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PI Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 and FY '22 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, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on PI Industries Q4 FY '22 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, Chief Financial Officer; Mr. Prashant Hegde, CEO, Domestic Business; and Dr. Atul Gupta, CEO, Exports -- CSM Exports.
We will begin the call with key perspectives from Mr. Singhal. Thereafter, 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 the conference call today may be forward-looking in nature, 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 please share his perspectives with you. Thank you, and over to you, sir.
Yes. So welcome, and good afternoon, everybody, and thank you for your participation in today's call. Last year, we began with a new fiscal under the cloud of COVID second wave; faced significant operational challenges; into very high infection rates in several months; followed by unprecedented supply chain challenges coming from China; and finally, Russia and Ukraine conflict, further adding to the chaos and resulting in rising input cost trends apart from supply chain disruptions.
While -- with this backdrop of the overall business operation environment in 2021, I'm very pleased to report that PI team has done an excellent job in continuing its growth momentum on revenue and EBITDA during the Q4 and also for the full year '21-'22. The expansion came despite a force of challenges and high base of last year, both in domestic as well as exports, rising trends in input costs. I thank all the PI team members for their winning spirit and all our business partners for their continued support and trust in our relationship.
Now in the CSM export space, traction -- or new inquiries continue with a significant number of inquiries coming from non-AgChem space of electronics and pharma and other areas. During the last fiscal year, we acquired 8 new customers. There is a rich pipeline of 40-plus products at different stages or scale up, of which more than 20% are from non-AgChem products. We are targeting to commercialize 6 to 7 molecules in the current fiscal, '23. We have also stepped up our capacities during '22 with 2 multiproduct plants fully commissioned, including chemistry building blocks for monomethyl hydrazine commissioned, and various technology initiatives to improve capacity throughput of existing plants.
Our domestic performance for the quarter was driven by favorable agro-climatic conditions during the Rabi season, supported by price hikes affected by key products. We undertook a successful launch of one of our new insecticides for rice and 3 specialty fungicides focused on horticulture and rice. We have also successfully launched a number of new brands in the horticultural segment under Jivagro, and we are excited by the host of products recently launched and are going to be launched shortly.
Disruptor, an innovative insecticide launched for rice. Distruptor has a unique mode of action to control brown planthopper affecting the rice crop. We are launching 2 patented insecticides, [ Dianot, Ace ], another broad spectrum insecticide for the crops of chili, coarse crops, et cetera.
[ Rowan ], an herbicide of cotton to be launched this quarter, along with [ Dianot, Ace ], we'll have one the most comprehensive crop protection solutions for cotton with an estimate of 120 lakh hectares under cultivation in India. And innovative nematicide disinfectant, a broad spectrum of fungicides, both targeted at the horticulture segments are being launched in the current fiscal.
We're witnessing high sowing in the upcoming Kharif with acreages across pluses, coarse cereals and oils and -- marked as an increase. Given a normal forecast of the monsoon, the trend is bound to pick up as we reach the end of the summer. Although reservoir levels are above the annual average, for this time of the year we are witnessing lower pre-monsoon showers in Northern and Central India, which combined with the usual heat wave could influence cultivation.
As mentioned during our previous investor call, we have refreshed the PI compass to set a clear direction and mission for our future growth, with the purpose of reimagining a healthier planet, our vision to lead it with science, technology and human ingenuity to create transformative solutions in the life sciences. We're now cascading Purpose Vision with our Spiky Capabilities and Value Proposition across different levels of the organization to drive to a bigger sustainable growth in the near future.
Given the combined thrust from the lifting of the pandemic-induced lockdowns globally and mass injection of liquidity by the central banks to post intense phase of pandemic agri-commodity prices globally being formed, besides the Make in India program and continued supply chain disruptions in China, combined with government-focused efforts to maximize exports from value-added products that ensure profitable growth of the chemicals sector in the years to come.
The domestic segment also enjoys solid tailwinds, more record prices and exports-led growth, encouraging farmers to adopt modern crop protection techniques for maximized productivity being the other. Our business outlook remains robust. I'm confident in delivering 18% to 20% growth, plus continued improvements in margin returns. For the current fiscal, we see further risk of raw materials increase and inflammatory (sic) [ inflationary ] trend, although it is our target to mitigate the risk by repricing and optimizing product mix as well as driving operational efficiencies.
Diversification into adjacencies to inorganic will remain on the top of the agenda, apart from technology scale up. We are evaluating various M&A opportunities both in India, outside India to zero down on a few to meet our objective of creating a sustainable different value proposition.
Last but not least, we are proud of our industry and customer accolades. As announced earlier, during '22, we emerged among the top quartile in the very first S&P Global Sustainability Assessments with 82 percentile industry ranking. We also won the Heritage Company of India at FICCI @ 75: Chemical and Petrochemical Industry Award, amongst other recognitions.
