PI Industries Limited (523642) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the PI Industries Q1 FY '21 Earnings Conference Call. [Operator Instructions] 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 Q1 FY '21 Earnings Conference Call. Joining us today are senior members of the management team, including Mr. Mayank Singhal, Executive Vice Chairman and Managing Director; Dr. Raman Ramachandran, Managing Director and CEO; Mr. Rajnish Sarna, Executive Director; and Mr. Subhash Anand, Chief Financial Officer. We will begin the call with key thoughts from Mr. Singhal. Thereafter, we will have Mr. Subhash sharing his views on the financial performance of the company. After the opening remarks from the management, the forum will be open for question-and-answer session. Of course, you may already know that certain statements made on the conference call today may be forward-looking in nature, and a disclaimer to this effect has been included in the business performance update shared with you earlier. I would now like to request Mr. Singhal to share his perspectives with you. Thank you, and over to you, sir.

Hi, everybody. Good afternoon, everyone. Thank you. Thank you for taking the time for joining us in today's discussion. Hoping that all of you are fine and safe in these challenging times. The unprecedented times for all of us and my earnest wish is that all of us come out of this pandemic healthier and stronger. Now before I start, I would go into the performance -- of the highlights of Q1. I would like to share that the Q1 also marked the successful completion of our INR 2,000 crore QIP. I wish, therefore, to commence by expressing our gratitude to the investor community for the overwhelming response and trust they have placed on our business model and growth story. As shared earlier, we're utilizing these funds towards the longer-term growth initiatives focused in the strategic directions we outlined. Now coming on to the business performance for Q1, typically sets up towards the agri-inputs industry of India. We report a better performance in the reflection of solid business model portfolio of industry-leading brands, meticulous planning and a unique go-to-market approach. The healthy momentum in sales, in line with our outlook, has come despite continued disruption caused by the COVID pandemic. Exports have continued to improve year-on-year, backed by proactive raw materials and capacity planning. Our broad shipments of commercialized molecules has gained momentum quarter-on-quarter, and the demand for the key commercialized molecules continues to be strong. Now the integration of Isagro products, our underutilizing capacities are also to overall business momentum. The order book continues to seem healthy, accretion to be in line with our experienced profile of lap and track record. During the quarter under review, we have successfully scaled up and supplied initial quantities of the COVID-19 intermediate to Japan. The domestic sales have come in 76% higher year-on-year, and as we are able to position the right product at the right time in the market to meet the farmers' requirements. This was also boosted by the carryover of demand for Q4 of last year and the current quarter. Overall, we saw a [indiscernible] full early on. The sowing activities have built up to well entirely. We saw 19% jump in acreage by the end of July, and we are showing deposits at 19% higher than the oil [indiscernible] 17 water levels of reservoirs are most efficiently into the plentiful winter rates. We are seeing a solid progress. For domestic, we produced Nominee Gold in the season. I'm glad to share that we recorded the highest-ever placement to Nominee in the season. There is also a line of new products and ready to be launched completely in Q4 for this year, and this further strengthened our product portfolio in certain crop segments and improve our market share. The initiatives we have outlined for integrating Isagro's operations have been -- to yield positive transactions in the reflection in the revenue momentum. Isagro has reported a 13% growth during the quarter with substantial improvement in EBITDA, margins year-on-year, and I believe this is a strong start for the financial year. Now for the year '21, we will see -- introducing some potential new brands domestically and further enhancing the business momentum on the back of good start of [indiscernible] with policies aimed to boosting at our economies. We are confident that assuming industry leadership position in trend in the domestic market in the times. Our CSM export also showed enhanced growth given the new capacities that we have got available. Our requirements from innovators of molecules in commercialization. PI is standing at the cusp of a robust and sustained growth phase and add to the footprint across high-potential chemistries and domains. This brings me to the end of my remarks. Now I would hand it over to Subhash to take this forward. And now Subhash, over to you. Thank you.

Thanks, Mayank, and good afternoon, everyone. I will share the financial highlights for first quarter ended June 2020. All comparisons are with Q1 of FY '20 and on consolidated basis. During the quarter under review, we reported 41% growth to at least INR 1,060 crore, driven by 76% growth in domestic operations and to INR 446 crore and 23% growth to INR 614 crore in export business. Both domestic as well as export supplies has picked up pace with all manufacturing facilities being operationals, and capacity utilization is being back to pre-COVID level. EBITDA enhanced by 55% to INR 236 crore, translating to EBITDA margin of 22%, an expansion of 140 basis point year-on-year basis, EBITDA performance was result of control of overall fixed asset and overall fixed overheads. Profit after tax stood at INR 146 crore, higher by 43%, supported by enhanced top line performance and also higher capitalization, in line with our new capacity added last year. Continued momentum during Q1 has further strengthened our balance sheet position and also led to a strong acceleration of cash position. Free cash flow generation stood at INR 298 crore, which came in through a better working capital management. Increase in operating cash flow has also helped us, funding our continued strategic initiatives. Our debt equity solution stands comfortable at 0.18x after excluding the receipt from recently concluded QIP. Total CapEx in the first quarter was at INR 64 crore, with progress on project was a little slow due to COVID-19 impact on labor availability. Company though remain committed towards capacity enhancement to achieve our growth initiative for this year. This concludes my opening remarks. Now I'll request the moderator to open the forum for Q&A. Thank you.

