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Healthy performance; Outlook promising

PI Industries manufactures plant protection & specialty plant nutrient products and solutions under its agri-inputs business. It is also one of India’s leading custom synthesis (CSM) companies engaged in providing contract research and contract manufacturing services to global innovators.

* Standalone revenue grew 14.3% YoY to Rs. 1,107cr, owing to strong volumes resulting in solid export growth (+31.0% YoY), while domestic remained subdued hit by pandemic and delayed monsoon.

* EBITDA rose 12.5% YoY despite margin contraction of 40bps YoY to 22.1% with rising overheads due to pandemic related spends.

* Strong cash flows and balance sheet position, healthy order book, new launches, commercialization and continued R&D investments should drive sustainable growth. Hence, we reiterate our BUY rating on the stock with a revised TP of Rs. 3,640 based on 45x FY23E adj. EPS.

Robust export boosts topline

Standalone revenue for Q1FY22 was up 14.3% YoY to Rs. 1,107cr (-1.4% QoQ) driven by a robust growth in exports of Rs. 807cr (+31.0% YoY) with strong volumes in key products. Order book stood healthy at USD1.5bn, while domestic business delivered subdued results at Rs. 387cr due to higher base (~+50.0% YoY uptick in Q1FY21), delayed monsoon, disrupted distribution and COVID impact especially in rural areas. While PI has the strongest horticulture portfolio in the country, it has three new products - rice, cotton and horticulture portfolio in-line for Q3FY22 to drive strong growth momentum.

Higher overheads affect margins

EBITDA for the quarter rose 12.5% YoY to Rs. 245cr, while EBITDA margin dwindled 40bps YoY to 22.1% on higher opex. This overhead surge was towards a non-recurring expense pertaining to COVID management, consulting fees and other strategic initiatives & projects. Adj. PAT came in at Rs. 184cr (+39.4% YoY) owing to higher other income arising from QIP deposit proceeds.

Key concall highlights

* Revenue growth guidance for FY22 maintained at >15%; ~6 new molecules planned to be commercialized in FY22.

* JIVAGRO to introduce 12 co-branded and 2 new products in Q2FY22, CAGR >25% expected over next 4-5 years.

* Agreed to acquire Ind-Swift Lab for a consideration of Rs. 1,530cr, with a topline of Rs. 850cr and EBITDA margin of ~23% including strong customer base in regulated/RoW markets.

* Current capacity utilization is at 70-75%; PI intends to operate at 25-30% of sales (normal level) despite Ind-Swift having high working capital requirements.

Valuation

The management remains positive on robust outlook across its business verticals - domestic/exports backed by growth visibility with pharma integration. ISAGRO business integration coupled with strong order book, new launches and exports should widen the prospects further. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 3,640 based on 45x FY23E adj. EPS.

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