With that, I would like to thank all the stakeholders for their contribution. And I would now like to hand it over to our CFO, Manikantan, to take and share the highlights of our financial performances. Over to you, Mani. Thank you.
Thank you, Mr. Singhal. Good afternoon, everyone, and thank you for joining us on the call today. I will be summarizing the financial highlights of the company for the fourth quarter and full year ended 31st March 2022. Please note that all comparisons are on a year-on-year basis and refer to the consolidated performance.
During Q4 FY '22, we reported a revenue of INR 13,952 million, a growth of 17% over the same period last year. This was driven by solid growth in export revenues by 11% to INR 11,142 million and 47% gains in domestic revenue to INR 2,810 million. I'd like to highlight here that we have grown on a high base of last year, where the domestic revenues grew by 11% and export revenues increased by 47% in Q4 FY '21 over the previous year Y-o-Y.
Revenue growth of 17% was driven by price increase of 7% and balance from volume growth. The trend of elevated input costs continued during this quarter, although we effected partial pass-through by increasing product prices both in exports as well as domestic.
Our gross margin increased by 196 basis points in Q4 FY '22 to 44%, partially due to cost pass-through and favorable product mix, which negated the impact of rising input costs. EBITDA increased by 34% to a record INR 3,056 million for the quarter. Cash generated from operations before tax during Q4 FY '22 of INR 2,640 million. Profit after tax improved by 14% to INR 2,044 million, in line with planned effective tax rate.
Let me also cover the annual performance for FY '22. Revenue was INR 52,995 million, a growth of 16% over FY '21. This was driven by solid growth in export revenues by 20% to INR 39,902 million, a 4% gain in domestic revenues to INR 13,093 million. In domestic segment, we have grown on a higher base of last year, where the domestic revenues grew by 39% over the previous year on a Y-o-Y basis, including the impact of Isagro acquisition.
Revenue growth of 16% was driven by price increase of 3% approximately and balance from volume growth. Operating expenses increase of 24% is mainly attributable to a sharp increase in fuel prices, leading to increase in utility costs; onetime expenses pertaining to strategic initiatives; and COVID-related expenses.
EBITDA increased by 13% to INR 11,460 million for the year. However, there was a moderation in EBITDA margin, which reduced by 59 basis points on a year-on-year basis. Profit after tax improved by 14% to INR 8,438 million, in line with planned effective tax rate.
Our balance sheet further strengthened during the quarter. Net debt increased by INR 7,780 million to INR 61,204 million. Net sales to fixed assets ratio improved from 2.06 from 1.89, while total CapEx for the year stood at INR 3,204 million. For the forthcoming year, we estimate a CapEx of around INR 5,000 million.
Inventory level was maintained at a similar level as last quarter to avoid any supply chain disruption and meet customer supply schedules and continued operations. Trade receivables has remained relatively flat at 69 days DSO as on 31st March '22 vis-a-vis 68 days as on 31st March '21. Payable in terms of days of sales has also remained flat at 64 days vis-a-vis 63 days as on 31st March '21. The company maintained its strong liquidity position with surplus cash net of borrowings -- ECB borrowing of INR 21,642 million, including QIP proceeds. That concludes my opening commentary.
I will now request the moderator to open the forum for Q&A. Thank you.
[Operator Instructions] The first question is from the line of Tarang Agrawal from Old Bridge Capital.
A few questions from my side. In your presentation you mentioned that you've developed a intermediate at your pilot plant through a continuous slow chemistry process. Can you give us some sense in terms of what are the benefits of this technology in terms of time, in terms of cost versus the traditional technology used to manufacture this intermediate? And how probable is it that you'll be able to scale it at a factory level? That's number one. And how pervasive would it be? How big could this be? Because my sense is you would have specific equipments for this.
The second is the net sales to fixed asset ratio has moved up quite meaningfully in this year. How should -- is there a benchmark that you're looking at? How should we see this going forward? That's it from my side.
So I think let me take the question on the slow technology. Every -- obviously, there's nothing that is that new to the global industry. It is something which is still under works and has been in works in certain other areas. Obviously, the application in certain specific areas are new, which is what we are evaluating. Clearly, there is good enough -- strong enough case to create some value benefit, which we see, basis of which the experimental data convinces us to look at commercialization of the same and bring that value-added proposition.
I think that's the best I would like to mention for now, given the technology's uniqueness and our ability to use and apply from an IP and intellectual standpoint. So obviously, the company is looking at it from there. Scalability, obviously, has a future. And once we learn more, we'll be able to put a lot more through it and understand it better.
The next question was about the asset...
Yes, net sales to fixed asset ratio.
Rajnish?
Yes. So Tarun (sic) [ Tarang ], we are already now operating at more than 2x, okay, in terms of asset turn. And I think this is given the nature of our industry and intensity of asset. This is a reasonably good ratio. However, having said so, there are continuous efforts being put in both on our research side in terms of improving the processes of various products that we are producing at commercial scale in order to improve the time cycles, in order to improve the throughput of these plants. There are clear targets set in the beginning of the year for all these molecules. So we are working towards further improving that.
