Ladies and gentlemen, good day and welcome to the Q4 and FY22 earnings conference call of PI Industries Limited. As a reminder, all participant lines will be in listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. 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 2022 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 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 the 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 invite Mr. Singhal to please share his perspectives with you. Thank you and over to you, sir.
Yes, 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 due to very high infection rates in several months, followed by unprecedented supply chain challenges coming from China. 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 2021-2022. The expansion came in despite of course, the challenges and high base of last year, both in domestic as well as exports, rising trends and 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 on 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 eight new customers. There is a rich pipeline of 40+ products at different stages or scale-up, of which more than 20% are from non-AgChem products. We are targeting to commercialize six to seven molecules in the current fiscal 2023. We have also stepped up our capacities during 2022 with two multi-product plants fully commissioned, including chemistry building blocks for Monomethyl auristatin E commissioning and various technology initiatives to improve capacity throughput of existing plants.
Our domestic performance for the quarter was driven by favorable agroclimatic conditions during the Rabi season, supported by price hikes affected by key products. We undertook successful launch of one of our new insecticides for rice and three specialty fungicides focused on horticulture and rice. We have also successfully launched a number of new brands in the horticulture segment under Jivagro, and we are excited by the whole slew of products recently launched and are going to be launched shortly. Distruptor, an innovative insecticide launched for rice. Distruptor has a unique mode of action to control brown planthopper affecting the rice crop. We are launching two patented insecticide, Dinoace, another broad-spectrum insecticide for the crops of chili, cole crops, et cetera.
Provide, an herbicide for cotton to be launched this quarter along with Dinoace will have us as one of the most comprehensive crop protection solutions for cotton with an estimate of 112 lakh hectares under cultivation in India. An innovative nematicide, Spectin, a broad-spectrum fungicide, both targeting horticulture segments, are being launched in the current fiscal. We are witnessing a high sowing in the upcoming kharif with acreage across pulses, coarse cereals and oilseeds and millets has an increase. Given a normal forecast for 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 low pre-monsoon showers in Northern and Central India, which combined with the usual heatwave 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 are now cascading purpose vision with our specialty 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 pandemic-induced lockdowns globally and massive injection of liquidity by the central banks post intense waves of pandemic, agri-commodity prices globally being firm besides the Make in India program and continued supply chain disruptions with China, combined with government-focused efforts to maximize exports of value-added products that ensure profitable growth of the chemicals sector in the years to come. The domestic segment also enjoys solid tailwinds from higher crop prices and exports-led growth. Encouraging farmers to adopt modern crop protection techniques for maximized productivity being the other. Our business outlook remains robust and confident, delivering 18%-20% growth plus continued improvements in marginal returns. For the current fiscal, we see further risk from raw material increases in inflationary trend, although it is our target to mitigate the risk by pricing, optimizing product mix as we're driving operational efficiencies.
Diversification into adjacent to inorganic have remained 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 2022, we are emerged as one of the top quartile in the very first S&P Global Sustainability Assessments with 82% industry ranking. We also won the Heritage Company of India at 75, Chemical and Petrochemical Industry Award, among 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, Mani kantan, to take and share the highlights of our financial performances. Over to you, Mani. Thank you.
Thank you, Mr. Mayank Singhal. Good afternoon, everyone, and thank you for joining us on the call today. I'll 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 year-on-year basis and refer to the consolidated performance. During Q4 FY 2022, 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 37% 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 37% in Q4 FY 2021 over the previous year YoY. 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 in domestic. Our gross margin increased by 196 basis points in Q4 FY 2022 to 44%, partially due to cost pass-through and favorable product mix, which mitigated the impact of rising input costs. EBITDA increased by 34% to record INR 3,056 million for the quarter.
Cash generated from operations before tax during Q4 FY 2022 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 2022. Revenue was INR 52,995 million, a growth of 16% over FY 2021. This was driven by solid growth in export revenues by 20% to INR 39,902 million and 4% gain in domestic revenues to INR 13,009 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 YoY basis, including the impact of Isagro acquisition.
