By pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, and thank you for joining us today on PI Industries Quarter 3 9M FY24 earnings conference call. Today we have with us senior members of the management, including Mr. Mayank Singhal, Executive Vice Chairman and Managing Director, Mr. Rajnish Sarna, Joint Managing Director, Mr. Manikantan Viswanathan, Chief Financial Officer, Mr. Prashant Hegde, CEO Domestic, and Mr. Atul Gupta, CEO Exports. We are also joined by Mr. Anil Jain, PI Health Sciences. We shall commence the call with key perspectives from Mr. Singhal. After that, we'll have Mr. Manikantan share his views on the financial performance of the company. Thereafter, the forum would be open for interactive question-and-answer sessions.
Before we begin, I would like to underline that certain statements made on today's call could be forward-looking in nature, and a disclaimer to this effect has been included in the investor presentation shared with you earlier, and which is also available on the stock exchange website. I would now like to invite Mr. Singhal to share his perspectives with you. Thank you, and over to you, sir.
Yes, thank you, Siddharth. Thanks. A very good afternoon to all of you for joining the call today for Q3 earnings 2024. Over my remarks, I shall cover aspects of strategic and operating progress that we have made in the company, and we have to report a good set of results for Q3. Let me briefly cover the highlights. PI has recorded an 18% growth in Quarter 3 over the comparative period of last year. CSM and domestic have shown a good improvement coming at 34% and 28%, respectively. Recent times have seen industry dynamics in global geopolitical tensions, climate change, and great adverse impacts on the working pattern of accounts. Industry, owing to its own imperatives, we have seen China offloading material in global markets. Consequently, trade channels are yet at a high inventory, and the flow of products from manufacturers is therefore impaired.
Certain geographies are more impacted than others internationally, but at an overall level, the general products are the most popular on the track of declining month-on-month. PI stands apart as a unique business model owing to its robustness, with a differentiated portfolio of molecules in exports, a range of brands comprising the specialized products, a respect for IPR and meticulous execution, and continuous investment in innovation for being the supportive pillars to our business model. The growth you are seeing in exports for us is a result of our focus in early-stage patented molecules that are still growing in many countries and obtaining registration in several others. We track the entire arc of growth from the beginning to maturity, at a rapid order meeting global requirements of some of the largest products and IP holders over the years. I sense immediately respect for the relationship we share.
In fact, PI ranks among the top three CSM companies in the world and has truly mastered the complex operations involved. Due to the demonstrative capabilities in technology, advanced processes, our relationships with global innovators have grown very deep, both at the product sourcing level and also the process research and process innovation, where our expertise is on par. Over the years, we have supported the growth of advanced molecules of innovators and given a pipeline we have built. This cycle continues. It is a kind of natural virtuous cycle replenishing itself with pipelines and products and new engagements. Our direct businesses, again, well poised to tap potential early-stage molecules that are being launched by us as brands.
Whereas in the space, we have seen subdued performance owing to monsoon deficit in the south depleting reservoir levels, elevated inventory levels on row crops, and price pressures, our emphasis has been on driving higher quality of revenue with better margins. Our superior product mix and declining working capital management have contributed very well, which again is very unique to us. We have been deploying horticulture category as well as those brands have shaped up well, creating value for farmers of fruits and berries across the geography. Through Jivagro, India's only horticultural specialist, we have nearly 60 brands. Biologicals and bionutrients have also grown strongly and have done well for us. We have a portfolio of eight products. Two have been well-entrenched over two decades, rest in the process of development and building phase, and we continue to expand this pipeline.
As we look into the future in exports, we have steadily been working towards diversifying our niche. Whereas growth is coming from molecules in the AgChem, we shall continue and shall continue to come from there. We have grown our footprint well beyond AgChem. We've established a strong capability in high-quality markets for electronic chemicals and other specialty chemicals. A significant growth is originating from new products. More than 50% growth during Q3 has come from here. Beyond this, we have visibility up to 5 new molecules, 50 new molecules in the R&D pipeline. The share of non-AgChem molecules in new inquiries has significantly grown by 30%. The proportion of new AgChem molecules that have a good runway grows ahead of them and reach the higher commercialization amount of 30% of their commercialized growth ahead.
