Ladies and gentlemen, good day, and welcome to the Q2 FY24 Earnings Conference Call of PI Industries Limited. As a reminder, all participant lines will be in the 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 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. Nishit Solanki from CDR India. Thank you, and over to you.
Thank you. Good afternoon, everyone, and thank you for joining us on PI Industries Q2 FY 2024 earnings conference call. Today, we are joined by senior members of the management team, including Mr. Mayank Singhal, Executive Vice Chairman and Managing Director, Mr. Rajnish Sarna, Joint Managing Director, Mr. Manikantan Viswanathan, Chief Financial Officer, Mr. Prashant Hegde, CEO, Domestic, Mr. Atul Gupta, CEO, Exports, and Mr. Anil Jain, MD, PI Health Sciences. We will begin the call with key perspectives from Mr. Singhal. After that, we will have Mr. Manikantan sharing his views on the financial performance of the company. Thereafter, the forum will be open for question and answer session.
Before we begin, I would like to underline that certain statements made on today's conference call may be forward-looking, and a disclaimer to this effect has been included in the investor presentation shared with you earlier and also available on stock exchange websites. I would now like to request Mr. Singhal to share his perspectives. Thank you, and over to you, sir.
Yeah, thanks, Nishit. Good afternoon, and good afternoon to everybody, and thank you for taking the call today. Once again, I'm pleased to be addressing all of you on the strategic progress that we made in making the ever-evolving business landscape of PI. I'm once again pleased to report a good performance at PI. It's top performance quarter, even in the challenging operating environment. Just to give you a flavor, during Q2, we saw a 20% increase in revenue. This was accompanied by 28% improvement in EBIT and a PAT delivery of 44% growth. While the performance has been encouraging, I would like to give you an idea of the operating scenario. Rising climatic variations are impacting both the pattern of storing, application, and usage of crop protection.
During the Tarif, we experienced erratic monsoons, consequently forcing farmers to hold back on application of certain crop protection products. The continuous falling prices of raw materials coming in from China, moreover, putting pressure on selling prices of the generic portfolios. A similar scenario has been reflected in the global, where prices remain under pressure, channel inventory stay to be at an elevated level, and the distributors in the U.S. and Brazil are quite high in destocking and filling up the requirements for lower price stocks. However, the consumption of crop protection products in the key markets of Africa and Latin America is robust, therefore indicating good, healthy industry in the medium term. On PI, our operating model is vastly differentiated, with a focus in IP-based products and niche capabilities, distinguishing our place of being in a different path compared to the other industry players.
Our portfolio-focused on innovative molecules with technical strength and capabilities, we have seen a growth of more than 22% in the quarter over last year, while the industry faces such headwinds. Growth remains well diversified in exports, and I wish to underline this is coming not only from AgChem, but also from molecules in the other areas, electronics and specialty chemicals and imaging. Our pipeline of molecules is similarly diversified across multiple end uses in the industry. As we exclusively work on innovative molecules, such variations in operating models do not influence the momentum, whereas we continue to get the upside from a wider opportunity for growth. Given our understanding of multiple chemical and chemistry capabilities with strong technological platforms, we are able to bring high-performance solutions to the market, we are confident of sustaining the growth momentum.
With a healthy pipeline of molecules, we see a potential of high growth focused on the future and a better product mix. We commercialized three molecules during the quarter, and we expect to commercialize one or two molecules before the end of the fiscal year. Now, moving on to our domestic business. Our focus of driving quality of our revenue rather than pursue growth and size of the revenue alone in challenging times, has resulted in positive benefits. As always emphasized, we are in a good product mix, bringing efficient working capital management and all those are presented in our presentations. This slide of our performance has seen moderation due to erratic rain and monsoons, while we have done better in terms of the overall financial health of the business.
The Monsoon has seen even distribution as far as the reservoir levels in South India, marked below last year's average. The same patterns of Rabi could also influence as well. The high level of appropriate team discipline that we have shown in terms of managing inventory, launching high-performance products, and having a diverse product mix, is contributing to the means of mitigating the operating scenario in which we are present today. We expect to see recovery of niche crop segments, and our comprehensive portfolio shall be adequately placed to meet these requirements. Coming to the outlook, which I've shared on the continuing of our original guideline of 18%-20% revenue growth with improved margin returns, initiatives are already underway to augment capacities to support further growth plans. Concurrently, we are also scaling up efforts of integrating newer technologies.
