PIIND — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to the Q2 FY23 earnings conference call of PI Industries Limited.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

Should you need assistance during the conference call, please signal the operator by pressing “*” then “0” on your touchtone phone.

I now hand the conference over to Mr. Nishid Solanki from CDR India.

Nishid Solanki

Good afternoon, everyone, and thank you for joining us on PI Industries’ Q2

Moderator · Conference Operator

We have the first question from the line of Aditya Jhawar from Investec.

Please go ahead.

Aditya Jhawar

It's good to hear that you have increased the Capex guidance to INR 700 crore from INR 650 crore in the last quarter.

Is this increase sufficient to take care of the increase in the order book, which increased by almost 30% in this quarter?

And also keep in mind that our asset turns on a trailing 12- month basis is already 2.4x, and in the first half of the year we have spent just about 20% of the annual Capex guidance, if you can dwell a little bit on this it would be great.

Mayank Singhal

Thanks Aditya for the question.

As you know, we are a technologically focused organization.

I think the company has done a great job in the first half of the year.

We've been able to improve asset turns by increasing the productivity and efficiency.

And that's where we believe we've been able to handle this growth.

Going forward, the company is putting more efforts and experiences, more areas in this front to drive capacity announcements with low capital investments.

And while we are pretty confident to do this in the right approach, we'll be able to deliver the growth plans that have set the company going into the future.

Aditya Jhawar

As you know, Mayank, it was very insightful, but if you can help us to understand little bit that in the first half, our Capex spend was only about 20%.

And if you think about the acquisition that we have been talking about, a large part of the acquisition would be far marking about, say, 70%, 75% of the funds will be deployed.

And earlier you had mentioned that it would be for non-agrochem.

So, for agrochem growth, our Capex seems to be a little bit on a lower side, if you can help us understand why is that the case?

Mayank Singhal

So as mentioned, we're including the throughput efficiency.

As you know, some of this capacity has been built much earlier.

And if you've seen our commentary earlier, we have said, yes, we will be increasing the asset turn based on better asset utilization by improving efficiency.

And those are the points to highlight, and that's a well-balanced equation that we have internally.

And third intervention is coming through process technologies that we are putting into the game.

Rajnish Sarna

And just to add to this, Aditya, we have to also keep in mind the kind of investments in capacity expansion that we have made in the last couple of years.

And this is where we have some headroom for growth.

And plus, we are also making new investments.

So, I mean we'll have to look at it in totality when we look at growth and the order book and the current capacity utilization together.

Mayank Singhal

So just to give you a little bit more comfort on that, we have an independent cell that constantly looks at this, and we would very much appreciate this business is not about today's demand and tomorrow’s capacity, it is the long- term orders.

So capacity planning and asset utilization all are integrated- processes including the technology interventions and the company has, over the last 20 years, constantly delivered on its expectations, both in terms of growth and customer requirements.

PI External

Aditya Jhawar

Absolutely.

A final question is with this order book accretion of $400 million, what could be the share of non-agrochem and in our revenue also, what is the current share of non-agrochem?

Rajnish Sarna

Yes.

It's not significant at this moment.

The major increase in order book comes from some of our existing products, which we have been doing and which we have also launched in last few years.

So, there is certainly a ramp up in the long-term demand of these products.

The non-agchem products, as we have also guided in the past that they have been at a very initial stage of their commercialization at our end.

So, some of these products are commercialized, say, in last couple of years, and many of them are still at R&D scale and pilot scale and getting to commercialization in the next few years.

And in this kind of business model, the volumes and values of these non Agchem products at the initial stage are not very significant.

Moderator · Conference Operator

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

Please go ahead.

Ankur Periwal

Continuing with the order book here.

So earlier also we had highlighted our expansion into the electronic chemical space.

And just now you commented that some of these products probably may, it will take some more time for them to ramp up in terms of volume or revenues.

So, will it be fair to say that large part of this delta in order book is led by agchem products?

Could be China plus 1 or maybe the benefits from Europe diversification coming in?

Rajnish Sarna

This is what exactly I said that the major contribution of this order book is coming from our existing products, products which we have been doing for some time and the products which we have commercialized in the last 3, 4 years' time.

So, the increase is coming from there.

Please appreciate that we are into agchem CSM space for almost now 25 years and there are many large scale strategic products in the portfolio.

