PI Industries Ltd. (PIIND) Q4 FY22 Earnings Concall Transcript

PI Industries Ltd. (NSE: PIIND) Q4 FY22 Earnings Concall dated May 18, 2022

Corporate Participants:

Nishid Solanki — Analyst

Mayank Singhal — Vice Chairman and Managing Director

Manikantan Viswanathan — Chief Financial Officer

Rajnish Sarna — Joint Managing Director

Atul Gupta — Chief Executive Officer, CSM Exports

Prashant Hegde — Chief Executive Officer, Domestic Agri Inputs

Analysts:

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Ankur Periwal — Axis Capital — Analyst

Vishnu Kumar — Spark Capital Advisors — Analyst

Rohan Gupta — Edelweiss Financial Services — Analyst

Pratik Rangnekar — Credit Suisse — Analyst

Chintan Modi — Haitong Securities — Analyst

Sumant Kumar — Motilal Oswal Financial Services Ltd. — Analyst

Surya Patra — PhillipCapital — Analyst

Ramesh Sankaranarayana — Nirmal Bang — Analyst

Viraj Kacharia — Securities Investment Management — Analyst

Gaurav Chopra — Union Asset Management Company Pvt Ltd. — Analyst

Tejas Sheth — Nippon India Mutual Fund — Analyst 

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q4 and FY ’22 earnings conference call of PI Industries Limited. [Operator Instructions]

I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you, sir.

Nishid Solanki — Analyst

Thank you. Good afternoon, everyone, and thank you for joining us on PI Industries’ Q4 FY ’22 Earnings Conference Call. Today, we are joined by senior members of the management team, including Mr. Mayank Singhal, Executive Vice Chairman and Managing Director; Mr. Rajnish Sarna, Joint Managing Director; Mr. Manikantan, Chief Financial Officer; Mr. Prashant Hegde, CEO, Domestic Business; and Dr. Atul Gupta, CEO, Exports — CSM Exports.

We will begin the call with key perspectives from Mr. Singhal. Thereafter, we will have Mr. Manikantan sharing his views on the financial performance of the company. After that, the forum will be open for question-and-answer session.

Before we begin, I would like to underline that certain statements made on the conference call today may be forward-looking in nature, and a disclaimer to this effect has been included in the Investor Presentation shared with you earlier and also available on stock exchange website.

I would now like to request Mr. Singhal to please share his perspectives with you. Thank you. And over to you, sir.

Mayank Singhal — Vice Chairman and Managing Director

Yes. So, welcome and good afternoon, everybody, and thank you for your participation in today’s call.

Last year, we began with the new fiscal under the cloud of COVID second wave, faced significant operational challenges, with very high infection rates in several months followed by unprecedented supply chain challenges coming from China. And finally, Russia and Ukraine conflict, further adding to the chaos and resulting in rising input cost trends apart from supply chain disruptions.

While with this backdrop of the overall business operation environment in 2021, I’m very pleased to report that PI team has done an excellent job in continuing its growth momentum on revenue and EBITDA during the Q4 and year ’21-’22. The expansion came in despite, of course, the challenges and high base of last year, both domestic as well as exports, rising trends and input costs. I thank all the PI team members for their winning spirit and all our business partners for their continued support and trust in our relationship.

Now in the CSM export space, traction in our new enquiries continue with a significant number of enquiries coming from non-ag chem space of electronics and pharma and other areas. During the last fiscal year, we acquired a few customers. There is a rich pipeline of 40 plus products in different stages, more scale up, of which more than 20% are from non-ag chem products.

We are targeting to commercialize 6 to 7 molecules in the current fiscal ’23. We have also stepped up our capacities during ’22, with two multi-product plants fully commissioned, including chemistry building blocks for monomethylhydrazine, commissioned and various technology initiatives to improve capacity throughput of existing plants.

Our domestic performance for the quarter was driven by favorable agro-climatic conditions during the Rabi season, supported by price hikes effected by key products. We undertook successful launch of one of the new insecticides for rice and three specialty fungicides focused on horticulture and rice. We have also successfully launched a number of new brands in the horticulture segment under Jivagro, and we are excited by the whole slew of products recently launched and are going to be launched shortly.

Disruptor, an innovative insecticides launch for rice, Disruptor has unique mode of action to control Brown Plant Hoppers effecting the rice crop. We are launching two patented insecticides DINOACE, another broad spectrum insecticides for the crops — Chili core crops, etc. Provide [Phonetic] in a herbicide of cotton to be launched this quarter along with DINOACE will have one of the most comprehensive crop protection solutions for cottons with an estimated of 120 lakh hectares under cultivation in India. An innovative nematicide, SECTIN, a prospect of fungicide both target horticulture segments, are launched in the current fiscal year.

We are witnessing high sowing in the upcoming Kharif with acreage across pulses, core cereals and oils and mark as an increase. Given our normal forecast of the monsoon, the trend is bound to pick up as we reach the end of the summer. Although reservoir levels are above the annual average for this time of the year, we are witnessing lot of pre-monsoon showers in Northern and Central India, which combined with the usual heat wave could influence cultivation.

As mentioned during our previous investor call, we have refreshed the PI compass to set a clear direction and vision for our future growth. For the purpose of reimagining a healthier planet, our vision to lead it with science, technology and human ingenuity to create transformative solutions in the life sciences. We are now cascading purpose vision with our spiky capabilities and value proposition across different levels of the organization to drive to a bigger, sustainable growth in the near future.

Given the combined thrust from the lifting of the pandemic-induced lockdowns globally and massive injection liquidity by the Central Banks to post intense phase of pandemic, agri commodity prices globally being firm besides the Make in India program and continued supply chain disruptions in China, combined with government focused efforts to maximize exports from value-added products will ensure profitable growth of the chemicals sector in the years to come.

