One thing weighing on the commencement of the new plant at Jambusar I think is the tag of sterling group on the SEZ. Sterling group seems to be in the doldrums with loads of debt and as far as I know PI has plans to start their new plant in this SEZ. Dont know if the fortunes of Sterling group would affect their SEZ or not.
Attended the concall…Sep.2011 timeline given for plant commencement…Order book at 300-310 mn. USD is a concern… 1HFY13 will be crucial for order-book… I maintain order-book has to cross 400 mn. USD by FY13 for company to be in a comfortable position…
Rgds.
Mahesh,thanx for the update,from the earlier reports i understand that this new plant could generate about 300 cr of annual sales and the existing pipeline of 300million is slated for delivery over next three years,so in terms of capacity they are tied up fully for next three years,so does it make sense to expand the order book without having the capacities.So we can assume 100 million of the order book will be executed this year.I have not heard of any new products that they had bought out this year,which was promise.Any info on any blockbuster product pipeline this year.
Attended the concall…Sep.2011 timeline given for plant commencement…Order book at 300-310 mn. USD is a concern… 1HFY13 will be crucial for order-book… I maintain order-book has to cross 400 mn. USD by FY13 for company to be in a comfortable position…
Rgds.
Yes… they are expecting to launch 2 products in FY13… one insecticides they say could be blockbuster…
With rgds. to order-book… you see, as said before, its an asset-heavy business and you can’t keep the plant’s capacity taken for granted at any time…Agreed, they are tied up for next 3 years but how this has happened… only by the efforts of last 6-8 years…These are long term engagements wherein PI is involved right from the beginning so the order-conversion cycle is quite long…hence, it either means that there is sluggish fresh engagements due to global recession or there has been failures during the cycle of many molecules which is not letting the order-conversion happen…Orderbook constitutes only of the succesful patented molecules for which PI is either sole or one of the two suppliers… Once the order-conversion happens the delivery usually starts after 1.5-3 years depending on the complexity of the molecules…Hence, net addition to order book is important in any fiscal… whereas here in FY12 we have net order book of just 300-310 mn. USD which is lower than last fiscal’s 340 mn. USD… If this situation sustains for more than 6 months from now, company will be in a real problem and they will opt for low margin contracts which will affect margins of CSM segment…I am sure management is capable enough to handle any adverse situation but where the hitch lies I am unable to figure out…If the situation improves in coming 6 mon ths it will be great news for shareholders.
Rgds.
saw an ad for hiring of production people which was for both their panoli plant and the upcoming one at Jumbosar.
Hi Guys,
Meeting with PI Industries Senior Management coming up in 2 weeks.
Please fire away your questions and help us make the most of the opportunity.
Rgds
Donald
From my side queries for the PI management :
(1) How is the Agri segment macro environment looking at present – with already 10-15 % hike taken by almost all agrochemical cos. and monsoons turning out not as anticipated, are we likely to see first time YoY degrowth for agrochemical industry as a whole in last decade.
(2) Kharif Rice sowing has been down ~20 % YoY ason date – with Nominee our key product and its main crop being rice, will the sales of Nominee be severly impacted this Kharif threby affecting overall co.'s Agri Segment performance.
(3) Post launch of Nominee in FY09-end/FY10, we have not seen any blockbuster product lunch by PI – two high potential products are expected to be launched in FY13 – kibly shed some light on the broad highlights of such products – asto crops they will cater to, whether they will be under exclusive license, approximate field trials conducted for launch of each product, etc.
(4) Over last few quarters we have seen extreme margin deterioration in Agri segment which is not the case with peers (in terms of severity) – so whats the key reasons for the same.
(5) CSM segments order-book has been quite stagnant in FY12 at USD 300 mn. ; Here, evenif we consider execution of orders worth 75 mn. USD in FY12 then also from a high of USD 340 mn., its almost sluggish addition…What is the ky reason for the same – is it that the management is not undertaking any new engagements pending commercialisation of new plant or the global sowdown has impacted the fresh engagements or there has been large amount of failure of molecules at initial stage thereby hampering addition to order-book
(6) Are the margins atall impacted in CSM segment ?? and are any pricing presssures felt on new order enquiries ??
(7) Agri-segment hasbeen the largest contributor to Order-book of CSM segment so what steps is the company taking to spread the segmenatal-risk in CSM segment ??
(8) With Rallis also plunging into CSM space by commencing Dahej plant and expecting 500 cr. revenue in 5 years time, is PI fearing any hightened competition in the space or PI is insulated from such competition because of its patented-molecules focus.
(9) How is the Sony-PI relationship shaping up and is there any pressures on that relationship because of severe margin pressures of the parent Sony — when will the relationship get visible in the financials in the form of any product tie-ups etc.
(10) Will the commencement of new facility in Q3FY13 increase funding requirement threby increasing debt levels – if yes to what extent ??