[Operator Instructions] We have our first question from the line of Nitin Gosar from Invesco.

Congratulation on good set numbers. The first question is with regard to the gross margin. Your business here typically is more inclined to superior gross margin for domestic business. This quarter, you had a superior domestic business growth. Does it mean -- what has -- how should we look at the gross margin now? Yes, was the question audible?

Yes. Subhash, you are taking up that?

Okay. In fact, the gross margin variation, what you see this time is basically is a difference or either mix impact of different product what we have run and also the business variation, what we see. Because gross margin stand-alone, if we look at product level, yes, we are delivering standard, or I'll say, the gross margin level, but it had an impact on product mix as well as business mix.

Getting in how many sales were higher, why it would have a inferior gross margin? Like you had a super domestic business growth, you had a higher Nominee sales.

So just to add to what Subhash explained, now the overall business also have a portion of Isagro domestic business, okay? And relatively, Isagro, business, if you see has a lower EBITDA margins or gross margins compared -- particularly gross margins compared to the other segments, both domestic and export. So in totality, when you combine consolidated, it looks the gross margin reduced. But when we look at EBITDA levels and net level, the sale kind of mitigate or rather fixed cost gets leverage and the overall EBITDA and net margins remain unaffected. So based on the new procedures for this contribution in totality, while at gross margin level, it may look lower, but overall level because of the operating scale, this will get compensated. And which is what is reflecting in numbers.

Okay. So gross margin, which are looking Y-o-Y down, it is more to do with the Isagro and CSM business and nothing to do with domestic business?

Yes. Yes, mainly 2 reasons. One is Isagro composition combining with the overall business and second is big product mix, but mainly Isagro business.

Okay. Okay. And second question is, how should we look at the domestic business for FY '21? There are a couple of moving parts, right? I thought it's better if you can help us understand this. One keeping in mind Isagro carryforward of FY '20 sales. And see, there was some kind of early monsoon. So a couple of events have happened for the first quarter. So how should we think about FY '21 on a whole?

Yes. Maybe, Raman, you may want to take this?

Yes. Yes, Rajnish, let me take this. Yes. So let's start from the market perspective. So as all of you know, we have had a timely onset of monsoon, which also, at least in the first 3, 4 weeks seem to spread fairly uniformly. The market was also fairly buoyant due to a couple of other reasons. One is, of course, the onset of monsoon. This -- which led to much higher planting, and you heard Mayank talk about significant higher planting, whether it is rice, oil seeds, et cetera. So the planted area were higher. The third factor was the -- I think when the -- after the lockdown in the early phases of [indiscernible], there was also across the ag industry, a perception of demand-supply gap. So there was a tendency to kind of purchase in advance at many levels, whether it is fertilizers or crop protection. And perhaps a fourth driver was given the labor migration and issues that we all know and kind of dependence or increased use of herbicides in quite a number of crops. So those are the 4 factors. So you've seen most companies, and including PI, having a very robust demand in the first half. This is also one of the reasons why Nominee placement, which has been one of our highest. And I can also say you that the product on ground, which we closely monitor, has also been significantly higher than what we had a similar time last year. Now I must also clarify that the growth that you see is not just driven primarily by Nominee Gold. There are other brands of PI which also contributed. For example, Elite, which is another herbicide, which is used in corn. We also had growth coming from Osheen, our insecticide brand, which is used in rice and cotton, [ helps us up ] with replacement of that. And also a couple of other products like Cosco, which is, again, increasingly a new product that we launched 3, 4 years ago and increasingly having a much higher acceptance. So these are the factors which are driven. In addition to that, the Isagro domestic business also had a good growth based on portfolio and cross-selling initiatives that we have undertaken. Now what do we expect? We believe that this year, we will have much -- the industry growing, probably higher than what we have seen in the last maybe 2, 3 years if the current season holds up the way it has so far. So we'll probably see growth in the area of low double digits, somewhere between 10% to 15%. And in terms of our own business, given the robust start that we have had, given the significant changes that we have made in terms of whether it is our commercial policy, whether it is the channel engagement policy through adoption of several digital initiatives in the last 3, 4 months. We believe we will be definitely grow higher than the market, yes, 1.5x higher than market is what our expectations are.

Okay. Okay. So probably around 20%, 25% domestic growth we should be looking for this year?

Well, I said the industry growth is perhaps going to be somewhere in the range of 10% to 15%. So yes, around 20%, 22% is probably what we could look at.

We have the next question from the line of Madanagopal from Sundaram Mutual Fund.

Sir, in the last quarterly presentation, you had given some inputs on new product pipeline, how things are improving. More companies MNCs are opting to India -- for Indian companies for outsourcing. Could you elaborate on what is happening? What's the status there? How are you seeing now, at this point of time? And any update on how much of them we would actually take it up to the project level?