This will get commercialized in the future with each product giving us growth curves on its maturity. Similarly, on the domestic side, our strategy is introducing novel molecules with underlying performance. We launched five new products in the current fiscal year. Over the last years, we have found wide acceptance and helped us mitigate revenue decline in the industry. Our recent launch of brands has seen a healthy uptake from the insecticide, Claret and paddy, herbicide, Eketsu, a newly patented rice herbicide, fungicide, Kadett for soybean and gram and a biofungicide Piilin for grapes and chilies. We have a robust pipeline of over 20 products, both under registration development and will drive growth in the years to come. Our team is intensively working on the field to handhold all farmers in the nuances of right usage of the products that are generating loyalty and building brand demand.
Recently, our range of bio-origin solutions is very attractive and cutting-edge. We've launched a brand called Aminogrow Activ, which has met with good response. Bionutrients represent a growing category of products within farming. Moving on, our strategic objective of diversifying to pharma has been achieved and prioritizing the process integration of the practices with the help of global consultants. PI Health Sciences is working towards a potent integration of CRDMO API platform, which we call CRDMO, which delivers comprehensive solutions to our clients. Work continues to enhance and modernize the setups, capabilities, and technological initiatives at both research and manufacturing locations in India and Europe. Investments are also being made towards building a strong resource base in order to support the needs of the big pharma biotech clientele, thereby identifying a new business development pipeline.
We believe the pharma business is moving in the right direction and on path to build a future growth engine for PI. Whereas I alluded to this earlier in my remarks, PI's structure in the business is stronger owing to the initiatives of science and technology. We're truly proud of India as one of the only fully integrated CRDMO companies. We are the only integrated single-site research and commercial chemicals industry biological solutions process development to scale up under one roof at a global scale and number of more than 900 people at that support. Our investments include integrated single-site center in Udaipur, a world-class R&D setup engaging over 800 scientists as mentioned, PhDs, and 155 patents filed so far. There are focused and unique building blocks that will give us opportunities across and lead us to the newer capabilities and ultimately lead in creating new business avenues.
Over the years, the attributes have translated into stronger business patterns and deep and wide pipelines of yet-to-be growth in the markets. Now, just an update on the issue. Our belief was sustainability is a culture rather than an obligation, a passion defined by a purpose of remanaging the planet. PI has improved its S&P Global Score of Corporate Sustainability Assessment, ranked in the 95th percentile as a well-retained eco-warrior gold medal in the system with achievements of 98th percentile ranking. PI has reached an S&P Global Sustainability Yearbook for 2024, thus giving us a distinction mark amongst the best ESG companies globally. Initiatives to uphold ESG and integrate well within the planning and operation of the business, thus as the growth business we are doing shows great responsibility.
We continue to actively seek and evaluate new opportunities in an organic domain in line with our strategic and operational aspirations to complement the growth that we see in our business. The outlook for the year remains positive, and we are on the path to delivering value for FY24. This brings me to the end of my remarks, and I would now like to invite Manikantan to take this forward. And Manikantan, thanks to all for joining this call today and to be a part of our growth story. So over to you, Manik.
Thank you, Mr. Singhal. Good afternoon, everyone on the call today. I'll summarize the company's financial highlights for the third quarter results reported December 2023. Please note that all comparisons are on a year-on-year basis and reporting of the consolidated financial performance. As Mr. Singhal has shared, our performance demonstrates a differentiated approach to doing business and a sharp focus on keeping operating parameters in line with our objectives. To share the performance highlights during Q3 FY24, we reported a revenue of INR 18,975 million, a growth of 18% over the same period of last year. This was driven by growth in exports revenue by 23% to INR 15,300 million and 6% decline in domestic revenue to INR 2,665 million. Gross margin and EBITDA improved mainly on account of favorable product mix, operating leverage, and one-time impact of recovery of test material, contributing around 300 basis points improvement in EBITDA.
Profit after tax increased by 28% to INR 4,486 million, attributable to EBITDA growth and lower effective tax rate. Let me also cover 9M performance for FY24. 9M's 31st December revenue was INR 69,248 million, a growth of 20% over the same period last year. This was driven by solid growth in export revenues by 29% to INR 48,269 million, which offset 7% decline in domestic revenues to INR 10,979 million. Profit after tax improved by 38% to INR 13,120 million. Effective tax rate for 9M was 11.56% due to growth in export revenue. Cash flow from operating activities increased 16% to INR 11,561 million and INR 10,889 million, excluding pharma. This was due to higher EBITDA on efficient working capital management. The trade working capital, in terms of number of days, has reduced by 10 days to 18 days compared to the previous year.
