PI Industries Limited (523642) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the PI Industries Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nishid Solanki from CDR. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on PI Industries' Q1 FY '27 Earnings Conference Call. Today, we are joined by senior members of the management team, including Mr. Mayank Singhal, Executive Vice Chairperson and Managing Director; Mr. Sanjay Agarwal, Group Chief Financial Officer; Dr. Atul Gupta, CEO, CSM AgChem and Executive Director; Mr. Jagresh Rana, Global CEO of PI AgSciences. We shall begin the call with key perspectives from Mr. Singhal. Following that, Mr. Agarwal will share his views on the company's financial performance. Thereafter, the forum will be open for question-and-answer session. Before we begin, I would like to underline that certain statements made on today's conference call could be forward-looking in nature. A disclaimer to this effect has been included in the investor presentation that is available on stock exchange website and also shared with you earlier. With that, I invite Mr. Singhal to share his perspectives. Thank you, and over to you, sir.

Yes. Thanks. Good afternoon, everyone, and thank you for joining the call today. I will share a few of my perspectives on the agrochemical industry dynamics, followed by PI's performance and progress on its new strategic initiatives. The global crop protection market is showing early signs of demand and stabilization. While the geopolitical and energy disruptions have moderated, the need for resilient supply chains and diversification needs have been reinforced. This environment plays directly to PI's strength as a research technology leader, unique proposition of long-term partnerships. The industry is going through a structural shift with adoption of safer, more sustainable technologies while increasing scrutiny and replacement for older technologies and solutions with limited innovation to answer these challenges. In addition, competitive edges is moving forward with innovation, process excellence and ability to commercialize new complex solutions. As you know, we have invested ahead of [indiscernible] with differentiated capabilities in the area of research and technology to find chem bio solutions for the end pharma. Today, our customer view us not as a reliable long-term partner, but as someone deepening our relationships across the business value chain to deliver more economical and sustainable advantages. These capabilities closely align to PI's business model over decades, serving highly regulated global innovative solutions, providing strong foundations for our expansions in high-value adjacencies such as pharma, electronics and specialty chemicals. We believe PI is well placed to participate in the next wave of technology-led growth while continue to create long-term sustained value for all its stakeholders. On the domestic front, this year has begun with El Nino strong heat waves, delayed sowing and high levels of inventories from prior years. As we see today, sowing and monsoon has picked up, and we believe sowing is as fast as the last year. This delay, however, has impacted replacement sales of chemicals. While there has been shortages of fertilizer area, our special efforts to use biologicals to support the need of the farmer while addressing the need of a sustainable vision in agriculture has resulted in achieving a positive quarter and aggressive growth of 50% in biologicals and a flat, rather than a negative outlook. We believe this would be seen positively in the coming period ahead. There are pressures on margins due to high input costs, higher levels of inventory. However, we believe consumption patterns will see a positive trajectory. And the industry remains cautious and watchful of erratic weather and climatic situations, which will impact crop consumption. Overall, we believe that long term, the need for food population, pharma, global are demanding solutions for [indiscernible] selective and sustainable. Innovative solutions with integrated approaches of chemistry and biology driven by strong capability of R&D and commercialization with a proven trust of execution, we believe this positions us strongly to be a long-term winner. With respect to our export business, the operating environment continues to remain challenging: soft commodity prices in line with the impact of previous year industry downturns and muted recovery in crop economics. Consumption patterns continue to exert pressure on growth and pricing. This further combined with rising costs due to geopolitical issues and [indiscernible] pressures, including tariffs. Given our unique business model, we remain confident of a positive trajectory for the business over the mid to long term. We commissioned in one of the world's largest flow plants, advanced flow chemistry capability, ensuring better sustainable [indiscernible] chemistry and superior process control and look at manufacturing with a sustainable [ labs ] while value adding to the cost and efficiency of production. We have continued with such unique complex capabilities, with us well positioned to meet futuristic requirements of our products and solutions with high precision, meeting stringent regulatory compliance standards. I'm also happy to inform that slowly but steadily, we are moving in the right direction in our pharma play and seeing early positive sign transforming a differentiated CRDMO organization. Some early shoots a couple of interesting inquiries going into the commercial phase. On the other side, the capability build-out is now coming to a stronger foothold, putting the center of excellence of drug discovery in Hyderabad and CRO facilities to support IT programs with customers and the commissioning of our [ QC lab ], which is now approved by regulators in our sites in [ Lodi, Italy ]. With regards to the electronic and specialty chemicals, the inquiries and commercializations showing a positive trajectory. The investments which are supporting for this are also running on track. PI is moving into the next orbit where we become a research technology-based company through partnership models with a global footprint while investing in our core strengths to bring innovation to life at a global level. Let me now turn to our biologicals, which we have been in [ passion ] for the last 2 decades, during which we have built one of the most comprehensive biological portfolios in India, now with the passion of expanding this into global markets with the last overall acquisition with a unique peptide platform. We are excited to see the progress and investments that we have made in the past in the coming year that results are in the various large-scale demonstration and validation conviction of our farmers, showing consistent performance across geographies: United States, Mexico, Brazil and Asia. Our unique new foliar application [ nematode ], first of it in the industry, is not -- is at par, if not better, than some of the chemical alternatives, creating a meaningful differentiation to the farm. Now I would like to move and focus on refining platform to PI, which is built over decades. [indiscernible] innovation in R&D platform, our first [indiscernible] pioxaniliprole, an insecticide discovered India for Indian farmers now to go to global farmers set to be launched in the domestic market very soon while awaiting the regulatory approvals. This marks our capability by demonstrating our ability to have invested at a global scale and take innovation from India to the world. We've invested deeply, both in financial process and human capabilities, to ensure our ability to deliver this at a global scale to take molecules from live markets. These capabilities over the years will be leveraged with the pipeline of products that we have. While looking at the external challenges and aggressive investments to support our new initiatives, we remain positive on the growth trajectory for '27. With this, I will hand this over to Sanjay for the financial performance. Over to you, Sanjay, and thank you.

