PI Industries Limited (523642) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of PI Industries Limited. [Operator Instructions] I would now like to hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you, Mr. Solanki.

Thank you. Good afternoon, everyone, and thank you for joining us on PI Industries Q3 and 9 months FY '21 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, Executive Director; and Mr. Rajiv Batra, Chief Financial Officer. We will begin the call with key perspectives for Mr. Singhal, thereafter we have Mr. Batra 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 for this effect has been included in the business performance update presentation shared with you earlier and also available on stock exchange website. I would now like to request Mr. Singhal to share his perspectives with you. Thank you, and over to you, sir.

Yes. Good afternoon to everybody. A warm welcome to everyone for joining the call today. I trust all of you are keeping well in the challenging times. Once again, I'm delighted to inform you, we have delivered a healthy overall performance during the quarter. Some quick highlights for the quarter. Our revenues have grown by 37%. EBITDA has announced by 48%, leading the robust PAT growth of 61%. As an innovative solution provider to our global partners, PI continues to strengthened its deep rooted relationships, which is well reflected in our performance. Even though the world was in the throes of the pandemic, I'm proud to say our teams have tirelessly delivered to meet and exceed our customer expectations by extremely at -- by being extremely agile in this trying period. Demand of our commercialized molecules continue to remain healthy as our partners continue to expand their footprints, they seek our support for their own new molecules, bringing an additional opportunity. We have successfully commissioned 4 molecules. One significant event in this expansion of our offerings is into the specialty chemicals, where we will be commencing production in the coming quarter. We plan to start production for our new MPP in Q4 in the fiscal year. The upgradation of the production facilities of Isagro should be seeing completion in the coming couple of months. We are now on track for integration of the Isagro domestic brand with PI with an aim to maximize synergies, and the results have shown significant growth for us. Our plans to be commercializing 4 to 5 -- 5 to 6 molecules in '26 -- '22, which are commonly at various stages of development. In the domestic business, our sales portfolio of products have come up significantly well. I'm glad to highlight that we have the highest sales in Nominee Gold and Osheen, led by strong demand scenarios in both rice and crop. Our wheat herbicide, Awkira, continues to report high sales, treated acres of more than 100,000 acres have so far. We have launched Londax Super Power, which is the rice herbicide and the initial response had been positive. Our strategic initiatives in fruits and vegetables with a refurbished strong portfolios continue to yield results. Our intention remains to launch a couple of new proprietary products over the next year, in line in the existing and aimed at contributing the robustness to our sales. Our digital initiatives for customer management and operation to announce customer intimacy, efficiency and quality, backed by high potential offerings, should be instrumental in cementing leadership position in key segments of our presence. This positions PI in a favorable place to deliver growth across domestic and export operations, in line with superior relationships and technological offerings. The newly commissioned sites, whereas all supports factors, will drive the macro domestic fleet, including good successive harvesting seasons and export to the benefit from enhanced scope of supplies from existing molecules and newly commercialized ones. We continue to dedicate evaluate our long-term opportunities withdraw the funds from the QIP and a suitable decision will be the best taken in account. The capabilities and aspirations of our company will be made and shared shortly. This will would take into our pursued advanced next generation technology across our in-licensed set ups, allowing us to establish new parts of the growth rapidly. And as we relentlessly pursue our vision for growth, we continue to invest in talent development and augment our resources in line with the long-term objectives. Thus, with this, I would now like to hand over to our CFO, Rajiv Batra, who will spend time with you to take you through the financial developments. And thank you once again, and over to you, Rajiv. Thanks.

