The key to winning big at PI Industries is focusing on the small details
The business now has a market cap of ₹58,000 crore, but investors think it is still good for 18 to 20 percent growth every year, and are pricing that in. The spike in market cap that has come in the last decade is primarily on account of PI Industries becoming big in the custom synthesis and manufacturing business (CSM).
In this business, it offers process research, analytical development, and manufacturing for global agri-chem companies. “We managed to break into this market as global companies were comfortable that their intellectual property (IP) would be protected. This rapid growth has resulted in the stock moving up 31 percent a year, taking its market cap to ₹58,000 crore.
PI’s CSM business has become a strong moat as no other Indian agri-chem company offers this service at the scale that PI does. The Indian agri-chem export market is also a direct beneficiary of the global China + 1 strategy.
PI has announced plans to enter into the CSM business for pharma companies. PI’s story is based on taking a commodity business and turning it into a knowledge-based company. When Singhal came back from university to enter the family business in 1996, he saw a company that had about ₹50 crore in sales. The company had been working with Japanese companies, and Singhal wanted to check if they could convince them that PI would do their research for them.
Remember this was the time of no IP protections in India and PI managed to get this business only on account of prior relationships. While Singhal declined to disclose the name of the product, he did say that this order required significant financing and the $700,000 order needed a plant that cost ₹30 crore.
The existing business barely made ₹5 crore a year. During this period, Singhal worked at reorienting the company from a commodity play to one with a strong scientific backbone. He’d seen the business operating as a distributor of agri-chem products and knew that he’d have to deal with poor business economics.
PI decided to eschew the me-too versions of products already in the Indian market. (It has since gone off-patent and there are now an estimated 50 such products in the market. Between FY16 and FY23, domestic revenues of PI Industries grew at 9 percent a year.
The brokerage expects PI’s domestic business to grow at 12 percent a year between FY23 and FY25 on account of new product launches. PI also has strong relationships with global companies Bayer, BASF, and Mitsui, and could bring in more products from their portfolio for the Indian market. The company is most excited about the export market.
Its CSM business saw revenue growth of 28 percent between FY18 and FY23 and is expected to grow at 21 percent in FY23-25. While the company doesn’t share the names of the products it is working on, its pipeline is said to be 25 molecules strong.
The global agri-chem market has faced a subdued two years on account of overcapacity in the Chinese market, but PI, which makes only patented molecules, has managed to buck the trend since clients trust them with their IP. With strong research capabilities in the agri-chem segment, PI entered the pharma space recently.
Here too the plan is to offer custom research solutions to global companies and then manufacture for them in India and export. This is arguably a much bigger market opportunity—$29 billion versus the $6 billion opportunity size of the global agri-chem business.
But unlike others who have created large companies, Singhal says he focuses on the small things that can make or break his business.
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