I'll take this. Yes, so as we kind of informed earlier that there is certainly a traction in new projects, which is basically driven by the kind of schedule that you are seeing. Overall, the level of the planting landscape, the [indiscernible] scenario is missing. Number of inquiries have substantially increased over last 2, 3 years, currently you have attending at some point up to 50, 60 inquires in R&D still. The second change which has happened is that a lot of non-AgChem inquiries are created in the R&D, and there we are working on them. There is a good progress and a regular feature there is that as you know, every couple of months, we have seen products moving from larger scale, to [ pillar ] scale, to then pilot scale which is kind of process that is there in this kind of -- in this manufacturing business. So we are seeing a lot of products moving that direction this year. Also, we are expecting close to 4 to 5 products getting commercialized and already having a lot of misgivings and [indiscernible] negotiations with our -- some of the global customers, both in AgChem and non-AgChem side.

Okay. Yes, FY '20, the last full year, how many products would have moved to the commercial stage?

Last year, we have commercialized 4 products, if I remember correctly.

So with the increasing inquiries, you still feel this number won't increase meaningfully because you are saying rather...

It will increase, but please appreciate that this is a process anywhere between 1.5 to 2 years, this whole new molecule development and its scaleup takes anywhere between 1.5, 2 years, depending on what stage that molecule is. If that molecule is already commercialized and we are one of -- proposed to be one of the suppliers, then yes, it may be faster, maybe 1 year or 1.5 years. But if it is a new molecule, then it takes anywhere within 2 to 2.5 years. So that is the reason that you are not seeing that significant increase in a quick succession. But over a period, this will certainly be reflected.

And any increase in the CapEx guidance, sir, at this point? Any new projects being envisaged?

No. We've maintained our guideline, the previous guideline of investing close to INR 550 crores to INR 600-odd crores over the next 1, 1.5 years.

Your next question, from the line of Varshit Shah from Emkay Global.

And congratulations on the great execution despite challenges. Sir, my question was around the domestic growth. Earlier, you mentioned that it was somewhere around 20%. Sir, does this calculation include Isagro or is excluding Isagro and the base domestic business? That's my question number one. And question number two is, of course, on the -- what is the time line you see in terms of utilizing your QIP proceeds in terms of, let's say, a 2-year time frame, it could be less than 2 years? So any color qualitative color on that would be helpful.

Yes. So yes, the domestic revenues are going to be in excess of 20% less. And when we are saying this, this excludes the incremental revenue we get from Isagro consolidation. The [ background ] is also growing well. So that is answer to your number -- question number one. As regards QIP, yes, we have successfully completed € and as we explained earlier, we are basically intending to utilize these funds for our longer-term strategic initiatives and it is going to take anywhere between 5 to 6 quarters to fully deploy these funds. We are looking at -- basically, we are pursuing multiple strategies and therefore, looking at multiple opportunities, not the single kind of inorganic options that we are currently considering. And therefore, it will take a little time to kind of identify suitable options in each of these set of strategies that we are following and then implement them. So we have already built a ideal team, a solid team, which is very, very intensively scouting for the right options. Currently, also, we are looking at several options in each of these areas. And we hope to kind of expedite this process going forward. But this is the kind of outer time line that I indicated anywhere between 5 to 6 quarters.

Sure, sir, that's very helpful. Sir, one last thing, if I could squeeze in. For the quarter, sir, how much was the Isagro contribution in absolute terms? This is my last question.

Subhash?

It's just about 10%. In terms of top line, the Isagro top line was INR 99 crore.

And what is the split between domestic and export?

The export is around INR 30 crores. INR 69 crore comes from domestic business.

We have next question from the line of Probal Sen from Centrum Broking Limited.

Just to clarify the understanding, just on the gross margin comment you made in -- during the first question. Essentially, if I understand, the Isagro margin being relatively lower, dragged down the consol gross margin. But because the revenue contribution is significant and obviously, the extent of -- there is some amount of cost synergy in the OpEx, we can expect the EBITDA margin to sort of remain robust, even if let's say, at least for the next 6 to 9 months, the gross margin may take a little bit of breather from your historical levels due to Isagro. Is that understanding correct?

Yes, you're absolutely right.

Right. And the second question was, sir, with respect to the exports growing over the next few quarters, is it -- can we get some guidance on what the order book growth has been for this quarter? And what do we expect the exit rate to be? Any quantitative range that you can give?

Well, there is no meaningful growth in order book as such compared to last quarter. But as we have guided in past, we have a very clear visibility of growing the offtake and supplies in this CSM exports in excess of 20% year-on-year basis. And so that kind of visibility is certainly there. And as I said earlier, that we are also working on a large pipeline of products into discussions and negotiations of several of these molecules. So we expect to then after -- over a period of time, further build on this order book position.

Right. Sir, the last question was you just -- again, you already mentioned this in terms of the domestic growth outlook, which is very healthy at between 20% to 25%. And is it then fair to assume that if I look at the domestic revenue of around, I think, INR 440-odd crores, that was there in this quarter and exclude the INR 600 million or INR 60-odd crores from Isagro, so essentially, that number will continue to grow at 20%? And then Isagro, should we be building in low single-digit kind of a growth because that is what is more reasonable, and that builds up to the consol number? Is that a correct way to look at it?

