PI Industries (PI) is an agri-based chemistry solution provider. It currently operates 3 formulation facilities as well as 8 multi-product plants at 3 manufacturing locations. It has successfully leveraged its capabilities across the agri-sciences value chain by providing integrated and innovative solutions to its customers through strategic partnerships. It has strong research and development team, state-of-the-art manufacturing services, a strong brand building team, robust distribution presence in India. Company provides services in various areas, including contract research, process development, analytical method development, process safety data generation and process detailed engineering.
CSM business to grow sequentially:
Increased demand for existing CSM (custom synthesis manufacturing) solutions and increased requirement by innovator companies. Company is expecting to perform well in this division. These are contract manufacturing services, which are associated with their multinational innovators. Global inventory levels have come down, which is expected to boost demand, leading to sustained growth momentum for CSM business. PI was able to convert some of its long term contract in CSM division. Management has indicated that CSM business will remain stable for the coming 2 to 3 years, with revenue growth of 20% and margin improvement by up-to 100 bps. CSM business has been grown by 39% yoy in last quarter (4Q FY19).
Focus on innovation:
PI Industries has always given preference to innovation and believes in R & D of new products. PI is also known for its technical expertise. Company has launched 3 molecules in FY 19, management guided along this there are 3 to 4 new launch of molecules in FY20. This process helps them to capitalize entire product life cycle. Company also has a strong product pipeline in R&D stage. PI uses its deep global relations to enhance the R&D activities.
Wide geographic reach and large distribution network:
PI Industries been one of the oldest player in the agrochemical segment, PI Industries has legacy of more than 6 decades. PI Industries is present in more than 30 countries. It has more than 10000 distributors globally also company has deep relations with some global innovators.
Strong order book in CSM:
CSM division contributes around 66% of revenues in FY19; it is the major growth driver in company’s top line. CSM revenues clocked 39% yoy increase for its recent quarter (4Q FY 19), while for FY19 it grown by 29% yoy. Company has seen a global demand revival in Agchem industry. Company remains optimistic on CSM growth backed by order book of US 1.35 billion. Even PI is been able to retain its some contracts in CSM division and remaining are in negotiation phase. Management has also raised its Capex guidance by 150 crores.
Covid-19 would have a limited impact on PI Industries; as government has permitted all the companies to operate which are engaged in agricultural activities. PI Industries being an agrochemical company can continue its business operations within country. We also expect huge demand for agrochemical’s due to this lockdown as there is huge demand for fruits and vegetables. We believe there would be minimal Impact on PI Industries export business.
Adverse impact of regulations:
Regulatory challenges include as delay in product approval by regulatory bodies due to environmental norms can affect the growth of business.
Company is exposed to foreign currency risks as it has more than 40% revenues through exports. Any appreciation in Rupee will impact realisations.
Indian agriculture business completely depends upon the monsoons every year. Company has seen pressure in past when there was deficit in monsoon for a particular year.
|DESCRIPTION||17-Mar||18-Mar||19-Mar||Mar-20 E||Mar-21 E|
|Raw Material Cost||1204.07||1161.24||1552.90||1787.49||2264.62|
|% of Sales||53.00%||51.00%||55.00%||52.00%||54.00%|
|General and Administration Expenses||79.83||86.39||0.00||103.12||125.81|
|% of Sales||4.00%||4.00%||0.00%||3.00%||3.00%|
|Selling and Distribution Expenses||67.81||69.07||0.00||240.62||293.56|
|% of Sales||3.00%||3.00%||0.00%||7.00%||7.00%|
|EBITDA (Excl OI)||554.82||495.38||576.40||732.41||847.17|
|Exceptional Income / Expenses||0.00||0.00||0.00||0.00||0.00|
|Profit Before Tax||509.63||465.34||537.90||690.12||795.11|
|Provision for Tax||50.10||97.86||127.70||162.18||186.85|
|Profit After Tax||459.53||367.48||410.20||527.94||608.26|
|Earnings Per Share||33.39||26.66||29.74||38.26||44.08|
PI Industries has a legacy over 6 decades into agrochemical industry, management guided that there’s soft revival in global demand and CSM business to grow. PI industries outperformed in FY19 with growth of 25% Vs guidance of 20%. We expect that growth momentum to continue in future and Revenues/EBITDA to grow by 21%/27% respectively in upcoming years. We initiate a buy on PI Industries based on strong growth prospects in CSM/exports business, global demand revival in industry and backed by stable monsoon conditions domestically.