Revenue growth of 15% was driven by price increase of 3% approximately and balance from volume growth. Operating expenses increase of 24% is mainly attributable to sharp increase in fuel prices, leading to increase in utility costs, one-time 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 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 worth 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 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 2022, up from 68 days as on 31st March 2021. Payables in terms of days of sales has also remained flat at 64 days, from 63 days as on 31st March 2021. The company maintained a strong liquidity position with surplus cash, net of b orrowings, ECB borrowings 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.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw 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 will wait for a moment while the question queue assembles. The first question is from the line of Tarang Agrawal from Old Bridge Capital. Please go ahead.
Hi. Good evening. Two questions from my side. In your presentation, there's, you've mentioned that, you know, you've developed an intermediate at a pilot plant through a continuous flow chemistry process. Can you give us some sense in terms of, you know, what are the benefits of this technology in terms of time, in terms of cost, versus the traditional technology used to manufacture this intermediate? How probable is it that you'll be able to scale it, you know, at a factory level? That's number one. How pervasive would it be? How big could this be? Because my sense is you would have specific equipment for this. The second is, you know, the net sales to fixed asset ratios moved up quite meaningfully in this year.
Is there a benchmark that you're looking at? How should we see this going forward? Thank you. That's it from my side.
I think let me take the question on the flow technology. 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 a good enough, strong enough case to create some value benefits, 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 a IP and intellectual standpoint. Obviously the company is looking it from there.
Scalability will obviously have the 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.
Yeah. Tarang, you know, we are already now operating at more than 2x, okay, in terms of asset turn. 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, you know, set in the beginning of the year for all these molecules. We are working towards further improving that. Yes, I mean, product mix is another factor which plays out while we work out this asset turn.
On both the fronts, efforts are continuously made at our end so that we can improve the overall, you know, asset turn and overall capital efficiency of the business.
Is there a benchmark that you all look at or it's a very case-by-case situation?
Well, to be honest, we are already, you know, kind of exceeding the benchmark. Generally in this industry, 1.752x is considered to be a reasonably good benchmark. As you know, we are already doing better than that, and therefore wanting to set our own benchmarks. Every year we are expecting to work, rather setting internal targets to improve 10%-12%. Again, this varies from product to product. Every product has different complexities.
Thank you.
Thank you. The next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. First question on the growth outlook on the CSM side. Now we commercialized nine molecules last year. You mentioned that, you know, we are looking forward for six to seven molecules more. Couple of quarters back, we did highlight, you know, electronic chemicals being sort of, you know, picking up and we are ramping up on the non-AgChem side here as well. Just want to understand whether 18%-20% is... Because, you know, there will be a pricing-led inflationary increase here as well. This 18%-20%, how should one look at this number? Probably, you know, break up of volume or realization here.
I mean, you know, this price volume, you know, in a short to mid-term, as we have already explained in the past, there is always a lead and lag in this industry. Over a period of time, these prices are always inflationary. Impacts are always factored in the demand, you know, in the pricing and in the demand. Having said so, you know, this 18%-20% growth that we are indicating, I mean, it is, I would say, almost similar kind of growth we are expecting both on export side as well as on domestic side. 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.
We are 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. So far, whatever inflationary changes have come in last, I would say 6 months or so, those are already kind of factored in the pricing of these products and for new campaigns. Considering that, we are taking this 18%-20% growth, which may mostly come from the volumes.
Sure, sir. That's helpful. Just secondly, on the overall RM inflation side. In our presentation we do mention, you know, we have been taking price hikes there to pass through the RM inflation. At current juncture, is large part of the inflation across, you know, both the segments already passed through or probably it will take another maybe quarter or so? You know, another just adjacent to it, the channel inventory on the domestic side, how is the situation there on the ground?