(10) Any acquisitions planned in FY13 ??
Some queries from my side
- Has the capex on the new facility increased due to delay in getting the facility operational? Has this effected the delivery schedules on the CSM business?
- What is the investments made by PI in the JV with Sony. Does the company forsee more investments in the JV?
- What are the investments done by the company on the new products that have been launched or / are planned to be launched this year?
One query to group member,
With the poor monsoon, will the company have to bear the costs of excessive inventory ( & WC) apart from low sales and margins?
Hi Nadakarni,
Poor monsoons are a real concern as they are coming on the back of poor rabi season…However, company like PI should have managed inventory well as the possibility of poor monsoon was known beforehand but the key crop for the company is rice and coming 2 weeks are crucial, if rice crop suffers then Pi will suffer alongwith it…Q1FY13 is already over and if company manages to sail through in this qrtr. then i think the problems will be much less, however, to perform well on the back of exceptional higher base of last year wil be very tough and therefore will be key monitorabl.
Rgds.
mahesh,
do you have records of the concall transcript after q4,dont we have to go thru the complete financials/AR before meeting the mgmt
as you have covered most of the questions ,my query would be regarding the
1.what kind of forex hedging policy would they following for the year
2.any means to improve the WC situation.it seems to be repeating.
3,are there issues with the SEZ in which they plan to set up the new plant.
4.As agrochemicals are a luxury for most farmers,do they help the farmers in getting subsidies/low cost finance to buy them
With sterling bio group going virtually bankrupt what will be its impact on performance of SEZ where PI next plant is supposed to come upon n what will be the impact of delayed monsoons on the company
Hi Biju,
will mail you the text transcript of Q4FY12 …AR12 will only be available in Aug/Sep but the meet of Donald and his team is scheduled this week so we can’t refer that and prepare our queries…In any case, AR should only set a direction of future but valuepickr team can extract much more than we can extract from AR and the deep work that we have done so far on this co. should enable us to prepare our queries in the absence of AR also.
Rgds.
agri chemical sector-40% of raw materials are imported and most are petro based,with the crude prices coming down,any long term contracts to source raw materials and will it improve margins.
Forex hedging-forex losses in FY12,with the rupee in a weak spot and if you are a net dollar earner,whats the purpose in hedging,(i dont understand hedging well, but would like to know the rationale in having 20 million dollar hedged)
CSM-whats the customer base like(list of major companies etc),average ticket size,no of clients ,are the order book additions from the existing customer base,any new customer additions.
Hi Guys,
Thanks a lot for all the questions sent in. PI Management Q&A is scheduled for Thursday 19th. You can keep sending in more questions and help us extract the most. Here’s the current compilation - with a separate focus on CSM and Agri business. Other allied like Working Cap, Forex, Sony JV will be added in incrementally.
Here you go. What more can be added?
**1). CSM segment **
The company had projected some 320-340 Cr in revenues for FY12 from CSM segment. It ended up with 373 Cr in FY12. Is is correct to say this performance entirely on account of Rupee depreciation?
Please explain a little on how your supply schedules work -based on the Orderbook? Are the supply schedules firmed out a year in advance usually? And, are there mid-course corrections?
How do the supply schedules for a particular product scale up between the quarters? And between the years in multi-year contracts? Is it usually a steady ramp-up?
What is the Ordebook position in July 2012?
In Q3FY12 you had a orderbook size of US$320-330 Mn. At the end of Q4 you have reported an Orderbook of ~$300 Mn. You managed sales of 131 Cr or ~24 Mn in Q4 FY12. Is this correct to say you now have an orderbook size ~3x Sales?
Kindly tell us a little more on the orderbook situation. There has been no addition in Q4FY12 and Q1 FY13. Is this alarming? What are the key reasons for the same?
What is the order of Maintenance and Balancing/de-bottlenecking Capex for existing facility? Is it capable of producing say ~175 Cr Qtrly CSM sales, or more (from the ~130 Cr levels currently)?
Jambusar plant â Is this getting commissioned in Sep 2012? And production will be available for H2 FY13? What is the additional Capex required in FY13 and FY14 at this plant?
Do we expect some 60-100 Cr additional in FY13? What will be the peak revenues achievable out of the new facility â some 500-700 Cr? How much will it add in FY14?
How will you be allocating future CSM work between the plants? Will it be an entirely different product range synthesised at the new plant, or will there be overlaps?
How does the supply schedules look for FY13? Are we doing $75-90 Mn in CSM sales in FY13?
Alongwith orderbook sluggishness are we also seeing any margin pressures in this segment? Or they have held firm over FY12?
With Rallis also plunging into CSM space by commencing Dahej plant and expecting 500 Cr. revenue in 5 years time, is PI fearing any heightened competition in the space or PI is insulated from such competition because of its patented-molecules focus?