We recently signed an agreement wit Koppert toward a sustainable agricultural agenda to market, distribution vation products and solutions in the agriculture biological space. Our journey in the pharma is off to an encouraging start. We continue to work towards developing a differentiated CRO, CDMO, and an API KSM model, where we have multiple scenarios and highly experienced resources which are coming on board and are on board as of today. Our Hyderabad research center is being readied and is getting staffed in the coming times. There's a team of domain experts, both within and outside India, which are aiming to connect and build a differentiated model in the pharma, including the pharma game for the pharma companies. In parallel, we are building infrastructure, building kilo facilities, modernizing the quality management system, digitizations, and other initiatives and opportunities being taken.
We have made successful debut at CPHI recently, and in the intensive meetings and discussions in order to realize near future potential of opportunities, and also a better understanding of how we go and grow this business in the future. Our focus on scaling our business in CR and CDMO are adding more API KSMs and other segments to the mix, and thus bringing an end-to-end offering to the large pharma companies and integrated solution provider. Given the robustness of the operation with a strong cash flow, the senior management focus is evaluating various inorganic opportunities to meet the long-term objectives of putting PI into a differentiated business model and a player in the industries it operates. Multiple initiatives are being held in the ESG area. We've already improved S&P Global, and I'm proud to say we are ranking at the 95th percentile.
Further, our evaluation is under progress for 2023. Once again, I would now complete my remarks, and I would hand it over to Manikantan to continue. Once again, thank you for being and supporting us, and once again, my congratulations to management team for this great effort. Over to you, Mani.
Thank you, Mr. Singhal. Good afternoon, everybody, on the call today. I'll summarize company's financial highlights for the second quarter ended September 30, 2023. Please note that all the comparisons are on year-on-year basis and refer to the consolidated performance of the company. As Mr. Singhal shared, our performance demonstrates a differentiated approach to doing business and a sharp focus on keeping operating parameters in line with our objectives. To share the performance highlights during Q2 FY 2024, we reported a revenue of INR 21,169 million, a growth of 20% over the same period last year. This was driven by growth in export revenues by 28% to INR 16,329 million, and a decline of 2% in domestic revenue to INR 4,840 million.
Profit after tax increased by 44% to INR 4,805 million, attributable to EBITDA growth and low ETR, despite higher raw material. Let me also cover YTM performance for FY 2024. YTD 30 September revenues was INR 44,073 million, a growth of 22% over the same period last year. This was driven by solid growth in export revenues by 32% to INR 31,959 million. This is offset 7% decline in domestic revenue to INR 8,014 million. Profit after tax improved by 45% to INR 8,634 million. ETR for YTM was 9.83%, due to growth in export revenues and one-time effect on merger of pharma entity in India.
Cash flow from operating activities increased 118% to INR 6,697 million, and INR 7,253 million, excluding pharma. This was due to higher EBITDA and efficient working capital management. The trade working capital in terms of days of sales, reduced to 84 days, versus 111 days as on 30th September 2022. Inventory levels also reduced in terms of days of number of sales to approximately 63 days to INR 13,998 million. Our balance sheet further strengthened during the year. Net worth increased to INR 79,820 million as on 30th September 2023. CapEx stood at INR 7,630 million and is in line with our plan. This concludes my opening comments.
I would now request the moderator to open the forum for question and answer. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may please press star and one on the 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. We have our first question from the line of Abhijit Akella from Kotak Securities. Please go ahead.
Yeah, hi, good afternoon. Thank you so much for taking my questions. So just a couple of clarifications I wanted to seek. One was on, you know, the pharma entity performances. So first of all, if you could just help us understand from an accounting perspective, you know, why do these Ind AS reductions or adjustments show up when we are booking the net revenues in our financials? Also the, you know, earnings have been on the negative side. And how should we see that trending forward in, you know, over the rest of this year and into next year? And finally, just on Therachem within the pharma business, the revenues for the quarter seem to be in the range of INR 6 crore-INR 7 crore.
I believe the run rate was much higher at the time of acquisition, you know, about INR 200 crore for the full year or thereabout. So what exactly is happening there, and how we should see it moving forward?
