PI Industries Limited (523642) Earnings Call Transcript & Summary

Thank you. So thank you, everyone, for taking the interest today on this call. I just hope that all of you are doing well, including your families, in these very challenging times. At PI, we're continuing to steadfastly focus on our goals while adhering to outline [ as the need ] to protect our employees and stakeholders from this pandemic. I hope I would like to now take this opportunity to introduce you to our new CFO, Sri Rajiv Batra. He joins us with a rich experience profile and will be addressing you all after I complete sharing my perspectives. Coming to our business overview for Q2. We saw a contingence of a healthy moment at a blended level with India, our portfolio, comparing to last year. Branded high-performance products have delivered a steady satisfaction again. This follows good distribution available due to rainfall during the months. The share of sales of Isagro brand [indiscernible] at the moment. And the sales [indiscernible] distinguished our approach on the front of this [indiscernible] results in the quarter as well, specifically [indiscernible]. With the resumption of overall trade and commerce activities, our exports have also seen a healthy run rate, given our proactive approach on raw material inventory management and capacity planning. Our client partners continue to show faith in our strong outbound shipments on tracking [indiscernible] with strong demand for key commercialized products. Both existing molecules and more recently commercial molecules have seen a good uptake. As a reputation of integrity, quality has given us the comfort on the order book with the number of inquiries rising. The scale -- the scope of our research expertise, combined with the vast experience in the ag chem manufacturing clearly places us ahead of the [indiscernible] and in customers. We continue to supply farmer intermediates [indiscernible] and with more than 10-plus products in various stages of development in R&D stage, hoping to commercialize a few going into the near future. Our domestic business has shown a 33% improvement over the previous year and continue to stay ahead of the trend. More -- some amounts of seasonal rainfall towards the end of the quarter, notwithstanding, our sales would have been even better. With favorable ag chem conditions in place, farmers have sown across their crop acreages. Paddy and soya especially have shown a very good growth pattern year-on-year. We are [indiscernible] with almost reservoirs at a full level across the country, high [indiscernible] MSPs at this stage is such even better [indiscernible]. The budget reforms initiated by the government will give confidence to farmers for a better plan that cropping and sell with a defined market in mind. As a matter [indiscernible] to the efficient farming, we are positive about prospects of high-performance brands further enhancing with this move. Consequently, the commentary of the key global innovators have shown robust trends with global ag chem. Now given these 2 new brands in the domestic business, 1 is an insecticide, Londax Power, aimed at the rice crop; another is a fungicide, Shield, into the rice crop again. Jointly with the Isagro portfolio is another strong one [indiscernible] in the business. With these novel launches, it should further give us a good traction. Isago itself has shown a contingence of healthy trend for growth. Now I'm glad to share with you that we have filed 18 new patent applications during H1, including intermediates to COVID-19 -- of COVID-19. And we are one of the only few companies in India to do that. For the forthcoming year '21, PI will come out with a new and innovative solution to the domestic side to complement the attractive lines up at present. Having said that, we expect our retail side and [indiscernible] solutions to augment at this moment. The investments that we are making in export operations will see a new unit getting commissioned. The pace of new commercialization we continue to announce in line with setting our pipeline over the years and plan our expectation into new verticals and new areas of application. Our initiatives on the inorganic front remain on track. And the objective is to diversify to adjacencies, widen technology portfolio and derisk operations. We are very closely assessing the farm assets and working with global partners in this direction. We invested the QIP funds with SLR philosophy to now while the final deployment to align with PI's long-term strategy is underway. Overall, we're looking at a bright future back to further progress with the existing operations, led by outlined initiatives and new introduction and complemented by forays into new ventures. With that, I would like to bring my remarks to an end and hand it over to our CFO, Rajiv Batra, to dwell on his financial performance. Thank you. Rajiv, over to you.

Thanks, Mayank. And good afternoon, everybody. Please continue with [indiscernible]. I will share the financial highlights for the second quarter ended September. All comparisons here are with the quarter 2 of FY '20 and on a consolidated basis. During the quarter under review, we registered 28% growth to INR 1,158 crores, driven by a solid growth in the domestic operations to INR 359 crores and 25% growth on export operations to INR 799 crores. Disruptions to operations caused by COVID-19, including movement of goods, has very limited impact on our performance as all of our manufacturing facilities are currently operational and utilizations are heading back to the pre-COVID levels. EBITDA improved by 45% to INR 280 crores, translating to a margin of 24%. This is an expansion of just below 300 basis points, 298 to be exact, on a year-on-year basis. A favorable product mix resulted in a better EBITDA performance during this quarter. Profit after tax stood at INR 218 crores, higher by 77%, in line with our better operational performance. Healthy performance and efficient working capital management helped this transition due these testing times. Our inventory level marginally increased in line with our projected growth as well as we ensured continuity of operations amid the COVID-19-related uncertainties. As Mayank said, the QIP funds will be safely [indiscernible] and our philosophy here is safety. And the final investments will be aligned to PI's long-term growth strategy. Our debt to equity still remains very comfortable at less than 0.1%. During quarter 2 FY '21, our total CapEx impact so far is about INR 116 crores. And the current order book that we showed you in the investor presentation is maintained at $1.5 billion. This concludes my opening remarks. Now I'll request the moderator to open the forum for Q&A.

[Operator Instructions] The first question is from the line of Ritesh Gupta from AMBIT Capital.