Whereas we have diversified into non-agchem space hardly for last 3, 4 years.

The development cycle of these products from R&D to commercialization itself takes 1 to 1.5 years.

So, keeping that in mind and these other verticals will have a meaningful contribution in order book or revenues maybe in next few years' time.

Ankur Periwal

Sure, sir.

And the H1 growth in the CSM side, if you could break it up into maybe the newer products in the last 2, 3 years launched products, how big was the contribution coming from there?

And what were the older products or the growth driving there?

Rajnish Sarna

The freshness index in our CSM exports is close to 16% to 18% on annual basis.

The products which are commercialized in the last 3 years, they are contributing close to that.

Ankur Periwal

And if I'm not wrong, this number was around 20%, 25% last quarter?

Mayank Singhal

No.

Ankur Periwal

Okay.

So, this is the broad range that is maintained, is it?

Rajnish Sarna

Yes.

On an annual basis and not for a specific quarter,

Ankur Periwal

Fair enough.

And sir, lastly, on the Capex front, you did allude towards technology-led initiatives, which should enhance the asset turn further.

Are most of those benefits now already in?

Or do you believe there is further scope for improvement here, which basically means that the intensity of PI External Capex will not improve further and probably there could be significant cash flow accretion there?

Mayank Singhal

No. There are a number of initiatives which we have identified.

Many of them have already been implemented and reflected in the throughput and expansion and growth of the business disproportionate to the Capex that we have already discussed.

But yes, there are still many such initiatives, which are in the process of fine-tuning execution and many of them will get executed and also reflecting in our next quarter's and year's growth as it comes.

It's a continuous process at the end of the day, I think those are the unique capabilities the organization has techno commercial ability which makes PI a different from the other players in the business.

And that's what I would call our internal USP and our trade secrets.

Moderator · Conference Operator

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

Please go ahead.

Vishnu Kumar

Sorry to go back on the Capex question again.

Now we have experienced a superior volume growth of 25% plus.

With our investments of INR 700 crore which you are talking about, I mean can we increase production or on a blended basis, our volume growth can sustain another maybe 30%, 40%?

Or indirectly, I'm asking what the utilizations would be.

So, just trying to get some sense at what point we need to step up on Capex again.

Mayank Singhal

So great, I'll address the question, which is a recurring question that I've been handling over the last decade, and that makes it even more interesting.

And everybody seems to ask, but unfortunately, we are not in the commodity space, and we are not into 1 plus 1 is equal to 3.

In the chemical business, it depends on the many moving parts and PI has many moving parts and Capex is dependent on those moving parts.

One is technology.

The other is efficiency and capacity enhancements.

The third is process disruption and also dependent on product and chemistries, right.

So, all these factors have to be seen to really see what the Capex is.

Point is that what we see for now is what we have said from the order book and what we vision for the next 2, 3 years.

And based on this, the Capex is running at the rate it is.

And you've seen that.

I think it was interesting 2 years ago, people are seen putting a lot of Capex.

So, you want to look at what, right.

So, this is all looked at what comes in and how that has to be played out.

And we were sitting with lower assets turns today we're seeing high turns.

And so, this is the cycle of the game and is dependent on how you look at it.

That's the way I want to answer it.

So, I cannot say a specific answer.

Yes, do you want to put that in your model and say, look at a steady rate and look at the percent of average that we'd invested in over a span of 2 to 3 years, that's the way to look at this.

Vishnu Kumar

Got it.

Rajnish Sarna

Just to add that given our current capacity utilization and our growth visibility, we are sitting in a comfortable position.

As you know, we also have no constraint as far as putting more investment and ramping up this capacity as and when we will find it necessary.

Mayank Singhal

The world is a highly volatile place.

And I think somebody asked earlier, is Europe moving here.

I don't think that is happening.

I would say, okay, China PI External could be an opportunity.

But close home supply chains are becoming the strategy for companies.

Vishnu Kumar

Got it, sir.

And my second question was the intensity of inflation that you talked about passing through.

But on the present day, there's only been a 4% or 5% price increase.

I mean I do see that your margins have been held up.

But I mean, when compared to peers, the price impact seems to be far lesser.

