PI Industries Ltd
NSE:PIIND
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PI Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 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, Mr. Solanki.
Thank you. Good afternoon, everyone, and thank you for joining us on PI Industries Q4 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 of Domestic; Mr. Atul Gupta, CEO of Exports; and Mr. Anil Jain, MD, PI Health Sciences.
We will begin the call with key perspectives from Mr. Singhal. After that, we will have Mr. Manikantan share his views on the financial performance of the company. After that, the forum will be open for question-and-answer session.
Before we begin, I would like to underline that certain statements made on today's conference call 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 share his perspectives with you. Thank you, and over to you, sir.
Yes. A very good afternoon to all of you. Thank you for taking this time to join us today. We are assembled to review the fourth quarter and the annual performance of the company. Financial year 2023, we witnessed unprecedented challenges. Global economic activities experienced a widespread, sharper-than-anticipated slowdown and inflation has risen. The cost of living prices, tightening financial conditions in almost all global regions followed by Russia's invasion of Ukraine and the lingering effects of the COVID-19 pandemic have hurt economic outlook.
Against the backdrop of the overall business and operational environment in 2022, '23, I'm very pleased to report we have delivered on our ambition, shifts, financial targets revised upwards in Q3. Team PI has excellently continued the growth momentum of revenue and EBITDA during Q4 and for the full year '22, '23. This growth came despite [ forced ] challenges in the last year's high base, both in domestic and exports. I thank all PI team members for their winning spirit and our business partners for their continued support and trust in our relationships.
PI's model continues to deliver year-on-year. Our revenue growth for '23 came in at 23%, with an EBITDA increasing by 35% and a post-tax increase of 46%. Further, a laser sharp focus on net working capital management significantly improved the cash flow from operation activities for nearly 3x of that of '22.
Given our growth disposition, we delivered a healthy accretion of free cash flows and investments in capacity creation and new research. In line with the continuity of superior delivery of results, the Board of Directors have recommended a dividend of INR 5.50 per share, thereby giving a shareholder total dividend of INR 10 per share for the year '22, '23.
I will also take this opportunity to comment -- convey yet another milestone in the PI journey, with a twin acquisition into pharma CDMO and CRO space announced on 25th of April 2022 -- '23. These acquisitions mark a solid and accelerated beginning of PI journey in the pharma space. Our unique ability to build concrete offerings from abstract situations and leveraging our capabilities across the complex chemistries in the value chain and business processes will continue, again, to create a differentiated value proposition to our stakeholders.
With the advanced range of crop protection brands, the domestic business has thrived at a 15% annual growth with 8% volume and 4% coming an increase of price in '23. Our new launches in the recent few months have witnessed a good acceptance. With the portfolio of new brands and brand launches over the past few years, we have established a leadership in respective categories. During '23, we delivered one of the highest number of launches of new brands in the industry in a year. We have a strong pipeline of products at different stages of development and continue to enhance our portfolio with a differentiated offering.
Indian exports at USD 24 billion plus worth of chemical in '22, the highest level achieved since year 2015. In another 15 years or so, in India, expected to market of USD 850 billion to USD 1,000 billion, accounting for about 10% to 12% of global share. Specialty chemical exports from India are slated to scale 10x between '23 to '30, in line with the growing consumptions in the consumer, agri and industrial space. [indiscernible] Indian AgChem is slated to grow 10% to 12% in '24 with exports accounted to 50%.
Concurrently, the China Plus One phenomena and the decline of the EU had chemical industry powerhouse with support growth for India. India is naturally well placed to absorb this new demand on account of development of value chain backed by its finesse in chemical engineering and technologies.
In the recent past, specialty chemical industry has been witnessing some headwinds with the U.S. seeing recessionary pressures and Brazil expecting elevated channel inventories. Similar demands, so the agrochemicals is said to be trading lower in the EU and China as well. But all this is more relevant to the generics and more mature products in the market.
PI was mainly engaged in the early-stage molecules. The demand [ scenario ] for said products largely remain unaffected given the inherent nature of its model. We continue to work with partners for the global requirement for their new molecules.
PI has meticulously developed the model over the years that work best for the innovators and ensure high quality, timely supplies of next-gen products to global requirements. The quality in the quantum of order book at the pace of inquiries testify renown for developing advanced solutions.
