PI Industries Limited (523642) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us on PI Industries Q2 FY '22 Earnings Conference Call. Today, we are joined by 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, Joint Managing Director; Dr. K.V.S Ram Rao, Executive Director; and Mr. Manikantan Viswanathan, Chief Financial Officer. We will begin the call with key perspectives from Mr. Singhal. Thereafter, we will have Mr. Manikantan sharing his views on the financial performance of the company. After that, the forum will open question-and-answer session. Before we begin, I would like to underline that certain statements made on the conference call today may be forward-looking in nature, and a disclaimer to this effect has been shared in the investor presentation 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.

So, thank you. Thank you, and welcome to everyone. And once again, thank you for taking time out on the weekend for our discussions. Once again, my heartiest compliments to Diwali and festive seasons to all of you and your families. We have delivered a healthy performance during quarter 2. Our revenue improved by 17%. EBITDA saw a 4% improvement and a profit after tax saw a 6% when we see it against last year. On business front of our CSM exports continue to present an attractive runway of growth where we are scaling up existing molecules across our innovative relationships. Q2 recorded a 24% growth. We saw an overall growth of 27% in CSM exports year-on-year, as I saw the one new MPP getting commissioned, whereas another MPP staged to be opened in the present quarter. We are looking at a target of 16 commercializing during the year. Out of which 3 have already been commercialized in H1 '22 and has been the -- and the tunnel of inquiries and orders in hand have shown a good momentum in the underlying visibility of course. On the direction front, we could not be able to stem the decline despite global supply chain disruptions impacting imports, and events in certain key geographies. Further, domestic operations saw healthy placements of new products at Rabi season, even less rains and adequate water levels at the reservoir. Growth is making an improving trend on back of high base last year, whereas, we continue to show leadership in the rice herbicides, and we are seeing a momentum of Awkira production and scale up in the wheat herbicide segment as well. We are confidently moving ahead with a robust portfolio offering in the horticulture segment with Jivagro. Measures taken to revamp the branding has been rolled out. Our team are specifically engaged in expecting pharma engagements via application services. These have been particularly tailored to utilize related technology techniques of communication and communities. During the quarter, we signed a technology partnership and the JV structure of biochemical space. The scale-up is expected to be commenced over the next 12 to 18 months. Our trust on products research continues with 2 promising leads, but addressing a sizable potential. The initiatives to create a better process and scale up knowledge base and technologies has continued. We have after intensive internal exercise, have developed the PI's new compass. We've defined a clear purpose, a purpose of reimagining a healthier planet and also implementing our new operating model that enables us to accelerate the growth momentum in the current businesses, establishing new businesses and also continuing to add new ideas, technology and scientific discoveries. This will augment drive to embark upon rapid, differentiated, organic and inorganic growth, which is resilient of being ahead of scientifically and technologically. PI today is renowned and respected amongst innovators not only for the sharp emphasis on execution, but also the primary, given its high corporate governance. Progress and our core objectives, as we guide, our intentions, we seek out to the right partners and assets to help achieve our goals. In the coming years, we shall see an expanding of our footprint of addressing ability across a wider bank of opportunities in the specialty chemicals. And before I end, I take a moment to reassure all our stakeholders that PI remains committed to delivering and driving a sustained growth performance throughout its existing scope of operations, while also outlining a strong business adjacencies including pharma. Our experience and advanced technology platform and digital backward integration for cost leadership, has generated IP continues to underscore immense potential. Our aspirations are unchanged, and we should seek suitable and organic options to rapidly commercialize opportunities in the field of pharma. The termination of the BTA will not hinder us in anyway. With that, I would like to now hand it over to our CEO, Manikantan, to share with you the highlights of the financial performance for the quarter and next one. Thank you. Over to you, Mani.

Thank you, Mayank. Good morning, everyone, and thank you for joining us today. I'll be sharing financial performance of the company for the second quarter ended September 30, 2021. Please note that all the comparisons are on a year-on-year basis and on consolidated in nature. For Q2 FY '22, we demonstrated a strong revenue growth of 17% to INR 1,354 crores. Tiered by healthy expansion in export revenues by 24% to INR 993 crore, led by robust volume gains in 3 molecules. Domestic operations reported a moderate performance owing to global supply chain disruption, impact imports and adverse weather conditions in certain herbicide geographies among others. Domestic revenues were at total INR 361 crore. Further, for the half year ended 30 September, '21, the company has achieved a revenue of INR 2,548 crore, a growth of 15% on Y-o-Y basis. On profitable front, gross margin improved by 90 basis points in Q2 FY '22, which came despite significant increase in the input costs and reduced export incentives by approximately 1.5%. This expansion was supported by favorable product mix. EBITDA increases by 4% to INR 292 crore, translating to an EBITDA margin of 22%. Margin moderation reflects the impact of higher input costs. Profit after tax enhanced by 6% during the quarter to INR 230 crores. And for the off year, enhanced by 15% to INR 417 crore. Balance sheet position further bolstered during the quarter based on strong performance momentum. The company generated positive operating cash flow of INR 208 crore during the quarter FY '22 and also maintained high inventory levels to meet customer requirements to avoid supply chain disruptions. Before I close, let me quickly share some strategies around our capital expenditure. For the half year ended 30 September, we have entailed under INR 168 crore of capital expenditures and remain on track to deploy further INR 105 crores for the remainder of the year. That concludes my opening commentary. I will not request the moderator to open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Ritesh Gupta from Kotak Institutional Equities.

