO Exports.
We will begin to call with key perspectives from Mr. Singhal. After that, we will have Mr. Manikantan sharing his views on the financial performance of the company. After that, the forum will be open for question and answer session.
Before we begin, I would like to underline that certain statements made on today's call may be forward looking in nature. And the disclaimer to this effect has been included in the investor presentation shared with you earlier and also available on Stock Exchange website.
I would now like to invite Mr. Singhal to share this perspectives with you. Thank you and over to you sir.
Yes, thanks. Thanks, Nishid. So welcome, everyone. And thank you for your participation today. I'm happy to report that PI has built on the growth momentum sustained over the last few quarters and delivered a strong performance on Q3 for the year '23.
We have achieved overall revenue growth of 31% on a high base of last year. EBITDA has grown by 49% and net profit has increased by 46% on a year-on-year basis. There are strong demands for our crop protection products during the robust Kharif season. Agriculture sector is poised driven by fragilization, normal monsoon and healthy reservoir wells. Our newly launched products are getting good traction and acceptance across all crops.
The outlook for Rabi season looks very promising, and we are expecting the domestic segment to achieve strong growth. The opportunity in the agchem worldwide is apparent. At API with a differentiated model in a position to create value with its unique strong technological capabilities puts us in the lead.
The challenge today, however, is to maintain a steady line of predictable ethic on costs of raw materials, power fuel and the various other predictable costs, which are getting disrupted in the industry, whereas we actively manage our products mix so that we could deliver sustained performance to broader industry lagging to observe the higher costs.
We also believe that India is well poised to address this opportunity. Emerging a high-technology manufacturing base, India's approach to looking at the backward integration across all sectors is with a strong asset base.
In CSM exports, there has been an uptick in order book position. We are proud to announce an order book of today $1.8 billion, the highest ever. This is a traction from the new inquiries, particularly for products in the non-agchem's place. We're also enhancing our R&D and manufacturing infrastructure for non-agchem.
We have already commercialized one new molecule in this space in the year. I'm pleased to report our S&P Global Corporate Sustainability Assessment ranked among the improvement of 93 percentile, another great achievement done by the PI team. We view sustainability is a source of competitive advantage and a key to our business continuity and our success and the way of life at PI.
On the domestic operations, we are poised to exceed the numbers of the new product launches during this fiscal year to previous years. We have launched 5 new products so far and 2 more are planned in Q3. We're also expanding the depth of our offerings in addressing new market segments such as Taurus to negotiate nematicide and Tomatough, another brand, were unique biological products.
We plan to continually introduce brands with pipeline of over 70 more innovative products in different stages of development and registration. We are striving to deliver cutting-edge solutions to maximize pharma productivity for their crops. We already have a fleet of 300-plus advance application booms and now are piloting the drone applicant services in this sector.
Our performance is underpinned by the PI compass, the purpose of PI reimaging healthy plants. In addition, we're implementing an integrated program to build our digital edge people first, and this is the multipronged program for building leadership pipelines to enhance performance with digital tools while growing and enhancing products with data sources. We want to provide the best platform and opportunity for growth for individuals led by science and technology to create transformative solutions in the life science space.
On diversification, diversification to adjacencies through an inorganic route remains a top agenda apart from technology scale-ups. We have inducted season dealership and continue to expand the teams in view to intensify our effort in the pharma foray. We continue actively to evaluate inorganic growth opportunities in pharma, both domestically, internationally in line to create a differentiated pharma strategy.
The outlook for the year is encouraging. With this complemented by sustained improvements to margins of our model further scales up. Through an enhanced product mix, better business productivity and tighter controls on volatility, we are set to contain the impact of inflationary tendencies in the input across and disruptive supply chains.
Let me once again thank the stakeholders and to all the members of PI for the great contribution for this quarter and half yearly performance. Now thank you, and over to you, Mani, as the CFO of PI to take us through the key financials of the company.
Thank you, Mr. Singhal. Good afternoon, everyone, and thank you for joining us on the call today. I'll be summarizing the financial highlights of the company for the second quarter ended 30th September 2022. Please note that all the comparisons are on a year-on-year basis and refer to the consolidated performance of the company.
During Q2 FY '23, we reported a revenue of INR 17,700 million, a growth of 31% over the same period of the last year. This was driven by growth in exports revenue by 29% to INR 12,783 million and 36% increase in domestic revenue to INR 4,917 million. The export revenue growth of 29% was driven by volume growth of around 25%, coupled with favorable price and currency of around 4%. Domestic revenue growth of 36% was mainly driven by volume growth of approximately 31% and price increase of around 5%. New innovative Agri brands launched recently also contributed to this growth.
