Buy PI Industries Ltd For Target Rs.2,060 by Motilal Oswal Financial Services Ltd
Weak Agchem export volume weighs on performance Operating performance below our estimate
* PI Industries (PI) reported a weak quarter as revenue declined 9% YoY, primarily due to an 18% YoY dip in Custom Synthesis and Manufacturing (CSM; 68% of the business). This dip was attributed to muted global agrochemical demand and continued pricing pressure. Domestic Agri/Pharma (28%/4%) business reported a revenue growth of 19%/20% YoY. Gross margin contracted 780bp YoY, while lower volumes led to adverse operating leverage, resulting in an overall EBITDA margin contraction of 15pp YoY.
* Going forward, we remain cautiously optimistic, supported by a stable ~USD1.25b order book and expectations of a gradual recovery in global agrochemical demand, an increasing contribution from new CSM molecules, growth in domestic agri and biologicals, and the scaling up of newer platforms across pharma CRDMO and electronic specialty chemicals.
* We cut our FY27/FY28 earnings estimates by 38%/27% due to declining realizations and margin pressure on key molecules in CSM. We expect revenue/ EBITDA/Adj PAT to dip 4%/37%/47% YoY in FY27. However, revenue/ EBITDA/Adj PAT are likely to grow 15%/36%/49% YoY in FY28. Reiterate BUY with a TP of INR2,060 at 32x FY28 EPS (10% discount to the 10-year 1Y forward EPS)
Lower gross margin and adverse operating leverage weighs on margins
* Revenue stood at INR17.0b (est. INR18.2b), down 9% YoY. Agrochemicals business revenue dipped 10% YoY to INR16.3b and pharma business revenue increased 20% YoY to INR759m.
* Agchem exports declined-18% due to soft demand and pricing pressure from genericization in global agrochemical industry
* EBITDA stood at INR2.3b (est. INR4.3b) down 57% YoY. EBITDA margins contracted 15pp YoY to 13.7% (est. 23.6%); gross margins: 50% (down 780bp YoY); employee expenses rose 330bp YoY to 15.1% and other expenses were up 420bp YoY to 20.7% of sales.
* EBIT margin for the Agrochemical business stood at 15.2% (down 17.5pp) and Pharma reported an operating loss of INR601mm vs operating loss of INR819m in 2QFY26. Adj. PAT was down 70% YoY to INR1.2b (est. INR3.0b)
* For 1HFY27, the revenue/EBITDA/Adj PAT declined 10%/43%/55% to INR34.0b/INR6.0b/INR3.7b.
* Gross debt stood at INR2.1b vs INR2.4b as of Mar’26. CFO stood at INR8.9b vs INR2.5b as of Sept’25.
* NWC increased by 18 days to 139 vs 121 days in 2QFY26, led by an increase of 9 days in DSO and decrease of 9 days in DPO.
Valuation and view
* While near-term demand and margins remain subdued in CSM, margin recovery is expected as RM prices ease over the coming quarters.
* Going forward, we believe growth recovery will be led by:
1) new molecules in CSM (commercialization of 20+ molecules over the last few years with ~16-18 share), and a strong pipeline of 60+ projects (with over 60% in advanced stages of development)
2) a robust pipeline of biological products across various development stages
3) the ramp-up of its pharma business, with a focus on profitable growth.
* We cut our FY27/FY28 earnings estimates by 38%/27% due to declining realizations and margin pressure on key molecules in CSM. We expect revenue/ EBITDA/Adj PAT to decline 4%/37%/47% YoY in FY27. However, revenue/ EBITDA/Adj PAT are likely to grow 15%/36%/49% YoY in FY28. Reiterate BUY with a TP of INR2,060 at 32x FY28 EPS (10% discount to the 10-year 1Y forward EPS).
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH00000041