One is on the pharma side. Now that Ind-Swift is not happening, I mean, what's the plan in terms of the overall ramp-up of the business? Do you still keep to your guidance at 50% of the business would be driven by pharma, let's say, 4 years down the line? That's one. And the second one is that on the -- this quarter, we see an interesting thing that your gross margins have expanded despite all the argumentation that you talked about, even in the presentation then partly maybe because of product mix. But other expenses also shot up materially, and is it largely an impact of power and fuel and logistics cost or is there something else? So I think the question here is that have you passed it on fully as of now or is there a scope to -- for the margins to improve in the subsequent quarters? These are the 2 questions from my side.

So Ritesh, for your 2 questions. Number one, pharma. Pharma strategy of PI is twofold. One is what we are organically doing now that remains unhindered and intact. We are already progressing on several of these intermediates at our pilot to scale and at different scale up levels. That continues even for commercialization of those products where there is no need for GMP manufacturing facilities. We are already in the process of commercialization, modification of plant and all that. So that continues the way it was planned. The second part is, where we are requiring some GMP facilities. And therefore, for that purpose, we will surely be looking at other alternatives of inorganic opportunities. We are already in that process of shortlisting. There are several opportunities in the market. We are evaluating them. In fact, we were looking at them. And we will soon kind of internally decide on what are the -- some of these opportunities fitting in our scheme of things and accordingly work on them. And in the meantime, I mean, for a shorter period, we can always look at outsourcing model to bridge the gap. So that is the -- in nutshell, the overall approach on pharma. But we remain confident on our plans, on our scale up. And within next 4 years' time, our aspirations of achieving flow to 20% or more than 20% of overall PI revenue from this vertical remains intact. Your second question on gross margins. So yes, in the CSM space, we have seen increase in input costs across the products and even services and even fuel cost, we have seen rising fuel costs from, say, 30% to 50% or even more than 50%. So in many cases, there will always be lead and lag in this price increase situation -- input price increase situation. And then in many products, it is -- it still continues -- raw material. So yes, I mean, in many cases, we have already passed through that and built-in prices. And in many cases, these things are still happening, discussions are happening and it's still happening. So yes, I mean, this is the current situation and we believe that with our understanding with these customers and global companies and our agreements and understanding, we shall be able to pass on these input costs to our customers and optimize and maintain our margin. I hope I've answered both your questions.

The next question is from the line of Vishnu Kumar from Spark Capital.

Just going back to the margin question again. We see that your EBITDA margin has come down. So is there any one-off sitting in your OpEx cost this time around?

Yes. So actually, it is the impact of both, the fuel cost, which appears in -- you see the overhead bucket. So there is a lot of fuel or utility costs and all that, which is there. The inflationary impact of that is also reflecting there. And of course, there is one-off costs as well. Many of these strategic initiatives that we have taken over the last 1- 1.5 years, 2 years. A lot of cost is also pertaining to those strategic initiatives and are of nonrecurring nature.

Can you quantify that number or any nonrecurring number?

Well, nonrecurring would be, I think, INR 10 corer to INR 12 crore or something.

Something around this.

Sir, the pharma strategy, you mentioned organically various parameters you mentioned, is there any CapEx that you would require to set up plants or until and unless you find an inorganic opportunity, would you go ahead and put -- or would you go ahead and invest in the multipurpose plants or can you do it in your agrochemical facility? Some broader understanding on this organically, how you can scale it up or what, sort of, revenues that you think can at least do on this side, if you could just help us understand?

Yes. So wherever there is no requirement of GMP, yes, we can certainly invest, we can modify some of these available white spaces and use them, which is what we are currently doing. We can also add one multiproduct plant where we can, kind of, manufacture many of these intermediates on a multiple basis. So yes, I mean, that is very much part of our plan. And this will become part of our normal CapEx of INR 300 odd crores every year that we have and with us.