The trend in elevated input costs continue during this quarter and half year, although we achieved pass-through by increasing product prices, both in exports as well as in domestic markets. Our gross margin increased by 18 basis points to 45%, partially due to the cost pass-through and favorable product mix.
EBITDA increased to -- by 49% to INR 4,331 million for the quarter, driven by efficient supply chain management, operational efficiencies and tight control on fixed overheads. Profit after tax increased to 46% to INR 3,348 million attributable to EBITDA growth. Net cash flow from operating activities during the first half year was INR 3,078 million.
Our balance sheet further strengthened during the quarter. Network increased to 66,176 million. Total CapEx for the half year stood at INR 1,204 million. Actual CapEx is in line with the plan. For this year, we estimated a CapEx of around INR 6,000 million.
On inventory level, the levels have increased to INR 16,095 million, in line with our higher revenue as well as to avert supply chain disruption to meet customer supply schedules and continue the operations.
Trade working capital has gone up by 8 days in terms days of sales from 103 days to 111 days during the first half year. The company maintained its strong liquidity position with surplus cash net of ECB of INR 23,211 million, including accretive proceeds.
That concludes our opening commentary. I will now request the moderator to open the forum for Q&A. Thank you.
[Operator Instructions] We have a first question from the line of Aditya Jhawar from Investec.
Congratulations on great set of numbers. It's good to hear that you have increased the CapEx guidance to INR 700 crores from INR 650 crores in the last quarter. Is this increase sufficient to take care of increase in the order book, that increased by almost 30% in this quarter? And also keeping in mind that our asset turns on a trailing 12-month basis is already 2.4%, and in the first half of the year we have spent just about 20% of the annual CapEx guidance, if you can dwell a little bit on this it would be great.
Thanks Aditya for the question. As you know, PI has -- as we said, we are a technological focused organization. I think the company has done a great job in the first half of the year. We've been able to improve more than about 12% of some of the major production lines through asset turns by increasing the productivity and efficiency.
And that's where we believe we've been able to handle this growth. Going forward, the company is putting more from its pilots and experiences, more areas in this front to drive capacity announcements with low capital investments. And while we are pretty confident to do this in the right approach, we'll be able to deliver the growth plans that have set the company going into the future.
As you know, Mayank, it was very insightful, but if you can help us to understand little bit that in the first half, our CapEx spend was only about 20%. And if you think about the acquisition that we have been talking about, a large part of the acquisition would be pharmacy about, say, 70%, 75% of the funds will be deployed. And the next -- earlier you had mentioned that it would be for non-agrochem. So for agrochem growth, our CapEx seems to be a little bit on a lower side, if you can help us understand why is that the case?
So as mentioned, we're including the throughput efficiency. As you know, some of this capacity has been built on the earlier understanding of some of the ramp-ups. And if you've seen our commentary earlier, we have said, yes, we will be increasing the asset turn based on more inputs coming through better asset utilization to -- by improving efficiency. And those are the points to highlight, and that's a well-balanced equation that we have internally. And third intervention is coming through process technologies that we are putting into the game.
And just to add to this, Aditya, we have to also keep in mind the kind of investments in capacity expansion that we have made in the last couple of years, okay? And this is where we have some headroom for growth. And plus, we are also making new investments. So I mean we'll have to look at always in totality when we look at growth and the order book and the current capacity utilization and all.
So just to give you a little bit more comfort on that, we have done -- independent [indiscernible] looks at this, and we would very much appreciate this business is not about today's demand and tomorrows capacity, is the long-term orders. So capacity planning, asset utilization all is an indicated process include the technology interventions and the company has, over the last 20 years, constantly delivered on its expectations, both in terms of growth and customer requirements.
Absolutely. A final question is with this order book accretion of $400 million, what could be the share of non-agrochem and in our revenue also what is the current share of non-agrochem?
Yes. It's not significant at this moment. The major increase in order book is coming from some of our existing products, which we have been doing and which we have also launched in last few years. So there is certainly a ramp up in the overall demand of these products -- long-term demand of these products. The non-agchem products, as we have also guided in the past that they have been at a very initial stage of their commercialization at our end. So some of these products are commercialized, say, in last couple of years, and many of them are still at R&D scale and piloted scale and getting to commercialization in the next few years. And in this kind of a business model, the volumes and values of these products at initial stage is not very significant.
