Ladies and gentlemen, good day, and welcome to the Q3 FY twenty-three earnings Conference Call of PI Industries Limited. As a reminder, all participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star and then zero on your touchtone telephone. I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, over to you, sir.
Thank you. Good afternoon, everyone, thank you for joining us on PI Industries Q3 FY23 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 Singhal, Joint Managing Director, Mr. Manikantan Viswanathan, Chief Financial Officer, Mr. Prashant Hegde, CEO Domestic, and Mr. Atul Gupta, CEO Exports. We will begin the call with key perspectives from Mr. Singhal. After that, we will have Mr. Manikantan sharing his views on the financial performance of the company. After that, the forum will be open for question and answer session. Before we begin, I would like to underline that certain statements made on today's Conference Call could be forward-looking in nature and a disclaimer to this effect has been included in the investor presentation shared with you earlier and is also available on StockEdge website.
I would now like to request Mr. Singhal to share his perspectives. Thank you, and over to you, sir.
Good afternoon. Good afternoon, everyone. Thank you for being with us today on this call to discuss the Q3 performance. It gives me immense pleasure to share that PI has delivered another good quarter of our performance. Year-on-year, our revenue growth during Q3 came in 19% with an EBITDA growth of 40% and a margin standing at 26% supported by favorable product mix and operating leverage. Consequently, our profit during the Q3 saw an expansion of 58% further efficient net working capital management resulting in a significant improvement in free cash flow. In line with this superior performance, the board of directors has considered an interim dividend of ₹4.5 per share for 2022-23. Our branded products for crops including cotton, rice, horticulture and row crops has performed well.
With a portfolio of advanced brands, we have carved out a leadership position in the respective categories. We are recording attractive responses to the state-of-the-art new brands that we recently introduced in the domestic market. One of the highest numbers launched in the industry, our branding integrated in crop with best-in-category solutions for crop protection, helping farmers prosper. We have a strong solution for crop protection. Our pipeline of the products are given state-of-the-development to continually enhance our portfolio. The institutional sales remained subdued during the quarter due to higher channel inventory and reflected in the overall domestic revenue growth. We have improved efficiencies and increased realization and reduced working capital for the brand business. Dynamics within the global specialty chemical are evolving to a nice higher value proposition for products from India, where we as a company stand both in terms of quality, process and technology.
Global clients are prioritizing diversification of source of India even as country develops to integrate value chain. The key chemistries, our order book position for the end of the quarter stood at around $1.8 billion, indicating the confidence of the innovative response to our business and model of delivery with well-established credentials. We are renowned for our ability to partner with innovators at the global requirements. PI has entered niche and through proactive investments in capability building and research in novel technologies and platforms. This means our breakthrough innovation today is very important and technology will need to be scaled up more effectively and efficiently. Our ability to engage at a global level on long-term relationships basis are key of understanding complex chemistries and core advantages with companies and partners across the globe. The share of non-CSM inquiries continue to grow.
Commensurate with that, we are also enhancing our capacities in the non-CSM space. We have augmented our look in widening customer relationships deeper. Our research and innovation teams are continuously engaged in developing new generation offerings to comfortably rely 30-plus % growth. We will be backed by expansion of the business from commercialized molecules with better margin portfolios. Sharper checks on costs. Recently launched molecules continue to scale up and will continue to contribute strategically in the next few years. We aim to commercialize 4 to 5 molecules every year and deliver the momentum and capacity expansion further in the coming year. I'm happy to say we have commercialized new products with a high potential growth into the future. Demand remains poor as the scale-up market begins consumption of new pharma entity takes shape.
We continue to actively evaluate inorganic growth opportunities in pharma domestically and internationally in line with our pharma strategy. Initiatives with our leadership team are ongoing and continue to stir our footing into this space. I am pleased to report and a proud moment for PI. We received the Golden Peacock Award for Sustainability for Corporate Social Responsibility for the year 2022. PI is committed to inclusive growth aligning with the SDGs and create a long-term sustainable solutions towards reimagining a healthier planet. With this, may I draw the opening remarks to a close and hand it over to our CFO, Mr. Manikantan for the financial discussions. Thank you once again to all of you for joining this call.
Thank you, Mr. Singhal. Good afternoon, everyone, and thank you for joining us on the call today. I will summarize the company's financial highlights for the Q3 ended 31st December 2022. Please note that all comparisons are on a year-over-year basis and refer to consolidated performance of the company. During quarter three FY23, we reported revenue of ₹16,132 million , a growth of 19% over the same period last year. This was driven by growth in export revenue by 23% to ₹ 13,286 million and 2% increase in domestic revenue to ₹ 2,846 million. Export revenue growth of 23% was driven by volume growth of around 9% and price and currency of around 14%. New innovative Amyl brand launched recently also contributed to our growth.
