My Q2FY12 Estimate for PI Industries (Consolidated) :
Total Revenue = INR 245 - 270 cr. (Q2FY11 - 186.97 cr.)
EBITDA = INR 45.3 â 49.8 cr. (Q2FY11 - 34.38 cr.)
Breakup of Revenues â Segmentwise
Agri Input = INR 185 - 198 cr. (Q2FY11 â 140 cr.)
CSM = INR 60-72 cr. (Q2FY11 â 33.5 cr.)
Rallis declared Q2FY12 results yesterday… Sales grew 18 % with an EBITDA growth of 10 %…
Rgds.
Mahesh,
Seems like rallis has not performed well …i.e they are facing margin pressure…are they loosing pricing power from now on?
In this light… do we have to tone down the PI revenue growth projection?
Rgds,
The Q2Fy12 growth estimate given of a 185-198 cr. topline for agri-input segment of PI is a conservative estimate only and I don’t feel there is any need of downsizing that estimate based on Rallis results…Lets see how Pi performs in Q2Fy12 as now will be the real test of this company…
Rgds.
Mahesh,
…
Absolutely…
Rallis felt margin pressure on the bottom line. Are you comfortable holding your EBITDA margin guidance?
Rgds,
Yes… Rallis felt margin pressure because of two reasons, first, input cost pressures and second, muted growth in sales… The primary reason given by the management for muted growth of sales in Q2 was good monsoons because of which there were less fungal/pest attacks on crops because of which its product sales got affected…Cotton, Rice and vegetables contribute majorly to Rallis’ products… Since Rice is also crucial for PI as almost 20-25 % of its sales comes from this crop but because of lower base of Q2FY11, I think PI’s sales growth should be better and in line with our estimates… With rgds. to EBITDA, already Pi’s management has proved again and again that they are very wise in input cost management and profitability is their main focus…Hence, EBITDA for Q2 should also be on expected lines…
Rgds.
Thanks Mahesh…
I guess increasingly companies are loosing pricing power…Be it Exide, Rallis or similar consumer facing companies…seems like rate increasing cycle is topping…though no signs of food inflation moderation…which,according to me, will only moderate due to base effect in near term…
Rgds,
Board will meet on 5th November 2011 to consider Q2FY12 results…
Rgds.
CRISIL has upgraded its ratings on the bank facilities of PI Industries Ltd (PI; part of the PI group) to âCRISIL A/Stable/CRISIL A1â from âCRISIL A-/Positive/CRISIL A2+â.
The upgrade reflects improvement in the PI groupâs business risk profile, driven by the groupâs increasing scale of operations and the improving profitability of its agricultural inputs division, which in turn is because of healthy growth in the groupâs higher-margin in-licensing/co-marketing products segment. The upgrade also factors in the improvement in the PI groupâs financial risk profile marked by strengthening of capital structure following the conversion of optionally convertible debentures (OCDs) into equity, and the utilisation of sale proceeds from the sale of the groupâs polymer compounding business for debt reduction. CRISIL believes that the PI groupâs financial risk profile will further improve over the medium term, with increasing cash accruals, reduction in gearing, and improvement in debt protection metrics, because of improving operating performance.
The ratings reflect the PI groupâs established position in the agricultural (agro) chemicals business, with moderate operating efficiencies, and growing presence in the CSM segment, leading to improved revenue visibility and stable profitability. The ratings also factor in the groupâs healthy financial risk profile, marked by a healthy net worth and improving gearing and debt protection metrics. These rating strengths are partially offset by the PI groupâs working-capital-intensive operations and exposure to risks related to cyclicality in the agrochemicals industry.
For arriving at its ratings, CRISIL has combined the business and financial risk profiles of PI and its wholly owned subsidiaries, PIIL Finance & Investments Ltd (PFIL), PI Life Science Research Ltd (PLSRL), and PI Japan Co Ltd (PJCL), together referred to as the PI group. This is because all these companies have the same promoters, and business and financial linkages among each other. PFIL handles the investment activities of PI, while PLSRL handles the contract research and development (R&D) activities, and PJCL is the groupâs marketing front in Japan.