We have our next question from the line of Ankur Periwal from Axis Capital.
Congratulations on a good set of numbers. Continuing with the order book here. So earlier also we had highlighted our expansion into the electronic chemical space. And just now you commented that some of these products are --probably may, it will take some more time for them to ramp up in terms of volume or revenues. So will it be fair to say that large part of this delta in order book is led by agchem, agrichemicals product? Could be China plus 1 or maybe Europe -- the benefits from Europe diversification coming in?
Yes. This is what exactly what I said that the major contribution of this order book is coming from our existing products, products which we have been doing for some time and the products which we have commercialized in the last 3, 4 years' time, okay? So this is -- the increase is coming from there. And for the non-agchem products, please appreciate that in action, we are almost now 25 years into this business, okay? And therefore, the products and the new products and strategic products at a very large scale are there in the portfolio. And the non-agchem space, we are hardly for last 3, 4 years. And the life cycle of these products getting R&D to commercialization itself takes 1 to 1.5 years. So keeping that in mind and these other verticals will have a meaningful contribution in order book or revenues maybe in next few years' time, but not at this point in time.
Sure, sir. And the H1 growth in the CSM side, if you could break it up into maybe the newer products in the last 2, 3 years launched products, how big was the contribution coming from there? And what were the older products or the growth driving there?
So typically, I mean, the freshness index in our export is close to 16% to 17%. The products which are commercialized in the last 3 years, they are contributing close to that. On an annual --
And if not -- and if I'm not wrong, this number was around 20%, 25% last quarter?
No, no, no.
Okay. So this is the broad range that is maintained, is it?
Yes. On an annual basis, I'm not saying for a specific quarter, but on an annual basis, if we see the index is around that 16%, 17%; 17%, 18%.
Fair enough. And sir, lastly, on the CapEx front, you did allude towards technology-led initiatives, which should enhance the asset turn further. Are most of those benefits now already in? Or do you believe there is further scope from improvement here, which basically means that the intensity of CapEx will not improve further and probably there could be significant cash flow accretion there?
No. There are a number of initiatives, which we had we have identified. Many of them have already been implemented and also reflected in the throughput and expansion and growth of the business disproportionate to the CapEx that we have already discussed. But yes, there are still many of such initiatives, which are in the process of fine-tuning execution and many of them will get executed and also reflecting in our next quarter's and year's growth as it comes.
It's a continuous process at the end of the day, I think those are the unique capabilities the organization has somewhat technocommercial ability which makes PI a little different from the other players in the business. And that's what I would call our internal USP and our internal trade secrets.
[Operator Instructions] We have our next question from the line of Vishnu Kumar from Spark Capital.
Sorry to go back on the CapEx question again. Now we have done a superior volume growth of 25% plus. With our investments of INR 700 crores which you are talking about, I mean can we increase the production or on a blended basis, our volume growth can sustain another maybe 30%, 40%? Or indirectly, I'm asking what the utilizations would be. So that, just trying to get some sense at what point we need to step up on CapEx again.
So great, I'll address the question, which is a constantive question which I've been handling over the last decade, and that makes it even more interesting. And everybody seems to ask, but unfortunately we are not in the commodity space, and we are not into 1 plus 1 is equal to 3 or 1.1 is equal to 2. In the chemical business, it depends on the many moving parts and PI has many moving parts and CapEx is dependent on those moving parts. One is technology. The other is efficiency and capacity enhancements. The third is process disruption and based -- and also dependent on product and chemistries, right?
So all these factors have to be seen to really see what the CapEx is. Point is that is the -- what we see for now is what we have said from the order books and what we vision for the next 2, 3 years. And based on this, the CapEx is running at the rate it is. And you've seen that. I think it was interesting 2 years ago, people are seen putting a lot of CapEx. So you want to look at what, right?
So this is all looked at what comes in and how that has to be played out. And we were sitting with capacity and people in low turns and today we're seeing high turns. And so this is the cycle of the game and is dependent on how you at it. That's the way I want to answer it. So I cannot say a specific answer. Yes, do you want to put that in your model and say, look at a steady rate and look at the percent of average that we'd invested in over a span of 2 to 3 years, that's the way to look at this, yes.