The domestic segment also enjoys solid tailwinds, record prices and export-led growth, encouraging farmers to adopt modern crop protection techniques for maximize productivity being the norm. Our business outlook remains robust and confident of delivering 18% to 20% growth, plus continued improvements in margin returns. For the current fiscal, we see further risk of raw material increase in inflammatory trend, although it is a target to mitigate the risk by pricing, optimizing product mix as well as driving operational efficiencies.

Diversification into adjacencies to inorganic [Phonetic] remains the top of the agenda, apart from technology scale up. We are evaluating various M&A opportunities, both in India, outside India to zero down on a few to meet our objective of creating a sustainable different value proposition. Last but not least, we are proud of our industry and customer accolades. As announced earlier during ’22, PI emerged as one of the top quartile in the very first S&P Global Sustainability Assessments with 82 percentile industry ranking. We also won the Heritage Company of India at FICCI @75, Chemical and Petrochemical Industry Awards, amongst other recognitions.

With that, I would like to thank all the stakeholders for their contribution. And I would now like to hand it over to our CFO, Manikantan, to share the highlights of our financial performances. Over to you, Mani. Thank you.

Manikantan Viswanathan — Chief Financial Officer

Thank you, Mr. Singhal. Good afternoon, everyone, and thank you for joining us on the call today.

I’ll will be summarizing the financial highlights of the company for the fourth quarter and full year ended 31 March, 2022. Please note that all comparisons are on year-on-year basis and refer to the consolidated performance.

During Q4 FY ’22, we reported revenue INR13,952 million, a growth of 17% over the same period last year. This was driven by solid growth in export revenues by 11% to INR11,142 million and 47% gains in domestic revenue to INR2,810 million. I’d like to highlight here that we have grown on a high base of last year where the domestic revenues grew by 11% and export revenues increased by 47% in Q4 FY ’21 over the previous Y-o-Y.

Revenue growth of 17% was by price increase of 7% and balance from volume growth. The trend of elevated input costs continued during this quarter, although we effected partial pass-through by increasing product prices both in exports, as well as in domestic. Our gross margin increased by 196 basis points in Q4 FY ’22 to 44%, partially due to cost pass-through and favorable product mix with negative impact of rising input costs. EBITDA increased by 34% to a record INR3,056 million for the quarter. Cash generated from operations before tax during Q4 FY ’22 of INR2,640 million. Profit after tax improved by 14% to INR2,044 million, in line with planned effective tax rate.

Let me also cover the annual performance for FY ’22. Revenue was INR52,995 million, a growth of 16% over FY ’21. This was driven by solid growth in export revenues by 20% to INR39,902 million and 4% gain in domestic revenues to INR13,093 million. In domestic segment, we have grown on a higher base of last year where the domestic revenues grew by 39% over the previous year on a Y-o-Y basis, including the impact of Isagro acquisition.

Revenue growth of 16% was driven by price increase of 23% approximately and balance on volume growth. Operating expenses increase of 24% is mainly attributable to sharp increase in fuel prices, leading to an increase in utilities costs, from a one-time expenses pertaining to strategic initiatives and COVID-related expenses. EBITDA increased by 13% to INR11,460 million for the year. However, there was a moderation in EBITDA margin, which reduced by 59 basis points on a year-on-year basis. Profit after tax improved by 14% to INR8,438 million, in line with planned effective tax rate.

Our balance sheet further strengthened during the quarter. Net worth increased by INR7,780 million [Phonetic] to INR61,204 million. Net sales to fixed assets ratio improved to 2.06 from 1.89, while total capex for the year stood at INR3,204 million. For the forthcoming year, we estimate a capex of around INR5,000 million. Inventory level was maintained at similar level as last quarter to avert supply chain disruptions and meet customer supply schedules and continued operations.

Paid receivables has remained relatively flat at 69 days DSO as on 31 March, ’22, vis-a-vis 68 days as on 31 March, ’21. Payables in terms of days of sales has also remained flat at 64 days vis-a-vis 63 days as on 31 March, 21. The company maintain a strong liquidity position with surplus cash, net of borrowings, ECB borrowings of INR21,642 million, including QIP proceeds.

That concludes my opening commentary. I will now request the moderator to open the forum for Q&A. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Tarang Agarwal from Old Bridge Capital. Please go ahead.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Hi. Good evening. Two questions from my side. In your presentation, as you’ve mentioned that you’ve developed a intermediate — at a pilot plant through continuous flow chemistry process. Can you give us some sense in terms of what are the benefits of this technology in terms of timing, in terms of cost versus the traditional technology used to manufacture this intermediate and how probable it is that you’ll be able to scale it at a factory level? That’s number one. And how pervasive would it be, how big could this be? Because my sense is, you would have specific equipment for this?

The second is the net sales to fixed assets ratio has moved up quite meaningfully in this year. How should — is there a benchmark that you are looking at? How should we see this going forward. Thank you. That’s it from my side.

Mayank Singhal — Vice Chairman and Managing Director

Let me take the question on the flow technology. Obviously, there’s nothing that is that new to the global industry. It is something, which is still under works and has been in works in certain other areas. Obviously, the application in certain specific areas are new, which is what we are evaluating. Clearly, there is a good enough, strong enough case to create some value benefits, which we see, basis of which the experimental data convinces us to look at the commercialization of the same and bring that value-added proposition. I think that’s the best I would like to mention for now, given the technologies’ uniqueness and our ability to use and apply from a IP and intellectual standpoint. So obviously, the company is looking at from that. Scalability will, obviously, has a future. And once we learn more, we’ll be able to put a lot more through it and understand it better.

The next question was about the asset?

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Yes. Net sales to fixed asset ratio.

Mayank Singhal — Vice Chairman and Managing Director

Rajnish?

Rajnish Sarna — Joint Managing Director

Yes. So, Tarun, we are already now operating at more than two times, okay, in terms of asset turn. And I think this is — given the nature of our industry and intensity of asset, this is a reasonably good ratio. However, having said so, there are continuous efforts being put in, both on our research side in terms of improving the processes of various products that we are producing at commercial scale in order to improve the time cycles, in order to improve the throughput of these plants. There are clear targets set in the beginning of the year for all these molecules. So, we are working towards further improving that. And yes, I mean, product mix is another factor which plays out while we work out this asset turn. So on both the fronts, efforts are continuously made at our end so that we can improve the overall asset turn and overall capital efficiency of the business.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Is there a benchmark that you all look at? Or it’s a very case-to-case situation?