Over the years, we diversified the client engagement to cover newer markets, products, crops and segments. PI's competitive advantage lies in technological edge, world-class infrastructure, suitable sustainable operations backed with human ingenuity to enduring the relationships with global innovators and large innovators in the world in the chemical industry. I'm confident of the underlying momentum in our core businesses and expect the company to deliver between 18% to 20% growth momentum with better margins in '24.
The pace of commercialization of new molecules has increased year-on-year, which is apparent in our performance. We expect to continue this pace with 4 to 5 molecules yearly and record scale ups of existing molecules. Our recent foray into the pharma through announced acquisitions presently is well defined pathway into the pharma ecosystem with the help of integrated approach from R&D, starting materials, API and single-stop solutions to our customers.
Once again, ESG remains the core of our initiatives. It's a way of life at PI. I'm pleased to report that PI received several accolades during the year, reorganizing our long-term quality, CSR and safety programs. PI is committed to inclusive and responsible growth, aligning with ESG [indiscernible] and creating a long-term sustainable solution towards a purpose of reimagining a healthier planet.
With that, I now conclude my remarks. I would like to invite the CFO, Mr. Manikantan, to take over the statement of financial performance. Thank you. Over to you, Mani.
Thank you, Mr. Singhal. Good afternoon to everyone, and thank you for joining us on the call today. I'll be summarizing the company's financial highlights for the fourth quarter ended 31st March 2023 and the year-end performance. Please note that all comparisons are on year-on-year basis and refer to consolidated performance of the company.
During Q4 FY '23, we reported a revenue of INR 15,656 million, a growth of 12% over the same period last year. This was driven by growth in exports revenue by 15% to INR 12,814 million and 1% increase in domestic revenues to INR 2,842 million. The export revenue growth of 15% was led by price and a favorable product mix of 17%, offset by volume debase of 2%. And domestic growth of 1% year-on-year was driven by volume increase of 2%, offset by a price decrease of 1%.
Our gross margin improved by 74 basis points to 45% due to favorable product mix. EBITDA increased by 13% to INR 3,440 million for the quarter, driven by operating leverage benefits and tight control on fixed overheads. Profit after tax increased by 37% to INR 2,806 million, attributable to EBITDA growth despite high depreciation.
Cash flow from operations before tax during Q4 FY '23 was INR 5,729 million. This was due to a higher EBITDA and efficient working capital management. The trade working capital in terms of number of days of sales reduced to 79 days vis-a-vis 103 days as on 31st March '22.
Let me cover the annual performance for FY '23. Revenue was INR 64,920 million, a growth of 23% over FY '22. This was driven by solid growth in export revenues by 26% to INR 50,304 million, and 12% increase in domestic revenues to 14,616 million. 26% growth in exports were driven by scale-up of existing products and introduction of 4 new products. The growth was led by volume growth of 11% and 15% from price and favorable product mix. Revenue growth of 12% in domestic segment was driven by price increase of 4% and balance from volume growth. Pricing input costs were offset by efficiencies and price increase in exports and domestic.
EBITDA increased by 35% to INR 15,489 million for the year. Favorable product mix and significant increase in operating leverage reflected an improvement in the EBITDA margin by 223 basis points to 24%. Profitable tax improved by 46% to INR 12,295 million and effective on account of ETR, effective tax rate, improvement was 14.9% due to growth in export revenue.
Our balance sheet further strengthened during the year. Net worth increased to INR 71,985 million as on 31st March 2023. Total CapEx for FY '23 stood at INR 3,385 million and is in line with our plan. Inventory levels also reduced in terms of days of number of sales approximately to 79 days to INR 13,976 million. The company repaid its entire ECB loan during FY '23 and maintained its strong liquidity position. Cash generated from operations before tax for FY -- during FY '23 of INR 17,572 million vis-a-vis in FY '22 INR 7,038 million, including efficient working capital management, leading to significant improvement in the cash position.
That concludes my opening commentary. I will now request the moderator to open the forum for Q&A. Thank you.
[Operator Instructions] We take our first question from the line of Aditya Jhawar from Investec.
My first question is that we acknowledge that inventory situation for generics is much more as compared to innovative products. But keeping that in backdrop, a volume decline of 3% in this quarter, if you can throw some light, are you seeing a change in production schedule of customers? Or are you also seeing that there is a commentary, which is suggesting that deferment of procurement by farmers. And in that backdrop, how is the volume momentum looking over the next few quarters? That's the first question.
So yes, as you explained that the backdrop of falling given the inventory -- overall inventory in the channel and the trends of procurement of generics, that is fine. But in case of products or particularly the products that we operate, the early-stage molecules, we are not currently witnessing any kind of significant change in the demand scenario for us going forward.