Got it. And second is --
Just to add to it that we believe, given our current utilization, given our visibility on growth and everything that we are sitting in a comfortable position, okay, as far as capacity ramp-up is concerned. And secondly, as you know, I mean, we have no constraint as far as putting more investment and ramping up this capacity as and when we will feel like we should be doing that. So in that sense, we are in a comfortable position in that. And the world is a highly volatile place. And I think somebody asked earlier, is Europe moving here. I don't think that is happening. I would say, okay, China could be an opportunity. But close home supply chains are becoming the strategy for companies.
Got it, sir. And my second question was the intensity of your inflation that you talked about passing through. But on actuals, there's only been a 4% or 5% price increase. Does this -- I mean I do see that your margins have been held up. But I mean, this is -- when compared to peers, the price impact seems to be far lesser. So is that our raw materials have a lower cost because you've kind of covered it or at least I'm just trying to understand on here the inflation side of it because it's just 4% to 5% is the price pass-through increase.
So what I say is that you cannot again look at the others and us because you have different business model approaches working with different customers. And it is an exposure, like if you look at it last year, probably it were better or worse. But at the end of the day, the main subjective is to maintain the margins and handle the inputs and cost challenges coming. And overall if you see, that's what they've been able to manage. That's what I want to look at, not really benchmark it to others, which are doing a different kind of business approach are all different classes of products where prices -- price inflation could be much higher. Yes?
Understood. And finally, the EBITDA margin guidance given you have done a good number? And also the FX benefit that we'll get will get passed through just on these 2 points?
Yes. The FX does get passed through certain instants for sure, as we've discussed over the past. And they would all say [Foreign Language], if you want to manage risk then you have to shed.
Got it. And the EBITDA margin guidance for this year and, let's say, if you're seeing better numbers next year?
Yes. So as we have guided, I mean we see opportunity of improving a few hundred basis points, okay, from the last year as guided initially.
Okay. So we did something like, I mean, 22%. So would be -- I mean we've done 24%, but you're still saying only 100 basis points over the previous year?
Sorry?
Yes. You are looking at to where the world is today and the way we take -- we look outlook. We want to be conservative. Yes, there is huge amount of volatility and climatical impact and challenges. And given that, we would still like to stick to guidance. Obviously, the company is constantly striving to do better.
We have a next question from the line of Mohit Pandey from Citi.
Congrats on a great set of numbers. Sir, my question is also on the order book increase. So as I understood, the increase is largely driven by repeat orders. So just to understand it a bit better, so is this being driven by market share gains for you as in are you gaining share from European competitors? Or is it just that the end products, where your products are being used, they're seeing greater traction in the end markets? How should we read that, sir?
Well, order book position is driven and your scales are going up, opportunity is going up and all the commitments. So I would not like to dwell to see European markets are moving here, but that's not really what it is. So -- and I don't know from where has that come as a feat at a level -- at the industry level. But yes, order books are growing as the business size is growing.
And PI, as I've mentioned earlier, we look at order book position based on the opportune risk and things that you are looking at, right? And it can go down and up. But the order book and the PI context should be looked at as a factor of creating a comfort to the guidance that we gave for a year or 2 in line, or during in between the order books in a line of 3 to 4 years. So it is more about creating a little comfort, $0.5 million, $500 million here and there is not going to much change the delivery in the performance of business. So that will still be on line. It is more of our risk management and customer commitment management, yes.
Right. And sir, secondly, has there been any increase in the share of spot orders in your revenue contribution in the recent quarters?
Well, it's a contracted order. So I would not say spot. They may be not long-term contract, but there are midterm commitments. That's how we work. So I would not call them spot orders because we're not really doing product.
We are not. I mean if you look at our business model, it is a kind of a CDM or CSM kind of model where we do synthesis and then we get into long-term supply agreements and long-term understanding, not for spot basis that, okay, there is some shortage in some geography or some products, and we kind of fill that gap and put that product in plant or something. That doesn't work in our business model.
So all the businesses, most of the product portfolio is on a long-term basis. And there's no such room for spot business, given the kind of capacities that we work and the kind of processes that we work.
We have our next question from the line of Abhijit Akella from Kotak Securities.
First, just on the growth guidance for the full year. So in the first half, I believe we've done about 30%, 31% revenue growth year-on-year. So in that context, would you be comfortable increasing the full year revenue growth guidance from the 20% cost that's been indicated?
Well, let me tell you that we have given the initial yearly growth guidance given the volatility, the challenges that we see in the world. And we would still like at the external climate conditions, restricted to annual guidance. But yes, there could be certain positive swings, which could really up this, but it would be too early to take a call. It's only half year down the road.
