PI Industries Ltd

NSE:PIIND

Earnings Call Analysis

PI Industries Strong Q2 FY'24 Performance

PI Industries recorded a robust Q2 performance with a substantial 20% growth in revenue, reflecting an impressive 28% increase in EBIT and a 44% surge in profit after tax (PAT) despite challenging market conditions. The company sustains its projection of achieving 18% to 20% revenue growth and improved margin returns for the full year. Over the half-year leading to September, revenue climbed 22%, driven by a notably high 32% revenue increase from exports, partially offset by a 7% domestic revenue drop. PAT rose by 45% to INR 8,634 million, and cash flow from operating activities spiked by 118% due to heightened EBITDA and efficient working capital management.

Revenue and Earnings Growth

The company experienced a healthy financial performance with a 20% increase in revenue, coupled with a substantial improvement in earnings before interest and taxes (EBIT) by 28% and a robust 44% growth in profit after tax (PAT). This robust performance is a result of the company's differentiated operating model focusing on innovative and IP-based products with technical strength, which allowed them to achieve over 22% growth in innovative product lines compared to the same quarter last year.

Operational Challenges and Strategy

Despite impressive growth, the company faced challenges such as erratic monsoons leading to reduced application of crop protection products and pressure from the falling prices of raw materials from China. Nevertheless, the company's diversified pipeline of molecules across multiple industries, such as electronics and specialty chemicals, and its focus on high-performance solutions, provide a buffer against these variations and confidence in sustaining growth.

Guidance on Revenue Growth and Margins

The company maintains its original growth guideline, expecting 18% to 20% revenue growth with improved margin returns. Efforts to augment capacities and integrate newer technologies are underway, and they are also making strides in the pharmaceutical sector with their CRO, CDMO, and API, KSM model, leveraging a highly skilled researcher base and modernizing infrastructure.

Financial Performance Details

The second quarter's revenue was INR 21,169 million, a 20% year-over-year increase, driven by export revenue growth of 28%. However, domestic revenue saw a slight decline of 2%. The profit after tax increased significantly by 44%, attributed to EBITDA growth and lower EBIT despite higher depreciation. The year-to-date revenue grew by 22%, with export revenue contributing to a significant 32% increase, though domestic revenues declined by 7%. Profit after tax for the year improved by 45%. Due to efficient working capital management, cash flow from operating activities saw a remarkable 118% increase, resulting in a strengthened balance sheet.

Product Mix and Margin Improvement

The company's favorable product mix has been a key driver in improving the overall EBITDA margin during the quarter. The company is focusing on the quality of revenue through a favorable product mix which has resulted in higher profit margins.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Earnings Conference Call of PI Industries Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you.

[Nishid Solanki]

Thank you. Good afternoon, everyone, and thank you for joining us on PI Industries Q2 FY '24 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; Mr. Atul Gupta, CEO of exports; and Mr. Anil Jain, MD PI Health Sciences.

We will begin the call with key perspectives from Mr. Singhal. After that, we will have Mr. Manikantan sharing his views on the financial performance of the company. Thereafter, 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 conference call may be forward-looking and a 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 request Mr. Singhal to share his perspective. Thank you, and over to you, sir.

[Mayank Singhal, executive]

Yes. Thanks, Nishid. Good afternoon and good afternoon to everybody, and thank you for taking the call today. Once again, I'm pleased to be addressing all of you on the strategic progress that we made in making the ever evolving business landscape of PI.

I'm once again pleased to report a good performance as we had a tough performance quarter even in the challenging operating environment. Just to give you a flavor, during Q2, we saw a 20% increase in revenue. This was accompanied by 28% improvement in EBIT and a PAT delivered a 44% growth.

While the performance has been encouraging, I would like to give you an idea of the operating scenario. [indiscernible] variations are impacting both the application and usage of crop protection. During the tariff, we experienced erratic monsoons continue farmers to hold back on application of certain cost protection products.

