1. AGRI INPUTS
1.1 OSHEEN – DINOTEFURAN INSECTICIDE
Kindly educate us on OSHEEN product, USPs, advantage over competitive products,etc.
As you are aware Osheen is a 3rd generation systemic insecticide invented in Japan by Mitsui Chemicals Agro Group (MCAG). PI Industries has registered and developed OSHEEN for the Indian market, in collaboration with Mitsui, Japan.
OSHEEN has been trusted as a most reliable solution to effectively manage the Brown Plant Hoppers in Rice for number of years in the leading Rice growing countries. It has also been tested and recommended by leading agriculture research institutes of Govt. of India on Rice crop and Cotton crop.
You are known for registering/introducing in-licensed products only after proper gap analysis. Is it correct to say OSHEEN is a uniquely positioned product, just like Nominee Gold was?
Yes of course. OSHEEN has been introduced through due process – has unique advantages of longer control period and better coverage. Because of its unique mode of action OSHEEN effectively controls the target pests which are not controlled by other molecules.
So what additional benefits does it bring when compared to other competing Insecticides?
OSHEEN has fast action due to which target pests stop damaging the crop after coming into contact of OSHEEN and start dying within few hours. It has systemic action and quickly gets absorbed into the plant, effectively killing the target pests present in the different parts of plant and provides longer and effective control on targets pests. OSHEEN has trans laminar action due to which spray done on the upper surface of the leaves gets translocated to the lower surface and controls the target insects hiding on the lower side of leaf.
But then it must be a more costlier product?
See you must realise for Farmers its not about a BRAND. For him the only thing that matters is cost of application/acre, and there OSHEEN delivers much better than many competing products.
So there has been enough efforts on farmer education?
What about Data Protection? How many years will it have an uninterrupted run?
Well it has the usual 3 year data protection as per Indian laws. Post that a generic me-too source may be eligible to apply – depends on how good the product is. Even with a good product, effectively it will be 4-5 years before any effective competition emerges.
Any co-marketing efforts already on?
That will come later. First OSHEEN needs to be seen to be delivering the goods.
1.2 NOMINEE GOLD
Kindly update us more on Nominee Gold. You had allowed co-marketing of the brand with other MNC/innovative agrichem partners? What are the results?
As you are aware we had enetered into reciprocal co-marketing arrangements for Nominee Gold with a few MNC players. That allowed us access to some of their brands for co-marketing by us. We entered into these realtionships after due evaluation for optimising product portfolio in certain markets to offer complimentary product baskets. Results have been encouraging so far.
But you have also extended co-marketing to Rallis & Dhanuka too? Aren’t you diluting the BRAND if its available from everyone? What’s the deal there?
Again we evaluate these things from a relationship perspective too. They have reasonably big distribution network in certain regions and It ensures our presence in those markets.
You had mentioned last time if PI were to try and cover the whole market it would take us 10 years. Co-marketing would allow us to increase visibility and allow us faster coverage in 4-5 years? How far has that played out? How much additional sales has been generated for the product through co-marketing?
Should be 15 – 20%
Rice Herbicide penetration was mentioned last time at 5% levels? Where is that now?
It should be ~8-9% of total rice acreage.
So there is growth possibility definitely for next 4-5 years?
Much more than 4-5 years of good growth.
Now that Data Protection for Nominee Gold is over, what about emerging competition?
That was over last year itself. Few Companies have applied. It will take time before we see effective products on ground.
1.3 IN-LICENSED VS GENERIC IN-HOUSE PRODUCTS
In-licensed vs Generic products. Is the current ratio still 60:40?
It is about 65:35 right now
You had mentioned that this ratio will rapidly change, by now you had predicted 80:20 actually; going upto 90:10 eventually
That’s true, but take into account last year. Because of the pretty bad last year, we got behind. We should be there in the next one or two years.
You launched 2 in-licensed new products. Kindly educate us about In-licensed Pipeline vs Competition. What’s the process? How do you keep abreast/ahead?
We have ~8-9 products in development pipeline and several others at negotiation table. This is a continuous process and our Competitive Intelligence mechanisms giving us inputs long before products are actually out in the market. Our process cannot depend on assessment of pipeline of others. As you are aware, we have very strong in-house gap-analysis MIS culled from all over the country for prioritising our pipeline.
What’s the price/revenue mechanism with In-licensing Innovators?
It’s based on simple long term purchase contracts. We purchase the Raw Material – active ingredients or formulated product.
What’s the pricing strategy for new generation in-licensed products?
As mentioned before, end of the day the farmer has to see lower of application/acre and therefore, your product price proposition should be attractive for him.
There are quite a few new breed of competing products like Round Up and others. What kind of threats do you see for your product lines?
We think there is room for all to grow. We focus on identifying a gap and providing better yield/productivity for the farmer.
What kind of impact do you see of the Food Security Bill? Is that a positive?
This to my view should drive food production, productivity and yields have to go up substantially. Farmers will get incentivised. If Farmer is happy, we will be happy.
You have lot of exposure to the Rice crop. First through Nominee Gold and now Osheen. Have you seen much of Hybrid Rice? Is that growing rapidly? What’s the potential?
Yes this is true. However, Osheen is also doing well in cotton. Also we have several other products in fruit, vegetables and other field crops. Hybrid seed is rising and so is the research seed. Next wave of growth in seed may come from corn.
2. CUSTOM SYNTHESIS (CSM)
For the first time we have seen CSM overtake the Agri segment. Revenue Contribution in FY13 was 55:45 CSM:Agri. How long before this scales to 65:35? Strategically, is this a great development?