And yes, I mean product mix is another sector which plays out while we work out this asset turn. So on both the fronts, efforts are continuously made at our end so that we can improve the overall asset turn and overall capital efficiency of the business.
Is there a benchmark that you all look at? Or it's a very case-to-case situation?
Well, to be honest, we are already kind of exceeding the benchmark. Because, generally, in this industry, 1.752 is considered to be a reasonably good benchmark. But as you know, we are already doing better than that. And therefore, wanting to set our own benchmarks. And every year, we are expecting to -- rather setting internal targets to improve 10% to 12%. Again, this varies from product to product. Every product has different complexities.
The next question is from the line of Ankur Periwal from Axis Capital.
Sir, first question on the growth outlook on the CSM side. Now we commercialized 9 molecules last year. You mentioned that we are looking forward for 6 to 7 molecules more. A couple of quarters back, we did highlight electronic chemicals being -- sort of picking up and we are ramping up on the non-AgChem side here as well. So I just want to understand whether 18% to 20% is -- because there will be a pricing-led inflationary increase here as well. So this 18% to 20%, how should one look at this number? Probably breakup of volume or realization here?
Yes. So I mean, this price-volume in a short to midterm, it -- as we have already explained in the past, there is always a lead and lag in this industry. But over a period of time, these prices are all -- always inflationary impacts are always factored in the demand, in the pricing and in the demand.
But having said so, this 18% to 20% growth that we are indicating, I mean, it is -- I would say, almost a similar kind of growth we are expecting both on export side as well as on domestic side. We are -- even on domestic side, we have a very good visibility in terms of scaling up some of these recently launched brands and the kind of new products that we are launching.
On export side, I mean, mostly it will come from the volumes, because most of the price factors or escalations are already factored in. I mean, we certainly cannot sitting today imagine what kind of further inflationary increases are on the way. But so far, whatever inflationary changes have come in last, I would say, 6 months or so, those are already kind of factored in, in the pricing of these products and for new contents. So considering that, we are taking this 18% to 20% growth, which should mostly come from the volumes.
Sure, sir. That's helpful. And just secondly, on the overall RM inflation side. In our presentation, we do mention we have been taking price hikes there to pass through to the RM inflation. At current juncture, is large part of the inflation across both the segments is already pass-through? Or probably it will take another maybe a quarter or so. And another -- just adjacent to it, the channel inventory on the domestic side, how is the situation there on the ground?
Yes. So major part is already passed through. But yes, there are several products -- because again, there is always a lead and lag. Some campaigns are running. Some campaigns have to start. And so in this kind of a scenario, for some campaign products, you have some inventory; for some other products, you are buying inventory. So depending on different scenarios. If I see overall, I think significant part of this has already been passed through. But yes, there is still room and scope for passing through for the remaining products, which will happen in next quarter.
Sure. So there should be a positive bias on the overall margin there?
Yes. Do you have any other questions, please?
No, that's it, sir. That's it from my side.
The next question is from the line of Vishnu Kumar from Spark Capital.
Sir, in the past, you had told that many of the CSM contracts we have, more like a per kilo margin or a per ton margin is what we operate with. So any costs generally get passed through. But this inflationary scenario, we have maintained top line growth. We also expanded margins. Slightly counterintuitive in terms of our past understanding when -- because per kilo margins remains the same, the margin should probably come off a little. So if you could explain to us what is different in the past versus now?
No, it is same as what we have explained and what we have achieved. These differentials will not necessarily come from the increase in the given products and their margins. Change in product mix also contributes to the overall margin, and that is also an important factor which has played out. Over the period or over the year or 2 years, there is a change in business mix between domestic and export. And within the business or within the segment, there is also a change in product mix. Certain products which are at early stage of their life cycles have -- obviously, they have better margins compared to some of the products which are a little down the life cycle of their product portfolio.
So yes. I mean, they are -- the overall understanding is the same as you just mentioned that there are transparent costs, which are very much shared with our business partners, and very clear understanding on uptrend, down trend. These are pass-through so that the margins in the products are maintained.
There's no question of in a given scenario kind of increasing margin. That's not the kind of situation and not the understanding.
Any intermediate where you had -- in the past, you were mentioning that you were developing some intermediates at your own either -- or MMH. Those are contributing to the margin delta. Is that -- would that be an answer to the question?
No, that's not the case here. And in this overall big picture, that doesn't make a significant impact in any case. It is mainly driven by the change in product mix, which helps.
Got it. Sir, any thoughts you can give of our CSM exports, how many products would -- or in terms of contribution, what is the early-stage molecules? What is advanced stage molecules? Some percentage of how it has changed in the last few years?
That we won't have right now on the -- in front of us. But yes, I mean, we can talk separately about it.