Yes. So I would -- again, repeating that, yes, our domestic business, we are confident. Obviously, it's a seasonal business. So let's also keep our fingers crossed that this current momentum continues and obviously, we do not see any factors -- negative factors as such at this point in time. So keeping all this in mind, we are confident that we should be able to kind of continue this momentum of 20%-plus kind of growth. We have already seen Isagro since we have taken over. In last 2 quarters, we have done exceedingly well there, both in terms of our growth momentum and in terms of completely turning upside down, I mean, downside up, I would say, in terms of EBITDA of that business. So I think that business is also doing well, and we have a good visibility of kind of achieving low single-digit kind of growth momentum there.

We have next question from the line of Sameer Shah from Valuequest.

Sir, we have formed 2 subsidiaries for pharma. If you can give some light on what is the plan on the pharma side?

Yes. So basically, as we have informed earlier in previous calls, that we are very aggressively looking at diversification strategies in the pharma intermediates and advanced intermediate space. Already working on several potential partnerships and molecules and products. And therefore, in order to kind of aggressively pursue that strategy, we -- this is a enabling kind of action where we are creating 2 wholly owned subsidiaries, so that as we progress on those options and strategies, we can then accordingly use these subsidiaries for a right and appropriate structure. So that's the old purpose. But yes, I mean, we'll not be able to kind of share too much at this space, it's premature. But yes, we are working on several options in pharma this point.

And both these would be in that geography? And we are doing it for the tax, that 15% tax -- are we availing that?

Come again?

So the 15% tax rate is for new CapEx that companies do these subsidiaries will serve, and that is both these would be in the geography or are they international subsidiaries that we have?

Well, at this point, I mean, we have created a subsidiary, not that we have kind of made a plan to invest and manufacturing setup and all because all these tax incentives are more linked to that thing. But an Indian company, doing manufacturing and all those other conditions. But right now, it is just creation of -- inculturation of 100% subsidiary. And we will see that how we are going to use these subsidiaries to pursue our strategies in this space.

And second thing, sir, if you can give some sense of the pricing environment in domestic market?

Raman, you may want to come?

Yes. So the pricing environment, initially, there was certain points about pricing because some materials were expected to be short of supply. However, I think most companies have tried to -- have realized that there is going to be probably a liquidity issue. So there's been quite a bit of effort to not hold on to prices. At this point, I would say that while pricing is better than last year, it is not definitely where we expected it could be, let's say, 3 months ago, given the kind of sentiment that prevailed in the market.

All right. And sir, anything we are doing to derisk from China? I mean what is our China imports and any thoughts on that?

In fact, we have been working on that for the last, I would say, last -- at least 3 years. The COVID situation is now, but we were already foreseeing some -- those changes in supply chain landscape because of the geopolitical issues and all, at least for the last 3, 4 years. And we were already working on that strategy 3, 4 years back, we used to import close to 30%, 40% of our total raw materials from China. But that percentage has sharply gone down to maybe less than 10%. We have been able to develop a lot of alternatives in India and in other geographies other than China. So yes, I mean we have been -- and that was one of the key reasons that we could continue our operations at this scale in the last quarter. Despite all these challenges, and we were still able to continue and at a reasonable scale, all our operations and sustain the shipments and pace of production and all. So that has certainly helped us with this whole effort in the past 2, 3 years.

We have next question from the line of Sangeeta Purushottam from Cogito Advisors.

Yes. I'm her husband. [indiscernible] here. I have 2 questions. One was about the COVID-19 intermediary. Can you throw some color as to who is the customer and what is the potential you see going forward? And my second question related to the acquisitions that you're planning to do. When you acquire the acquisition, these would be in very different chemistries. So do you plan to also buy those expertise in those chemistries or do you think they are largely resident in-house? And how would you go about deciding the blend of what is in-house and what you need to shop for outside?

Yes. So the answer to your first question is that we are not supposed to kind of talk about our customers and products. This is the general obligation we are in the CSM space. But whenever we work with our customers on products, we are not supposed to talk about them. But -- I mean, it's not very difficult for anyone to kind of imagine that we are supplying the product in Japan and also to some of the leading players in India, okay? Coming to your second question in terms of what we are looking for, what -- in an acquisition. So yes, as I said, we are working on a multi-pronged strategy right now. One strategy is certainly to diversify into a differences and, in particular, in pharma space. Now we have been working in this space, particularly in intermediates for last 2, 3 years, we have made huge investments in R&D in terms of technology development and all. But we are certain in order to take a jump start, we are looking at some suitable inorganic options so that rather than creating infrastructure, building infrastructure, getting approvals, acquiring incremental customers and all, if we can get an already set of business, which is also complementing the technologies and the client base that we have with our technology. It would be expedited process to make a meaningful scale in pharma space. So that's the whole approach in that area. Apart from this, we are also working on a strategy to derisk our concentration of operations in India. We are looking at some options overseas, which can also, again, both in terms of geographies, in terms of [indiscernible] to the final market and out to the customers, our global customers, if they can give us some edge apart from derisking our concentration in India. So that's another area that we are looking at a few options. And the third area is, of course, we have a portfolio of technologies of our own. And we are looking to further broaden this portfolio. We are evaluating some of these very interesting technologies, which are very complementary to what we are doing. And we believe by combining these, we can create significant large values. And these are some areas where we are looking at acquisition options.

