Reduce PI Industries Ltd for the Target Rs.3,650 By Emkay Global Financial Services Ltd
H2 guidance revised to cautiously optimistic
PI’s Q2 EBITDA at Rs5.4bn (-14% YoY; +4% QoQ) was above our estimate/consensus expectations. The CSM exports business (excluding pharma) fell 18% YoY (-5% QoQ), led by a ~17% volume decline on deferment in customer delivery schedule. Margin remained healthy due to a better product mix. Domestic agchem fell ~13% YoY, led by ~9% volume decline, on lower sales in the biological portfolio due to regulatory suspension (now cleared; expect a gradual pick-up in sales). The mgmt guided for a cautiously optimistic H2 outlook, on committed customer offtake plans. However, we believe, owing to ~12% decline in H1FY26 sales and a muted outlook for Q3, the company will register a low single-digit dip in FY26 revenues on a YoY basis. Thus, we cut our FY26/27/28 EPS estimates by 7-8%, to factor in revenue dip for FY26 and the mgmt’s expectation of a recovery in the overall agchem market from H2CY26. We retain REDUCE, with an unchanged TP of Rs3,650 (rollover to Sep-27E EPS).
The management guides for a cautiously optimistic outlook for H2
The mgmt’s outlook remains cautiously optimistic for H2, backed by committed customer offtake. The company guided for a pickup in Q4FY26; however, Q3 is expected to remain muted. We build in a low single-digit decline in FY26 (-4% YoY for overall revenues, -8% for CSM exports). The mgmt expects a recovery in the overall agchem market in H2FY26; the current environment, though, remains uncertain, led by macro uncertainties and environmental challenges. PI stayed with its EBITDA margin guidance of 25-27% for FY26, even though H1 margins were higher at ~28%. In H1, contract assets increased by ~Rs4.5bn as the company recorded revenues for the orders that were in place and for which deliveries had been deferred (we believe this was for pyroxasulfone inventory).
Agchem exports declined ~18% YoY in Q2; pharma investments continued
CSM exports business posted revenue of Rs14.1bn in Q2FY26 (-18% YoY; -5.3% QoQ) due to volume growth of ~17%, though offset by minor price erosion, and ~27% YoY growth in new products commercialized over the last 3 years, in line with its business plan and customer delivery schedule. The pharma business saw revenue of Rs634mn in Q2 and PBT loss of Rs654mn, owing to higher overheads on increased employee cost and a few one-off processing-related costs. PI onboarded 7 customers in H1. The company is focused on improving business development and the strong R&D pipeline (with late-stage molecules). It expects pharma revenue to grow 3x over the next 3-4 years.
Domestic business declined ~13% YoY, impacted by regulatory transitions
The domestic segment’s revenue was Rs4bn (-13% YoY), led by a mix of volume and price decline of 9%/4%, respectively. The business was impacted by erratic rainfall in key cropping regions which impacted demand, along with a ban on the biological portfolio (pending states’ approvals). The mgmt expects a strong rabi season (increase in rice and corn acreages) due to higher reservoir levels and favorable commodity prices.
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