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PI Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Q3 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, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on PI Industries Q3 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 the call with 3 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 a question-and-answer session.Before we begin, I would like to underline that certain statements made on today's conference call could be forward-looking in nature, and the disclaimer to this effect has been included in the investor presentation shared with you earlier and is also available on stock exchange websites.I would now like to request Mr. Singhal to share his perspectives. Thank you, and over to you, sir.
Good afternoon, everyone. Thank you for being with us today on this call to discuss the third quarter performance.It gives me immense pleasure to share that PI has generated another quarter of our performance. Year-on-year, our revenue grew, clearly Q3 came at 19%, with an EBITDA increase of 40% and a margin standing at 26%, supported by favorable product mix and operating leverage. Consequently, our profit during Q3 saw an expansion of 58%, further action net working capital management has significantly improving free cash flow. In line with the superior performance, the Board of Directors has considered an interim dividend of INR4.5 per share for '22-'23.Our brand products for crops, including cotton rags, horticulture and row-crop has performed well. With a portfolio of advanced brands, we have carved out the leadership in the respective categories. Further, we are getting attractive responses to the state of new brands that we have recently introduced in the domestic market. Where is the highest numbers launched in the industry are branding integrated in corporate with best and capital solutions for crop protection helping farmers prosper.We have a soft solution for crop protection. Our pipeline of products of different states of the development to continue to enhance our portfolio. The institutional sales remained subdued during the quarter due to higher channel inventory and we have tested in the overall domestic revenue growth. Further, we have improved efficiencies and increased realization and reduce working capital for the balance business. Governance within the global specialty chemicals are evolving realized higher value propositions for our products from India, where we as a company stand both in terms of quality, process and technology, global carts are priced in diversification of source of India and even a country that has been differentiated the key chemistries.Our order book position for the end of the quarter stood at around INR1.8 billion, indicating the confidence of the innovative response to our business and model of delivery with well established credentials. We have announced our ability to partner with innovators at the global requirements. We are rented niche and proactive investments we keep the city between and research in our technologies and platforms. This needs for breakthrough innovation today is very important, and technology will need to be scaled up more attractively and efficiently. Our ability to engage at a global level on long-term relationships based is our team of understanding complex chemistries and core advantages with companies and partners across the globe.The share of non-agchem inquiries continue to grow, commensurate that, we are also announcing our capacities in the non-agchem space. We augmented our look and rising customer relationship deeper. Our research and innovation teams are continuously engaged in developing new generation offerings. We come replace realized 30-plus percent growth. We will be back by expanding the business from commercialized molecules with better margin portfolios, sharper checks and costs, recently launched molecules continue to scale up and will continue to contribute strategically in the next few years. We aim to commercialize 4 to 5 molecules every year at level the non-agchem and expect capacity expansion further in the coming year. I'm happy to say we have commercialized new products with a high potential growth into the future.The model remains poised to scale up market consumption of new pharma entity take shape. We continue to actively evaluate inorganic growth opportunities in pharma, domestically and internationally and in line with our pharma strategy, initiative to open dealership plan are ongoing and continuing to start affording into this space. I'm pleased to report and a pride moment for PI. We received the Golden Peacock Award for sustainability of Corporate Social Responsibility for the year '22. PI is committed to include the growth, aligning with the DGs and create long-term sustainable solutions towards reimagining a healthier planet.And with this, may I draw the opening remarks to a close and hand it over to our CFO, Mr. Manikantan, for the financial discussions. Thank you once again to all of you for joining this call.