So, is that our raw materials have a lower cost because you've kind of covered it or at least I'm just trying to understand on here the inflation side of it because it's just 4% to 5% is the price pass-through increase?

Mayank Singhal

So, what I say is that you cannot again look at the others and us because we have different business model/ approaches working with different companies.

But at the end of the day, the main objective is to maintain the margins and handle the inputs cost challenges coming.

And overall if you see, that's what we've been able to manage.

That's what I would look at, not really benchmark it to others because companies are doing different classes of products where price inflation also varies.

Vishnu Kumar

Understood.

And finally, the EBITDA margin guidance given you have done a good number?

And also, the forex benefit that we'll get will get passed through just on these 2 points?

Mayank Singhal

Yes.

The forex does pass through in certain instances for sure, as we've discussed over the past.

Vishnu Kumar

Got it.

And the EBITDA margin guidance for this year and, let's say, if you're seeing better numbers next year?

Mayank Singhal

Yes. as we have guided, we see the opportunity of improving it by a few hundred basis points from the last year.

Vishnu Kumar

Okay.

So, we did something like, I mean, 22%.

So, I mean we've done 24%, but you're still saying only 100 basis points over the previous year?

Mayank Singhal

Yes.

If you look at where the world is today and the way, we look outlook.

We want to be conservative.

Yes, there is huge amount of volatility and climatical impact and challenges.

And given that, we would still like to stick to our guidance.

Obviously, the company is constantly striving to do better.

Moderator · Conference Operator

We have the next question from the line of Mohit Pandey from Citi.

Please go ahead.

Mohit Pandey

Sir, my question is also on the order book increase.

So, as I understood, the increase is largely driven by repeat orders.

So just to understand it a bit better, so is this being driven by market share gains for you as in are you gaining share from European competitors?

Or is it just that the end products, where your products are being used, they're seeing greater traction in the end markets?

How should we read that, sir?

Mayank Singhal

Well, order book position is driven, and your scales are going up, opportunity is going up and all the commitments.

So, I would not like to dwell to see European markets are moving here, but that's not really what it is..

But yes, order books are growing as the business size is growing.

And PI, as I've mentioned earlier, we look at order book position based on the opportune risk and things that you are looking at, right.

And it can go down and up.

But the order book and the PI context should be looked at as a factor of creating PI External comfort to the guidance.

So, it is more about creating a little comfort, around $500 million here and there is not going to much change in the delivery in the performance of business.

It is more of our risk management and customer commitment management, yes.

Mohit Pandey

Right.

And sir, secondly, has there been any increase in the share of spot orders in your revenue contribution in the recent quarters?

Mayank Singhal

Well, it's a contracted order.

So, I would not say spot.

They may be not long- term contract, but there are mid-term commitments.

That’s how we work.

So, I would not call them spot orders because we're not really doing spot business.

Rajnish Sarna

If you look at our business model, we do synthesis and then we get into long- term supply agreements and long-term understanding, not for spot basis that.

Therefore, if there is some shortage in some geography or some products, and fill that gap and put that product in plant or something, that doesn't work in our business model.

So, all the businesses, are on a long- term basis.

And there's no such room for spot business, given the kind of capacities that we work and the kind of processes that we work.

Moderator · Conference Operator

We have our next question from the line of Abhijit Akella from Kotak Securities.

Please go ahead.

Abhijit Akella

First, just on the growth guidance for the full year.

So, in the first half, I believe we've done about 31% revenue growth year-on-year.

So, in that context, would you be comfortable increasing the full year revenue growth guidance from the 20% first that's been indicated?

Mayank Singhal

Well, let me tell you that we have given the initial yearly growth guidance given the volatility, the challenges that we see in the world.

And we would still like to continue with our earlier guidance.

But yes, there could be certain positive swings, which could really up this, but it would be too early to take a call.

It's only half year down the road.

Rajnish Sarna

And just to add to this, if you recall, our initial guideline was 18% to 20%,.

And then, seeing some uptick in demand, we have already up this to 20% plus in the last quarter.

Our guidance also factors in supply schedules of exports and contingencies of Rabi Season.

Abhijit Akella

Okay.

I understood.

And the second question I just had was on the tax rate.

I understand that it's been on the lower side because of the ramp-up in ours SEZ operations.

But if you could please help us understand for how many more years do we expect it to stay around this trajectory?