And just to add to this, if you recall, our initial guideline was 18% to 20%, okay? And then given -- I mean, seeing some uptick in the demand, we have already kind of up this to 20% plus. And some part of it, the -- it's also planned that first half, given the schedules of supplies and all that is accordingly growing and all that. So some part of it is as per plan. But yes, some uptick is already factored in, in our growth -- the revised growth guideline of 20% plus.
Okay. I understood. And the second question I just had was on the tax rate. I understand that it's been on the lower side because of the ramp-up in our Azide operations. But if you could please help us understand for how many more years do we expect it to stay around this trajectory? And where does that eventually end up, let's say, a few years from now?
Yes. Thanks for that. As far as Azide are concerned, we have 2 units Azide units where we have 5 years or 10 years. Looking at that, we comfortably have left 5 more years to get Azide benefits will continue.
So we should expect the tax rate to remain around this 16%, 17% for the next 5 years at least? Is that how I should read it?
In fact, if this is the only business, I hope you are looking for [indiscernible] organic moves -- inorganic moves.
We have a next question from the line of Vivek Rajamani from Morgan Stanley.
Sir, my question has been addressed, so I'll just get back to the queue, sir. Congratulations on a great set of numbers.
We have a next question from the line of S. Ramesh from Nirmal Bang Equities.
So Mayank mentioned the linkage of the order book with visibility and this mitigation. So can you give us some sense in terms of what will be the majority of this order book in terms of number of years?
Well, I don't know what -- I didn't get kind of the question. What do you mean majority of it in terms of number of years, if you can please explain?
So in terms of the number of years of revenue that you expect based on this order book or in terms of the booking cycle --
Yes. So these are spread over a span of 3 to 4 years; some are 4, some are 3, some are 2.
Okay. And in terms of the domestic business, you have obviously done very well in the second quarter based on the momentum in Kharif and you're actually are much better in terms of the overall growth. So is it possible to give us some sense in terms of how the margins are moving in the domestic business? And how you see the overall top line growth in the domestic business here over the next 2 years compared to what you have done this year?
Well, fundamentally, we are not mentioning the margins at overall for the business. These are not business that want to integrate business. But yes, we are looking at a higher level of contribution coming from the domestic business with the changed focus and strategy with the introduction of new products. It is creating a differentiated target fee into the market where we are bringing new innovation, higher growth rates with better stable contributions and putting PI in a pole position to continue for this for the next 4 to 5 years given that these products have just started their journey into the markets, and we have another set of 17 products coming through over the next 3 to 4 years, which are in the various stages of regulatory approvals.
So I guess one last doubt in terms of the global macros. If there is a slowdown or recession in Europe or rest of the world where you do business, is there any risk of you have to reschedule some of your commitments? And will that have some downside to the expectations on the CSM business?
Well, so far we've not seeing any queues, which are leading that way. Food is one commodity which you would see the other trajectories of this prices, demand, climatical challenges creating low productivity. This is one area in segment globally which is still moving at a higher trajectory of demand and given the growth. So in turn, I would say we are seeing a pretty stable, if not a more upside, kind of an opportunity that may be clearly coming to the sector.
[Operator Instructions] We have our next question from the line of Bharat Shah from ASK Investment Managers.
The -- clearly, this is one more gratifying gain satisfying performance over a period of time. Beyond the clearly apparent strength of the numbers and the order book, are there any other qualitative insights or any other aspects that you may want to highlight, which are not visible in the numbers, which can give us a better understanding of where the -- where things are headed?
So thank you very much for that question. I think this is really what we call about sustainability parts of the play that PI is constantly focusing on. So if I look at the qualitative part, we looked at 3, 4 key pillars. And I think we are on a very aggressive note at the back working for the long-term future of this organization. And the greatest success to share that has been on the ESG for S&P doing the 93 percentile tells us that both on that front PI is moving ahead at certain aggressive targets. The other aspects on the technology front, our IP index has gone up, our IP creation has gone up. Our research capabilities that are going into the next phase. We're expanding our capabilities and offerings in this area.
Third, on the other area, we have started looking at building in more complex areas in the chemistry. And one example is the [ 5 dimensions ] and other areas that we're building from commercial power play. Flow chemistry technology is getting upgraded and our innovation spend moving up. Third area of a pharma strategy is an aggressive pace where we're coming out with some innovative business models where we build the human capability.