Rajnish Sarna — Joint Managing Director

Well, to be honest, we are already kind of exceeding the benchmark. Generally in this industry, 1.752 is considered to be a reasonably good benchmark. But as you know, we are already doing better than that and therefore, wanting to set our own benchmarks. And every year, we are expecting to rather setting internal targets to improve 10% to 12%. Again, this varies from product to product. Every product has different complexities.

Tarang Agrawal — Old Bridge Capital Management Pvt. Ltd. — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.

Ankur Periwal — Axis Capital — Analyst

Yeah. Hi, sir. Thanks for the opportunity. Sir, first question on the growth outlook on the CSM side. Now, we commercialized nine molecules last year. You mentioned that we are looking forward for six to seven molecules more. Couple of quarters back, we did highlighted electronic chemicals being sort of picking up and we are ramping up on the non-ag chem side here as well. So just want to understand whether 18% to 20% is because there will be a pricing-led inflationary increase here as well, so this 18% to 20%, how should one look at this number, probably breakup of volume or realization here?

Rajnish Sarna — Joint Managing Director

Yes. So, I mean, this price volume in a short to mid-term, as we have already explained in past, there is always a lead and lag in this industry. But over a period of time, these prices are all always — inflationary impacts are always factored in, in the demand, in the pricing and in the demand. But having said so, this 18% to 20% growth that we are indicating, I mean it is, I would say, almost similar kind of growth we are expecting both on export side as well as on domestic side. We are — even on domestic side, we have very good visibility in terms of scaling up some of these recently launched brands and the kind of new products that we’re launching. So yeah — on export side, I mean, mostly it will come from the volumes because most of the price sectors or escalations are already factored in. I mean, we certainly cannot sitting today imagine what kind of further inflationary increases are on the way. But so far, whatever inflationary changes have come in last, I would say, six months or so, those are already kind of factored in, in the pricing of these products and for new campaigns. So, considering that, we are taking this 18% to 20% growth, which should mostly come from the volumes.

Ankur Periwal — Axis Capital — Analyst

Sure, sir. That’s helpful. And just, secondly, on the overall RM inflation side. In our presentation, we do mention, we have been taking price hikes there to pass-through the RM inflation. At current juncture, is large part of the inflation across the both segments is already passed through or probably it will take another maybe quarter or so. And another just adjacent to it, the channel inventory on the domestic side, how is the situation there on the ground?

Rajnish Sarna — Joint Managing Director

Yeah. So major part is already passed through, but yeah, there are several products because, again, there is always a lead and lag. Some campaigns are running. Some campaigns have to start. So in this kind of a scenario for some campaign products, you have some inventory. For some other products, you are buying inventory. So depending on different scenarios, if I see overall, I think significant part of this has already been passed through. But yes, there is still room and scope for passing through for the remaining products, which will happen in next quarter.

Ankur Periwal — Axis Capital — Analyst

Sure. So, there should be a positive bias on the overall margins here.

Rajnish Sarna — Joint Managing Director

Yes. You have any other questions, please?

Ankur Periwal — Axis Capital — Analyst

No, that’s it, sir. That’s it from my side. Thank you.

Operator

Thank you. The next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead.

Vishnu Kumar — Spark Capital Advisors — Analyst

Sure. Thanks, sir. Sir, in the past, you had told that many of the CSM contracts we have more like a per kilo margin or a per ton margin is what we operate with. So any costs generally get pass through. But this inflationary scenario, we have maintained top line growth. We have also expanded margins. Slightly counterintuitive in terms of our past understanding because if per kilo margins remain, the margin should probably come off a little. So if you could explain to us what is different in the past versus now?

Rajnish Sarna — Joint Managing Director

No, it is same as what we have explained and what we have achieved. These differentials not necessarily come from the increase in the given products and their margins. Change in product mix also contributes to the overall margin. And that is also important factor, which has played out. Over the period or over the year or two years, there is a change in business mix between domestic and export. And within the business or within the segment, there is also a change in product mix.

Certain products, which are at early stage of their life cycles have — obviously, they have better margins compared to some of the products, which are little down the lifecycle of their product portfolio. So, yeah — I mean, they are — the overall understanding is the same as you just mentioned that there are transparent costs with a very much shared with our business partners and very clear understanding on uptrend, downtrend. These are pass-throughs. So that the margins in the products are maintained. [Speech Overlap] In a given scenario kind of increasing margins, that’s not the kind of situation and not the understanding.

Vishnu Kumar — Spark Capital Advisors — Analyst

Got it, sir. Any intermediate where you had — in the past, you were mentioning that you were developing some intermediates on your own, either on MHH. Those are contributing to the margin delta. Is that the answer to the question?

Rajnish Sarna — Joint Managing Director

No, that’s not the case here. In this overall big picture, that doesn’t make a significant impact in any case. It is mainly driven by the change in product mix, which helps.

Vishnu Kumar — Spark Capital Advisors — Analyst

Got it, sir. Sir, any thoughts you can give of our CSM exports? How many products would — or in terms of contribution, what is the early-stage molecules? What is advanced stage molecules? Some percentages, how would this change in the last few years?

Rajnish Sarna — Joint Managing Director

We won’t have right now only in front of us. But yeah, I mean, we can talk separately about it.

Vishnu Kumar — Spark Capital Advisors — Analyst

Understood, sir. One final question. On the asset utilization, you had mentioned that we will — we could be doing more than what the asset turns that we were historically doing because of certain change in processes you mentioned. Is that more or less done? Or we still have some gap before, which we need to start investing a lot for capacities?

