PI Industries Ltd. share price target

We remain positive on PI and maintain BUY with a TP of Rs 956/sh (25x Sept'20EPS). PI Industries (PI) 2QFY19 Sales/EBITDA was ahead of our estimates by 14.0/5.7%, due to higher than expected growth in both segments (domestic+CSM). PAT came in line due to a higher tax rate of 23.1%.

P I Industries Ltd Q2FY19 results Comment Revenue grew by 19.39% to Rs. 723.0 Cr in Q2FY19 when compared to the previous quarter. Also, it grew by 28.85% when compared with Q2FY18.

Revenue grew 19% YoY to INR13,286m. For 2HFY19, we expect revenue growth of 15% YoY, with margin expansion of 240bp YoY. PIs domestic business delivered robust growth of 24% YoY, leveraging on its established brands and new launches over the last 2-3 years. CSM business, too, grew by 32% YoY due to improved shipments in the export markets. PI commercialized two new products each in the domestic and exports markets with positive response. Growth hereon is expected to be driven by enhanced visibility of scale-up in exports and healthy R&D; pipeline being translated into commercialization. Management maintained its guidance of 18-20% growth on the back of an improved global scenario and a strong pipeline of products in both segments. Further, margins are guided to improve via a better product mix in the domestic market and backward integration initiatives. We expect robust growth in 2HFY19 as the global market shows better response in terms of product off-takes.

Reported revenues were in line with our estimates. However, after adjusting for Ind AS, revenues were ahead of our estimates. On an indicative like to like comparison on a YoY basis the performance of the company has been good in terms of topline and gross margins...

We remain positive on PI and Maintain BUY with a TP of Rs 900/sh (25x Jun'20EPS). PI Industries (PI) 1QFY19 Sales/EBITDA/PAT are not comparable on a YoY/QoQ basis due to change in the accounting standards to modified retrospective approach. The numbers hereon till 4QFY19 will not be comparable on a YoY basis. Though the gross margins were under pressure due to supply constraints and Chinas situation, PI has been trying to de-risk its procurement by moving away from the Chinese sources. We expect margins to normalize going forward. PI Industries is currently operating its plants at a ~95% capacity utilization, the company has thus planned a capex of Rs 2.5 bn for FY19-21E.

Focusing on leveraging existing collaborations with the innovator companies in both the businesses domestic agri-inputs and CSM exports. In domestic agri-inputs by entering into exclusive marketing rights of novel molecules in India with the innovators and in the CSM exports by deepening R&D; capabilities, consequently resulting in commercialization of new molecules. To drive future growth company...

We remain optimistic on PI; however, current valuations seem to have factored in these positives. Accordingly we recommend a NEUTRAL rating with a TP of Rs 885/sh (25x FY20E EPS). PI Industries (PI) reported disappointing results for 4QFY18 with revenues growing 3.2% YoY to Rs 6.25bn. Growth was largely driven by the domestic business (+10.4% YoY, ~30% revenue), and weakness in exports weighed on overall performance (CSM segment +0.4% YoY, ~70% revenue). EBITDA de-grew 12.3% YoY to Rs 1.34bn and EBITDA margin stood at 21.5% (-382bps YoY). The drop was largely on account of lower gross margins (-136bps YoY to 48.4%), higher employee costs (+120bps YoY) and higher operating expenses (+127bps YoY). Higher tax rates led APAT to decline by 22.0% YoY at Rs 1.05mn.

Domestic segment surprised with 10% yoy revenue growth to Rs1.9bn, led by better product mix and increasing traction in new launches. Export revenue however, stood flat yoy at Rs4.3bn, as shipment worth Rs700mn got delayed due to logistical issues. Net Revenue grew by mere 3% yoy to Rs6.34bn and was below our as well as consensus estimates. Gross margin contracted by 130bps to 48.4% and EBITDA margin contracted by 390bps to 21.5%. EBITDA declined 12% yoy to Rs1.4bn while PBT was flat at Rs 1.3bn. more molecules in FY19. In the domestic segment the company is likely to introduce 4-5 new products which will be a mix of novel molecules and co-marketing products....

Revenue grew 3.2% YoY to INR6,251m (est. of INR6,392m) in 4QFY18. EBITDA declined 12% YoY to INR1,347m (est. of INR1,553m), with the margin contracting 390bp YoY to 21.5% (est. of 24.3%). Adj. PAT fell 22% YoY to INR1,054m (est. of INR1,156m) due to a higher tax rate (19.3% v/s -4% in 4QFY17). For FY18, revenue remained flattish at INR22,771m, EBITDA margin contracted 260bp to 21.7% and adj. PAT declined 20% to INR3,676m.