Our gross margin increased by 73 basis points to 47%, partially due to cost passing and favorable product mix. EBITDA increased by 40% to ₹ 4,156 million for the quarter, driven by operating leverage benefit and tight control on fixed overheads. Profit after tax increased by 58% to ₹ 3,580 million attributable to EBITDA growth. Cash flow from operating in activities during nine-month period was ₹ 9,951 million. This was due to higher data and efficient management of net working capital. The trade working capital in terms of number of days of sales was reduced to 90 days compared with 103 days as of 31st March, 2022. Our balance sheet further strengthened during the quarter. Net worth increased to ₹ 69,760 million.
The CapEx for 9-month period stood at ₹ 2,585 million and is in line with our plan. This year we estimate a CapEx of around ₹ 5,000 million. Inventory levels reduced in terms of days of sales to approximately 81 days to ₹ 14,517 million, still serving higher revenue and adequate safety stock to our supply chain disruptions. The company maintained a strong liquidity position and as a result repaid outstanding ECB loan of $25.71 million. That concludes my opening comments. I will now request the moderator to open the q-forum for question and answer. Thank you.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may enter star 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star 2. Participants are requested to use handsets while asking a question. We would also request you to please limit your questions to 2 per participant. Time permitting, you may come back in the queue for a follow-up question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.
Yeah, good afternoon, sir. Thanks a lot for taking my questions. Two of them. First, on the CapEx side. The presentation talks about planning to intensify the CapEx, you know, in the future. While we are guided about ₹500 crores of CapEx for fiscal 2023, is there a number you could help us out with for 2024? You know, is it going to be substantially larger, and if so, on which projects? The second part was just on the pharma side. I believe you've invested ₹ 675 million into PI Health Sciences to kickstart our organic initiatives on the, on the pharma side. If you could please just, you know, elaborate a little bit about the plans out there. Thank you.
Thanks, Abhijeet. For the first question, this year we had a plan of ₹ 550-600 crore CapEx, but some part of it will surely get rolled over as some of the, you know, multiproduct plants we are reworking on the design and some of the products have progressed well on commercialization and we are, you know, redesigning some of these things. For next year, we are, as we mentioned in our presentation, we are expecting anywhere around ₹ 800-850 crore of total CapEx in the next financial year.
Got it, sir. Also if you could just talk about the pharma investment into PI Health Sciences.
Yes. About the pharma investment, this investment is basically for initial operating setup and activities that we are intensifying and augmenting our resources in the pharma space. This is where towards this objective we have, you know, capitalized this our new organization to start these activities.
Fine. Just the last thing from my side was on the margins. margins overall have been, you know, much stronger than perhaps we would've expected about 25.7% this quarter. Any, you know, specific benefits this quarter in particular, or is this a sustainable run rate for the future?
This is majorly coming from two, three areas. One is that the product mix has been positive for us in this quarter. Certainly, you know, the sheer operating leverage benefit is also kicking in because with this sustained, you know, 25, 20, 25% kind of growth, the operating leverage is certainly kicking in. Then, of course, we have had a very tight control on our fixed costs. All these are contributing to this margin level, and we are expecting this to. You know, while there will certainly be some variation quarter-on-quarter basis, depending on product mix, but on a year-on-year basis, I think we'll be able to reasonably sustain these margin levels.
Thank you so much, sir. I'll join back the queue for more.
Thank you. Our next question is from the line of Vivek Rajamani from Morgan Stanley. Please go ahead.
Good afternoon, sir. Thank you for taking my questions. Two questions from my side. Firstly, there's obviously been some concerns of slowdown in some pockets of agrochemicals, both domestically and in the export market. Could you maybe provide some color on the trends that you're seeing with respect to your products, both for domestic and exports? That was the first question. Secondly, on your point where you're saying you'll obviously be focusing more on capacity expansions going into next year, any indication on what kind of increase you're envisioning there? I know that this is not a straightforward question with respect to your products, but some color would be very helpful. Thank you so much.
If I get your first question right, you're saying there's a downward trend for agrochemical products, or what was that? I didn't get that clear.
Some, some trends that you're seeing with respect to your products, sir.
Okay. If I look at the product portfolio, I think that's the unique part of what we have. Both the domestic business, as you've seen, we have a better development of the highest conscious innovative products. Getting these innovative products has shown us a good creative work. The growth has been muted, and that's been really driven by efficiencies and driving and ensuring that we are almost stacked up. New products will continue to grow, and we see a good positive direction coming from the product portfolio that we have. We just don't see five to six brand new products in domestic business. I'm pretty sure some of them will scale up to a different great height, now that the weather condition will give us an exceptional outcomes.
When I look at the global product portfolio that we are in, we again see positive trends. Some of the large products that we are in still need to be registered globally, and there is a positive trajectory of growth continuing to happen. At the same time, we've entered some interesting strategic products which have good potential of growth in the global markets, and that's quite exciting us to see that we are poised to be in a comfortable position in terms of our product portfolio strategy. While there could be certain headwinds which could come in, but usually these will be pretty, quite the stronger ones which will take good shape into the future.
Thank you, sir. Just to clarify, you've not really seen any significant slowdown with respect to your products, particularly on the export side. Would that be a fair statement?
Yes. Actually, I can say that. We already, as you know, we have put in all our good position with people who've got the demand, and that continues to happen. That's where we are right now.
Sure, sir. On the CapEx, on the capacity expansion, any color would be really helpful. Thank you.
I think that will answer that. Obviously, one great job that we've done, we've looked at about taking 12%+ capacity between the existing assets, by looking at various engineering and technological solutions, which is further reduced and given us a global trajectory that we have. This has been postponed in the new product mix, which show that we have to happen in the CapEx going into the next year, as mentioned earlier. Looking at the pipeline and potential that we may impact from the technologies, we are looking at a total outflow of ₹ 600+ crore extra CapEx for next year. We'll follow through certain flow of CapEx in this current year. That's where we are.
Got it, sir. All the best.
Thank you. Our next question is from the line of Aditya Jhawar from Investec. Please go ahead.
Yeah. Thanks for the opportunity. My first question is, you know, one of our key molecule has seen a very strong growth in this quarter. Just wanted to understand that, you know, what could be the reason driving this growth? Are you seeing, you know, market, you know, a wider application of this product? Are farmers using this product as a substitute of glyphosate? I'm sure you would have also collected some market intelligence on what should be the growth, for one of our, you know, key products.
Well, you know, as you know, these products are cyclical in demand. It's not that the consistency is throughout. One, yes. With regard, look at the second part of the question. There has been product portfolio expansion. The company and global companies were partners to expanding this product worldwide, from what we understand. New geographies which are being added, clearly application and acceptance is growing. We see a positive trajectory coming through this. That is the growth. Obviously, you know, I would not like to talk which quarter up and which quarter down. It depends on supply chain, market situation, crop position is taking place in various part of the geographies.
Okay. That's good to hear. That essentially means that the growth that we have seen is a organic growth, and it is not that, you know, the inventory gets, you know, filled up in the channel and in the subsequent quarter we see a significant slowdown.
Yeah. My, you know, next question, is, you know, on the tax rate side. What should we expect, you know, on a tax rate on a full-year basis?
The tax rate will be around current quarter is 14, so nine months is 14.5%. The full-year basis will be less than 15% roundabout.
Sorry, less than 15%?
Yeah.
Okay. Okay. Yeah, I'll fall back in queue. Thank you.
Thank you. Our next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead.
Yeah. Thanks for the opportunity and congrats on good set of numbers. First question is on slide number 9. We have mentioned that more than 60% products are falling in green category. What exactly does this mean and how you know beneficial it is for us, given that the sustainability is a criteria for global innovators? Thank you.
Yes. You know, the product falling under the green category means, you know, the waste which is generated per kg of the product. We have an international guideline basis which it is decided that which product fall in green category, yellow category, and then red category. I think this international criteria which we have applied to our products, taken them on a priority, and then worked on systematically in development stage to reduce the risk. That's how we say that this falls under green category.
Right. Now, just a clarification, this is applicable for both CSM as well as domestic?
Yes. It is for both.
Right. Got it. Second question is, after commercializing three products in CSM, what is total number of products in CSM and any non-agro products in current basket? For next year, are there any non-agro products which will be commercialized in FY24? Thank you.
We have already got four commercial products in the non-CSM scale. We are looking to commercialize three in 2-3 in the next year. Obviously, we are in the early stage of this business, should not form any substantial part of the revenue, but these are investments which are showing a positive direction for growth and customer confidence building.
Thank you. Just current number right now, including these four products.
We would not have a number on hand in that for the moment.
Sure. Thank you so much for that.
Thank you. Our next question is from the line of Vishnu Kumar AS from Avendus Spark. Please go ahead.
Thanks for your time and congrats for good numbers. This question is on margins. In the past, we understood that many of our contractual terms with the customers are that we will earn a fixed kilo per margin. Irrespective of the price movements, we'll earn the fixed price and higher pricing, we'll see probably the percentage margins will be lower. That is one. Second, as the production scales up for certain products, we were... Actually, we, what we understood was that we will have to transmit certain efficiency gains to the customer. The current commentary seems to suggest that there is a change in the contractual terms. If you could slightly elaborate on this point?
Yeah. You see this is, as I explained earlier, this is majorly coming from change in product mix favorably for us. We are every year we are launching, four, five products. Even in domestic, you know, many new products have been added in last two, three years. Obviously, you know, the product mix is favorably changing. That is one. Secondly, the operating leverage benefits. The understanding generally that we have with our customers, and this is where, you know, because we suffer in the initial periods with the lesser utilization of these plant investment and all, at a later stage when the, you know, operating leverage kicks in, that balances, you know, with the earlier lower margin. Right now at this stage, I mean, some of these benefits are kicking in, and that is giving this reflection.
Understood. Sir, in terms of new products, on the export side, how much would be, let's say in the last 2, 3 years, if we have launched certain products, any rough contribution of revenue, if you could just help us understand? Last 2 years or 3 years, what would that proportion of your overall sales revenue would be?
We don't have these numbers or bits, but I think as I mentioned, I think in last call, some 17%-18% is around that comes from products introduced in last two years.
Got it, sir. Since on your comment, you said that domestic products also we are getting better margins. The margins that you're currently earning would be higher in the domestic because of the new product launches. Is that a way also we can pick? That you are earning slightly better numbers from the-
Creating new products and new margin, the domestic business would be giving us the contribution level, you know that.
Got it, sir. Just on the CapEx bit, you said, we have spent about ₹ 250 out of the ₹ 600, another ₹ 350 spending plus about ₹ 800, which you just mentioned. When should we expect these new plants to be coming up? Any rough commissioning dates that you are looking for?
Yeah. Just to clarify on it, as I mentioned that some of the CapEx which was planned in the current year is getting rolled over because of, you know, the plant design related and implementation related requirements. That will also get covered under this ₹ 800 odd crore that we are indicating. Okay? This includes that rollover also, not that, you know, ₹ 800 plus whatever, ₹ 500, ₹ 400 that we have been talking. We have 2 multiproduct plants scheduled to get commissioned, maybe one at a later phase or second half of next year. The other one also we are monitoring, but that may go to, you know, next to next year, which is 25, FY25.
This is currently the, you know, the plan, tentative plan that we have. On the other hand, we changed the way the structure of formats for how we look at these plants, mainly technological capability and giving it better throughputs and efficiencies with larger footprint for each plant. Got, got it, sir. I'm sorry, I'm just checking back on the margins. Should we take the guidance to be at probably at 23%-24% from here on? Because earlier it used to be 21%-22%. Should we see a step up going forward over the next couple of years to be anywhere between 23%-24% or any thoughts? Yeah. 23%-24% is what currently we are estimating.
Okay, sir. Thank you. All the best.
Thank you. Next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Congrats on good set of numbers. Sorry, again, just checking on the CapEx side. On the, you know, our earlier commentary was that we will be continuously focusing on improvising and improving the asset turns, which we have sort of, you know, displayed over the last few quarters. At the same time, the CapEx number is also getting increased. You also, you know, suggested to invest further into the pharma, you know, production there, pharma products there. Is there, from your thoughts perspective, from a sustainable growth run rate in CSM business, are we looking at upwards of 25%+ or maybe even higher rather than the 20%+ mark that you know, typically comment on?
No, in terms of growth, we are still sticking to 20% plus growth rate on a sustainable basis. That's what currently we are predicting, and we are continuing with that guideline.
Sure. Where I was coming from was, you know, typically it takes three to four years for a product to mature. Historically we had launched, you know, newer products, which were probably margin negative as well as, you know, higher potential ones.
Right.
Is there a faster growth coming in the near term there or probably it's still a medium-term thought?
No. While, yes, I mean, product takes, three, four years for maturity, but, you know, we have to also appreciate that the base is also growing. I mean, if you see last, two, three, four years of growth, I mean, we have been 25% plus kind of growth year-on-year. The base is also growing and therefore we are guiding for 20% plus kind of growth rate on a sustainable basis. Although there are opportunities, but you know, this is where we are bit cautious in guiding on growth.
Sure. Sure, sir. Just second bit on the domestic side. One, if you can comment how, you know, the branding of the newer, launched products are doing in terms of growth rate versus the slightly older portfolio. Secondly, your comment on the channel inventory. Is it largely done or probably it will take, you know, some more quarters to settle?