Thank you, Mr. Singhal. Good afternoon, everyone, and thank you for joining us on the call today.I will summarize the company's financial highlights for the third quarter ended 31st December 2022. Please note that all comparisons are on a year-on-year basis and refer to consolidated performance of the company.During quarter 3 FY '23, we reported revenue of INR16,132 million, a growth of 19% over the same period last year. This was driven by growth in export revenue by 23% to INR13,286 million and 2% increase in domestic revenues to INR2,846 million. Export revenues growth of 23% was driven by volume growth of around 9% and price and currency of around 14%. New innovative agri brands launched recently also contributed to our growth.Our gross margin increased by 73 basis points to 47%, partially due to cost pass-through and favorable product mix. EBITDA increased by 40% to INR4,156 million for the quarter, driven by operating leverage benefits and tight control on fixed overheads. Profit after tax increased by 58% to INR3,518 million attributable to EBITDA growth.Cash flow from operating activities during 9-month period was INR9,951 million. This was due to higher data and efficient management of net working capital. The trade working capital in terms of number of days of sales was reduced to 90 days vis-a-vis 103 as of March 31, '22. Our balance sheet further trended during the quarter. Net funds increased to INR69,716 million. The CapEx for 9-month period stood at INR2,585 million and is in line with our plan. This year, we estimate a CapEx of around INR5,000 million. Inventory levels reduced in terms of data sales to approximately 81 days to INR14,517 million, still serving higher revenue and adequate safety stock to our supply chain disruption. The company maintained a strong liquidity position and has recently repaid outstanding ACV growth of USD25.71 million.That concludes my opening commentary. I will now request the moderator to open the forum for question-and-answer. Thank you.
[Operator Instructions] First question is from the line of Abhijit Akella from Kotak Securities.
Two of them. First, on the CapEx side. The presentation talks about planning to intensify the CapEx in the future. So while we are guiding about INR500 crores of CapEx for fiscal '23, is there a number you could help us out with for '24? Is it going to be substantially larger and if so, in which projects? And the second part was just on the pharma side. I believe you've invested INR675 million into PI Health Sciences to kick start our organic initiatives on the pharma side. If you could please just elaborate a little bit about the plans out there.
Thanks, Abhijit. So for the first question, this year, we had a plan of INR550 crores, INR600 crores of CapEx, but some part of it will surely get rolled over as some of the multiproduct plants, we are reworking on the design at some of the products have progressed well on commercialization, and we are redesigning some of these things. But for next year, we are -- as we mentioned in our presentation, we are expecting anywhere around INR800 crores to INR850-odd crores of total CapEx in the next financial year.
Got it. And also if you could just talk about the pharma investment into PI Health Sciences.
Yes. So about the pharma investment, this investment is basically for initial operating setup and our activities that we are intensifying and augmenting our resources in the pharma space. And this is where towards this objective, we have capitalized this our new organization to start these activities.
Fine. And just the last thing from my side was on the margins. Margins overall have been much stronger than perhaps you would have expected about 25.7% this quarter. So any specific benefits this quarter in particular? Or is this a sustainable sort of run rate for the future?
This is majorly coming from 2, 3 areas. One is that the product mix has been positive for us. In this quarter, certainly, the sheer operating leverage benefit is also kicking in because with this sustained 20%, 25% kind of growth. The operating leverage is certainly kicking in. And then, of course, we have had a very tight control on our fixed costs. So all these are contributing to this margin level. And we are expecting this to -- while there will be certainly some variation quarter-on-quarter basis depending on product mix. But on a year-on-year basis, I think we'll be able to reasonably sustain these margin levels.
Our next question is from the line of Vivek Rajamani from Morgan Stanley.
Two questions from my side. Firstly, there's obviously been some concerns of slowdown in some pockets of agrochemicals, both domestically and in the export market. Could you maybe provide some color on the trends that you're seeing with respect to your products, both for domestic and exports? That was the first question. And secondly, on your point where you're saying you'll obviously be focusing more on capacity expansions going into next year. Any indication on what kind of increase you're envisioning there? I know that this is not a straightforward question with respect to your products, but some color would be very helpful.
So if I get your first question right, you're looking you still downward trend agrochemical products? Or what was that?
Some trends that you're seeing with respect to your products?
Okay. If I look at the product portfolio, I think that's the unique part about PR. Both in the domestic business, as you've seen, we have been the highest transition mitigative products. And heading to generated products as soon as the growth trajectory while the growth has been muted, and that's been reliable by efficiencies and driving and ensuring that we note more stacked up. But new products will continue to grow, and we see a good positive direction coming to the product portfolio that we have. And we just don't see for 5 to 6 in domestic business. I'm pretty sure some of them will scale up to different high weather conditions will give some exceptional outcomes.When I look at the global product portfolio that we are in, we again see positive trends some of the large products that we are in still need to be registered globally, and there is a positive trajectory of growth continue to happen. At the same time, we have entered some interesting strategic products, which are good release potential of growth in the global markets, and that's quite exciting for us to see that we are poised to be in a comfortable position in terms of our product portfolio strategy. While there could be certain headwinds, which could come in, but these will be pretty quite a stronger one, which will take a good shape into the future.