On the people side is that this all leads to a very aggressive work plan. So we've taken very aggressive agenda where we work with the external consultants and internal leadership teams to develop a strategic move on the culture shift to go to the next organizational level where we are actually identifying developing talent to interventions and also accumulating and enhance care capability and a cultural shift to globalize the organization with strong interventions through the digital platforms to create more process orientation, simplification and learning.
And so that the scalability as we look to the next phase of our journey is a comfortable and a challenging one, but putting a culture of high price of high performance, expectations are high, place has to be high and efforts have to be high, and that's DNA of PI. So that's really where we are.
Wonderful Mayank, a delight to -- delighted to hear this. The second, when we look at the way things are going in many parts of the Western world, especially more so in Europe and to a fair extent in America as well, generally Europe seems to be bumbling around rate, very legacy, regression kind of a mindset and behavior. The energy crisis that they are facing is just one of them, but not confined to that.
And in general, the quality and the strength of the public policy formulation in Europe and America seems to be in a state of disarray. In China, we are seeing the muddle around supply chain disruptions and frequent lockdowns and many other things that you would think that doesn't make our plan change. So are they -- given the fact that a good part of our business is in some of these territories and some part of sourcing is from these territories, are there any near-term and longer-term implications from the business and the business model that we need to be mindful about?
So that was -- thanks for that question. And I think that's a question that everybody is dabbling from managements to country leaders to company leaders to citizens, which way the world is going. But I think it depends how you look at it. You can look at it in both ways. These are challenges and yet opportunities.
Now I think the key thing here is that somebody say things will move into Europe, I believe, yes, things would move into Europe, and their home supply chains could become the next play. Certain things can't move out. So what is that opportunity? Somebody will say, "Oh, that's a high risk, there are quite challenges". With this volatility, I think the key capability has to be to constantly able to see 3 who manage, watch and have a little opportunistic mindset, either to invest, divest or create, whether it's in products, inventories or assets.
So constantly keeping a watch on that is going to drive the performance and really what I call now this is a real [ woka ] world. So the key challenge which I put to the team, to the people and to all the stakeholders, be agile, be fragile and yet be strong. And that's really where we're going to be headed as a world.
And I think finding that path, there's no one answer, but there could be an answer to look at how to really define it for your organizational DNA to deal with it. I say some things you can change, some things you can manage, but today we're in a situation both don't apply. It's something we have to be watched and have the ability to deal with it. So building capability is going to be the challenge here.
But on balance, does this sound more like a concern or more like an opportunity?
I look at every concern as an opportunity. So maybe that's where PI has been. This was a concern if I look back in '96 of outsourcing cost structure China that PI pioneered and got the manufacturing business. I look at the concern of agriculture where technology innovation were not coming, and that was an opportunity. And somebody said high-cost imports, supplying new technologies would be a challenge.
This is also an opportunity, as we understand this thing bit better. And therefore, we are leveraging our capabilities and looking at how we carve our opportunities, whether within or outside the geographies, to answer these challenges. And there could be an answer which every -- at a higher level which may look and not so sensible, but at a detailed level, it could be strategically correct. So these are the challenges. I'm sure somewhere there is scope for that and can also happen. So that's really what I look at.
We have our next question from the line of Rohit Nagraj from Centrum Broking.
Congrats on a great set of numbers. Sir, we have said that in CSM in second half will be commercializing 6 new products, out of which how many would be agrochem and non-agrochem?
Atul, maybe you want to.
Yes. So we are expecting some 3 to 4 molecules in agchem and 1 molecule in the non-agchem segment to be commercialized in the next one year -- in the next half, H2.
Okay. Sir, second question is we have also mentioned that we are working organically on the scale-up of pharma intermediates and R&D pilot scale. So does this mean that we will be able to supply at least some commercial quantities on the pharma side to our customers? And how do we look at it in terms of scaling up this particular portion till our inorganic doesn't fructify?
Sorry, I didn't do the last part.
So till the time our inorganic initiative in terms of acquisition, till that time it doesn't get fructify, how the scale-up would really work in favor of us?
Obviously, these have a time dimension of 2 to 3 years, and we started initially, as I mentioned, in the R&D capabilities and developing that into the next phase. And obviously, as you know, the pharma world takes a bit longer to look at approvals in time cycle. So I see them fructify in 2 to 3 years.
But this could also be complementary or could also be an adjust to what we may be doing in the inorganic way. So both either ways, we will be taking a call in this direction because what the clear intent and the picture that we has already moved ahead with its pharmacy phase strategy, which we will roll out over the next 6 months.