And where does that eventually end up, let's say, a few years from now?

Manikantan Viswanathan

Yes.

Thanks for that.

As far as SEZ are concerned, we have 2 SEZ units where we have 5 years or 10 years.

Looking at that, we comfortably have left 5 more years to get SEZ benefits will continue.

Abhijit Akella

So, we should expect the tax rate to remain around this 16%, 17% for the next 5 years at least?

Is that how I should read it?

Mayank Singhal

In fact, if this is the only business, yes but we are also looking for inorganic moves.

Moderator · Conference Operator

We have a next question from the line of Vivek Rajamani from Morgan Stanley.

Please go ahead.

PI External

Vivek Rajamani

Sir, my question has been addressed, so I'll just get back to the queue, sir.

Congratulations on a great set of numbers.

Moderator · Conference Operator

We have a next question from the line of S.

Ramesh from Nirmal Bang Equities.

Please go ahead.

S. Ramesh

So, Mayank mentioned the linkage of the order book with visibility and this mitigation.

So, can you give us some sense in terms of what will be the majority of this order book in terms of number of years?

Mayank Singhal

Well, I didn't get the question.

What do you mean majority of it in terms of number of years, if you can please explain?

S. Ramesh

So, in terms of the number of years of revenue that you expect based on this order book or in terms of the booking cycle.

Mayank Singhal

Yes.

So, these are spread over a span of 3 to 4 years; some are 4, some are 3, some are 2.

S. Ramesh

Okay.

And in terms of the domestic business, you have obviously done very well in the second quarter based on the momentum in Kharif and you actually are much better in terms of overall growth.

So, is it possible to give us some sense in terms of how the margins are moving in the domestic business?

And how you see the overall top line growth in the domestic business here over the next 2 years compared to what you have done this year?

Mayank Singhal

These are not two business but an integrated business model and we don’t discuss separate margins.

But yes, we are looking at a higher level of contribution coming from the domestic business with the changed focus and strategy with the introduction of new products.

It is creating a differentiated trajectory into the market where we are bringing new innovation, higher growth rates with better and stable contributions and putting PI in a pole position to continue for this for the next 4 to 5 years given that these products have just started their journey into the markets, and we have another set of 17 products coming through over the next 3 to 4 years, which are in the various stages of regulatory approvals.

S. Ramesh

So, I guess one last doubt in terms of the global macros.

If there is a slowdown or recession in Europe or rest of the world where you do business, is there any risk for you have to reschedule some of your commitments?

And will that have some downside to the expectations on the CSM business?

Mayank Singhal

Well, so far we've not heard any cues, which are leading that way.

Food is one commodity which given the climatical challenges and low productivity is still moving at a higher trajectory of demand and prices.

So, , I would say we are seeing a pretty stable, if not more upside, kind of an opportunity that may be clearly coming to the sector.

Moderator · Conference Operator

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

Please go ahead.

Bharat Shah

Clearly, this is one more gratifying gain satisfying performance over a period.

Beyond the clearly apparent strength of the numbers and the order book, are there any other qualitative insights or any other aspects that you may want to highlight, which are not visible in the numbers, which can give us a better understanding of where things are headed?

PI External

Mayank Singhal

So, thank you very much for that question.

I think this is really what we call about sustainability parts of the play that PI is constantly focusing on.

So, if I look at the qualitative part, we look at 3, 4 key pillars.

And I think we are on a very aggressive note at the back working for the long-term future of this organization.

And the greatest success to share that has been on the ESG for S&P doing the 93 percentile tells us that both on that front PI is moving ahead at certain aggressive targets.

The other aspects on the technology front, our IP index has gone up, our IP creation has gone up.

Our research capabilities are going into the next phase.

We're expanding our capabilities and offerings in this area.

Third, on the other area, we have started looking at building in more complex areas in the chemistry.

Flow chemistry technology is getting upgraded and our innovation spends are moving up.

The third area of a pharma strategy is an aggressive pace where we're coming out with some innovative business models where we build the human capability.

On the people side, this all leads to a very aggressive work plan.

So, we've taken very aggressive agenda where we work with the external consultants and internal leadership teams to develop a strategic move on the culture shift to go to the next organizational level where we are actually identifying, developing talent to interventions and also accumulating and enhance care capability and a cultural shift to globalize the organization with strong interventions through the digital platforms to create more process orientation, simplification and learning.

