PI Industries Limited (523642) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to PI Industries Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Siddharth from CDR India. Thank you, and over to you. .

Thank you, Abhirath. Good afternoon, everyone, and thank you for joining us on PI Industries Quarter 1 FY '26 Earnings Conference Call. Today, we are joined by senior members of the management team, including Mr. Mayank Singhal, Executive Vice Chairman and Managing Director; Mr. Rajnish Sarna, Joint Managing Director; Mr. Sanjay Agarwal, Group Chief Financial Officer; Dr. Atul Gupta, CEO, CSM, AgChem; Mr. Prashant Hegde, CEO, AgChem Brands; Dr. Ramesh Subramanian, Global CEO, PI Health Sciences. We will begin the call with key perspectives from Mr. Singhal, following which we will have Mr. Agarwal, sharing his views on the company's financial performance. Thereafter, the forum shall be opened for a question-and-answer session. Before we begin, I would like to underline that certain statements made on today's call could be forward-looking in nature. A disclaimer to this effect has been included in the investor presentation that has been shared with you earlier and is also available on the stock exchange website. I would now like to request Mr. Singhal to share his perspectives with you. Thank you, and over to you.

Yes, thank you, and thank you, and good afternoon to everyone. Just also wanted to add that we also have on our call for the first Mr. Jagresh Rana, the Global CEO of Biologicals, who is also joining the call. So now let me begin by sharing my views of the business environment and the role of PI as a leader, as a technology solution provider and a global partner in the AgChem space. The global AgChem industry is navigating through a dynamic market environment and landscape, having witnessed an overall decline over the last 2 years. Low commodity prices, farm income and high interest rates and extreme weather events are uncertainty related to tariffs over the last 6 months have impacted the market sentiments. On the positive side, there's a gradual destocking of inventories in most of the markets and a secular trend on global innovators pushing the China Plus One strategy. On the domestic side, we have seen large favorable monsoons, positive sowing trends in major crops. The abrupt regulatory challenges on biologicals, fertilizer shortfalls has impacted the growth momentum and the sentiment of the Kharif season. Beyond the near term, development of advanced crop care solutions remains a global priority, given the underlying requirements for higher and more reliable crop yields and the shrinking arable land, weather variabilities and growing population, innovators are adopting to new technological initiatives, including AI-based platform from research to farms. The initiatives are aimed in improving productivity efficiency, farm output and meeting regulatory compliances. Currently, the demand of biologicals for integrated crop health management has increased given the challenge of climate change in the current landscape. The global companies continue to elevate the strategic partnerships across the value chain in pursuit of cost optimization and build resilient business models amidst heightened regulatory environmental challenges. I now move on to our business highlights for Q1 FY '26. Our performance is broadly in line with the H2 weighted F '26 plan. For the AgChem's export side, we have seen a decline that is in line with the customer delivery schedule to balance the inventory levels. As explained before, we have built in transitional softness on the financial year '26 plan. However, it is important to highlight that the growth of the new products that have commercialized for the last 3 years have registered a decent 46% growth year-on-year. We are expecting to resume the acceleration of supply in H2. We will commercialize 6 to 7 new products or molecules in the remaining quarter. Electronics and specialty chemical area is also gaining traction and scale. Now on the domestic side, we have seen a growth of 6% year-on-year for Q1 '26, which could have been much higher and temporary regulatory disruptions were not there in the biological space, given PI's play in that arena. Given our advanced product mix and crop solution-based approach, the momentum has sustained, and we've introduced 2 new brands in Q1, scheduling an introduction of 3 new products in the year. Our development pipelines compromise 20-plus new products, and they are in various phases of development and regulatory registration. Now coming to Pharma. During the quarter, our Pharma business has showed 186% year-on-year growth in revenue. We are seeing good traction in the new business inquiries with aggressive investments in business development. Our efforts to establish an integrated CRDO platform, which is delivering world-class solutions by leveraging a combined combination of high-quality assets, world-class processes, solution renting with -- back with knowledge and business development strategies led by strong leadership are continuing to take shape and show some early bloom. We have carried plant upgrades and additions to the assets across various locations to support the path of strategic growth. With the acquisition now coming to the biological space, with the acquisition of PI Healthcare, PI has taken a significant step in scaling our biological business globally and bringing innovative, sustainable solutions to the farmers across. Proprietary technologies, including PREtec and Harpin, which help in the withstanding disease environmental steps leading to high yields and better financial returns to the global grower. We are intensifying our further R&D efforts back on this platform to integrate solutions with a focus for the markets of U.S., Brazil, Mexico and India and partnering across with others. As one of the key strategic milestones, which is now coming I'm pleased to share we have filed the first registration of Indian innovation that we discovered out of India, Pioxaniliprole, a significant breakthrough of the innovation journey, taken away by PI over a decade is now showing its early shoots. We are happy to further say, the other products in the pipeline at different stages of development and research. We continue to tap our growth opportunities in the various arenas of life science, health sciences and specialty chemicals, marking our transition from an agri science company to a life science company. Each of these segments and growth engines have significant potential to expand and strengthen our position at a global level. We are continuing our investments in these growth engines to ensure we pave and lay the foundations for the next level of robust growth in the coming years. Let me take you in terms of our outlook for the global industry. It's still passing through a tough time and an ongoing U.S. tariff drama is unfolding every day. We remain cautious and optimistic about reimagining the growth of momentum in H2. I will highlight certain initiatives that we're working to step further strengthen what we see, our outlook. CSM Exports sees introduction of new technologies to be able to compete at a global platform. We're investing in technology-based augmentation in our distribution business in order to drive customer centricity and efficiency, continue to invest in newer acquired businesses to scale-up drive to bring about a more rounded growth, implementing business process reengineering like SAP HANA, global supply chain integration, strategic synergies. Further, not only that, based on our growth expectations, we shall be continuing to invest about INR 700 crores to INR 800 crores in the year. With this, I would now like to hand over the discussion to our group CFO, Sanjay. Thank you very much. And Sanjay, over to you.