So just to clarify, you've not really seen any significant slowdown with respect to your products, particularly on the export side, so that would that be a fair statement?
Yes, see I didn't say that. We've already put in our order book position we see as well the demand and that continues to happen. So that's where we are right now.
Sure. And on the CapEx -- on the capacity expansion, any color would be really helpful.
I think that was answered. Obviously, one great job at the time, we've looked at about taking 12% plus capacity to the existing assets by looking at various engineering and technological solutions will this further reduced and real growth trajectory that we have, and this will be postponed in the new product list, make sure that we have to happen in the CapEx going into the next year, as mentioned earlier. And looking at the portfolio of the consumer, the impact on the technologies, we are looking at a total of INR600-plus crores extra CapEx for next year, and then we have followed over CapEx in this kind of year. So that's where we are.
Our next question is from the line of Aditya Jhawar from Investec.
My first question is on one of a key molecule has seen a very strong growth in this quarter. So just wanted to understand that what could be the reason driving this growth? Are you seeing market a wider application of this product? Are farmers using this product as a substitute of Glyphosate? And I'm sure you would have also collected some market intelligence on what should be the growth for Lonafarnib, key products?
Well, as you know, these products are cyclical at demand. So it's not that a consistency has throughout one, yes, and we'll look at the second part of the question. There has been product portfolio expansion. The company -- global companies who are partners to expand in this product worldwide for what we understand. We have geographies, which are being added clearly, application and acceptance is growing. So we do see a voltage coming through this. And that is as this growth. And obviously, I would not like to talk which quarter up and which quarter down. It depends on supply chain market situation cost positioning. We're taking critical part of the geographies.
Okay. That's good to hear. So that essentially means that the growth that we have seen is a organic growth and it is not that the inventory gets piled up in the channel and in the subsequent quarter, we see a significant slowdown? Yes. My next question is on the tax rate side. What should we expect on tax rate on a full year basis?
The Tax rate will be around current quarter is for 9 months is 14.5%. So the full year basis will be less than 15% -- sorry, less than 15%.
Our next question is from the line of Rohit Nagraj from Centrum Broking.
Congrats on a good set of numbers. So first question is on Slide #9. We have mentioned that more than 60% products falling in green category. So what exactly does this mean? And how beneficial it is for us given that the sustainability is a criteria for global innovators?
Yes. So the product order under the green category is the list which is the protector of revenue based on guideline. The list is which we decide that which fall -- which product fall in green category end of activity on red category. So I think this international criteria, which we have applied for our products, taken their own priority and then work on systematically in development stage to reduce the risk. So that's all we say that we will responsible.
Right. Just a clarification. This is applicable for both CSM as well as domestic?
Yes. It has got both.
Right. Got it. Second question after commercializing 3 products in CSM, what is the total number of products in CSM and any non-agro products in current landscape? And for next year, are there any non-agro products, which will be commercialized in FY '24?
Yes. So we have already got 4 commercial products in the not CSM scale. We're looking to commercialize 3 in the next year. And obviously, we are in the early stage in this business, not formally substantial revenue, but these investments which just show a positive direction for growth and customer confidence with them.
Just different number right now, including these 4 products?
We would not have a number on hand in that for the moment.
Our next question is from the line of Vishnu Kumar A.S. from Avendus Spark.
Congrats for good numbers. This question is on margins. In the past, we understood that many of our contractual terms to the customers are that we will earn a fixed kilo per margin. And so irrespective of the price movements we learned, fixed price and higher pricing will still probably percentage margins will be lower. That is one. And second, as the production scales up for certain products, we were -- at least what we understood was that we will have to transmit certain efficiency gains to the customer. But the current commentary seems to suggest that there is a change in the contractual terms, if you could slightly elaborate on this point.