Thanks, thanks, Abhijit. So first of all, your first question, this is more about aligning the accounting practices. So one of the company was following a different accounting standard, and since now we have combined all these entities in PI Health Sciences, we were to align the accounting policies and also the standards, and therefore we have, you know, this Ind AS adjustment has been made in their accounting, or rather, financials. Okay, so this is one point. The second point on Therachem, it is more about the scheduling of the business. They were already carrying some inventory, okay, for their requirements, plus they, in the first quarter, there were certain schedules.
So in this business, you know, the CDMO business, it is more about campaign and the supplies according to the customer and not so much so a very steady state kind of quarterly run rate as such. But yeah, I mean, there are, different schedules for different products in following quarters, and, and there's nothing like, a significant, you know, downsizing of the business from the customer side. It is all matter of, scheduling of the business and inventory.
Right. No, thank you, sir. That's useful. So just to clarify, should we continue to assume, you know, roughly INR 500 crore revenue base for the pharma business for this year? And, these Ind AS adjustments are more of a one-time, you know, alignment, and they will go away at some point, you know, in the subsequent quarters?
Yeah, Abhijit, I hear you. So I think, whatever INR 500 crore what we told you is for the whole year, you know, in this during financial one acquisition is almost 11 months, another is almost close to, you know, nine months. So accordingly, this figure will happen. We are on track right now, and in this adjustment is one time. Yes, that's right. And this adjustment is one time. One time.
Okay, got it. And just one last thing from my side, if you'll permit. On the CSM side, the Agrochemical CSM business, how does the growth outlook look like for the second half of this year? And there is a mention in the results about a shipment that got lost in transit, about INR 40-odd crores. So, number one, what happened there exactly? Is it shown as cost in the raw material line? And excluding that, then the EBITDA margins seem to be even higher at about 28% for the overall company. So it seems a very sharp improvement versus what we were doing. So if you could please just elaborate a bit on what's driven the margin improvement and how we should see that going forward.
Yeah, sure. There are too many questions in your one question, so let me try and remember and answer one by one. First of all, we still maintain our growth guidelines, including that of CSM, of clocking close to 18-20%. Okay? So that remains. And accordingly, you know, second half will also be seeing growth in this business. Talking about this container thing, yes, and this is a very unprecedented situation we have seen this time, and we have never experienced this in last 75 years of our company and also in the industry, that I mean, few of our containers, the material was, you know, theft took place without, you know, changing or without altering the seal. The sealed container.
Out of sealed container, this theft took place, which is a very, very unprecedented thing. We later on also found out that it has also happened with few other companies. It is not only with PI, but few other companies as well, including few other chemical companies. But good part is that and I must certainly appreciate the kind of effort the state administration, police administration put and very expeditious investigation was done. A lot of effort was put in, and they've already nabbed some of these culprits. The investigation is still going on. Some of them are still at large. The material they have already recovered, which is under investigation and subsequent processes are going on.
So at this stage, since the matter is still under investigation, the material is still under investigation, we'll not speculate that what we'll recover and when this will get recovered. But to be on a conservative side, we have accounted for the material cost of this material in our financials for this quarter.
... Thank you, sir. So just the last point was just, you know, the margins have expanded significantly if you adjust for this cost. So what's driving that, and how should we see that going forward?
Well, that is more about the product mix, you know. The product mix has been favorable for us during this period. Even in our domestic, you know, area, we more focus on quality of revenue, the favorable product mix, rather than, you know, chasing the volumes and values, and that has certainly helped improve the overall EBITDA margin during this quarter.
Thanks a lot, sir. I'll get back in the queue for more. Thank you so much.
Thank you. We have our next question from the line of Rohit Nagaraj from Centrum Broking. Please go ahead.
Yeah, so thanks for the opportunity, and congrats on a very strong set of numbers. First question is on the pharma initiative. What is the progress in terms of some of the R&D molecules in PI's kitty getting commercialized through the manufacturing facilities outside? How do we expect the rollout over the next maybe 2-3 years timeframe? Thank you.
So Anil, you know, I don't know which molecule you are talking, because this is a platform where we are providing the services to the company, not the product. So I'm not aware of really what molecule you are talking, which is-
So we had.
Going to market.
Yeah, just, we had mentioned earlier that we have been working on the pharma segment and R&D, so those molecules I'm just-
These are more of intermediates and-
Key starting materials.
