Q3 concall
Core biz - CSM - Almost reaching 80% revenue share
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Near future margin expansion on back of input cost price rise pass on with lag as well product mix in favor of high margin CSM
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Med term margins expansion on back of Asset turns improvement, moderated by continuing capex
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Threat of patent expiry of molecules on PI - Mgmt believes it should not matter as such given this( gentrification)will take 3-4 years to play out , PI will continue to have labor arbitrage and cost leadership innovation to mitigate impact.
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Strong commercial molecules pipeline build over FY 21 and 22 - true impact is seen with a gestational period of 3+ years - I.e. FY 24 onwards
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Healthy Enquiries growth continues, 8 customers added
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Mgmt continues to emphasize on moving up the value chain - demand side on innovation and drive future commercial pipeline - mgmt believes that innovative molecules will always be driven by relationships, credentials, capabilities ( thus was in response to competetitive landscape) - so far growth number suggests they are leaders but good to keep any eye on peers trying similar path( Bharat rasayan etc)
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Supply side innovation focus with measurable outcomes was visible e.g.
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Tech - No of digital tech intervention across life cycle, employee learning,
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Chemistry - flow chemistry - helping throughput and thus asset turns increase, better safety, quality control, Plant capacity optimization ( called out 15% type increase in capacities)
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process - continues yeild improvements, Solvent recovery and so on <
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Another unspoken element was continuity of biz impact post departure of Mr Rao, and leadership churn( though Bharat shah from ASK raised concerns ) - at the end of day an organization driven by processes and systems is not dependent on individuals - good to see it playing out so far
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98% Customer deliveries on time , this metric not many companies share publicly- something that strengths PI position in customer base for future
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Capex will be needed in addition to sweating current assets better
Net net this sticky, predictable & consistent cashflow, pricing power driven, healthy pipeline of recently commercialized molecules - looks steady engine for continued double digit growth trajectory.
AgChem- formulations- domestic
- Awkira doing good
- Muted Qtr but expect pick up
- PBNot - a new community driven solution is being rolled out - takes time for adoption but scale will be good
This is a competitive landscape and a smaller pie on overall mix, may continue growth inline/better than industry
Future growth areas
- Organic efforts on Pharma intermediate at best can get to three digits( 100-150cr) in near future per Mayank, he is very clear that Inorganic is the only way to scale here - given FDA approved plants, relationships, size where one can scale meaningfully is needed.
- There are two school of thoughts for PI Pharma vertical ambitions and also influenced by industry dynamics
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Not a cake walk and will take years - inability to close transactions inn1 year+ post QIP, Mr Rao moving out( only guy in leadership with deep pharma background), very highly competitive industry landscape leading to sub optimal results vis a vis current CSM - agchem biz, no Right to win type situation given whole credentials and cust relationships to be seen, CDMO scaling is a patient game and has its own lumpy character and so on. Folks here will likely wait and watch execution success and already trimmed/exited considering opportunity cost.
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Faith in PI execution given credentials and capabilities - Mgmt has ventured in uncharted territory in past and desigend its own CSM - agchem innovation partnership success over years - none in industry peers could do it yet at similar scale, Intent with aggression & funding is in place, Capital allocation history of past( Isagro) speaks for itself where turn around was swift, Once bitten twice shy - Indswift fall off will make mgmt better prepared and cautious to make it right this time, process and chemistry capabilities are proven and thus Pharma supply side is well covered( mfg, quality, compliance, ESG…), optimist breed here is staying put, will find current levels attractive and will add as execution builds.
Based on which camp one finds oneself is imp to understand and position, ride is going to be volatile as mkt expectation will be like a bolt on with smooth outcomes in few quarters where as reality is likely going to be multi phase - transition +stabilization + scaling- atleast 2-3+ years affair post acquisition.
Stock has taken a beating since Nov deal fall off and current valuations are inline with 5 year median of core biz, in a way good as expectation are reset, current Fixed asset base equivalent cash chest( together 4500 cr) is available and mgmt has every intent to deploy it, with a conservative asset turn of 2-2.5 range we are looking at a likely possibility of 10000 cr+ revenue in few years.
Charts at monthly support
Invested