Yes. So you see this is -- as I explained earlier, this is majorly coming from change in product mix favorably for us. Every year, we are launching 4, 5 products. Even in domestic, many new products have been added in the last 2, 3 years. So obviously, the product mix is favorably changing. That is one. And secondly, the operating leverage benefits. So the understanding generally that we have with our customers, and this is where -- because we suffer in the initial periods with the lesser utilization of these plant investment and all at a later stage when the operating leverage kicks in, that balances may be earlier lower margin. So right now, at this stage, I mean, some of these benefits are kicking in and that is giving this reflection.
Understood. In terms of new products on the export side, how much would be, let's say, the last 2, 3 years, if we have launched certain products, any rough contribution of revenue, if you could just help us understand the last 2 years or 3 years, what would that proportion of your overall revenue would be?
We don't have these numbers or take. But I think, as I mentioned, I think in last call, some 17%, 18% is around that comes from products introduced in the last 3 years.
Got it. And on your comment, you said that domestic products also, we are getting better margins. So the margins that you're currently earning would be higher in the domestic because of the new product launches? Is that the way also we can think, that you're earning slightly better numbers from these?
Adding new products and new margins, the domestic business will be given as the contribution level that.
Got it. And just on the CapEx bit, you said we have spent about INR250 crore out of the INR600 crore, another INR350 crore is pending, plus about INR800 crore which you just mentioned. When should we expect these new plants to be coming up? Any rough commissioning dates that we are looking for?
Yes. So just to clarify on it, as I mentioned that some of the CapEx, which was planned in the current year is getting rolled over because of the plant design related and implementation-related equipment. And that will also be covered under this INR800-odd crores that we have indicated, okay? So this includes that rollover also, not that INR800 crores plus whatever INR500 crore and that we have been talking. So we have 2 multiproduct plants scheduled to get commissioned maybe one the later phase or second half of next year. And the other one also, we are monitoring, but that may go next to next year, which is '25, FY '25. So this is currently the plan -- tentative plan that we have.
And on the other hand, we changed the way of the structure of formats of how we look at these plants when we technological capability and giving us better throughputs and efficiencies with the larger footprint for each plant.
Got it. And sorry, I'm just looking back on the margin, should we take the guidance to be at probably at 23%, 24% from here on is earlier it used to be 21%, 22%. So we should -- should we see a step up going forward over the next couple of years to be anywhere between 23%, 24% or any thoughts?
Yes, 23%, 24% is what we currently are estimating.
Next question is from the line of Ankur Periwal from Axis Capital.
Congrats for good set of numbers. Sorry, again, just checking on the CapEx side. So on the -- our earlier commentary was that we will be continuously focusing on improvising and improving the asset turns, which we have sort of displayed over the last few quarters. And at the same time, the CapEx number is also getting decreased. You also suggested to invest further into the pharma production there -- pharma products there. So is there -- from your thought perspective, from a sustainable growth run rate in CSM business, are we looking at upwards of 25% plus or maybe even higher rather than the 20% plus mark that you typically comment on?
No. In terms of growth, we are still sticking to 20% plus growth rate on a sustainable basis. That's what currently we are predicting, and we are continuing with that guideline.
Sure. Where I was coming from was typically, it takes 3 to 4 years for a product to mature. And historically, we had launched newer products, which were probably margin negative as well as higher potential ones. So is there a faster growth coming in the near term there or probably it's still a medium-term thought?
No. Well, yes, I mean product takes 3, 4 years to mature, but we have to also appreciate that the base is also growing. I mean, if you see last 2, 3, 4 years of growth, I mean we have been 25% plus kind of growth year-on-year. So the base is also going. And therefore, we are guiding for 20% plus kind of growth rate on a sustainable basis. Although there are opportunities, but this is where we are a bit cautious in guiding on growth.
Sure. And just second bit on the domestic side. One, if you can comment how the branded or the newer launch products are doing in terms of growth rate versus the just likely older portfolio? And secondly, your comment on the channel inventory, is it largely done or probably it will take some more quarters to settle?
So as you rightly said, yes, the channel inventory because of lower-than-expected uptake in Kharif season, so -- or due to adverse weather conditions, the higher channel inventory buildup. However, it is being consumed. So that is a good trend, I can say. On the -- and again, here, the growth has mainly come from overall, you may see subdued, but growth has come from newer products. However, the generic products have suffered. So that is where overall growth is subdued.