Major part is already passed through. There are several products, because again, there is always a lead and lag. Some campaigns are running, some campaigns have to start. In this kind of a scenario for some campaign products you have some inventory, for some other products you are buying inventory. Depending on different scenarios, if I see overall, I think significant part of this has already been passed through. Yes, there is still room and scope for passing through for the remaining products, which will happen in next quarter.
Sure. There should be positive bias on the overall margins there.
Yes. You have any other questions, please?
No, that's it, sir. That's it from my side. Thank you.
Thank you. The next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead.
Sure thing, sir. 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. This inflationary scenario we have maintained top line growth, we also expanded margins, slightly counterintuitive on in terms of our past understanding, when, because per kilo margins remains the same, the margins should probably come off a little. 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 differential not necessarily come from the increase in the, you know, given products and their margins. You know, change in product mix also contributes to the overall margin, and that is also important factor which has played out. You know, over the period or over the year or two year, there is a change in business mix between, you know, domestic and export. Within the business or within the segment, there is also 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 little down the life cycle of their product portfolio.
Yeah, I mean, there 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, you know, uptrend, downtrend, these are passed through so that the margins in the products are maintained. There's no question of, you know, in a given scenario kind of increasing margin. That's not the kind of situation and nor the understanding.
Got it. Any intermediate where you had in the past you were mentioning that you were developing some intermediates of your own, either or MMH, those are contributing to the margin delta. Would that be a answer to the question?
No, that's not the case here. 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 product groups would or in terms of contribution, what is the early stage molecules, what is advanced stage molecules? Some percentages, how it has changed in the last few years.
Well, that we won't have right now not in front of us. Yeah, I mean, we can talk separately about it.
Understood, sir. One final question. On the asset utilizations, you had mentioned that 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 plant can improve.
Got it, sir. This INR 500 crore you are investing, how many plants or any multipurpose plants you'll be adding this year?
Well, this is, you know, this is not being spent on one plant or two plants. There are different categories of CapEx. There is a maintenance CapEx. There is CapEx towards, you know, some of the research side and capital efficiency and process improvement side. Yeah, I mean, there are different categories of CapEx included here.
Yeah, it will be more than 1.5 kind of MPP capacity that we'll create. Yeah, this is how it works.
Got it, sir. Thank you, and all the best.
Thank you. The next question is from the line of Rohan Gupta from Edelweiss Financial Services. Please go ahead.
Hi, sir. Good evening, and thanks for the opportunity. Sarna, sir, you have earlier guided that your asset turn which you are aspiring to go up to close to 2.2x-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?
Yeah. We are working, Rohan, towards that improvement. I mean, we are already at, whatever, I think 2.1x or something. 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's no such plan because we have still scope for expansion at our existing sites. Therefore, we are considering some brownfield projects, you know, in the current year, next year. Because there is scope for expansion at a couple of our sites, existing sites.
As and when, you know, we will meet some additional area or greenfield, yes, we will surely evaluate at that point in time. At this point there's no such plan.
Sir, just to clarify that at our existing facilities, you think that how much investment, further investment it can absorb? And also, y ou mentioned INR 500 crore CapEx for the current year, right?
Yes.
How much, I mean, despite the INR 500 crore 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, you know, for next, I would say next two, three MPPs and, you know, we can still get them at our existing sites. We have space in Jambusar. We have a space in one of the sites in Ankleshwar. We have some other sites available. 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 we 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?
No challenges or difficulties. We are very actively evaluating some options, okay? Both on CDMO side, API side, in India, outside India. There are some interesting propositions, opportunities we are evaluating, and we shall certainly announce when we get to a definitive stage.
I suggest final from my side. I'll get back to you.
Please.
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, little bit guide more towards this and how the pipeline, and I think that you also mentioned that acquired eight new products in the I mean, non-agri space. What are these product pipelines looking and how do you see that this non-agri space going forward in next three years? What kind of revenue contribution it can have from non-ag, non-ag chem space? If you can give some more elaborate numbers on that.
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.
Okay. Thank you.
You know, we have, say, close to 40 + kind of projects at this point in time in R&D and a significant number. Particularly in last one and a half years, significant number of projects, inquiries and projects which have progressed in R&D are from non-AgChem segment. I'll also request my colleague, Dr. Atul, to also put some light on how the progress is happening on some of these non-AgChem inquiries in R&D.
Yeah. Rohan, on the, you know, the non-AgChem segment, we are building a state-of-the-art, you know,
Accordingly, the R&D infrastructure is also being aligned and created to, you know, start having a right kind of focus on the non-AgChem molecules.
Okay, sir. Thank you. Thank you very much, sir.
Thank you.
Sure.
The next question is from the line of Pratik Rangnekar from Credit Suisse. Please go ahead.
Yes, sir. Hi. Hi, sir. Thanks for taking my question. I just had one question on one of the points that you mentioned in your presentation. You mentioned that there should be two new process innovations that will be commercialized in FY 2023. Could you just provide some color on which part of the P&L item this would impact, what kind of benefit that we can see?
Well, it is on products. I'm not sure what are 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 in scale-up with that.
That would lead to better costs or more revenue?
Prateik?
Yeah.
Pratik, this helps in sustaining some of these businesses that we are in, you know.
Okay. Thank you.
The moment we get into these, you know, innovative processes, I mean, that ensures the long-term stickiness of those businesses, and that is the key driver to get into these, you know, innovative processes.
Got it. This is primarily on the existing products that you have, you're going to make the process more efficient. Is that understanding right?
Yeah. I mean, one of them is existing and one of them is the new, you know, in-process pipeline product that we are currently working.
Got it. Thank you. Just one more on the domestic part. Your, so this in FY 2022, we've seen that your, kharif to overall sales ratio, the ratio of kharif sales to overall domestic AgChem sales has 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 Q4 or something that might have 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 rainfall, both in terms of timing and distribution and, you know, various other agroclimatic conditions, the kharif season was not great for overall industry. I don't think that can be taken as a representative case 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. At this stage, we hope that kharif should be normal year, I mean, normal for this season. I'll also ask my colleague, Prashant, if he's on the line, to kind of throw some more light on this. Prashant?
Yes. Thank you, Mr. Sarna. Yeah, it's a good question. Look, as we start introducing new products, we are also expanding into wheat crop, we are also expanding into horticulture. 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 efficiency in the second half of the year. Having said that, kharif is going to be still a major season for us. Yes, there will be more spread, I can say. In the immediate 2022-2023, we will see kharif is major. Thank you.
Got it. Thank you.
Thank you. The next question is from the line of Chintan Modi from Haitong Securities. Please go ahead.
Yeah. Thank you, sir, for the opportunity. Sir, with the six to seven new molecules that you are planning to commercialize, are these all from agrochemical side or this would include non-agrochem also?
Yeah. Mostly from AgChem. I mean, out of seven, I think four products are from AgChem and three from non-AgChem space.
Okay, sure. In your commentary when you mentioned that you are seeing good amount of inquiries coming in from non-AgChem side, are you also, you know, 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, you know, overall inquiry rate has gone up by 2x.
Yeah.
It's indicator of both stockings.
Sure. One more, just to understand like, you know, in such inflationary, you know, when there is such so much of rapid inflation, which impacts the CapEx cost as well. Especially, you know, 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. In such cases, how do you approach? Is it like, you know, the ROE is kind of taken a hit, or we're still able to kind of manage that?
Well, generally, in the molecules that we work and the kind of, you know, relationship that we have with these global companies, you know, these things are very much understandable, you know. 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. 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. Generally, you know what happens that it is not that we have done the contract and then we get into the CapEx, you know, spending. Both things happen together. Okay.
There is a broad understanding, then we start budgeting the spending. 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 scenario that we are in, and these become part of the revised plans and revised pricing structures.
Sure. What should be the tax rate that one should assume for next two years?
Mani?
Yeah. An effective tax of 18%-19% you can assume for.
Okay. Sure. Thanks a lot, sir. That's helpful.
Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
Yeah, sure. Can you quantify the margin expansion you are talking about, and what was the reason for the margin expansion? The second question is the CapEx for the FY 2023 and 2024.
CapEx we have guided close to INR 500 crore for FY 2023, and it is a little early for us to kind of, you know, integrate numbers for next financial year. Yeah, I mean, tentatively we say that INR 350 crore-INR 400 crore is what, the kind of range that we are currently thinking. Yeah, I mean, the more final number would be known maybe later in the year. 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, you know, predict what is the kind of cost trend that we are going to see both on raw materials and, you know, fuel and other conversions.
It is really very difficult to put a number, that whether it is 100 basis point or 200 basis point. 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. Therefore, I mean, we have a good, you know, headroom to improve margins from the current levels. That is one. Secondly, in the second half of last year, we have commissioned at least four new products, commercialized four new products. You can imagine that in the initial commissioning time there are, you know, inefficiencies and all those things.
We expect that in the current fiscal we will be able to certainly improve on those processes, costs, and therefore there is, you know, some room to improve overall, you know, gross margins and also, because of, operating leverage, EBITDA margins. At this point in time, I'll try not to put some number on it.
Can you give the breakup of INR 500 crore we are talking about CapEx in CSM and Domestic Business? How many plant we are putting up?
Well, it will be mostly in the CSM space because we hardly do CapEx in our domestic marketing distribution.
This INR 500 crore is for the MPP plant?
Pardon?
The INR 500 crore for CSM, how many plants we are installing?
No, I already answered this question, my friend, to the earlier participant, that there are different, you know, sections of this CapEx. For example, there is CapEx for, you know, maintenance. There is CapEx in our research and development center. There is CapEx in some of these new technologies we are developing for future. It is not that all CapEx is going for building a multiproduct plant or capacity. No, that's not the case.
We are waiting on that.
Thank you, sir.
As I mentioned to the earlier participant, yes, capacity to the tune of one to 1.5 multi-purpose plant will certainly be there. This is what we are building as part of CapEx.
Okay. Thank you so much.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Thank you for this opportunity, sir. Sir, first question is on the potential growth that we can see is through M&A beyond the 20% kind of growth indication what we have provided. 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. 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, the size of the business that we acquire. Yes, but all said and done, this will be in addition to our guidance of 18%-20%.
Okay. Still just something slightly more on the pharma side. I think, having seen whatever the kind of deal cancellations, and now we are also getting ready for even international M&A. What is the thought process there, sir? Is it like, having a base closer to the customer, so that is why the international acquisition, that is what is the thought process or something else?
Yeah. Thought process is, you know, I think we have, in past, very clearly guided that what is our aim in t his 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 essentially, you know, in line with what we are doing in AgChem, as a CDMO CSM player. We kind of eventually build a differentiated CDMO model in pharma. On this path, we will start from somewhere and we believe that, as a roadmap 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. With this aim, we are, you know, looking at opportunities both in India as well as outside India.
Okay. Sir, my next question is on the domestic formulation business. See, having seen 47% kind of a growth in the fourth quarter, what was the kind of volume led growth and what would be the pricing growth? Generally, sir, having seen, since you have recently guided that, recently in the sense in the previous question you have mentioned that 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. Is it fair to believe a strong double-digit kind of a growth in the domestic formulation side that we should look at?
Yes. We are certainly expecting high double-digit kind of growth in the domestic area in this fiscal 2023. Now, how much happens in the first half or the first season, kharif season and the rabi season will also depend on how these seasons are panned out and, you know, how the initiation of monsoon happens. 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. This looks positive.
