P I Industries Ltd Q2 FY2024 Concall Summary

Key Takeaways

• 20% revenue growth, margin up: Revenue hit ₹2,116.9 crore with 20% YoY growth, while EBITDA margin improved to ~28% (excl. lost shipment cost) driven by export mix and domestic quality focus.
• Exports power through destocking: Export growth of 28% YoY came from innovative molecules across Agchem, electronics and imaging, even as channel inventory destocking persists industry-wide.
• Domestic revenue deliberately flat: Domestic declined 2% YoY as management prioritized margin and working capital discipline over chasing generic volumes in a monsoon-disrupted Kharif season.
• Pharma build-out is early and expensive: Acquired pharma assets are being integrated into a differentiated CRO/CDMO/API model, with development spend compressing near-term margins toward 14-15% this year.
• What to watch next quarter: Whether the 1-2 additional molecule commercializations materialize, the pace of Brazil inventory normalization, and any domestic growth recovery in Q3.

Export Engine & Molecule Pipeline

• Innovation-led growth: Export revenue grew 28% in Q2 and 32% YTM, driven by innovative molecules rather than generics, spanning Agchem, electronics, imaging and other specialty chemicals.
• Three molecules commercialized: Three molecules were commercialized during Q2, with 1-2 additional molecules expected before the fiscal year-end, supporting the maintained 18-20% CSM growth guidance.
• PIOXANILIPROLE ISO recognition: PI became the first Indian company to receive ISO recognition for a new Diamide molecule, now under evaluation across multiple geographies and crops, though evaluation timelines are long and no launch date is set.
• Inventory destocking improving slowly: Channel inventory destocking has gradually improved in the last quarter but may take a few more quarters to normalize, especially for generic and commodity products, with Brazil facing major challenges from heavy prior-year stocking.
• Koppert biologicals agreement: A new agreement with Koppert covers marketing, distribution and innovation in agricultural biological products, adding a sustainable-agriculture dimension to the portfolio.

Mayank Singhal: "Our model is focused on innovative molecules based on our technical strengths and capabilities and we have seen a growth of 22% in the quarter over last year, while the industry faces headwinds."

Domestic Strategy & Margin Discipline

• Quality over volume: Domestic revenue declined 2% in Q2 and 7% YTM, a deliberate choice to focus on specialized products and margin discipline rather than chasing generic volumes, which improved margins and working capital efficiency but moderated revenue.
• Monsoon disruption: August was completely dry, and South India faces challenges in rice and chilly due to low water levels in parts of Andhra Pradesh, Telangana and Karnataka, compounding the strategic volume restraint.
• Generic participation is paused, not abandoned: The decision to refrain from selling generic products is temporary; management will re-enter the generic game when conditions stabilize, but will stay focused on specialized categories if volatility persists.
• H2 growth expected: Management expects domestic growth on a quarterly basis in both Q3 and Q4, though FY25 guidance is deferred until after December given current volatility.

Mayank Singhal: "Our focus in first and second quarter was more on quality of revenue and the discipline around the working capital and margins etc., and that has been one reason for the flat revenue."

Pharma Integration & Margin Path

• Therachem revenue timing, not downsizing: Therachem revenues were ₹6-7 crore for the quarter versus a ~₹200 crore run rate at acquisition, attributed to business scheduling and inventory phasing, not structural downsizing, with Ind AS adjustments now complete after H1.
• Integration spend compresses near-term margins: Pharma margins are under pressure because of development spend as the company integrates acquired entities (CRO, starting material, API) into a differentiated model rather than running them as standalone businesses.
• Margin ramp-up path: Management expects 14-15% EBITDA margin this year, rising to 20% post full integration over the next several quarters to a year, with a steady-state target of 20-22% once maturity is reached.
• Gross margin sustainable at scale: Current pharma gross margins of 70-75% plus can be sustained at scaled-up levels, supporting the eventual margin expansion story.
• Senior hires and infrastructure: Multiple senior resources have come on board for the pharma CRO/CDMO/API-KSM model, while a Hyderabad Research Center is being readied and a new Kilo Lab and quality systems modernization are underway in Italy.

Rajnish Sarna: "Frankly, this is too early to look at the volumes and the margin percentage of this business."

Lost Shipment & One-Off Costs

• Unprecedented container theft: Sealed export containers were stolen, an event management described as unprecedented in the company's 75-year history and in the industry, with material cost already accounted for in Q2 financials.
• Partial recovery underway: Police have apprehended some culprits and traced material, but the timing and extent of full recovery remain uncertain, creating a lingering overhang on reported margins.

Rajnish Sarna: "This is a very unprecedented situation which we have never experienced in last 75 years of our Company and also in the industry."

Capacity, Capex & Inorganic Opportunities

• Capex on track: The company is progressing in line with its guided ~₹800 crore capex for the current fiscal, with initiatives underway to augment capacities to support growth plans.
• Inorganic evaluation active: Senior management is focused on evaluating various inorganic opportunities to meet long-term objectives, though no specific deals were disclosed.
• Capacity expansion details withheld: When asked for a ballpark capacity expansion number for CSM this year, management declined to provide a figure.

Guidance & Commitments

Key Metrics