Rajnish Sarna — Joint Managing Director

No, as I mentioned to the earlier participant that we are operating at a very efficient level in terms of asset turn, but it’s a continuous improvement process. I mean, we are very effectively working on further improvements on both sides, whether it is process improvement or whether it is — even further improving the product mix so that the overall throughput from the plant, revenue from the plant, margin from the plant can improve.

Vishnu Kumar — Spark Capital Advisors — Analyst

Got it, sir. These INR500 crores, we are investing, how many plants or any multi-purpose plants we’ll be adding this year? If you could just….

Rajnish Sarna — Joint Managing Director

Well, this is — this is not being spent on one plant or two plants, there are different categories of capex. There is a maintenance capex. There is capex towards some of the research side and capital efficiently and process improvement side. So, yeah — I mean, there are different categories of capex included here. But yeah, it will be more than 1, 1.5 kind of MPP capacity that we’ll create and — yeah, this is how it works. Got it, sir. Thank you. And all the best.

Operator

Thank you. The next question is from the line of Rohan Gupta from Edelweiss Financial Services. Please go ahead.

Rohan Gupta — Edelweiss Financial Services — Analyst

Hi, sir. Good evening, and thanks for the opportunity. Sarna sir, you have earlier guided that your asset turn, which you are aspiring to go up to close to 2.2 times to 2.4 times, you still maintain that with the rising inflationary scenario and also on our greenfield capacity additions and on top of this, INR500 crore capex plans, can you guide us any further capex plans for future?

Rajnish Sarna — Joint Managing Director

Yeah. So, we are working, Rohan, towards that improvement. I mean, we are already at, whatever, I think, 2.1 or something. And I’m sure that the kind of effort that our teams are making, both on research side, new products getting commercialized, product mix improving, I’m sure that there is a scope and we will surely be achieving better returns over the years. In terms of investment in greenfield, frankly, at this point, there is no such plan because we have still scope for expansion at our existing sites. So therefore, we are reconsidering some brownfield projects in the current year, next year because there is scope for expansion at a couple of our sites, existing sites. So as and when we will need some additional area or greenfield, yes, we will surely evaluate at that point in time. But at this point, there is no such plan.

Rohan Gupta — Edelweiss Financial Services — Analyst

So, sir, just to clarify that at our existing facilities, you think that how much investment, further investment it can absorb and also you mentioned INR500 crores capex for the current year, right?

Rajnish Sarna — Joint Managing Director

Yes.

Rohan Gupta — Edelweiss Financial Services — Analyst

So how much along with — I mean, despite the INR500 crore for this year, how much you think that your current facilities without getting into new greenfield can absorb in terms of money investment?

Rajnish Sarna — Joint Managing Director

Well, we have for — next, I would say, next two, three MPPs and we can still get them at our existing sites. We have space in Jambusar. We have space in one of the sites in Ankleshwar. We have some other site available. So in that sense, there is scope for at least, I would say, next couple of years of expansion, there is no need for us to go and acquire land and start from scratch. That is not the kind of scenario we are in at this point.

Rohan Gupta — Edelweiss Financial Services — Analyst

Sir, another is on our pharma acquisition. Any lead you can provide us? I know that we have been talking about it from last every quarter, but I think that there would have been some challenges and delays. Anything — any visibility increasing there, sir?

Rajnish Sarna — Joint Managing Director

So, no challenges or difficulties. We are very actively evaluating some options, okay, both on CDMO side, API side, in India, outside India. So, there are some interesting propositions, opportunities we are evaluating and we shall certainly announce when we get to a definitive stage.

Rohan Gupta — Edelweiss Financial Services — Analyst

And sir, just final from my side. I’ll get back in queue. Sir, you mentioned that there is enough and very attractive opportunities coming from the non-ag space, especially in non-agri and non-pharma space, new age chemicals and all. You also gave, I think, some number, 20% revenues coming from non-ag space. Can you, sir, little bit guide more toward it and how the pipeline — and I think that you also mentioned that you acquired eight new products in the non-agri space. So what are these product pipelines looking at? How do you see this non-agri space going forward in next three years? What kind of revenue contribution it can have from non-ag chem space, if you can give some more elaborated numbers on that?

Rajnish Sarna — Joint Managing Director

So first to clarify, Rohan, that we have never indicated or said that 20% revenue coming from non-ag chem. No, that is not the case. 20% reference is to the number of molecules that are there in the R&D pipeline. We have, say, close to 40, 40 plus kind of projects at this point in time in R&D and a significant number, particularly in last one, one and a half years significant number of projects enquiries and projects, which have progressed in R&D are from non-ag chem segment.

I’ll also request my colleague, Atul, through also — Dr. Atul to also put some light on how the progress is happening on some of these non-ag chem inquiries in R&D.

Atul Gupta — Chief Executive Officer, CSM Exports

Yeah. So, Rohan, on the non-ag chem segment, we are building a state-of-art joint [Phonetic]. And accordingly, the R&D infrastructure is also being aligned and created to start having right kind of focus on the non-ag chem molecules.

Rohan Gupta — Edelweiss Financial Services — Analyst

Okay, sir. Thank you. Thank you very much.

Operator

Thank you. The next question is from the line of Pratik Rangnekar from Credit Suisse. Please go ahead.

Pratik Rangnekar — Credit Suisse — Analyst

Hi. Hi, sir. Thanks for taking my question. I just had one question on the — on one of the points that you mentioned in the presentation. You mentioned that there should be two new process innovations that will be commercialized in FY ’23? Could you just provide some color on which part of the P&L items this would impact? What kind of benefit you will see [Phonetic]?

Rajnish Sarna — Joint Managing Director

Well, it is on products. I’m not sure what you talked about P&L item, but it’s on products where we have got certain process innovations, which are getting commercialized. Yes, we have commercialized one. It has scale up big time.

Pratik Rangnekar — Credit Suisse — Analyst

So, that would lead to better cost, more revenue?

Rajnish Sarna — Joint Managing Director

Pratik, this helps in — this helps in sustaining some of these businesses that we are in. The moment we get into these innovative processes, I mean, that ensure the long-term stickiness of those businesses and that is the key drivers to get into these innovative processes.

