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PI Industries Ltd.
BSE Code   523642
ISIN Demat   INE603J01030
Book Value   429.62
Dividend Yield %  0.18
Market Cap   512048.65
P/E   51.27
EPS   65.83
Face Value 1  
Year End: March 2015


Economic scenario

The global economy continued to expand, albeit at a slower pace in the year gone by. This was due to the prolonged recovery process from the global financial crisis, which was still saddled with unfinished post-crisis adjustments. The recent geo-political instability especially the Russia Ukraine conflict and the Middle East conflicts, the financial meltdown in Greece is adding brssures to the growth in the global economy. According to the International Monetary Fund, the global economy is expected to grow at 3.5% in 2015 and 3.8% in 2016. While the developed economies are expected to strengthen, aided by lower oil prices and interest rates, most emerging economies are expected to slow down moderately due to domestic brssures.

Indian economy registered a decent recovery with GDP growing at 7.3%, vs. growth of 6.9% in FY 2014. Almost all sectors of the Indian economy have showcased a pick-up in activity in FY15. The growth is expected to continue in the year 2015-16 with pick up in industrial growth, easing inflation and relative stability of the Indian rupee.

The expected high growth rate in the forthcoming years in the favourable economic environment provides a historic opportunity to propel India into a double-digit growth trajectory.Domestic Agriculture and Agri Inputs Industry

Domestic Agriculture and Agri Inputs Industry

India's food-grain production has grown at a CAGR of 2% during the last decade from 213 million tonnes in FY04 to 263 million tonnes in FY14. During the same period, India's population has grown at a CAGR of 1.4% from 1.09bn to 1.25bn. Farming productivity has improved in the same period with yield's moving from 1.7 tonnes per hectare in FY04 to 2.2 tonnes per hectare currently. This is attributable to better quality of input (seeds, fertilizers and crop protection), enhanced irrigation availability and supportive pricing for key crops. India ranks top five globally in the production of key crops like rice, wheat, cotton, sugarcane and corn which accounts for over 85% of cropped area. Yet regrettably, India does not feature even in the top 30 in terms of productivity. Yields are typically 50-70% lower compared to key crop producing countries like Brazil, China and USA.

India's food-grain yield CAGR: over the next 10 years, India's agriculture yield will need to grow 1.7% annually to meet its food grain demand

According to the Planning Commission, India's demand for food grains is expected to increase from 263mmt to 310mmt by FY24 (a CAGR of 1.7%). With the cultivable area likely to remain constant, there is likely to be shortfall of 46mmt in food grain production by FY24. In order to meet this shortfall, the agricultural yields in India will need to grow to 2.6 tonnes per hectare from 2.2 tonnes / hectare currently. This requires a minimum of 20% improvement in the overall yields in the next 10 years. While the Indian agricultural sector has achieved such yield improvement levels in past decades, it will need a strong combination of factors primarily technology to improve the yields from the current levels. One key focus area would have to be the proper and adequate use of crop protection chemicals, because over 30% of our crops are lost to pests, diseases and weeds

Indian Crop Protection Sector


Agrochemicals have emerged as the strongest growing segment as compared to all other agri-inputs like seeds, fertilizers, irrigation and other specialty products like micronutrients. The Indian crop protection market has shown steady growth over the years and it holds immense growth potential driven by number of factors including increased availability of newly-launched, high performance products aimed at emergent threats, availability of credit facilities to farmers, higher agriculture produce prices and traditionally low penetration for crop protection products.

India's crop protection sector has attracted huge number of players with over 1200 formulators with the top 10 companies having a market share of nearly 75-80%. The deciding factors for success in the industry are R&D driven product portfolio, distribution network and brand strength.

With strong structural drivers in place, India's crop protection sector is poised for a solid growth in the future years. While insecticides' is the largest product category in India, cotton and paddy are the major consumers of crop protection products accounting for 50% and 18%, respectively. Fruits and vegetables also account for a substantial share of 14%. Cotton, which is grown on just over 5% of cropped area, consumes about 50% of the pesticides, while Rice that is grown over 22% of the cropped area uses 18%.