Outlook: Stable
CRISIL believes that the PI groupâs credit risk profile will remain stable over the medium term, driven by its increasing scale of operations in both the custom-synthesis and manufacturing (CSM) and agricultural input businesses. The group is also expected to benefit from its improving profitability in agricultural inputs business because of increasing revenue share from in-licensed and co-marketed products. The outlook may be revised to âPositiveâ if the group sustains its consolidated revenue growth and profitability, while it diversifies its customer base in the CSM division. On the other hand, the outlook may be revised to âNegativeâ if the PI group is unable to maintain the growth in its revenue or if its operating margin declines, leading to deterioration in its capital structure, or if it undertakes a large debt-funded capex programme without adequately tying up for its enhanced capacities.
About the Group
PI was set up in 1947 as an edible oil refinery unit by the late Mr. P P Singhal, father of the current chairman, Mr. Salil Singhal. The company later ventured into the agrochemical formulations business, which currently is its major revenue driver. In 1978, it diversified into mining and mineral processing, which was hived off into a separate company, Wolkem India Ltd. In the 1980s, PI entered the energy-metering business, which was also hived off into a separate company, Secure Meters Ltd. To overcome cyclicality in the agrochemicals industry, PI diversified into the polymer compounding business in the 1990s; the business was sold to Rhodia SA, France, in December 2010. Furthermore, in the mid 1990s, PI diversified into the CSM business for global agrochemical innovator companies.
Thus, PI currently has two business segments: agricultural inputs and CSM. The company also has three wholly owned subsidiaries: PLSRL, an R&D subsidiary; PFIL, an investment subsidiary; and PJCL, a marketing front office in Japan.
The PI group has agrochemical manufacturing facilities and five multiproduct plants for CSM in Panoli (Gujarat), one formulation facility in Jammu (Jammu and Kashmir), and one R&D unit in Udaipur (Rajasthan). The group is currently focused on expansion in CSM and has no significant investment plans for its agrochemical unit. It plans to add capacities for its CSM division over the medium term at a cost of Rs.1.5 billion.
The PI group reported a profit after tax (PAT) of Rs.651.0 million on net sales of Rs.7.9 billion for 2010-11 (refers to financial year, April 1 to March 31), against a PAT of Rs.419.0 million on net sales of Rs.5.9 billion for 2009-10.
PI Industries Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on November 05, 2011, inter alia, to take on record the Unaudited results for the quarter ended September 30, 2011 and to consider the declaration of interim dividend, if any on the equity shares of the Company for the financial year 2011-12.
Mahesh,
Reasults below expectations although sales growth has been ok,which is supposed to be a good quarter,waiting for your review and what lies ahead,
1). The other expenditure has increased a lot,what comprises that,how do we geta breakup to know what caused the dip in margins.raw material cost also has increased.
2). Increase in stock/work in progrees has also increase to a large extent,hich also happenend in the first quarter.This is recognized as revenues,are they not able to sell their products,isnt all this causing cash flow problems,
3.Any news on their plant in Gujarat,at what stage it is and ahen it would be generating income.
4.promoter shareholding has decresed from the similar quarter in previous year.
regards
biju john
Hi biju,
will reply to you tommo. as i am out on a weekend…
stil… from initial looks, it seems that revenue is on the lower range of my estimates given before…
ebitda margins are lower than estimates probable reason might be forex loss of 8.85 cr. but how they have acounted it that i need to look at in detail in coming week… i think since its included in cash flow as a separate account, it must have been part of other expen…Accounting experts like Ayush could throw some more light on this…
Breakup of revenues in terms of agri and csm is crucial and will be known by wednesday…
overall results, especially ebitda are below estimates but Rs. 2 interim dividend could be sign of robust cash generation in second half…
Rgds.