Pratik Rangnekar — Credit Suisse — Analyst

Got it. So, this is primarily on the existing products that you have, you are going to the process more efficient, is that understanding right?

Rajnish Sarna — Joint Managing Director

Yes. One — I mean, one of them is existing and one of them is the new in-process pipeline product that we are currently working on.

Pratik Rangnekar — Credit Suisse — Analyst

Got it. Thank you. Just one more on the domestic part. In FY ’22, we’ve seen that your Kharif to overall sales ratio, the ratio of Kharif sales to overall domestic ag-chem sales have come down, which kind of reduces the seasonality in that part of the business. Would we expect a similar ratio to continue? Or is there some kind of inventory bunching up in 4Q or something that will happen, which will not be there next year?

Rajnish Sarna — Joint Managing Director

No. In fact, last financial year, if you recall, Kharif was not at all good. I mean, even for the industry, given the rainfall, both in terms of timing and distribution and various other agro-climatic conditions, the Kharif season was not great for overall industry. So, I don’t think that can be taken as a representative case for every year. There are — although it is quite early, but there are announcements of normal monsoon in the current fiscal. There are also announcements of good acreages for various crops. So at this stage, we hope that Kharif should be normal year, I mean, normal for this season.

But I’ll also ask my colleague, Prashant, if he is on the line to kind of throw some more light on this. Prashant?

Prashant Hegde — Chief Executive Officer, Domestic Agri Inputs

Yes. Thank you, Mr. Sarna. So, yes, it’s a good question. Look, as we start introducing new products, we are also expanding into wheat crop. We are also expanding into horticulture. So, these are all, basically more of Q2, Q3 and Q4. As we start scaling up these products, yes, there will be a little bit of high [indecipherable], which you can see in the second half of the year. Having said that, Kharif is going to be still a major season for us. But yes, there will be more spread, I can say. But in the immediate 2022-’23, we will see Kharif in major. Got it. Thank you.

Operator

Thank you. The next question is from the line of Chintan Modi from Haitong Securities. Please go ahead.

Chintan Modi — Haitong Securities — Analyst

Yeah. Thank you, sir, for the opportunity. Sir, with the six to seven new molecules that you are planning to commercialize, are these all from agrochemical side or this would include non-agro chem also?

Rajnish Sarna — Joint Managing Director

Yeah. Mostly from agro and then out of 7, I think four products — yeah, four products are from ag-chem and three from non-ag chem space.

Chintan Modi — Haitong Securities — Analyst

Okay. Sure. And in your commentary, when you mentioned that you are seeing good amount of inquiries coming in from non-ag chem side, are you also seeing similar kind of excitement on the ag-chem side? Or there is some kind of moderation also happening over there?

Rajnish Sarna — Joint Managing Director

No, we are seeing good traction even in enquiries of the ag-chem space. In fact, as you can see, overall enquiry rates has gone up by two times. So it’s indicator of both hotlinks.

Chintan Modi — Haitong Securities — Analyst

Sure. And one more just to understand, like in such inflationary when there is so much of rapid inflation, which impacts the capex cost as well, so especially when you have committed a price for a molecule to your customer and post that, capex what you have planned, the cost goes up significantly. So in such cases, how do you approach? Is it like the ROE has kind of taken a hit? Or were you able to kind of manage that?

Rajnish Sarna — Joint Managing Director

Well, generally, in these molecules that we work and the kind of relationship that we have with these global companies, these things are very much understandable. They also understand that if, for example, if INR100 capex is becoming INR150, I mean obviously there has to be overall proposition, which should be sustainable for their business partner who is getting into supply. So in these kind of business scenarios, we sit together. We, very transparently, discuss, deliberate on the situation and these things are very much considered from their side. [Indecipherable]

And generally, what happens that it is not that we have done the contract and then we get into the capex spending, both things happen together, okay. There is an understanding, broad understanding, then we start budgeting the spending. And if there is some change in the budgeting, I mean, we very transparently discuss with our business partners group. And in most cases, they consider these changes, given the kind of scenario that we are in. And these become part of the revised plans and revised pricing structures.

Chintan Modi — Haitong Securities — Analyst

Sure. And what should be the tax rate that one should assume for next two years?

Rajnish Sarna — Joint Managing Director

Mani?

Manikantan Viswanathan — Chief Financial Officer

Yeah. An effective tax rate of 18% to 19%, you can assume.

Chintan Modi — Haitong Securities — Analyst

Okay. Okay. Sure. Thanks a lot, sir.

Operator

Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.

Sumant Kumar — Motilal Oswal Financial Services Ltd. — Analyst

Yeah, sir. Can you quantify the margin expansion you were talking about and what was the reason for the margin expansion? The second question is the capex for the FY ’23 and ’24.

Rajnish Sarna — Joint Managing Director

So capex, we have guided close to INR500 odd crores for FY ’23, and it is little early for us to kind of integrate number for next financial year. But yeah, I mean, tentatively, we say that INR350 crore, INR400 crore is what the kind of rate that we are currently thinking. But yeah, I mean the more final number would be known maybe later in the year. Your earlier question in terms of margin expansion, so margin expansion — yes, I mean, in the kind of scenarios that we are sitting today where it is difficult to kind of predict that what is the kind of cost trend that we are going to see both on raw materials and fuels and other convergence. It is really very difficult to put a number that whether it is 100 basis point or 200 basis point. But what kind of visibility that we have today is that there is certainly going to be some operating leverage with the kind of growth that we’re talking, 20% growth. And therefore, I mean, we have a good headroom to improve margins from the current levels. That is one.

Secondly, in the second half of last year, okay, we have commissioned at least four new products, commercialized four new products. And you can imagine that in the initial commissioning time, there are inefficiencies and all those things. So, we expect that in the current fiscal, we will be able to certainly improve on those processes, costs and therefore, there is some room to improve overall gross margins and also because of operating leverage, EBITDA margins. But at this point in time, I’ll try not to put some number on it.