And so that the scalability as we look to the next phase of our journey is a comfortable and a challenging one, but putting a culture of high price of high performance, expectations are high, plays has to be high and efforts have to be high, and that's the DNA of PI.

So that's really where we are.

Bharat Shah

Wonderful Mayank, delighted to hear this.

The second, when we look at the way things are going in many parts of the Western world, especially more so in Europe and to a fair extent in America as well, generally Europe seems to be bumbling around rate, very legacy, regression kind of a mindset and behavior.

The energy crisis that they are facing is just one of them, but not confined to that.

And in general, the quality and the strength of the public policy formulation in Europe and America seems to be in a state of disarray.

In China, we are seeing the muddle around supply chain disruptions and frequent lockdowns and many other things that you would think that doesn't make our plan change.

So, given the fact that a good part of our business is in some of these territories and some part of sourcing is from these territories, are there any near-term and longer-term implications from the business and the business model that we need to be mindful about?

Mayank Singhal

Thanks for that question.

And I think that's a question that everybody is dabbling from managements to country leaders to company leaders to citizens, which way the world is going.

But I think it depends how you look at it.

You can look at it in both ways.

These are challenges and yet opportunities.

Now I think the key thing here is that somebody say things will move into Europe, I believe, yes, things would move into Europe, and their home supply chains could become the next play.

Certain things can't move out.

So, what is that opportunity.

Somebody will say, Oh, that's a high risk, there are quite challenges.

With this volatility, I think the key capability has to be to constantly able to see who manage, watch and have a little opportunistic mindset, either to invest, divest or create, whether it's in products, inventories or assets.

So constantly keeping a watch on that is going to drive PI External the performance and really what I call now this is a real world.

So, the key challenge which I put to the team, to the people and to all the stakeholders, be agile, be fragile and yet be strong.

And that's really where we're going to be headed as a world.

And I think finding that path, there's no one answer, but there could be an answer to look at how to really define it for your organizational DNA to deal with it.

I say some things you can change, some things you can manage, but today we're in a situation both don't apply.

It's something we have to be watched and have the ability to deal with it.

So, building capability is going to be the challenge here.

Bharat Shah

But on balance, does this sound more like a concern or more like an opportunity?

Mayank Singhal

I look at every concern as an opportunity.

So maybe that's where PI has been.

This was a concern if I look back in '96 of outsourcing cost structure to China that PI pioneered and got the manufacturing business.

I look at the concern of agriculture where technological innovation was not coming, and that was an opportunity.

And somebody said high-cost imports, supplying new technologies would be a challenge.

This is also an opportunity, as we understand this thing bit better.

And therefore, we are leveraging our capabilities and looking at how we carve our opportunities, whether within or outside the geographies, to answer these challenges.

And there could be an answer at a higher level which may look and not so sensible, but at a detailed level, it could be strategically correct.

Moderator · Conference Operator

We have our next question from the line of Rohit Nagraj from Centrum Broking.

Please go ahead.

Rohit Nagraj

Sir, we have said that in CSM in second half will be commercializing 6 new products, out of which how many would be agrochem and non-agrochem?

Mayank Singhal

Atul, maybe you want to.

Atul Gupta

Yes.

So, we are expecting some 3 to 4 molecules in agchem and 1 molecule in the non-agchem segment to be commercialized in the next half, H2.

Rohit Nagraj

Okay.

Sir, second question is we have also mentioned that we are working organically on the scale-up of pharma intermediates and R&D pilot scale.

So, does this mean that we will be able to supply at least some commercial quantities on the pharma side to our customers?

And how do we look at it in terms of scaling up this particular portion till our inorganic doesn't fructify?

Mayank Singhal

Sorry, I didn't do the last part.

Rohit Nagraj

So, till the time our inorganic initiative in terms of acquisition, till that time it doesn't get fructify, how the scale-up would really work in favor of us?

Mayank Singhal

Obviously, these have a time dimension of 2 to 3 years, and we started initially, as I mentioned, in the R&D capabilities and developing that into the next phase.

And obviously, as you know, the pharma world takes a bit longer to look at approvals in time cycle.

So, I see them fructify in 2 to 3 years.

