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CSM pipeline remains strong; maintain BUY

We believe PI’s CSM molecules pipeline is likely to offer a big market opportunity, on top of its existing portfolio. We understand that PI has recently been granted registration by CIBRC to manufacture several patented molecules. One of these molecules has been jointly developed by IsAgro and FMC. This molecule provides PI long-term revenue growth visibility with peak estimated annual sales of USD 200-250mn (for PI) and patent validity beyond CY28-30. One of the other fungicides that PI is likely to manufacture has estimated peak sales of USD 12mn (for PI) and patent validity till CY24. Moreover, PI is yet to ramp up supplies in its recent CSM molecules. Hence, in our view, with a runway for growth in its existing molecules and a strong upcoming product pipeline, PI’s CSM revenue is likely to demonstrate 20% CAGR over FY22E-25E. This also provides a response to major investor concerns around competition coming in several of its key molecules that have already gone off-patent or are likely to go off-patent. Although we agree that pharma acquisition continues to be a key overhang, we maintain BUY with a revised TP of INR 3,460 (from INR 3,620 earlier) as its base agrochemicals business outlook remains robust.

CSM pipeline provides long-term growth visibility: As per our understanding, PI has recently been granted registration by CIBRC to manufacture two new patented molecules. These two molecules are Fluindapyr and Valifenalate. Fluindapyr has peak estimated sales of USD 400- 500mn (Exhibit 1). Since this molecule was jointly developed by IsAgro and FMC (Exhibit 2-3) and given IsAgro is now a part of PI, we believe PI could get the exclusive contract to manufacture this technical and supply it to FMC. Hence, in our view, the opportunity size for PI for this molecule stands at USD 200-250mn. Further, Valifenalate, developed by Ishihara, has peak estimated sales of USD 25mn. This molecule gives PI a target market opportunity of USD 12mn. These molecules provide long-term growth visibility on the existing CSM revenue base of ~USD 550mn in FY22E.

Opportunity to scale up in existing CSM molecules: Since PI had started supplying some of its existing CSM molecules very recently; there remains an opportunity for PI to scale up in these molecules. Some of these molecules are Chlorantraniliprole (estimated end-market size USD 1.7bn, patent expiry in CY24) and Flubendiamide (estimated end-market size USD 507mn, patent expiry in CY24). Basis our understanding, revenue contribution of each of these two molecules is less than 5% of PI’s CSM revenue. With an opportunity to scale up in existing CSM molecules and strong visibility from the upcoming products, we believe PI is well set to demonstrate 20% CAGR in its CSM business.

Estimates lowered – maintain BUY: We have lowered our FY23/24 EBITDA/PAT estimates by ~4-5% to factor in margin contraction in the medium term on account of continued supply chain disruptions. We estimate PI’s earnings to post ~22% CAGR over FY22-24E. We maintain BUY with a revised Mar’23 TP of INR 3,460/share (based on 40x Mar’24E EPS) (from INR 3,620 earlier) as we believe PI’s base agrochemicals CSM business outlook remains robust. Key risks: a) global slowdown in agrochemicals; and b) acquisition of value destructive pharma assets.

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