Any rough CapEx towards pharma organically that you're building in next year -- or this year and next year and maybe revenues currently you are deriving from pharma at present?

Yes. So around INR 75 odd crores is what we are anticipating at this moment.

Which is CapEx, sir.

Which is mainly towards the modification of some of the white spaces that are available.

Any revenue you are deriving now or maybe how much you expect to generate out of this INR 75 crores odd next year or so?

Yes. So I mean, although these are all part of now planning process that is still going on. But yes, I mean, we would surely be in a mid-to-long-term basis, we will be able to certainly generate 1.5 to 1.75 multiple of the investment.

The next question is a follow-up question from the line of Ritesh Gupta from Kotak Institutional Equities.

Just one other follow-up I had was on the domestic side. The domestic growth rates for some reasons has been fairly muted, if I strip out Isagro acquisition and its growth. So could you just throw some light on what could change? And I know that industry has also haven't done well. But what could change the future of the business and what could help to drive grow at 8%, 10% or 12% also over the next 3, 4 years? And if you could just key one or 2 points, which led to the domestic growth rates to still be muted over the last 3, 4, 5 years?

Raman, would you like to take that?

And as you rightly pointed out, I think this year, despite the monsoon starting off well, and then there was a fairly long disruption followed by continuous rain. So agriculture and the AgChem industry in general has been pretty muted, and we expect at best flat to maybe a single-digit -- low single-digit growth at best in the first half of the year. So in that particular context, given that we have had some supply issues from some of our key products from our global partners, which is related to various supply chain constraints that we are seeing globally. That really was one constraint that prevented us from growing more than what we have done at this point. I mean we came in, kind of, flat in the domestic business. That's one key factor. So that's a onetime effect. And with a better planning, better communication, we are now adequately covered with our global partners for the rest of the year and going forward. The second was, there were specific issues in the markets, for example, in Uttar Pradesh, which faced continuous rains for a long period of time, our rice herbicide penetration was dampened, and that's been an additional factor. So these were a couple of the key drivers for the muted growth that we have seen. Added to this, we had also planned a couple of new product launches, both on our Jivagro, the horticulture side, and also on the PI agri side, and due to regulatory delays, that did not happen. So these are the 3 factors. But on the positive side, where we have not been able to sell because of market and weather conditions, we have proactively taken the product -- that sales return has happened. So we are starting off the Rabi season with -- on a very sound note with less inventory for products in the system. Also, we will be launching 2 new projects in the next 3 to -- in the Rabi season. One is rice insecticide and another one is new biological fungicide for grades, which is very unique because it does not have what is called as preharvest interval, so it can be applied all the way close to August, which is a great kind of, a convenience that we will give to the consumers. So -- and the third, very positive aspect of our portfolio has been the wheat herbicide, which we launched for about couple of years. We are very, very happy with the kind of demand that we have seen in the market and the liquidation that is happening as of now. So to the short -- I mean, the answer to your question about the confidence about future, really depends on -- is on the basis of the blockbuster new molecules that we are planning. The very focused go-to-market approach that we have for the row crops, which is dominated by PI and the horticulture crops dominated by our new go-to-market approach with Jivagro, combined with our digital and mechanization efforts. So these are the areas which give us confidence that we will continue to drive growth well above the industry.

And also to further that we also have a few products which are coming for new -- in the next coming years -- in the pipeline, which is also strong to give us this confidence of guiding far above the industry.

I mean, so just to conclude, I mean, we expect Rabi season to be much better, thanks to the -- perhaps launch in domestic market. Is that the correct understanding and lead inventory in the channel that you might have added?

Yes. And also we have rice herbicide in the south and the early kind of -- impact of the new molecules.

The next question is from the line of Aditya Jhawar from Investec Capital.

Sir, if you can give us some sense on the CapEx intensity. So what we are seeing that CapEx intensity has been coming down quite sharply. Is it that because we are intending to do some acquisitions, because that is the reason that organic CapEx has come down. So we understand that our order book has come down from $1.5 billion to $1.4 billion. We understand that there is a strategic reason that we don't want to commit more feet on the ground. So if you can directionally help us understand on the organic CapEx side, what is the thought process that is the first question.

Yes. So on CapEx front, there are 2 points Aditya. One is that, as we have also explained in our previous calls, that over the last 1 and 1.5 years, I mean with the implementation of some of these process innovations and also engineering technology, we have been able to substantially improve the plant throughput. And this is precisely the reason that you would have also noted that current year we are commercializing 6 molecules and still, we have not invested very heavily in terms of building new plants. And so this is one key reason that you see less intensity. This has always been one of the key strategic objective for us that if we have to sustain the growth, and more importantly, profitability in this CSM export, we will have to substantially improve our capital efficiency. And I'm happy to share with you all that we have been, with intense effort from our research and engineering teams, we have been able to see the fruits now for last one year or so. So that is one reason that…

And I'm going to add here to say that it really is very satisfied to see that how the investments in R&D and technology are yielding us these positive outcomes.