As far as quarter 4 volume decline that you are referring to, this is very much as part of our annual plan, okay? And this was in line with the annual plan because there were supply schedule -- supplies scheduled of different products for different customers in quarter 1 to quarter 3. And accordingly, as per the planned schedule, certain quantities were scheduled in quarter 4.
So therefore, this volume growth or volume degrowth and the overall value in quarter 4 is absolutely in line with our plan. In fact, overall financial year '23, we basically delivered better than what we had anticipated for this year for our exports. And this is obviously based on the surge in some of these existing and new products that we have seen.
Going forward, in coming quarters, as we have also again guided, we are seeing similar trends. We are expecting 18% to 20% growth going forward, and this will surely be seen in quarters -- coming quarters. Yes, in certain quarters, this growth may be higher. In certain quarters, again, based on the schedule, growth may be a little lower than 18%, 20%. But overall, for the year, FY '24, we are very confident and we have a very clear visibility of growing this business close to 20%. I hope this answers your question.
Yes. That's very helpful, sir. One bookkeeping question, sir. When we look at export database, that and what numbers PI has reported, there is clearly a difference of about $50 million. In terms of, sir, revenue recognition, do we recognize the revenue once the shipment reaches or it's based on the export?
Yes. So this is basically different Incoterms with different customers, different contracts with different customers. So -- I mean revenue recognition is absolutely accordance to the accounting standards.
But the ballpark, which is a large part revenue after it reaches or when it is shipped?
This -- as I told you, this is certainly according to the Incoterms and also the different agreements with different customers. I certainly cannot -- obviously, it is not in front of me to tell you that what percentage is to what kind of Incoterms.
Sure, sure. Sir, final question is around margins. Sir, if you can throw some light. We saw sequential margin compression. I mean how should we think about margin going into FY '24? What are the key monitorables that we should look for?
Yes. So margins, again -- I mean if you see, there is -- in quarter 4, there is a dip of close to 2.5% in gross margin, and that is directly linked to the product mix. And as I said earlier, different quarters will have different product mix, while in quarter 3 or quarter 2, this product mix was different. Even the business composition was different. In quarter 4, it was slightly different. And that is -- the gross margin, this is clearly reflecting the product mix change.
Besides this, I mean being the last quarter of the year, there are also annual provisions and charges, and there were also one-offs pertaining to some of these strategic initiatives that we were taking throughout the year. So yes, and that is even around less than or around 1% or so.
So that is -- I would consider that to be a one-off kind of case. Going forward, FY '24, we are expecting to certainly improve our overall FY '23 margins and -- I mean it would be difficult for me to quantify. But yes, as the volumes -- values, we are expecting to grow by 18% to 20%, operating leverage benefits and also some qualitative improvements in the product mix. We are expecting to further improve it with the margins going into FY '24.
Yes. The final question is on CapEx, sir. How should we look at the number, combined CapEx for even the acquired assets in FY '24 and '25?
Yes. So as we guided in last quarter, we are -- we have some carried over CapEx of close to INR 300-odd crores. We are also expecting to do another INR 600-odd crore CapEx in the core business areas, okay, which is exports and domestic and all that. So close to INR 900 crores -- INR 850 crores, INR 900 crores CapEx we are seeing in the AgChem business areas.
And as we guided earlier, in case of pharma, we are still to get into the depth of the current -- assessing the current stage and all that. But yes, tentatively around INR 10 million to INR 12 million is what we are projecting. But yes, these number -- pharma-related numbers will get firmed up, only then we get into more details and we take full control of these acquired entities.
We take our next question from the line of Vivek Rajamani from Morgan Stanley.
One clarification and one question from my side. Just an extension to the previous participant's question on the margins. You mentioned that the dip in this quarter was because of the product mix. Just wanted to clarify, does this product mix typically happen in the fourth quarter? Because in the last couple of years as well, the fourth quarter margins have gone a bit below the previous quarter. So I just wanted to check if this is a 4Q phenomena normally? Or is this something which has specifically happened in this year?
I will not say this is a very normal or regular phenomena. But yes, every year, the scheduling of the product may undergo some change depending on the specific markets or customers or product-specific requirements. But yes -- I mean the product mix NIMs vary year-to-year, and there is no fixed, I would say, trend or there is no specific trend on this for a specific quarter.