The continued falling prices of raw materials coming in from China, moreover, putting pressure on selling prices of generic portfolios. A similar scenario has been reflected in the global where price remained under purchase China inventory stayed weak at an elevated level and the distributors in the U.S. and Brazil are trying to adding destocking and filling up the requirements for lower-priced stocks.

However, the consumption of crop protection products in the [indiscernible] is robust thereby indicating good healthy industry in the medium term. On PI, our operating model is largely differentiated with a focus in IP-based products and niche capabilities distinguishes our places have been in a different path compared to the other industry players. Our model, a big focus on innovative products with technical strength and capabilities, we have seen a growth of more than 22% in the quarter over last year, while we still buy the industry growth remains well diversified in exports, and I wish to underline this discovery not only from also for molecules in the other areas, electronics and specialty chemicals and images.

Our pipeline of molecules is similarly diversified across multiple end use in the industry. As we exclusively work on innovative molecules, such variation operating models do not influence the momentum, where as we continue to get the upside from a wide opportunity for growth. Given our understanding of multiple chemicals and chemistry capabilities with strong technological platforms are able to build high-performance solutions to the market we are confident of sustaining growth moments.

With a healthy pipeline of molecules, we see a potential of high growth focus on the future and a better product mix. We commercialized 3 molecules during the quarter, and we expect to come at that 1 or 2 molecules before the end of the fiscal year. Now moving on to our domestic business. Our focus of driving quality of our revenue rather than pursue growth in size of the revenue alone in which are in time has resulted in positive benefits. As always, emphasize, we have been a good product mix, bringing efficient working capital management and all those are present in our presentations. This lack of our performance has seen moderation due erratic rain in monsoons while we have done better in terms of the overall financial health of the business.

The monsoon has seen even and distribution as well as the reservoir levels in South India, not below last year's average. The sewing pattern of Rabi could also influence as well. The high level of corporative discipline that we have shown in terms of managing inventory, launching high-performance products and having a diverse product mix is contributing to the moment of mitigating the operating scenario in which we are present today.

We expect to see recovery of niche crop segments and our comprehensive portfolio shall be adequately placed to meet these acquirements. Coming to the outlook, which I've shared on the continuing of our original guideline, 18% to 20% revenue growth with improved margin returns. Initiative is already underway to augment capacities to support further to the plant.

Concurrently, we are also scaling up effort of integrating newer technologies. We recently signed an agreement with corporate towards a sustainable agriculture agendas to market distribute and innovation products and solutions in the agriculture biological space. Our journey in the Pharma is up encouraging start.

We continue to work towards developing a differentiated CRO, CDMO and an API, KSM model where we have multiple scenarios and highly experienced researchers, which are coming on both and are on board as of today. Our Hyderabad research center is being ready and is getting started in the coming times.

There's a team of domain experts both within and outside India which are waiting to connect and build a differentiated model in the Pharma -- in the Pharma game for the pharma companies. In parallel, we are upgrading infrastructure, building R&D Kilo lab facilities, modernizing the quality management system, digitization and other initiatives and opportunities being [indiscernible] . We have made successful at CPHI recently.

And the intensive meetings and discussions in order to realize near future potential of opportunities and also a better understanding of how we go and grow this business in the future. Our focus on scaling our business in CRO and CDMO, adding more APIs RSM, KSM int and such bringing an end-to-end offering to the large pharma companies a integrated solution provider.

Given the robust of the operation with a strong cash flow the senior management focus is averaging inorganic opportunities to meet the long-term objectives of putting PI into a diffrentiated business model and a player in the industry it operates. Multiple initiatives are being held in the ESG area.

We've already improved S&P Global, and I'm proud to say we are ranking at the 95% as further valuation is under progress for 2023. Once again, I would now complete my remarks, and I will hand it over to Manikantan to continue. Once again, thank you for being and supporting us and once again my congratulation to the management team for this great effort. Over to you, Mani.

[Manikantan Viswanathan, executive]

Thank you, Mr. Singhal. Good afternoon, everybody, on the call today. I'll summarize company's financial highlights for the second quarter ended 30th September 2023. Please note that all the comparisons are on year-on-year basis and refer to the consolidated performance of the company. As Mr. Singhal has stated our performance demonstrates a differentiated approach to doing business and a sharp focus on hitting operating parameters in line with our system. To share the performance highlights during Q2 FY '24, we reported a revenue of INR 21,169 million, a growth of 20% for the same period last year.