Yes. Coming to a second point in terms of order book, yes, there is a marginal decline, but this is primarily coming from the current pricing scenarios that we are seeing in the market. As you can imagine that input prices are swinging here and there and this kind of scenario, I mean, we found it really difficult to, kind of, commit to long term prices and get into long term agreements or something. And therefore -- and particularly, when I'm talking about price trends and all I'm more talking about the fuel and other inputs, which are part of conversion costs, not so much on raw material front, because that in any case is passed through generally. So because of the current scenario, I mean, we thought it is better to kind of, wait and watch rather than continue aggressively pushing for long term agreement and order commitments and all that. So this is precisely the reason for this marginal decline.

My second question is, sir, on the gross margin again. Sir, we understand that there could be a favorable product mix change. But to better understand this, like there is an element of increase in share of revenue from the CSM business. But sir, within that, if you can help us understand that as the new molecules that we have commercialized in the last few years, possibly, there could be a relatively higher stage or stages of complex chemistry. Does that mean that as the newer molecule contribution revenue would increase that margin drastically will continue to improve? Some color on what essentially you mean by favorable product mix change.

Yes. So there are 2 elements to it. One is, of course, the business mix. So as you would have seen the CSM export share has increased this year because of continued growth and a little slower growth in domestic products and areas. So one is that reason and the second is that since we have commercialized, I think, 6 to 7 products in the last 1.5 years. I mean those have also contributed in terms of improved margins. And obviously, as these products will scale up going forward, because in the initial couple of years volumes always are lower -- relatively lower. But as these products will get registered in different countries, these are mostly new products. As these products will get registered in the newer geographies, the volumes will increase. Obviously, these will also contribute in terms of improved gross margins and profitability. Secondly, the scale will also increase and that will also bring in the operating leverage to the overall P&L. So yes, I mean, we expect that once these one-off, kind of, things are out we see some stabilization in the input pricing. And we have also made right -- corrective measures on the pricing front due to this current wavering input prices, the margin should certainly improve.

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

My first question on the pharma side. Sir, obviously, we have been working on the outsourcing opportunities as well as the intermediate manufacturing opportunity. But could you share something on the customer acquisition front, why because we know that, that is a bigger challenge is the pharma rather than the capacity creation or capability buildup.

I think that's a fair question. The customer acquisition side, once we've been able to establish the product and the technologies, we have our strategy to go out and work on those customers. We've already identified those areas. And from the intermediate side, there's a process of approval and regulatory requirements, which may be required at stage for different kind of products, those are in plants and that is what was the key thing of getting executed over the next 18 months. So what you see is go to the next step, yes.

Sir, my second question is on -- you have mentioned about manufacturing fortifying for one of the electronic chemicals with the one leading global players. So can you talk something more about that opportunity that is the focus area? And would you -- during this supply disruption, what we have been witnessed, did you find any major long term supply contract from the global customer side?

Yes. So on the electronic chemicals, yes, we have gone into the commercial manufacturing of the product. And as we continue to look ahead, we really are getting into a long term areas where we are in the various stages of approvals. And we do believe that, yes, this is going to definitely land up in long term contracts in the next couple of quarters, yes. And, obviously, as you know, electronic chemical is a new area where we see a huge protection, and we are working in those areas now. Yes. So it's interesting and exciting part to us that we have got into the commercial manufacturing and met customer requirements and approvals there.

Sir, if you can just add on the even post Ind-Swift are inorganic initiative having experience, having an experience with Ind-Swift are changes to our M&A strategy for pharma or something like that?

No, not at all. In fact, as we mentioned earlier, I mean, that approach, pharma strategy and our approach of expeditious scale up remains the same, okay? We will work on both the front. Organically, what we had planned and what we are doing, we are expeditiously progressing on that. And on inorganic front, again, as I said, we are -- we will surely maintain the same approach. We'll look at several options which are there in the market and quickly move forward on them.

The next question is from the line of Rohit Nagraj from Emkay Global.

Just delving on the earlier question on electronic chemicals. I understand this is a growth opportunity even from China perspective. So if you could just give us a little more color in terms of the opportunity size, are we directly approaching the OEMs and whether it is a domestic oriented business also, which can be scaled up eventually, because I think we are still dependent on imports of these electronic chemicals, which are relatively high-purity ones. That's the first question.

