Hold PI Industries Ltd For Target Rs.3,930 - 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
Q2FY23 Results: Numbers were above our estimates, led by strong volume growth from CSM and domestic.
* Reported revenue growth of 30.7% YoY to | 1770 crore, CSM (up 29% YoY). The revenue from domestic formulation was up 36% YoY to | 491.7 crore
* Gross margins stayed constant at ~45.2% while EBITDA margin expanded 284 bps YoY to 24.4%. Absolute EBITDA was up 48% YoY to | 431.9 crore
* PAT rose 46% YoY to | 334.8 crore, driven by strong operational efficiency
What should investors do? The stock appreciated at 37.3% CAGR in last three years.
* We downgrade the stock from BUY to HOLD as the current valuation more or less fully incorporates buoyant CSM outlook and domestic traction
Target Price and Valuation: We value PI Industries at 45x FY24E EPS to arrive at a revised target price of | 3930/share (earlier | 3710/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 Chemicals
* Trigger for Neogen Chemical’s future revenue growth would be increasing CRAMS opportunity
* BUY with a target price of | 1645
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