Inventory level also reduced in terms of days of sales to approximately 59 days to INR 12,743 million. Our balance sheet, current as constant during the year, net worth increased to INR 84,508 million as on 31st December 2023. 9M CapEx stood at INR 9,001 million, including pharma acquired assets of INR 4,972 million and is in line with our plan. Surplus cash net of debt is INR 32,936 million as of 31st December 2023. Our balance sheet and cash flow have stood robust in line with clear financial strategy and discipline execution, thereby enabling a superlative performance. This concludes my opening commentary. I will now request the moderator to open the forum for Q&A. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to answer a question may press star and one on their touchscreen telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Aditya Jhawar from Investec. Please go ahead.
Yeah. Hi. Thanks for the opportunity and congrats on a good set of numbers, especially in this challenging environment. My first question is if you can highlight that which are the new geographies where the product registration is still underway for Pyroxasulfone? That is number one. Number second, if you can highlight what is the pricing erosion we have seen in the markets like Australia and Argentina where this product has become generic? Yeah. Aditya, can you please repeat your question because your voice was not very clear?
Yes, sir. Yeah, yeah, yes, sir. Sir, this is one of our key products, Pyroxasulfone. Sir, if you can highlight which are the key markets where the registration process is still on, that is number one. I'll take the number two later, sir.
Yeah. So there are many countries, but I hope you'll appreciate that it is not PI which is doing this registration. It is the innovator company, and we may not have the detailed information, but we understand that there are several countries these registrations are in process.
Sure, sir. Sir, how much pricing erosion, sir, we have seen? We will have some market intel in markets where the product has become generic like Australia, Argentina?
Again, to be honest, we won't have the first-hand information. I mean, the market intelligence says that it varies from 10%-15% in the initial years. But again, this is not our first-hand information, mainly.
Okay. Okay. And sir, if you would like to highlight that, you mentioned some commentary on the CapEx front. So what kind of CapEx intensity we should expect in FY25, and what could be your guidance going into FY25, sir?
Well, a lot will also depend on the progress of the pipeline, but we still maintain INR 6 crore-INR 800 crore kind of CapEx that we will look at for organic growth expansion and growth.
Okay. What about the guidance, sir? Growth?
We will have more clarity on this, maybe by the quarter four, and.
Okay. Sir, for final question, you mentioned that your visibility is reasonably strong in the near to medium term, right, sir, for growth perspective?
Sorry. Come again?
Sir, from growth perspective, so you have not spelled out FY25 guidance yet. But from a near to medium term perspective, how is the visibility on growth, sir?
Yeah. So we'll have a specific guideline, again, at the end of fourth quarter. But yes, as of now, we maintain our earlier indications that we are confident of sustaining this growth momentum.
Perfect, sir. That's good to hear, sir. Thank you, sir. All the best.
Thank you. Next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.
Yeah. Hi, sir. Good afternoon. Thanks and congratulations on a good set of numbers. I hope my voice is audible.
Your audio is not clear to us, Ankur.
Sir, is it better now? Hello?
Yes, yes.
Yeah. Is it better now? Yeah. Thanks. Sir, thank you and congrats on a good set of numbers. My first question was on the pricing cut. Typically, historically, seeing that across the innovator molecules or products that we have been working on, what has been the worst-case pricing cut that we would have seen historically?
If you're talking about what? I mean, because we are working on both sides, on manufacturing also, on.
On the patented, not very clear what is. On the patented CSM side, you did allude towards around 10%-15% pricing cut that we have seen till now, given the product getting generic in some of the key markets globally. This is our earlier experience?
I don't think this was the question. The question was that what is our market intelligence of what is the kind of price reduction that happened in one of the markets where product has gone generic? I mean, I don't think the question was that what is the price cut that we have seen.
No, no. Not what you've seen. The final product pricing was what I was referring to. On similar lines, historically, for any branded product, patented product turning generic, what has been the worst-case pricing cut we would have seen? A broad range would be helpful.
So that's why I did say there's nothing like worst case or best case. I mean, if you look at the industry and being in the segment, you will know which cut out. It's quite a standard approach of what price and volume curves play out in the industry. So there is nothing which can really say worst case, what is worse and what is good. Again, as you know, the volume and pickup costs also change. So the price is determined by the scenarios in different products, different segments.
