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PI’s CSM revenue grew at a CAGR of 27% over FY20-23, a large part of which was driven by top molecule pyroxasulfone (~30% CAGR). After considerably strong growth over the last 3-4 years, Kumiai Chemicals (innovator) has cut its sales CAGR for pyroxasulfone (AXEEV) to ~5% over FY24-26. Thus, we believe the growth rate of pyroxasulfone will slow down from FY25. While the domestic agchem & pharma business is likely to see a steady run-up, we believe there is need for scale-up of newer patented molecules (vs. off-patented) in the CSM business, for maintaining PI’s historical growth guidance of 18-20% (on the higher base of FY24). We expect PI to clock a relatively slow revenue/EBITDA/PAT CAGR of ~11%/6%/2% over FY24-26E. We initiate coverage on PI Industries with a REDUCE and TP of Rs3,500 (30x FY26E EPS).

Pyroxasulfone’s growth rate to slow down, in sync with innovator’s guidance

In line with Kumiai’s guidance, we believe pyroxasulfone’s growth rate will slow down from FY25E. However, the molecule will grow, on increased acceptance in more number of crops/registrations for different combinations and tight control over the supply chain. Pyroxasulfone is going off-patent in USA (a >65% market) in H2CY25 which will eventually invite more generic players in the market and thus put pressure on price. It will take 2-3 years for pyroxasulfone to completely go off-patent in USA, and there is a high likelihood of a major pricing impact starting FY28 (prices would start moderating from FY25). It will become essential for PI to improve volumes/market share in this period to offset the pricing impact which will in turn be contingent on Kumiai’s guidance.

Scale up of new patented molecules could change the growth trajectory

We believe growth of newer patented molecules (vs. off-patented/proprietary) in the non-pyroxasulfone CSM portfolio is essential for PI to maintain its overall revenue growth guidance of ~18-20% (on the higher base of FY24). PI launches 4-5 patented/nonpatented molecules every year in its CSM portfolio. Incremental growth in CSM in FY24 has come from off-patented molecules which would entail a relatively lower margin. Given PI’s track record, there is possibility of scale-up in any patented molecule of its portfolio; however, we would await volume/revenue visibility on any such molecules. We have built in ~20% CAGR for the non-pyroxasulfone CSM business over FY24-26E.

Domestic agchem and pharma business to grow steadily

Domestic agchem is expected to deliver steady growth, led by newer product launches and portfolio diversification. The business has not seen any material growth over the last few years due to erratic monsoons and elevated channel inventory build-up; but we expect ~8-10% CAGR (on a lower base) in domestic agchem revenue. PI has acquired two businesses on the pharma front, viz Therachem and Archimica, which have their portfolio in pre-clinical/generic pharma CSM. These acquisitions will aid in de-risking Company’s core portfolio away from agchem in the longer term.

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