K.V.S. maybe you may want to respond to? K.V.S.? Okay. I think for some reason, he dropped off the line. Yes. So obviously, the economic chemical opportunity is large as these are small volume, high-value, complex chemistry areas. There's a quick turnaround time. We clearly have our enrolled product capabilities in the markets to Japan and other parts of the world where we've been able to establish and make these entries. Having said these entries, we are working with the OEMS, which are in the chemical part of the business, not -- and that's really we are working. I'm looking to say that how do we will step-by-step go up to the value-added to the end game, and that's really how we are taking this approach. And there's another vertical approach we're likely been able to build over the years in the CSM focusing in the pharma -- sorry, in the electronic chemical area. Yes?

So, the second question is, again, during your initial remarks and in the presentation, you have said that we have signed a technology partnership for a JV in biochemical space. So if you could just give a little more color on -- in terms of what is the pace, how synergistic it is with our current R&D program? And in terms of opportunity size, what are we looking at over the next couple of years in terms of pilot and then scale up and commercialization.

Yes. So this will add to our portfolio of technology, basically, because so far our focus and effort of our existing resources and technologies was more on chemistry side. And this will bring in this newer area, biochemicals, which we can certainly leverage both on pharma side as well as on agrochemical side, and that is the whole plan. As I've mentioned earlier, we are -- we have entered into a joint venture arrangement with the technology partners. We are expecting to scale up -- I mean, these technologies and processes across pharma intermediates as well as some of these AgChem intermediates over next 12 months, 15 months' time and then we will be commercializing them. Whatever regulatory processes are also involved here will also be taken up with the respective customers and then we will be commercializing these technologies.

Just one clarification in terms of pharma, inorganic initiative, any time lines that we are looking at now?

Well, this is on [indiscernible] basis. So that process is on and will continue. We will surely expeditiously working on that to get.

The next question is from the line of Sumant Kumar from Motilal Oswal.

So can you talk about the growth in the new molecule, we have launched in CSM in the last 3, 4 years compared to the old chemistry, what we have in the portfolio.

Sorry, come again. Growth?

So say, in H1, we have a 27% growth in CSM segment. So can you talk about the new molecule we have launched in the last 3, 4 years, the contribution -- the growth contribution and the old chemistry growth?

Well, we'll not have this number in front of us. But I can tell you that, for example, I mean, we did some assessment, close to 18% -- 17% to 18% of our revenue is coming from new products, last 2, 3 years adjustment that we have done. So whatever products that we have launched in last 3, 4 years, they are contributing close to 17% to 18% of revenue.

And typically -- after 3 to 4 years of launch -- 4, 5 years of launch they accelerate.

And I believe this is going to be the trend for next several years, as we are also continuing to launch newer or commercialized new products every year.

Talking about the [ Awkira ] in the Rabi season, what is your expectation? What is the outlook in this Rabi for the herbicide?

Raman, you may want to take it?

Yes. So the expectation is that we would cover about 3x of the area that we had covered -- more than 3x of the area that we had covered in the last year. And as we speak now, we are very, very happy with the progress that we have made. We are on a daily basis, treating what we treated in the first year of its launch. So it's a very, very healthy process, and the demand has been extremely good.

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

Sir, couple of questions. First is -- sir in, last 2 to 3 years, our focus has been more on driving throughput with a limited CapEx, but we have seen a significant improvement in asset turnover. But definitely, sir, there is always a limitation on that. We have not been adding much amount on the gross or any larger investment has been made in any Greenfield or plants. So sir, with this limitation on further driving the throughput probably over the next 2 to 3 years, what do you see that how much more asset we can generate or how much the total turnover we can generate from our existing assets and how much is for further brownfield expansion at our existing plants, sir?

So, yes, you're right. I mean as I was also telling earlier, for last more than 1-1.5 years, we have been putting focused efforts in this direction, and we have achieved great success. And that is the reason that for commercialization of several of these new products, we were not required to put in 4, 5 plants. Otherwise, going by the previous pace, we would have invested at least in the 3, 4 plants. So that is one. Second -- secondly, in terms of continued growth, the other question on what kind of turn that we can get, I'm sure we can reach to 2.4, 2.5 turn, kind of -- asset turn kind of figure in like 6 months, one year time, as we are still optimizing some of these throughput in terms of these plants. So that process will continue and will give us a lot of advantage efficiency advantage. In terms of our visibility for the growth, that continues. I mean we still maintain that we have close to 20% kind of growth visibility in the CSM scale up in export. And our current R&D pipeline, the pace of commercialization of molecules, everything is giving us confidence and also supporting this confidence that we have on the scale-up and sustained growth. Anything you want…

Further, we continue to augment the investments in our resources in R&D in terms of human capital to manage our projects. And one more dimension which you must keep in mind that when we build a brownfield in '29, the larger part of the infrastructure CapEx is done. So the addition CapEx comes from capacity expansion, which may not be as substantial as you see at -- as certain point and we still have a potential of building up a few multiple per plants so but with back-end infrastructure that in place.