Thank you, Mayank. Good afternoon. And I would like to thank you all for joining us today. We intend this to provide you a brief overview of the financial performance for the third quarter ended December. All comparisons here are with Q3 of last year and on a consolidated basis. In Q3 '21, we've demonstrated a healthy performance momentum, which Mayank has already referred to and revenues improved by 37% to INR 1,162 crores, led by 26% enhancement in domestic operations, to INR 260 crores and 40% growth on export operations in INR 902 crores. Performance is supported by multiple levers including proven raw material management, higher utilization rates, better traction from branded portfolio as well as greater contribution from Isagro. On the earning front, we were able to enhance our EBITDA by 48% to INR 276 crores, translating the EBITDA margin of 24%. There is an expansion of 176 basis points on a year-to-year basis. Profit after tax stands at INR 195 crores, higher by 61%, in line with our better topline performance and depreciation in line with our newer capacity that we just referred to. On the alignment perspective, blended revenues grew 35%. Capacity utilization building has almost come back to the pre-COVID levels. Exports stood 30% higher whereas domestic business driven by Isagro growing 46%. EBITDA margins came in 206 basis points higher at 22%, and PAT showed 61% improvement of INR 559 crores. Better operating performance has strengthened our balance sheet position. Inventory levels have increased in line with better demand visibility. Our CapEx in the first 9 months stood at INR 320 crores. And we remain on track to invest more in our capacities to realize our vision and growth objectives. Current order book position remains very robust at INR 1.5 billion, with sound growth visibility for the next couple of years. There has been a healthy generation of cash at INR 301 crores for 9 months. We also declared yesterday an interim dividend of INR 3 per share. This concludes my opening remarks. Now I request the moderator to open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Ritesh Gupta from AMBIT Capital.

Just 2 from my side. One is that you have seen a very strong CSM growth this quarter, this year as well. And probably a similar last year and the outlook we see is that agro demand is only improving, and especially the crop outlook is definitely better. So is there a reason to believe that, let's say, your historical guidance of 20%, 25%, do you think you could exceed that, let's say, in next 2 years? That's point number one. And then on the domestic side, the growth that you have seen in this quarter, could you just break it up in terms of what is from the Isagro addition and how much is from the core domestic business? These are my 2 questions.

CSM business, I would will stick to the -- in the benchmark that we've given for growth. We do appreciate that the base has changed. While the opportunity size is also increasing, no doubt. But looking at the cyclical nature of the business and looking at what we have in hand, which to secure in new guidelines there, at having delivered a better base, it also becomes interesting to see what will happen in the next couple of years. So I'm pretty confident that we can maintain that. When I look at the domestic business, we are in a position that today, if you look in the last -- this quarter, PI's own portfolio advance have done very well, that we've given about 17% brand growth in domestic businesses. And the other growth has been driven by the Isagro base of the total growth engine in the total numbers that you see for the quarter, it's about 26%.

Understood, sir. And just the last one on the M&A side. Where are we right now? What are we thinking? Any targets in mind?

Rajnish, you want to go for that?

Yes. So on M&A side, we are currently very actively evaluating a couple of options. We have not reached a definitive position as well, but we are very actively evaluating a couple of options. And a couple of options are on table and then last -- 1, 1.5, 2 quarters, we have evaluated few more options and thankfully decided not to pursue them. But at this point in time, we have a couple of options that we are very actively evaluating.

The next question is from the line of Ankur Periwal from Axis Capital.

My first question is on the new entity that Mayank did has in his initial comments. We are expecting it to be in Q4. And he also mentioned opportunity arising the new facility chemicals side. So if you can just elaborate a bit on that side, which exactly fits the data center?

I'm sorry. I didn't get your question. We are investing -- yes, MPP -- MPP is getting commercialized. And at the same time, we're getting to special refined chemicals. But as you know, these are multipurpose plants. They're not dedicated to a product or so. And at the same time, the team is working to look at how we can improve the throughput and efficiency and create capacity without really decline excess capital over the next 2 years. So with that technological capability, the intervention that we're taking place.

Sure. And sir, second thing there in terms of the molecules, which are under emphasis. Now over the years, a couple of years, we have seen an uptick on that side. And if I got a comment, right, we have already commercialized for, and we are looking to launch 5 or 6 incremental or this is in addition, including these 4 products that we have already commercialized?

In addition to these 4 products, these 5 and 6 will be new products. Yes.

So the total will be, let's say, 5 plus 4, so 9 to 10 products in this financial year. Will that be right to mention it?

We've done 4 so far. 5 to 6 in the coming financial year. Yes.