Since most of the clients of CSM segment are from Agri segment, does the weather and therefore agri-segment performance in particular of client cos. countries affect the delivery off-take and therefore sales of CSM segment? If yes, particularly which countries agri-segment performance affects PI Industries the most?
2). Agri-Inputs segment
How is the Agri segment macro environment looking at present – with already 10-15 % hike taken by almost all agrochemical cos. and monsoons turning out not as anticipated, are we likely to see first time YoY degrowth for agrochemical industry as a whole in last decade?
Coming to PI’s agri segment? How confident are you about the full year projections? Are you trying anything different this year?
You had projections of ~573 Cr in Agri segment Sales for FY12. The segment ended FY12 with ~501 Cr Sales. Guidance was off by about 15%. Will you attribute it entirely to the Monsoon effect? What could you have done better? Could you have planned a better product mix?
New products CLUTCH and VOLTAGE. How have these been faring? Has any one of them seen any significant traction in the market?
Two new Insecticide products in Kharif season. Is it true that one of them is expected to be a blockbuster success similar to that of Nominee Gold? And this confidence stems from the fact that this is a new product â with some exceptional unmatched benefits? And your filed-trials and test data has backed up and bolstered that confidence?
The other product introduced is for an existing innovative product in the market? So how many players are selling a similar product? Will it be correct to say then that this product already must be having a big market size in annual Sales? How much? And what percentage is PI targeting to corner of that market?
In-licensed vs Generic proportion. It has moved up marginally from 40:60 to 45:55. This is against the projection of 70:30 made last year. What is the likely proportion in FY13? Do you still think 90:10 proportion will be achievable in 2-3 years? Are your new products moving that fast? Or this is really banking on products like Nominee Gold and other likely blockbuster products in the piepline?
Red Triangle (extremely toxic) products. Rallis has completely discontinued sales of red triangle products which had in the past contributed to 10% of revenue. Do you see any new opportunities from the discontinuance of these? How many red triangle products does PI still have in its portfolio? What is roughly the revenue contribution from them? What are the plans of phasing them out, if any?
Nominee Gold status. Are there any new co-marketing agreements signed other than Bayer, BASF, Syngenta, Rallis and Dhanuka?
From the first 4 you had got a corresponding co-marketing arrangement for 1 or 2 of their innovative molecules. What’s the deal with Dhanuka?
How have these co-marketing arrangements played out? Have they contributed significantly in increasing the total market size for Nominee Gold in India? Has it gone up say 1.5x, 2x or more?
And Nominee Gold had something like a ~100 Cr market size in FY11? Is that correct?
Kharif Rice sowing has been down ~20 % YoY as on date – with Nominee our key product and its main crop being rice, will the sales of Nominee be severely impacted this Kharif thereby affecting overall co.'s Agri Segment performance.
Over last few quarters we have seen extreme margin deterioration in Agri segment which is not the case with peers (in terms of severity) – so whats the key reasons for the same?
Need to include Competition-data here.
The key question to ask on Agri-Segment?
Over last few quarters we have seen big margin erosions in Agri segment.
[Overall â 21%,15%,13%,17%; Agri - 21.5%,12%, 7%,14%]
This is not the case with peers (in terms of severity)
(Dhanuka â 15%,14%,11.5%,17.5%, Insecticides â 10.5%, 11.5%, 7.5%,8%, Rallis â 13%,23%,18%, 7%)
Kindly comment on the right way to view this data.
Is it correct for us to assume a flat 20% EBITDA margin on the CSM side? Is it also fair to assume that Q1 was an abnormal quarter (with Nominee Sales being pushed to Q1 from Q4 FY11), and therefore the typical Agri-Inputs seg EBITDA margin to consider is more like 16-17%.
Is it also correct to surmise that Nominee Gold is âbigâ factor even in Margins. If that does very well or if that does poorly, we see bigger fluctuations??
If you can think of any other ways of explaining this data, please alert!
-Donald
Results on 26th July 2012 :
Q1FY13e for PI Ind. :
|
|
Q1FY13e |
Q1FY12 |
|
|
|
|
|
Revenue Agri-Inputs CSM |
270 â 305 140-160 130-145 |
206.4 145 62 |
|
|
|
|
|
EBITDA |
51 - 59 |
43.2 |
|
|
|
|
|
PAT |
28.5 - 34 |
47.95 (including Exceptional Gain of 30.34 cr. from Sale of Polymer Business) |
|
|
|
|
|
EPS |
11.3 â 13.5 |
38.54 (including Exceptional Gain of 30.34 cr. from Sale of Polymer Business) |
Q1FY13 Results Announced :
Consolidated Revenue - 239.14 cr. (v/s our expected 270-305 cr.)
Consolidated EBITDA - 49.3 cr.(v/s our expected 51-59 cr.)