Sumant Kumar — Motilal Oswal Financial Services Ltd. — Analyst

So can you give the breakup of INR500 crores? We are talking about capex in CSM and domestic business. And how many plants we are in?

Rajnish Sarna — Joint Managing Director

Well, it will be mostly in the CSM space because we hardly do capex in our domestic marketing industry.

Sumant Kumar — Motilal Oswal Financial Services Ltd. — Analyst

So, this INR500 crores is for the MPP plant?

Rajnish Sarna — Joint Managing Director

Pardon? The INR500 crores for CSM, how many plants we are installing? No, I already answered this question, my friend, to the earlier participant that there are different sections of this capex. For example, there is capex for maintenance. There is capex in our research and development center. There is capex in some of these new technologies we are developing for future. So it is not that all capex is going for building a multi-product plant or capacity. No, that’s not the case.

Sumant Kumar — Motilal Oswal Financial Services Ltd. — Analyst

Thank you so much.

Rajnish Sarna — Joint Managing Director

We mentioned to the earlier participant, yes, capacity to the tune of 1 to 1.5 multi-product plant will certainly be there. This is what we are building as part of capex.

Sumant Kumar — Motilal Oswal Financial Services Ltd. — Analyst

Okay. Thank you so much.

Operator

Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.

Surya Patra — PhillipCapital — Analyst

Yes. Thank you for this opportunity. Sir, first question is on the potential growth that we can see through M&A beyond the 20% kind of a growth indication what we have provided. So could you give some sense on that, sir? I think the pharma is one angle that you have been indicating, and I think that is not obviously built into the expectations or guidance. So can you share something there?

Rajnish Sarna — Joint Managing Director

Well, again, putting a number here is difficult, as you can imagine, because it will all depend on the size of the assets that we acquire, the size of the business that we acquire. So yes, but all said and done, this will be in addition to our guidance of 18% to 20%.

Surya Patra — PhillipCapital — Analyst

Okay. Sir, just something slightly more on the pharma side. I think having seen whatever the kind of deal cancellations and now we are also getting ready for even international M&A. So what is the thought process there, sir? And is it like having a base closer to the customer? So that is why the international acquisition — that is what is the thought process or something else?

Rajnish Sarna — Joint Managing Director

Yes. So thought process is, I think we have in past very clearly guided that what is our aim in M&A overseas situation. Our aim is that as part of our long-term strategy, we want to kind of build a differentiated business model, okay, which is in line with what we are doing in ag-chem as a CSM player. So, we kind of eventually build a differentiated CDMO model in pharma. And on this path, we will it start from somewhere. And we believe that as a roadmap to get to this ultimate objective, it would always be beneficial for us to have certain assets in India, and also some sort of front-end in some of these developed markets whether it’s U.S. or Europe and some of these other markets. So with this aim, we are looking at opportunities both in India as well as outside India.

Surya Patra — PhillipCapital — Analyst

Okay. Okay. Sir, my next question is on the domestic formulation business. Yeah, I think in a [indecipherable], in this 47% kind of a growth in the fourth quarter, what was the kind of a volume-led growth and what would be the pricing growth? And generally, having since — since you have recently guided that in the previous question. You had mentioned that possibly second half of the year is likely to see a better growth, driven by the new launches. That — and considering the low base of a first half of last year, so is it fair to believe a strong double-digit kind of a growth in the domestic formulation side that we should look at?

Rajnish Sarna — Joint Managing Director

Yes. So, we are expecting a high double-digit kind of growth in the domestic area in this fiscal ’23. Now, how much happens in the first half or the first season, Kharif season and the Rabi season will also depend on how these seasons pan out and how the initiation of monsoon happens. But as I was telling earlier, the very preliminary indications are positive, both on the monsoon, as well as the acreages growth that we are witnessing. So, this looks positive. And yes, I mean — since in the first half, we had — last year, we had a little softer scenario. We expect that in the first season this year, we should have reasonably good growth.

Surya Patra — PhillipCapital — Analyst

Okay. And in this first part of the question, sir, 47% growth, what has really led that in the fourth quarter?

Rajnish Sarna — Joint Managing Director

This was led by both, I think introduction of some of the new products, some of the recently launched products like wheat herbicide did very well. I mean, we significantly improved our volumes and acreages that we had done last year. This year, we kind of doubled and tripled those acreages and the volumes in the wheat herbicide. Some other products were also launched and also we went very aggressive even in horticulture space where we could also register some good growth. So, all these aspects contributed in this growth.

Surya Patra — PhillipCapital — Analyst

Okay.

Rajnish Sarna — Joint Managing Director

And relatively, if you see last year, fourth quarter was also not very high or significant growth. It was, I remember, close to 11% — 10%, 11%. So that also helped.

Surya Patra — PhillipCapital — Analyst

Okay. On your permission, the last question, sir. Just on the margin. Just to understand better on the margin profile front, we have consistently and confidently delivered around 19%, 20% kind of a growth CAGR over the last five years, but we have remained in the margin. So far as margin profile is concerned, we remain in the range of around 21%, 22% in that range. So going ahead, is it the product mix, the newer product or the pipeline product that will drive the expansion further? Or it is efficiency, which can drive further? Or it is the domestic to export mix that will drive the margin further? Sir, some sense on that would be really helpful.

Rajnish Sarna — Joint Managing Director

Well, by the way, we grew by close to 35% in last fiscal and I think close to 30% in FY ’20. Okay. So, you can imagine that we are growing on a bigger base. Yes, we guided for 20% or close to 20%. But we, as a management, we always believe in exceeding and outperforming our guidance and those were also very uncertain times. So, we were also very cautious as we have indicated. Now this year, we grew by close to 16% on overall year basis. The margins, as we explained earlier, overall scenario and probably, I’m sure that as an analyst, you will also kind of give this credit to the management team….

Surya Patra — PhillipCapital — Analyst

Certainly, sir.