Understood. Sir, one final question. On the asset utilizations, you had mentioned that we will -- we could be doing more than what the asset turns that we were historically doing because of certain change in processes and -- you mentioned. Is that more or less done? Or we still have some gap before which we need to start investing a lot for capacities?
No. As I mentioned to the earlier participant, that we are operating at a very efficient level in terms of asset turn. But it's a continuous improvement process. I mean we are very effectively working on further improvements on both sides, whether it is process improvement or whether it is even further improving the product mix so that the overall throughput from the plant, revenue from the plant, margin from the plants can improve.
Got it, sir. This INR 500 crores we are investing, how many plants or any multipurpose plants we'll be adding this year?
Well, this is not being spent on 1 plant or 2 plants. There are different categories of CapEx. There is maintenance CapEx. There is CapEx towards some of the research side and capital efficiency and process improvements side. So yes, I mean, there are different categories of CapEx included here. But yes, it will be more than 1, 1.5 kind of MPP capacity that we'll create. And yes, this is how it works.
The next question is from the line of Rohan Gupta from Edelweiss Financial Services.
Sarna Sir, you have earlier guided that your asset turn, which you are aspiring, to go up to close to 2.2 to 2.4x. You still maintain that with the rising inflationary scenario? And also on our greenfield capacity additions and on top of this INR 500 crore CapEx plans, can you guide us any further CapEx plans for future?
Yes. So we are working, Rohan, towards that improvement. I mean, we are already at, whatever, I think 2.1 or something. And I'm sure that the kind of effort that our teams are making both on research side, new products getting commercialized, product mix improving, I'm sure that there is scope and we will surely be achieving better returns over the years.
In terms of investment in greenfield, frankly, at this point there is no such plan because we have still scope for expansion at our existing sites. So therefore, we are considering some brownfield projects in the current year, next year, because there is scope for expansion at a couple of our sites, existing sites. So as and when we will need some additional area or greenfield, yes, we will surely evaluate at that point in time. But at this point, there's no such plan.
So sir, just to clarify that at our existing facilities, you think that how much investment -- further investment it can absorb? And also, you mentioned INR 500 crore CapEx for the current year, right?
Yes.
So how much along with -- I mean, despite the INR 500 crores for this year, how much you think that your current facilities without getting into new greenfield can absorb in terms of money investment?
Well, we have for next -- I would say, next 2, 3 MPPs, we can still get them at our existing sites. We have space in Jambusar. We have space in one of the sites in Ankleshwar. We have some other site available. So in that sense, there is scope for at least, I would say, next couple of years of expansion. There's no need for us to go and acquire land and start from scratch. That is not the kind of scenario we are in at this point.
Sir, another is on our pharma acquisition. Any lead you can provide us? I know that you have been talking about it from last -- every quarter. But I think that there would have been some challenges and delays. Anything -- any visibility increasing there, sir?
So no challenges or difficulties. We are very actively evaluating some options, okay, both on CDMO side, API side in India, outside India. So there are some interesting propositions, opportunities we are evaluating. And we shall certainly announce when we get to a definitive stage.
And sir, just a final from my side and I'll get back in queue. Sir, you mentioned that there is enough and very attractive opportunities coming from the non-Ag space, especially in non-agri and non-pharma space, new age chemicals and all. You also gave, I think, some number, of 20% revenues coming from non-Ag space. Can you, sir, a little bit guide more toward it? And how the pipeline -- and I think that you also mentioned that acquired 8 new products in the new agri -- I mean non-agri space. So what are these product pipelines looking? And how do you see that this non-agri space going forward in next 3 years? What kind of revenue contribution it can have from non-AgChem space? If you can give some more elaborated numbers on that?
So first to clarify, Rohan, that we have never indicated or said that 20% revenue coming from non-AgChem. No, that is not the case. 20% reference is to the number of molecules that are there in the R&D pipeline. We have, say, close to 40, 40-plus kind of projects at this point in time in R&D, and a significant number -- particularly, in last 1, 1.5 years, a significant number of projects inquiries and projects which have progressed in R&D are from non-AgChem segment.
I'll also request my colleague, Atul, to -- also Dr. Atul to also put some light on how the progress is happening on some of these non-AgChem inquires in R&D.
Yes. So Rohan, on the non-AgChem segment, we are building a state-of-art [indiscernible]. And fortunately, the R&D infrastructure is also being aligned and created to start having a right kind of focus on the non-AgChem molecules.
The next question is from the line of Pratik Rangnekar from Credit Suisse.
I just had one question on the -- on one of the points that you mentioned in the presentation. You mentioned that there should be 2 new process innovations that will be commercialized in FY '23. Could you just provide some color on which part of the P&L item this would impact? What kind of benefit that you can see?
Well, it is on products. I'm not sure what you talking about, P&L item. But it's on products, where we've got certain process innovations which are getting commercialized, yes. We have commercialized one. It will scale up big time.