Yes, key starting materials and intermediates. So yes, those are also progressing in our R&D CRO bench that we have pursued, and this is part of our evaluation.
Sure, sure. Our second question is that, given that, during current year, there have been a significant decline in generally all the RM prices, how are we seeing our prices for the next year contracts, 2024 contracts for our products?
Are you talking about the, our exports?
Exports. Exports products, CSM segment. CSM segment.
So there, given our business model, in any case, these, you know, pricing, et cetera, is for each campaign, you know, we review. Before starting campaign, the price, pricing is reviewed. Price structures are defined, but pricing based on the prevailing raw material, et cetera, is always reviewed before the campaign. So yes, before starting 2024 campaign, I mean, obviously, these corrections take place, whether it is reducing or increasing goes there.
Sure, sir. Thank you so much, and best of luck.
Thank you. We have our next question from the line of Vivek Rajamani from Morgan Stanley. Please go ahead. Rajamani?
Thank you so much for the... Yeah, hi, sir. Thank you so much for the presentation, and congratulations on a good set of numbers. So just two questions. Firstly, on the broader inventory situation, you obviously touched upon that. You know, you're still seeing the destocking kind of playing out. Just in terms of your assessment, compared to maybe a quarter or two back, do you get a sense that you're starting to see some improvement, either in the intensity, or are you starting to see some green shoots from any part of the world? That was the first question.
Yeah. So we are certainly seeing improvement because, you know, the consumption still remains strong in different geographies. Whether it is South America, North America, even in Asia, Europe, we are seeing that consumption is strong. The acreages are almost same or marginally increased. Consumptions are strong. So obviously the inventory destocking and as this is gradually improving, in last quarter, this quarter's situation has relatively improved. But yeah, it may take maybe few quarter, again, depending on products, the generic products or other commodities that, that we particularly see, that in next few quarters, then things should normalize, is what the expectation.
Sure, sir. Just as an extension to that, is there any particular geography where the problem is extremely severe, in your general understanding?
Well, we have, in our understanding, yes, of course, Brazil has been a major challenge because there was a lot of destocking in previous years there, most of our CSM products. Yeah, given that there were challenges which we were facing from the last year, because the company was having raw material availability, and further adding to that was the price escalation, which has now shown a downturn, both on availability and price point, with double impact. And that's what we expect in the next couple of quarters should show up.
Thank you, sir. And just last, a couple of clarifications from me before I rejoin the queue. The 18%-20% guidance on the outcome side, I would imagine that's predominantly volume driven. Correct?
Yeah, majorly, because price corrections are already there on the input, so this is mainly on volume.
... Sure. And you've mentioned in your slide there's an expansion, capacity expansion on the CSM side is on track. Any ballpark, what is this, you know, capacity expansion number that you're looking for this year? Any ballpark?
We had guided for close to, you know, INR 800-odd crores for investment this year. So, so far we are progressing in line with that.
Sure, sir. Thank you very much, and all the very best.
Thank you. We have our next question from the line of Prafull Kumar from Dalal Asia. Please go ahead. I'm sorry, his line is disconnected. We'll move to the next question from the line of Noel Vaz from Union Asset Management. Please go ahead.
Yes, I just have one question on the one molecule which was mentioned. This is the new product which the company is coming up with, which is the new diamide. So I just wanted to know what exactly is the total market size that we are potentially looking at, as well as how does the company plan to take up this product? That is all from my side.
Sure. So that, I think, is a very proud moment that for PI, as we're the first Indian company to receive an international organization standardization recognition name, like, Oxymethicone. But the-- I think that what I would say, this is, we are right now, when we have this trade name, the product is under evaluation in various geographies across the world. We are in discussion with various partners, at the same time, they're evaluating the product's performance at various levels, at the field level, in various crops, in various uses, to figure out the potential. As you very well have already appreciated that the diamide molecule, this is a couple of billion dollar market share which is there. So we will be looking as to how we're going to play into this market share penetration. That should be how I would put it for now.
Okay, that is all from my side, and congratulations. Yeah, that's all.
Thank you. We have our next question from the line of Rohan Gupta from Nomura. Please go ahead.