Thank you, Mr. Singhal. Good afternoon, and a very warm welcome to everyone. I'll summarize our financial performance for the quarter of -- first quarter of FY '27 and the progress we continue to make in strengthening PI's long-term growth initiatives. While the quarter witnessed softness amid cyclical headwinds and global disruption, we are steadily transitioning towards growth trajectory. For Q1 FY '27, reported revenue is INR 17,023 million with healthy gross margin of 57% and EBITDA at 22%. To bring context to these numbers, let me explain a few of the initiatives behind each of our businesses. Firstly, AgChem exports business, which is built on a deep foundation of innovation, R&D excellence, complex chemistries and next-generation technologies has created a significant competitive moat and delivered differentiated value to our global customers. While the business has faced near-term challenges reflecting contraction of global crop protection industry, the strength of our core business remains intact and future-ready. We continue to invest in this platform through commercialization of new molecules and targeted CapEx, positioning us to capture the next phase of industry revival and growth. These capabilities not only reinforce our strategic partnership with global innovators, but also provide a strong foundation for expansion into high-value adjacencies such as electronics and specialty chemicals. Thereafter, domestic agri business continues to be built around differentiated and high-value crop protection solutions rather than a generic product approach. Many of our flagship brands, including Nominee Gold, Brofeya, Biovita, have maintained leadership position over several years, reflecting the strength of our portfolio and customer trust. Biologicals have shown an aggressive growth of 50% with a 3-year CAGR of 15%. Over decades, we have developed a deep market presence with more than 15,000 distributors and 1.5 lakh retailers, creating a resilient channel network and strong partner relationships that help us effectively navigate market and supply chain disruptions. Despite a challenging operating environment in the domestic market, we delivered a 12% volume growth in this quarter, translating into a 3% revenue growth. With the new product launches planned and monsoon conditions improving in this quarter, we remain optimistic about the growth outlook for the coming quarters. Over the past few years, we have strategically invested in building an integrated pharma platform across Jaipur, Hyderabad in India and Lodi in Italy, creating a differentiated capability base and a strong foundation for future growth. While our current pharma business spans CRO and product offering, our long-term ambition is to evolve into a fully integrated CRDMO platform, recognizing that such a transition requires patience, capability building and customer trust. Our global biological platform continued to gain strong global traction. We are on a track for aggressive growth across Brazil, Mexico, Europe and U.S., supported by 500-plus field trials, 1,000-plus grower engagement are strengthening our market presence and accelerating adoption. We maintained a healthy gross margin of 57% during the quarter, supported by disciplined execution. While margins remain robust, we continue to closely monitor the operating environment given the volatility in the raw material prices. EBITDA for the quarter stood at INR 3,693 million, translating into an EBITDA margin of 22%. This performance has been delivered while we continue to invest significantly in our future growth platforms, including new businesses, innovation initiatives and R&D investments, which contribute 3% to 4% of our revenue. We expect ETR for FY '27 to be around 24%. Moving on to balance sheet. We have always believed in disciplined capital allocation, and therefore, maintain a rigorous focus on net working capital as well. Despite the challenging environment, the team delivered an impressive reduction of 19 days in net working capital, releasing INR 300 crores of cash. We continue to drive excellence across our commercial and sales team to further strengthen working capital efficiency, which is, in any way, best in the industry. Our strong debt-free balance sheet, supported with net cash of INR 38 billion, provides resilience and flexibility for strategic investments. We expect FY '27 to be better over FY '26, driven by recovery in exports in the second half, supported by our new product launches and gradual scale up of our pharma and global biologicals business. With this, I conclude my opening remarks. I will now request the moderator to open the forum for Q&A. Thank you.

