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Consistent outperformance; pipeline remains strong

* Q3FY21 revenue/EBITDA/PAT beat our expectations by 8%/13%/10% on the back of robust 40% growth in exports (8% above est.) and 26% growth in the domestic business (10% above est). PI’s revenue/EBITDA increased 37%/48% yoy to Rs11.6bn/Rs2.76bn.

* Export order book stood constant qoq at USD1.5bn, implying new life-time high quarterly order wins of ~USD120mn (~USD82mn/USD108mn order wins in Q1/Q2FY21). We note that PI’s quarterly new order wins increased ~46% since Q1FY21.

* PI plans to commercialize 5-6 new molecules in the export segment in FY22 vs. 4 in FY21. The company has already commercialized 4 new molecules at the Isagro site and plans to commercialize 4 more by FY22, which offers visibility over FY22-23.

* PI has guided for improving throughput of its existing capacities from ~80% utilization to 85%-90% using automation and other technologies. We remain constructive on PI due to 1) robust new order wins, 2) visibility on new molecule commercialization pipeline, 3) improved utilization, and 4) synergies from Isagro integration in the domestic business. We maintain Buy and OW stance in our EAP with a revised TP of Rs2,500 (vs. Rs2,450 earlier) based on 33x FY23E EPS.

Higher utilization/operating leverage drive margin improvement: PI’s EBITDA margins improved 176bps yoy to 23.7%, driven by operating leverage and improved utilization of existing facilities. Gross margins expanded 30bps yoy to 46.9% on the back of improved product mix in the domestic segment.

Robust new molecule commercialization pipeline: PI has 25 molecules at the commercial stage and over 45 products at various R&D stages. Management expects to commercialize 10-15 products over the next 2-3 years, out of which it will commercialize 5-6 in FY22.

Organic revenue growth target of 20% for FY22: Management maintained its organic growth target of 20%. PI will commission one MPP in Q4FY21 and one in Q2-Q3FY22. Given the current growth run rate, management guided that PI would require additional capex but are waiting for any under-utilized capacity through acquisitions. If the acquisition does not come in time or does not have under-utilized capacity, it will go for organic capex.

Outlook: Maintain strong Buy: We raise our FY21/22/23 EBITDA and PAT estimates by 2-7% as we factor in the Q3 beat and strong order book execution over FY22-23E. We maintain Buy with a revised TP of Rs2,500 based on 33x FY23E EPS.

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