Yeah. As you rightly said, yes, the channel inventory because of lower than expected uptake in kharif season, so due to adverse weather condition, the higher channel inventory built up. However, it is being consumed. That is a good trend I can say. Here the growth has mainly come from or overall you may see subdued, but growth has come from newer products. However, the generic products have suffered, that is where overall growth is subdued.
Sure. Sorry, just a clarification. On the channel inventory, Q4 should be a normal quarter?
Say, it's a very good question, but, let me also tell you, Q4 is not a major consumption month. Industry usually prepare for kharif through pre-placement effort. Hence, there is always a limitation on growth from purely from the consumption point of view.
Okay. Fair enough. That's it from me, sir. Thank you.
Thank you. Next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
Yeah. Can you talk about the Osheen performance in the kharif season?
We normally do not talk about products, specific product performances, you know. Generally, as Prashant indicated, the all new products that we have, I mean, introduced in last couple of years, they have been very well accepted by the farmers. The growth year-on-year has also been very good.
Okay. The second question is, in other expense, is there any Forex gain and freight cost is also lower in this quarter YOY?
Yeah. Freight cost is lower basically in this quarter. You are right. On the Forex, there are no major gains coming the other way.
Okay. what is the cash rate for FY 2024, 2025 guidance?
Sorry. What? Can you repeat, please?
Cash rate.
Cash, what cash are you talking about?
2024, 2025.
It's too early to tell for 2024, 2025, my dear friend.
Okay.
The same guidance. It will be the same guidance of what we are, because, too early. Can we give guidance in the next quarter on 24, 25? Will that be okay?
Okay. Thank you so much.
Thank you. Anyone has a question may enter star and one. The next question is from the line of Ramesh Sankaranarayanan from Nirmal Bang Equities. Please go ahead.
Hello. Thank you very much. If you look at your domestic business, on the kind of base you have this year, including the weak base in the Q3 , will you be able to do double-digit growth in FY24? What is your expectation considering the kind of, launches you have done this year?
Yes, the base on the launches we had, last two years, definitely double-digit growth is what we are expecting.
Would that help you improve your margins as well, given that FY 2024 should be a more normalized year in terms of at least the inventory overhang and with the input costs coming down and the freight costs coming down, will that give you some, you know, increase in pricing power and margins?
Yeah. As I said earlier as well, as we start scaling up the new products, definitely margins in new products are better, and definitely it will improve overall margins for sure. Even on the overall basically ratio also should improve.
Okay. Now, on the CSM, when you look at the CapEx plan, it's about, say 1,200 crores over two years. How much of this is to increase your capacities and synthesis capabilities for the increase in the order book of about $400 million between Q1 and the Q2 r? How much of it is to, you know, build your capabilities to get to a normal business as well as to bid for new orders? Please can you give us some indication of that?
Well, I'm not too sure on several elements of your question, but let me try. Yes, with these investments in last two years or even next years including, it will surely add to capacity to the tune of 25%-28%. Apart from this, as we have been guiding for last few quarters, that we are also working on improving efficiencies of our existing facilities, multipurpose plants and improving throughput. Last year we improved throughput by more than 12%, 15%. This year also close to 10%, 12%. You know, apart from fresh investments in capacity expansion, we are also improving with technological improvement, the plant throughputs of the existing capacities.
All this is certainly helping us, you know, get up to a capacity utilization and also improve capital efficiency, which is also clearly reflecting in the numbers that are there. This is the whole objective. Being a capital-intensive business, our whole objective is to keep improving the capital efficiency.
Yeah, understood. What I was trying to understand was, in terms of the increase in the order book, is any part of this CapEx intended to enhance your capacity to be in a position to deliver the increased order book?
Yes. Yes. I mean, a part of capacity expansion is certainly towards this increase in order book position. Some part of this expansion is towards many new products that are also coming through the R&D pipeline and commercialization of those markets.
Okay. Just 1 housekeeping question. Can you give us some insight into, you know, how the other income has gone up and how the interest expense has gone up?
Interest expense, basically you are aware that, on ECD there was a increase in the library as against offer. That was one increase was there, and also the exchange rate was also there. Both together have increased the overall interest expenses.
On the other income?
On the other income, what's the specific question?
What is increased?
Other income is normally it attends to the income from exchange gains. It will come in other income.
Maybe you can clarify this on the sidelines.
Yeah. Will do.
Okay.
Thank you. Our next question is from the line of Rohan Gupta from Go ahead.
Hi, sir. Good evening, and thanks for the opportunity. Congratulations on a good set of numbers. A couple of questions. First is on, you had mentioned that, you know, there has been a significant surge in inquiries in non-agro product by roughly 25%. I understand that right now the revenue contribution from non-agro and non-pharma is still very less. Just wanted to understand when we talk about that continuous increase in inquiries, how well we are leveraged to use these capabilities and use our capabilities in the scaling of the revenue from this segment, where you see that over next 2-3 years the business can be from non-agro, non-pharma.
