Punjab Chemicals & Crop Protection Limited (PCCPL) A Clear Runway Ahead!

Punjab came up with decent sales growth of 29%, margins were under pressure resulting in 17% decline in net profits. Management is very bullish on growth in FY23, some part of the margin deterioration was strategic in nature (to gain market share in certain molecules). My concall notes are below:

FY23Q1

  • Faced margin pressure due to higher power costs. Gross margin pressure was due to lag in price hike, some part of which is strategic in nature. Gross margin pressure can continue in Q2 and should come back to normal levels in Q3FY23, company is targeting sales growth in-line or slightly higher than last year (i.e. 37%+)
  • Agri residue prices increase led to higher power costs, along with higher fuel costs. Looking for alternate energy sources
  • Some of the price hike delay is to gain market share in certain newer molecules. It’s a herbicide with a market size of 2500 MT, Punjab’s market share is less than 20% and they intend to reach 40%
  • Lalru lower production: One specific product had much lower production as that agri-molecule failed last year and there is lot of inventory in market. Will start production of that product in Q3
  • Working on 2 new products with much higher realizations ($80/kg to $140/kg) with market size up to 500 MT
  • In agro, products are on 5-year long contracts
  • UPL contribution will go down to 30% in next-3 years and 25-30% in 5-year time frame. In FY22 UPL contribution was 36-37% (why is there a mismatch with annual report numbers?)
  • Added 3 Japanese customers in previous year
  • Metconazole: Should double production this year due to re-registration in Europe. Discussing another molecule with Kureha
  • Should have higher production in Q2 and Q3. Should have 15%+ volume growth in FY23
  • There are 11 disclosed products on the investor presentation + 4 undisclosed due to confidentiality. Out of these 15 products, 6 were added since 2020 and have contributed around 400-450 cr. of sales. 2 of these are still not running at optimal utilization

Disclosure: Invested (position size here, no transactions in last-30 days)

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