Yes. Because the common interest sector is already invested 3 years back, 2 years back.

Sir, extending on the Mayank Sir answers only on that. So you said that we still can put some more MPPs on our existing facilities and already covered with the infrastructure. Sir, on that only, I want to elaborate with -- understand a little bit more elaboration. In terms of how much money we can spend more on a brownfield, like you know, 500,000, 700,000 crore because we definitely will be facing the issue of land availability and a basic infrastructure because we are in chemicals. So there is only restrictions on how much capacity we can add on our existing facility. So on a brownfield, over next 2 years I believe too, how much investment these existing plants can absorb, sir?

Yes. So first of all, we do not see any limitation of expansion per se, like many industrial estates in different parts of the country. Fortunately, we do not see that kind of a challenge in the industrial estate that we are operating, okay? Availability of land, disposal of affluent, I mean, these are the major reasons, generally in the industrial estates where the expansion is restricted. We do not see these challenges in Jambusar where we are operating, okay? So that is one. Secondly, the available -- I mean, currently available land -- further land is also available, so that's not a challenge. But even in the available land, we can have another at least 2, 3 multi-product plants. And as I said earlier, that the normal investment plans of INR 250 crores to INR 300 crores every year is what we can invest. Although, lot will also kind of -- while we will be planning and finalizing these plants, lot will also depend on what, kind of, inorganic opportunity we finally land in, because a lot of this CapEx will also, kind of, reconfigure with that kind of asset and plan. But yes, generally, sitting today, we can say that close to INR 300 crores CapEx every year is what that we can plan to meet the capacity requirements, to meet the pipeline of commercialization products that we have.

Just a last question. Sir, on our pharma business, definitely, we have much been very aggressively looking now any pharma assets. We had roughly INR 2,000 crore raise from the QIP and has further added to that cash only because of the solid free cash flow generation. So any thought process change in that because now you are taking on a much stronger balance sheet than earlier almost INR 2,500 crore cash further going to add there? So are you looking at much larger assets now -- asset base? And again for the global acquisitions also are open? So is there a change in thought process that now you are looking at much larger scale, but it is similar you have booked up for yourself?

Well, frankly speaking, size is not the criteria for us -- to us. As a matter of fact, it was also not a limitation for us to look at something interesting, which fits in our scheme of things. So we are absolutely open, whether it is a smaller size, relatively smaller size or whether it is a larger size. I think the important is that what we will be able to do with that option, in mid to long-term is going to be the key criteria for us to go for that option. And we'll be certainly open to look at all kind of, options, smaller, larger variety of the revenue, variety of the assets, customer products. So there are several critical aspects, and we will be open to look at various options.

And sir, would you be able to put any time line on that, sir? I know it's very early, but…

I responded to the earlier participant on this, but this is on yesterday basis. So we'll -- obviously, we are working on this very expeditiously and we'll see what best can be done.

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

So the first thought is sir, so if you're looking at your second -- first MPP coming in second quarter and then another MPP coming in third quarter. To consider, what will be the asset capitalization and can we assume asset turn of 2x, say, by FY '23 of these 2 MPPs?

Well, your audio was not very clear. It was breaking. So can you please repeat your last part of your question?

So if you're looking at the 2 MPPs in the second quarter and third quarter, what is the amount of addition to the gross [ block ] on capitalization and can we assume an asset turn of 2x on these once they are commercial operation?

So the expectation is INR 168 crore during the first half of the current system. And we expect the same asset turn will continue off of the period of 6 months on capitalization.

And the second part is, I just want to understand, what are the lessons you may have learned from the business transfer arrangement you had with Ind-Swift and how do you envisage overcoming whatever constraints you face in concluding that deal in whatever targets you're looking at in your current endeavor to make an acquisition in the API space.

Again, sorry, but your audio is breaking, not very clear.

Sorry, I just wanted to understand what are the lessons you have learned from the [ BTR ] you sign with Ind-Swift and had we cancelled as a result some of these preconditions not being met? And how do you -- how are you preparing to ensure that this -- so this impact doesn't happen in our future acquisition?