http://www.organicconsumers.org/articles/article_16696.cfm
A somewhat dated, but useful extract from report on worldwide Agrochemical sector
Agrochemical Industry
World’s Top 10 Pesticide Firms
Company - Agrochemical Sales 2007 (US$ millions) - % Market Share
1.Bayer (Germany) - $7,458m - 19%
2.Syngenta (Switzerland) - $7,285m - 19%
3.BASF (Germany) - $4,297m - 11%
4.Dow AgroSciences (USA) - $3,779m - 10%
5.Monsanto (USA) - $3,599m - 9%
6.DuPont (USA) - $2,369m - 6%
7.Makhteshim Agan (Israel) - $1,895m - 5%
8.Nufarm (Australia) - $1,470m - 4%
9.Sumitomo Chemical (Japan) - $1,209m - 3%
10.Arysta Lifescience (Japan) - $1,035m - 3%
Total $34,396m - 89%
Source: Agrow World Crop Protection News, August 2008
The top 10 companies control 89% of the global agrochemical market.
The worldwide market for agrochemicals was US$38.6 billion in 2007 - up 8.4% over the previous year. The top 6 companies accounted for $28.8 billion, or 75% of the total market.
Symbiotic Sales: The world’s six largest agrochemical manufacturers are also seed industry giants. Despite sky-rocketing fuel and fertilizer costs, high grain prices created soaring demand for commercial seeds and pesticides in 2007. After two decades of sagging sales, the world’s largest pesticide companies rebounded last year - in large part due to the subsidy-driven boom in agrofuel crops.
In 2007 the four largest pesticide companies (Bayer, Syngenta, BASF, Dow) reported double-digit sales jumps.
Pesticide revenues are up in nearly all regions [particularly South America].
Mind the Gap: Weed killers account for about one-third of the global pesticide market, and agrochemical giants are ratcheting up R&D on new herbicides and herbicide-tolerant genes. Monsanto’s glyphosate-resistant (Roundup Ready) crops have reigned supreme on the biotech scene for over a decade - creating a near-monopoly for the company’s Roundup Ready herbicide - which is now off patent.
According to Chemical & Engineering News, BASF, Syngenta, Bayer, Dow and DuPont are competing to fill “the glyphosate gap” -
)- a gap that’s growing fast because at least 14 weed species on five continents have developed resistance due to massive applications of glyphosate. As a result, farmers must employ more toxic chemicals to kill the resistant weeds. Commonly known as the “pesticide treadmill,” it’s a classic case of chasing a new techno-fix to mop up the mess of an older, failed technology. Agrochemical giants prefer to describe the resistance problem as a business opportunity: In the words of Syngenta’s Crop Science CEO, John Atkin: “Resistance is actually quite healthy for our market, because we have to innovate.”
From Press Release issued it seems that Agri-Input segment has been the culprit for lower growth in Q2FY12… However, CSM segment has grown exceedingly well in Q2 which has somewhat negated the effect of Agri-segment tapid growth…
Rough calculations arrived from press release, put Agri segment revenues at ~149 cr. and CSM segment revenues at ~96 cr. for Q2FY12… Finer Details are still awaited.
Rgds.
Finally, I sat down to formally frame questions for PI.I am pretty satisfied with this version.(Enough follow-up questions to ensure we can extract some concrete answers hopefully).
Please check what angles are missed, if any? Please keep sending in additional questions for inclusion. Trying for a meeting in 3rd week Nov. Some of the Qtrly results questions -we should be able to get from the conference call.
Cheers
Donald
Questions for PI Industries Management
1). PI Industries have grown solidly over the last several years. Last 5 yrs have seen it clocking a compounded annual growth rate (CAGR) of 22% clocking ~720 Cr in Sales in FY11 from 318 Cr in FY07, while Profit after Tax has grown at an astounding 5yr CAGR of 73% to touch 64 Cr in FY11 from 7.19 Cr in FY07, or 9x in the last 5 years.
Kindly share with us this journey and the significant factors behind this seemingly extraordinary success. What will make this performance sustainable?
2). The shift in focus away from reverse-engineered generic chemicals to in-licensing innovator company products seems to be paying-off handsomely. The CSM business roots too go back many years a some 14 years atleast, so far we could check.
Kindly share the circumstances/strategic decision-making process within the company that made you focus on these 2 segments. It does seem that in both the segments you have an early-mover lead and there are fairly high entry barriers in place a Your comments, please.