It’s certainly good to see CSM scaling up the way it has done in the last 2-3 years. However for us it is important to be able to grow both segments equally well. For two reasons:
1. This gives us a neatly de-risked/balanced business model
2. Agri segment – the domestic opportunity is huge. It’s a very low-capital intensive business. Given the strength of our model and the strength of the agri-business sector in India, this segment is poised for 30-40% kind of growths over the next 3-5 years horizon. This segment provides us the CASH to fund the scaling up of the CSM business.
Give us a sense of the split between Long term contract vs annual contracts in CSM?
~60% is in Long Term contracts while roughly 40% get negotiated annually.
And the Long Term Contracts are all guaranteed off-takes model?
Yes, Take or Pay.
You have cited deliberately not expanding $300 Mn order book (static for 2 years) – for flexibility in accommodating higher value/volume molecules that had some visibility.
That’s right. Keeping the Order Book at an optimum level gives us the flexibility to balance investments required for sewing in long term contracts for say 10 years. Accordingly you need to invest in plant for tapping new opportunities.
So any success there?
That is what you are seeing today. The ramp up is from that success. We had promised 30% but we grew by 60%, isn’t it. This is happening because we have retained the flexibility.
14 molecules in Commercial stage. Please give us a sense of the longevity of Molecules – new vs old?
Both old and new molecules. Some have been there for long. Some have dropped off to be replaced by new molecules. That is why you need the Pipeline.
Pipeline of 28 molecules. With a 40-45% success rate you hope to see 10-12 going to commercial success? Is it right to say you have pipeline that provides visibility for next 4-5 years?
As you know Pipeline keeps getting refined on a continual basis. We have a robust Pipeline is what I can say.
Please give us a sense of existing Customers. How many in Commercial stage and how many at R&D/Pilot stages?
8-9 Customers at Commercial stage (14 molecules). Rest in R&D/Pilot stages
Please share with us the Competitive scenario currently? You used to be single, 2nd or 3rd alternate supplier. Is that still valid?
Yes there are no more than 2-3 suppliers. We continue to be the dominant supplier for many of our customers.
How is the geographical spread between customers – US, EU & Japan?
It’s more or less balanced.
What’s the typical commercial life-cycle for a CSM molecule? How much of useful patented life is left for commercialisation, typically? What’s the payback period?
Any new competition from domestic markets? Or all are overseas competitors?
Given the products we are in, all competition is mostly from developed markets.
Recently we have seen players like Hikal stating they have partnered with agrochem innovators for CSM? Kindly comment.
Give us a break-up of Commercial Molecules – agri/pharma/fine-chem? Where is the Focus?
Currently 80-90% is from Agrichem. Focus is on balancing the Portfolio.
Is it right to say Pharma molecules have higher margins?
Yes. Higher EBIDTA margins but not necessarily high ROI because the investments are huge.
Pharma CRAMs players like DIvi’s have 30-35% EBITDA margins. PI Industries EBITDA margins are much lower. Kindly comment.
Yes Divi’s Labs has EBITDA margins of 30-35%, but Asset Turns <2. PI has EBITDA margins of 20-25% with Asset Turns 2.5 to 3.Things should be seen in that context.
You have today ~600 Cr coming from 14 CSM molecules. Is that ~40-45 Cr per molecule?
(Laughs). Well different molecules have got added at different stages. They come in different sizes. Having said that it’s not so skewed also as say 2 molecules contributing 500 Cr and rest 12 contributing 100 Cr.
Nothing new to report.
Why are your R&D expenses so low compared to other players?
If you are engaged in innovation research/ANDAs your R&D costs will of course be at higher levels. We on the other hand are involved with process research where costs are much less.
We are starting to see good contributions from Jambusar. But project is delayed by 2 to 2.5 yrs?
All delays are attributable to delays in getting pollution clearances and the Environmental Clearances.
Given the 10 yr tax concessions already underway, is there a focus to ramp up subsequent phases?
Of course. We are already doing erection work for next phase.
First phase took 2 to 2.5 years. What’s the timeline for commercialisation of next phases?
May be 9 – 12 months.
Sterling SEZ progress. Would you say there are any risks to progress?
We have already reached 90% utilisation at some 100-120 Cr. What happens to Asset Turn targets of 2-2.25x?
(Sighs). One must look at the total investment versus investment for Phase1 and then compute Asset Turns. Our existing Asset Turns are greater than 2.5x. Going forward you will see these numbers. Projects will come/being negotiated with these figures in mind.
What are you Long Term Debt goals. Do you intend to become Debt free in future? Interest Costs will continue to be low
Yes, that’s the goal. Interest costs will be low.
With Free Cash flows flowing in, are there inorganic moves being planned?
Yes, we are investigating.
We were visiting companies across Gujarat and came across your Panoli facility. We couldn’t help notice the severe smell/pollution?
We are not in the Perfume Industry, you know. (Laughs, from all around).
Did you notice it all along the highway? or only along our plant. This is a common feature across the belt.
So aren’t these things monitored by any Agency?
Let me state that India is at least 10 -15 years ahead of China in this aspect. We have been having very stringent norms since the last 15 years.
Gujarat Government has evolved even more stringent norms. There is online monitoring of air stream and water streams.
So how significant are the Pollution control/Environment Management Risks for your business?
We are at risk only if a) we are not adhering to Norms b) not investing to manage pollution/effluent levels. Environment Management is the largest component of our Costs.
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Ayush Mittal: No Holdings in the Company; ;
Donald Francis: More than 5% of Portfolio in the Company; Holding for more than 2 years;
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