Sure. Sorry, just a clarification. So on the channel inventory, so Q4 should be a normal quarter?
It's a very good question, but let me also tell you, Q4 is not a major consumption month. Industry usually prepare for Kharif through replacement effort. Hence, there is always a limitation on growth from purely from the consumption point of view.
Next question is from the line of Sumant Kumar from Motilal Oswal.
So can you talk about the AWKIRA performance in the Rabi season?
We normally do not talk about products -- specific product performance as you know. But generally, as Prashant indicated, the all new products that we have introduced in the last couple of years, they have been very well accepted by the farmer. The growth year-on-year has also been very good.
Okay. And the second question is other expense, is there any ForEx gain and freight cost is also lower in this quarter, Y-o-Y?
Yes, freight costs were lower basically this quarter. You are right. And on the ForEx, there are no major gains in the others.
Okay. And what is the cash rate for FY '24-'25 Kharif?
Sorry, can you repeat please?
Cash rate for '24-'25.
It's too early to predict for '24-'25, my dear friend. The same guidance of what -- yes, because too early, can we give guidance in the next quarter on '24-'25 whether that be okay.
[Operator Instructions] The next question is from the line of S. Ramesh from Nirmal Bang Equities.
So if you look at your domestic business on the kind of base you have this year, including the weak base in the third quarter, would you be able to do double-digit growth in FY '24? What is your expectation considering the kind of launches you've done this year?
Yes. So yes, based on the launches we had last 2 years, definitely double-digit growth is what we are expecting.
And would that help you improve your margins as well given that FY '24 should be a more normalized year in terms of at least the inventory or and with the input costs coming down and the freight costs coming down, will that give you some increase in pricing power and margins?
Yes. So as I said earlier as well, as we start scaling up the new products, definitely, margins in new products are better. And definitely, it will improve overall margins for sure. And even on overall, basically ratio also should improve.
Okay. Now on the CSM, when you look at the CapEx plan, it's about INR1,200 crores over 2 years. So how much of this is to increase your capacities and synthesis capabilities for the increase in the order book by about $200 million between first quarter and the second quarter? And how much of it is to build your capabilities to get the normal business as well as to bid for new orders? Can you give us some indication of that?
Well, I'm not too sure on several elements of your question, but let me try. So yes, with these investments in last 2 years or even next year, including that will surely add to capacity to the tune of 25% to 28%. And apart from this, as we have been guiding for last few quarters that we are also working on improving efficiencies of our existing facilities, multiproduct plants and improving throughput. Last year, we improved throughput by more than 12%, 15% this year, also close to 10%, 12%. So apart from fresh investments in capacity expansion, we are also improving with technological improvement, the plant throughput of the existing capacity. And all this is certainly helping us get up capacity utilization and also improve capital efficiency, which is also clearly reflecting in the numbers that are there. And this is the whole objective -- being a capital-intensive business, our whole objective is to keep improving the capital efficiency.
Yes, understood. So what I was trying to understand was in terms of the increase in the order book, is any part of this CapEx intended to enhance your capacity to be in a position to deliver the increased order book?
Yes. I mean a part of capacity expansion is certainly towards this increase in order book position. And also some part of this expansion is towards many new products that are also coming through the R&D pipeline and commercialization of those markets.
Okay. Just one housekeeping question. Can you give us some insight into how the other income has gone up and how the interest expense has gone up?
Basically, you are aware that on equity, there was an increase in paid LIBOR as against SOFR. That was one increase was there. And also the exchange rate was also there, both together has increased the overall interest expenses.
And on the other income?
On the other income, what's the specific question? Other income is normally, thanks to the income fund change gains will come in the other income. Maybe you can clarify this on the sideline.
Yes.
Okay.
Our next question is from the line of Rohan Gupta from Nuvama.
Congratulations on a good set of numbers. A couple of questions. First is on -- you had mentioned that there has been a significant surge in inquiries in non-agri product by roughly 25%. I understand that right now the revenue contribution from non-agro and non-pharma is still very less. So just wanted to understand when we talk about that continuous increase in inquiries, how well we are leveraged to use these capabilities -- use our capabilities and scaling of the revenues from this segment, where you see that over the next 2 to 3 years business can be from non-agro, non-pharma?