Sure, sir. And the second question was more on CapEx. Even after the recent acquisitions, you still have a lot of firepower with respect to your balance sheet and cash. So just looking slightly beyond F '24, '25, could you just maybe provide some color with respect to your more medium-term ambitions with respect to how you're thinking of deploying this cash?
Yes. so -- I mean we have several strategic initiatives that we have clearly identified for our long-term growth of the organization. And obviously, the cash on the balance sheet will get deployed over the years as we progress on some of these initiatives. Now these initiatives are -- some of the initiatives would be bolt-ons for pharma, some of the initiatives even to strengthen our product portfolio in the domestic market. So looking at some technology, some product.
And then we are also -- as you know, in the past, we have been evaluating, looking at -- and still looking at some of the opportunities of near-shoring and expanding our global manufacturing footprint going beyond India. So yes -- I mean there are several of these strategic objectives that we have clearly identified and we are regularly evaluating -- actively evaluating several inorganic opportunities to meet these objectives, and will eventually -- as we will keep zero down on some of these opportunities, we'll keep supplying cash on the balance sheet.
We'll take our next question from the line of Sabyasachi Mukerji from Bajaj Finserv AMC.
My first question is a clarification on the growth guidance between the 18% to 20%. This is excluding the pharma CDMO consolidation that will happen? Or I mean this is including that?
Yes. This is excluding that pharma consolidation.
Okay. Okay. Great. A follow-up to that is, if I look at your FY '23 revenues, which grown at 23% and the CSM exports basically grown at 26%, large part of that also came for -- from the benefit of currency depreciation. So what kind of volume growth, if I may ask, that you are looking at in FY '24?
Yes. So it will be -- broadly, I would say, it will be broadly the volume growth that we are indicating, 18% to 20%, because we are not expecting a significant price movement or currency movement from here, okay? So yes, it is majorly coming from volume growth.
Okay. Okay. And is there any skewness probably towards H1 or H2? I mean you are seeing -- depending on the client orders and all, will it be rather back-ended? Or it will be even out during this year?
Yes. There is no major skewness that we see here. I mean it will be broadly spread. But yes, as you see, domestic season is -- the domestic business is, I would say, majorly in the first half, at least 60% of it. When we talk about exports, it is broadly, I would say, evenly distributed in H1 and H2.
Okay. Last question from my side is, how should one look at the tax rates for FY '24 and '25?
Mani, you may...
Yes. The effective tax will be normally within the range. Currently, it is 14.8%. However, for the next year, it will be between 15% and 16% -- 15.5%, something like that.
We take our next question from the line of Rohit Nagraj from Centrum Broking.
And congrats on a good set of numbers. So first question is on the pharma acquisition. Is it possible to give broadly what is the kind of asset turns, both Archimica and TRM have? And basically, what kind of incremental projects that they are working on?
So Anil, do you want to take that question?
Yes, yes. So in fact, right now, as Rajnish said in the initial deliberations, we are in the stage of detailing it out. One transition is closed, other is in the process right now. So it will take some more time for us to assess that part. We are not right now having the entire detailing, which we are in the process of doing it right.
Sure, sure. No worries, sir. And the second question is particularly from the domestic market. So we've been hearing that there are a good amount of channel inventories in the system and influx of China generics. So will that also have an impact on our products based on last 1.5 months of placements that we have done for the kharif season?
Prashant, do you want to take that?
So channel inventory, we are maintaining as per our practice and strategy, which we have been doing the last few years. So I don't see any abnormality in the channel inventory. So whatever growth which we are forecasting for Q1, basically, we are optimistic and positive on that.
And just to add to this, PI is, in any case, into specialized products, not so much so into these generics and need to kind of -- so the steep fall in pricing or inventory -- channel inventory that is being talked about, I mean it's not so much so relevant for our kind of product portfolios.
We take our next question from the line of Praful Kumar from Dymon Asia.
Sorry, I missed the CapEx number, sir, for next year. What is that? Total INR 1,000 crores are you saying?
Yes, around INR 900 crores that we indicated.
Okay. Understood. And secondly, sir, in terms of your acquisition plan, you said there are a few other opportunities that you're working on. Broadly, I want to understand what space, geographies or alignment to the business there will be?
Yes. So that's what I was explaining that this is in different areas. So for example, there are certain other technologies that we are evaluating to further strengthen our portfolios of marketing and distribution space. There are opportunities which may also help us derisk our manufacturing concentration in India and have more global manufacturing footprint near-shoring the markets and all.