Improved cost to benefit ratios alongwith higher farm produce prices, pests developing resistance to older products and increase in market penetration will be the driving factors for the Indian crop protection industry.

Some of the other demand drivers are:

Growing urbanization and infrastructure creation are affecting the availability of cultivable land. Large portion of gross cultivated area is declining, resulting in greater need to improve yield per hectare

Crop losses due to inadequate pesticide use

Higher minimum support price translated in to higher farmer incomes, enabling them to invest in superior farm practices

Lower productivity in India and lower per capita consumption of pesticide

India's crop protection sector has grown at a CAGR of 10% over the past decade. The current market size is close to $4.7bn, up from $2.0bn in FY05. India is currently the second-largest manufacturer of pesticides in Asia, after Japan. This market is estimated to grow at a CAGR of 12% over the next 8 to 10 years largely driven by exports.

Exports currently form close to 53% of India's pesticides business, up from 30% in FY05 and 47% in FY10. Exports have grown at a CAGR of 17% during FY05-14 to reach $2.5bn in value terms. The market size of agro chemicals is brdicted to cross $5.1bn in FY19.

The per capita consumption of crop protection products in India is amongst the lowest in the world. The per hectare usage of agrochemicals is only 0.6 kg in India, while for UK it is 7 kg and for China and Japan it is 13 kg and 17 kg, respectively. Reasons for lower consumption of pesticides in India are low purchasing power of farmers and lack of awareness amongst them. This opens up tremendous opportunity for growth in the Indian crop protection industry therefore.

India's tropical climate is conducive to high pest activity, but multiple cropping, imbalanced fertilizer application, changing weather patterns and lack of crop diversity has led to increased pest infestation. This should drive the growth of agrochemicals usage in the country.

Overview of PI Industries (PI)

PI Industries enjoys the unique distinction of having strong brand equity both in its domestic agri-input operations and its custom synthesis exports. Built on a foundation of trust and respect for Intellectual Property, global innovators are increasingly recognizing the mutual benefit of working with your Company.

Domestic agri-inputs focusses on developing strong brands backed by innovator molecules for the Indian market. These are high performance, high potential, early stage products, which PI enjoys exclusive marketing rights. The products although in-licensed are introduced under registration in your Company's name.

The domestic agri-inputs operation has shown consistent growth over the past few years and all this was possible with continuous farmer connect initiatives, strong and extensive distribution capabilities and the creation of the "pull" factor within the framework of tight cost management and straightforward and transparent dealings with all stakeholders.

In custom synthesis exports, your Company has successfully build strong portfolio of molecules for manufacturing and supply under long term contracts as the solitary or brferred global supplier for such molecules and your Company's dependable performance has gained substantial traction in the last few years with commercialization of number of high-potential molecules. A strong order book position ensures that our capacities are optimally utilized. The concurrent scale-up in volumes across molecules in our portfolio is both a function of demand from global markets and our efforts at composing a judicious product mix. Given that our thrust lies on innovator molecules and that too at their early stages of development, there is a very organic potential to grow in the business as these molecules gain global traction.

It is a matter of pride for your Company that we pioneered the journey of 'Make in India' years ago, and foresee further growth opportunities.

India's crop protection likely to grow at 12% CAGR and take a 10% global share by FY19 from 8% in FY12

India's crop protection market (USD bn): Exports to grow at a CAGR of 15%, while domestic growth is likely to be 8-10% CAGR

PI's model for Domestic agri-inputs

PI offers a unique business perspective in the Indian agrochemical space. It operates on the platform of exclusive tie-ups with patent originators and has stood out for its policy on respect for IPR (intellectual property rights). With a niche portfolio of targeted products aimed at the domestic market, PI today is renowned for nurturing its products into strong brand propositions. These products offer the farmers proven increase in yield and productivity. In today's competitive landscape, it is imperative to create a differentiated offering and this is where PI stands apart. In order to establish a strong brand, your Company engages in intense field trials, organizes product demonstrations and conducts farmer education clinics. The platform operated by PI for brand building and domestic distribution of its products is one of the best in the industry and acts as a strong competitive advantage for your Company.