Yes. Basically, these products that we're seeing non-agro products, they have got a life cycle approach and right away from the banks to scale up and commercial scale, there is a gestation period for these molecules to certify and sanction in advance. So as of now, as real brand, there is a good amount of traction happening around vis-a-vis nonactionable development of this scale. And we foresee that in all this work, which is being left will certify over a period time in terms of non-agro and non-pharma.
In terms of like 3 to 4 years where we see this business panning? And will we be using our existing set of plant machines only for the product development here or we need to have a fresh CapEx to capture the growth there?
Yes. So I mean, at commercial scale, broadly the existing type of plant -- multiproduct plants are being used, okay. They are using and the volumes go up to a scale where you need a dedicated plant. As the development stage, most of the existing setup is what is getting leveraged. But yes, there are certain specific quality-related requirement for such different specialty chemical areas for which we have already augmented our set ups in R&D and further monitoring them and have plans in FY '24.
Further, I still didn't get what is your plan in 3 to 4 years any guidance? Any target which the management is set for the coming 3, 4 years?
Rohan, our aspiration of getting non-agchem contribution to close to 20-odd percent in next 4, 5 years. This is what we have also guided that over a period of time, 4, 5 years time, I mean, the contribution of non-agchem revenue should be to the tune of that percentage.
Okay. So as of now, so the revenue guidance which you are having is still maintaining 20%. I believe that we are still relying on agrochemical product only. And even in agro also, we had that one product contribute significantly to our exports, almost 50% of the volumes coming from the one single product. So do we see that there is a risk in terms of our export revenues -- sorry, our CSM revenues and the 20% growth guidance which you're talking about, if you are not able to scale up the other products?
Not really. So I'm not too sure on the percentage you mentioned, but you think there are 3, 4 points to keep in mind here. One that every year, we are commercializing 5 to 6 new products, okay. Today, if you look at our CSM export portfolio, there are 27, 28 products every year, 4, 5 products getting commercialized, just I mean and in the last question, we mentioned that 4, 5 products from non-agchem are already in commercial at scale. Next year, we are commercializing 4, 5 non-agchem products. So you see these many numbers of new product launches as well as non-agchem products. The diversified portfolio is already there. It is no more dependent on 1 or 2 molecules. That is one aspect.The second point is that even on the -- if you look at the other side on the domestic side as well, many new products are getting launched. So if you look at at the company level, blended level, the diversification is there and in terms of broadening the product portfolio, even in domestic side beyond agchem, we are getting into biological -- in large range of products are already in play and many of them are at the development stages at different levels. So this is how the product portfolio is getting diversified. So this is certainly not a scenario of dependence on one product per se. But as this model is, I mean, obviously, currently, we would be dealing at -- I mean, with close to, say, 15, 16 customers, okay, on this 27, 28 products. There are another 35 products, 40 products at R&D scale with addition of another 10, 12 customers. So if it's a broad-based structure. Of course, products -- each product will have its own life cycle and at different points in time, different products will peak. So in next 3, 4, 5 years, the scenario will be completely different.
Just if I'm allowed one more question I have. On pharma side, we have seen that in last 1 year, the profitability of many pharma companies have been impacted and so as the valuations of these companies has also been impacted. We have been very value cautious, and I think that was also one of the deterrent that we were not able to back some good deal as far as the inorganic growth ambitions are concerned. Do you see that in last 1 year with the moderation and the valuation across the pharma companies? We are now more closer and the chances have increased significantly that we have any value deal in pharma, and we can hear something soon. If you can just give some more idea about that.
Yes. So we are currently at an advanced stage of negotiations of a few of these opportunities and at an appropriate time as we materialize the gains, we will settle let the investors and markets know of it.
We'll take our next question from the line of Noel Vaz from Union Asset Management.
My questions have been answered.
Our next question is from the line of Naushad Chaudhary from Aditya Birla Mutual Fund.
Congrats on a good set of numbers. Firstly, just a follow-up on the previous question. On the CSM business, the number of commercials which we did last year and this year in looking at the historical run rate, it seems really higher. So firstly, on the growth guidance, if I look at the commercial numbers versus the growth guidance, do you see the guidance which we are giving is slightly conservative, looking at the number of launches? And secondly on this, any of these commercials can it become a sizable in the next 3 to 4 years? Can it become to a similar size of your existing top 2, 3 products?
