Published on 12/08/2019 10:06:13 AM | Source: Motilal Oswal Services Ltd

Buy PI Industries Ltd For Target Rs.1,265 - Motilal Oswal

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Another quarter of strength in CSM

Upcoming plants reinforce revenue visibility

* Beat on revenue; EBITDA/PAT in-line: Revenue increased 25% YoY to INR7.5b (our estimate: INR7.1b) in 1QFY20. EBITDA grew 28% YoY to INR1.5b (our estimate: INR1.4b), with the margin expanding 60bp YoY to 20.1% (our estimate: 19.9%). Adj. PAT was up 23% YoY to INR1b (in-line).

* Product mix change dents gross margin: CSM revenue grew 59% YoY, led by increased requirement for commercialized molecules and addition of a new molecule (was commercialized during the quarter). Domestic revenue declined 13% YoY owing to erratic/delayed advent of the south-west monsoon and higher trade inventory. Gross margin contracted 180bp YoY, mainly on account of a change in product mix.

* Concall takeaways:

(i) Two plants are expected to commence operations (one in 3QFY20, other in 4QFY20).

(ii) Management maintained its guidance for overall revenue growth of 20%+ for FY20, with 50-100bp EBITDA margin expansion, mainly on account of operating leverage.

(iii) CSM order book as of 1QFY20 stands at USD1.4b (almost similar to 4QFY19).

* Valuation view: Despite lower revenue in the domestic agro-chemical business, overall revenue growth was at 25% YoY, mainly led by CSM. Also, PI is set to commence operations at two new plants in FY20, which would act as a key growth driver for its CSM business, providing strong revenue growth visibility. We maintain our estimate of revenue/EBITDA/adj. PAT CAGR of 20%/26%/25% over FY19-21. We value the stock at 27x FY21E EPS (in line with its one-year forward multiple over the last three years) and arrive at a TP of INR1,265 (16% upside). Maintain Buy. 


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