[Operator Instructions] Our first question comes from the line of Ankur Periwal with Axis.

Okay. So first question on the new molecule pipeline. Our annual report talks of 90 molecules under various stages of progress, of them -- 60% of them are at advanced stage. Could you help us better understand how should one look at this pipeline across the tech and electronic as well as pharma, biologicals, et cetera?

Well, I think, Ankur, that is a very long question. I think pipeline [ under ] evaluation. It's a funnel approach, as you rightly understood. And there are about [indiscernible]. And pipelines of these molecules, initially, we would -- there are -- majority which in the AgChem, which are -- 1 is pipeline, the R&D, 1 is pipeline, the CSM. There is the pipeline [indiscernible] that gets further multiplied by chemistry and biologics. Then we look at [indiscernible] electronics and specialty chemicals segment. So that's the bundle of the whole thing. We don't really have a breakup right now, but that's a large number. But what I can say very excited to say from the NCE point of view, we have a good pipeline there. Our biological products, we have a pipeline. As you've seen, we've launched 2 products. We have another 2 or 3 to go in the pipe, and each one seems to be showing very good quality trajectory potential. And the [indiscernible] pipelines are larger, but the value propositions are different. So they are different. So I would say the pipeline [indiscernible]. And it is interesting to see that some of the [indiscernible].

Sure, sir. And sir, just the comment that we have made launching of 4 to 5 molecules in FY '27. Would this be across only AgChem, or this includes electronic, chemicals and other products as well?

Broadly in the AgChem area. The electronic chemicals would be about a couple of products, [indiscernible] in that segment, yes.

Okay. And then just second bit on the comment on overall pricing across as well as the domestic business. [indiscernible] On the pricing front overall across agrochem CSM as well as the domestic agrochemical side, we have seen some bit of pricing pressure in Q1 as well. Your thoughts if this is some product-specific issue, or it is a general trend across the products?

It has to do with the input of the pricing pressure. You see the demand cycle has been challenged. Automatically, that puts pressure on price. You have seen the last year performance in the ag industry has not been that aggressive, followed the commodity prices have not picked up. So these are directors which put up directives to the pricing pressure. But also, the other challenge and the consumption pattern is not high. [indiscernible] that is the pricing pressure. On the other hand, you have the challenge of the input cost. So striking that fine balance is a challenge in the industry today. And you can see that in the CAGRs of the global companies which are facing this challenge, both on the input and selling price points. In certain cases, segments and companies which have 1 or 2 simple generic products, which are large, where they have a pricing pressure and have been able to pass to the lower end of the value chain. So that's been the situation. But pricing pressures are there. I believe this will be better answer starting in the second quarter as a global scenario as how the market and the commodity prices pan up. And I'm hoping, that in my experience, having seen such a long gestation period of the cycle, that this finally cycle breaks. And that's really what we all in this industry are betting on.