Frankly, it would be helpful if you can please repeat your question.
Okay. So the first piece of question was in terms of your commercials in the CSM business last year and this year has been slightly higher than our historical run rate. So going by the numbers of commercial, would it be fair to assume your growth guidance of 20% is slightly conservative?
I'll not say conservative. But yes, this is the guidance. We are very confident, and we always remain cautious of the global markets. And in any case, we are seeing the kind of upswing, which are happening in the global market, whether it is European markets or American markets and many other things going on. So we have to be mindful of these uncertainties. And keeping those in mind, we always try and give a guideline which we are very confident.
Okay. And secondly, on this, from your new product basket, can we see any or a few of them can be a sizable or similar to our existing top 2, 3 products in next 2 to 3 years?
Yes. This is the right area of even deciding on which molecules we are working, be it domestic, be it export. When we decide to work on a molecule for our development for domestic market or for export, we always keep key aspects in mind and screen those molecules on those parameters. And many of these molecules are for multi-products, not for single crop, not for a single crop segment. So these are for multiproduct segments, and therefore, they have potential to be a sizable molecule.
Our next question is from the line of Abhijit Akella from Kotak Securities.
Just to clarify regarding the CapEx footprint, the asset footprint we have at this time. So we've mentioned in the presentation, we have 15 multipurpose plants. Are there certain dedicated plants also that are part of our infrastructure right now within these 15 or excluding them? And then these 2 new plants that we are talking about over the next 2 years, are these primarily for the newer molecules that are getting commercialized? Or is there also some capacity expansion for the existing major products that we have?
Yes. So out of the 15, there are 3 or 4 dedicated plants that are there, for which we have long-term contracts and volumes which are pretty high, okay, annual volumes. For the next 2 plants, yes, there are many new products that are getting scheduled there for commercialization. And again, these are all fungible plants. So as the volumes of even existing products grow, I mean we keep switching capacities from one to the other plant in order to meet the customer requirements and all. So that's where these are conjugal for legal assets.
Our next question is from the line of Aditya Jhawar from Investec.
Can you comment on the inventory situation in our key export market?
You said inventory position?
Yes. How is the channel inventory in a key export market?
Well, there is a mix kind of scenario, I mean it varies from product to product, market to market. So in a few markets, yes, there is some sort of inventory pile up. But in others, we are seeing also a scenario where there is challenges on supply and product on time as well. So there is a mixed scenario.
To put it in a summary, we go with the uncertainty in China, and definitely the generic of in the pressure of this buildup at a global level, both of the new entries because they were secure in that on the other hand, supply is opening up. So that's going to be something which is gene under pressure in a generic play, yes. And that's the indicators, especially in the latter part of the world and in certain markets seen be good. So inventories are as a matter of fact, yes, there will be certain challenges for some of these areas in the coming year.
Okay. That's helpful. But sir, if you can just specifically talk about how is the inventory situation in North America, South America and Europe?
Well, these are very well captured in global reports. If you see at a general level, yes, there are inventory buildup, but the seasons don't as well, they should be aligned by America and Europe the uncertainties of the world have built it up. And I can't say how inventories have to run, whether this could change over what happens in the next 6 months, but from a channel point of view and from a relative number, which could come in smoke. But fortunately, for the kind of product that we are dealing in, we have not yet seen those kind of alarms.
Okay. My final question is, typically, in agrochemicals patented products. So as compared to the total ASP of the product, what proportion is the active ingredient?
What you mean, I mean in terms of proportion of the active ingredients?
Yes. So for them, if the product is selling at, say, $10, what would be the cost of active ingredient for a patented agrochem?
Well, there is no standard formula machine. If you look at the API world, the standard formula because cost is very different from the selling price. Selling price is determined by the affordability of the farmer and the value proposition to the farmer and what could be technologies is not just the cost of raw materials, which are driving the cost of sales. There's also investments which companies have made over the last 10, 15 years, a little bit different by different products. It would take to be $200 million to settle with $100 million. So that is not a cost is comes in cost of goods. So depending on which lens you look at it today, it's still one product in one geography, then the cost of it is multiple costs, different cost, different combinations, different costs and registration herbicide and a different requirement for toxicology requirement and where we see to the fund type different. So cost of goods has nothing to do with the selling price of the goods, if I was to put that very clearly. The other costs, which may not be visible on the base which is driven, but what is in tact, what can the farmer afford, they is paving value for them and how that could be driven. I hope that answers.