Consolidated PAT - 23.45 cr.(v/s our expected 28.5-34 cr.)
Detailed Press Release is awaited to know segmentwise performance of Agri and CSM.
Prima-Facie view :
Revenue is way below estimates which could have been because of dismal performance of Nominee affecting Agri segment sales…Although detailed press release is waited, there is high likelihood of significant degrowth in AGri segment…
CSM segment seems to have performed exceptionally well as anticipated and might show more than double the revenue YoY… This guess can be made because of decent EBITDA margin performance in the qrtr. which stand at 20.6 %.
Detailed press release and management commentry is awaited.
Rgds.
Q1FY13 Press Release Out :
Contradictory to our prima-facie expectation, Agri segment has delivered a flat performance for the qrtr. at ~143 cr. while CSM segment qrtrly. scale has again gone back to below 100 cr. after shooting up to 136 cr. in Q4FY12.
Positive thing out of this is good margin performance by agri segment despite all odds…Negatives are sequential QoQ degrowth of ~29 % in CSM segment which is surprising as management had talked about maintaining enhanced scale from Q4FY12 onwards…Press Release is silent on order-book position for CSM segment which is key monitorable…
Conclusion :
I maintain my view that PI Ind. is at best a Hold at current levels with close monitoring of key aspects like ‘Agri segment performance’, ‘Commencing of new CSM plant by Sep2012’, ‘Order-Book Position of CSM segment’ and ‘Margin Performance’…
Will update post the concall.
Rgds.
Concall Key Takeaways :
General :
(1) At the end of Q1FY13, Inventory levels are at 175 cr., Debtors are at 204 cr. (CSM segment 60-70 cr. rest from agri segment), Debt is at 255 cr. (100-110 cr. is foreign loan).
(2) Company has guided for 30 % cosolidated revenue growth in FY13.
(3) 40-45 % of the raw material is imported.
CSM Segment :
(4) Q1FY13 CSM segment Revenue grew 56 % at 95.4 cr. v/s Q1FY12’s 61 cr.
(5) 12-13 % of the CSM business growth was because of currency depreciation
(6) 12-14 molecules are already commercialised uptill now in CSM segment with 20-25 molecules in R&D stage (covered in order-book) with a possible success ratio of 40-50 %.
(7) One molecule was commercialised in CSM segment in Q1FY13 with another one likely to be commercialised in Q3FY13.
(8) In Csm segment, top 5 customers contribute ~70 % of the revenue with a sngle customer contributing not more 15-18 % of the revenue.
(9) New CSM Plant to be commericlised by Sep-end or October and is likely to contribute only 50 cr. to FY13 CSM revenue with majority of the contribution expected in FY14. 140-145 cr. are already incurred on new plant with another 50-55 cr. remaining to be incurred.
(10) Order-book for CSM at the end of Q1FY13 was at USD 311 mn.
(11) In CSM segment company has taken a âbalance between visibility and flexibilityâ approach wherein it is not inclined to add to the order-book such contracts which are not found extremely lucrative which are worth betting the investment on. Management is satisfied with a order-book visibility of 2-3 years and will only initiate fresh investment if it is able to find lucrative long-term contracts.
Agri Segment
(12) Q1FY13 Agri Segment Revenue flat at 143 cr. v/s Q1FY12’s 142.8 cr.
(13) In Agri segment, one inlicensed broad-spectrum insecticide was lauched in Q1FY13-end with another co-marketed (with Rallis India) broad-spectrum insecticide to be launched in Q2FY13.
(14) Agri segment suffered volume degrowth during the quarter, however, due to 6-7 % price increase taken during Q4FY12-end, company was able to maintain flat revenue in Q1FY13.
(15) Company is seeing early signs of agri-activity pick-up and is hopeful of volume growth in Q2FY13.
View Post Concall :
Maintain our earlier view that PI Industries is at best a ‘Hold’ at current levels because of key positives on which PI story was based getting faded somewhat. Although the story is good and is one of the best in current uncertain environment, CSM segment order-book is key monitorable which, the management has now accepted, is not getting the orders ‘which are worth betting incremental investment on’. The new plant of CSM segment has already got delayed by a year and is now likely to be commisioned in Q3FY13. The main strength in PI story, which was order book at more than 5 times CSM segment revenue will decline to just 3 times FY13e CSM revenue if the order-book doesn’t rise substantially and remains stagnant. In CSM segment scale and investment both are critical and the long term visibility has to be there on a continuous basis for the company not starting compromising on margins. Although till FY13-end evenif the order-book remains at current levels it will not be of major concern but if significant order wins are not made and order-book doesn’t rise to atleast USD 500 mn. by Q4FY13-end or Q1FY14 then the management will start getting concerned.
How the new launches peform in Agri segment will also be key monitorable and margins has to improve on a yearly-basis in the segment which were severly impacted last year.