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Favorable product mix drives operating profitability

Earnings above estimates

* PI Industries (PI)’s revenue grew 8% YoY in 1QFY25, led by a healthy growth in the CSM business (up 14% YoY). However, the domestic and Pharma business continued to witness subdued demand (revenue down 8%/43% YoY).

* EBITDA grew 25% YoY in 1QFY25 as EBITDA margin expanded 370bp YoY on account of favorable product mix (gross margins up 530bps).

* We largely maintain our FY25/FY26 earnings and Reiterate BUY with a TP of INR5,200 (35x Sep’26 EPS).

Healthy volumes & new products growth in CSM drives revenue

* Consolidated revenue stood at INR20.7b (est. INR22), up 8% YoY.

* EBITDA stood at INR5.8b (est. INR5.6), up 25% YoY. EBITDA margins grew 370bp YoY to 28.2% (est. 25.5%) led by favorable product mix and operating leverage; Gross margins came in at 51.8% (up 530bp YoY). Employee expenses rose 60bp YoY to 9.7%. Other expenses increased 100bp YoY to 13.9% of sales. Adjusted PAT was up 17% YoY at INR4.5b (est. INR4b).

* Agrochemical revenue in 1QFY25 stood at INR20.4b (up 10% YoY). EBIT grew 39% YoY to INR6.4b, with an EBIT margin of ~31.2% (up 650bp YoY).

* Export (CSM) revenue grew 14% to INR17.2b, driven by growth in new products (up 24% YoY) and healthy volume growth. The domestic agrochem revenue declined 8% YoY to INR3.2b due to the delayed sowing and erratic spread of monsoon, which was partially offset by a favorable product mix.

* Pharma revenue stood at INR253m (~1% of total revenue) in 1QFY25, down 43% YoY due to deferment of supply to customers having high inventory.

* CFO in 1QFY25 stood at INR6.1b (v/s INR3b in 1QFY24). Net working capital days improved to 55 days as of Jun’24 vs. 83 as of Jun’23 on back of lower receivable days of 50 vs. 73 YoY.

Highlights from the management commentary

* Guidance: Management maintains revenue growth guidance of 15% in FY25 with Gross/EBITDA margins of ~50-51%/25-26%. It expects tax rate for the year to be ~22-23%. Capex: Company plans to incur capex of ~INR8-9b in FY25 (~INR1.5b already incurred in 1QFY25).

* CSM: The order book position remains solid at ~USD1.50-1.55b. Pi will focus on aggressive commercialization of new products in FY25 (~8-10 launches). Around 40% of the new product commercialization and ~40-45% of the product under development will be from non-agchem segment

* Strong domestic launch pipeline: The company plans to launch seven products in FY25 (two already launched in Q1) in the domestic agchem segment while six products under Jivagro.

* Potential Acquisition: The company offered to acquire Plant Health Care Plc (PHC) which is a technology platform company with strong growth history enabling company to gain access to cutting-edge biological/ peptide technology platforms as well as the global markets

Valuation and view

* PI has levers in place to sustain near-term growth, led by: 1) consistent growth momentum in the CSM business, driven by a strong order book (USD1.5-1.55b), the rising pace of commercialization of new molecules, and a sale ramp-up in existing molecules; 2) product launches in the domestic market (seven new launches in FY25); and 3) the recent acquisition in the pharma API and CDMO segments, which is expected to be one of the key growth pillars for the company in the future.

* We expect a CAGR of 16%/18%/13% in revenue/EBITDA/adj. PAT over FY24-27. ? We largely maintain our FY25/FY26 earnings and Reiterate BUY with a TP of INR5,200 (prescribing 35x on Sep’26 EPS, in-line with its five-year average, and a one-year forward P/E).

* We largely maintain our FY25/FY26 earnings and Reiterate BUY with a TP of INR5,200 (prescribing 35x on Sep’26 EPS, in-line with its five-year average, and a one-year forward P/E).

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