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Headwinds continue

PI Industries (PI IN) reported weak results, with topline flat, EBITDA down 8% and PAT down 17%. Even after one-off adjustments in Q3FY24 (INR 400mn on topline; INR 700mn in cost items), adjusted EBITDA in Q3FY25 was lower than estimates. The overall business environment seems uncertain due to regime change in the US, leading to short-term uncertainties amidst tariff war tensions. This with lingering impact of global destocking should hit PI’s Custom Synthesis Manufacturing (CSM) business on both topline and profitability. This may be a temporary overhang. Expect growth to pick up beyond the next 2-3 quarters as: (a) destocking is largely over globally, (b) given scale-up in recently commercialized molecules and (c) ramp-up in Pharma business, led by aggressive investment in improving capabilities. We reiterate Accumulate with a lower TP of INR 4,048 (from INR 4,977), based on 30x (35x earlier) FY27E EPS of INR 135

Business growth guidance maintained in mid-to-high single digit: Topline for the CSM business dropped 1% YoY to INR 16bn, led by a 50% drop in revenue from the Pharma business albeit on a very small base. Agrochemical CSM grew 4% YoY, led by a 5% growth in volumes and 40% growth in revenue from new products. New products account for ~20% of the CSM business. Product development continues to be rapid, with >60 projects under different stages of development. New enquiries from nonagrochemical space continue to inch up. PI has maintained its FY25 CSM business growth guidance in mid to high single digit

Ability to build differentiated pharma business platform: PI is building a differentiated customer research development manufacturing organization (CRDMO) platform under PI Health Sciences (PIHS). It is doing so via investing in superior talent, physical assets and tech-led processes (to build a high-quality customer portfolio). The top talent pool in PIHS has a minimum experience of >20 years. PI has invested >INR 2bn in capacity expansion, developed a new R&D facility in Hyderabad, renovated its facility at Jaipur and constructed a new kilolab at Lodi (Italy). PI has initiated visits of global pharma and bio-tech companies to its facilities in Hyderabad and Jaipur. It has identified three new projects as medium-term revenue drivers and has recently bagged a key business order.

Reiterate Accumulate with a lower TP of INR 4,048: The overall business environment is uncertain owing to a regime change in the US, leading to short-term uncertainties amidst tariff war tensions. This with lingering impact from global destocking continues to hit PI’s CSM space on both topline and profitability.

So, we trim our topline, EBITDA and PAT projections by 9%, 12% and 14% for FY26E and 15%, 17% and 19% for FY27E. We also pare our target multiple from 35x to 30x. Thus, we lower our TP to INR 4,048 (from INR 4,977) based on 30x (35x earlier) FY27E EPS of INR 135. Maintain Accumulate

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