Okay. In the coming financial year. So okay. So my question here was that if I look historically, maybe over the last, lets say, 3 to 5 years, the run rate in terms of the molecules, which are under emphasis has been on a steady uptick. From 2025 molecules, we have reached probably 60, 65-plus now. But the commercialized molecules are broadly sticking in that range of 3 to 4 or maybe 5 to 6 molecules now. Is it just a matter of time? Or how should one read into it?

No, I would not take that number of 60 to 70, number one. And number two, I think the scale up and the molecules that are going into scale up the numbers are increasing steadily at a pace, and we see a good pipeline, which would be probably looking higher range in commercialization. Sometimes, you would have higher rate in 1 year and less than the other because as you see working in the innovative space. And we also focus on new molecule technologies. So it depends on the regulatory framework and timelines of other markets. And the go-to-market approach to the customers. So -- but we are pretty well prepared to say that we have about 15, 20 molecules, which needs to be commercialized in the next year or 2. Yes. Yes. Yes, Rajnish.

Just to add to this. So over the years, the pace of introduction, commercialization of new molecules are certainly increased. I mean, 3, 4, 5 years that we use to commercialize maybe couple of products, 2, 3 products. But the last, I would say, the last, at least, the last 1 or 2 years, we've been able to kind of increase this commercialization state mainly because the R&D pipeline and flow of new inquiries have increased over the last 2, 3 years. The other change is that the R&D pipeline as well as the products which are getting commercialized, however, the composition -- I mean, this composition is also comprising of non-item products. So more towards other specialty refined chemicals area. So that is also kind of change that we are seeing over there.

The next question is from the line of Bharat Shah from ASK Investment.

First one, in terms of our research, chemistry strain, technology -- new technologies and the development. Also, now we are fresh in the pharmaceutical part more intensely in the people part of the cadence towards. If you can give, without being specific, but if you can give gains in the kind of preparedness for the future, which is under offering, that will be the good insight into the future. The talent pool product pipeline and new chemistry maybe new customers or -- and new technology. So all of these basically give some kind of overview that will be just helpful.

So thank you, Bharat bhai, I'll take that. I think given it, as you know, technology, and these are very highly sensitive matters. And some of them in the potential stages of getting developed and going into commercial phases over the next couple of years. The lead indicator that you can pick up, at least, but we now covered about 100 out patents. Some of these will go into play. And some of these will go in to play with time. And then company continues to invest in this area in 2 core areas. One is in the application front. The other is a process chemistry capability build-out. And the other is a chemistry capability build-out. But obviously, we are looking at different ways of doing this. And when I say when we are able to patent that itself is an answer to say, yes, there is something different and unique, which is coming up. And that gives us a great sense of delight to say that in the next 2 years, we would be an innovation-led organization as technology scale up and this business has registration period and takes its own time, but clear on that part.

And in terms of the people part, if you can throw light how we are deepening and enriching our talent pool?

Yes. So if we look at the strategic plan we've actually put together, the whole talent development plan. We used to run many working with global consulting firms to look at how we're going to look at organization restructuring from the point of our foreseen our growth opportunities, both on the development side and from a delivery side. We're augmenting human capital into the system. We are adding more capacity of talent. The alignment to our strategic initiatives, a lot of scientific talent pool that we got in. More scientific talent pool is already on board. They already, before driving a person in far started working pharma, we have about 15 scientists dedicated -- lead scientists in the pharma space. PhDs have gone up. If you look at even the leadership team, there are 4 PhDs setting up and driving. So it's a clear indicator of our intent to look at bringing knowledge as a key driver and being lead the business from a technical front. And to do this, we are putting a robust program where we constantly putting a high-performance management system is already there in the company. But also further putting taking a different framework for systems and tools to make sure that drives the growth and scale, given the challenges of the external world that we've seen in there, attrition rates and the leadership and demands are different, we have been able to build a more stronger system based approach to developing and winning in belonging must into the system to deliver high growth. And that's been very well reflected of what we've been able to do so far.