Yeah. Basically, you know, these products, if we see non-agro products, they have got a life cycle approach. Right away from the bench to scale-up and commercial scale, there will be gestation period, you know, for these molecules to justify investment in the brands. As of now, you know, as we are guiding, you know, there is a good amount of traction happening around, you know, the non-agro inquiries and the development portfolio. If obviously that, you know, all this work which is being done, will certify over a period of time in terms of the non-Acephate revenue.
Sir, in terms of like 3-4 years, where we see this business planning? Will we be using the, our existing set of plants, machinery only for the product development here, or we need to have a fresh CapEx to capture the growth here?
Yeah. I mean, at commercial scale, broadly, the existing type of plant, multipurpose plants are being used. Okay? Till the time the volumes go up to a scale where you need a dedicated plant. At the development stage, most of the existing setup is what is getting leveraged. Yes, there are certain specific quality related requirements for such, you know, different specialty chemical areas for which we have already augmented our set of R&D and further, you know, augmenting them and have plans in FY24.
Further, I still didn't get what is the plan in 3 to 4 years. Any guidance, any target which the management has set?
Our aspiration, Rohan, our aspiration of getting non-Acephate contribution to close to 20 % in next 4-5 years. This is what we have also guided that over a period of time, 4-5 year time mark, I mean, the contribution of net non-Acephate revenue should be to the tune of that %.
Okay. As of now, sir, the revenue guidance which we are having, it is maintaining 20%. I believe that we are still relying on agrochemical product only. Even in agro also we have that one product contributes significantly to our exports. Almost 50% of the volume is coming from the one single product. Do we see that there is a risk in terms of our exports revenues? Sorry, our CSM revenues and the 20% growth guidance which you're talking about if you're not able to scale up the other products?
Not really. I'm not too sure on the percentile you mentioned, but you see there are 3, 4 points to keep in mind here. One, that every year we are commercializing 5-6 new products. Okay? Today, if you look at our CSM export portfolio, there are 27, 28 products. Every year 4, 5 products getting commercialized. Just, I mean, in the last question, we mentioned that 4, 5 products from non-Acephate are already at commercial scale. Next year we are commercializing 4, 5 non-Acephate products. These many numbers of new product launches as well as non-Acephate products. The diversified portfolio is already there. It is no more dependent on 1 or 2 molecules. That is one aspect.
The second point is that even on the, you know, if you look at the other side, on the domestic side as well, many new products are getting launched. If you look at the company level, blended level, the diversification is there, you know, in terms of broadening the product portfolio, even in domestic side, beyond Acephate, we are getting into biological, you know, a large range of products are already in play, and many of them are at the, you know, development stages at different levels. This is how the product portfolio is getting diversified. This is certainly not a scenario of a dependence on one product per se.
As this model is, I mean, obviously currently we would be dealing at, I mean, with close to say 15-16 customers, okay, on this 27-28 products. There are another 35 products, 40 products at R&D scale with addition of another 10 customers. It is a broad- based structure. Of course, products, each product will have its own life cycle and at different point in time different products will peak. In next three, four, five years, the scenario will be completely different.
Thank you, sir. Thanks a lot. Just, if I'm allowed, one more question I have. Sir, on pharma side, on pharma side, we have seen that in last one year the profitability of many pharma companies have been impacted and so as the valuations of these companies has also been impacted. We have been very value cautious, and I think that was also one of the deterrent that we were not able to back some good deal as far as our inorganic growth ambitions are concerned. Do we see that in last one year with the moderation and the valuation across the pharma companies, we are now more closer and the chances have increased significantly that we tap any value deal in the pharma and we can hear something soon? If you can just, give some more idea about that, sir.
Yeah. We are currently, you know, at an advanced stage of negotiations of few of these opportunities and at an appropriate time as we materialize the, you know, deal, we'll certainly let the investors and markets know about it.
Thank you. We'll take our next question from the line of Noel Vaz from Union Asset Management. Please go ahead.
My question has been answered. Thank you.
Thank you. Our next question is from the line of Naushad Chaudhary from Aditya Birla Mutual Fund. Please go ahead.
Hi, thanks for the opportunity, congrats on a good set of numbers. Firstly, just a follow-up on the previous question on the CSM business. The number of commercials which we did last year, this year means looking at the historical run rate, it seems meaningfully higher. Firstly, on the growth guidance, if I look at the commercial numbers versus the growth guidance, do you feel the guidance which we are giving is slightly conservative looking at the number of launches? Secondly on this, any of these commercials, can it become sizable in next three to four years? Can it become to a similar size of your existing top two, three products?