We have next question from the line of [ S Ramesh from Nirmal Bang ].

My first part is, given the increase in the domestic sales, the share of the domestic business looks higher than what it has been in the past. So do you see this domestic sales as a percentage of your total revenue kind of maintaining this trend as we have seen in the first quarter, say, over the next, say, few quarters?

Well, first quarter is not be -- always the -- because this is a seasonal business. The domestic is more of first quarter is always a placement quarter, so it will be relatively sizable. But as you will go into third quarter, fourth quarter where revenues of domestic business will go down. So that's not a very representative quarter. The revenues are not evenly distributed, particularly in domestic area. But yes, on an overall basis, we see opportunities of growth, as explained earlier, in both the domestic as well as export area. We have a good outlook on both the areas. And therefore, we would expect to maintain the kind of competition that we have seen in the past of broadly 70-30, in favor of exports.

And the second thought is in terms of the utilization of the QIP proceeds, and it's almost doubling your net worth. So if you have to maintain your ROE, we would generate about INR 400 crores of profit after tax. So what kind of time line you're looking at to achieve that kind of target to maintain your overall ROE based on the combined network, including your QIP proceeds?

Yes. So as I responded to the earlier participants, we are expecting to deploy the QIP funds maybe in the next 5 to 6 quarters because we are looking at multiple opportunities, not a single opportunity here and pursuing multiple strategies. And yes, these numbers are very much on our radar. And our objective is that once we are able to fully deploy these funds, we should be able to -- I mean, these should be EPS accretive for us. We should be able to improve our margin and our return profile where we are today. That's the broad objective that we have with the management team.

So what is the kind of outer time limit you have in mind to achieve that objective once you acquire these assets?

Well, I would say it may be close to 2, 2.5 years.

Okay. Fair enough. And just one final thought on your...

[Operator Instructions] We have next question from the line of Abhijit Akella from IIFL.

Yes, there was about INR 100 crores worth of revenue that was supposed to be deferred from 4Q to 1Q. So just to check whether all of that has actually been recognized this quarter?

Well, I thought this was some INR 85 crore, INR 90 crore. And most part of it, I think, close to INR 70 crore, INR 75 crore was recovered. And the rest of it was basically time bound. So if this was not done in March, it has to a part it has to also. But I mean, most part of it. [indiscernible]

That's great. And second, sir, just on the CSM and capacity utilization. So sir you mentioned about MPP 5 not receiving the restart approval. So was this the accident-affected plant and what's the status there? And then on the MPP 10, I think which was supposed to come up in 2Q, what's the status there?

Yes. So the MPP 5, yes, it's the same plant where we had the accident last year. And because of the COVID situation, the regulatory system was also not fully operated and hence, got delayed. But we are expecting to kind of start this soon within this quarter. MPP 10, yes, again, because of COVID situation, the biggest impact that we saw was on this contractual labor, nonavailability or unavailability of the contractual labor in desired number. So that has certainly impacted some of these projects and delayed them by a few months. So is the case because, obviously, given these constraints and challenges, we were also keen on prioritizing where we need to deploy our people, our employees, contractor workers and all. And in that priority, more important was given to the business on a regular business, our supply business, supplies that were just continuing, so that we sustain the supply momentum. And therefore, some of these projects like MPP 10 and MPP 5 already, as I mentioned, is expected to get commissioned in this quarter. But MPP 10 will get delayed by end this year or early next year.

Okay. Got it, sir. And the income from associates of INR 5 crores, is that from the PI-Kumiai JV, sir? Has that started the operations? Is that the reason for the jump there?

Yes. That JV has started, and where we have already started formulation activities also there in the last quarter.

We have next question from the line of Amar Mourya from AlfAccurate Advisors.

And congratulations for a strong export number in such tight situation, supply side situation. Sir, first question is, we [indiscernible]

Your voice is breaking, gentlemen.

Clear now?

Yes. Go ahead, sir.

Sir, first of all, congratulations for the strong export growth in such tight supply situation. My first question is how much of the revenue loss you would have seen in this quarter because of the MPP 5, which has been affected by the fire? And secondly, any color on the export guidance for a full year basis as we are expecting 20% kind of growth in the domestic business?

Yes. So I'm not sure I heard your question clearly, but your first question on the impact of MPP 5?

Yes.

Yes, we were already not expecting it to start early this quarter. But yes, I mean, anywhere between, I would say, around INR 50-odd crores would be the impact of this delay. And what was your second question?

Sir, second question is like export revenue guidance, like we are expecting a 20% kind of a domestic revenue growth for full year basis. Any color on the export revenue guidance?

Same. I mean we expect -- we have a very clear visibility in terms of supply schedules and orders to achieve more than 20% kind of growth in exports as well.

We have next question from the line of Niket Shah from Motilal Oswal Asset Management.