We have our next question from the line of Nitin Agarwal from DAM Capital.
Sir, on -- you mentioned in the presentation that 11 of our plants are MTP plants. So how many are dedicated plants of these in the CSM business?
Well, that could be -- I mean you know what, it actually depends on what you call dedicated. I think what happens when we kept the full capacity of a plant, we call it dedicated and of a single product that's what you call dedicated, but all these plants are fungible. So they're by design concept, they're multiproduct plants. But right now, 4 plants are running at full swings of 4 products. So you may want to define them as dedicated.
Sorry, if you can -- so you said there are 4 of these 11 plants which are running on dedicated basis?
That is multiproduct plants that we have got, not 11 #1. And all our plants are multiproduct plants. Right now, maybe 4 plants are running a single product, so they may be looked at dedicated plants.
I got it. That's why -- we need to check. So 4 of these plants are running a single product right now?
Yes.
Okay. Okay. And secondly, when we look at the domestic market, we've had a very, very strong Q2. Now Rabi last year was a reasonably good year. How should we look at the second half of the domestic year market?
Prashant, would you like to give a comment there?
Yes. So thanks, it's a good question. Look, we have a very strong desire to grow. However, we also have to keep in mind it is a single business. And we have to keep in mind how the crop economics work, and we are optimistic that is how I can say. And our portfolio earlier, it was skewed more on rice and cotton. Now we are expanding into horticulture, wheat and few more crops as well. So we are optimistic, that is how I can put it.
We have our next question from the line of Dhavan Shah from AlfAccurate Advisors.
Yes. Most of my questions have been answered. Just one on the domestic business front. So we have seen the strong volume growth during this quarter. So can you please shed more thought on this? I mean, which brand did contribute to the overall numbers for this quarter?
To be very honest, we can't go to product-wise information divergent as there is competitive intelligence. But I would say it is at a higher level. It has come from the new product launches, which have given a good trajectory and some of the investments and efforts made by our team to aggressively work on the production in the last couple of years has started to show its colors. But overall, our set of 7 to 8 products are giving this aggressive growth as mentioned with the new launches, yes.
Okay. And sir, in this quarter, the herbicide contribution would not be there, right, the Akira contribution?
There is some contribution. Yes.
There is some contribution. Okay. But largely, it is driven by the existing and the new products which we had launched for the Kharif?
That's a mix of all the new product launches that we've done over the last couple of years in this year, yes. That is a sudden shift PI is intending to show and demonstrate, yes.
We have a next question from the line of Archit Joshi from Batlivala & Karani Securities India Private Limited.
Sir, you've mentioned our plans on diversification. Other than the inorganic plans that we have, we have also seen quite a bit of traction happening on the non-agchem side with respect to order inquiries. I was just curious if you can elaborate this with respect to if there's any specific platform or chemistry or application where we are seeing this traction just to understand where the company is headed to with respect to its growth in the non-agchem side?
Sir, I can give you a larger perspective here. I cannot get into the details of technology part because of various facts which you would appreciate. But obviously, looking at the PI competence and capability of having complex chemistry technologies, that's the area which we are focusing in this niche application areas, which would be a little more value accreted to the way of PI we are working and creating a different segment partner. While we are certainly very well laid out strategies for the bigger pieces, Ag is clear in where, the format that we are building and creating. This is a strong seed to build up market credibility so that could be a third inner growth in this area.
We have our next question from the line of Rohan Gupta from Nuvama.
Really a fantastic performance, so congratulations. Sir, a couple of questions. First is on the Europe opportunity, sir, which you mentioned that right now you are not witnessing any significant opportunities coming out of Europe despite the Europe facing such a large disruption, especially in Ag, while many companies have spoken about it that they're seeing increased order or they are seeing increased inquiries.
So, sir, when we are supplying a lot many intermediates to our German partners and those partners are looking for the -- I mean, looking at increase in energy cost and not able to operate the plant, aren't we seeing that there is an opportunity for a player like PI? Actually it should be a very solid opportunity going ahead over the next 1.5 years to 2 years. So I just wanted to get some more clarification on that, the disconnect between the industry and the PI.
I don't think I mentioned that we're not getting an opportunity from that. So maybe some misunderstanding. What I'm saying it is not that Europe is moving bases here. You're getting opportunities from the Europe. But it's not that Europe is completely shut.
