Published on 23/11/2020 11:14:22 AM | Source: Emkay Global Financial Services Ltd

Buy PI Industries Ltd For Target Rs.2,250 - Emkay Global

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Robust revenue growth across segments

Key highlights

* PI’s CSM order book stood at USD1.5bn, implying new order wins at around ~USD108mn (considering ~USD108mn execution in Q2), which is at its lifetime high.

* Isagro acquisition, highest placement of Nominee Gold and improved volumes for Osheen (driven by Cotton/Rice) led to 33% yoy growth in domestic revenue.

* Q2 saw minimal Covid-19-related disruption with manufacturing facilities operating at preCovid levels. MPP-5, which was shut due to a fire incident in Jan’20, resumed operations.

* Management has maintained its 20%+ revenue growth in FY21.


Q2 Earnings Highlights Revenue

* Q2 consolidated revenue increased by 28% yoy to Rs11.6bn, beating Emkay/consensus estimates by 12%/5%, on the back strong growth in domestic/Export segments and Isagro acquisition. Standalone (excluding Isagro) revenue increased 18% yoy to Rs10.7bn, while Isagro contributed ~10% to revenue growth.

* Q2 consolidated exports increased 25% yoy to Rs8bn (11% above our estimates), driven by volume ramp-up of molecules commercialized in the last two years.

* Domestic revenue increased by 34% yoy to Rs3.6bn (14% above our estimates) on the back of increased sales from Isagro brands and growth in Nominee Gold and Osheen brands.


* Consolidated gross margins improved 171bps yoy to 44.1% due to a change in the business mix in favor of the domestic business.

* Consolidated EBITDA increased by 46% yoy to Rs2.8bn (27%/18% above our/consensus estimates). Standalone EBITDA increased 39% yoy to Rs2.6bn. Consolidated EBITDA margins expanded 298bps yoy to 24.2% and standalone margins expanded 379bps yoy to 24.9%.

* Consolidated PAT increased 77% yoy to Rs2.2bn. Standalone PAT increased 70% yoy to Rs2.1bn due to higher other income (+205% yoy) and lower tax rate at 17.2% (vs. 27.2% in Q2FY20).

Balance Sheet

* Cash conversion cycle improved by 10 days to 68 days (78days in H1FY20) due to decrease in receivable days by 17 to 62 days.

* H1FY21 cash flow from operations increased by 45% yoy to Rs5.4bn.

* Capex for H1FY21 was down 52% yoy at Rs1.8bn vs. Rs3.5bn.

Our view

* PI’s domestic segment beat estimates with 33% growth (incl. Isagro acquisition). PI’s organic growth in the domestic business (excl. acquisition) came as a positive surprise, driven by Osheen’s momentum in the rice segment and growth in Nominee Gold despite higher placements in Q1FY21. We believe that Gross margin expansion was largely due to a change in the product mix in favor of the domestic business on a yoy basis. H1FY21 gross margins are flat (down 37bps yoy), indicating normalized H1 margin performance. We believe that PI’s 188bps improvement in SG&A expenses should reverse partly after Covid-19 as costs related to physical marketing and travel would come back.

* Key catalyst are: 1) Progress on utilization of QIP proceeds, 2) Capex guidance for new MPP at Jambusar/Panoli.


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