This was driven by growth in export revenues by 28% to INR 16,329 million and a decline of 2% in domestic revenue to INR 4,814 million. Profit after tax increased by 44% to INR 4,805 million attributable to EBITDA growth and low EBITDA despite higher depreciation.

Let me also cover performance for FY '24. 13th September, revenues was INR 40,273 million, a growth of 22% over the same period last year. This was driven by solid growth in revenue by 32% to INR 31,959 million, which is a 7% decline in domestic revenues to INR 8,314 million. Profit after tax improved by 45% to INR 8,634 million. EBITDA for YTM was 9.83% due to growth in export revenue and onetime effect on merger of Pharma entities in India.

Cash flow from operating activities increased 118% to INR 6,697 million and INR 7,253 million excluding Pharma. This was due to higher EBITDA and efficient working capital management. The trade working capital in terms of base of sales reduced to 84 days 111 days as on 30th September 2022.

Inventory levels also reduced in terms of days number of sales to approximately 63 days to INR 13,998 million. Our balance sheet further strengthened during the year, network increased to INR 79,820 million as on 30 September 2023. Capital stood at INR 7,630 million and is in line with out plan.

This concludes my opening commentary. I will now request the moderator to open the forum for question and answer. Thank you.

[Operator]

[Operator Instructions] We have a first question from the line of Abhijit Akella from Kotak Securities.

[Abhijit Akella, analyst]

So just a couple of clarifications I wanted to seek. One was on the Pharma entity performances. So first of all, if you could just help us understand from an accounting perspective, why do Ind AS reductions or adjustments show up when we are booking the net revenues in our financials. So the earnings have been on the negative side? And how should we see that trending forward over the rest of this year and into next year?

And finally, just on Therachem within the Pharma business, the revenues for the quarter seem to be in the range of INR 6 crores to INR 7 crores. I believe the run rate was much higher at the time of acquisition, about INR 200 crores for the full year or thereabout. So what exactly is happening there and how we should see it moving forward?

[Rajnish Sarna, executive]

Thanks, Abhijit. So first of all, your first question, this is more about aligning the accounting practices. So one of the company was following a different accounting standard. And since now we have combined all these entities in PI Health Sciences we were to align the accounting policies and also the standards and therefore, we have the Ind AS adjustment has been made in their accounting or the other financials, okay. So this is 1 point. The second point on Therachem, it is more about the scheduling of the business.

They were already carrying some inventory, okay, for their requirement, plus the -- in the first quarter, there were certain schedules. So in this business, in the CDMO business, it is more about campaign and the supply according to the customer and not promote to a very steady state kind of quarterly run rate as such. But yes, I mean there are different schedules for different products in following quarters. And there's nothing like I'd say significant downsizing of the business from the customer side, it is all a matter of scheduling of the business and inventory.

[Abhijit Akella, analyst]

So just to clarify, should we continue to assume roughly INR 500-odd crore revenue base for the pharma business for this year? And the Ind AS adjustments are more of a onetime alignment and they will go away at some point in the subsequent quarters?

[Anil Jain, executive]

Yes, this is Anil Jain here. So I think whatever INR 500 crores, which is for the whole year, now during is almost 11 months and other is almost close to 9 months. So accordingly, the figure will have that. We are on track right now. And Ind AS has only onetime, yes. That's right.

[Manikantan Viswanathan, executive]

Ind AS adjustment is onetime.

[Abhijit Akella, analyst]

Okay. Got it. And just 1 last thing from my side, if you permit. On the CSM side, the agrochemical CSM business, how does the growth outlook look like for the second half of this year? And there is a mention in the results about the shipment that got lost in transit about INR 40-odd crores. So -- #1, what happened there exactly? Is it shown as cost in the raw material line.