PI's model focuses on high-potential innovator molecules for the Indian markets. This essentially entails an in-licensing agreement wherein the registration of the innovator molecules takes place under PI's brand name, thereby giving it rights to exclusively market and distribute these products domestically and in some instances to share it with other like-minded partners in India.

Depending upon the agreement with the global innovator, your Company either imports the technical or bulk formulations or chooses to manufacture either of the two at its owned factories in India. These agreements are typically formed with the innovators for early stage patented molecules such that PI can realize the growth benefit throughout the entire product life cycle.

From time to time, these molecules are shared often referred to as 'co-marketing' between PI and peers which is a common practice followed by the industry. Under co-marketing arrangements, your Company shares key products with peers in order to establish a notable brsence and a marked brference for PI's product in the market. Peers often purchase the product from PI, which in turn retains the registration under its own name.

There exists a niche pipeline of products under different stages of registration from which your Company introduces 1-2 products every year prior to the commencement of key cropping seasons- Kharif or Rabi. The growth potential of these products remains promising delivering very high robust growth in the initial years of the launch.

Performance summary

PI's domestic agri-input operations' comprises mainly insecticides, fungicides & herbicides and plant health. During the year under review, the domestic agri-input operations grew by 19% Y-o-Y driven by the strength of PI's high-potential products like OSHEEN, NOMINEE GOLD, BIOVITA, KITAZIN, KEEFUN, FORATOX, CARINA and ROKET amongst others. Uneven rainfall distribution in the brceding year impacted the prospects of Kharif season in India leading to crop losses for farmers and margin erosion for crop protection sector. However, leadership position across key brands helped your Company report strong growth and comparatively improve margins in agri-inputs.

Our continuous focus has helped us establish OSHEEN as the most brferred brand for BPH management in rice in the Southern and Eastern parts of country. We are successfully taking our renowned brand- NOMINEE GOLD into some of the virgin markets for rice herbicides through expansion of distribution channel, working in close partnership with NGOs and state government's agri-extension machinery. With a mindset of "bringing innovations to Indian farmers", PI has recently launched "KEEFUN" in India, which is a broad spectrum insecticide for the vegetables segment.

We have further strengthened our initiatives to promote Direct Seeded Rice (DSR) through Public Private Partnership (PPP).

While we continue to work with UAS Raichur in Karnataka, we have further expanded the initiatives to Punjab in association with Department of Agriculture Punjab & Punjab Agriculture University (PAU) Ludhiana, Rajendra Agriculture University (RAU) Pusa. The adoption of DSR at farmer level has helped increase farmer incomes, by greatly reducing his water & labour costs.

While we have continued to maintain our leadership position in rice crop due to very strong brsence and innovative product portfolio, we have successfully also pursued other key crops mainly wheat and horticultural crops. Our wheat herbicide 'MELSA' has been received very well in the market place despite a dip in demand for wheat herbicide across the industry. Our increased focus supported by improved product portfolio for cotton crop has helped us grow in cotton despite weak market sentiments.


The agrochemical industry has seen structural changes on the back of relative increase in purchasing power of the farmer largely and to a certain extent on account of enhanced farm dynamics. The cost benefit of usage of pesticides has improved with continual increase in MSPs and the changing food habits of the rising middle class. Higher labour cost has also given boost to agrochemical consumption in the country. As a result, agrochemical industry has witnessed sustained growth in the last decade, driven by volume growth as well as change in product mix followed by pricing growth. The Government of India, together with several private players continue to take incremental efforts to push higher penetration of agri-inputs in India.

Within agrochemicals, fungicides and herbicides are expected to show healthy growth on the back of increased acreage under horticulture, rising horticulture produce prices and emergence of organised retail (largely used in fruits and vegetables).

Given the moderation in the environment overall, the outlook for your Company's domestic agri-inputs business in FY16 looks cautiously optimistic and performance would reflect continued growth momentum although at a controlled pace. The key factors that would drive sustained growth include pattern and distribution of the upcoming annual monsoon rainfall together with upsides from products launched in the past few years. This growth would be further propelled with the introduction of 1-2 new products each year, which would have distinctive competitive advantage over the target molecules.