Yes. So I mean, I would say a lot of lessons. I mean obviously, the preliminary assessment about the company, about the reputation, about value systems and various aspects that are important to, kind of, assess in the very preliminary kind of, evaluation. Those certainly need to be taken into account. And, obviously, as we have also said earlier that just because we have to expedite the process and expeditiously complete the process. We certainly cannot compromise on various vital necessities and critical aspects of M&A. We would certainly want to get out of something rather than feeling sorry at the -- after the completion of the thing and then kind of keep explaining to our stakeholders. And that process, that approach will certainly continue. But yes, we have to expeditiously work on the inorganic thing, but without compromising on the value systems and governance and our approach of doing things.

Sir, but last, if you looking at the specialty capital space, is it possible to give us a number in terms of what are the target opportunity you're looking at and what are the additional CapEx will be required for the next 2 years?

No. Gentleman, your audio is absolutely unclear.

Can you hear me now?

Mr. Ramesh, we request you to please rejoin the question queue.

Can you hear me now? Hello?

Yes, better.

Yes, sorry. So I was just asking, if you're looking at the specialty chemicals opportunity, can you put us -- can you put a number to the kind of target market you're looking at in terms of revenue potential and what are the kind of additional CapEx you may have to incur to achieve that, say, over the next 2 to 3 years?

Which -- fine chemical, you mean for CSM?

Yes, I'm talking about the CSM opportunity in specialty and fine chemicals. Yes.

Yes, yes. So this is what I answered to the earlier participant that, normally, I mean, INR 250 crore to INR 300 crore is the CapEx that we are envisaging in order to build capacities and also meet the R&D pipeline that we have or the commercial product pipeline that we have.

The next question is from the line of Nitin Agarwal from DAM Capital.

Sir, one more question on the pharma CRAMS -- this pharma business. Fundamentally, on the agrichemical business, CRAMS, historically, we focus only -- largely on the innovation part of the business, right, working with innovators and doing custom synthesis. In pharma, even in the ISLL transaction was a buyout of a generic business. So why are we -- are we looking at pharma CRAMS, pharma opportunity in different way that we pursued agrichemical CRAMS in the past?

Didn't get your question very clearly. Again…

No. The audio is not good at our end. I don't know whether it is for everyone or only for us. But I'll request moderator to please see if we can hear clearly what is the question?

Sure, sir.

Let me try to rephrase it. Let me try if this works this time.

No. We are not able to hear your audio clearly, maybe your -- what say, I mean, phrasing is fine, but the audio is not. So maybe try again, please?

Sure. Yes.

Mr. Agarwal, please proceed with your question. [Operator Instructions]

So I was saying on CRAMS business, historically, when we pursued our agri CRAMS, we typically stuck to a approach of working with our innovators and working in the innovation value chain. But in pharma, are you adopting a different approach, are we trying to participate in the generic value chain to start with and then sort of, scale it up. So how are we looking at -- are we looking at pharma CRAMS in a different way than agri CRAMS?

So as you know, the pharma CRAMS business is slightly different to where the agri CRAMS works, right? So it is more asset and capabilities driven and credibility driven, which needs to be built through either structures of assets in generics, which we are looking at an approach and eventually going into that space with a longer strategy, which could be much short in the past, we're doing that. Whereas the generics and the CDMO approach works little bit in the same organization in many of these [indiscernible] in the past times. Yes. So that's a differentiated path to get that vis-a-vis we at, but little different in the business.

Yes. I mean just to also add that it took us close to rather more than 2 decades to kind of, get to the quality of CDMO that we are in today, okay -- in an AgChem space. And what we said that, yes, I mean we have to eventually get to the same level in pharma, but let's take an approach, which can get us there, maybe much faster. And which is where, while on one side, we are working on technologies at our end, we have already kind of, scaled up some of these technologies where we see a lot of potential in pharma. But in order to get access to the customer and also expedite this regulatory process of manufacturing assets and everything, we are taking this inorganic approach, whereby we can start with maybe a generic kind of a model, where we get access to the customers, the assets, the regulatory approval and then eventually change the quality of revenue and quality of portfolio over a period of time. And in the end, we believe that this approach, this process will be much faster than what we have done in AgChem space. I hope this answers your question.

If I can probably pushing a little bit -- probe that little further. Sir, in pharma CRAMS -- generic to CRAMS evolution, I think that's been the standard model that most companies have tried to adopt, but we've seen that it's not been an easy transition for companies to make largely because for a generic pharma business, you cater to by different customers and the CRAMS -- and the innovation CRAMS are very different set of customer's altogether.

The difference, you are right. Although, the difference will be -- if you are a technology-based generic player or you are me too, one of the 20, 30, 40 players in those products. And we are certainly not aiming for the second one. We are aiming for the first one, where we have our differentiated technology, which will be the key driver for us to engage with these customers with existing products and then eventually gradually get into more, kind of, value-added and patented molecule with same or different set of customers. So it has to be driven and backed by differentiated technology. This is the difference we are talking.