Sir, sorry to interrupt you. Your voice is breaking. Ladies and gentlemen, please stay connected. The line for the management dropped. Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, go ahead.
Yes. As I was mentioning, you can look at—I mean, there's no one who has to say this is the way it is irrespective of price cuts, and price cuts are dependent on various. But I think we broadly mentioned what is the segment. And that's more in the end of the pipe of sales prices, yeah, as the innovator is the one who drives the prices in the market.
Sure, sir. Fair enough. Second question on the growth part, while we are not guiding anything in particular this quarter, but directionally, you did mention we will maintain the growth momentum. Trying to understand from a new product ramp-up perspective, since we have been pretty reasonably aggressive in terms of our launches over the last two, three years, any of the products across agri and non-agri side which are seeing a good ramp-up from the client perspective on the CSM side?
Yeah. So as we have also indicated, that, for example, in this current quarter, there is significant growth which has been contributed by the new products, those that have been commercialized in EXAM as well as in other specialty chemical space. More than, I think, 60% growth has come from these products. And likewise, I mean, the remaining I mean, the fourth quarter as well as coming year, we have a good visibility of many of these new products contributing to the growth of the export business that we are talking.
Sure. That's helpful, sir. Lastly, if I may, on the domestic market, any timelines or thoughts on the revival or growth uptick that you can share off? Thank you.
Yes, sir.
Yeah. So domestic markets, we basically expect the challenges to continue in Q4 as well because of the external conditions which we have seen at this point of time. However, our new products have really done well, even in the domestic market, both in whatever which we have seen in Q3, especially on chili and fresh vegetables. That was the major focus crop as well as even on wheat.
Okay. Great, sir. That's it from my side. Thank you and all the best.
Thank you. Next question is from the line of Madhav Marda from Fidelity International. Please go ahead.
Hi. Good afternoon. Thank you so much for your time. I had a couple of questions. The first one was, given whatever changes that happened rather, whatever slowdown we've seen in the global agchem space, has there been any change in our engagement with our clients in terms of new products? Or have you seen any clients saying that we want to go back to China now versus sourcing from the larger Indian CMO companies? Has there been any discussion on that, sir?
Well, frankly, we have not seen any change in our engagement. In fact, these engagements have only gone deeper with the clients and the customers, strategic partners that we are dealing with. In any case, as we explained earlier, we focus on early-stage molecules. And in those kind of molecules, what is currently happening globally, the kind of headwinds that we are seeing in generics and commodities, I mean, those are not the kind of situations that we are seeing in those molecules. And therefore, I mean, clients conveying or thinking of going back to China or to other geographies for sourcing is not the situation that we are seeing or facing. And our engagement remains at the same level. Rather, it is going deeper with our global partners.
I understand. I understand both. My second question was a slightly more basic one. In the pharma piece, when we talk about the kind of projects that we want to do with these biotech or big pharma customers, is it basically doing research for them at phase one, phase two, phase three kind of stage, or what kind of projects are we doing? If you could give some more sense around the business model here, it would be very helpful. Sorry, it's a very basic question. I just wanted to understand better.
Very clearly, the business model is that of a CRO, contract research services, right, supporting early-stage discovery services for innovators.
Got it. So then the growth basically comes from sort of engaging with them at phase one, phase two, and then as the molecule progresses too, we scale up the business. Is that how we should think about it? Going ahead.
Yes. I mean, this is a long gestation period business.
Absolutely. It's a start that takes its own time. And pretty much yeah, we'll do the same for this AXION space, focusing on the innovator pipeline. Okay. Got it. And anything that you can share in terms of any specific how many big pharma clients you're engaging with or how many biotechs you're engaging with? Any color on the business as it stands today would be helpful.
Some of these are under confidentializing, as you would understand, because it's all in the innovator space. So yes, we are working with a few, and as you would appreciate, if we just started, we were building the capabilities, and then we would be looking to expanding our platforms to other customers, yeah?
Understood. Thank you. Thank you.
Thank you. Next question is from the line of Sumit from Kotak Securities. Please go ahead.
Yes. Thank you for giving the opportunity. So my first question was relating to the one-off gains that we have seen in 3Q. So how much I mean, quantity terms, how much was the one-off gain in 3Q?
Your audio was not clear to us.