And excluding that, then the EBITDA margin seem to be even higher at about 28% for the overall company. So it seems a very sharp improvement versus what we were doing. So if you could please just elaborate a bit on what's driven the margin improvement and how we should see that going forward?

[Mayank Singhal, executive]

Yes, sure. There are too many questions, in your 1 question. So let me try and remember and answer one by one. First of all, we still maintain our growth guideline, including that of CSM of dropping close to 18%, 20%, okay? So that remains.

And accordingly, second half will also be seeing growth in this business. Talking about this container thing, yes, and this is a very unprecedented scene we have -- situation, we have seen this time, and we have never experienced within the last 75 years of our company and also in the industry that I mean, a few of our containers, the material was took place without changing or altering the steel container out of steel container that has took place, which is a very, very unprecedented scene.

And we later on also found out that it has also happened with a few other companies, it is not only with PI, but few other companies as well, including the other chemical companies. But good part is that -- and I must certainly appreciate the kind of effort, the state administration, police administration put, and very expeditious investigation was done. A lot of efforts were put in, and they've already nabbed some of these culprits. The investigation is still going on. Some of them are still at large.

The material they have already recovered, which is under investigation and subsequent processes are going on. So at this stage, since the matter is still under investigation, the material is still under investigation we will not speculate that what we'll recover and when will this get recovered. But to be on a conservative side, we have accounted for the material cost of this material in our financials for this quarter.

[Abhijit Akella, analyst]

So just the last point was just the margins have expanded significantly. If we adjust for this cost. So what's driving that? And how should we see that going forward?

[Mayank Singhal, executive]

That is more about the product mix. The product mix has been favorable for us during this period. And even in our domestic area, we're more focused on quality of revenue the favorable product mix rather than saving deal volumes and values, and that has certainly helped improve the overall EBITDA margin during this quarter.

[Operator]

We have a next question from the line of Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

Congrats on a very strong set of numbers. First question is on the Pharma initiative. So what is the progress in terms of some of the R&D molecules in PI's kit getting commercialized the manufacturing facilities outside. So how do we expect the rollout over the next maybe 2, 3 years' time frame?

[Mayank Singhal, executive]

So Anil -- I don't know which molecule you are talking because this is a platform where we are providing the services to the company not the product. I'm not aware of really what molecule your are talking about...

[Rohit Nagraj, analyst]

Yes. Just we had mentioned earlier that we have been working on the Pharma segment R&D -- so those molecules are I'm just talking...

[Mayank Singhal, executive]

These are more of intermediates and feed stalking materials and intermediates. So yes, those are also progressing in our R&D CRO bench that we are pursuing. And this is part of our evaluation. .

[Rohit Nagraj, analyst]

Sure, sure. And second question is that given that during current year, there has been a significant decline in generally on the RM prices, how are we seeing our prices for the next year contracts, 2024 contracts for our products?

[Manikantan Viswanathan, executive]

Are you talking about the export...

[Rohit Nagraj, analyst]

Exports, export product. CSM segment.

[Rajnish Sarna, executive]

There given our business model, in any case, these are not pricing, et cetera, for each campaign, we review before it's starting and when the pricing is reviewed. The price structures are defined with pricing basis by prevailing raw material, et cetera, is always reviewed before we sanction.

So yes, before starting '24 campaign I mean obviously, these corrections take place, whether it is reducing or increasing.

[Operator]

We have a next question from the line of Vivek Rajamani from Morgan Stanley.

[Vivek Rajamani, analyst]

Congratulations on a good set of numbers. Just 2 questions. Firstly, on the broader inventory situation. You obviously touched upon that. You're still seeing the destocking kind of playing out. Just in terms of your assessment, compared to maybe a quarter or 2 back, do you get a sense that you're starting to see some improvement either in the intensity? Or are you starting to see some green shoots from any part of the world. That was the first question.

[Rajnish Sarna, executive]

Yes. So we are certainly seeing an improvement because the consumption is still remains strong in different geographic, whether it is South America, North America, even in Asia, Europe, we are seeing that consumption is strong. The accretives are almost same or marginally increased, consumptions are strong.