And congrats on excellent set of numbers. Have 2 questions. Given the fact that we had a lockdown in the first quarter -- in the first month of the first quarter, would you say that assuming if the long run wouldn't be there, would a CSM revenues be far higher than what you've reported? That's the first question. The second question is we do read in a lot of media because that the government is working on a chemical policy for pharma manufacturing. And obviously, you have also opened 2 subsidiaries. And we also have very strong cash and balance sheet, thanks to [ PIP ] Any thoughts around if the government -- I mean, what kind of thought process that the government has towards the chemical sector, specifically on the pharma manufacturing side? And how will it benefit us if government had to roll that out for our future CapExes? And the third question, if I may, just squeeze in on the margins. We have been in the range of about 21% margin. But historically, we've seen that whenever a large CapEx is being done, but the subsequent years, margin tends to expand because of economies of scale and productivity. And hence, do you think that is also likely to play out going forward?

Yes. Starting with your first question, because I don't know if I -- can you repeat your first question, please, briefly?

Sir, the first question was that given the COVID impact on the first quarter...

So COVID yes, I recall that. So yes, I mean, there was a disruption in our operations in the month of April, even in May, we were not operating at full scale. So yes, to that extent, if this COVID situation was not there, this was certainly better than what we have done in first quarter, particularly in CSM exports. Because here, the production is kind of revenue. So if we are able to produce at 100%, 90% kind of capacity utilization as against that think in April, we were operating at maybe less than 60% for at least -- for 2, 3 weeks. And then also later on in May, the utilization of the lift. So yes, short answer is that we would have certainly done better.

But how much would be? Because I'm just trying to understand because...

Yes. It's difficult to quantify. But yes, I mean, easily, I would say, anywhere between INR 7,500-odd crores, we could have done better. Coming to your second question on government policies and announcements in pharma space. And this was opportunity for us. Frankly speaking, we have been, as I said, to the earlier participants, we are already working on this strategy for the last couple of years. And our whole focus is to kind of create our own niche, develop technologies that can give us a kind of edge in whichever sweet spot that we kind of operate. So it's not more depending on what incentives or policies that government is coming out with and therefore, getting into that business area. It is more driven by our own technology that we have created and developed over the last few years. Yes, government policies will certainly help us become more efficient in this space. But our key objective is that we certainly need to build the technology, which can help us build a sustainable, profitable mesh space in this pharma segment. So that, we are already working, already looking at several options to expedite this whole process. And what was your third question?

Sir, on the margin side, historically, whenever we've done CapExes on margins, do you think this 21% can move up to 22%, 23%?

There is certainly opportunity for improving it. There is certainly upside to it. But at the same time, as we also indicated earlier, that there is already lot of developmental spend happening in R&D, in our businesses. Now there's a digital wave because it started, so a lot of investment has been there as well. So yes, while there is opportunity to improve the margin levels with this operating leverage that we are getting. But at the same time, we are also investing in development. And therefore, we are a bit, I would say, cautious in giving that guideline. But we are confident of sustaining what we have so far maintained the kind of margin level.

We have next question from the line of Bharat Shah from ASK Investment Managers.

Sarna and Mayank, I think all the efforts of the past and all the systemic efforts in developing technology, I think some gains is beginning to get reflected in the current results. But I think that, that trade is bigger and much more work will be required. So congratulations and all the very best. Delighted to hear these results.

Thank you. Thank you, Bharat Shah.

We have next question from the line of Ankur Periwal from Axis Capital.

Congrats for the performance. Also first thing on the domestic front. We have taken certain initiatives on the inventory management and the digital initiatives, which you mentioned, for our channel partners. And plus, we have a wider portfolio now, differentiated one with Isagro being there. Also, how far -- or if you can share some time lines in terms of the synergy benefits coming in on the domestic side for Isagro and also from the export CSM perspective?

You want me to take the domestic first?

Raman, you would want to take that? Yes. Go ahead, please.

Yes. So let me take the domestic first. Now what we have decided to do is not to merge the 2 businesses and integrate them and try to kind of realize synergies in terms of people, et cetera. But we have kind of a different approach. We are going to keep the Isagro domestic business as a subsidiary, which will focus exclusively on foods, vegetables and plantations segment, which we believe requires a completely different go-to-market approach than a crop like rice or wheat or cotton, which is what PI is strong in. So it's a very differentiated kind of go-to-market approach which we believe is going to unlock tremendous value as we are a credible track record of bringing in new products, safer products, which is what this segment requires. And we will also build a team, which really is technically competent, which is able to cater and work with the farmers for the newer and newer requirements. So I guess that answers. I mean obviously, there are going to be some synergies in terms of there will be common back-end services, whether it is finance, supply chain, some of those kinds of. But in the scheme of things, they are of limited value. The real value is in being able to unlock the front end through this differentiated strategy. On -- similarly, on the CSM side, of course, I will let Sarna give you to the great details. But essentially, what we are trying to do there is to repurpose the plant, which as you know, is right next to our own plant in Panoli, increase the capacity utilization and also bring in more value-added products. All these are happening as we speak. And if you want -- Sarnaji, would you like to add any specifics to this?