Frankly, it would be helpful if you can please repeat your question.
Okay. The first piece of question was in terms of your commercials in the CSM business, last year and this year has been slightly higher than our historical run rate. Going by the numbers of commercial, would it be fair to assume your growth guidance of 20% is slightly conservative?
I'll not say conservative, but yes, this is the guidance. We are very confident, and we always remain, you know, cautious of the global markets. In any case, we are seeing the kind of upswings which are happening in the global markets, whether it is European markets or American markets, and many other things going on. We have to be mindful of these uncertainties, and keeping those in mind, we always try and give a guideline which we are very confident.
Okay. Secondly on this, from your new product basket, can we see any, or few of them can be sizable, similar to our existing top 2, 3 products in next 2 to 3 years?
Oh, yes. This is the criteria of even, deciding on which molecules we are working, be it domestic, be it export. When we decide to work on a molecule for our development for domestic market or for export, we always keep these aspects in mind, and, you know, screen those molecules on those parameters. Then many of these molecules are for multi-products, not for single crop, not for single crop per segment. These are for multi-crop per segment, and therefore they have potential to be a sizable molecule.
Perfect. Thank you so much and all the best.
Thank you. Our next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.
Thank you for the follow-up, sir. Just to clarify regarding the, CapEx footprint, the asset footprint we have at this point. We've mentioned in the presentation we have 15 multi-purpose plants. Are there certain dedicated plants also that are part of our infrastructure, right now, within these 15, or excluding them? Then these 2 new plants that we are talking about over the next 2 years, are these, primarily for the newer molecules that are getting commercialized, or is there also some capacity expansion for the existing, you know, major products that we have?
Yeah. Out of these 15, there are 3 or 4 dedicated plants that are there, which, for which we have, you know, long-term contracts and volumes which are pretty high. Okay. Annual volumes. For the next 2 plants, yes, there are many new products that are getting scheduled there for commercialization. Again, you know, these are all fungible plants. As the volumes of even existing products grow, I mean, we keep switching capacities from one to the other plant in order to meet the, you know, customer requirements and all. That way these are fungible plants, fungible assets.
Okay, sir. Thanks for the clarification. All the best.
Thank you.
Thank you. Our next question is from the line of Aditya Jhawar from Investec. Please go ahead.
Thank you for the opportunity again. Sir, any comment on the inventory situation in our key export markets?
You said inventory position?
Yes. Yes. How is the channel inventory in our key export markets?
Well, there is a mixed kind of scenario. I mean, it varies from product to product, market to market. In, in few markets, yes, there is some inventory pileup. But in others, we are seeing also scenario where there is, you know, challenges on supplying product on time as well, you know. There is a mixed scenario. Summary with the uncertainty in China, then definitely the generics are facing the pressure.
Of the build up at a global level, both of the inventories, because they were secure in depth. Supply is opening up, so that's going to be something which is going to be under pressure in a generic way. That's the indicators, and especially in the Latin part of the world and in certain markets even will be good. Inventories are a pile up, but yes, there will be certain stagnant challenges for some of these areas in the coming year.
Okay. that's helpful. Sir, if you can just specifically talk about how is the inventory situation in North America, South America and Europe?
Well, these are very well captured in global reports. If you see at a general level, yes, there are inventory build- ups, but if the season progress well, they should be aligned. America and Europe, the uncertainties of the world have built it up, and I can't say how inventory cycles will run. This could change depending on what happens in the next 6 months, both from an inventory point of view and from another 6 months' time in which could come and swoop over it. Fortunately for the kind of products that we are dealing in, we have not yet seen those kind of, you know, alarms.
Okay. Okay, okay, sir. Now my final question is, sir, typically in, you know, agrochemicals, you know, patented products, as compared to the total ASP of the, you know, product, what, you know, proportion is the active ingredient?
What do you mean? I mean, in terms of proportion of the active ingredient?
Yeah. For example, if the product is selling at, say, $10, what would be the cost of active ingredient for a patented agrochem?
Well, there is no standard formula, my friend. You know, if you look at the API world, there's no standard formula because cost is very different from the selling price. Selling price is determined by the affordability of the farmer and the value proposition to the farmer. What goes beyond technology, so it's not just the cost of raw materials which are driving the cost of sales. There's also investments which companies have made over the last 10, 15 years, and they could be different for different products. They could range from $200 million to $700-$800 million. That is not a cost which come in cost of goods. Depending which lens you look at it. Today, if you're interested in one product in one geography, there's a cost. If it is in a multiple crops, different cost.