So if I can probably just push it last bit on this one. So when you say differentiated as a technology platform, I mean, if you can very qualitatively explain, I mean how you explain thinking about that differentiation?

Yes. I mean I certainly cannot talk about those technologies here. But point is that one is that just to explain you the difference that there is x product, and there are already 15 suppliers, and there is maybe a temporary vacuum in the market because of the global supply chain challenges, and we kind of build it up capacity and we start manufacturing and supplying that product this is, whatever is the current process of technology, which is available for all these 15 is one scenario. The other scenario is that you have done some process innovation. And with this process innovation, you are coming up with a completely different approach of manufacturing these same product, which gives either the sustainable model from an environment or safety perspective or it gives a completely different cost leadership. And therefore, you have created a differentiated approach or technology to manufacture the same product. So obviously, these global leading players who are also now more and more inclined towards the ESG aspect of the business are keen on adopting and also aligning with the manufacturer who come up with such innovative and differentiated approaches of manufacturing these even generics products.

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

So if we take into account our portfolio of strengths, which is basically complex chemistry, research, long term view of the business, technology-related to the chemistry activities and strong client relationship, if we look at the next 5-year target of superior growth, which is something that we have articulated seeing an equivalent. Both keeping in mind these trends would be [ what you revised ] is areas that delight you and make you feel good about it and both are still the areas, which probably are chinks in the armor? Or if not chinks in the armor, are areas which need still significant adjustment to be done in order to achieve our vision of the long term?

So thank you for that question. I think it's an interesting question. I think we do believe that there are core trends, and we have done and depicted and shown our performance in those areas in the AgChem space. And we definitely need to constantly keep evolving and moving ahead, and building capabilities to create further attractiveness, and in different areas of application. As a matter of fact, we have proactively -- already over the last couple of years, proactively invested in the front end of the markets, like in Japan. We value the sources capabilities coming from the pharma, the fine chemicals space and building the customer base. Obviously, the deeper insights have not been set up, as you would see, the payroll challenges has been there in building that whole relationship. On the other hand, other parts of the globe, we started to build those relationships in those 2 areas by investing in them, but putting the sources on the back end. I think technology is -- that is our core and that is our love. We constantly need to expand that horizon because they are constantly evolving and constantly changing, and we need to open new horizons. And as you would see through our strategy, we've been constantly doing that. And technology, again, as you know well, at least in the chemical industry, and at least when you look at innovation is a 3 to 4 to 5 year gain, before we actually can -- from concept to when putting it to work and a 10 year to 50, 20 year game after to make it a revalue created and that's really where we are and we're deepening this by the technology capabilities to create a further deeper, stickier relationships. And that is going to be answered by innovation. And that's the area that we have already, as you would see, cross 100 patents, which there's opportunities to create a little bit more stickiness and embed into the customer mindset, would it be some technologies front and the value commitment which you have is obviously something which the customer appreciates while partnering with innovation, so that's where we are.

And would it be fair to say at one point of time probably reconsider the version in [ JAS ] agrochem specialty form, research driven, of course, but finally, in a agrochem kind of a form. Is that a second, but you are shifting the mind that basically complex and innovative chemistry is our calling card and over a period of time, that is what you need to achieve as a larger objective?

So that I would not say yes. That was not, as I said the new vertical, second engine. Our first engine of agrochemical is our strength and continue to grow our strength and we are leveraging that to create the next play and challenging at a global level, how challenging innovation and new products. And continuing to make sure that the engine by itself, while the platform are being put into the second engine. So clearly, the technological research capabilities are the core competencies, which were there, which are probably you -- the world has seen it within applied within AgChem. Now we're applying it in other areas. But doesn't mean that Agchem, we are not going deeper in terms of value chain from all the way back to research.

And just to rethread on the first question. Any areas of concern, while there are considerable areas of strengths, which we have demonstrated. Any niggling concerns, any worry, something which is still work in progress and we are not clear whether we have crossed the hump. Anything that you think needs to be thrown light upon?

So as you would appreciate, where your challenging technology, you're always standing on your toes, right? Because innovation technology is always a part which you take, which is a high risk with a high-return gain. But in order to mitigate that -- so there are many challenges and risks we see. In order to mitigate that, we have opened multiple frontiers. So at least even if a few succeeds, we have achieved the objective, which we actually laid out to date, and that's really how we work with it. So the idea here is, how do we differentiate and how do we mitigate, but achieve the part of innovation and technology in order to deliver what we call the long term sustainable growth for the knowledge and value add.

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 out on the weekend to be here, to participate with the PI management and wish you all and your family a good weekend. Thank you. Bye-bye.

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