Yeah. Hi, sir, good afternoon. Thanks for the opportunity. So my first question is on this pharma business. You mentioned that the one-off impact is over one time. So this you are talking about, that the current numbers which we are already factoring in terms of the reporting is over, or it is going to be for the balance of the year itself in the similar ratio?
No, so whatever was, we have inherited the inaudible and all those things is a one-time thing, so which has been accounted for.
You're saying the INR 135 crore Indo-U.S. adjustment, that was all over, right?
Yeah.
Okay. So from H2, we should be seeing some positive contribution in terms of the contribution from the pharma business?
Yeah. Yes.
Okay. Sir, second question is in the ramp up of this pharma business once again, and the margin profile, it's quite different than what we, when, when the, when we have got the numbers from, this time of acquisition. So is it still in terms of because of the higher cost which we are incurring at these plants, that is so, or, at the time of acquisition, that the profitability margin was higher on these plants? You also mentioned that this year you'll be looking roughly 14%-15% margin, while H1 pro forma margins are still at 7%. So we see that, the margin of 15% will be only achieved, next year because your long-term guidance in margin in pharma business still be 20%-22%. So when we are expecting that?
Yeah. So, yeah, you are right. Frankly, this is too early to, you know, look at the volumes and the margin percentage. Yes, I understand your point, but you see, even during our talks and last few quarters when we acquired, we were cautioning the analyst that let's not look at previous year's numbers or past numbers. Two, three things are happening. One is that there is a lot of development spend is being made, you know, because the idea is to scale this business up. We are not running these businesses as individual entities. I mean, whether it is the starting material company or the API company, we are not, you know, here to run them independently as the business they were doing earlier. Okay?
This is precisely the reason that lot of development spend has been done, lot of integration has been done to cross-leverage, and during this initial period, there is certainly going to be pressure on these margins. But we are confident that post-integration, which will take maybe next few quarters' time or a year's time, after that is the time that we'll be able to scale this business up and also get to the expected margin level, which still remains our, our, expectation still remains beyond 20%, you know, in this business, 20-22%.
Okay. So second question is on our domestic business, though we have seen that most of the formulation companies in India have done collectively well in first half, and Q2 was fantastic for most of the domestic formulation guys. However, that is not the case for us. So even in H one, I mean, if we combine that with the Q one as well, we don't see ... And we actually see the dip only in our revenues compared to last year. While in general, the season and demand is scenario has been pretty decent as far as the domestic market is concerned. Any particular reason for that?
... So as we explained earlier, I mean, in fact, if you see, we have seen a very mixed kind of situation. So, I mean, there are situations where the local players have not been able to kind of, achieve growth, significant impact is there in terms of revenue, and more so in terms of, the margin profile. And this generalization and generic situation, pricing situation, has certainly reflected, across the industry in the performance. We as a company, we focused on our specialized products rather than, you know, creating more and focusing more on, revenue growth. Our focus, given this situation that we have seen in first and second quarter, was more on quality of revenue and the discipline around the, you know, working capital and margins, et cetera.
That has been one reason that we kind of contained this revenue growth. To say the precise numbers, I mean, whatever few percentile moderation that we have seen could have been avoided if we would have also changed those typical products, even in our portfolio. But that was not done, and that was a very deliberate strategic-
Some of the products which have a kind of a generic exposure over the term. So actually, we refrained from selling generic products and focus more on specialty. That helped us actually in improving our margins, but not reflecting revenues.
Margins and working capital efficiency. That's a clear reflection of quality of business, having a substantial shift for more value creation models.
This is for the time being exercise, sir, or you think that we may continue to do so, going forward as well?
This is a temporary exercise, obviously, because the world has given an advantage. It's just we will eventually play the game once things stabilize. But of course, if the situation for generics remains the way it is, obviously, our focus will be more on specialized and, you know, specific categories.
Okay. I may have follow question. I'll come back into you. Thank you so much.
Thank you. We have our next question from the line of Siddharth Gadekar from Equirus. Please go ahead.
Yeah. Hi, sir. Good afternoon. So my first question is on the Diamide. We had highlighted earlier that we are in talks with global partners for the product. So any progress on that side? And how should we look at three years, five years down the line in terms of the launch of... Could you give us any timelines for that?