There are also opportunities that may add more value and help us further strengthen our pharma business model, would be bolt-ons to that. So yes, there are different opportunities, bolt-on technologies, yes. And over the years, we will surely be kind of -- to meet our long-term objectives, we'll be kind of deploying our cash from the balance sheet towards these areas.
Got it. And finally, sir, on the asset turn that you incrementally deployed, would be similar to what asset turn we have currently or these are better opportunities or molecules?
This would surely be our objective. But as you can imagine that whenever you get into a new business area or new assets, you will have to make some development spend and there will be initial period. But after that initial period of integration, yes, this will be our objective, to improve on our current financial metrics, including asset turns, margins, asset returns and all.
Got it. Got it, sir. Congratulations, sir, and looking forward to a very strong year next year.
[Operator Instructions] We'll take our next question from the line of Ankur from Axis Capital.
Sir, first question on the CSM side. So if you can highlight the revenue contribution from, let's say, the newer products, which we would have launched over the last few years or the freshness index that you usually share in terms of the ramp-up?
Yes. So in last 4- to 5-year products that we have commercialized, 17% to 18% is the revenue coming from those products because generally, that is the metric we look at.
Sure. And if I'm not wrong, last year, this number was around 15% to 16%?
Yes. 16% to 17%, yes.
Okay. Sure. And sir, on the domestic side as well, while on an overall basis, there is a pricing and a volume metric growth and you have mentioned an 8%-odd growth for the full year. How has been the ramp-up there from the new products and the older ones? And a light question to that, is there any downtrading or any slowdown in terms of the uptick in sales?
Prashant, maybe you may want to take this?
Yes. So overall, in terms of new products, it has continued to grow. So we don't see any challenge on the products which we have lost. These are very specialized products, and there is a requirement in the market. So that is why we strongly feel -- even in this year as well, these products continued to do well, that is what I can say.
Sure. And just a follow-up, if I may. The working capital reduction that we have seen, a pretty impressive performance there. Should we expect that to sustain going ahead as well? FX on the inventory side?
Yes. So I would say by taking some of these initiatives, we have substantially significantly reduced the working capital, particularly on the inventory side. As you mentioned that for the last 1, 1.5 years, because of COVID and uncertainties in supply chain, shipping lines, so on and so forth, we were -- obviously, we were operating at higher inventory levels and working capital levels.
So by taking these initiatives, a significant part of it, we have already kind of normalized in last couple of quarters. There is still some room and -- on both sides, domestic as well as export side. We will be working on it. There is some scope. But yes -- I mean I would surely caution the analysts to not to extrapolate from the current trends or current levels. Current levels of improvement is what I meant.
We take our next question from the line of Madhav Marda from Fidelity.
I just wanted to broadly understand when customers are asking for more near-shoring of capacity, like I would assume cost of manufacturing -- Okay, FX cost would be a bit higher if you were to make the same product in Europe or in the U.S. So -- I mean is it because they don't want to have -- I mean what's the key reason for having this near-shoring?
Yes. So near-shoring, you may have many strategic reasons. One is obviously some of the strategic projects they may want to have closer to their sites, closer to their markets, okay? Plus, near-shoring also helps in overall supply chain management because sometimes it is not that the final product that you supply, you're part of the overall supply chain and then there are other people, other suppliers also involved in a particular product. And therefore, from the overall supply chain efficiency point of view, it is -- they find it better to have some of the suppliers near-shoring or near the markets or their setups.
Yes, some of these reasons are there. And obviously, as far as cost is concerned, from our point of view, we would always want to be sure that the cost advantage that we have being operating in a relatively low-cost country always remains, and there's no point on giving away that kind of benefit.
Got it. And just second question from my side is when we look at our pipeline, you do mention the mix between agrochem and non-agrochem pipeline. But within the agrochem, for example, is the pipeline more to do with new patented AIs that we're looking at? Or is it more intermediates? If you could give us some broad sense in terms of how -- like how does the pipeline mix look like?
When you look at the 2 areas of -- it is -- I guess it is in the IP space, whether it's new AIs or advanced intermediates, that's where we play, which is more complex in technological related products.
AI is an advanced intermediate, so patented molecules, right?
A mix of both.
We take our next question from the line of Sumant Kumar from Motilal Oswal.
Sir, you have mentioned in the PPT, the 5 innovative products we are going to launch in FY '24. So can you talk about how many products is patented and which -- any other -- any product is really a good product and high-opportunity segment?