So that would lead to better [ comps ] or more revenue?
Yes. Pratik, this helps in sustaining some of these businesses that we are in. At the moment we get into these innovative processes, I mean, that ensures the long-term stickiness of those businesses. And that is the key driver to get into these innovative processes.
Got it. So this is primarily on the existing products that you have. You are going to make the process more efficient? Is that understanding right?
Yes. One -- I mean, one of them is existing and one of them is the new in-process pipeline product that we are currently working.
Got it. Just one more on the domestic part. Your -- so this -- in FY '22, we've seen that your Kharifs to overall sales ratio, the ratio of Kharif sales to overall domestic AgChem sales have come down, which kind of reduces the seasonality in that part of the business. Would we expect a similar ratio to continue? Or is there some kind of inventory bunching up in 4Q or something that happened which will not be there next year?
No. In fact, last financial year, if you recall, Kharif was not at all good. I mean even for the industry, given the -- given the rainfall both in terms of timing and in distribution and various other agro-climatic conditions, the Kharif season was not great for overall industry. So I don't think that can be taken as a representative base for every year. There are -- although it is quite early, but there are announcements of normal monsoon in the current fiscal. There are also announcements of good acreages for various crops. So at this stage, we hope that Kharif should be normal year -- I mean, normal for this season. But I'll also ask my colleague, Prashant, if he's on the line, to kind of throw some more light on this. Prashant?
Yes. So yes, it's a good question. Look, as we start introducing new products, we are also expanding to wheat crop. We are also expanding into horticulture. So these are all basically more of Q2, Q3 and Q4. As we start scaling up these products, yes, there will be a little bit of higher sales, which you can see in the second half of the year.
Having said that, Kharif is going to be still a major season for us. But yes, there will be more spread, I can say. But in the immediate -- 2022, '23, so we will see Kharif is major.
The next question is from the line of Chintan Modi from Haitong Securities.
Sir, with the 6 to 7 new molecules that you are planning to commercialize, are these all from agrochemical side or this would include non-agrochem also?
Yes, mostly from agro. Out of 7, I think 4 or -- 4 products -- 4 or -- yes, 4 products are from AgChem and 3 from non-AgChem space.
Okay. Sure. And in your commentary when you mentioned that you are seeing good amount of inquiries coming in from non-AgChem side. Are you also seeing similar kind of excitement on the AgChem side? Or there is some kind of moderation also happening over there?
No. We are seeing good traction even in inquiries of the AgChem space. In fact...
As you can see, that overall inquiry rate has gone up by 2x. So it's indicator of both [ shortly ].
Sure. And one more just to understand. Like in such inflationary -- when there is so much of rapid inflation, which impacts the CapEx cost as well. So especially when you have committed a price for a molecule to your customer and post that, the CapEx what you have planned, the cost goes up significantly. So in such cases, how do you approach? Is it like the ROE has kind of taken a hit? Or you're still able to kind of manage that?
Well, generally, in the molecules that we work and the kind of relationship that we have with these global companies, these things are very much understandable. They also understand that if -- for example, if INR 100 CapEx is becoming INR 150, I mean, obviously, there has to be overall proposition which should be sustainable for their business partner who is getting into supply. So in these kind of business scenarios, we sit together. We very transparently discuss, deliberate on these situations. And these things are very much considered from their side.
So if -- and generally what happens, that -- it is not that we have done the contract and then we get into the CapEx spending. Both things happen together, okay? There is an understanding, broad understanding. Then we start budgeting the spending. And if there is some change in the budgeting, I mean, we very transparently discuss with our business partner, who -- I mean, in most cases, they consider these changes given the kind of scenarios that we are in. And these become part of the revised plans and revised pricing structures.
Sure. And what should be the tax rate that one should assume for next 2 years?
Mani?
Yes. An effective tax of 18% to 19% we can assume for...
The next question is from the line of Sumant Kumar from Motilal Oswal.
Can you quantify the margin expansion you were talking about? And what was the reason for the margin expansion? The second question is, the CapEx for FY '23 and '24?
So CapEx we have guided close to INR 500-odd crores for FY '23. And it is a little early for us to kind of indicate numbers for next financial year. But yes, I mean, tentatively, we say that INR 350 crores, INR 400 crores is what -- the kind of rate that we are currently thinking. But yes, I mean, the more finer number would be known maybe later in the year.
And your earlier question in terms of margin expansion. Margin expansion, we are -- I mean, in the kind of scenario that we are sitting today, where it is difficult to kind of predict that what is the kind of cost trend that we are going to see both on raw materials and fuels and other conversions, it is really very difficult to put a number that whether it is 100 basis points or 200 basis points. But -- what kind of visibility that we have today is that there is certainly going to be some operating leverage with the kind of growth that we are talking, 20% growth. And therefore -- I mean, we have a good headroom to improve margins from the current levels. That is one.