Rajnish Sarna — Joint Managing Director

….that despite all these adversities around the supply chain and increasing cost trends and also the inefficiencies, which come along with introduction of four, five, six, despite all this, we were able to kind of maintain, I’ll not say, significantly improved, but maintained the margin profile. And by the way this year, there were also several one-offs because of our strategic initiatives. So, these are the reasons that we believe that we’ll improve upon these three, four areas. And therefore, given the operating leverage that we shall get in the next financial year and help us improve our — both margin as well as return profile.

Surya Patra — PhillipCapital — Analyst

Sure, sir. Thank you. Wish you all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of S Ramesh from Nirmal Bang. Please go ahead.

Ramesh Sankaranarayana — Nirmal Bang — Analyst

Hello. Thank you, and good evening.

Operator

Sorry to interrupt, sir. Sir, your voice is breaking up.

Ramesh Sankaranarayana — Nirmal Bang — Analyst

Hello. Can you hear me now?

Operator

It’s not very clear. Are you using any earphone, sir, or an external device?

Ramesh Sankaranarayana — Nirmal Bang — Analyst

No, I’m using the handset. Can you hear me?

Rajnish Sarna — Joint Managing Director

No, you are not audible.

Ramesh Sankaranarayana — Nirmal Bang — Analyst

Hello?

Operator

No, sir. I would request you to please come back in the queue or disconnect and reconnect your number, please. We’ll move to the next question in the meanwhile. We have a question from the line of Viraj Kacharia from Securities Investment Management. Please go ahead.

Viraj Kacharia — Securities Investment Management — Analyst

Yeah. Hi. Thanks for the opportunity. Just one clarification. This $1.4 billion order book is largely CSM order book, right, it doesn’t include the non-ag chem book?

Rajnish Sarna — Joint Managing Director

Yes. This IS CSM order book.

Viraj Kacharia — Securities Investment Management — Analyst

Okay. So the question is, if I were to kind of understand the CSM revenue growth, say, between the newer molecules and the older molecules, all are, say, two years, three years, how would that have been? And the reason I’m asking this is because if you look at overall order book, we’ve been around $1.4 billion, $1.5 billion for quite some time now. And if you look at the overall environment around us, we are seeing more and more competitors also getting benefiting from this whole contract manufacturing and transfer of more molecules from the global partners. So just trying to understand, have we kind of lost any business in the older molecules? And how is the kind of market share in terms of incremental new molecules? Just any perspective you can share on that. Thank you.

Rajnish Sarna — Joint Managing Director

Yes. So, I think there are two points, three points in your question. So let me try and answer, address them. First of all, yes, order book has remained around this number, but we kind of explained in past. We are growing, as I was telling earlier, 30%, 35% for last few years. This year, we have grown close to 20% in exports. Now despite this kind of supply, we have still maintained this order book. That is one.

Secondly, given the kind of scenario that we are at least for last two years, first COVID and then this global supply chain and now, again, very, very volatile global supply chain post these recent conflicts and all, I think, both from the customer side as well as from our side, everyone is little tentative in terms of committing very, very long term from our side in terms of capacity, from the customer side in terms of the global situation, should there be — I mean, should they be completely banking on one country or should they be balancing their overall procurement from more than one geography and all those questions. So given this scenario, I mean, there is little, I would say, slowdown in terms of taking very, very long-term cost and investment goals. But that doesn’t mean that it is anyway impacting the business. Okay. Because the business growth is continuing as is also clearly reflected in our performance.

The second part that, is it that these other companies and other Indian companies are taking away this growth or something? So, to be honest, I mean the — if you see overall specialty chemical area, overall Indian specialty chemical growth, I think there is a very decent growth and many companies have done really well. But I think there is a place for every company here. There are different segments, different models, business models with different portfolio of products and question is that which model, which category, which segment is sustainable is the point for someone like you to assess. But given the kind of business model that we are in for last, more than two and half decades and the kind of business principles that we have around portfolio of being into the early stage, long-term sustainable kind of model, frankly, we are very happy to kind of sustain this 20%, 25% kind of growth, which we believe can be sustained for many years to come.

Viraj Kacharia — Securities Investment Management — Analyst

Just one follow-up. You talked about having alternative models in the marketplace. Some of the players have actually gone ahead and done JVs with MNC partners for patented molecules. So from your position, do you see the overall opportunity landscape being lesser now? I mean, what’s your reading of other MNC partners in terms of exploiting this kind of a structure, vis-a-vis, say, engaging with us in terms of their new molecule pipeline?

Rajnish Sarna — Joint Managing Director

Well, frankly, I was not able to clearly hear what you were saying because your audio is not very clear.

Viraj Kacharia — Securities Investment Management — Analyst

So what I was saying that we — as you rightly said, there are other alternative models. Here, there are some companies who have actually gone ahead and done JVs with MNC partners for patented molecules. So from your position, does that kind of reduce the opportunity size by — to some extent? And from your interaction with other MNC partners, are you seeing what their understanding in terms of exploiting a JV structure, vis-a-vis, say, engaging with someone like PI for new molecule and scale up?

Rajnish Sarna — Joint Managing Director

Well, not really, I mean we don’t see this as kind of any dearth of opportunities. I think we already highlighted in some of these earlier questions that we are seeing a traction. We are rather seeing a traction in the inquiries, in the new business opportunities that are coming to the table. And in fact, I mean, these JVs or patented JVs, I mean, all these have been done 10 years back by PI in terms of joint ventures with some of these global business partners, tie-ups with these global companies. We are doing for last 25 years. So point is that it is certainly not a lost opportunity for us or some sort of reduction in opportunities for PI, not at all. In fact, we are seeing a good traction in terms of overall inquiry demand scenario, business interests. There is also addition of new customers there. You would have read in some of our presentation. So, I think this is quite a positive scenario at this point.

Viraj Kacharia — Securities Investment Management — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Gaurav Chopra from Union Asset Management. Please go ahead.