The 1978 diversification into mining and mineral processing and the energy metering business in 1980s were later hived off into separate companies. In Dec 2010 the (lower margin) Polymer compounding division was sold off to Rhodia.
Please share the companyas philosophy and thinking behind the decisions. In any business that you pursue, are there some key metrics that you look for? Is there now a single-minded focus, on Agri Chemcials and CSM business segments?
3). Nominee Gold a Pre-emergence Herbicide (applied while sowing). Stupendous success since its introduction in 2010. In less than 2 years it has become one of the largest selling Herbicide brands in the country.
This is the fist major branding success story from PI Industries? What has contributed to such a stellar success? Any USPs compared to existing pre-emergence or post-emergence Herbicides in the market?
How much does Nominee Gold contribute to total Agro-Chemical sales today?
Had you anticipated this kind of success while test-marketing/launching Nominee Gold? Was this a one-off case, or do you think some of your other in-licensed products under launch consideration, can match up to this performance?
What is the market-share of Nominee Gold among Herbicides in the market today? What are the constraints on growing this share?
We have seen supplying not coping up with the demand, in certain markets. Would you say the amarketing challengea for Nominee Gold is over but Capacity constraint is the key challenge?
How would you quantify Agro-chemical manufacturing capacity as on date? What are the plans for FY12 and FY13 on this front?
4). Nominee Gold (Bispyribac Sodium) In-licensed from Kumiai Chemicals. Bayer had also in-licensed this from Kumiai Chemicals for EU and several other countries.
Why do you think Bayer did not in-license this for Indian market all these years, since 1997? Is it correct to say they missed spotting the growing use of Herbicide trend in India catching on, something that PI spotted.
Is it also correct to say certain factors like Labour Shortage (increasing rural MNREGA led economy) has contributed significantly to growing Herbicide use in India and led to Nomineeas success.
Have your other Herbicide brands like Altrazine, Fenoxaprop, Pretilachlor, Thiobencarb seen similar growths? Have Monsantoas Butachlor/Alachlor grown as well? If not, kindly explain why?
The Trademark Nominee was registered in 1997 by Kumiai Chemicals but seem to have ceased in 2004. Kindly explain the in-licensing arrangement with Kumiai Chemicals, and validity/tenure of patents/trademarks for Nominee Gold. Any danger of Bayer/Others introducing a Bispyribac Sodium based Herbicide in India.
5). Custom Synthesis business (CSM) - Size of Opportunity before PI. US$ 340 million Order Book with tenure of execution ranging from 2-4 years. 14-16 products in commercial scale, while some 24-26 products at developmental Pilot & R&D stages.
Where do you see this business headed in the next 5 years? Do you anticipate some of the molecules to move from low volume (kgs) to full-blown CRAMS manufacturing (Tonnes) in the next 5 years?
What is the size of the opportunity before PI? And what are the challenges it faces in deepening the relationships with customers, while scaling on capacity and expertise?
How significant is the competition globally? (Saltigo, Lonza, DSM, CABB (Kemfine)). Kindly share the main competitive challenges and how do you find PI positioned vis–vis competition?
Who are your biggest customers? How much do your top 3 customers contribute to Sales? Does any one customer provide more than 10% of the CSM business? Kindly provide the geographical spread of customers between Europe, Japan, Americas.
6). Agri Chemicals business a Size of the opportunity before PI
Is it correct to say much of the growth in this segment has hinged on the exemplary success of Nominee Gold?
What levels of organic growth do you expect from existing products in next 5 years a not factoring in any new product introductions?
Most of the Agrochemical majors like BASF, Bayer, Monsanto, Dow are also Seed industry giants. Kindly elaborate on this seemingly symbiotic relationship. And does PI Industries have any plans on this front?
What impact does pesticides-resistant varieties like BT cotton have on PI Industries Agro Chemical Sales. Apart from BT Soya and BT maize, how far is BT wheat/rice away from commercial introduction in India? Monsantoas Round up Ready going off-patent, would it mean a rush of generics in the Indian market, and will that impact any sales of PI.