Thank you, Mr. Singhal. Good afternoon, everyone. I'll summarize today's -- the company's financial highlights for the quarter ended June 30, 2025. Please note that all comparisons are on a year-on-year basis and refer to the consolidated performance of the company. So as you know, Q1 unfolded against the backdrop of macroeconomic headwinds and geopolitical uncertainties, which continue to influence the market sentiments. And we anticipated these headwinds in our annual plan, which is H2 weighted, and therefore, the results are broadly in line with the business plan. To share the performance highlights, during quarter 1 FY '26, we reported revenue of INR 19,005 million, a decline of 8% over the same period of last year and a sequential growth of 7%. On a 3-year CAGR basis, the growth in Q1 is 7% as we had registered a growth of 8% in quarter 1 FY '25 and 24% in quarter 1 FY '24, making it a high base. Our domestic business grew by 6% backed by Kharif season, and we remain buoyant based on favorable monsoon forecast and strong product portfolio, which we have. However, there was a decline in the biological segment due to regulatory changes. Our Pharma platform rebounded, registering revenue growth of 187% over previous year, driven by deepening relationships with biotech and big pharma innovators. Our development spend into creating fully integrated Pharma CRDMO platform has helped to create an accelerated pathway for strong future growth. Q1 FY '26 results also include the financials of our Global Biologicals business, which was acquired in August '24. The business has been performing in line with the business plan with many innovative products in the pipeline. Due to the favorable product mix and cost optimization projects, our gross margin for the quarter has expanded to 57.4%, an increase by 5.7% and our EBITDA margin remained resilient at 27.5% for the quarter. We expect the ETR to be in the range of 22% to 23% for the next 2 to 3 years. Further, the trade working capital in terms of days of sales has increased to 91 days from 73 days in March '25, while better inventory management has kept the inventory days almost at the same level of last year. R&D performance leading to stable cash flows provides us the flexibility to continue with our CapEx plans, allocating capital towards our future growth engines, which we have done in PIHS, our Pharma business, PHC, our Global Biological franchise and Discovery R&D. Our balance sheet further strengthened during the quarter. Net worth increased to INR 106,003 million and a healthy net cash balance of INR 41,554 million. Given the leadership and strong partnership with global AgChem companies, our innovation pipeline, we expect accelerated H2 to drive a single-digit revenue growth for FY '26 with a sustained EBITDA margin. With this, I'll conclude my opening remarks. I will now request the moderator to open the forum for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Aditya Jhawar from Investec.

Now it would be great if you can give us some sense on the applicability of tariff on our key products in the U.S. as well as other products. How do we think about it? And what is our interaction with customers suggesting is it completely exempted all our product or the customer is willing to absorb some sense on that? That's the first question.

Right now, in the given scenario, there is no clarity on the implication tariff, but not -- at the present, it's not applicable. And as you know, the tariff scenario is quite a confused one. So for the present, we don't see any challenges.

Okay. Okay. My second question is, any update on our registration of one of our key products in Brazil pyro?

So let me answer. Number one, we are not responding -- that's Kumiai's product. We're just a contract manufacturer, to be very fair. But already it's been registered in Brazil from what my understanding is from public domain.

Yes. But our supplies to Brazilian market?

No, we supply to a customer, who will -- may internally supply to Brazil.

Fair enough. Fair enough. Sir, next question. Then when can we expect normalization of biological sales in India? Yes.

That's an interesting question. As you know, this is a fact, which is still in the hand of the government. We are trying to -- we would want it to happen as of yesterday. But obviously, it's going to take some time, and I'm sure we probably should be able to cross this corner over the next couple of months.

Next. Okay. The final question, to give a fillip to our domestic business, are we also evaluating some inorganic opportunities in the Indian market?

So very clearly, we -- as you know, in my statement, we are looking at many inorganic opportunities at the various parts of the business segment and definitely, why not also in the domestic segment.

The next question is from the line of Abhijit Akella from Kotak Institutional Equities.