Gaurav Chopra — Union Asset Management Company Pvt Ltd. — Analyst

Hi. Thanks for taking my question. Sir, first question was just an extension to, I think, previous participant’s question on the order book. So given you’ve highlighted that last two years have been volatile and you have been sort of reluctant or tentative to add to this order book. But do you think going ahead, we will see accretion of the order book because we are already over $0.5 billion in the CSM space? So, do you think you will add to this number?

Rajnish Sarna — Joint Managing Director

Yes. And again, I must answer this in a different way. Order book may not be the only the way — it’s good when you are in the initial stages of business. But I think once you’re creating certain class of assets and capabilities for certain products, the stickiness is already created. It’s not really driven only by order book. Order book was actually taken as a — if you asked me in the early stages as a part of risk management for the company and also that came at a cost. I think now we have a different level of stickiness. So hence, order book is not really the driver because if you’ve got some products running five years, 10 years and with your capabilities in benchmark where you are, the customer wants to work with you and you want to work with him. So, that risk factor is not different today for PI compared to what I would say five years [Phonetic], 10 years ago. So therefore, we are not really driving this as a way, but we’re always looking at the opportunity scale and optimizing it.

Gaurav Chopra — Union Asset Management Company Pvt Ltd. — Analyst

Got it. Got it. Also, sir, secondly, is there any contribution from pharma currently in our piece? Or if yes, what would that number be, if you can sort of share that?

Rajnish Sarna — Joint Managing Director

No, that’s not a significant number. I mean, I think as we guided earlier, we have scaled up couple of products, couple of pharma intermediates. But this is not a very significant number.

Gaurav Chopra — Union Asset Management Company Pvt Ltd. — Analyst

Okay. And for non-agro chemicals, if you can share that number apart from pharma?

Rajnish Sarna — Joint Managing Director

Yeah. So, there are three, four products. Again, we have commercialized in last one year. But as you can imagine that initial years, these are not very significantly large numbers, but yes, over the years, we are expecting them to scale up and then become a meaningful number.

Gaurav Chopra — Union Asset Management Company Pvt Ltd. — Analyst

Got it. Got it. Thanks for answering.

Operator

Thank you. Thank you. The next question is from the line of S Ramesh from Nirmal Bang. Please go ahead.

Ramesh Sankaranarayana — Nirmal Bang — Analyst

Hello? Can you hear me now?

Operator

Yes, sir. You may proceed.

Ramesh Sankaranarayana — Nirmal Bang — Analyst

Yeah. So the first thought is in terms of the initiatives on the non-ag chem space, is it possible to share in terms of the investment required in the margin profile and the kind of synthesis you require? Is it going to be similar to whatever you’ve been doing so far? Or is there any difference? And will it help you improve the quality of the business in terms of the asset turn and the kind of synthesis — high-value synthesis you use? What are your thoughts on that?

Rajnish Sarna — Joint Managing Director

Right now, I would answer it with one approach is, obviously, we are looking to move up the value curve in terms of capabilities and offering. And obviously, as you move up the curve, the parameters need to get better and that’s really the idea of moving into that space. Yeah.

Ramesh Sankaranarayana — Nirmal Bang — Analyst

Okay. And the second part is on the domestic business. Is it possible to share what are the kind of 9(3) registrations you received last year, and how many registrations have you filed for as on date?

Rajnish Sarna — Joint Managing Director

Well, I think we received two 9(3) registrations last year. Yeah, Prashant, you want to add here?

Prashant Hegde — Chief Executive Officer, Domestic Agri Inputs

Yes, you’re right. We have received two 9(3) registrations last year and three more in pipeline for the coming years.

Ramesh Sankaranarayana — Nirmal Bang — Analyst

Two more, is it?

Prashant Hegde — Chief Executive Officer, Domestic Agri Inputs

Three more.

Ramesh Sankaranarayana — Nirmal Bang — Analyst

Three more. Okay. Okay. Thank you very much. And all the best.

Operator

Thank you. We’ll take the next question as the last question from the line of Tejas Sheth from Nippon India. Please go ahead.

Tejas Sheth — Nippon India Mutual Fund — Analyst

Yeah. Good evening, sir. Sir, if you’re expecting 20% kind of growth, so broadly that would be around INR1,100 crores on the ag-chem side. The current capex, which we did of, let’s say, around INR340 crores, would that be short of achieving that kind of a revenue growth?

Rajnish Sarna — Joint Managing Director

Well, business, I think if you look at, we did INR1,400 crores of capex over the last two years before that. Plus it’s not capex driven, it is about — as we said earlier, it’s about asset improvement. And if you look at our — if you look, if you were to ask me, we have about now 15, 16 plants, a 10% improve in efficiency and throughput rates on our plants. So it is not linear. And that’s — on one side, we have a focus on asset turn. The other side, we want to look at capex. So, I think growth is clear, but how to continuously optimize the use of technology and efficiency is what we drive, not really just capex. Capex would not be the right benchmark in the chemical process industry unless due to commodity chemicals where you can look at capacity and capital as a part of throughput increment. Not in the process and technology like businesses that we are at the higher end of value chain. Yeah.

Tejas Sheth — Nippon India Mutual Fund — Analyst

Yeah. Okay. Okay. And the typical contracts, the price contracts or the cost pass-on contracts, which we have with our clients. Those contracts also include other expenses like logistics costs or it is just RM cost increase driven?

Rajnish Sarna — Joint Managing Director

Well, each contract is different, but if you look at the bigger picture, logistics is not a very large proportion of our cost given the value addition that we do with our products. Obviously, that will matter when we will have high volume commodity, low-value products, that would matter, but that’s not a large component of the overall gaining of the PI contract.

Tejas Sheth — Nippon India Mutual Fund — Analyst

Okay, sir. Thank you very much, sir.

Operator

Thank you. I now hand the conference over to management for closing comments.

Rajnish Sarna — Joint Managing Director

So thank you, everyone. Deeply appreciate all your support for coming on to this call today, and we look forward to a great year. And I wish each one of our team members all the very best and look forward to your great support. Thank you.

Operator

[Operator Closing Remarks]