So obviously, the inventory destocking and as this is gradually improving -- in last quarter, this quarter, situation has relatively good. But yes, it may take maybe a few quarters, again, depending on products, these generic products or other commodities that we particularly see that in next few quarters, things should normalize is what the expectation is.

[Vivek Rajamani, analyst]

Sure, sir. And just as an extension to that, is there any particular geography that the problem is extremely severe in your general understanding?

[Rajnish Sarna, executive]

Well, we have -- I mean, in our understanding, yes, of course, Brazil has been a major challenge because there was a lot of stocking in previous years the most about the change in products. Yes, given that there were challenges if you appreciate from the last year. Can they come to have availability and further added to that or the price escalation, which now show a turn down, both more availability and price points we doubling that and that's something we expect in the next couple of quarters should go up.

[Vivek Rajamani, analyst]

And just last a couple of clarifications from me before I rejoin the queue. The 18% to 20% guidance on the ag chem side, I would imagine that's predominantly volume driven, correct?

[Rajnish Sarna, executive]

Yes, majorly because right corrections are already there on the input. So this is mainly on volume.

[Vivek Rajamani, analyst]

Sure. And you've mentioned in your slide, there's an expansion -- capacity expansion on the CSM side is on track. Any ballpark, what is this capacity expansion number that you're looking for this year? Any ballpark?

[Mayank Singhal, executive]

So we had guided for close to INR 800-odd crores of investment in so far, we are progressing in line with that.

[Operator]

We have a next question from the line of Praful Kumar from Dymon Asia. I'm sorry, his line is disconnected. We'll move on to the next question from the line of Noel Vaz from Union Asset Management.

[Noel Vaz, analyst]

I just have 1 question on the 1 molecule, which was mentioned. This is the new product which the company is coming up with -- which is a new diamide. So I just wanted to know what exactly is the total market size that we are potentially looking at as well as how does the company plan to take up this product. That's on from my side.

[Mayank Singhal, executive]

Sure. So I mean it's a very proud moment that PI has been the first Indian company to receive international organization standardization recognition name like But the -- I think that what I would say this is to be right now that we have the product is in the evaluation in various geographies across the world. We have discussions with various partners, at the same time, evaluating the product performance at various levels at levels and various related uses to figure on the potential in anyone have already appreciated in the diamide molecule, this is a couple of billion dollar market share which is there. So we will be looking as to how we're going to play into this market share and penetrate. That's how we're looking for now.

[Praful Kumar, analyst]

That is all from my side. And congratulations as well.

[Operator]

We have our next question from the line of Rohan Gupta from Nuvama.

[Rohan Gupta, analyst]

Sir, my first question is on this Pharma business. You mentioned that the one of Ind AS impact is over onetime. So this you are talking about that the current numbers which you are already factoring in terms of the reporting is over? Or it is going to be for the balance of the year itself in the similar ratio?

[Mayank Singhal, executive]

No. So whatever was we have inherited the inventory and all those things is a onetime thing, which has been accounted for.

[Rohan Gupta, analyst]

So you think the H1 INR 35 crore Ind AS adjustment that was all over, right?

[Mayank Singhal, executive]

Yes.

[Rohan Gupta, analyst]

Okay. So from H2, we should be seeing some positive contribution in terms of the contribution from the pharma business?

[Manikantan Viswanathan, executive]

Yes. Yes.

[Rohan Gupta, analyst]

Okay. And sir, second question is the ramp-up of the Pharma business once again and the margin profile, it's quite different than what we when we have got the number from this time of acquisition. So is it still in terms of because of the higher cost, which we are incurring at the plant that is or at the time of acquisition that the profitability margin was higher on these plants.

You also mentioned that this year, we'll be looking roughly 14% to 15% margin, while H1 pro forma margins -- so we see that the margin of 15% will be only achieved next year because your long-term guidance in margin in pharma, we used to be 20% to 22%. So when we are expecting that?