No, but I just mentioned that earlier question, that yes, we are in the first. We right now have got a name, and I think that's the key point, and we are in the process of evaluation. And the market size opportunity, as I mentioned, with about $2 billion. And this, you know, this generally takes a longer time, you know. It is across multiple season. The trials take place in different geographies. You know, comparative evaluations are done in different geographies. So it takes time, you know?
Okay. So but, in terms of our patents, then, will our patents be counted from 2019 or the day the product is launched?
Patent is always-
Yeah, yeah.
The date of filing is counted, not from the date of the launch of the product. That's the way.
Patent is considered from the date of grant.
Yes.
Okay. Okay, sir. Got it. Thank you.
Thank you. We have our next question from the line of Naushad Choudhury from Aditya Birla. Please go ahead.
Thanks for the opportunity, and congrats on a good set of numbers in a challenging time. Just one I have, so within your existing basket of commercial molecules and at advanced stage of pipeline, how many do you think, you know, can become INR 400 crore-INR 500 crore revenue per molecule in next 3-4 years, excluding the large one which you have?
Yes. No, can you please repeat? We were not very clear about your question.
Within the existing basket of commercial molecule and the molecule which are at the advanced stage of pipeline, how many do you think, you know, can become INR 400-500 crore of revenue per molecule in the next 3-4 years?
Well, there are many of them, because this is one of the key criteria for us to, you know, evaluate products when we, when we, you know, commercialize them for, for manufacturing and export in particular. So yes, there are many of them, but it all again depends, because when we get into these molecules, I mean, these molecules are at a very early stage of their commercialization, and their potential is more clearer and known when they are already registered and commercialized in few geographies. So yes, I mean, the initial indications are very good for several of these molecules, but we will be very sure of these scale-up and volume for, of the growth potential as we progress further.
... Understood, sir. That's it. Thank you so much.
Thank you. We have our next question from the line of Nitin Agarwal from Dam Capital. Please go ahead.
Thanks for taking the question. Sir, on, you know, in terms of when you have dedicated plants for CSM versus multi- multipurpose plants, typically, what is the difference in asset terms you're able to get, higher asset terms in the dedicated plants?
Higher?
Asset terms.
Asset terms. What are you-
Can you repeat the question? Are you able to get higher asset terms for a dedicated plant?
Yes. And can you give a sense on how much higher do we, you know, are able to get typically?
Well, because unfortunately, not a straightforward answer. Because, you know, it is basically you have to look at an overall scenario. It could be dollar per kilo, it could be this. You could have a lower asset term, but a better return on capital and better margin. So it's not as a business, just purely not on an asset term basis, which is general for commodity chemicals, but for specialty and these big chain molecules, it could be lower. It could have complex chemistry with higher value, so it may give you a lower return, but give you a better margin and return. So it's not a ratio which you can identify. But typically, if you look at the chemical industry in this space, it can go between 1.5 to maximum 2.8, 2.9.
Okay, thanks. And so secondly, on our CSM business, you know, with the volatility which has been there in the raw material pricing over the last few quarters, I mean, do we go through quarters, you know, during the cycle where, you know, there is a lag and lead impact, in terms of, the, you know, the raw material pricing and the final product pricing? I mean, there are gains and you know, whether we make, in a sense, if there is a declining raw material pricing situation, we end up making gains in a particular quarter, likewise, and vice versa. I mean, does that really, does that really come about in any particular quarters?
Well, as I explained earlier, you know, we have this fast food model, and that's been the PI way of working for years and explained. So if that kind of doesn't work and it's adjustments which happen, as mentioned, very, very niche on a contract to contract, quarter to quarter basis, based on contract terms. So yeah, I mean, there will always be lead and lag, but the commercial understanding, the business model is such that these things are shared, whichever way the, you know, the direction or trend is on the pricing.
Okay. So thanks, Abhijit. It's the last one. So on the overhead this quarter, YOY, there's been very little increase. So is there any particular factor which has driven that despite the growth in revenues?
I think overhead, frankly, are not linearly proportional to revenue. But yes, there has been a good approach to this because we obviously are looking at the volatility of the market and trying to see how we can continue to optimize on this. Yeah.
Okay. Thank you very much.
Thank you. We have our next question from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.
Good evening, and thank you very much. So first on the CapEx you have done in pharma and the exposure you have made in the segment assets, can you explain the mismatch? Because you have acquired assets for INR 497 crores, so INR 4,972 million, and you've shown an asset of INR 1,257 crores in the segment assets. So how do we tie in these two numbers, if you can help us understand?
