Buy PI Industries Ltd For Target Rs. 4,265 by Axis Securities
Modest CSM Growth; Navigating Near-Term Challenges with Transformation
Est. Vs. Actual for Q3FY25: Revenue: MISS; EBITDA: MISS; PAT: MISS
Change in Estimates post Q3FY25
FY25E/FY26E/FY27E: Revenue: -4%/-8%/-10%; EBITDA:-2%/-9%/-12%; PAT:-1%/-9%/- 13%
Recommendation Rationale
* Headwinds in CSM Business to continue in Near-Term: PI’s CSM business showed a modest 2% YoY growth, with volumes increasing by 5% YoY and new products growing by 40% YoY in Q3. However, due to declining demand, the management anticipates a recovery in H2CY25, expecting high inventories in certain products to decrease by that time. Accordingly, the management has revised its revenue growth forecast for FY25, lowering it from high single-digit to low single-digit growth.
* Biologicals gaining momentum: PI’s domestic segment saw a 5% YoY growth in the quarter, reaching Rs 280 Cr. This growth was primarily fueled by a 7% YoY increase in volume, a 20% YoY rise in revenue from biological products, and favourable agronomic conditions. The company launched six new brands in the domestic market and plans to introduce more products while expanding its biologicals business, accounting for approximately 15% of total revenue.
* CRDMO and new products to drive growth: The Pharma segment saw a significant 55% YoY growth, contributing around 4% to total export revenue. PI is focusing on transitioning to the new CRDMO business model and is restructuring its product mix. The company plans to introduce new products and customers as it develops its new technology platform. Management expects a revenue growth of 20-25% once the new business model stabilises. PI has identified three new projects to drive long-term revenue growth and has secured a key CDMO order for a new program
Sector Outlook: Cautiously Optimistic
Company Outlook: The management anticipates muted demand in the near term and has revised its revenue growth guidance from high single-digit to low single-digit, as the global industry landscape continues to be challenging. However, the management remains hopeful of a recovery in the second half of CY25. PI also has a robust pipeline of over 20 products at different stages of development and registration, which are expected to be key drivers of growth in the medium term. The company plans to spend Rs 800-1000 Cr on Capex for FY25.
Current Valuation: 28x FY27E (Earlier: 28x FY27E)
Current TP: Rs 4,265/share (Earlier TP: Rs 4,850/share)
Recommendation: We maintain our BUY rating on the stock.
Financial Performance: The company’s consolidated revenues stood at Rs 1,901 Cr, up 0.2% YoY and down 14% QoQ, missing our estimate of Rs 1,992 Cr. Gross margins declined to 52.7%, down from 53.9% in Q3FY24. The company reported an EBITDA of Rs 512 Cr, down 8% YoY and 18% QoQ, and missing estimates by 8%. EBITDA margin came in at 26.9%, compared to 29.2% in Q3FY24 and 28.3% in Q2FY25. PAT stood at Rs 373 Cr, down 17% YoY and 27% QoQ, missing the estimate of Rs 508 Cr.
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SEBI Registration number is INZ00016163