Sir, just wanted to confirm what kind of domestic growth that you see apart from this high growth? So we do get -- we can do like stand-alone comparison, et cetera. But just wanted to get the exact growth for the domestic business in this quarter. And if you could just highlight a bit on that if it is [indiscernible] or et cetera. And then the second part I had in my mind is that on the CSM growth side of 25%, just wanted to make sure that is there any Isagro component to it? Because I think you divided your Isagro acquisition to 2 pieces, 1 about with your main business and then other has remained in a subsidiary -- domestic business has remained in a subsidiary.

So Raman, do you want to take the domestic?

Yes. And this is Raman, and thank you for that question. So on the domestic front, the PI's growth that has been alluded to, which is in mid-single digits, you must understand, and I think even in the previous calls, I've been alluding to this, which is we have gone through some portfolio rationalization in order to strengthen the business. In addition to that, if you remember, last year was the last -- I mean the previous year was the last year for our flagship product, [indiscernible]. So the growth that you've seen on the PI side is adjusted to that portfolio effect. Besides that, PI's portfolio has a fairly large proportion coming from early post herbicide. And in the early post herbicide, while the monsoon is extremely good, there are parts of India where the early monsoon, and you may know that in the Eastern part of India not, the early monsoon was fairly intense and prolonged which led to a little bit reduction in the early post market for the rice. So that's the second effect. But having said that, I think our flagship products, both Nominee, Osheen, Osheen has done particularly well in the last quarter. Nominee continued to hold and slightly expand its brand share. So that's on the PI side. The Isagro portfolio is a different portfolio with less herbicide component. And they continue to enjoy high double-digit growth based on a portfolio that is really tuned to fruits, vegetables and plantations. And the plantations in particular markets like tea have had a healthy kind of recoup, so to speak, and what the higher growth that you're seeing is a reflection of that. I think this is again a good testimony to the clear strategy post acquisition. And the portfolio risk hedging from these 2 kind of distribution models that PI has been able to accomplish. I hope that answers the question.

Yes. And just on Isagro, I mean, in case you have the last year's numbers, I mean, could you just highlight what kind of growth you would have in Isagro portfolio on a Y-o-Y basis? And what you're trying to do, can this become...

Yes. Let me -- I'm not sure if we report such segment results. I think we can safely say that Isagro's contribution to the overall growth of PI has been around 11%.

Got it, sir.

And not domestic, but overall PI brand. Rajnish, you want...

Yes, Ritesh. Just to add to what Raman just explained, I think this is also important for us to appreciate that this -- particularly this domestic business cannot be clearly defined in quarterly numbers because of this positioning, product positioning and so many things. So I think the best way to look at performance is to look at seasonally. And September end, although not fully, but it still is a better mark on the current season performance. So if you look at overall first half domestic performance and if we even exclude Isagro acquisition impact on it, I think the domestic season, domestic has done very well. It's more than, I think, 18% -- 18% or so, which takes into account all these aspects of product rationalization, introduction of new products and growth in different geographies, as Sri Raman explained. So yes, I mean, if you see on season-to-season basis, we have done exceedingly well.

Got it, sir.

Coming to your second question on the CSM overlapping with Isagro, so no, not really. So until September, because this merger thing is still in process, which we are expecting by end of this year, and therefore, the Isagro piece is purely the domestic. And whatever little bit of institutional sales or some exports that they were doing is what is part of Isagro right now.

Got it, sir. And just one other piece -- one other question that I can squeeze in. On the CSM side, the growth has been healthy. Of course, it's been guided for. But you did quite well in the first half. And you have still a guidance of about 20% growth. So should we assume that seasonally, this year, first half, has been much longer and probably in the second half, you might not see the kind of growth rates you have seen in first half? Or is there a reason for us to believe that sales and growth probably will be much faster on the full year?

Well, we will -- I mean, obviously, there is some sort of, I would say, not significant as like domestic but some sort of timing issue here. So first half has done well. And we are not expecting this to further intensify or grow and in terms of the speed of growth, if I talk about. But yes, we should be able to maintain the kind of levels that we have already achieved. And that is the reason we have kind of guided for 20%-plus kind of growth, factoring in all these aspects.

Understood, sir. And like your gross flow was flat on a Y-o-Y basis or I think on a sequential basis is at least. And you have one MPP which is yet to be commissioned. And I think we don't have any announcements for the new plants, et cetera. And at the same time, I also see you taking initiative to improve the asset turns of the existing plants. So how should we look at like on the future growth side? Should we -- are you waiting for the acquisition to fructify for new assets? Could you just give us a broader sense on the CapEx side as well how do you plan to add assets there?

Yes. So as we have explained in the past that already a couple of multiproduct plants are under construction. One plant, we are already expecting to get commissioned maybe next year, next financial year. 2 plants, which we commissioned earlier this year are -- we are trying to enhance utilization of growth plants. And yes, as you rightly said, we are also kind of looking at these acquisitions in order to kind of clearly fructify and finalize our longer-term CapEx plans. You also end up getting a lot of capacity and in some cases, maybe some idle capacity along with these acquisitions. But yes, there -- I mean, given the kind of pipeline and R&D that we have, there are few more plants on the plan, but we have -- it's still not finalized or started or initiated at action on ground as yet.

Understood.

As of now, we have a very clear plan for these couple of plants that are in pipeline or under construction.

[Operator Instructions] The next question is from the line of Probal Sen from Centrum Broking.

A lot of the questions have already been answered. I just wanted one -- a couple of clarifications. One, Mr. Raman had fully said that the overall contribution for H1, if one looks at Isagro to grow, was in the range of around 11%. Now is that -- I mean, given that H1 overall consol revenue has grown by around 33%, if I'm not mistaken, does that imply that without Isagro, growth would have been closer to 22%, 23-odd percent? Is that a fair way to look at it, sir?