[Mayank Singhal, executive]

Yes. So yes, you're right. Frankly, this is too early to look at the volumes and the margin percentage. Yes, I understand your point, but you think even during our talk and last few quarters when we had acquired, we were portioning the analysts that let's not look at previous year numbers of fast numbers. 2 things are happening. One is that there is a lot of development spend is being made because the idea is to scale this business up.

We are not running these businesses as individual entities. I mean whether it is the starting with real company or the API company, we are not here to run them independently as the business they were doing earlier, okay? And this is precisely the reason that development spend has been done, lot of integration is being done to gross leverage.

And during this initial period, there is certainly going to be pressure on the margins, but we are confident that post integration, which will take very next few quarters' time or 1 year's time. After that is the plan that we'll be able to scale this business up and also get to the expected margin level, which still remains our expectations still remain beyond 20% in this business, 20%, 22%.

[Rohan Gupta, analyst]

Okay. Sir, second question is on our domestic business, though we have seen most of the formulation companies in EMEA have done collectively well in first half and Q2 was fantastic for most of the domestic formulation guys. However, that is not the case for us. So even in H1, I mean, company if we combine that with the Q1 as well, we don't see -- and we see the dip only in revenue compared to last year. While in general, the season and the demand scenario has been pretty decent as far as the domestic market is concerned. Any particular reason for that?

[Mayank Singhal, executive]

So as we explained earlier, -- and in fact, if you see, we have seen a very mixed kind of situation. So I mean there are situations where the global players have not been able to kind of achieve growth, significant impact is there in terms of revenue and more so in terms of the margin profile. .

And this generalization and generic situation, pricing situation has certainly reflected across the industry in the performance. We, as a company, we focused on our specialized products rather than saving more and focusing more on revenue growth, our progress given the situation that we have seen in first quarter and second quarter was more on quality of revenue and the discipline around the working capital and margins, et cetera.

And that has been 1 reason that we kind of kind of contained on this revenue growth to say precise numbers and whatever few percentile moderation that we have seen coud have been avoided if we would have also faced those typical products even in our portfolio. But that was not done, and that was really deliberate strategically of the products, which have a time of a generality.

[Rohan Gupta, analyst]

So actually, we refined away from selling generic products and focus more on specialty that helped us actually in improving our margins but not reflecting in the revenues.

[Mayank Singhal, executive]

Margins and working capital efficiencies. So that's a clear reflection of quality of business having a substantial shift to mobile.

[Rohan Gupta, analyst]

This is a time being exercised, sir? Or do you think that we may continue to do so going forward as well.

[Mayank Singhal, executive]

This is a temporary exercise honestly, because the volatility vanished strategy kind of we would eventually see a into that. But of course, the situation for generic remains the way it is. Obviously, our focus will be more on a specialized and specific category.

[Operator]

We have a next question from the line of Siddharth Gadekar from Equirus.

[Siddharth Gadekar, analyst]

So my first question is on the [ diomedes ]. We had highlighted earlier that we are in talks with global partners for the product. So any progress on that side? And how should we look at previous down the line in terms of the launch of -- could you give us any timeline for that?

[Mayank Singhal, executive]

No, I just mentioned that earlier question. But yes, we are in the best -- we right now has got a name and I to point, and we are in the process of evaluation and the market share opportunity, as I mentioned to that about a couple of million dollars. And this generally takes a longer time, it across multiple season, the trials take place in different way competitive evaluation that are done in different way. So it takes time.

[Siddharth Gadekar, analyst]

Okay. Sir, but in terms of our patents, then will our patents being counted from 2019 or the day the product is launched?

[Mayank Singhal, executive]

Then is always the date of filing is counted, not on the date of the launch of the product that's. Patent is considered from the date of grant. Yes.

[Operator]

We have a next question from the line of Naushad Chaudhary from Aditya Birla.

[Naushad Chaudhary, analyst]

Congrats on a good set of numbers in a challenging time. Just 1 I have -- so within your existing basket of commercial molecules. And at advanced stage of pipeline, how many do you think can become INR 400 crores, INR 500 crores revenue per molecule in next 3, 4 years, excluding the large one which you have?