But this could also be complementary or could also be an additive to what we may be doing in the inorganic way.

Moderator · Conference Operator

We have our next question from the line of Nitin Agarwal from DAM Capital.

Please go ahead.

PI External

Nitin Agarwal

Sir, you mentioned in the presentation that 11 of our plants are MPP plants.

So how many are dedicated plants of these in the CSM business?

Mayank Singhal

All these plants are fungible by design concept and multiproduct plants.

But right now, 4 plants are running at full capacity for single products.

So, you may want to call them as dedicated.

Nitin Agarwal

Sorry, so you said there are 4 of these 11 plants which are running on dedicated basis?

Mayank Singhal

Yes, all our plants are multiproduct plants.

Right now, maybe 4 plants are running a single product, so they may be looked at dedicated plants.

Nitin Agarwal

I got it.

So, 4 of these plants are running a single product right now?

Mayank Singhal

Yes.

Nitin Agarwal

Okay.

And secondly when we look at the domestic market, we've had a very, very strong Q2. Now Rabi last year was a reasonably good year.

How should we look at the second half of the domestic year market?

Mayank Singhal

Prashant, would you like to give a comment there?

Prashant Hegde

So, thanks, it's a good question.

Look, we have a very strong desire to grow.

However, we also must keep in mind it is a seasonal business.

And we have to keep in mind how crop economics work, and we are optimistic.

And our portfolio earlier, it was skewed more on rice and cotton.

Now we are expanding into horticulture, wheat and few more crops as well.

So, we are optimistic, that is how I can put it.

Moderator · Conference Operator

We have our next question from the line of Dhavan Shah from AlfAccurate Advisors.

Please go ahead.

Dhavan Shah

Yes.

Most of my questions have been answered.

Just one on the domestic business front.

So, we have seen the strong volume growth during this quarter.

So, can you please shed more thought on this?

I mean, which brand did contribute to the overall numbers for this quarter?

Mayank Singhal

To be very honest, we can't go to product-wise information as there is competitive intelligence.

But I would say it at a higher level.

It has come from the many of the new product launches, and scale up of some of our leading brands.

Dhavan Shah

Okay.

And sir, in this quarter, the herbicide contribution would not be there, right, the Awkira contribution?

Mayank Singhal

There is some contribution.

Yes.

Dhavan Shah

There is some contribution.

Okay.

But largely, it is driven by the existing and the new products which we have launched for the Kharif?

Mayank Singhal

That's a mix of all the new product launches that we've done over the last couple of years this year, yes.

Moderator · Conference Operator

We have a next question from the line of Archit Joshi from Batlivala & Karani Securities India Private Limited.

Please go ahead.

PI External

Archit Joshi

Sir, you've mentioned our plans on diversification.

Other than the inorganic plans that we have, we have also seen quite a bit of traction happening on the non-agchem side with respect to order inquiries.

I was just curious if you can elaborate this with respect to if there's any specific platform or chemistry or application where we are seeing this traction just to understand where the company is headed to with respect to its growth in the non-agchem side?

Mayank Singhal

I can give you a larger perspective here.

I cannot get into the details of the technology part because of various reasons which you would appreciate.

But obviously, looking at PI’s competence and capability of having complex chemistry technologies, that's the area we are focusing in certain niche non agchem application areas, which would be a little more value accretive..

This is where we are sowing seed to build up market credibility so that it could be a third engine of growth for future.

Moderator · Conference Operator

We have our next question from the line of Rohan Gupta from Nuvama.

Please go ahead.

Rohan Gupta

Really fantastic performance, congratulations.

Sir, a couple of questions.

First is on the Europe opportunity, sir, which you mentioned that right now you are not witnessing any significant opportunities coming out of Europe despite the Europe facing such a large disruption, especially in Agchem, while many companies have spoken about it that they're seeing increased order or they are seeing increased inquiries.

So, sir, when we are supplying a lot many intermediates to our German partners and those partners are I mean, looking at increase in energy cost and not able to operate the plant, aren't we seeing that there is an opportunity for a player like PI?

Actually, it should be a very solid opportunity going ahead over the next 1.5 years to 2 years.

So, I just wanted to get some more clarification on that, the disconnect between the industry and the PI.

Mayank Singhal

I don't think I mentioned that we're not getting an opportunity from that.