So on the gross margins, they've come in very strong at about 57%. I know you mentioned the product mix as well as lost optimization projects. Last quarter, I believe we had guided to gross margins in the range of only 50% to 52%. So now in light of this performance for the first quarter, would we like to update that guidance range? Should we expect to stay closer to these levels?

We will stick to our guidelines. And -- but yes, as likely mentioned, it is based on the product mix and some of the efficiencies driven by the operating teams.

And these product mix vary quarter-to-quarter. So the margin profile will also vary from one quarter to the other.

Okay. Okay. So 50% to 52% gross margins and 25%, 27% EBITDA margins, is that still the range to work with?

Yes, yes.

Okay. And then the other thing was just a couple of quick bookkeeping questions, if I may. Just on the order book number, if it's possible to share that at the end of this quarter and also the revenues from Plant Health Care for the quarter, please?

So I think the revenue -- the order book is about $1.2-odd billion. And in regards to the Plant Health Care, the revenue is about...

So on a yearly basis, it's around $10 million to $12 million.

Possible to share it for the quarter?

Yes. So it will be around $3 million to $4 million in this particular quarter.

Okay. And is this included within the CSM business?

No, no. That's a separate vertical.

So it gets clubbed under the Exports business what we have.

The next question is from the line of Saurabh Jain from HSBC.

My question is on the domestic business. Can you please give us more details on why trade receivables kind of increased in the quarter? Because is it more to do with the push that you did in the market and possibility risk of sales returns in 2Q?

Okay. So if I may get your question right, Prashant, maybe you can answer the question is that why has there been an increase in the...

Trade receivables in the quarter?

Trade receivables, yes.

Yes. So one is, obviously, there are inventories in the market for the industry. And second, as Mayank earlier explained, fertilizer shortages that resulted in a lot of money being basically diverted to the -- to secure the fertilizers. Hence, we have seen a little bit of slowness in terms of agrochemical, especially in terms of collection is concerned. So that is what is reflecting on the receivables.

Okay. And would you also assume a higher risk of sales returns coming into 2Q?

No. So of now, our quality of sale is looking good. We don't see any higher returns compared to whatever which we have been tracking from last 1 year. It is in line. So we don't see any major deviations in terms of our returns.

And also just to add to Prashant, while we -- Prashant spoke about the agri -- the domestic business. The numbers, when you look at it from the March '25 and what we're seeing now in June '25, they are broadly in line. So there's been no major increase in the receivables. And as you asked, yes, the receivables what we have, there is no concern at all for us in terms of recoverability, and they are very much in line with the current business environment.

So I think the point also to emphasize here is the receivables from the Export segment has gone up, which will be in line.

Sure. Okay. The other question I had was on the Pharma business. Just one finding, we reported in the current quarter that the gross margins for Pharma business in the -- right, that is about 52%. But to look at same presentation of last year, it was reported at 42%. Where am I missing?

No. So you're right. The numbers of last year were about 42%. There was a classification thing which was done. And therefore, the numbers broadly are the same at 52% for the last year and this year also.

Okay. So now like-for-like 52% versus 55%?

Correct.

Okay. And do you also want to make a comment on your guidance for your Pharma business because previous quarter, you mentioned 75% revenue growth with improved margins. How would you see it now after this 1Q performance?

What is the question, on the regulatory growth or the margins?

No. So in the previous quarter, you mentioned that you are expecting to achieve 75% revenue growth in FY '26 in your Pharma business with improved margins.

Yes. So we are broadly in line with that guideline.

The next question is from the line of Naushad Chaudhary from Aditya Birla Mutual Fund.

Two, three clarification. First, on the biologics regulatory issue registration requirement. Post -- let's assume, in the next 1, 2 quarters, if things get settled, how the industry shape would look like versus what it is today? Can it consolidate? Can it benefit to players like you? How you see post issue gets resolved?

No, sorry, I didn't get the question. I mean are you asking that if the issue gets resolved, would the industry get consolidated?

Yes.

Well, that would be very difficult to say because I think -- I don't think I would be able to get that answer, to be frank, with what the industry does. But given the fact that it is a temporary shutdown due to certain changes, in my view, that will only -- it will probably get people to go back to business. That's really the issue. Consolidation is not the key issue.

And it is also progressing very positively in the court in last couple of hearings. And I think the industry expects that this issue will get resolved in next maybe a month or so.

As you would expect, again, as you would have all seen in the past, biological, the key agenda of the government to create balanced equal environment for agriculture and also one of Prime Minister's most critical driving factors and which also gave the company the spirit to say we should invest in build biologicals. So I'm pretty sure this will be a top priority to resolve at every level.

And what is the percentage contribution currently from this piece of business? And is it completely 0 for now for the ongoing quarter?

Yes, because the sales have stopped, it stops, it will be 0. And approximately, we have 20-plus percent revenue coming from this segment.

20% of the domestic revenue?

Sure.

Yes. Second, what is the status of our 2 MPP, which is in work-in-progress and by when this should be operational and the ramp-up expectation?

So one product would start by the first -- the last quarter of this year, and the other should probably get into the first or second quarter of next year.

And ramp-up plan?

Ramp-up is a 2, 3, 4-year process.