Buy PI Industries Ltd For Target Rs.4,650 by Motilal Oswal Financial Services Ltd
Macro headwinds hurt agrochemical growth
Earnings in line
* PI Industries (PI) reported a muted quarter; its revenue declined 8% YoY due to a dip in CSM (down 14%; mix 78%), while the domestic agrochem business grew 6% YoY (18% mix). Pharma revenue surged ~2.9x YoY (4% mix). Its consolidated EBITDA margin contracted 90bp YoY despite a 570bp gross margin improvement. This contraction was due to a strategic development and promotion expenses of newer businesses.
* As highlighted earlier, macro challenges continue to persist in 1Q and are likely to continue in 2QFY26, following which we can expect a gradual recovery. With early signs of destocking of inventory in most markets and a favorable monsoon, recovery is anticipated in both the export and domestic markets. The pharma segment also delivered strong growth and guided an improved margins trajectory with breakeven in the next 12-18 months.
* Management retained its guidance of mid-single-digit revenue growth in FY26, with an EBITDA margin of ~25-27%. We broadly maintain our FY26E/ FY27E earnings and reiterate our BUY rating with a TP of INR4,650 (based on 37x FY27E EPS).
Margins continue to remain stable
* PI’s consolidated revenue stood at INR19b (est. INR21.1b), down 8% YoY. ? EBITDA stood at INR5.2b (est. in line), down 11% YoY. EBITDA margins contracted by 90bp YoY to 27.3% (est. 25%). Gross margins expanded 570bp YoY to 57.4%. Employee expenses rose 260bp YoY to 12.2%. Other expenses increased by 400bp YoY to 17.9% of sales. Adj. PAT was down 11% YoY at INR4b (in line).
* Agrochemical (CSM Export and Domestic Agrochem) revenue stood at INR18.3b (down 11% YoY), EBIT declined 11.3% YoY to INR5.7b, and EBIT margin came in at ~30.9% (down 30bp YoY), led by a better product mix.
* Export (CSM) revenue declined 14% YoY to INR14.9b, while PI’s new products experienced a growth of ~46% YoY. Domestic agrochemical revenue grew 6% YoY to INR3.4b.
* Pi’s pharma revenue stood at INR723m (~5% of total export revenue) vs. INR253m in 1QFY25.
Highlights from the management commentary
* Guidance: The company maintains its mid-single-digit revenue growth for FY26 with a sustained EBITDA margin of 25-27%. Gross margin is expected to remain in the 50-52% range. Capex is expected to be ~INR7-8b. The pharma business is likely to grow at 75% in FY26 with improved margins.
* Biological (20% of domestic sales): Domestic biological sales are currently halted due to sudden regulatory changes. The industry expects the issue to be resolved within the next 1–2 months, given biologicals’ strategic importance for sustainable agriculture.
* New product: PIOXANILIPROLE is PI’s first India-discovered molecule, targeting Lepidopteran pests in major row and vegetable crops. Filed for registration in India, it offers a significant market opportunity. Its commercial launch is expected in 2–2.5 years domestically, with global expansion planned through partnerships and aligned regulatory approvals.
Valuation and view
* PI’s growth trajectory remained muted this quarter due to macro headwinds, and near-term challenges (1HFY26) are likely to persist. However, 2H is likely to experience an improving demand scenario, resulting in both volume and pricing growth.
* PI’s medium- to long-term growth story will be led by 1) continued stable growth momentum in the CSM business due to the rising pace of commercialization of new molecules, 2) a strong domestic market, and 3) the ramp-up of its pharma business.
* We expect a CAGR of 10%/9%/8% in revenue/EBITDA/adj. PAT over FY25-27. We reiterate our BUY rating with a TP of INR4,650 (based on 37x FY27E EPS).
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