Buy PI Industries Ltd For Target Rs. 3710 - ICICI Direct
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Stellar numbers propelled by CSM
About the stock: Incorporated in 1947, PI Industries focuses on complex chemistry solutions in agri and pharma sciences.
? The company maintains a strong research presence through its R&D facility in Udaipur, where it has a dedicated team of over 300 scientists
? The revenues of the company can be subdivided into custom synthesis manufacturing (CSM) and domestic agrochem formulation business with the former contributing ~74% to overall revenue in FY22 and the rest coming from the domestic formulations business
Q1FY23 Results: Numbers were above our estimates, led by strong growth from CSM.
? Reported revenue growth of 29% YoY to | 1543.2 crore, CSM (up 42% YoY). The revenue from domestic formulation was up 4% YoY to | 401.1 crore
? Gross margins remained constant at ~43.8% while EBITDA margin expanded 150 bps YoY to 22.4%
? EBITDA was up 39% YoY to | 345.6 crore
? PAT increased 40% YoY to | 262.4 crore, driven by strong operational efficiency
What should investors do: The stock appreciated at 24% CAGR in last three years
? We retain BUY on the back of better growth outlook of CSM business
Target Price and Valuation: We value PI Industries at 45x FY24E EPS to arrive at a revised target price of | 3710/share (earlier | 3155/share).
Key triggers for future price performance:
? Strong order backlog in CSM bodes well for future growth
? Proposed foray into pharma CDMO could expand revenue visibility further and diversify its revenue stream, to a certain extent
? Improvement in the operational performance owing to higher share of value added business portfolio to aid return ratios further
Alternate Stock Idea: Apart from PI Industries, in our chemical coverage, we also like Neogen Chemical.
? Trigger for Neogen Chemical’s future revenue growth would be increasing CRAMS opportunity
? BUY with a target price of | 1870
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