Yes. Yes. So just to briefly tell you that this underutilized capacities of Isagro was one of the key drivers for this acquisition. And what we are doing is we're completely repurposing the assets. We are already fitting at least 3 products there, and we expect to kind of ramp up the throughput revenue out of these facilities more than 20%, 25% year-on-year basis. So we expect to double the throughput and revenues from these assets in almost 3 years' time. Already, a lot of work is done. We are starting product later this month, one of the products, and then maybe taking up another product in next couple of months. So this is as per plan. And that ramp-up is -- I mean, we have a good visibility of ramping of these capacities and assets.

Sure, sir. Sir, second question, across the 3 businesses, if you can highlight any molecules which are getting off-patent in the next, maybe, 2 to 3 years?

Not really, not on case.

Nothing of significance yet.

Nothing of significance, I say.

We have next question from the line of Surya Patra from PhillipCapital.

Congratulations on a great set of numbers, sir. Two questions. One is about the utilization of this INR 2,000 crore. If you can just give -- although you have already indicated that you're looking for inorganic growth as well as organic. So if you can briefly talk about without indicating, obviously, the potential takeover candidate or whatever. But out of this INR 2,000 crore, how much is likely to be utilized for tangible asset, let's say, in creating capacity for your CSM or whatever, whichever capacity? And how much is likely to be utilized for intangibles? So if you are not considering the acquisition under intangibles, then you can -- in tangible one, you can club and say that, okay, this is the amount that is likely to be utilized for tangible assets.

Yes. So as I said, since we are in the process of evaluating several options, the answer is not easy, to your question. But I can only tell you that the significant part of this value is -- of this fund rate is going to be for tangible because the 3 areas that I indicated, diversification in [indiscernible] space, particularly in the pharma space, diversification and also derisking this geographic concentration of operations. I mean all these areas are basically you will be acquiring something tangible. Obviously, there will be some intangible assets with them in terms of technologies and customer base and product profile, but ultimately, these are very tangible assets. So most part of this fundraise is going to be used for tangible.

Okay. And just a related question, sir, on the CSM front, the export capability front. See, we have indicated that, okay, there is no change to our order book position, which is $1.5 billion since last quarter. Sir, just going by the [ prior term ] trend what others and the global market ongoing currently, which is replacing China in the global market for whatever chemical, whether it is agro or specialty or even pharma. So then finally, it's not the order book position is improving for you, and that is one. And simultaneously also what I'm trying to understand, can you evolve, even manufacture the formulations directly for the global market? Is this support system for the global market given the situation that is emerging from the China side?

Yes. So answer to your first question is that our business model is not like to simplify selling some generic chemicals or bulk chemicals or something, so that if there is some challenge in some geography, the order flow comes to us and we can kind of anchor that opportunity instantly. That's not the kind of business model we are in. In the business or in the -- particularly, the products that we operate, custom synthesis manufacturing, as I was saying to the earlier participant. It's a 1.5- to 2-year process but they come up with their products, and we work on only these selective IP products, not into commodities and generics. And therefore, the whole process takes anywhere between 1.5 to 2 years for product development, scale up and then commercialization. So even if there have been challenges, for example, for last 3 months, 6 months, 1 year, I mean, this cannot instantly reflect in our order book. Certainly not. But yes, the impact of these challenges has been and that the inquiry flow has certainly increased honestly at our end. Now a lot many products are there in the R&D pipeline, and there is a progress from lab to kilo to silo to scale. And this would certainly reflect in more business, more products getting commercialized in years to come. But yes, given the kind of business model we are in, maybe it cannot reflect in few quarters or few months.

So would be one of the...

[Operator Instructions] We have the next question from the line of Rohit Nagraj from Sunidhi Securities.

Congrats on a good set of numbers. Sir, in terms of Isagro acquisition, so what is the time line for the Isagro margins would be in line with the domestic business? And what kind of cost optimization benefits we have seen in Q1? Because as you see, the gross margins are lower, but the EBITDA margins have been higher. And will those cost optimization benefits will be available in subsequent quarters?

Yes. So this is the structural change that is happening in that business, which Raman also explained earlier. But instead of focusing on end of the life cycle products, this business will now be focusing on a particular segment in fruits and vegetables and plantation crops. And there also, the product portfolio, the quality of products is -- will undergo complete change over a period of time. And we have already started that process as against whatever, 8%, 9% EBITDA margins that, that business was operating in past, already a decent margin level. High double-digit kind of margin levels have come. And as we will improve the product portfolio over a period of time, these margins will further improve. Cost synergies are certainly there in terms of a lot of common resources in regulatory, in marketing and of course, in management are getting synergized and used and leveraged. And therefore, this will also reflect in overall economics of this business. Raman, you may want to add something to this?

Yes. I think we have summarized it well. I think again, coming back, yes, there have been some early kind of cost optimization opportunities, which are quite well reflected in the Q1 results. But going forward, the optimization will come from the back end, where there will be common platforms, whether it is finance, whether it is supply chain, whether it is commercial functions, [ Fantom ] will be differentiated. But having said that, it is a big transformation of the business model that is currently we have started on. So there would be investments that will also happen in terms of front end, getting people ready, licensing newer and newer products that are required for the segment. So yes, I would say that the immediate cost optimization has been done. And now it's a transformation journey. And the third part, the back-end synergies will be there and they've already been leveraged.

We have next question from the line of Rohan Gupta from Edelweiss.