[Mayank Singhal, executive]

Can you please repeat? You were not very clear about your question.

[Naushad Chaudhary, analyst]

Within the existing basket of commercial molecule and molecule, which are at the advanced stage of pipeline, how many do you think can become INR 400 crores, INR 500 crores of revenue per molecule in the next 4 years?

[Mayank Singhal, executive]

There are many of them because this is 1 of the key criteria for us to evaluate products when we commercialize them for manufacturing and export in particular. So yes, there are many of them. But it all again, depends because when we went into these molecules, I mean, these molecules are at a very early stage of their commercialization.

And their potential is more clearer and known when they are already registered and commercialize in few geographies. So yes, I mean, the initial indications are very good for several of these molecules. But we will be very sure of the scale-up and volumes of the growth potential as we progress further.

[Operator]

We have a next question from the line of Nitin Agarwal from DAM Capital.

[Nitin Agarwal, analyst]

In terms of when you have dedicated plants for CSM versus multipurpose plants, typically, what is the difference in asset terms you're able to get higher asset terms in the dedicated plants?

[Mayank Singhal, executive]

Higher...

[Nitin Agarwal, analyst]

Higher asset..

[Mayank Singhal, executive]

What are you answer the question that can you -- are you able to get a higher asset from a dedicated plant?

[Nitin Agarwal, analyst]

Yes. And to extend our sense on how much higher do we are able to get typically?

[Mayank Singhal, executive]

Because unfortunately on a straightforward answer. Because it is basically, you have to look at an overall scenario, it could be dollar per kilo, it could be lower asset term, but you could have a lower asset in but a better return on capital a little better margin. So it's not -- it's a business just clearly not on an asset turn basis, which is general for commodity chemicals.

But specialty in these big chain molecules, it could be lower. It could have competes with higher value that may give you a lower turn, but give you better marginal returns. So it's not ratio which you can add into part. But typically, if you look at the chemical industry in this space, it can go between 1.5 to maximum 2.8, 2.8.

[Nitin Agarwal, analyst]

Okay. And sir, secondly, on our CSM business, with the voluntary which has been there in the raw material pricing over the last few quarters, I mean, is -- do we go through quarters during the cycle where there is a lag and lead impact in terms of the raw material pricing and the final product pricing?

I mean, there gains and -- whether we make -- in a sense, if there is a decline in raw material pricing situation, we end up making gains in a particular quarter, likewise and vice versa. I mean, does it really come about in particular quarters?

[Mayank Singhal, executive]

As I explained earlier we have this fast model, and that we away of working to years and explain. So discordant work and its adjustments, which Rajnish as mentioned by niche on the contract-to-contract, quarter-to-quarter basis based on contract types. So yes, there will always be legal lab, but the commercial understanding, the business model is that the things are shared whichever way the direction of trend is on the pipeline.

[Nitin Agarwal, analyst]

[indiscernible] last one. Sir, on the overheads this quarter, Y-o-Y, there is a very little increase. So is there any particular factor which has driven that despite the growth in revenues?

[Mayank Singhal, executive]

I think overhead frankly, I'm not really proportional to revenue. But yes, there has been a good approach to this because we obviously are looking at the volatility of the market and trying to see how we can continue to optimize...

[Operator]

We have a next question from the line of S. Ramesh from Nirmal Bang Equities.

[S. Ramesh, analyst]

Sir, first, on the CapEx you've done in Pharma and the exposure made in the segment assets -- can you explain the mismatch because you have acquired assets for INR 497 crores, INR 4,972 million, and you've shown an asset of INR 1,257 crores in the segment assets. So how do we tie in these 2 numbers, if you can help us understand.

[Manikantan Viswanathan, executive]

On the top line side, there is acquired assets and what has been shown in the asset that I can send across the details to you.

[Mayank Singhal, executive]

So you can connect with our CFO separately.

[S. Ramesh, analyst]

Yes. So second thing is, if you were to dwell a bit more on the Pharma economics. So what is the level of gross margin we should see on a stable basis, as you scale up, say, over the next, say, 4 to 6 quarters? And in terms of the proportion of overheads to revenue.