Yes. Broadly, yes.

Okay. And the second point was, sir, with respect to the order book, your export revenue and CSM revenue, and forgive my ignorance here, has obviously grown -- continue to grow strongly. But the order book, I believe, has remained broadly flattish over the last 2 to 3 quarters. How should actually be -- we be looking at this number by the end of this year in terms of how the orders could progress, sir?

Frankly, I mean we are not aiming to significantly increase our order book in that sense because order book substantial increase means that we also keep committing on asset build-up at the same time. So our aim is to kind of have a reasonable visibility of long-term revenues and cash flows. And in that sense, if you see having this 3, 4 years-plus kind of visibility is already there. And at the same time, we are also kind of optimizing the utilization and throughput from our existing assets. So the aim here is to kind of gradually improve the returns on the assets and the capital efficiency over a period of time while at the same time maintaining the higher or longer-term visibility. So we are basically chasing several objectives here, not the only one of growing the order book. And that is the reason that you see that there is no significant ramp-up in order book. But at the same time, there is no significant reduction in the order book despite significant ramp-up in the supplies over last 3, 4 quarters. But we have still been able to maintain this $1.5 billion or $1.4 billion kind of order book by getting more inflows of orders. I hope this answers your question.

Yes, sir, that makes it clear. If I can squeeze in one last question. With respect to the QIP utilization, obviously, you have alluded to several projects being evaluated actively. And your pharma venture, I think [indiscernible] was helpful in highlighting how that venture is progressing. Any sort of timeline in terms of when we can expect the first concrete transaction to happen? Or any sort of flavor you can give in terms of when we can hear more updates with respect to utilization of any of these proceeds, sir?

Yes. So for proceeds, we have -- I think we have indicated that our objective is to kind of fully deploy these funds in next 5, 6 quarters. But having said so, we are very extremely evaluating few options. And it's not only simple evaluation, but we are also working with a global consulting firm in terms of crystallizing and clearly identifying that which are the subsegments kind of we are getting into, what kind of synergies that these acquisition targets will have the kind of technology that we have been working on and how these targets are sitting in our longer-term strategic road map. Because it's not only acquiring a business. But kind of growing this business, aligning these businesses with our objectives in PI business over the next 10, 15, 20 years is the kind of road map that we are laying and kind of trying to evaluate these targets on that particular criteria and road map. So it is taking a little time, but we are very actively evaluating. I mean I don't want to give any kind of timeline to kind of push any speculation on this. But we may expect to do something in next few quarters certainly and not be waiting for 5, 6 quarters.

The next question is from the line of Bharat Shah from ASK Investment Managers.

Sir, I had a question not on the quarter but on a longer-term basis. Given all that we have assimilated and built over last few years in terms of technology, client relationship, the strength of the products, we've also made the initial foray into pharmaceuticals and some successful acquisitions like Isagro plus the balance sheet. Can we -- when I add it all up, can we say that we are in a new, renewed higher growth pace over the next 2 years for PI? The kind of -- there was a very strong growth for a number of years, then in between a couple of years were a little more on testing and difficult. Can we say here across [indiscernible] on a more sustained basis, we are at a higher than strong [indiscernible] growth journey now?

So Bharat, this is Mayank here. Yes, I mean, I would say, yes, as you know, that we have always as a company focused on building long-term sustainable approach to building our businesses, which is clearly back to the strong capability of our technological abilities to be making sure that we are in it for the long. Given that, yes, all these investments, which have been taking part in the past and stabilizing, is putting the existing business into steady state. You achieve that. And some of these are now shaping up to go into the next phase. So clearly, the scale at which we are operating and to go to the next level of scale, we see ourselves in the next 3 to 5 years at a different level of play with the more -- better risk-managed, diversified. And I think leadership in certain areas of our expertise, which are backed by strong technological capabilities and [indiscernible] driven by IP. So if you would ask me if I were to say the next 5 years, you would call PI, not PI, but you call it an IP company, innovation-led organization, innovation with a purpose. And that's really what PI will stand for going into the future. So that's really where we are. And I'm hoping, and I'm sure that with such initiatives, this will result in the numbers that we so desire to give us the stakeholders the benefits that we see from the organization.

So if I had to, will that equally -- these comments apply to the domestic business and not just CSM, I assume, and [indiscernible] the impact on the margins and improve the capital efficiency going forward. Is that a correct surmise?

Bharat, what is that? Hello?

I'll repeat. What I say is these comments that you made, Mayank, would apply not just to CSM But also I would presume to the domestic business.

Yes.

And over the period of time is we cover this journey of an improved growth path in superior kind of overall quality of the growth. It will reflect in include margins as well as more importantly superior return on capital employed going forward.

So I would say it's a balance between [indiscernible] of superior margins or continuous investments into innovation. Those could be the different ways of looking at these things, right? So it's a balance which you keep. And as you get larger, probably that's the segment which you really get into a bigger place. That's really where we are, yes. And probably the objective is to improve return on investments. That's the reason we're chasing these things, yes.

Sure. That will apply to domestic business as well, right, your comments?

Yes. For sure, domestic business, you would see a lot of initiatives have been taken with different approaches of go-to-market, our digital initiative. We're looking at different like solutions in one of the smaller ones, which is [indiscernible] But we're also looking at a different thought process as we develop newer strategies. Because as the landscape is changing with the regulatory framework and the government policies coming, the potential is phenomenal. And therefore, we evaluate the right way to go about it. Yes, sure.

The next question is from the line of Sohini Andani from SBI Mutual Fund.