Yes. That was very helpful.
Our next question is from the line of Nitin Agarwal from DAM Capital.
My question is on the pharma business plan that we have. Like in agro, after predominantly our entire businesses is on different products. In pharma, when you're looking for acquisitions, are we looking for purely predicted products can you get CDMO are you looking at generic CDMO also?
Well, let me answer both from a prospection and correction. I think when we look at the customer manufacturing business, it is a services which we provide in manufacturing products obviously form a part of that. When you look at the domestic business, it's purely products, yes, and crop solutions. When you look at the pharma business, we are obviously eventually the products, but again, we started with the service of CRO/CDMO products. Yes, it's coming into products, if we look at manufacturing some of those products, so then we become a part. In your eyes, we -- services that we manufacture.
I get a line, but is our -- so we are agnostic to whether it's a generic or a period product as well as pharma is concerned?
Well, there will not much of a CRO or CDMO work in generics, but it was more in our pipe, that's the development in focus. When we look at CRO or CDMO, which has started the innovate side but an early stage in commercial because they will interfere and the generics will be a value and a value add, if it makes sense with chemistries in a distinct point, if you could value add them, not from a CRO/CDMO product, yes.
Our next question is from the line of Dhruv Muchhal from HDFC Mutual Fund.
In your 9 months for the export business, you mentioned that favorable product...
Mr. Muchhal, could you speak a bit louder? We can't hear you that well.
Is this better?
Yes.
Yes. So in the exports business, you mentioned that for the 9 months, the product mix and currency is about 12% contribution. I just wanted to understand what we understand is that in the CSM business or the exports business, the price increase would largely be due to an RM price increase because that gets passed through is what our understanding is. And if that happens, definitely the gross margin should decline because your per case remains broadly the same because you work on a contribution basis. But your gross margins are still improving or still steady. So just wanted to understand, is there some change in the structure? And also on currency, that also largely is a pass-through, if I'm not wrong, and in your contract. So does the currency always benefiting in your revenue? Does it also benefit in your EBITDA?
Yes. Just to explain, first of all, this notion is not correct that there is a per kg margin fixed or something that is not the kind of business we are in. Yes, we work on a model where there is transparency on raw material costs and conversion costs and any increase or benefits they are shared with our partners, okay. So the price increase, I mean, in last 1 year, 1.5 years, there is a significant increase, both in terms of raw material prices and other inputs like fuel and other areas. The benefit that you are seeing here in reflecting in our numbers is, as I explained to the earlier participant also that it is mainly coming from improved product mix, okay. If we have been launching -- we have commercialized more than 10, 12 products in last 2.5 years, okay. So product mix is muted. The contribution of some of the existing products, which was different, say, last couple of years versus this year. So overall product mix change is favorable for us. That is one.Secondly, the operating leverage benefit is also kicking in for us. Now obviously, this -- we were also on the other side of operating leverage as a few years back when the capacities were underutilized. But yes, this year, those benefits are kicking in for us. And that is what is reflecting in these numbers. So I hope you understand that this is not a one product company and price is fixed per kg. And therefore, you're not appreciating what is reflecting here.
Understood. On EBITDA basis, I understand the operating leverage benefit. But even on the contribution margin where it is largely DRM, if I'm not wrong, where it's a transparent model. So you get to retain a decent part of the -- it seems the efficiency gains or the benefit from higher volumes.
Yes. So that comes from product mix. Because if you look at the contribution level, I think 1-odd-percent is the increase in contribution level. So that is kicking in from the favorable product mix.
So it's primarily the product mix, which is helping us maintain our gross margins despite the...
Yes.
Ladies and gentlemen, we take that as a last question. I now hand the floor back to the management for closing comments.
So once again, thank you for joining us on this call, and we look forward to hopefully a successful year and thanks for all your support to PI. Good evening.
Thank you, members of the management. Ladies and gentlemen, on behalf of PI Industries, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.