Yes, so as we explained to the earlier participant that most of the products that we commercialized in our export are early-stage molecules, be it AI or be it intermediate, okay? And even in the domestic area, most of the products that we introduced, the new brands that we introduced are specialty products. I mean they are innovative, patent or no patent, but these are all specialty products [ we can differentiate ]. They are being introduced in the market for the first time and all that. So yes, that is the broad...
I'm asking for the domestic products, sir. I'm asking for domestic market than the formulation...
Yes. Domestic market also, these are all specialized products.
Okay. Any product you want to highlight, which is likely to do well or high-opportunity area?
Yes. Most of these products, whether it is Brofreya, whether it is Sectin, Dinoace -- maybe Prashant, you now want to elaborate on it?
Yes. I don't want to get into a product very specifically, but I can say that these products, we can do very well on wheat, we can do well on rice, we can do well on horticulture crops. And on top of it, we are adding few biological products and they are crop agnostic. They can move into many other products -- many other crops, sorry. So it is a mix of, obviously, biologicals as well as crop protection products.
And any exceptional item in -- or ForEx loss and gaining other expenses this quarter?
Other expenses you're taking about?
Yes.
Other expenses in this quarter, you saw, we have prepaid our ECB loan, that is our [indiscernible].
Any onetime expense in other expense this quarter?
Yes, we have told that there are some onetime expenditure on kind of the strategic initiatives for the quarter, which has been discussed. As for the -- I assure year-end pass-through will be there, provisions will be there.
Can you quantify that?
Yes, close to INR 20 crores, INR 25 crores.
INR 25-odd crores.
INR 25-odd crores? Okay. So that will not going to continue next quarter?
Yes. Those are annual features and the strategic initiatives have gone up.
We take our next question from the line of Sanjaya Satapathy from Ampersand Capital.
Sir, if you can just explain us that -- your revenue growth is coming in despite volume not growing as much. So the price hikes, how much of it is because of product mix change and how much of it is actually you taking price hike?
Well, we don't have this much detail in front of us. But as we explained, overall, if you see the annual numbers, I mean we have said that close to 11% of the growth that has come in our export is from volumes and the rest has come from change of product mix, price, currency because we have seen all these things moving. And these things are also over -- have overlapping impact. It is very difficult to segregate price from product mix and then to currency.
Understood, sir. The primary reason why we're asking this is that nowadays, mostly we're in a bit of a deflationary environment and whereas your numbers are pointing out, as you say, you have been taking lot of price hikes. So I was just trying to kind of understand whether it is actual price hike or it is getting into some different products?
No, it's not price hike. So -- I mean if you talk about last year, FY '23, the numbers that we are talking, yes, there was inflationary impact on the raw material prices. And as you know, our business model is that all these inflationary impacts are passed through to the customer so that we can sustain the kind of margins that we are operating at. And that was the reason of price increase. It is not that there is a deflationary trend in raw material costs and other costs, and we are increasing the price. That is not the scenario.
Understood. And sir, related question is that in your guidance, you are really looking at next year, the financial year '24, as more driven by volume growth, that 18%, 20% growth, rather than price increase.
Yes, because we do not see this inflationary trend and the currency trends moving forward or moving up from where we are today.
And at the same time, you are looking at better margins. So it must be because of better utilization and operating cost savings?
Yes, you're right.
Understood. And sir, last thing, I just wanted to understand, though you might have already explained that there is a steep jump in CapEx and definitely, that INR 900 crores doesn't include the acquisitions, I assume. So this steep jump partly is because of the delayed deferred CapEx. Is that right, sir?
Yes. So we are carrying over close to INR 300-odd crores from FY '23, as we explained earlier.
Okay. And the benefit of this new CapEx will be realized in financial '25 onwards?
Yes.
[Operator Instructions] We take next question from the line of Vishnu Kumar from Spark Capital.
Sir, a connected question from the previous caller. Are you seeing currently deflationary trends starting to play out now, some RM material that is coming off now and which you would have to kind of pass on to your customers at the later part of the year?
Yes. This is quite -- I mean there is no, I would say, common scenario here. I mean it varies from product to product. As we were talking earlier, in case of generic, in case of many of these commodity chemicals, yes, there is deflationary trend that we are witnessing, and -- but yes, there are still several of these raw materials or specific technicals where the prices are quite stable, in few cases, even increasing. So it's a very mixed kind of scenario.
