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Export demand outlook remains buoyant

Earnings below our estimates

*PI continued its growth trajectory in 4QFY23 (revenue up 12% YoY), led by robust growth in the CSM business (revenue up 15% YoY). The domestic business again witnessed muted growth (only 1% YoY). EBITDA margin remained flat YoY at 22% after expanding (both QoQ and YoY) for the last seven quarters from 19% in 4QFY21 to 25.7% in 3QFY23.

* We maintain our FY24/FY25 EPS estimates on the back of a strong outlook for product launches across the CSM/Domestic businesses, along with the integration of the recently acquired pharma business. We reiterate our BUY rating on the stock with a TP of INR4,300.

CSM business continues to drive overall performance

Revenue grew 12% YoY to INR15.7b (est. INR15.2b) in 4QFY23. EBITDA rose 12% YoY to INR3.4b (est. INR3.8b). EBITDA margin was flat YoY at 21.9% (est. 25.1%), led by an increase in employee/other expenses by 40bp/ 30bp YoY to 8.6%/14.3% (as a percentage of sales). Gross margin grew 70bp YoY to 44.8%. Adjusted PAT grew 37% YoY to INR2.8b (est. INR3.1b).

* Export (CSM)/domestic revenue grew 15%/1% YoY to INR12.8b/INR2.8b in 4QFY23. Export revenue was driven by favorable prices/currency and a product mix of ~17% YoY, offset by a volume decline of 2%. Domestic growth was driven by a volume increase of ~2%, offset by a 1% price decline.

* For FY23, revenue/EBITDA/adj. PAT grew 23%/34%/46% YoY to INR64.9b/INR15.4b/INR12.3b.

* For FY23, export (CSM)/domestic revenue grew 26%/12% YoY to INR50.3b /INR14.6b. Export growth was driven by ~11% volume growth and a ~15% contribution from price, favorable product mix and currency. Domestic sales were driven by volume growth of ~8% and a price increase of ~5%. Export/ domestic revenue mix stood at 77%/23% in FY23 v/s 75%/25% in FY22. ? CFO for FY23 stood at INR15b v/s INR5.3b in FY22, while net cash stood at INR32.3b in Mar’23 v/s INR20b in Mar’22. Net working capital days improved to 79 days as of Mar’23 v/s 103 days as of Mar’22.

Highlights from the management commentary

* Guidance: The management has guided for revenue growth of 18-20% p.a. for the near term. Volume is expected grow ~18-20% in FY24 and will be the major growth driver as prices/currency will be range-bound. EBITDA margin is expected to improve in FY24 on better efficiency from plant and operating leverage.

* Capex: The management has guided for a capex of INR8.5-9.0b in FY24.

* CSM: The Freshness Index (share of products launched in last 4-5 years) stood at ~17-18% of total revenue in FY23 v/s 16-17% in FY22. PI plans to launch four to five molecules annually, along with scaling up existing molecules. 

* Domestic Agri: PI plans to launch five products (all specialty products) in FY24. Launches will be a mix of wheat, rice, horticulture crops and biological products.

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