Yes. My question is on the margins. You mentioned on the call that the margins were better this quarter. You took the portfolio rationalization and better favorable product mix. So this is in both the businesses or this is largely on account of CSM being a larger part of the business?

Sohini, yes, your voice was not very clear, Sohini, if you can please repeat.

Yes, sure. I was asking that -- my question is on the margins, where we've posted 24% EBITDA margin this quarter. And I think it was mentioned that this was because of the favorable product mix. So just wanted to understand this a bit better that this is a favorable product mix within both the businesses or it is largely more driven by the CSM business.

No. It is -- I mean this phenomenon is there for both. I mean, even in domestic business, the product mix was favorable, okay? And then there is also a business mix that what is the revenue contribution coming from domestic versus exports. And also now there is a third element of Isagro. So yes, both in terms of business mix as well as product mix, it works favorable for us. And that is the results reflecting in the margin -- improved margins.

Sure. That helps us. And also wanted to know that...

And the third factor -- sorry, just to complete. The third factor is also operating leverage. Because we are growing at the pace of 30%, 30%-plus, the operating leverage is also kind of reflected into improved EBITDA margin.

Sure. That is helpful. Just also wanted to understand that what part of this margin expansion is sustainable going forward? Some of the initiatives that you mentioned earlier on the domestic side and even the operating leverage part seems to be sustainable things. But -- and then from a portfolio mix perspective, again is that a sustainable margin that we can look at?

So Rajnish, let me take this. So ma'am, one of the -- the large part of the margin in the business -- domestic business is related to portfolio and how much of the portfolio is coming from established brands and also new products. And this is where we feel we are confident because there is at least 2 to 3 new products that we plan to launch every year for the next 3 to 5 years. And these are largely proprietary products that we have licensed and are either exclusively or co-exclusively developing for the domestic market. So you already read and heard Mayank talk about 2 new products that have been launched this year. So that is one. And our continued focus on strengthening the quality of business from a channel management, et cetera, so these are -- and the increasing emphasis on digital marketing and reaching out, which is, in the last 6 months, we have achieved quantum improvement in the efficiency in marketing through these digitals. So I would say that these are the 3 initiatives, which we believe is something that will allow us to continuously keep on expanding on the margins of the domestic business.

The next question is from the line of S. Ramesh from Nirmal Bang.

My first thought is in terms of your results. The tax rate has come down very sharply. So is there some one-off items there? And what the kind of normalized tax rate we should assume for this year and the next 2, 3 years?

Rajiv, you may want to take that?

Yes, I can. The tax rate that we received for this quarter is 19.3%, which is down by 4 percentage points from the previous year. This is because of 2 things. One is better utilizing in [indiscernible]. The second thing is we see a deferred tax adjustment related to [indiscernible] assets, which contributes to 2.2% of the decline in tax rate. This will stay with us until the end of this year because this is a carry-through. After this, of course, we come back to normal tax rates, which we've been witnessing in the past. Does that answer you?

Yes. Okay. And second things is you obviously have your strategy to deploy the QIP funds on the assets you are evaluating. So what is the current thought process there? Would you just be using the equity funds? Or is there a thought in terms of leveraging that to improve the return? Because a clear concern would be that while your normal business will continue to generate the 36% growth based on the CapEx and the asset turn, this increase in cash and the net worth is going to kind of, at least for the short term, bring down your returns until you are able to generate that asset turn and then start generating the cash flows. So while you're obviously in a hurry to deploy that and get some assets in place and deliver long-term growth, are you going to just be using the equity fund? Or is there any thought in terms of leveraging that?

Rajnish, do would you want to take that?

Yes. So current thoughts are obviously to use these equity funds. But again, as I was saying earlier that we are still evaluating several options. And a lot will also depend the kind of option that we finally decide with -- and this is not going to be one option. As we explained earlier, we are looking at a few options. So depending on the final options, the size and all, we can certainly decide on the mix. But at this point in time, the idea is to use the [indiscernible].

The next question is from the line of Udit Bokaria from Catamaran.

Sir, wanted to understand, in [ agro sciences ] business, when we commercialize any product from an R&D stage, what is the range of yearly annual revenue that we can get from that product? And what are we expecting in the pharma division?

Well, that varies from product-to-product and molecule-to-molecule. So there's no kind of a really straight answer to this that what is the kind of revenue in the first year or second year that we can expect from commercialization. Because there are projects at different stages. There are projects of different scale and different segments. So one product says a broad spectrum, which is getting launched in 5, 7 countries altogether. And there is one product which is getting launched only in one country and specific to a particular crop. So the potential, the size, all this varies from product-to-product. As far as the pharma, can you repeat your second question, please?

Yes. Just wanted -- yes, I wanted to understand if, let's say, we are able to commercialize 1 of those 10 R&D products like what is the range of revenues that we see maybe at the end of 3 years, annual revenue that we can expect to see from those R&D -- from those products which are currently in the R&D stage? The range will be fine. I understand because each molecule...

Yes. Because a lot will depend on the final process and the success of these molecules. What is running at R&D is also not necessarily that it gets commercialized. But I mean given our past experience, it may range from several million dollars to tens of dollars. I mean...

Let me answer that in a very simple way. Fundamentally, when we give you guidance of growth, we're taking and factoring in all this and thus concluding that guidance. That's how really we put in one flat approach. And that's how the company drives results. So we achieve growth, which is far above the market growth. And then based on this, what are the pipeline and molecules [indiscernible] continues. And then we give the guidance, that's taking into all these additions that are coming in and what's coming going out.

The next question is from the line of Abhijit Akella from IIFL.