Okay. And my second question is, given the -- in terms of technology and product in chemistry base, we are at a different stage than in the past. Our ambition to become an innovation trade organization, deepening of the talent pool, implementing the size and scale of the business and hopefully, success in pharmaceutical side of the business as well. So many of these very positive scenarios and actual agreement of robust performance in last few quarters. What are the things that you worry about? And what do you think can be potential risks for future ranges?

For sure, if we look at the risk, there is no risk. Without risk, there's no opportunity. But risk is the world is a very volatile space as we continue to go through this pandemic. Agri has its own cycles and change. Regulatory and policy issues need to be looked for the different lens and expectation of consistency, that is another area which I see with kind of risk. The other risk come more internal-driven, and we as an organization, at a leadership level, are mapping that and making sure that we continue to reinvest in them to develop. And that can be well armed, if you look at the human capital costs, as we look at even the cost structures in our heads are growing aggressively. But these are all the investments because we're not looking to get see for today, but we're making investments develop them for tomorrow. And that will be an area where we continue to invest for the short-term through gating for the long term. So these are some of the...

Just to add to this Bharat bhai, that overall geopolitical scenario, what we have seen for last 2, 3, 4 years and what is now -- getting changed with the changes of power in U.S. and other businesses. Also, sometimes, have their own implications on their global supply chains and businesses. So that is another important aspect that we have to always keep in mind.

And we are addressing that?

Yes.

The next question is from the line of Rohit Nagraj from Sunidhi Securities.

And congrats on a good set of numbers. So the first question in our PPT, we have mentioned that we are looking at a few of the pharma assets. So out of the QIP money, have we definitively earmarked some portion for pharma and some portion for nonpharma? Or is it largely flexible in terms of the opportunity and probably the market?

Yes. So I'll take this one. So yes, we have not allocated as such any amount for pharma or nonpharma at this point in time. We are evaluating some of these opportunities, which also include pharma opportunities. And then once we get to the definitive story then we will know exactly that how much is the amount that we are allocating to pharma. And then to some of these other technological opportunities that we are pursuing.

Sure. Sir, the second question is in the last couple of years, if we look at our exports data, North America accounts for almost 50% of the exports revenue. Now earlier to that it was permanently Asian region excluding India. So has there been any definitive change in terms of the molecules that we are developing or the opportunities that are coming our way? And whether this particular change is for a geography or incrementally, it will be across maybe Europe, Asia as well as North America?

So the way I would like to answer that, I think I look at the geographical, if you see it historically. That's a strong for all of the Japanese companies, the strong in Asia. Now we had geographical expansion, as I mentioned earlier, that the various geographies that we footprint and we expanded by innovators across the world. And as we go to larger areas of North America for the largest markets in the world always even have a larger portion. Yet, there are certain other markets, where certain footprint expansion is happening by our customers. So geographies will continue to move, shift and then we get a line to low percentage split of the revenues of AgChem business worldwide.

The next question is from the line of Rohan Gupta from Edelweiss.

Yes. A couple of questions. First is on our expansion -- growth expansion plan, where you have usually mentioned that it will be growth both organic as well as inorganic? Sir, I understand that though you are still seeing opportunities in pharma space, that we haven't had anything much on the CapEx plans or the organic growth plans of the company. I think that with the next year, also 20% growth outlook, which we have already shared, there will be sort of capacity for our future growth plans. So are we only dependent on inorganic growth opportunities or acquisitions over next 1 to 2 years? Or we have definitely some plans on organic growth also? And if that's so, then can you share that any CapEx commission in the near future?

Okay. So maybe I'll take this. So yes, there are definitely plans for organic growth as well as the Mayank was alluding. There is a rich pipeline, R&D pipeline, and we have a very clear visibility of kind of commercializing 12 to 15 products in the next couple of years. Some of these products will surely need additional capacities. And we are already in the process of building new capacities, even beyond the in progress conception of plans. We have a couple of plans next year or 2 going to commission and then fit these products. Apart from building new capacity, the other initiatives that, again, we took at least 2, 3 years back is on basically on engineering technology side, where we are kind of increasing throughput of these capacities of existing capacities of newly build capacity. And this is the reason, we will be able to kind of de notedly improve the throughput on the plant. And therefore, we'll be able to significantly improve capital efficiency of this manufacturing business going forward. But yes, in short, there are very good opportunities of organic growth. And also, there are plans to kind of deliver this growth to additional capacity build up and also technology very, very improving throughput.