The next question comes from the line of Tejas Pradhan with Citigroup.

Firstly, on the guidance for FY '27, you had earlier indicated that you would expect some sort of growth this year. Could you reiterate that? Or any change on that front?

I didn't get your question, it was a bit muffled at the end. What was it? Guidance?

FY '27 revenue growth guidance.

As we stated earlier, we are looking at a positive trajectory in the lower single digits as I indicated earlier. But again, it depends on the cycle in the industry, it could go one way or the other. But that's what we are confident for right now and maintain the same as we said earlier.

Okay. Understood. And on the EBITDA margin front, considering the different product mix that you have scheduled through the year, how should we look at the margins? Should we assume the run rate that we have seen in the last couple of quarters? Or any material change in the mix that we can see towards second, third quarter?

The margins are not that straightforward, as you would appreciate, given the geopolitical situation, the commodity prices and the logistics and scenario. But at the product level, product mix, we will try and maintain with the optimization that the company is trying to do is to manage and look at meeting the targeted gross margins. There could be challenges from a -- contraction, that could become a challenge, but company thinks how we optimize those areas. Not necessarily, product mix is something the only answer to that solution. The opportunities may change with margins and structure. So that's the way we are thinking. So to answer objective, very precisely, our objective is to keep and sustain our gross margins at the best possible levels by optimizing and being agile, given the best situation to be managed for the industry scenario in the volatile world that we are in today.

And just lastly, could you share the contract asset number for June '26?

Yes, it's around INR 750-odd crores.

Sorry, come again?

For the year, the contract assets for year would be [ the order book position ].

For June '26?

We don't -- I don't have that number exactly. But I think we disclosed about $1.2 billion of order book position [indiscernible].

The next question comes from the line of Rohit Nagraj with 360 ONE Capital.

The first question is on pipeline [indiscernible]. You mentioned that in domestic market, we are currently in advanced stages. So when do we expect the commercial launch in domestic market? And what are the time lines that we are looking at in the other geographies given that we have started the process of registering the product?

Hopefully, depending on the regulatory framework, we expect to have early start this year, [indiscernible] challenge. But we're hoping within the year, we should get the launch for India. On the other geographies, we will be finding with the local regulatory data coming from the geographies, one coming up for one geography next year and the one for the year after. That's the plan for now.

And second question is on the contribution of the new products in our CSM segment during Q1. So what was the percentage of contribution from that?

15% to 18%.

15% to 18%? Hello?

Yes.

The next question comes from the line of Surya Narayan with PhillipCapital India.

My first question is on the new launch of peptide products that we have talked about, biological one in the U.S. Is it relating to the pharma [indiscernible]?

Launch on the CRDMO play. So just to clarify, this is more on the agri, as you would see in the investor deck in my communication.

Okay. [indiscernible]. And also, if you can talk something more about -- sir, am I audible?

Yes.

So if you can also talk something about the new molecules, 3 molecules that has been launched for the export market? And any visibility, commercial success about those? And the line of the product, anything on that you can add?

These are agri applications. The new generation products which we are working with global innovators, that's the only level of information I can really disclose the stake because they're still under development and confidential in nature.

Okay. Okay. My next question is on the CapEx side. See, in fact, despite of the industry challenges and all that, our CapEx momentum is very, very steady and consistent on that front. This quarter also, it looks like more than INR 250, 260-odd crores kind of a number that we are looking at. So what is driving this CapEx investment, sir? And what would be the full year CapEx guidance that you can talk about for the current year?

So I think just to give you the -- we have given a guidance of INR 700 crores to INR 800 crores, which is the standard CapEx, as you rightly said. Our present investment is INR 250 crores. They are going into 3 verticals. The existing manufacturing assets, meaning investments and investments going to our new verticals and our innovation-led approach in geographies and [indiscernible].