7). Custom Synthesis SEZ project - Jambusar, Gujarat. 22.3 acre land acquired. A total investment of Rs. 125 crore earmarked for this of which 75-100 Cr may be utilised in FY12, and the balance 25-50 Cr in FY13.
What is the progress on this front? Have you secured any funding for the same? What are the terms? How much of the funds have been utilized so far?
8). Agro Chemicals - New in-licensed molecules a2 new product introductions planned in FY12.
What is the progress on this front? Are these insecticides/herbicides or fungicides? And are these broad-spectrum or aimed at specific crops?
Half the year has already gone by. Do you expect any significant revenue contribution in FY12? Does your 40% Sales guidance for FY12 factor in any contribution from the same?
9). Agri-business a The three drivers a Normal Monsoon, higher crop acreages, high agri-produce prices.
Do you see all drivers as favourable for FY12? Or has there been a slip from the earlier optimism
10). Custom Synthesis business a Orderbook, execution progress?
Howas the current outlook? Any slowdown in offtakes seen/expected from customers? Any impact seen from European customers?
11). EBITDA margin expansion guidance of 18.5% for FY12 (17+1.5).
Q2 EBITDA @15% performance is not matching up. Do you still maintain the EBITDA guidance? Is the Sales guidance of 40% growth for FY12 on track?
12). Forex Management. Forex hedging mark-to-market loss of 8.85 Cr in Q2.
Please elaborate on Forex hedging policies followed. If raw material/forex variations are pass-through to customer in CSM contracts, why do we have such large mark to market losses (8.85 cr in Q2)?
Rupee depreciated badly only in Sep 2011. How much of net forex outflow do you hedge?
13). Joint Research Centre with Sony Corporation
Kindly comment on the progress, and revenue generation outlook? Has actual work on any molecules commenced? What is the visibility on revenue generation a FY13?
How is the JV with Sony structured? How much is the company investing in the R&D with Sony? How much is Sony spending? Who owns the intellectual property (if any) that comes out of this research?
Prima Facie… Comprehensive coverage Donald… Just few things from my side based on initial things that are clicking my mind…
(1) Rgdg. New Plant — Since its a multiproduct plant, so how much is it in size as compared to existing capacities that company has in CSM segment…how many months it will take for stabilisation once commisioned and what will be the capacity utilization time-slate thereafter…Is existing capacities of CSM fully utilized…At full utilization what could be the revenue generation of existing as well as new plant separately on a full year basis…
(here… I would like to point out one thing Donald… management has been repeatedly saying that CSM segment capacities can’t be quantified as in normal manufacturing business and one has to look at order-book to judge the capacities required…so we need explanation of this in case management hints at same thing again asto what is exactly meant by this since without judging the quantification of capacities required how are they expanding based on pure order-pipeline)
(2) Any equity dilution planned in FY13 or FY14.
(3) The debt level wehave seen in FY11 at around 250 cr… is it the maximum we have seen and going forwardcan weexpect significant reduction in debt level by seeing company using robust cash generated to retire debt… or CSM business will demand larger capital on increasing scale thereby we will see cash generated being used to meet the CAPEX…
If anything else is there will get back…
Rgds.
Does the management perceive “seemingly growing consumer awareness in India on excessive use of agri chemicals and preference to use organic produce” as a risk or potential risk to agri chemicals segment’s growth? What mitigation plan do they have in place?
PI Industries Conference call for analysts and investors on Wednesday, November09, 2011 at 5:00 pm IST.
Primary Number: +91 22 6629 0301
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+91 22 3065 0122
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Thanks Mahesh and Binu for the additional questions. Will consolidate with others questions that come in.
Good compilation. Additional Qns for PI Industries.
1). R&D Team - Process research strength must be a key operational area for PI. Please share what kind of team PI has built up today, qualifications & profile of lead scientists, etc. Whats the strength today, and what are the plans of scaling this up going forward? How easy/difficult is this in todays market conditions?
2). CRAMS scale manufacturing - We understand today’s manufacturing scale is at kilo labs scale. Please expalin the nature of investments that will be needed to scale up to CRAMS scale (Tonnes) level, should an opportunity arise. Given the current pipeline, how far are we from needing this level of investment in capex for PI.