And second question, sir, is that likely continuation from the same line. Sir, within our business where the gestation period is close to 16 months to 20 months, we see that best benefit in best ROCs and best margins come when we are effectively or optimally utilizing our assets. I see that in the current asset turnover of close to 2.1x and also EBITDA margins of 24.5% gross margin, we are probably making our assets at its maximum. Is it an indicator and -- that right now, our ROCs and margins are their best and with the increased CapEx intensity over next 1 to 2 years because ultimately, we have to fall in the CapEx zone, ultimately, we have to get into a building asset zone? And in that time frame, the bottom line growth or the ROC definitely have to be lower than what we are enjoying right now. Is my understanding of business is right because that we are seeing...

The technology comes in...

Thank you, Rohan. This is what I was trying to explain but going forward, number one, growth opportunities and visibility is very much there. Number two, the CapEx intensity is going to slow down because of the technology initiatives that we have taken. We have already done -- realized some benefits in the current fiscal. And we are expecting to realize more benefits going forward in the next couple of years as we implement some of these technological initiatives and several of our plants and products. So as a result, the capital efficiency is certainly going to improve from here. This is what our expectation is.

So in longer term, sir, we can expect that our asset terms will be above 2. And historically, which has been ranging from 1.5 to 2x, should we expect that with the technological advancement in the company and in the product mix, we should be any higher set time of at least 2, 2.5x, sir, will be in that range now in that zone now?

Yes. That's the desire and the plan that we are working on.

The next question is from the line of Varshit Shah from Emkay Global.

I've got one question related to CapEx. So I think you already have one plant coming up in Tokyo and another coming up in, somewhere in 2Q or 3Q of next year, and you mentioned that you have strong visibility on the growth. So apart from Isagro and the improved support and the new commissioning, are there any other players that you -- alluding to? But you -- at this point in time, you have not disclosed because of the fact that you might have some assets coming in through your acquisition? And is this acquisitions timing is doesn't soon and probably will announce a further fresh CapEx. Is my understanding correct? That's one, number one.

Yes, you are absolutely right. So there are plans. But number one, the intensity of CapEx will certainly reduce compared to what we have invested in current year as well as last year, or last 2, 3 years, okay. So that intensity will go down, but exactly whether it is INR 200 crores, INR 300 crores is what -- is still in process. Business plans are getting finalized. And also, it will also be a little more depend on the kind of inorganic option that we finalized.

Sure. And secondly on utilization levels or from a level of throughput question. I understand we have to see a certain revenue for increasing volume for the customer, typically maybe 15%, 20%. So what is the optimal utilization levels for the fully commissioned entity or at the branded level which you envisaged? And what it is currently at this point in time?

So I'm not sure if I understood your question fully, if you can see please repeat?

Yes, sure. So I believe that in the cram cycle, we need to keep some revenue for increasing volumes for the customer. So what is the optimal utilization levels, which are possible beyond which will it be difficult to increase utilization levels? And where are we currently?

So 85%, 90% is what we consider generally a little more towards 85% in a multiproduct plant scenario because there are several change over in the plants and product change overs and all. And we are working at a little less than maybe 80% or something. But as I mentioned, since we are also working on technological initiatives. So this is also the rolling ball kind of a scenario whereas, for example, a particular plant was utilized for say 85% last year. But because of those interventions, technology intervention, for the same volume, we are able to do it maybe with 70% utilization and we're able to get some what wide part, another 20%, 30% of wide state of another product accounting. So this is what is happening on a continuous basis, the kind of improvement that we are talking.

The next question is from the line of Pratik Rangnekar from Credit Suisse.

I have 2 questions. So the first one is on the order book. So we've seen our order book being largely stable for the last couple of years, whereas our export revenues have been growing incrementally. There have been consistent commercialization for molecules as well. So how do we reconcile the 2 scenarios where revenue is increasing, but order book is stable? Or is there something you're missing here?