On the pharma side, there is acquired assets, and what has been shown is the assets that I can send across the details to you.
Okay.
Yeah. Actually, you can connect with our CFO separately.
Yeah. So second thing is, if you were to dwell a bit more on the pharma economics, what is the level of gross margin we should on a stable basis as you scale up, say, over the next, say, 4-6 quarters? And in terms of the proportion of overheads to revenue, again, if you can give us some sense in terms of the percentage, it will help us work towards, you know, when you can possibly break even and get to that 20, 20%, assuming a certain scale for the revenue. We can just help us understand that will be great.
Yeah. Yeah. Sure. So currently, the gross margin is at 70% plus level. And we believe that, you know, this can certainly be sustained on the scaled up level as well, more than 70%-75% level. And overhead percentage and all that, you know, EBITDA and all those levels, as I explained earlier, that we'll have to keep in mind that this is going to be a development phase for next several quarters as we are, you know, integrating these different resources and companies from CRO to API, and then these are so long-term objectives of building a differentiated model. So yes, I mean, once we get to a maturity level, we will see that we will be generating more than 20%-22% kind of EBITDA margin on a constant level.
Okay. So in terms of the development expenditure, in terms of cash outflow, what is the kind of expectation you have, say, in the second half and for FY 25 for the pharma assets?
Well, we don't have these specific numbers right now on the call, because all this is still in development phase and making.
Okay.
Yeah, we can have a separate call on this.
... Sure. So finally, on the tax rate, now, there's a certain amount of difference in the tax rate for pharma and the existing business. So can you give us some sense in terms of where the tax rate will settle for the pharma entities here, once it is, you know, in a stable steady state, stable profit generating phase? What is the kind of tax rate we should assume there?
That's tax rate for pharma would be around 25% normally. That's what the tax rate would be. Then what you see in the current quarter is one-off effect on account of merger, and that's what we say. That is one-off in this quarter.
This is pharma, we can work with 25%, right?
Yes. Yes.
Okay. Thanks a lot, and wish you all the best. I'll join the call.
Thank you.
Thank you. We have our next question from the line of Krishan Parwani from JM Financial. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. Just one clarification from my side. When you said 18%-20% revenue growth, did you mean for overall company, including pharma or just the Agri CSM?
Well, this is only for the Agri CSM, we are saying, without confusing the impact of this one time.
Okay. Yeah, thank you so much for the clarification. Wish you a very happy Diwali.
Thank you.
Thank you. Same for you.
We have our next question from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.
Yeah. So just as a follow-up question, now, in terms of the domestic business, I know it's a little bit of a challenging environment out there. So if you look at the second half, given the challenges in terms of moisture levels, last time you had said that you hope to do well. So what are the kind of expectations you have for growth in the domestic business in the second half? And how do you see the new molecules and a normal, you know, economic condition guide you in terms of the potential volume growth for, say, FY 25 in your domestic business?
Prashant, you are there on the call? Prashant?
Hi. Thank you. Yes, last time we did mention, we were hoping that the rainfall situation will improve after... But if you look at August, was completely dry. That has impacted overall numbers in the domestic. As you look forward, basically the second half, there are two areas, one is south and the wheat. Wheat is obviously very, very positive, looking at overall commodity prices, looking at the acres. However, we are seeing some challenges in the south, where it's rice actually because of water levels are very, very low, mainly because of dry conditions prevailing in parts of Andhra Pradesh, Telangana and Karnataka. That will have some impact, but we are expecting a growth on the quarterly basis, both in Q3 and Q4.
Any sense in terms of what we can expect for FY 25, based on your current portfolio and the new molecules you are launching?
It's a tough question to answer at this point of time, looking at the overall volatility which we are seeing globally as well as in India. Probably, after December, we should be able to give you some kind of indication. Thank you.
Okay. Thank you very much, and wish you all a happy Diwali. Thank you.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.
Once again, thank you, everybody, for coming onto this call. We at PI management are very well encouraged and supported by the investor community, and continue to look forward to the support in these challenging times. I wish you and all your families a very happy Diwali, a great year full of happiness, joy, great health and success. All the very best from the PI team.
Thank you.
Thank you. On behalf of PI Industries Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.