But yes, as a business model -- as for our business model, whenever we see these kind of improvement changes even downwards and as per our understanding with the customers, these are all pass-through.
Understood, sir. Sir, earlier, we used to say that we were -- a lot of efficiency gains we're bringing in terms of our manufacturing practices and hence you are able to increase revenue and volumes with a limited CapEx. Where are we now? Have we maxed out that?
And also, if you could also talk about your INR 300 crores carryover plus INR 600 crores this year? And also next year, what kind of agrochem CapEx you'll be doing over the next 24 months? And what kind of -- how many new multipurpose plants? If you can just give some commentary on this.
Yes. So -- I mean, obviously, over the last 2 years, we have taken a lot of initiatives towards the improving, increasing the plant throughput, improving the capital efficiency. And this is all reflecting in, as you can see, the asset terms and all. I'll not say that this kind of trend in this magnitude will continue. But yes, there is still -- there are a lot of opportunities still. And our teams will keep working on further improving these efficiencies from here as well.
What was your next -- I mean second part of your question?
I just wanted to understand the nature of the CapEx you are doing in agrichem. So close to INR 900 crores, including the carryover of previous year. And whatever you have some plants in terms of putting next year, what -- will it be new multipurpose plants? Or what is the nature of CapEx or how many new plants will be coming in? Any idea on that?
Yes. So the major part of this CapEx is towards capacity building. And we are putting up 2 more multiproduct plants, which will be coming up. The other part of this CapEx is, obviously, towards further automation and towards the qualitative improvement of the sites, R&D and other technology upgradation of these plants.
Understood, sir. Sir, one clarification of a previous question you made -- point you made, sir. Sir, you mentioned that there are some contracts where you will recognize -- this is on revenue recognition, more to Mr. Mani, sir. Are there any contracts where you probably have exported some volumes, but it is still not reached to the customer. Only when it reaches more of a CIF basis, then only you'll consider as revenues? I think the first part is [indiscernible] question, sir, just a clarification on that.
Maybe -- I mean you see as per the accounting standard, if there are contracts where you are producing exclusively for 1 customer and they also very specifically mention that you produce and keep this at the port or at some warehouse or something, now those things are as per the agreement and exclusively for the customers.
So as per the accounting standard, those things are recognized accordingly. So that's what I'm saying that each contract, each product, there are different Incoterms, there are different inventory terms and then supply terms. And accordingly, revenue is recognized. But all this is done as per the accounting standards.
We take our next question from the line of Abhijit Akella from Kotak Securities.
On the pharma acquisitions, would it be possible to share some rough guidance regarding the sort of EBITDA contribution they could make in FY '24? And also one corollary to that, for Therachem, we don't have the FY '23 EBITDA. In case you have it handy with you, could you please share that?
Yes, we are still in process, Abhijit, and as I told you last time, we are still to close those, particularly Therachem transaction. And we are not currently -- I mean these numbers -- FY '23 numbers are not readily available with us.
But tentatively, our projections are anywhere between INR 550 crores to INR 600 crores of revenue. Again, it will all depend on when we close and when will these numbers get consolidated with -- and also 15% to 18% of EBITDA on that.
15% to 18% margin? Okay. I was under the impression that Therachem was doing much better than that, so from the FY '22 numbers?
There will also be going to be some development spend in the initial years in consolidation. We are also putting up our R&D side. There are also going to be some development spend in the initial years. So let me answer, we are in the process of building a unique business model.
And acquiring and breaking to the next level requires certain different players. Those investments will happen over the next couple of years where there's an overhead or whether it's in the structures or whether it's building assets. So we are looking at that as the growth engine [indiscernible] going forward.
Understood. That's clear. Helpful. Second thing was just on the new product contribution. So the percent of revenues from the new products has been sort of stable at around 17%, 18% for some time in the past. As we move into the next 3, 4 years and try to bring down our product concentration within the agrochemical business, away from the top molecule, how confident -- much confidence do we derive from the traction in the new molecules that we are moving in that direction? And what sort of improvement could we expect to see there?
Well, the fact of the case is this is a constant pipeline, Abhijit, which keep coming, right? So there are peaks and troughs for each product. And at each different stage, different products take the cut. And if you look at the cycle of 15, 20 years, that's the life cycle of the product, that's [indiscernible] and they will remain where we are. I mean if you look at the history of last 4, 5 years, it is between that range of 16% to 18%, because that's the typical scale up time by cycle for a new product.