Let me put that in a different context. I think as we get larger and scalable into products and deep over the relationships, the importance of order book gets declined. Because as you're moving deeper into more higher, value added equations and products with the end products, we automatically become an interlock with the innovator. So really, order books are not I would put that as a top priority, but I think it's pretty substantially in line with the expectation of the asset base that we are doing. It's more to cover the asset build-out. And obviously, "a give comes with a take". So we are trying to balance this and not really drive it to say that we want to maximize it. Yes.

Okay. Fair enough. My next question is on the -- so we've seen a lot of exporters this quarter and we will continuing into for post the quarter as well. Talking about a container issue in terms of exports and availability of all of our containers and all of that. Are we seeing any sort of impact from that as well? Or are we okay on that side?

No, I don't -- we're not seeing the impact yet. There's a challenge. But again, I think we have a good team, as I mentioned. Agile, understanding, of looking forward, the challenge of addressing them and making sure we continue to deliver what we need to. Yes. But there is a challenge of availability and possibly logistics area.

So despite that, we've been able to do the 40% kind of growth. It's not that, that would have been higher and the challenges going to be there?

But again, please, appreciate that we are not in the large quantity of container requirements, right? The high-value, more volumes. So it's not that getting large scale requirements of containers will become a challenge here.

Fair enough. And just lastly, one on the bookkeeping side. On a Q-o-Q basis versus the second quarter and third quarter, we've seen that our revenues are largely stable, but there is a sharp increase in other expenses. So is there some one-off there? Or how do we read -- what is the reason to that?

Rajiv, you may like to take this?

Yes, I think we had some expenses which we incurred on the COVID side, mainly for our employees. And there are other some expenses, which if you look at our acquisitions, certainly there's a cost income. But as we get closer to actually making our acquisitions, some of that will get capitalized, as well. That's a couple of others things that will include major ones.

Okay. Would it possible to quantify how much or what percentage...

No, I -- at this stage, I will not have your details, but most probably if you send me a question. I'll come back to you on that.

Actually in nature. But yes, this is really very hard.

The next question is from the line of Jinesh Gopani from Axis Mutual Fund.

My questions have been answered. Thank you. All the best.

The next question is from the Dhaval Shah from Girik Capital.

Yes. Sir, first question on the employee cost. Like historically, if we have seen, it has been in the range of around 7.5% to 8% of sales. While recently, it has moved higher. So over a longer-term basis, given the investment that we have done in the strengthening our team, do we move back to that level? Or it stays around here? How should we look at it?

Let me put that answer to the long answer. So one obviously is a higher cost in the COVID management. On the other hand, as I mentioned earlier, the company is investing in augmenting in building talent for our future opportunities. And effectively that PI has always done that. We have an investment move through, we have in the invest we move. So this is a phase where we can -- we are planning growth and we're entering new arenas, and we pre-investment and we continue to pre-invest in that. So I would say that is margin is the other thing gets well done. This is not a challenge in hand.

Okay. Okay. And second question is from the presentation, where you mentioned one new online went successful deployment of analytical tools in one MPP and you'll be deploying into the others. I think this relates to your commentary on the user technology. So can you elaborate on this. So how is this helping us that it will reduce our output time? Does it increase our analytical uplift? Can you just elaborate more on this?

Broadly, to give it a larger one, we are developing IBM technologies, this is a digital arena, where we're looking to how we basically bring about better efficiencies by looking data that fits that's evaporating and which obviously impacts capacity throughput efficiency and A,B,C,D,E. So it's multidimensional in the manufacturing industry.

Okay. Okay. Okay. And this is linked to your comment that it will, over time, reduce the -- sorry, increase the asset turns? Hello?

Yes.

Okay. Okay. Okay. And sir, just last bookkeeping question. Can you please tell us the 9 monthly number for Isagro's domestic and exports business?

Yes. What I can say here, if I can take this question, Mayank.

Sure.

That in monthly basis, almost 20% of our growth comes from Isagro. Okay. So specific numbers, I would not want to give you. And as I see number speaks to 20% comes from Isagro.

