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PI’s Q1 EBITDA at Rs5.8bn (+25% YoY/32% QoQ) was in line with our estimates due to strong CSM exports (+23% QoQ). CSM revenue grew 14% YoY, driven by robust volumes and growth of new products, while the domestic and pharma businesses remained subdued. Management maintained its overall revenue growth guidance of 15% (vs. 18-20% for FY24) for FY25 and nudged up gross-margin guidance to 50-51%. FY25 capex guidance remains unchanged at Rs8-9bn, but that for tax-rate reduces a tad to 22-23% (vs. 24% earlier). Based on this guidance, we increase our FY26E EPS by 7%. PI is likely to register a high single digit EPS CAGR over FY24-27E. We maintain our REDUCE rating, and raise our TP to Rs3,900/sh (30x Jun-26E EPS), while awaiting visibility on scaling up of new patented molecules in the agchem portfolio.

Company remains positive on revenue growth and strategic initiatives

The management maintained its FY25 revenue growth guidance of 15% for FY25 (lower, given macro contingencies), its gross margin range of 50-51%, and its EBITDA margin range of 25-26%; it also emphasized on and sustained profit improvement. The company revised its tax-rate guidance to 22-23% from 24%, and retained its capex guidance of Rs8-9bn (Rs9bn in FY24). PI is building a strong CRDMO platform in its pharma business, leveraging integrated service facilities and its global business development team. The management continues to actively evaluate inorganic growth opportunities for de-risking the existing agchem portfolio on growing cash balances.

CSM business registered strong growth in Q1

The Custom Synthesis and Manufacturing (CSM) business clocked revenue of Rs17.2bn (+13.5% YoY/+23.3% QoQ), primarily driven by export of new products which grew ~24% YoY. CSM growth is mainly on account of scale-up of products commercialized over the last 3 years. PI commercialized 2 new products for exports in Q1, and plans to launch 5-6 new products over the remaining year. There are initial signs of improvement in agchem demand, leading to momentum in new enquiries and possible conversions. Also, the company is focusing on capacity expansion in line with its strategy.

Domestic business steady; Pharma to cause margin drag in near term

The Domestic segment de-grew 8% YoY due to delayed monsoons which will result in spill over to Q2 with pick-up in rainfall and kharif plantation. Margin expansion was led by increased contribution from biologicals (~10% of domestic agchem business), which rose ~39% YoY. Pharma business saw reduced revenue to Rs250mn in Q1 due to high inventory at the customer-end (2 products with 2 customers). PI announced an offer to acquire Plant Health Care Plc (PHC) in Q1 which will give it access to biological/peptide technology platforms and global markets. This acquisition is expected to be completed in Q2FY25. The management is currently changing leadership teams in Pharma across segments and synchronizing other initiatives, leading to higher overheads.

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