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In a league of its own, Maintain BUY

PI’s strong revenue growth of 29% was driven by new product commercialisation and ramp up in demand of existing products in the CSM segment (~39% rev growth in 4Q). Sizeable sustained capex guidance (Rs 4.0- 4.5 bn p.a. for the next 2-3 years, business commitment for new products, increasing number of products moving from R&D stage to commercialisation and continued demand traction for existing products gives us comfort of superior earnings growth visibility for the next 2 years. On the domestic side, PI’s outperformance vis-à-vis competitors is expected to continue. Domestic business is expected to get a boost with the launch of 2 potential-blockbuster products i.e. PB Rope L and Pyroxasulfone. We expect revenue/EBITDA/PAT to grow at a CAGR of 20%/27%/24% between FY19-21E. We have increased our FY21E revenue/EBITDA/APAT estimates by 2%/3%/3% & target multiple from 23x to 28x FY21E earnings driven by superior earnings growth visibility on the back of sustained business/revenue momentum. Maintain Buy rating with a target price of INR 1278 (Previous TP- 1023).

Capex guidance gives superior business growth visibility:

PI plans to invest INR 4.0-4.5 bn in FY20 on capacity enhancement, infrastructure investment and R&D. Bulk of the investment would be in capacity expansion and the investment run-rate is expected to continue due to demand traction, increasing number of products moving from R&D stage to commercialisation and optimum utilisation at existing plants. PI commissioned a new plant is 4QFY19 (investment INR INR 2.0 bn), plans to commence 2 plants in FY20 (1 each in 1Q and 4Q) and 1 in FY21.

Strong growth guidance:

The management guided for revenue growth of 20-22% in FY20, driven by business commitment for new products from clients, commercialisation of new products and commencement of new plants. Margins are likely to expand by 50-100 bps.

Domestic business finally catching with the ground reality:

Domestic business grew by 4.0% to Rs 2.0 bn due to subdued Rabi season (lower pest infestation and disease occurrence).

7 new launches planned in FY20:

PI plans to launch 7 new products in FY20 of which 3 would be in domestic segment. 4 new molecules are expected to be commercialised in CSM segment which is expected to take the total molecule count to 23-27 next year.

Results were inline:

Revenue growth of 28.7% to Rs 8.0 bn was inline. Gross margins contracted by 264 bps to 45.7% while employee cost declined 5.7% YoY to INR 644 mn (down 293 bps to 8.0% of sales). EBITDA grew 27.6% to INR 1.7 bn (PLe- INR 1.8 bn) while margins contracted 19 bps to 21.4% (PLe- 21.9%). PAT came in at INR 1244 mn (PLe INR 1.3 bn).

Other Highlights:

(a) Impact of adoption of IND AS 115, “Revenue from contracts with customers” was at Rs 380 mn in 4Q’19. (b) Orderbook stands at USD 1.4 bn. (c) Forex gain stood at INR 50-55 mn. 

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