So maybe there is some misunderstanding.

We're getting opportunities from the Europe.

But it's not that Europe manufacturing base is completely shutting down.

Rohan Gupta

Okay.

Sir, definitely, I mean, such a short amount of time, we can't also expect things to move.

Mayank Singhal

Exactly.

Gap filling will take place for sure.

We're getting operates right across the world and you would appreciate the largest 3 innovators in the world are European.

So obviously, if the products are going to Europe market is a separate question, vis-a-vis being shifting from Europe is a separate question.

Rajnish Sarna

Just to add to this, Rohan, I think the key point that we were trying to highlight earlier also is that the kind of business model that we are operating, the kind of product portfolio that we have, there's not much scope for spot business opportunity.

So yes, there is certainly some opportunity in terms of gaining more market share of some of the products that we are already doing in view of the current scenario.

But the major contribution is coming from the products where there is some long-term/unique strength which is there in the offering of PI.

Now be it in terms of technology, or competitiveness, or our relationship with these global players.

So, the bigger chunk of this growth is coming mainly on account of these factors and not so much so because of this temporary phenomenon of China plus or Europe plus.

PI External

Rohan Gupta

Fine.

Sir, second question is, I mean, exciting opportunity, which we are seeing in terms of revenue growth, but that also worries me a lot because given our business model, we generally work on per kg margin kind of thing.

Sir, it's a bit confusing that in an inflationary environment, which is driven by the raw material, top line growth is largely driven by the price increase.

But even our EBITDA growth I mean, in the inflationary environment also, we are seeing EBITDA margin expansion.

And that's why even EBITDA growth is even higher than the top line growth while you should be chasing more of the volume growth.

So, what worries me that when tomorrow we see that the price erosion, raw material prices definitely will soften and will come down to average level, at that time will we see that our EBITDA, the growth will happen because of the price-led growth won't be there and the prices will start declining?

So, I mean that is the reason for worry because we are seeing too much EBITDA growth and EBITDA margin expansion in an inflationary environment.

So, I'm not able to understand how and why it should be happening.

So, if you can give some clarity.

We obviously just completely driven by the product mix change or the operating leverage because this trend is across the industry.

Rajnish Sarna

Yes.

This is precisely the point we have tried to explain that the EBITDA growth is majorly coming from operating leverage benefits.

As we are growing at 30%, and we are able to efficiently manage our fixed costs and other things.

2ndly, the favourable product mix has also helped.

Therefore the EBITDA growth is not flowing from purely from price rise or some opportunistic price increase, absolutely not.

In fact, as we have guided in past also that we have also not been able to pass through 100% cost in many cases.

There is always a lead and a lag in the cost pass through. .

Rohan Gupta

So sir, we are confident enough, when the next year suppose the raw material price drops by 20% and because of the softening raw material prices and our top line will decline by 20% because of the pricing decline, we won't see our EBITDA declining by 20%, in line with the price decline.

So, it will still grow with the volume growth?

Rajnish Sarna

In fact, if you just simply go mathematically, that scenario should improve the EBITDA margin..

Moderator · Conference Operator

We have a last question from the line of Sumant Kumar from Motilal Oswal Financial Services.

Please go ahead.

Sumant Kumar

Yes.

Sir, can you talk about the key product performance in the domestic market?

We are talking about the new products that has driven the domestic business growth.

So, what is the key product which has given the growth?

Mayank Singhal

Prashant you may want to answer to these products, which you launched in overall general.

Prashant Hegde

Yes.

So rather than getting into a very product-specific response because some are restricted information.

I'll say, look, we are expanding into horticulture crops, into wheat and our existing portfolio led by Nominee Gold is also doing well.

We have launched 5 new products and mainly in horticulture there are 2 products, and we have launched, we have scaled up our service side in wheat.

And we also launched a couple of products which are suitable for one for cotton and one for soybeans as well.

So, these are all definitely helping us in terms of gearing up domestic revenues.

PI External

Moderator · Conference Operator

Thank you.

I now hand over the conference to management for closing comments.

Over to you, sir.

Mayank Singhal

So, thank you, everybody, for coming on the call today, and thank you to all the stakeholders and want to congratulate the PI team for being a part of this journey, and continued success. .

Thank you, everyone.

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