P I Industries Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Steady AgChem exports, pharma transition underway: New product growth of more than 40% YoY in exports is offsetting global headwinds, while the pharma CDMO business is still in investment mode with sequential revenue up 55%.
• Margins structurally improved on product mix: Nine-month EBITDA margins have moved from ~26% to ~28%, driven by a superior product mix rather than one-off cost gains.
• PIOXANILIPROLE enters Phase 3 trials: The first AI insecticide candidate is now in Phase 3, with a regulatory framework expected in about a year and a potential market launch a couple of years out.
• Growth guidance held at single digits, with haziness acknowledged: Management maintained its single-digit revenue growth guidance for FY25 but flagged broad uncertainty following a recent regime change in a major country, expecting better visibility in the next quarter.
• What to watch next quarter: Whether the AgChem CSM recovery materialises in the second half of CY25 as expected, any firmer FY26 guidance, and progress on pharma CDMO revenue toward the ₹250–275 crore full-year target.

AgChem Exports: New Products Carrying the Load

• New molecule scale-up: Six to seven molecules have been launched each year over the past couple of years, and new product growth of more than 40% YoY is mitigating global headwinds. New products now make up about 20% of the exports portfolio, a share consistent with the past.
• Mixed global recovery: In certain markets, inventory levels have returned to normal and demand is positive; those regions are more recovered than others. Management expects the industry overall to start picking up in the second half of CY25.
• Order book visibility is partial: Growth does not stem solely from the order book; long-term agreements provide some visibility, but annual purchase orders also contribute. The business and global industry are in a transitory phase with trade wars, tariffs and other challenges. More clarity on overall growth for FY26 or FY27 is expected in the next one or two quarters.

Rajnish Sarna: "Well, this is not so much about us specifically but we are observing haziness today almost everywhere following the recent regime change in the big country."

Pharma CDMO: Investment Phase with a 20–25% Growth Promise

• Business model transition: FY25 financials reflect a transition to a new business model and development spend, which will continue over the next couple of years. Pharma saw strong sequential revenue growth of 55% to ₹63.7 crore in Q3 FY25, and the full-year target remains ₹250 crore to ₹275 crore.
• Gross margins holding: Pharma gross margins are broadly around 48% to 50%, maintained from Q3 last year to this quarter.
• Leadership and assets in place: Global industry veterans have been added to lead the pharma business and have begun to deliver results, supported by integrated processes and newly refurbished assets in Jaipur, Hyderabad and Lodi, Italy.
• The growth visibility: Management anticipates that once the business model stabilises in approximately the next year, pharma will experience growth of 20% to 25% YoY, a visibility that extends for the next two to three years. Reaching a critical mass of ₹500 crore to ₹750 crore in revenue could take a couple of years or more, though some programs could multiply quickly.
• CDMO program in testing: A commercial product is being tested; if it works out, it has good long-term potential, with the success of the application to be known in the next six months or so. Three other interesting projects are at a near mature-gate approach.

Rajnish Sarna: "We anticipate that once this business model stabilises in approximately the next year, we will experience growth of 20% to 25% year-on-year in the forthcoming period. This is the visibility we have in pharma for the next two to three years."

New Growth Engines: Biologicals, Electronic Chemicals, Proprietary AI

• Biologicals scaling fast: The biologicals range showed strong growth of 25% over the prior year, and PI is among the top three players in the Indian market with at least 15% of its revenue portfolio from biologicals. The segment is growing at a much faster pace than chemicals on a global scale.
• PHC acquisition and technology platform: PI acquired a leading-edge technology platform in biologicals with patented proteins and peptide technology, showing promising field results. The acquisition is completely in line with what management wanted to do, though business model improvisation takes time and meaningful contribution will take two to three years.
• Geographic expansion: In addition to existing markets in the US, Mexico, Brazil and the UK, PI will now introduce biologicals products into India, aspiring to become one of the largest players domestically.
• Electronic chemicals gaining traction: PI has already commercialised three or four projects over the last two years, collaborating with global players in Japan and Europe. Two molecules were commercialised this year, with another two in the pipeline for the next quarter. More than 50% of total enquiries are now from electronic chemicals. A clearer picture on percentage contribution is expected in the next year.
• PIOXANILIPROLE milestone: A critical step has been taken in the development of PI's first AI insecticide, now in Phase 3 trials to develop regulatory data for product registration across different geographies under evaluation with partnerships.
• Proprietary offering in the works: PI is working on a proprietary offering with rigorous work underway, and the momentum for launching new innovative products will continue.

Mayank Singhal: "Directionally, from a pure play agrochemical CSM and distribution opportunity size of \$15 billion to \$20 billion of innovative products, we will be chasing a 10x market opportunity over the next two decades."

Domestic Business: Margin-First Approach

• Quality over volume: Domestic business grew 5% YoY from a good base of FY24, following deliberate decisions to drive a superior product mix with enhanced margins and maintain quality of revenue.
• Brand-building underway: Six brands have already been introduced domestically, with a pipeline of 20-plus products at different stages of evaluation and registration. Looking ahead to the next season, market sentiments will be strongly influenced by investment trends in the sector and the overall health of the rural economy.

Margins, Cash Flow and Tax

• Structural margin improvement: EBITDA margins have improved from ~26% last year to ~28% for the nine-month period, driven by product mix. Management confirmed the structural nature but declined to provide a specific margin outlook, noting that multiple moving parts can shift quarter to quarter.
• Working capital tightened: Trade working capital improved from 80 days to 68 days, with inventory days reduced from 59 days to 46 days due to better inventory management. Cash flows from operating activities increased 8% to ₹1,248.2 crore.
• Tax rate normalisation: The effective tax rate increased from 14.7% to 22.3%, impacting the quarter's net profit. Management expects the ETR for FY25 to be in the range of 22% to 23%.
• Depreciation step-up: An incremental depreciation charge arose primarily from the amortisation of intangibles added during Q3 on account of the PHC acquisition for the biologicals business.

Capital Allocation: Acquisitions and Capex

• Acquisitions on track, patience required: Both the PHC and pharma acquisitions are completely in line with what management intended. These are small entry points, and management says it is not silly about capital allocation from a multiples perspective. Meaningful results will take two to three years, with the graph beginning to show upward movement in that timeframe.
• No regrets on deal choices: When asked if management would do anything differently on the same acquisition offers today, the answer was unambiguous: "I would still go for it" on PHC, and "we would have still said yes" on the pharma acquisition.
• Capex for future visibility: In the coming year, PI is building two new multiproduct plants to meet future requirements and business visibility. Pharma capex investments in hardware, software and regulatory framework will take a couple of years to shape up to deliver value to customers.

Mayank Singhal: "I can show you the best car but eventually to make the car win you need to train the driver. And that's also where we are, we have got the car and the driver, now we need the crowd, which takes a bit of while after even a few races then only the crowd follows you."

Guidance & Commitments

Key Metrics