And many of these new products that we have added to our portfolio, I would say, both on the export side as well as on the domestic side, they have significant potential. On domestic side, some of these products are multi-crop, multi-crop by segment products, not specifically about a single crop of that segment, okay?
So they have much larger market potential. Same way on the export side as well, some of these are either AI or features of very large global molecules. They have very good market potential of growing today.
Got it, sir. And just one last quick thing. Slide 11 of the presentation -- sorry, Slide 16 of the presentation talks about working with some global advisors for integration and transformation for value creation initiatives. If you could shed some details on that, what direction are these initiatives towards, that would be really helpful.
This is as you've seen in the pharma initiatives, really definitely need to get various expertise, and that's what we're doing. That's -- we're working to drive it a little bit towards the integration of the required entities and also transforming and helping us with this differentiated model.
We'll take our next question from the line of S. Ramesh from Nirmal Bang Equities.
So in terms of the outlook for next year, if you're looking at the entire top line growing from volume, how would you expect to maintain margins at the 24%? Will there be some stability in margins per unit? And the reason I'm asking is there is some decline in prices compared to the base of last year, to the extent that there's a decline in the top line, the overall trend will be down. So in terms of the margin outlook, can you give us some sense what to expect?
Yes. So as I explained earlier, we are expecting to improve on margins and this will mainly be driven by operating leverage because we are expecting to grow 18% to 20%. And there are also efficiencies that -- I mean several initiatives that we are working on to improve -- further improve efficiencies around our manufacturing as well as on marketing trends.
Okay. And on the pharma acquisitions, is it possible to indicate what is the time line you would expect to bring the ROCE in line with your current blended ROCE? And can you give us some sense in terms of the development expenses we'll have to incur both for development as well as integration costs, whatever broad estimates you can give.
Yes. So -- it generally takes -- the kind of acquisitions and the differentiated model that we are planning to build, it will take anywhere between 2.5, 3 years for us to kind of get to the level where it will start matching to the kind of profile that we margin and return profile that we have in PI today.
We take our next question from the line of Rohan Gupta from Nuvama.
Sir, in our exports market last year, we had actually volume growth of 11% and balance was currency and product mix change. Sir, if you can just give some sense how much of this volume growth of 11% was primarily driven by [indiscernible] the single product and how much would have been from the other products? And the guidance which you have given for the current year, 18% to 20%, is it mainly on net revenues or it's mainly driven by volume?
Yes. So thank you, Rohan. Firstly, as we have discussed in past, we cannot share product-related growth and volume and [indiscernible]. But the growth that we have seen in last year is certainly widespread. It is not coming from a single product. There are 4, 5 new products we have commercialized in FY '23. And apart from that, there are several existing products including the one that you are talking about, which has scaled up. So this is where FY '23 that we talk about.
Going forward, FY '24, again, the growth that we are projecting, volume growth. I mean it is majorly coming from volume, as I explained to the earlier participant. Because from here, we are not expecting a significant change in terms of inflationary effect on these raw materials or currency or something.
So the major contribution for this 18%, 20% growth is -- a major driver for this growth would be the volume scale-up. And again, this will also be widespread. It is not going to be a 1-odd product that will be driving this volume growth.
Sir, second question is on our cash flow. So we have roughly INR 3,200 crores cash on the balance sheet as of now. I understand INR 700 crores will be paid for the acquisitions. You are still left with INR 2,500 crores. You have a INR 900 crores CapEx for FY '24 that can be easily funded through the cash flow generated from -- in the current year itself.
Now sir, INR 2,500 crores is cash we are sitting on the balance sheet. If you can, sir, give some guidelines on that, how soon you can deploy this cash in terms of other opportunities or any scaling up further CapEx plan or inorganic growth? If you can give some sense on that, sir?
Rohan, as you see, obviously, we are looking at opportunities, as mentioned earlier, and we'll continue to look. But it doesn't mean that how soon -- it is not an answer that I can answer at the moment because it got to be the right opportunity, which fits and is in the strategic right path PI can get, which is technology, scalability and areas which we want to operate in, and the right strategic fit.
So clearly, the company has a focus on it. The leadership is driving, as earlier mentioned, and the areas that [indiscernible] mentioned, that's where we're looking at it. So that's where we are right now.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Over to you, sir.
So once again, thank you, everybody, for joining the call today. I appreciate your time and your continued support. We look forward to a great year ahead. Thank you.
Thank you, sir. Ladies and gentlemen, on behalf of PI Industries Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.