Hello? Yes, yes. I wanted to know how much was the one-off gain in the 3Q, in the recent quarter?
Okay. This was pertaining to the recovery of the theft material and the amount was close to INR 70 crore. The cost related to that was already captured in the previous quarter. This is the one-time gain. This is what we have highlighted also in our communication, that close to 300 basis points of EBITDA is on account of this one-off item.
Perfect. But sir, in 2Q, we had mentioned that the items lost in transit was worth INR 410 million. So how did we reevaluate this to INR 700 million?
That was cost. Because in the previous quarter, we had accounted for the cost, no?
Okay. Okay. Okay.
Thank you.
Okay, sir.
The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
All right. So thanks for taking the question. Sir, on your guidance for this FY24, sir, we've earlier talked about 80%-20% growth for the agrochem business in FY24. When I look at the numbers, we've done about 15% for the nine months, sir. So we've put on the.
Sorry to interrupt you. Your audio is not clear at all. Can you please speak through the handset?
Just give me a second.
Hello. Is this better?
Yes. Thank you.
Sir, I was saying on the FY24 guidance, we talked about an 18%-20% growth in the agrochem business for FY24, if this is correct. For nine months, we've done 15%. Sir, how should we look at the full year, more towards the lower end of the guidance?
Yeah. We had indicated close to 18%-20% kind of growth overall, okay, in the previous quarter. And obviously, the domestic business, as I explained earlier by Prashant, we will have to see how things pan out in the last quarter. But we are still confident, given the visibility, that we'll be able to still achieve the original guideline of 18%-20%. And to be on a safer side, we will say that yes, on the lower end of this guideline.
Sir, just to be clear, this is only our guidance is only for the agrochem part of the business, right?
No. I think it works for overall business.
Including the pharma piece, sir?
Yeah.
Okay, sir. And so secondly, for the quarter on the gross margin, even if we make the adjustment for the one-off item that you talked about, I mean, the gross margins are higher than the previous sort of levels. Anything has changed, sir, in this quarter for the gross margins? And how should we look at the sustainable number for these gross margins for the business?
Yeah. So basically, we focused on product mix rather than the volume, particularly in the domestic business, okay, where I think there was always choice of kind of saving the volumes by looking at some liberal working capital norms and also pricing because the price competition was there. But we always focused on quality of revenue and a positive or a favorable product mix. And that is the key contributor to this improvement in the EBITDA margin apart from the one-off that we have seen. Even in our export, we have seen that because of introduction of growth of new products, as I was explaining earlier, that has also contributed to improvement in the gross margin as well as the EBITDA margin. So going forward, yes, I mean, in terms of the EBITDA margin, we believe that around 25%-26% should be a sustainable level.
Okay, sir. Thank you so much.
Thank you. The next question is from the line of Vivek Rajamani from Morgan Stanley. Please go ahead.
Hi, sir. Thank you so much for the presentation and congratulations on a good set of numbers. Just one clarification before I ask my two questions. You've mentioned earlier that over 60% of the growth in this quarter has come from the new products. Am I correct?
Yes.
Sure, sir. Just related to that, the first question was, would it be possible to share what the contribution of these new products would be as a percentage of your overall portfolio today? And where do you see this going, say, by the next two years?
I'm afraid we'll not have this in front of us. Yes, this quarter's growth was more than 60% contributed by this set of products.
Sure, sir. Just one clarification here. When you say new products, that would mean the products that you've been working on, say, in the last maybe one, two years. Would that be a fair statement?
Yeah. Three years.
Okay. Great. And so the second question was, just in terms of the broader industrial challenges that we've been seeing with respect to the AXION space generally, are these new products not getting affected in a big way? Would that be a fair statement?
Yeah. That is because of the differentiated portfolio that we have been explaining, that we are into early-stage patented molecules or proprietary molecules, which are not common, I would say, mature products as of now. They are still growing. They are also getting registered in newer countries as they are growing. So it is quite natural that there is natural growth in these products year on year.
Sure, sir. Thank you very much and all the very best.
Thank you.
Thank you. Next question is from the line of Vishnu Kumar from Avendus Spark. Please go ahead. Vishnu, may I request to unmute the line and go ahead with the question, please? The line for the participant dropped. We'll move to the next question. The next question is from the line of S. Ramesh from Nirmal Bang. Please go ahead.