First, in the last quarter, in 1Q, you had given us -- you have given a breakdown of Isagro revenues, INR 99 crores for the quarter broken down between INR 30 crores exports and INR 69 crores domestic. Is it possible to just share a breakdown for this quarter as well?

Rajiv, you would have this handy or you can share it separately?

I'll get -- yes, I give to him separately. I have it, but in order to not to take us time, I will give it separately.

Okay.

Sure. Second thing was just with regards to the CapEx for the first half, it seems to have been a little bit slow and understandably so probably because of COVID-19. But from a full year perspective, what's the kind of CapEx guidance you can work it?

Yes. So we still have a full plan of close to INR 600-odd crore. Obviously, this is -- some of these projects have delayed a bit because of COVID situation, so basically, a study over to the next year. But yes, the approved plan is close to INR 550 crores, INR 600-odd crores.

Okay.

And maybe INR 100 crores, INR 150-odd crores, I don't know exactly, but some of this will certainly get carried over to next year.

Right. And just on the MEIS incentives that we have been booking, which was INR 50-odd crores last year. What's the treatment that you are following now? Are we still booking something in this quarter? And what do you expect for the rest of the year now?

I will take that. As you're aware, rules have changed. So between September to December, the maximum eligibility will be INR 2 crores. So that is all we can accrue. So to your point, what we used to get between INR 17 crores to INR 18 crores a quarter will no longer be with us if these rules won't change. We're also aware that government has announced that they will come up with an alternative scheme. We are awaiting details that are not yet come. So there may be some replacement. To what extent, the group policy will be able to tell us, so we're waiting on that.

Sir, just to make sure I understood you correctly...

Mr. Abhijit Akella, may we request you to come back in the queue for a follow-up, please? The next question is from the line of Niket Shah from Motilal Oswal Asset Management.

Congrats on a good set of numbers. Sir, I had only 2 questions. First is if I have to look at the INR 2,000 crores actual money that you've raised and over and above that in the next 2 years, the cash flow that you would generate from your business, you have about [ INR 3,000-odd crores ]. And last year, our gross log was about INR 2,400 crores. So we are looking at almost doubling our size of gross log either through acquisition or through organic expansion in the next 12 to 18 months. Would it be possible for you to give us some sense that how much of this will go towards acquisition and how much of this will go towards CSM expansion? And that's the first question. And the second question is, is it safe to assume when you're looking at acquiring a pharmaceutical businesses, would that be at a substantial higher margin than our existing CSM businesses? Those are the 2 questions.

Yes. So first, taking this breakup. Frankly, this would be very difficult at this point in time when we are evaluating several options, okay? But how much of this INR 2,000-plus crores free cash accrual over the next few years will go towards the execution and for organic growth, it is really difficult to answer at this point in time. But the whole idea is -- and then again, as I explained earlier, that both of these capital allocation areas have overlapping impact because sometimes if you acquire something, maybe you kind of improvise your organic CapEx plan and likewise. So -- but yes, the whole idea is that given the kind of pipeline of products that currently we are working, both in our exports -- CSM exports and domestic and at the same time also in the pharma case, the kind of pipeline that we are working and the kind of technologies that we are wanting to leverage, there is certainly going to be enough deployment. And we are seeing opportunity to deploy this kind of cash generation for a sustainable, profitable return. And this is where we are evaluating. But yes, of course, it would be difficult for me to now give you a breakup at this point in time.

But sir, what you said broadly we will be able to deploy this additional INR 2,000 crores plus whatever we are generating from operations in the next 18 months. Is there a breakdown?

So what I can -- yes, so what I can tell you is that we have insight opportunities where we can easily deploy INR 3,000 crores and sustainability generates returns better than what we are doing today. This is what I can tell you. But yes, of course, this will be a matter of evaluation, detailed evaluation and then kind of taking a decision. And then maybe we'll be able to give you a clearer perspective on how much goes in acquisition and how much goes in [indiscernible].

Sir, but additional INR 3,000 crores will come at higher ROC, that's the limited point of view.

That's the objective also. But currently, we are operating at certain returns, both in terms of margins as well as asset return or investment returns. And the objective is that, barring these initial integration periods of 1 year, 1.5 years or 2, we should certainly be improving these returns going forward. This is the objective and also a very key criteria of evaluating and accepting these targets that we are looking at. Because apart from what we are -- what we will be getting out of these stand-alone businesses, I think the key important criteria for us and the parameter for us is that what is that synergistic value with our own technologies that we'll be able to create with these targets, which will create the incremental returns for us and also turn these acquisitions into smart acquisitions.

So the second question was on the wheat herbicide...

Mr. Niket Shah, may we request you to come back in the queue, please. The next question is from the line of Varshit Shah from Emkay Global.

Congratulations on a great quarter. Sir, my question is more around the CapEx. So I think we have 1 MPP getting commissioned in this year, if I'm correct. So out of this INR 600 crores spread, I think roughly half of it would be commissioned this year. Can you give us some time line on how the balance will get commissioned in next year? And what is the CapEx plan for next year, the organic CapEx, apart from acquisitions? That's the first question.

Yes. So the plant, which was supposed to be commissioned this year, got a little delayed because of the COVID situation and we had to prioritize several other projects, okay? And which is what we are now expecting to either get commissioned and revived by kind of end of this year or first quarter of next year. So that's the update on that particular plant. Besides that also there is another that we are currently working on, which will obviously will get commissioned maybe later part of next year or most likely 2022. That's the current assessment on that. And in terms of your second part of your question in terms of CapEx plans of subsequent year, so as I said, some part of current year plan of close to INR 600 crores will get carried forward to next year. And then next year, I mean, the early estimations are that we will be, again, kind of looking at close to INR 400 crores, INR 500-odd crores kind of CapEx. Also a lot will also depend on the final acquisition that we decide because it may also have some bearing on this organic growth CapEx plan.