Okay. Sir, definitely, I mean, such a short amount of time, we can't expect also things to move. But --
Exactly. It is -- gap filling will take place for sure. Yes, gap filling will take the place. We're getting operates right across the world and you would appreciate the largest 3 innovative in the world are European. So obviously, if the products are going to Europe market a separate question, vis-a-vis being shifting from Europe is a separate question. But European companies fund the global markets. So that's why I said from --
Just to add to this, Rohan, I think the key point that we were trying to highlight earlier also is that the kind of business model that we are in, the kind of product portfolio that we have, there's not much scope for spot business kind of opportunity. So yes, there is certainly some opportunity in terms of gaining more market share of some of the products that we have or we are already doing in view of the current scenario.
But major contribution is coming from the products where there is some long-term strength which is there in the offering of PI. Now be it in terms of technology, be it in terms of competitiveness, be it in terms of our relationship with these global players. So the bigger chunk of this growth or sustained growth that is coming and that is also visible for us is mainly on account of these factors and not so much so because of this temporary issue of China plus or Europe plus.
Fine. Sir, second question is which is some, I mean, exciting opportunity, which we are seeing in terms of revenue growth, but that also worries me a lot because given our business model, we generally work on per kg margin kind of thing. Sir, it's a bit confusing that in an inflationary environment, which is driven by the raw material, top line growth is largely driven by the price increase. But even our EBITDA growth -- I mean, in the inflationary environment also, we are seeing EBITDA margin expansion. And that's why even EBITDA growth is even higher than the top line growth while you should be chasing more of the volume growth.
So what worries me that when tomorrow we see that the price erosion, raw material prices definitely will soften and will come down to average level, at that time will we see that our EBITDA, the growth will happen because of the price-led growth won't be there and the prices will start declining? So I mean that is the reason for worry because we are seeing too much EBITDA growth and EBITDA margin expansion in an inflationary environment. So I'm not able to understand that how and why it should be happening. So if you can give some clarity. We obviously just completely driven by the product mix change or the operating levies because this trend is across the industry.
Yes. I mean this is precisely the contract we have tried to explain that the EBITDA growth is majorly coming from operating leverage benefits. As we are growing at 30%, and we are able to efficiently manage our fixed costs and other things, I mean the operating leverage benefit is flowing. And then, of course, the product mix that in the rising cost kind of a scenario, we were also very -- we have also very efficiently managed the product selection that which kind of product we would be running, what size of campaigns in our capacity, available capacity.
So yes, I mean, the current growth that we are seeing in EBITDA is not flowing from price rise or some opportunistic price increase, absolutely not. In fact, the majority or the major business of ours, it is cost pass-through. And as we have guided in past also that we have also not been able to pass through 100% cost in many cases. There is always a lead and a lag in the cost price route scenario.
So the EBITDA margin growth is majorly flowing from our operating leverage benefit, the scale that we have been able to achieve and which is what the comforting scenario for us is that even going forward for parent year and coming few years, we have a great visibility of keep ramping up the scale and kind of gaining on the economy of the scale and the operating leverage.
So sir, we are confident enough when the next year supposed the price drops by 20% and because of the softening raw material prices and our top line will decline by 20% because of the pricing decline, we won't see our EBITDA declining by 20%, in line with the price decline. So it will still grow with the volume growth?
In fact, if you just simply go mathematically, it should improve the EBITDA margin, if you ask me.
We have a last question from the line of Sumant Kumar from Motilal Oswal Financial Services.
Yes. Sir, can you talk about the key product performance in domestic market? We are talking about the new product has driven the domestic business growth. So what is the key product -- product has given the growth?
Prashant you may want to answer to these products, which you launched in overall general.
Yes. So rather, I will go with the -- rather than getting into a very product-specific because some are maybe a very restricted information. I'll say, look, we are expanding into horticulture crops. We are expanding to meet and our -- the existing portfolio led by Nominee Gold is also doing well. We have launched 5 new products and mainly in horticulture there are 2 products, and we have launched in -- we have scaled up our service side in wheat. And we also launched a couple of products in -- which are suitable for one for cotton and one for soybeans as well. So these are all definitely helping us in terms of gearing up domestic business.
Thank you. I now hand over the conference to management for closing comments. Over to you, sir.
So thank you, everybody, for coming on the call today, and thank you to all the stakeholders and want to congratulate the PI team for being a part of this journey, and we continue with the blessings of work to succeed further. Thank you, everyone.
Thank you. On behalf of PI Industries Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines. The conference is no longer being recorded.