Congratulations on such a strong set of numbers. Sir, first question is on our overall growth guidance which you're talking about. So since we have already moved to pre-COVID levels, and we were almost 85% to 90% utilization already at that time. So do you see that after a 20% growth in the current year and that INR 200 crore QIP rate, that you still see that 5 to 6 quarters are still left to finalize those investments. You see that for FY '22? We may be capacity challenged and growth may be limited in that year?

Not really. So I mean, obviously, the organic growth investments as we guided earlier, are continuing, and we are already making those investments in addition to what we will do or what we are planning to do with the QIP fund here. So that capacity building is continuing. Apart from capacity building, we are also working on several other initiatives to kind of debottleneck and also ramp up capacities of the existing plants, which will also bring in a lot of significant incremental capacity and show the value in the existing entity. That effort is also on. So all in all, I mean, that process is working parallelly, and we do not see or foresee any capacity challenge next year in terms of sustaining this 20%-plus kind of growth rate.

Okay. Sir, my second question is on that -- our strategy, and you mentioned that definitely, we have 3 strategies diversification in pharma. And -- but the company is on the dependency on reducing the concentration of India. And when everybody is talking about increasing the presence in India and make in India, we are looking at our global ambition. So I just wanted to know that we are still globally very small player. I understand that there is a huge opportunity for us to grow manufacturing based in India itself. So I just wanted to understand that the reason behind we trying to reduce our concentration in India at such at this stage. And do you see that our [indiscernible] business has now likely as far as India is concerned, and we can only grow by going globally and adding more customers globally?

So just to clarify on that part that we are not kind of holding or stopping our investments in India, no way. I mean we are continuing our investment in India, manufacturing space investment. So certainly, that is continuing. But in fact, as a company, we are also looking at a longer-term perspective. So everything looks interesting in rolling short term. But if you look at things in 5 to 10 years horizon, we'll always see that these are all cycles. So the challenges that we are seeing in China today because of, again, concentration by several companies in one geography. Obviously, I mean, when and how these geopolitical scenarios came, you never know. So as a company, we are also kind of looking on this aspect from a longer-term perspective. But while we shall continue our investments in India and we have these growth opportunities, at the same time, from longer-term perspective, look at opportunities of also kind of trying to be this concentration, which doesn't mean that we are not going to continue our investments in India. Certainly, yes. But at the same time, we shall also look at opportunities where apart from derisking the geographic concentration, we can also get near to the market, that could be the global customers, get into even more deeper kind of engagements and associations with them, which will also be a growth driver for us, but at the same time, also derisk our geographic concentration. And if tomorrow, something happens in India or in a particular geography, it is not that we are stuck just because we are concentrated in India. So that's the rationale of that strategy.

We have next question from the line of Vishnu Kumar from Spark Capital.

Just wanted understand how many new plants are going to come up in -- on the CSM side of the business in its 2 years apart from the MPP 5 and 10 that you mentioned?

Yes. So currently, we are working on 2 plants, and which is what we have guided. And the rest will depend on how we are progressing on our R&D pipeline. And then periodically, we will review that situation and kind of also indicate our plan for further plant. And that will also depend on our initiatives on inorganic side. So what happens that sometimes when you are working on inorganic options, some of these capacity requirements can also enact with underutilized capacities there. So that's the reason that we have given a limited guideline right now for next 1, 1.5 years and for guideline. Beyond that, we would want to have a clear picture on inorganic side, sir.

Got it, sir. So apart from MMP 5 and 10, we're not going to add any more plants at this point in time? At least not today, you're not utilizing it?

At least today, yes. At least today.

Right. And your utilization levels are okay. So would it be okay to conclude that for the next 2 years, until your inorganic acquisitions going to kick in, we will do at least 20%, 25% kind of a growth in the CSM bit?

Yes. I mean we have given an indication of a guideline of 20% plus.

We have last question from the line of Dhaval Shah from Girik Capital.

Sir, just a small clarification as it is on the CapEx. So we had a INR 400 crore gross block supposed to go live in fourth quarter FY '20. So was that MMP 9 and 10?

No. That was -- Subhash, can you clarify?

That was 9 and 11.

That is 9 and 11. Okay, fine.

Yes.

So from that, anything which has got operational? Or both are delayed?

No. So 11 is operational. 11 is operational. 9 is also operational, but partly -- but yes, both these plants are operational.

Okay. So you mentioned something is delayed -- some CapEx is delayed, which would be covered...

That is MPP 10.

MPP. And that was supposed to go live when?

That is supposed -- that was supposed to go live in the next quarter, but it will get delayed by almost a quarter or so.

Okay. It was supposed to go live in that, I think, third quarter, sir?

Fourth quarter, approximately.

Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to the management for closing comments. Over to you, sir.

Mayank, you want to comment?

Yes. So thank you, everybody. I really appreciate you coming on and for the support, and continue to put our best efforts and put forward to make sure that we can come back to you with a high level of performance in the challenging times. And wishing you all a very healthy and safe time ahead. Thank you.

Thank you. Thank you, all.

Thank you, gentlemen. Thank you.

Thank you. Bye-bye.

Thank you, sir. Ladies and gentlemen, on behalf of PI Industries Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.