Sure. And second question is on the margin. So if you see on the gross margin side, we have expanded by almost 170 bps. And to my understanding, Isagro has a major contribution on this because stand-alone Isagro lost money will be upwards of 50%, 55%. But am I right in assessing it?

Now, what is 50%, 55%, what?

Gross margin of Isagro portfolio, a point off that range, maybe not exact, but...

Not really. But anyway, so what is your question, please?

Yes. So the question I'm trying to get is the gross margin expansion, which you alluded to that on account of product mix change and rationalization of the portfolio. So is it because this was also contributed by higher margin from the Isagro portfolio in the domestic segment, and hence, you're seeing this uptick? I'm alluding more to gross margin side because EBITDA will also have some operating leverage element.

Yes. So maybe, Rajiv, you may want to?

Yes, gross -- the gross margin here is actually on account of the mix that we experienced. This, I think, Rajnish clarified earlier in the start of the call, both on the domestic and on the export side. That is the leverage that we witnessed will obviously change your EBITDA. In terms of future guidance, Our EBITDA guidance, which is what we like to guide you on is about the same. So we're not saying that you're hurting the spreadsheets logging the incremental 1.5%. But we would rather go at this stage because we don't know which way mix will go.

And then just to add, the reason for that is that there is a change of product mix every half a quarter. So on a safer side, and this is how we have also guided always, that we are very comfortable in kind of -- in terms of guiding for 22% to 23% kind of EBITDA margin on a sustainable basis. While yes, in certain quarters, you may see a plus in EBITDA margin or gross margin. But on a longer-term sustainable basis, this is what the levels that we will guide.

Sure. And just one last [indiscernible]...

Mr. Shah, may we request you to come back for a follow-up, please. The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.

My first question is you mentioned that over a period of time, the objective is to reduce the risk. So can you give some more insights into that when you look at from the segments perspective, the clients concentration perspective and so on and so forth, how you look at this? Hello?

Yes, so can you please repeat? I couldn't hear your earlier part of your question.

Okay. My question is with reference management part of the business, which you highlighted earlier, can you give some more insights into this that over a period of 2, 3, 4 years post the acquisition, whatever you are looking at, how the business will look like from the risk management perspective?

Yes. So I mean, as you see, this is the uniqueness of our business model. I mean that we are kind of trying to always [ would be restate ]. So while on one side, we have the domestic business, which is kind of always depending on vagaries of monsoon, on the other side, close to 65%, 70% business is exports which is not dependent on Indian kind of monsoon and performance of rainfall or spread of a disease. So this is a particular uniqueness in our business model. On the other side, if you see even in domestic side, which Raman may also allude is that there are different crop segments that we are targeting. And one of the advantage of the acquisition of Isagro was that one area which we were not focusing or we were not pushing too much, this fruit plantation and vegetable segment is -- we'll get focused, and we are aiming to be one of the leading players there. So that will certainly kind of, again, reduce risk of our dependence and dependent on certain field crops like rice or wheat or some of these field crops. Same way if you look at our CSM business, while we have given the kind of nature of the business model, it is concentrated on safe and sustained customers or maybe 12, 15 products. But over the years, we are diversifying and going beyond AgChem. Therefore, the concentration both in terms of customers and in terms of products is reduced over time. And with this diversification into pharma and other specialty chemical areas, obviously, this concentration risk will further reduce. And so, therefore, I mean, these are the kind of initiatives which we are continuously taking year-on-year to kind of keep reducing or making this whole business model further robust so that we can on a sustainable basis kind of grow this profitably and also reduce the risk.

And my second question is when you -- generally speaking, when one do acquisition, particularly to further diversify customer perspective or business segment perspective, at times, it takes a longer time to get that payback period, maybe fifth year, sixth year, seventh year, eighth year kind of thing. So then how it will lead to improvement in ROCE? Or are you trying to say that whatever acquisition you will do, it will be EPS accretive from year 1?

Well, it may not be EPS accretive from year 1. I mean, obviously not. But yes, our aim is and objective is that maybe from second year or roughly 5 years, it should be EPS accretive for us. The key thing here is that what is that we will be add to this business from our own efforts and our own technologies. Because obviously, the sellers will factor in the value or the price or the premium in the price for selling this business. And if we have to make this EPS accretive at early stage, it is going to depend on what we will be able to do and add to that stand-alone business. And this is what we are very critically evaluating in some of these targets where we are finding a lot of good synergies with what we are doing.

I see, which can make it therefore earlier [indiscernible]...

The next question is from the line of Surya Patra from PhillipCapital.

So just in the presentation, you have mentioned about your pharma foray, what you said that already about 10-odd intermediates on which we have already started working on that. So just if you can indicate whether these are like based on customers' requirement or whether these are like custom synthesis product opportunities? Or you, yourself, has identified the intermediate and have already forayed or initiated your activities on the pharma side?

Well, it's a mix of both, I would say, that some of these have been identified this is the kind of technologies that we have developed over time, okay? And a few of them are obviously customer inquiries that we are working.

Okay. And sir, so then if this is the case, then are we thinking about building capacity relating to this then, which is a part of the same question on this? Or the existing capacity can be -- will be sufficient to handle this also?

No, not existing capacities. Actually, this is one of the reasons that we are looking at these acquisition opportunities, so that we can short cut this whole process of kind of building assets and spending time there and getting regulatory approval and all that. So if we can find good targets where, apart from the target to own business, if we can also kind of implement our own business plan in those assets is where kind of we can create a greater amount of value in a much expeditious manner.