Yes, I mean, since in the first half last year we had a little softer scenario, we expect that in the first season this year we should have reasonably good growth.
Okay. 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 herbicides did very well. I mean, we significantly improved our volumes and, you know, acreages that we had done last year. This year we kind of doubled and tripled those acreages and the volumes in the wheat herbicides. Some other products were also launched. also we went very aggressive even in horticulture space, where we could also register some good growth. all these aspects, you know, contributed in this growth.
Okay.
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%.
Yes.
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%-20% kind of a growth CAGR over last five years. 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. 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 for them. 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 2020. Okay.
You can imagine that we are growing on a bigger base.
Got it.
When, yes, we guided for 20% or close to 20%, but we as a management always believe in exceeding and outperforming our guidance. 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, you know, as we explained earlier. Overall scenario, and probably I'm sure that as an analyst, you will also kind of give this credit to the management team.
Certainly, sir.
That despite all these adversities around the supply chain and increasing cost trends, and also the inefficiencies which come along with the introduction of four, five, six new products, despite all this, we were able to kind of maintain, I'll not say significantly grew, but maintain the margin profile. By the way, this year there were also several one-offs because of our strategic initiatives.
Mm-hmm.
These are the reasons that, you know, we believe that we'll improve upon these three, four areas, and therefore, given the operating leverage that we shall get in the next financial year and help us improve our both margin as well as return profile.
Sure, sir. Thank you. Wish you all the best.
Thank you. Participants, I would request you to please limit your questions to two per participant. The next question is from the line of S. Ramesh from Nirmal Bang. Please go ahead.
Hello. Thank you and good evening. 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 earphones or an external device?
No, no, I'm using a handset. Can you hear me?
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. Please go ahead.
Yeah, hi. Thanks for the opportunity. 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. The question is, you know, if we have to kind of understand the CSM revenue growth, say between the newer molecules and the older molecules over last, say, two, three years or, you know, how would that have been? The reason I'm asking this is because, if you look at the overall order book, you know, we've been around $1.4 billion-$1.5 billion for quite some time now. If you look at the overall environment around us, you know, we are seeing more and more competitors also getting benefiting from this whole contract manufacturing and, you know, transfer of more molecules from the global partners.
Just trying to understand, you know, have you kind of lost any, you know, business or in the old, older molecules, and how is the kind of market share in terms of incremental newer molecules? Just any perspective you can share on that. Thank you.
Yes. I think there are two, three 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, you know, 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 two years, first COVID and then, you know, this global supply chain and now again, very volatile global supply chain for these recent conflicts and all.
I think both from the customer side as well as from our side, you know, everyone is little tentative in terms of committing very, very long-term, you know. From our side in terms of capacity, from the customer side in terms of, you know, 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 those questions. Given this scenario, I mean, there is little, I would say, slow down in terms of taking very, very long-term calls and investment calls, but that doesn't mean that it is in any way impacting the business, okay. The business growth is continuing as is also clearly reflected in our performance.
The second part that these other companies and other Indian companies are taking away this growth or something. To be honest, I mean, if you see overall specialty chemical area, overall Indian specialty chemical growth, I think there is a very decent growth and many companies have done really well. I think there is a place for every company here. There are different segments, different models, business models, different portfolio of products. Question is that which model, which category, which segment is sustainable, you know, the point for someone like you to assess.
Given the kind of business model that we are in for last more than two and a half decades, 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 know, 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. You know, 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 exploiting this kind of a structure vis-à-vis, say, engaging with us, you know, in terms of their new molecule pipeline?
Well, frankly, I was not able to clearly hear what you were saying. Your audio is not very clear.
