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Earnings beat our estimates

* PI recorded a strong growth in 1QFY24 (revenue up 24% YoY), led by robust growth in the CSM business (revenue up 33% YoY); however, the domestic business again witnessed muted growth (down 13% YoY). EBITDA margin expanded 210bps YoY, led by operating leverage and a favorable product mix.

* We maintain our FY24/FY25 earnings estimates. We reiterate our BUY rating on the stock with a TP of INR4,560.

Strong volume growth in CSM drives sales growth

* Revenue of INR19.1b (est. INR19.4b) in 1QFY24, up 24% YoY. EBITDA stood at INR4.7b (est. INR4.5b) up 35% YoY. EBITDA margins expanded 210bp YoY to 24.5% (est. 23.2%); Gross margins: 46.5% (up 270bp YoY); Employee expenses up 100bp YoY to 9.1%; Other expenses down 40bp YoY to 12.9% of sales. Adj. PAT was up 46% YoY to INR3.8b (est. INR3.5b).

* Export (CSM)/domestic agchem revenue grew 33%/declined 13% YoY to INR15.2b/INR3.5b in 1QFY24. Export revenue was driven by strong volume growth of 29% and ~4% from favorable price and currency movements, and a better product mix. Domestic revenues were subdued due to delayed monsoon, leading to a ~13% YoY decline in volume.

* Pharma revenue stood at INR443m, i.e., ~3% of total revenue in 1QFY24 with gross margins at 75%.

* CFO in 1QFY24 stood at INR3b vs. INR1.9b in 1QFY23, while net cash stood at INR28.1b in Jun’23. Net working capital days improved to 83 days as of Jun’23 vs. 102 days as of Jun’22.

Highlights from the management commentary

* Guidance: The management maintained its revenue growth guidance of 18- 20% p.a. for the near term and capex guidance of INR8.5-9.0b in FY24.

* CSM: In this quarter, PI successfully commercialized one molecule and remains on track to meet its annual launch guidance of four to five molecules.

* Domestic Agri: PI launched “EKETSU” a 1st 3-way Rice Herbicide Mixture in 1QFY24. The company plans to launch a total of four new products in FY24.

* Pharma: The management plans to double the revenue in the next three to four years with the EBITDA margin ranging between 20% and 24%+. However, margins in FY24 are expected to hover around ~14-15%.

Valuation and view

* PI has levers in place to sustain near-term growth momentum, led by: 1) consistent growth momentum in the CSM business, driven by a strong (USD1.8b) order book, the rising pace of commercialization of new molecules, and a sales ramp-up in existing molecules; 2) product launches in the domestic market (one new launch in 1QFY24 and a total four to five in FY24); and 3) the recent acquisition in the pharma API and CDMO segments, which is expected to be one of the key growth pillars for the company in the future. PI will be creating a differentiated position in the pharma sector by leveraging its core competencies.

* We expect a revenue/EBIDTA/adj. PAT CAGR of 23%/26%/25% over FY23-25.

* We maintain our FY24/FY25 EPS estimates and reiterate our BUY rating on the stock, valuing it at 36x FY25E EPS to arrive at a TP of INR4,560.

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