Buy PI Industries Ltd for the Target Rs 3,000 by Motilal Oswal Financial Services Ltd
Weak Agchem export volume weighs on performance Operating performance misses our estimate
* PI Industries (PI) reported a weak quarter as revenue declined 10% YoY, primarily due to a 13% YoY dip in the CSM business, attributed to muted global agrochemical demand and continued pricing pressure. Domestic Agri reported a muted revenue growth of 3% YoY, while the Pharma business declined 25% YoY. Gross margin contracted 70bp YoY, while lower volumes led to adverse operating leverage, resulting in an overall EBITDA margin contraction of 570bp YoY.
* Going forward, we remain cautiously optimistic, supported by a stable ~USD1.2b CSM order book, expectations of a gradual recovery in global agrochemical demand, and a healthy innovation pipeline with 4-5 planned product launches during FY27. In addition, the biologicals platform, proprietary products such as Pi-Liprole, and continued investments in pharma CRDMO & electronic chemicals are expected to emerge as key medium-term growth drivers.
* Factoring in the muted 1QFY27, we cut our FY27/FY28 earnings estimates by 15%/12% respectively. We reiterate our BUY rating with a TP of INR3,000 (based on 34x FY28E EPS, i.e., a discount of ~9% to the company’s six-year historical P/E at 37x).
Adverse operating leverage contracts margins
* Revenue stood at INR17b (est. INR18.3b), declining 10% YoY. Agrochemicals business revenue declined 10% YoY to INR16.5b, and Pharma business revenue declined 25% YoY to INR542m, driven by order phasing and customer delivery schedule timing.
* Agchem export demand remained weak (revenue -12%, volume -8%), while domestic volumes grew ~12%, led by strong biologicals growth, partially offset by pricing pressure and demand deferment led by delayed monsoon.
* EBITDA stood at INR3.7b (est. INR4.9b), declining 29% YoY. EBITDA margin contracted 570bp YoY to 21.6% (est. 26.5%); gross margin stood at 56.7% (down 70bp YoY); employee expenses rose 310bp YoY to 15.3%; other expenses rose 190bp YoY to 19.8% of sales.
* EBIT margin for Agrochemical business stood at 23.3% (down 770bp), and Pharma reported an operating loss of INR816m vs operating loss of INR760m in 1QFY26. Adj. PAT declined 39% YoY to INR2.4b (est. INR3.5b).
* Surplus cash net of debt stood at INR8b. NWC improved by 19 days to 120 vs 139 days in 4QFY26, led by an improvement of 14/10 days in DSO/DPO to 112/63.
Valuation and view
* While near-term demand remains subdued in CSM, we expect growth to improve over the coming quarters, supported by a healthy order book of USD1.2b, new product launches, and a gradual recovery in the global agrochemical cycle.
* Going forward, we believe growth recovery will be led by:
1) improving growth prospects in the CSM business, supported by faster growth in new molecules (commercialization of 20+ molecules over the last few years), ramp up of newly launched molecules (~16% share), and a strong pipeline of 60+ projects (majority in advanced stages of development)
2) robust pipeline of biological products across various development stages
3) the ramp-up of its pharma business, with a focus on profitable growth.
* We expect a CAGR of 7%/8%/4% in revenue/EBITDA/adj. PAT over FY26-28. We reiterate our BUY rating with a TP of INR3,000 (based on 34x FY28E EPS, i.e. a discount of ~9% to the company’s six-year historical P/E at 37x).
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