Hello. Good evening. And thank you very much. In the pharma business, you have indicated INR 350 million of development expenditure year to date. Can you explain what is the nature of these development expenses and what is the kind of run rate you should expect, say, in FY25 and 2026? And when do you expect these to kind of reach the 25th? And how much will that be?
Well, the development expenditure in terms of augmenting resources in R&D, in business development, in managerial commercial areas, the development expenditure also in terms of setting up new systems and processes wherever there is a scope which we have found during the integration of these different acquired assets. The development expenditure is also towards a lot of infrastructure improvement that we have made or we are making right now. So this is broadly the nature of the development expense. Now, specifically, what will happen in 2025, 2026? We are still in the process of kind of consolidating and also completing this integration process. Maybe next couple of quarters is the time that we will have more clarity and also clear visibility of scale-up of these newly acquired businesses.
Yeah. Okay. So on the balance sheet details that are given under Pharma assets and liabilities, can you share the current assets and current liabilities in Pharma, if it's possible?
Yeah. That we can share maybe on the sideline. These are numbers that you can always get from our team financing.
Yeah. So in terms of the pharma business, there is improvement in terms of your revenue and your EBITDA, if you adjust for the one-offs, there's improvement in the EBITDA. And before development expenditure, EBITDA margins are 16%. So how do you see the revenue run rate over the next three to four quarters? And before development expenditure, what is the kind of EBITDA margin you would expect, say, by end of FY2025 and 2026?
No. That's what I explained, that while we can certainly give you some answer, but you will have rather, we will also have a much better visibility of this scale-up and improvement coming through in next couple of quarters. So maybe by end of next quarter, we will have a much better visibility of what is the revenue scale-up and the margin profile that we should be targeting. But just to answer your question in broad term, as we have also indicated in past, that eventually, post this development phase of a couple of years, we would surely expect the EBITDA margins, etc., to be on the similar lines as what we see today in PS.
Okay. One last thought on the CSM business. This entire INR 800-900 crores of CapEx will be on CSM. While you have in the past said we should not possibly look at the asset turn, but where are these investments going in terms of developing your capabilities? And eventually, what is the kind of incremental growth and revenue one can expect based on this sort of CapEx over the next two years?
Yeah. So the organic growth CapEx is mainly going into capacity expansion and also some of these new technologies, capability building that we are investing in R&D and pilot and all that. The kind of potential is similar. The asset terms as you see today are more than 2, 2.25. So we would surely expect similar kind of asset terms to continue in future as well for this business.
Okay. Thank you very much. I'll join back the queue. Thank you and all the best.
Thank you.
Next question is from the line of Mohammad from Ministry of Finance of Oman. Please go ahead.
Hi. Am I audible?
Yes.
Yeah. Sir, I just wanted to have a clarification on those news items which came to the entire media a month and a half back relating to some competitor in China is building up huge capacity for the product which you are mainly dealing in. And also, your major client somewhere in Japan has given a guidance of very low growth of their final output for which you are supplying the input. Any comment or clarification you would like to give? Because you might have seen this one particular news has impacted your share price quite vigorously. If you wanted to give certain clarification that how you see these news items impacting your business, it will be helpful for the entire investment community.
Sure. In fact, we had given a clarification to this news item, if you recall, immediately after that news came, okay? But again, for the interest of the investment community and analysts, I'll again repeat. So yes, as we know that in this industry, products will eventually go generic, okay? And same way, this particular product in subject is also surely going generic. The solo product, the patent is already expired in a few countries. And in other major countries, it will expire in next few years, okay? The product will go off patent in next few years. But the important point to understand here is that in most of the developed countries, ultimately, the product which has been sold in the market is the formulation, the combination product, combination formulation product. And most of these combination products have a significantly longer patent life than next few years, okay?
So while the solo product, the AI product patent will expire, say, next few years, the formulations and the combination formulations, their patent life will be there for next several years after that. And therefore, the impact of the product generalization, while it will be there in the countries, the product has gone generic or will go generic in next few years. But in the major market, because of the patent protection of these combinations and formulations, the impact is not going to be as significant as was kind of articulated in that news item. This is the first point. The second point is that this news item also articulated about the capacity buildup which is happening in China with some of these companies, etc. Again, this is another point that we have always heard this news about capacity.