If you're differentiating different formulations, different cost. If you're interested in herbicide, there's a different requirement for toxicology requirement and whether it needs to be registered. Cost of goods has nothing to do with the selling price of the goods. If I was to put that very clearly. The other costs which may not be visible are the base on which it's driven. What is looked at, what can the farmer afford? Is it creating value to him? How that can be derived. Yeah. Hope that answers.
Yeah. Thank you. That was very helpful.
Thank you. Our next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Sir, my question is on the pharma business plan that we have. In agro, you know, predominantly our entire business is on patented products. In pharma when you're looking for acquisitions, are we looking for either purely patented products or patented CDMO or looking at generic CDMO also?
Well, let me answer both from a perspective and correction. I think when we look at the custom manufacturing business, it is a services which you provide in manufacturing products, obviously from a part of that. When you look at the domestic business, it is purely products, yes, and product solutions. When you look at the pharma business, we are obviously eventually the products. Again, we're starting with a service of CRO, CDMO model with that product, yeah. Eventually products, if we look at manufacturing some of those landscapes, so then become a product. In your eyes, every product is a service or manufacturing.
I get it, man, you know, we are agnostic to whether it's a generic or a patented product as far as pharma is concerned.
There is not much of a CRO or CDMO work in generics, but it was more in the innovators pipe. That's where we've been focusing. When we look at CRO and CDMO, it just starts say at the innovator side, where you work with the innovator nearly staying till you take it to commercial because of regulatory frameworks, yeah. The generics would be a value and a value add, if it makes sense for chemistry and logistics point when it comes to the value. Not from a CRO or CDMO point. Yeah.
Okay. Okay. Got it. Thank you.
Thank you. Our next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead.
Yeah, sir. Thank you so much. In your nine months for the export business, you mentioned that the favorable product mix.
Mr. Muchhal, could you speak a bit louder? We can't hear you that well, sir.
Is this better?
Yes. Thank you.
Yeah. Sir, in the exports business, you mentioned that the three, nine months, the product mix and currency is about a 12% contribution. Just wanted to understand what we, you know, understand is that in the CSM business or the exports business, the price increase would largely be due to an RM price increase, because that gets passed through, is what our understanding is. If that happens, generally the gross margin should decline because your per kg remains broadly the same, because you work on a contribution basis. But your gross margins are still improving or, you know, still steady. Just wanted to understand, is there some change in the structure? Also on currency, that also largely is a pass-through, if I'm not wrong, in your contracts. Does currency always benefiting in your revenue, does it also benefit in your EBITDA?
Yes. Just to explain, first of all, this notion is not correct that there is a per KG margin fixed or something, you know. That is not the kind of business we are in. Yes, we work on a model where there is transparency on raw material costs and conversion costs and any increase or benefits they are, you know, shared with our partners. Okay? The price increase, I mean, in last one year, one and a half years, there is a significant increase both in terms of raw material prices and other inputs like fuel and other areas. The benefit that you are seeing here in reflecting in our numbers is, as I explained to the earlier participant also, that it is mainly coming from improved product mix. Okay?
If we have been, you know, launching, we have commercialized more than 10, 12 products in last two and a half years. Okay? Product mix is improving. The contribution of some of the existing products, which was different in, say, last couple of years versus this year. Overall product mix change is favorable for us. That is one. Secondly, the operating leverage benefit is also kicking in for us. Now, obviously, this, we were also on the other side of operating leverage maybe a few years back when the capacities were underutilized. Yes, this year those benefits are kicking in for us, and that is what is reflecting in these numbers. I hope you understand that this is not a, you know, one product company and prices fixed per kg and therefore, you're not appreciating what is reflecting here.
Sir, understood. On EBITDA basis, I am understand the operating leverage benefit. Even under the contribution margin where it is largely the RMS, if I'm not wrong, where it's a transparent model, you get to retain a decent part of the, I think the efficiency gains or, the benefit from higher volumes.
Yeah. That comes from product mix, because if you look at the contribution level, I think one- half % is the increase in contribution level. That is kicking in from the favorable product mix.
it's primarily the product mix which is helping us maintain our gross margin despite.
Yes. Yes, yes.
Perfect. That makes sense. Thanks, and all the best.
Thank you. Ladies and gentlemen, we take that as the last question. I now hand the floor back to the management for closing comments.
Once again, thank you for joining us on this call and we look forward to hopefully a successful year and thanks for all your support to PI. Good evening.
Thank you, members of the management. Ladies and gentlemen, on behalf of PI Industries, that concludes this conference. Thank you for joining us and you may now disconnect your lines.