Buy PI Industries Ltd For Target Rs.4,100 by Motilal Oswal Financial Services Ltd
Muted growth across segments
Earnings lower than estimates
* PI Industries (PI) reported flat revenue YoY in 3QFY25, as muted growth in CSM (up 4% YoY; 82% mix) and domestic (up 5% YoY; 15% mix) businesses was fully offset by a 50% YoY fall in the pharma business (up 55% QoQ; 3% mix). EBITDA declined 14% YoY on account of a change in the product mix and adverse operating leverage.
* The macro environment for agrochem (export and domestic) should continue to improve over the next few quarters, led by the normalization of inventory across regions (some regions have already seen normalization). The pharma business has seen a sequential improvement, with expectations of further acceleration in 4Q, while new products and biologicals segment are growing at a much faster pace.
* Factoring in persistent global industry-wide challenges impacting performance and an uncertain near-term outlook, we lower our FY25/FY26/FY27 earnings estimates by 4%/7%/6%. However, the mediumto long-term outlook remains healthy. Hence, we reiterate BUY with a TP of INR4,100 (30x FY27E EPS).
Adverse operating leverage hurts margins
* Consolidated revenue stood at INR19b (est. INR19.5b), flat YoY.
* EBITDA stood at INR5.1b (est.INR5.5b), down 7.5% YoY. EBITDA margins contracted 220bp YoY to 26.9% (est. 28%). Gross margins came in at 52.7% (down 90bp YoY). Employee expenses rose 30bp YoY to 10%. Other expenses increased 110bp YoY to 15.7% of sales.
* Adjusted PAT was down 17% YoY at INR3.7b (est. INR4.1b).
* Agrochemical revenue stood at INR18.3b (up 4% YoY), EBIT declined 1.4% YoY to INR5.3b, and EBIT margin came in at ~29.2% (down 150bp YoY).
* Export (CSM) revenue grew 4% to INR15.5b, driven by growth in new products (up 40% YoY) and healthy volume growth. Domestic agrochem revenue grew 5% YoY to INR2.8b.
* Pharma revenue stood at INR637m (~4% of total export revenue), down 50% YoY/up 55% QoQ.
* CFO stood at INR4.5b (vs. INR4.8b in 3QFY24). Net working capital days improved to 68 as of Dec’24 from 80 as of Dec’23 on account of lower receivable days of 46 (vs. 59 YoY).
* In 9MFY25, revenue/EBITDA/adj. PAT increased 4%/10%/1% to INR61.9b/ INR17.2b/INR13.3b. For 4QFY25, implied revenue/EBITDA growth is ~7%/5% YoY, due to an uncertain business environment.
Highlights from the management commentary
* Guidance: The company maintains its guidance of single-digit revenue growth in FY25. The CSM business faces near-term macro challenges, including tariff wars, geopolitical issues, and pricing pressures. The company aims to maintain its current volume levels, with demand expected to improve in the second half of 2025.
* Pharma: The company maintains its pharma revenue guidance for FY25 at INR2.5-2.75b, implying strong growth in 4Q. Gross margins remained stable, and as the company transitions toward the CRDMO business, margins are expected to improve further.
* Global Agrochem industry presents a mixed scenario, with product-specific variations and improvements in certain markets in the near term. The industry maintains a strong growth trajectory in the medium-to-long term. While the domestic agrochemical segment faces pricing pressure currently, the outlook will depend on market sentiment, which will be strongly influenced by investment trends in the sector and the overall health of the rural economy
Valuation and view
* PI’s growth trajectory halted in this quarter due to macro headwinds, with nearterm challenges likely to persist.
* The company’s medium- to long-term growth will be led by: 1) stable growth momentum in the CSM business, driven by the rising pace of commercialization of new molecules and sales ramp-up in existing molecules; 2) product launches in the domestic market (six launches in FY25E); and 3) ramp-up of the pharma API and CDMO segments.
* We expect a CAGR of 13%/14%/11% in revenue/EBITDA/adj. PAT over FY25-27. We reiterate BUY with a TP of INR4,100 (30x on FY27E 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 INH000000412
