Reduce PI Industries Ltd for the Target Rs. 2,800 by Emkay Global Financial Services Ltd
PI’s Q4 EBITDA at Rs3.4bn (-26% YoY; +11% QoQ) was below our/consensus estimates. The CSM exports business (excluding pharma) fell 15% YoY (+9% QoQ), due to a contraction in the global agrochemical industry (FY26 volumes were down 14% due to a higher base). Margins declined to 22% in Q4, vs 26% YoY, due to operating deleverage following lower CSM export volumes. Contract assets reduced QoQ by Rs3.6bn to Rs7.1bn, and the management has guided them to be maintained at current levels. Domestic agro-chemical revenue declined ~9% YoY, driven by higher channel inventory that led to pricing pressure, along with regulatory transitions in biologicals. The management remains positive on FY27 growth with cautious optimism for H2FY27, supported by committed customer offtake plans. We build in low double-digit revenue growth in FY27E, factoring in the management’s muted growth guidance, and accordingly cut our FY27E/28E EPS by 19%/10%. We retain REDUCE and cut our TP by ~7% to Rs2,800 (rolled over to Mar-28E EPS) from Rs3,000.
Management remains positive on growth for FY27
To factor in the subdued growth in the CSM business, we cut our FY27/FY28 revenue estimates by 12%/8%, implying 11% YoY revenue growth in FY27. In FY27, the management expects improvement, led by stronger kharif season, 5+ new molecules launches in FY27, committed customer offtake in H2FY27, and revival in biologics due to regulatory normalization. In Q4FY26, contract assets (we believe this is for pyroxasulfone inventory) decreased QoQ by ~Rs3.6bn to Rs7.1bn vs Rs4.3bn in FY25. Going forward, the management expects contract assets to be stable at the current levels.
CSM exports remain under pressure; pharma investments continue
CSM exports revenue declined 15% YoY to Rs11.5bn, led by poor volumes due to contractions in the global agrochemical industry and deferment in customer delivery schedules. Newly launched molecules contributed 18-20% of PI’s exports, but absolute revenue from new products remained marginally flat YoY, despite % higher contribution, given a challenging agrochemical environment. The pharma business grew 23% YoY to Rs1bn led by onboarding of new customers. The management expects the pharma segment to turn EBITDA positive in 2-3 years as revenues scale up to Rs5-6bn.
Domestic business declined ~9% YoY; PI to launch its first NCE in FY27
The domestic agri business remained under pressure, with revenue declining 9% YoY to Rs3.1bn. Domestic demand remained largely impacted by elevated inventory levels and decrease in key crop acreages, leading to pricing pressure. However, PI reported stable domestic volume growth of 3% YoY in Q4FY26. Biologicals reported flat performance in Q4 due to delay in regulatory transition. PI plans to launch its first NCE (pioxaniliprole) in the domestic market in FY27 and expects meaningful contribution, though additional launch-related expenses may be incurred over the next few quarters.
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