Secondly, in the second half or -- second half of last year, okay, we have commissioned at least 4 new products, commercialized 4 new products. And you can imagine that in the initial commissioning time there are inefficiencies and all those things. So we expect that in the current fiscal, we will be able to certainly improve on those processes, cost. And therefore, there is some room to improve overall gross margins and also, because of operating leverage, EBITDA margins. But at this point in time, I'll try not to put some number on it.
So can you give the breakup of INR 500 crores we are talking about CapEx in CSM and domestic business? And how many plants we are through?
Well, it will be mostly in the CSM space, because we hardly do CapEx in our domestic marketing distribution.
So this INR 500 crores is for the [ LTP ] plant?
Pardon?
The INR 500 crores for CSM, how many plants we are installing?
No, I already answered this question, my friend, to the earlier participant that there are different sections of this CapEx. For example, there is CapEx for maintenance. There is CapEx in our research and development center. There is CapEx in some of these new technologies we are developing for future. So it is not that all CapEx is going for building a multiproduct plant or capacity. No, that's not the case.
As I mentioned to the earlier participant, yes, capacity to the tune of 1 to 1.5 multiproduct plants will certainly be there, is what we are building as part of CapEx.
The next question is from the line of Surya Patra from PhillipCapital.
Sir, first question is on the potential growth that we can see through M&A, beyond the 20% kind of growth indication what we have provided. So could you give some sense on that, sir? I think the pharma is one angle that you have been indicating, and I think that is not obviously built into the expectations or guidance. So can you share something there?
Well, again, putting a number here is difficult, as you can imagine, because it will all depend on the size of the asset that we acquire and the size of the business that we acquire. So yes. But all said and done, this will be an addition to our guidance of 18% to 20%.
Okay. Sir, just something slightly more on the pharma side. I think having seen more to the -- kind of deal cancellations, and now we are also getting ready for even international M&A. So what is the thought process there, sir? Is it like having a base closer to the customer, so that is why the international acquisitions. That is what is the thought process or something else?
Yes. So thought process is -- I think we have in the past very clearly guided that what is our aim in diversification. Our aim is that as part of our long-term strategy, we want to kind of build a differentiated business model, okay, which is eventually in line with what we are doing in AgChem as a CSM player. So we kind of eventually build a differentiated CDMO model in pharma. And on this path, we will start from somewhere. And we believe that as a road map to get to this ultimate objective, it would always be beneficial for us to have certain assets in India and also some sort of front end in some of these developed markets, whether it is U.S. or Europe and some of these other markets. So with this aim, we are looking at opportunities both in India as well as outside India.
Okay. Okay. Sir, my next question is on the domestic formulation business. Yes, I think there's 47% kind of a growth in the fourth quarter. What was the kind of volume-led growth? And what would be the pricing growth?
And generally, sir, having seen -- since you have recently guided that -- I mean, recently in the sense -- in the previous question you had mentioned possibly second half of the year is likely to see a better growth driven by the new launches, that, and considering the low base of first half of last year. So is it fair to believe a strong double digit kind of a growth in the domestic formulation side that we should look at?
Yes. So we are certainly expecting high double-digit kind of growth in the domestic area in this fiscal, fiscal '23. Now how much happens in the first half or the first season, Kharif season and the Rabi season will also depend on how the seasons pan out and how the initiation of monsoon happens. But as I was telling earlier, the very preliminary indications are positive both on the monsoon as well as the acreage growth that we are witnessing. So this looks positive. And yes, I mean, since in the first half we had -- last year we had a little softer scenario. We expect that in the first season this year, we should have a reasonably good growth.
Okay. And in this first part of the question, sir, 47% growth. What has really led that in the fourth quarter?
This was led by both, I think, introduction of some of the new products, some of the recently launched products, like wheat herbicide did very well. I mean, we significantly improved our volumes and acreages that we had done last year. This year, we kind of doubled and tripled those acreages and the volumes in the wheat herbicide. Some other products were also launched.
And also, we went very aggressive even in horticulture space, where we could also register some good growth. So all these aspects contributed in this growth. And relatively, if you see last year, fourth quarter was also not very high or significant growth. It was, I remember, close to 11% -- 10%, 11% growth. So that also helped.
Okay. Sir, on your permission, the last question, sir. Just on the margin -- just to understand better on the margin profile front. See, we have consistently and confidently delivered around 19% to 20% kind of a growth CAGR over the last 5 years. But we have remained in the margin -- so far as margin profile is concerned, we remain in the range of around 21%, 22% in that range. So going ahead, is it the product mix, the newer product or the pipeline product that will drive the expansion further? Or it is the efficiency which can drive further? Or it is the domestic to export mix that will drive the margin further? So some sense on that would be really helpful.
