IGI Logo

Temporary blip, but story intact

In line revenue; EBITDA and PAT below our estimate due to lower GM

* PI reported lower than expected numbers in 4QFY21 due to lower gross margin, impacted temporarily by: i) product mix changes, ii) consolidation of Isagro, which is relatively lower margin business, iii) MEIS impact, and iv) ramping up of new plants which impacted yields.

* We maintain our FY22E/FY23E estimate. We value the stock at 35x FY23E EPS to arrive at a TP of INR2,945. Maintain Buy.

CSM drives revenue growth

* Reported revenue was up 40% YoY to INR12b (est. INR11.9b) in 4QFY21. EBITDA margin contracted 280bp YoY to 19% (est. 23.9%) on gross margin contraction of 470bp. EBITDA was up 22% YoY to INR2.3b (est. INR2.8b).

* Gross margin contracted in 4QFY21 due to: 1) a 125-130bp impact on account of product mix changes, 2) consolidation of Isagro, which is relatively lower margin business, 3) MEIS impact of 150-160bp, which will be passed on to customers, and 4) initial hiccups due to lower yields from new plants. The management expects EBITDA margin to be in line with FY21.

* Adjusted PAT grew 62% YoY to INR1,798m (est. INR2,172m), aided by higher other income (+550% YoY to INR442m) and a lower tax rate (19.1% v/s 22.2% last year).

* Revenue/EBITDA/PAT grew 36%/41%/62% in FY21. PI generated a CFO of INR7.2b, up 4% YoY.

* Exports/CSM revenue increased 47% YoY (to INR10b) in 4QFY21, led by strong volume growth in key products.

* Revenue for domestic Agrochemicals grew 11% YoY (to INR1.9b), aided by the newly acquired Isagro, which registered a growth of 51% YoY.

* The order book stood ~USD1.5b (flat QoQ), which provides higher visibility for sustainable growth over the next 3-4 years.

Highlights from the management interaction

* Deployment of QIP funds for the acquisition has been delayed due to second COVID wave, which impacted travel. By 1HFY22-end, PI would announce the acquisition. By FY22-end, it would complete the same via the QIP proceeds.

* Four CSM molecules have been commercialized in FY21. Seven new customer relationships were initiated in FY21. Over 40 active inquiries are at different stages. There are 5-6 molecules in various stages of development to be commercialized in FY22.

* Capex in FY22 will be lower as compared to the previous capex run-rate as the company has undertaken heavy capex in the last 2-3 years. The biggest capex will be towards inorganic expansion. Currently, PI aims to increase the asset-turnover ratio of existing plants.

Valuation and view

* The company has levers in place to sustain the near term growth momentum, led by: a) ramp-up in operations of two multi-purpose plants (MPPs) that commenced in FY21, and one new MPP is likely to commence operations by 2QFY22, b) revenue from the Isagro acquisition, c) sustained growth momentum in the CSM business on account of strong (USD1.5b) order book, increasing pace of commercialization of new molecules, and ramping up of sales of existing molecules, and d) product launches in the domestic market (five new launches in FY22), providing earnings visibility.

* The stock traded at an average of 31x over the last three years on a one-year forward basis. We have ascribed 35x P/E after considering the strong growth outlook for existing businesses and its venture into the Pharma segment, which presents a huge opportunity for the company to play on.

* We expect revenue/EBITDA/PAT CAGR of 20%/26%/31% over FY21-23E.

* We value the stock at 35x FY23E EPS to arrive at our TP of INR2,945. Maintain Buy.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer