PI Industries' Q1FY20 results (Outperformer) - Good quarter; guidance intactfor CSM
Q1FY20 result highlight
- PI reported another quarter of healthy revenue and EBITDA growth, ahead of our estimates, led by its CSM business
- Revenues grew by 25% yoy to Rs7.5bn (ahead of our est of Rs7bn). CSM business reported strong 59% yoy growth to Rs4.7bn on new product commercialisation and ramp up in demand of existing products, while domestic business revenues declined by 13%yoy to Rs2.7bn on delayed monsoons and weak kharif sowing
- Gross margins declined by 180bps yoy to 44.8% (est 46.5%) on higher raw material prices procured from china, change in product mix and higher ramp up costs
- Positive operating leverage led to 72bps improvement in EBITDA margins to 20.2% (ahead of est 19.7%).EBITDA increased by 29%yoy to Rs1.52bn (est :Rs1.37bn)
- Despite higher other income, increase in depreciation costs (up 34 %,) and tax rate of 23.5% vs 21.9% in Q1FY19 led to 24.3% growth in PAT to Rs1.06bn ( est :Rs950m) .
Key positives: Strong revenue growth led by CSM business
Key negatives: Decline in Gross margins
Impact on financials: EPS estimates for FY20/21E maintained
Valuations & view
PI’s performance has been improving significantly on the back of strong volume growth in the CSM business. However domestic sales were adversely impacted on delayed monsoons. Going forward management remains upbeat for CSM business growth outlook despite challenging global environment and expects recovery in the domestic business with reducing rain deficit. We believe with new product launches for domestic business and CSM business and strong order book position, PI is finally trending back to its growth trajectory. In the near term, PI’s strong order book position (~USD1.35bn) backed up with a rapidly expanding pipeline of pre-commercialization projects will drive sustained growth in the CSM business. Differentiated product offerings boost up prospects for the domestic business. Moreover recent commissioning of MPP plant at Jambusar and investment of Rs4-4.5bn in setting up two more MPP plants augurs well in the long run. We maintain our outperformer recommendation considering the long term prospects of PI’s innovation led business model with target price of Rs1221 (26x FY21E EPS)
PI Industries Limited is a holding company. The Company is engaged in the manufacturing and distribution of agro chemicals. Its geographical segments include Sales within India and Sales outside India. The Company manufactures agrochemicals, plant nutrients and plant protection, specialty fertilizers and hybrid seeds. It offers insecticides under various brands, including LEPIDO, DODGER, COLT, OSHEEN, COLFOS, FOSMITE, JUMBO, FORATOX, CARINA, MAXIMA and VIBRANT. The Company offers fungicides under brands, which include CUPRINA, LURIT, KITAZIN, SANIPEB, CLUTCH and LOGIK. It offers herbicides under the brands, including SOLARO, NOMINEE GOLD, INRO, BINGO, PIMIX, BUNKER and MELSA. Its specialty products include BIOVITA Granules and BIOVITA Liquid. The Company provides services in various areas, including contract research, process development, analytical method development, process safety data generation and process detailed engineering.
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