Well, by the way, we grew by close to 35% in last fiscal and I think close to 30% in FY '20, okay? So you can imagine that we are growing on a bigger base. But yes, we guided for 20% or close to 20%. But we, as a management, we always believe in exceeding and outperforming our guidance. And those were also very uncertain times, so we were also very cautious, as we had indicated.
Now this year, we grew by close to 16% on overall year basis. The margins, as we explained earlier, that overall scenario -- and probably I'm sure that as an analyst you will also kind of give this credit to the management team, that despite all these adversities around the supply chain and increasing cost trends and also the inefficiencies which come along with the introduction of 4, 5, 6 new products -- despite all this, we were able to kind of maintain -- I'll not say significantly improve -- but maintain the margin profile.
And by the way, this year, there were also several one-offs because of our strategic initiatives. So these are the reasons that we believe that we'll improve upon these 3, 4 areas. And therefore, given the operating leverage that we shall get in the next financial year and the current year, will help us improve our both margin as well as return profile.
[Operator Instructions] The next question is from the line of S. Ramesh from Nirmal Bang.
Can you hear me?
Sorry to interrupt, sir. Sir, your voice is breaking up.
Hello? Can you hear me now?
It's not very clear. Are you using any earphone, sir, or an external device?
No, I'm using an [indiscernible]. Can you hear me?
No. Wait. You're not audible.
Hello?
No. Sir, I would request you to please come back in the queue or disconnect and reconnect your number, please.
We'll move to the next question in the meanwhile. We have a question from the line of Viraj Kacharia from Securities Investment Management.
Just one clarification. This $1.4 billion order book is largely CSM order book, right? It doesn't include the non-AgChem book?
Yes, this is CSM order book.
Okay. So the question is, if I were to kind of understand the CSM revenue growth, say, between the newer molecules and the older molecules over last, say, 2, 3 years or -- how would that have been? And the reason I'm asking this is because if you look at the overall order book, we've been around $1.4 million, $1.5 million for quite some time now. And if you look at the overall environment around us, we're seeing more and more competitors also getting -- benefiting from this whole contract manufacturing and transfer of more molecules from the global partners.
So just trying to understand. Have we kind of lost any business in the older molecules? And how is the kind of market share in terms of incremental newer molecules? Just any perspective you can share on that.
Yes. So I think there are 2, 3 points in your question. So let me try and answer -- address them. First of all, yes, order book has remained around this number. But as we kind of explained in the past, we are growing at, as I was telling earlier, 30%, 35% for last few years. This year, we have grown close to 20% in exports. Now despite this kind of supply, we have still maintained -- sustained this order book. That is one.
Secondly, given the kind of scenario that we are -- at least for last 2 years. First, COVID and then this global supply chain and now again, very, very volatile global supply chain post these recent conflicts and all. I think both from the customer side as well as from our side, everyone is a little tentative in terms of committing very, very long-term. From our side, in terms of capacity. From the customer side, in terms of the global situation, should there be -- I mean, should they be completely banking on one country or should they be balancing their overall procurement from more than one geography and all goes questions.
So given this scenario, I mean, there is little, I would say, slowdown in terms of taking very, very long-term calls and investment calls. But that doesn't mean that it is any way impacting the business, okay? Because the business growth is continuing as is also clearly reflected in our performance.
The second part that -- is it that these other companies and other Indian companies are taking away this growth or something? So to be honest, I mean, the -- if you see overall specialty chemical area or overall Indian specialty chemical growth, I think there is a very decent growth and many companies have done really well. But I think there is a play for every company here. I mean, there are different segments, different models, business models, different portfolio of products. And question is that which model, which category, which segment is sustainable is the point for someone like you to assess.
But given the kind of business model that we are in for last more than 2.5 decades and the kind of business principles that we have around portfolio of being into the early stage, long-term, sustainable kind of model, frankly, we are very happy to kind of sustain this 20%, 25% kind of growth, which we believe can be sustained for many years to come.
Just one follow-up. You talked about having alternative models in the marketplace, and some of the players have actually gone ahead and done JVs with MNC partners for patented molecules. So from your position, do you see the overall opportunity landscape being lesser now? I mean, what's your reading of other MNC partners in terms of exploring this kind of a structure vis-a-vis, say, engaging with us in terms of the new molecule pipeline?
Well, frankly, I was not able to clearly hear what you were saying because your audio is not very clear.
So what I was saying is that we -- as you rightly said, that other alternative models are here and there are some companies who have actually gone ahead and done JVs with MNC partners for patented molecules. So from your position, does that kind of reduce the opportunity size by -- to some extent? And from your interaction with other MNC partners, are you seeing -- what's their understanding in terms of exploiting a JV structure vis-a-vis, say, engaging with someone like PI for new molecule and scale-up?
Well, not really. I mean, we don't see this as kind of any dearth of opportunities. I think we already highlighted in some of these earlier questions that we are seeing traction. We are rather seeing a traction in the inquiries, in the new business opportunities that are coming to the table. And in fact -- I mean, these JVs or patented JVs, I mean -- and all these have been done 10 years back by PI in terms of joint ventures with some of these global business partners. Tie-ups with these global companies, we are doing for last 25 years.