Again, if you can give us some sense in terms of the percentage it will help us work towards when you can possibly break even and get to that 20%, 20%, assuming a certain scale for the revenue. Can you just help us understand that will be great.

[Mayank Singhal, executive]

Sure. So currently, the gross margin is at 70% plus level. And we believe that this can certainly be sustained on the scale-up level as well more than 70%, 75% level. And overhead percentage and all that EBITDA and all those levels that I explained earlier, that we'll have to keep in mind that this is going to be a development base for next several quarters as we are integrating these different resources and companies from PRO bill APIs and the interest of long-term objectives of building a differentiated model.

So yes, I mean, once we get to a maturity level, we will see that we will be generating more than 20%, 22% kind of EBITDA margin on a constant level.

[S. Ramesh, analyst]

Okay. So in terms of the development expenditure in terms of cash outflow, what is the kind of expectation you have, say, in the second half and to FY '25 for the Pharma assets?

[Mayank Singhal, executive]

Well, we don't have the specific numbers right now on the call because always we still in development day and making. But yes, we can have a separate call on this.

[S. Ramesh, analyst]

Sure. So finally, on the tax rate, now there's a certain amount of difference in the tax rate for Pharma and the existing business. So can you give us some sense in terms of where the tax rate will settle for the pharma entities once it is in a steady state stable profit-generating phase. So what is the kind of tax rate to assume there.

[Manikantan Viswanathan, executive]

Tax rate for Pharma would be around 25% normally -- that's what then what we've seen in this current quarter is one-off effect on account of merger. That's why we say that is one-off in this quarter.

[S. Ramesh, analyst]

So Pharma, we can work with 25%, right?

[Mayank Singhal, executive]

Yes, yes.

[Operator]

We have a next question from the line of Krishan Parwani from JM Financial.

[Krishanchandra Parwani, analyst]

Just 1 clarification from my side. When you said 18% to 20% revenue growth, did you mean for overall company, including Pharma or just the agri CSM?

[Mayank Singhal, executive]

Well, this is only for the agri CSM we are saying without considering the impact of this onetime.

[Operator]

We have a next question from the line of S. Ramesh from Nirmal Bang Equities.

[S. Ramesh, analyst]

Yes. So just as a follow-up question. Now in terms of the domestic business, I know it's a little bit of a challenging environment out there. So if you look at the second half, given the challenges in terms of moisture level, last time, you had said that you hope to do well.

So what is the kind of expectation you have for growth in the domestic business in the second half? And how do you see the new molecules and a normal agronomy condition guide you in terms of the potential volume growth for, say, FY '25 in your domestic business?

[Mayank Singhal, executive]

Prashant, are you there on the call? Prashant.

[Prashant Hegde, executive]

Thank you. Yes, last time we did mention -- we are hoping that the rainfall situation will improve after -- but if you look at August was completely dry, that has impacted overall numbers in the domestic. As you look forward, basically the second half, there are a few areas, 1 is salt and the wheat. Wheat is obviously very, very positive, looking at overall commodity prices, looking at the takers.

However, we are seeing some challenges in the South where it's a rice and chilly because of water levels are very, very low, mainly because of dry conditions prevailing in parts of Andhra Pradesh, Telangana and Karnataka. That will have some impact, but we are expecting a growth on the quarterly basis, both in Q3 and Q4.

[S. Ramesh, analyst]

And any sense in terms of what we can expect for FY '25 based on your current portfolio and the new molecules you're launching? .

[Prashant Hegde, executive]

It's a tough question to answer at this point of time. If you had the overall volatility, which we are seeing globally as well as in India, probably after December, we should be able to give you some kind of indication.

[Operator]

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.

[Mayank Singhal, executive]

Once again, thank you, everybody, for coming on to this call. We at PI management are very well encouraged and supported by the investor community and continue to look forward to the support in these challenging times. And I wish you and all your families a very Happy Diwali. A great year full of happiness, joy, great health and success. All the very best from the PI team. Thank you.

[Operator]

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.