What I was saying that, you know, we, as you rightly said, there are other alternative models, you know, here there are some companies who have actually gone ahead and done JVs with MNC partners for patented molecules. From your position, does that kind of reduce the opportunities size by two to some extent? From your interaction with other MNC partners, are you seeing, you know, what's their understanding in terms of exploiting a JV structure vis-à-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 a traction. We are rather seeing a traction in the inquiries, in the new business opportunities that are coming to the table. In fact, I mean, these JVs or patented JVs, I mean, all these have been done 10 years back by PI, you know, 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. 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. I think this is quite a positive scenario at this point.
Thank you.
Thank you.
Thank you. The next question is from the line of Gaurav Chopra from Union Asset Management. Please go ahead.
Oh, hi. Thanks for taking my question. First question was just an extension to, I think this participant's question on the order book. Given you highlighted that last two years have been volatile and, you know, you have been sort of reluctant or tentative to add to this order book. Do you think going ahead we will see accretion of the order book because we are already over half a billion dollars in the CSM space? Do you think you'll add to this number?
Yes. Again, I must answer this in a different way. Order book may not be the only way it's good when you're in the initial stages of business. 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 were to 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. Hence order book is not really the driver. Because if you've got some product that's running for five years, 10 years, and with your capabilities and benchmark where you are, the customer wants to work with you and you want to work with him.
That risk factor is now different today for PI compared to what I would say 10, five, 10 years ago. Therefore, we are not really driving this as a way, but we're always looking at the opportunity scale and optimizing it.
Got it. Also, sir, secondly, is there any contribution from pharma currently in our piece or, you know, 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 that we guided earlier.
We have scaled up couple of products, couple of pharma intermediates. This is not a very significant number.
For non-agrochemicals, if you can share that number apart from pharma.
There are three, four products again, we have commercialized in last one year. As you can imagine that initial years, these are not very significantly large numbers. Yes, over the years we are expecting them to scale up and then become a meaningful number.
Got it. Thanks for answering.
Thank you. Thank you. The next question is from the line of S. Ramesh from Nirmal Bang. Please go ahead.
Hello, can you hear me now?
Yes, sir, you may proceed.
Yeah. The first thought is in terms of the initiatives on the non-AgChem space, is it possible to share in terms of the investments 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? Will it help you know, 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?
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. Obviously as you move up the curve, the parameters need to get better. That's really the idea of moving into that space. Yeah.
Yeah. Okay. The second part is on the domestic business. Is it possible to share what are the kind of 90 registrations you received last year and how many registrations have you filed for as on date?
Well, I think we received 290 registrations last year.
Prashant, yeah.
Yes. You're right. We have received 290 registrations last year and three more in pipeline for the coming year.
Two more, is it?
Three more. Yeah.
Three more. Okay. Thank you very much, and all the best.
Thank you. We'll take the next question as the last question from the line of Tejas Sheth from Nippon India. Please go ahead.
Yeah, good evening, sir. Sir, if you are expecting 20% kind of growth, broadly that would be around INR 1,100 crore on the CSM side. The current CapEx which you did of let's say around INR 340 crore, wouldn't that be short of achieving that kind of revenue growth?
Well, business. I think if you look at, we did INR 1,400 crores of CapEx over the last two years before that. It's not CapEx driven. It is about, as we said earlier, asset improvement. If you were to ask me, we have about now 15, 16 plants. A 10% improvement efficiency in throughput creates 1.5 plants. It is not linear. That's, one side we have a focus on asset turn, the other side we want to look at CapEx. I think growth is clear, but how to continuously optimize the use of technology and efficiency is what we drive, not really just CapEx.
CapEx would not be the right benchmark in the chemical and process industry, unless you're into commodity chemicals where, you know, where you can look at capacity and capital as a part of throughput agreement, not in the process and technology related businesses that we are at the higher end of the value chain. Yeah.
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 is it just RM cost increase given?
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 when we have high volume commodity, low value products, but that's not a large component of the overall given the PI contracts.
Okay. Thank you very much, sir.
Thank you. I now hand the conference over to management for closing comments.
Thank you everyone. Deeply appreciate all your support for coming on to this call today. 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 your great support. 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.