So point is that it is certainly not a loss of opportunity for us or some sort of reduction in opportunities for PI, not at all. In fact, we are seeing a good traction in terms of overall inquiry, demand scenario, business interest. There is also addition of new customers, as you would have read in some of our presentations. So I think this is quite a positive scenario at this point.
The next question is from the line of Gaurav Chopra from Union Asset Management.
Sir, first question was just an extension to I think previous participant's question on the order book. So given you've highlighted that last 2 years have been volatile and you have been sort of reluctant or tentative to add to this order book. But do you think going ahead we will see accretion of the order book, because we are already over $0.5 billion in the CSM space? So do you think you'll add to this number?
Yes. And again, I must answer this in a different way. Order book may not be only the way. It's good when you're in the initial stages of business. But I think once you're creating certain class of assets and capabilities for certain products, the stickiness is already created. It's not really driven only by order book. Order book was actually taken as a -- if you would ask me in the early stages -- as a part of risk management for the company, and also that came at a cost. I think now we have a different level of stickiness.
So hence, order book is not really the driver. Because if you've got some product that is running 5 years, 10 years, and with your capabilities, you can benchmark where you are, the customer wants to work with you and you want to work with him. So that risk factor is now different today for PI compared to what I would say 5, 10 years ago. So therefore, we are not really driving this as a way, but we're always looking at the opportunity scale and optimizing it.
Got it. Got it. So sir, secondly, is there any contribution from pharma currently in [indiscernible] or -- if yes, what would that number be, if you can sort of share that?
No, that's not a significant number. I mean I think as we guided earlier, we have scaled up a couple of products, a couple of pharma intermediates. But this is not a very significant number.
Okay. And for non-agrochemicals, if you can share that number apart from pharma?
Yes. So there are 3, 4 projects, again, we have commercialized in last 1 year. But as you can imagine, that initial years -- these are not very significantly large numbers. But yes, over the years, we are expecting them to scale up and then become a meaningful number.
The next question is from the line of S. Ramesh from Nirmal Bang.
Hello? Can you hear me now?
Yes, sir. You may proceed.
Yes. So the first part is in terms of the initiatives on the non-AgChem space. Is it possible to share in terms of the investment required and the margin profile and the kind of synthesis you require? Is it going to be similar to whatever you've been doing so far? Or is there any difference? And will it help you improve the quality of the business in terms of the asset turn? And the kind of synthesis -- high-value synthesis you use, what are your thoughts on that?
So right now, I would answer it with one approach: is, obviously, we are looking to move up the value curve in terms of capabilities and offering. And obviously, as you move up the curve, the parameters need to get better. And that's really the idea of moving into that space. Yes?
Okay. And the second part is on the domestic business. Is it possible to share what are the kind of registrations you received last year? And how many registrations have you filed for -- as on date?
Well, I think we received 293 registrations last year. Prashant, you want to come in?
Yes, you're right. We have received 290 registrations last year and 3 more in pipeline for the coming year.
Two more, is it?
Three more.
We'll take the next question as the last question from the line of Tejas Sheth from Nippon India.
Sir, if you are expecting 20% kind of growth, so broadly that would be around INR 1,100 crores on the SpeChem side. The current CapEx which we did of, let's say, around INR 340 crores, would that be short of achieving that kind of revenue growth?
Well, the business -- I think if you look, we did INR 1,400 crores of CapEx over the last 2 years before that. Plus, it's not CapEx driven. It is about, as we said earlier, is about asset improvement. And if you look at our -- if you look -- if you were to ask me, we have about now 15, 16 plants. 10% improvement in efficiency in throughput creates 1.5 plants. So it is not linear. And that's -- on one side, we have a focus on asset turn. The other side, we want to look at CapEx.
So I think growth is clear, but how to continuously optimize the use of technology and efficiencies is what we drive, not really just CapEx. CapEx would not be the right benchmark in the chemical process industry unless you are into commodity chemicals, where you can look at capacity and capital as a part of throughput increment, not in the process and technology businesses that we are, at the higher end of the value chain. Yes?
Okay. Okay. And the typical contracts, the price contracts or the cost pass on contracts which we have with our clients, those contracts also include other expenses like logistics cost? Or it is just our end cost increase driven?
Well, each contract is different. But if you look at the bigger picture, logistics is not a very large proportion of our cost given the value addition that we do with our products. Obviously, that would matter we'll get high volume -- commodity low-value products that would matter. But that's not a large component of the overall game in the PI contracts.
I now hand the conference over to management for closing comments.
So thank you, everyone. Deeply appreciate all your support for coming on to this call today. And we look forward to a great year. And I wish each one of our team members for all the very best, and look forward to you once more. Thank you.
Thank you very much. On behalf of PI Industries Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.