Okay. So that means this is to expedite the process on this, that is what I believe.

[ Absolutely ].

And secondly, sir, on the export side, if you can just give some sense, obviously, there is a kind of very strong performance on the CSM side on the export side that we are witnessing. And that is the general trend also we are witnessing from a few of the global competitors who have reported their results. So is there a sense of a better pricing scenario or strong demand scenario in the export market that we are witnessing so that is why there is a kind of a significant volume and so this pricing trend that we are -- what we're seeing currently in the various global reviews, is that the trend that you are witnessing, sir?

Well, we certainly cannot generalize this. But yes, I mean, we are seeing particularly for the kind of products that we are operating, we are seeing good traction. We have been seeing good demand scenario. Despite the COVID situation in many of these geographies, we have seen that the demand scenario has been positive. And the kind of commentary that we have got from our global customers is that they are not seeing any impact of these disruptions of COVID and others. They are also expecting these demands to continue for -- at least for a midterm because they are also registering some of these products in different other countries. So they are expecting to sustain the kind of demand scenarios that they are suggesting.

The next question is from the line of Ankush Agrawal from Stallion Asset.

Just 2 questions. Firstly, in case of the pharma opportunities that we are targeting, so are these commercial molecules? Or we are also working on projects wherein the molecules are under the clinical development phase? And like how do you look at -- like over time, what kind of business opportunities are you targeting in a pharma business that you will be catering? And secondly, sir, if you can give the stats for how many products you have commercialized in both commercial and domestic business this year in the first half?

Yes. So the first part, yes, most of these are commercial products. So these are not the pipeline products or products in the trials or something, no. These are all -- most of them are commercial -- commercialized -- already commercialized projects. And for that, we are targeting these -- some of these intermediates that we are currently working.

Okay. So would it be fair to -- yes, so would it be fair to assume that over time, like once we take -- push into the business, the kind of projects that we will be taking would be primarily within the second or third supplier, right?

Yes. But the key thing there is the technological differentiation that we would be doing in terms of improving the quality or the cost or other parameters that we'll be significantly improving. So that's the kind of differentiator that we'll be creating for ourselves in this process.

Okay. And it would...

Because that has always been the approach, not to get into kind of a me too kind of situation that is there are already 4, 5, 10 players, we also get into that. That's not the kind of approach that we have. Coming to your second part of question, can you please repeat?

Can you tell the stats for how many molecules you have commercialized and how many domestic products we have launched in the first half?

So on the domestic front, first half, we launched 2 products. One -- both are targeted rice. One is a herbicide called Londax Power and the other is a fungicide.

Okay. And on the CSM?

On CSM side, also, we have commercialized 1 product. And there are a few products lined up for the next half -- I mean, the second half.

The next question is from the line of Ankur Periwal from Axis Capital.

Yes, my question has been answered.

The next question is from the line of Rohan Gupta from Edelweiss.

Congratulations on a such a strong set of numbers. Sir, I'll just reiterate some numbers on Isagro. When you acquired, it was almost INR 350 crores acquisition with INR 300 crore revenue, and almost low double-digit margins. Just after a year, I think that now with the annual run rate, you have already achieved close to INR 450 crores sort of turnover. And I believe that margins have also been pulled over and are similar to the PI's. So that means roughly INR 90 crores to INR 100 crores sort of EBITDA on an annual run rate. Sir, that means that if you break this number further, then we are talking about almost 3.5x EBIT -- EBITDA multiple which we have acquired this company. Absolutely great acquisition, sir, and a perfect fit for your company. And I think that utilization level HAS yet to go up and maybe the numbers from Isagro can be better than -- better next year also. So sir, I mean, this was just a one-off opportunity you see that you have got. Now you have almost INR 2,000 crores in your keeping. Mr. Sarna is keep on reiterating that you have many such opportunities and very attractive opportunities which you are looking for, and they will be implemented in terms of acquisition over next 1 year. So you -- when you, sir, talk about these opportunities, are there similar opportunities where the performance of those companies may be right now not so great, but where there's PI's leadership and under your integration that the potential for those acquisition will be much, much higher and that is what the way forward for PI? That's what I wanted to understand, sir.

So first of all, Rohan, thank you very much for your work. It's heartening to hear appreciation from analysts for a change, okay? So thank you. Thank you very much. Yes, I mean, that's the whole idea, Rohan, that we have to find smart acquisitions, not acquisition for the sake of acquisition that we have shortlisted some 3, 4 pharma assets and decide which one is better than the rest and then go for it. That's not the approach here that we are taking. As I explained to the earlier participants, we have taken pains in terms of having rounds and rounds of discussions internally, have engaged and spending money in terms of hiring a global consultant and giving us outside-in perspective, future [indiscernible] perspective that what we are getting into is not for next 2, 4 years. I mean, between what we kind of create for next few decades, like what we did in case of AgChem CSM, the kind of another growth driver that we want to create for the organization for next several decades. And that -- with that purpose and with that objective, we are certainly spending a lot of time in crystallizing and clearly identifying the target, having good synergies with what we are doing in PI and where we see a significant amount of opportunities of adding value to the stand-alone business that we will acquire. And therefore, obviously, the sellers will always sell any business at a value for what they are creating and the kind of profitability potential that, that business will have. But if we can add value to it, as you alluded in case of Isagro, then these multiples will completely look different. And that's the kind of approach and idea that we have and very -- in a very focused manner, we are looking at the opportunities where we believe we can have a similar kind of value-creation opportunities or propositions to create in next few quarters.