Okay. Just one clarification about the export growth number that we have indicated in the presentation. So we have mentioned that there is a volume decline of 8%, while value decline is 12%. But if I see the rupee depreciation benefit, that itself on a Y-o-Y basis is around 13-odd percentage. So if I just consider 8% volume decline, that would have been easily covered up by the kind of rupee depreciation benefit that we should have seen in this quarter. What is the disconnect that I am finding there, sir?

That you asked me this question at the time of the early days, I don't know when the rupee was appreciating, people asking why is that. So I think our business manufacturing approach has been a pass-through model of value propositioning, right? So certain areas, currency benefits, and certain areas, noncurrency benefits, optimization is about managing margins at the optimum level. So that is really the way we have looked at the currency benefits. And that's how it gets. So it's a complex model for PI as we discussed in the past because currency benefits around value benefits are shared. And also, we have currency risk management, which is also put into play given that our business is not currency, but our business is more about the product and margin that we want to sustain.

Sure, sir. Just one last point from my side. Regards the domestic growth, we have seen a volume decline of 12% in the current quarter. Obviously, this is because of the delayed sowing. And the...

We are not [indiscernible]. We are the only few who have grown at 12% volume.

Yes, 12%...

It's a growth in the volume.

The next question comes from the line of [ Ajay Kumar ] with ithoughtPMS.

We seem to have INR 5 crores of expenses in pharma. And we're doing more CapEx in [indiscernible]. So has this appreciation not worked out? Also, can you give the list of molecules we are working on in pharma? Of these, how many are in late stage, between Phase III and commercial?

Okay. So I think I just want to clarify to you, the strategy. We are not in the business of molecules. We're in the business of services, where we do contract manufacturing for products and drugs which are under development or early-stage development, that's CRDMO. That's really where we are focusing. So we cannot be disclosing patents or patents in molecules because it's not our products until they become products and they were globally known. On the other hand, just to answer, yes, as you would understand, the contract manufacturing business has a long gestation period because you're starting to work in the pharma sector. As you would all appreciate, that doesn't mean that you need to start with the customer at the early stage of development. Then the development stage, we support and then when it get to commercial scale then goes to volume growth. So investments in the regulatory framework because the regulatory requirements need to be made upfront so that you are part of that value chain as part of progress we are able to optimize. So usually the CRDMO and pharma is a long gestation curve. That's how I would answer that.

No, I understand because other CRDMO companies give that. Anyway, second question on pioxaniliprole's efficacy. It's a diamide belonging to the same class as CTPR. And I try to look up data as to what is the efficacy against many of these pests. How do you compare it with CTPR? And is this a flow chemistry-based manufacturing process? And what is the out-licensing potential?

Well, we are not benchmarking it to CTPR. Diamide doesn't mean it is only CTPR as a diamide. There are many diamides which are working in different segments, different paths at different stages. So we have a different value proposition for our product, right? But yes, it is in the diamide class and in that segment, but with a differentiated approach. So that's one clarity. Clearly, we see good potential for the certain amount of crops where we see the advantage of this product compared to competing landscape. And that is also taking initiating dialogues to look at partnerships with global footprint.

Okay. Last question just on our largest molecule today. Do we -- I believe we have developed flow chemistry process capabilities. Does this help in our EBITDA margins? And what is our relationship with our partners? Is there a possibility of the partners shifting to lower-cost suppliers?

Well, I do not want to dwell into the commercial negotiation and contracting with our partners because that's, again, tied under [ NDA ], as you would appreciate. Clearly, we have a very long-term strategic partnership, which is aligned together for over 5 decades. And we believe we will co-create and co-compete to take on the competition as things come. Through technology, through innovative dialoguing and discussions, we will look at the market. So we don't see a challenge from that perspective with our partner.

Abhijit, your line has been unmuted. Please go ahead with your question.

Okay. Just a couple of clarifications, if I may. One is the order book number, I just wanted to clarify. I think you cited a number of $1.2 billion previously a little earlier on the call. Is that the correct number? Did I catch it correctly?