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PI Industries manufactures plant protection and speciality plant nutrient products and solutions under its agri-inputs business. It is also one of India’s leading custom synthesis and manufacturing companies providing contract research and contract manufacturing services to global innovators.
* Q1FY20 revenue grew 24.5% YoY to Rs. 754cr (beating Street estimates by 7.5%), primarily driven by robust growth in exports (+59.5% YoY) which more-than-offset weaker domestic revenue (-13%).
* EBITDA margin improved 58bps YoY to 20.1% primarily on account of Ind AS adjustment.
* Profit after tax increased 23.4% YoY to Rs. 101cr, beating Street expectations by 4.4%.
* We downgrade our rating to HOLD on the stock, with a revised target price of Rs. 1,195, based on 27x FY21E adj. EPS.
Exports drive growth
Company registered strong growth in Q1FY20 revenue (+24.5% YoY to Rs. 754cr), powered by robust export sales (+59.5% YoY to Rs. 501cr) as a result of increased demand for commercialised and new molecules. This was only partly offset by the softness in domestic business (-13% YoY to Rs. 253cr), which was impacted by delayed and erratic southwest monsoon and weak industry demand with high trade stockpile. EBITDA grew 28.2% YoY to Rs. 151cr, aided by revenue growth as EBITDA margins improved +58bps YoY to 20.1% primarily on account of Ind AS adjustment. However, net profit margin remained largely stable at 13.4%, as the same Ind AS related cost adjustments were distributed over D&A and interest expenses. In absolute terms, PAT was up 23.4% to Rs. 101cr, beating Street expectations by 4.4%.
* FY20 revenue growth guidance at 20-25%; EBITDA margin expected to rise 50– 100bps YoY
* Capex spending estimated at Rs. 400–450cr in FY20 and FY21 each
* Domestic consumption expected to pick up in Q2 and Q3 upon monsoon arrival
* New products in pipeline, plans to launch one in the next half of the year
* Significant growth from existing client base with newer projects
Focus on ramp-up
Management expects to commence operations at two new plants in the current fiscal year with one in Q2 and another in Q4. Two additional plants are expected to commence operations in FY21. The focus of the capex spending was on eliminating bottlenecks, improving capacity utilisation and developing new products with special attention to the SEZ plant. Management also believes that the trade war in China has diverted opportunities to the country, which may benefit the business. However, a poor monsoon season may lead to lower-than-expected growth.
The stock is currently trading at a P/E of 30x FY20E. We roll forward to FY21E and downgrade our rating to HOLD with a target price of Rs. 1,195 based on 27x FY21E adj. EPS. We feel the positives such as strong product pipeline and management’s focus on innovation, capacity utilisation improvement and technology platform, have already been factored in the strong uptake in the share price in the last six months (up 28%) to one year (up 36%).
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