But again, there is certainly going to be a timeline of capacity building. And since the market opportunity for the generic would be limited because of the first point that I explained, we will have to also see that eventually, what is the kind of capacity which will come in play in next several years? The third important point for us to also appreciate is that while yes, products go generic or off patent and many generic players come, but this is also true that when products go generic and many players come, the market also grows, the ultimate market, okay? And this particular molecule that we are talking is into certain segments which is a multi-billion dollar segment. And this molecule is still $600-$700 million.
So the limited point is that there is huge potential for growth as we believe is there for this molecule in years to come, even when there will be generic competition. And we being one of the major supplier, manufacturer for last almost 8-9 years, we strongly believe that there will be a very strong position that we as a company will have, okay? So that is the fourth point. The fifth, another very important point for us and also the analysts and investors to appreciate is that PI is not one product or one molecule company, okay? As we have already explained a few times, that PI is a company with a diversified portfolio. When you talk about our domestic business as well as our export business, in export today, we have more than 20-22 products. Every year, 5-6 products are getting commercialized.
And these products are now driving growth for the business and the company. Even in this quarter, more than 60% is contributed by some of these new projects which were commercialized in last two, three years. And going forward also, the growth will be driven by many of these newly commercialized projects. And many of them are actually non-ACTEN projects. So with our diversified portfolio, we are confident that this whole revenue risk or the margin risk which was articulated in that news item is not I mean, it's a bit of an exaggeration of the real risk that we see. I hope this answers your question.
Yeah. Thank you very much for this elaborative answer. It's very, very helpful. Now the things are quite clear. Sir, my second question is with respect to your diversification towards this pharma business. As your results show, the growth is quite going quite robust. Just to get an idea, how quickly do you have a plan to make this pharma business quite a bigger part of the total revenue pie? So at the moment, it is quite small. Without going to the very detailed guidance which you may not be able to give, just to give an idea, this diversification drive which you just started a few years back, how quickly it could gain a momentum to make certain material difference at your profitability level?
Right. This drive of diversification, we have been working for some time, okay? In our exports, as we were explaining earlier, that already close to 30%-35% of our new inquiries and new projects that we are commercializing are coming from non-ACTEN space. This is the diversification we are talking. And on top of it, this pharma diversification will also add to our overall diversification and kind of balancing the overall business segmentation and business growth. Our aspiration is.
You said 25, sir?
20%-25% of our company's revenue should be from non-ACTEN space, obviously, which includes our pharma as well as our portfolio of non-ACTEN in our CSM exports. So that is our objective. We are progressing in that direction. So far, we have good confidence the way we are progressing. But yeah, this is the overall objective we have.
So this 20%-25% contribution by how many years, sir? 3 years, 4 years?
4-5 years, as I said.
4-5 years. Sir, the last one, a little smaller part. Because of this Red Sea-related problem and the shipping disturbance which is happening, are your company getting impacted due to this happening which can create problems for the transportation and exporting to the CSM site?
So there is certainly some impact in some of the shipments to Europe and the US. Yes, there is some impact. And accordingly, the supplies are being planned. Costs have increased in some of these shipments which have also been discussed and accordingly shared with our customers. But yes, the short answer is there is certainly some impact.
The incremental costs, sir, relating to this, will you be able to pass on to the customer, or it will add on to your expenditure?
No, in most cases, this will be passed on because this is the general understanding we have with our customers.
Okay. Thank you very much, sir.
Thank you.
Thank you. Next question is from the line of Rohit Nagraj from Centrum Broking Limited. Please go ahead.
Yeah. Thanks for the opportunity. Congrats on a good set of numbers. Sir, first question is, generally, I understand that we have calendar year contracts. So when we had our negotiations during the last few months, how has been the mood from the global agrochemical players in terms of the volume lift-up for this calendar year? So are there any delays that we are experiencing, or they are still in wait-and-watch mood? Any comments on that? Thank you.
Well, that varies from product to product. In general, I would say we have not seen any significant change. The kind of products that we are working and operating with our global customers, we have seen a good momentum and effort on concluding, finalizing the businesses for next campaigns or next year.
Sure. Got that. Sir, second question is on Pharma bit. There are three sub-questions. One is the one-time development expenditure, is it over, or will it continue? The second thing is, in terms of the EBITDA and EBIT difference, it seems that there'll be interest cost. So how do we justify, given that we have cash on our books, why this interest is being paid? And the third thing is, we have also shown the segmental results for last year, same quarter. So what was the Pharma segment during that time? Thank you.