Okay. And just second, sir, from my side, a small question. Sir, You mentioned that you have -- utilization levels have already achieved the pre-COVID. I believe that with almost 30% revenue growth on the first half, I think that our utilization level now across the assets are close to very optimum level because last year, you mentioned that the utilization level can go up another 15% to 20%. So 'til the time we don't see any acquisitions or inorganic growth opportunities coming in place, do you see that if there are any delays, then maybe after a year or maybe in the near time, for next 3 to 4 quarters, our growth may be restricted because of the capacities? Or we have enough to grow or to keep the growth momentum at 20% to 25% for at least next 6 to 8 quarters?

Well, we certainly have clear visibility of sustaining this kind of growth for next 6, 8 quarters, as you mentioned. And that is coming from the kind of pipeline of products that we have, the kind of products that we are currently working and the kind of potential of growth in these existing products that we are seeing.

So capacity is not the constraint?

This is the operator. Mr. Gupta, may we request you to come back for follow-up, please.

Not really. There is a good scope and opportunity to improve throughput and the existing capacities also, which is what also we are working very actively...

So as I said, Rajnish, that as we mentioned earlier, margins and opportunities, and that was a question also there, where we will be looking as to how we will actually change the way the capacities look. And I think some of these initiatives have shown success. And we are further driving them to ensure that we are quite confident in the next 1 or 2 years, we will be able to enhance the capacities without really putting in capital. That's really where we are focusing.

The next question is from the line of Pratik Rangnekar from Crédit Suisse.

Just maybe to understand a bit of wheat herbicide that you had in your presentation. In terms of what is the size of the opportunity here and how was the early position and what is the [ value-added piece ] of growth of the product portfolio? And just if I could just complete my second question as well. This is just here on the -- in the P&L, I noticed that the JV profitability, it's a small number, but it has come off versus 1Q. So is there anything to call out there? Was there any sort of a one-off in the first quarter or something in this quarter maybe? Yes, that is the 2 questions from my side.

So let me -- so the first part of your question is what is the opportunity for the wheat herbicide, right?

Yes, sir.

Okay. So look, the wheat herbicide that's been launched, this was launched last year. It's called Awkira. It is specifically addressing a weed in wheat crop in Punjab and Haryana called phalaris, which has largely developed and, to a great extent, developed resistance to a number of other existing herbicides that are currently being used, yes. And now the opportunity itself is fairly large in terms of the size of the market. But we have to look at it with some caveats, which is that the application method is very different from what the current conventional practices are. It is what is called as an early post, which is immediately after sowing. So in order to facilitate this, one of the things that PI has done is to heavily invest into application equipment. We have some very high-tech modern application sprayers that we have imported from Japan. And these are facilitating rapid adoption of the herbicide, yes. So I hope that answers part of your question. The other question was about margins, was it? Or what is it?

No. The other question was on the lower profitability that's in the JV.

Your voice is -- gentleman, your voice is not clear to us. We are not able to clearly hear you.

Lower profitability of the JV. Rajnish, over to you.

No, I'm still not able -- not clear, the question. If you can please repeat, gentleman?

So just wanted to find out on the lower profitability that is visible in the JV in AgChem in the P&L this quarter. So maybe I was wondering if there was any locked this quarter or maybe you just took the -- took all of that in the previous quarter, in Q1. So I see the profitability has gone down from about INR 6 crores to about flat this quarter.

Now, which JV we are talking?

In the consolidated financials.

Not clearly, not clear at all. Rajiv, can you -- have you understood the question and if you can answer, please?

Question is not clear. So I would recommend to send us this question, and I will answer you because I can't relate to any JV [ mentioned ] in there. So kindly send us the question, please.

Ladies and gentlemen, we take the last question from the line of Sumant Kumar from Motilal Oswal.

So my question is regarding the 2 products we had launched. So can you discuss more about the key potential of the products? And how many years of patent left for this molecule?

Raman, you may take this question.

Which molecule are we talking about? The...

2 products we have launched, Londax and Shield.

Okay, okay. Yes. So the Londax Power is actually a product that we have inherited from our partner, PI Kumiai, which they had acquired from DuPont. So this is actually an existing brand that has a very, very strong brand position in certain markets in both South and East of India in the rice crop. So it is actually something that is -- a new branded product that we have inherited, and we -- with our strength in the rice markets, we hope to expand on this. And Shield is actually also an existing product where, through formulation, we have brought in some innovation in terms of greater efficiency, okay? Yes. And the patent on that is currently being sought.

Okay. So how many years of patent is left for this product?

On these 2 products, there is no patent right now. These are not patented products.

These are 9.4 products?

They are not -- Londax Power is a 9.3, which is an originally a DuPont product, which they divested to Kumiai. And for the Indian market, we are exclusive distributors of this brand, okay? And Shield is an in-house R&D innovation of an existing molecule with new innovative formulation that has been specifically launched for disease control in rice.

Okay. So can you tell me that -- what is the molecule here in the Shield?

Which one?

The Shield.

Shield. Mayank, Rajnish, you remember the name? I can get back to you. Listen, I'll -- yes, I'll get back to you.

Right. Which name, Raman, I didn't get your words. What are you looking for?

Shield, the fungicide, the...

Raman, it's technical.

Don't worry. I'll get the details and write to you through -- yes.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

So thank you, everybody, for taking the time to come out -- come to this call today and look forward to your continued support. And wishing you all a very happy coming Diwali and festive season. In these challenging times, I hope this brings an upliftment to all your moods and happiness enjoyed around your family and best of health and safe journey ahead. Thank you.