Sorry, just if I heard it correctly, 20% of the domestic you said or the overall?

Yes, domestic numbers.

20% of your domestic business is from Isagro?

Yes.

Domestic growth. Okay.

Yes.

Okay. Okay.

So that's -- I think, let me just correct that question, if I get that right. Both is from the PI domestic business, brand is about 17%. And the average growth that you got, the balance is coming from Isagro. Isagro, overall, as a business in both the ends is contributed by around 10% of the total top line growth, right, as you mentioned in our numbers, yes.

Yes. Okay. Fair Enough.

The next question is from the line of Abhijit Akella from IIFL.

Rajnishji, just was wondering if you could elaborate a little bit on our strategy in pharma going forward. Once we enter that space, are we planning to sort of replicate what we have done in terms of custom synthesis work, similar to what you've done in agro chemicals? Or would we have a different strategy, like, for example, getting into maybe some specialty APIs manufacturing or something like that? So if you could just help us understand the strategic direction we're trying to move towards. That would be helpful.

Sure. Sure, Abhijit. So -- yes, I mean, our aim in the pharma space is also to kind of bet to the position that we have been able to do this in the pharma space over the last, I would say, last 2 decades now, okay? But we are a little different from what we started with the next trend because that can be started with, I would say contract research manufacturing kind of models, we are an CSM model. Here we are starting with the intermediates and API space this is our technology, driven by our technological capabilities and also we complement the technology that we are also looking at the table option, inorganic option that we are evaluating. So basis, this technological platforms, we will start with intermediates and APIs that eventual idea is to kind of get into CDMOs and kind of replicate the similar kind of models that we have been able to successfully deliver in expense base. I hope this answers your question.

Yes, sir. No, that's helpful, sir. And also just to understand the second part. In terms of differentiating ourselves versus the other API companies that are already there in India or the world markets, what kind of sort of differentiation strategy are you are adopting. Are you going to be more of a niche player in certain specialty segments? Or how do we visualize that sort of competitive differentiation for ourselves?

Yes. So the key differentiator is going to be technology. And as you rightly asked, there are several players in the race, but the key differentiator for us is going to be the technology, wherein we will get into less competitive products where there are less players, complex chemistries, we have a cost leadership, these kind of areas and these areas that we will finally be. And all this is driven by technology. So that is the key differentiator or is going to be key differentiator for us.

[Operator Instructions] The next question is from the line of Mayur Parkeria from Wealth Managers.

Congratulations on a good set of numbers. Just to understand the CSM part a little better. Will it be possible for you to let us know or understand how many molecules are under actually in the synthesis stage and how many molecules currently are in the commercial stage?

Yes. I take this. Right, commercial is scale, we will have some 24, 25 products, 24, 25 products and as synthesis stage where we call it R&D pipeline, which is part from larger sales, commercial scale, pilot scale, so this all is R&D pipeline or you may also call it synthetic pipeline. There at this point in time, we will have more than, I think, 40, 45 products. And at any given point, these many numbers of products will be there at different stages, some are at larger scales and some are at the low scale and commercial scale. I hope this answers your question.

So sir, this is just a clarification, understanding more on that. So because commercial scale, once the product enters the commercial scale, the value -- the sales value would be higher than compared to the R&D pipeline stage molecules. So will it be fair to say that a lot of the incremental growth in sales value is coming predominantly from the commercial scale products in a significant proportion. Can it be as high as 70%, 80%? Or will it be more like 30%, 40%?

The incremental growth...

So -- yes, so just to clarify. Actually, revenue comes only from commercialized products, okay? With R&D pipeline, scale up, synthesis is integral part of the total business model. It is not that by synthesizing, we are getting any revenue out of it. And, of course, there are some small sample situation of -- some small supplies happen. But we are not significant in any case. So the revenue actually comes from commercialized molecules. And the synthesis work right from larger scale till pilot scale is all integral part of winning the business, converting those inquiries into business. And then finally, getting into long-term understanding for supply or on to way supply for all the products which get commercialized. I hope it's clarified.