So regarding your first question, yeah, development expense may continue for maybe a quarter or so because we are still in the process of trying to optimize things and also coming out of the integration process, whatever changes, improvements that we are seeing. So yes, that process will continue for next one or two quarters. Regarding your second question, I mean, I think it would be good if you connect with our finance team on these finance line items. That would be good. What was your third question, please?
Sir, last year, same quarter also, we have given the bifurcation in terms of segmental data. So last year, I understand we did not have pharma. So what this particular negative EBIT is particularly talking about?
So last year, third quarter, we had no pharma. That is the reason that the impact that we have seen this year, and we have already conveyed that how much is the growth of if you see our communication investment presentation, investor presentation, there, we have already indicated that how much is close to 10% is coming from pharma exports, and the rest, 13%, is coming from our ACTEN.
Sure. Sure. Thanks a lot, sir, and best of luck. Thank you.
Thank you.
Thank you. Next question is from Manav Vijay Kumar. I mean, Uncertain, please go ahead.
Thanks for that, sir. Sir, over the last three years, we've more or less doubled our CSM with limited CapEx. I mean, annualizing, as you know, INR 300 crore-INR 400 crore. Going forward, as we look for a similar run rate of growth, is this the CapEx similar numbers, or we have maxed out wherever efficiencies can, and we need to probably invest a bit more CapEx? Just some understanding on this.
I'm not too sure on your number of INR 300-INR 400 crore. I think it would have been more because what happens is that there is always a lead and lag in CapEx investment and the revenue coming out of it. So whatever revenue growth that we would have seen in last few years has also come from the investment or CapEx that we would have made maybe two years back. And I recall that we made a significant investment in two, three years earlier, two years, okay? But having said so, yes, I mean, there were a lot of initiatives that we had taken to improve the throughputs of the existing facilities on a continuous basis. I think in the last couple of years, every year, 10%-15% capacity enhancement we have made through improvements in our capacity throughput.
Going forward also, as I was indicating to the earlier participant, we anticipate INR 600-800 or 800 crore kind of CapEx every year to keep investing in enhancement of capacity. While we would surely be working on further throughput improvement, some of these technologies such as flow chemistry, etc., we are already kind of commercializing few projects. I believe that that will also help us further improve our overall asset utilization in this business. Maybe, Atul, you may want to add something to what I've already said.
Yeah. Yeah. So I think the major focus is on the investment in the technologies in coming years. And of course, we have been continuously working on our capacity utilization of our existing assets by way of improving the efficiency plan. And that's where 10%-15% capacity is being improved every year basis.
Understood, sir. Sir, on one of the previous participant questions on margin, you highlighted that we probably settle around 25%-26% EBITDA margins. This quarter, if you look at the gross margins, there seems to be some significant improvement on the gross margins. And obviously, our overhead investments have probably led to a slightly muted or slightly lower EBITDA as compared to what the gross margin is. So looking ahead, when you say 25%-26%, you expect some pricing cuts from the customers as you go forward in the next year, or the investments and overheads will keep you at 25%-26%? Because optically, it looks like probably this number can be even more at the current gross level.
Nothing. I mean, we don't kind of anticipate any cuts or something. But it is also to do with product mix. It is also to do with development expense that we believe we would be making not only into pharma space but even in agri-input space, these new verticals that we are building such as biologicals and others. So yes, I mean, I would say it would be good to kind of assume 25%-26% rather than be quite speculative with this one quarter or six months kind of results.
Understood, sir. And just one final question on the tax rate guidance if you can give for this year and next year. I mean, next year always.
Mani?
Yeah. This year, it will be around 14%-15% for the year kind of thing. Next year, we have been working on the thing. Maybe similar rate, but we need to confirm that in the next quarter. Sir, versus this 25% normative rate, when will probably be having the delta from 14%-15%? Will you catch up over the next two, three years, or this 14%-15% will continue for at least a couple of years? It will continue at least for one more year. But as I said, we need to confirm that with the other computation. Got it, sir. Thank you.
Thank you very much, ladies, gentlemen. That was the last question for today. I'll now hand the conference over to the management for closing comments.
Thank you. Thank you, gentlemen, for joining on this call. We really appreciate your interest and your support in this growth journey of PI. Thank you so much. Have a good day. Bye-bye.
Thank you very much.
Thank you.
On behalf of PI Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.