In addition, your Company will strengthen and expand its reach into new underdeveloped markets and crop segments which will further improve prospects going forward. Institutional tie-ups with the local NGOs, State Agriculture Universities for intense farmer connect for safe and judicious use of agrochemicals have also started yielding fruits and will contribute to growth.

PI's model for Custom Synthesis

Product innovation drives the agrochemicals industry. A combination of factors like poor cropping practices in emerging nations (lower per capita consumption of quality inputs, crop protection products and poor methods of application) together with changing weather patterns is fostering the emergence of newer varieties of pests and diseases. The utility of commercially available molecules in crop protection to farmers brsently is thus, fast depleting. On the other hand, both the timelines and monetary resources required to produce new innovator molecules are increasing. Innovators globally are prioritizing the discovery and development of new molecules as a consequence while choosing to partner with trustworthy, committed and capable allies such as your Company for support in their custom synthesis, manufacturing and marketing areas

The requirement of producing molecules with complex chemistries going forward will favour companies with an established footprint in handling new technologies in agro-chemistry. Certain leading players in agrochemicals like PI Industries have established a sterling reputation as globally reputed suppliers of agrochemicals. As a country India enjoys a host of enabling factors that are driving higher exports of agrochemicals, these include:

Institutional mechanism for protecting intellectual property: Since 1995 India is compliant with the World Trade Organization (WTO) mandated Trade Related Intellectual Property Rights (TRIPS) agreement. Innovators using Indian suppliers stand protected under a stringent patent protection regime

Augmented manufacturing capabilities domestically:

Indian companies today are second to none in terms of product quality, supply security, respect for IPR (in letter and spirit) and regulatory compliance

Substituting China in chemical manufacturing: Over the years China is ceding its dominance in manufacturing on the back of rising cost of land & labour, stronger environment & safety regulations and higher taxation. Further India's currency has turned more competitive compared to China's and against other global currencies and is likely to maintain this trend going forth

Since FY98 through FY14 exports of agrochemicals from the country have shown a 15% CAGR and indications are that a similar rate of growth with be realized in the coming years. Your Company is favourably poised to benefit from this trend of globalized manufacturing of patented agrochemicals.

PI's reputation as a chosen partner for supplying patented molecules against global requirements traces its roots in the staunch respect for IPR by your Company and the track-record of trust it has created across numerous commercialization engagements. With mastery of complex chemical equations with wide commercial applicability, your Company crafted a large brsence in the field of custom synthesis from India.

Your Company's approach to business is unique and involves engaging with innovators for global requirement of high potential, innovator molecules. These worldwide engagements extend across the commercial lifecycle of the molecule and your Company is in an advantageous position to reap gains when volumes gain traction over the years. Given that a number of commercializations have taken place in the past few years there is today an optimal portfolio of molecules that continues to generate business growth.

Performance summary

Custom synthesis exports showed 23.5% growth in FY15. Two new molecules were commercialized successfully in the period and added to the volume upsides being realized from brviously commercialized molecules. Better asset utilization stemming from improved capacity planning, yield improvements flowing from process enhancements and consistently high plant uptime and time cycle reductions driven by de-bottlenecking initiatives undertaken during the period are factors that contributed to this performance

We also witnessed strong scale-up in deliveries of some of the existing molecule being supplied from our facility at Panoli and Jambusar in Gujarat. We remain on track to commission two new plants at Jambusar facility during the second half of the brsent fiscal year. With a capital outlay of ~C3.0 bn over the next two years, PI is looking to a period which will deliver healthy asset turns and growth in deliveries.

Crucial breakthroughs in the process research and development by R&D and Product Development teams helped in achieving cost efficiency and speedy scale-up during the year under review. It is worthwhile to note that the team has eliminated the usage of solvent in some of the crucial processes leading to cost and operational benefits, besides environmental and safety benefits. Seamless coordination between the development and technology transfer teams resulted in first-time right standard in transfer of technology at the plant-scale. Improved operational metrics such as higher plant throughput, plant uptime, etc contributed well to achieving the business objectives through continuous monitoring and feedback mechanism. Foresighted demand planning coupled with strategic tie-ups with suppliers by the Supply Chain team aided in getting quality raw material on time. And all this has greatly contributed to customer satisfaction


Within the $300bn global fine chemical industry, the custom synthesis manufacturing segment is estimated to be close to $85bn. Out of this, India currently accounts for ~5% but emerging as a brferred destination for custom synthesis manufacturing particularly in the patented and early stage molecules and expecteding to grow at a CAGR of ~12% in the coming years.

In the recent years, India has become a brferred location for many global innovators due to its world-class research capabilities and manufacturing infrastructure, large and well-qualified talent pool with strong chemistry and procedural skills, cost-effective R&D cum manufacturing costs and high capital efficiency. Your Company is expected to continue outperforming industry growth due to its long-standing relationship with innovator partners and strategy of getting involved at early stages of the respective product life cycles. The confidentiality of IPR is of prime importance and PI has gained a reputation for this over the past few years.

The Company has also embarked by further investing in the R&D area in terms of people, instrumentation and space and thereby augment our research and development oriented business model.

You Company enjoys a robust orders pipeline to be delivered over next 4-5 years- the visibility of growth therefore remains assured barring unforeseen circumstances. Yet given the larger base of brceding year, your Company's performance in the forthcoming year would look moderated. It would mainly be driven by ramp up in sales volumes of existing molecules and plans to commercialize 2-3 new molecules each year. Commissioning of two new plants at Jambusar SEZ is aimed at further augmenting this growth.

Human resources and industrial relations

Y our Company considers people as its biggest assets and "Believing in People" is at the heart of its human resource strategy. Lot of efforts are put in talent management, strong performance management, learning and training initiatives in order to ensure that your Company consistently develops inspiring strong and credible leadership.

Your Company believes that people perform to the best of their abilities if they feel a sense of ownership. Consequently, the Company has strengthened the working environment to make it inclusive, progressive and flexible and promoting an excellence-driven culture. The Company reinforced its vision, mission and values among employees.

The Company fosters a performance-driven and merit-linked remunerative environment. It acknowledges the contributions of performers, brparing them for more challenging roles. The Company organised training programmes covering technical, behavioural, safety issues, code of conduct, product training and other needs.

The Company continued to recruit scientific, technical and managerial personnel (graduates and postgraduates) from leading engineering, agricultural and business schools. A structured development programme, aligned to business needs, helped groom fresh hires into prospective leaders. As on March 31, 2015, the total employee strength stood at 1576 and industrial relations remained cordial.

Information technology

Information Security and mobility has been the key focus of the IT function in 2014-15. Information is brsent everywhere from smart phones, wearables devices and laptops used by the teams to carry out the business.

Information Security was revamped to protect the IP of the company and our customers.

Your company has invested heavily on technology and resources to protect the information. Information security policies were tightened across the organisation by the introduction of virtualised desktops. The users access the virtualised desktops through thin clients and data is stored on the central storage. The data backups are managed centrally ensuring the maximum level of security of data.

In order to increase the response time to our customers, your company has enabled access to various mobile applications on the smart phones. All the smart phones are equipped with the mobile device management application which ensures that the entire data on the phone remains in the encrypted format and cannot be transferred or copied to another device. In case of loss of phone the entire data on the phone can be remotely wiped off.

In addition to this other state of the art systems like dealer portal and analytics for supply chain function were introduced. These e-commerce mobile enabled initiatives have given new insights to the business.

Your Company expanded the use of information technology by installing touch-screen kiosks across plants, empowering workers to manage documentation related to leaves, travel, shifts and salary slips. Other state-of-the-art systems (employee learning portals and analytics for the supply chain function) were introduced. The Company upgraded its technology platform related to R&D, manufacturing, supply chain, quality, sales and marketing.

Your Company also won the Netapp Innovation Award at a mega event held in Mumbai for implementation of central data storage in the most innovative way.

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