Event update: PI Industries (Outperformer) - Acquires Isagro Asia business; bolt on acquisition

Event

PI Industries has signed an agreement to acquire 100% stake in Isagro Asia for a consideration of Rs3.45bn net of cash and debt. The transaction is expected to be finalized by Q3FY20

Key highlights

• Isagro Asia is a wholly owned subsidiary of Isagro S.P.A and is engaged in both contract manufacturing as well as distribution of agrochemicals in the domestic market.The company has a manufacturing plant adjacent to PI’s Panoli facility where it has two manufacturing blocks. Current utilization is 35-40%.
• This acquisition will enable PI to get access to surplus manufacturing capacity which will ease its near term capacity constraints in the CSM business. PI also acquires the ongoing custom synthesis business in Isagro Asia. Overall, this transaction should boost PI’s CSM business
• Further, PI also access to Isagro’s domestic agrochemical business which consists of both proprietary as well as generic products. Given its superior distribution presence, PI expects to leverage this portfolio (especially the proprietary portfolio) in a more meaningful way.  PI will also gain from Isagro’s relatively stronger distribution presence in certain pockets.
• While the management has not disclosed the financials of the acquired business, they indicated that it will be EPS accretive from year 1 – suggestive of a fairly valued transaction. Given its strong balance sheet, PI should be able to fund this transaction largely through internal accruals.

0ur view

PI’s performance has improved significantly on the back of strong volume growth in the CSM business. PI’s management remains upbeat for both CSM and domestic business growth outlook backed by strong orderbook position in the CSM business and differentiated product launches in the domestic business .We believe the announced bolt-on acquisition seems to be a good strategic fit for PI’s business and should augment growth prospects for both CSM as well as domestic business. We maintain our outperformer recommendation considering the long term prospects of PI’s innovation led business model.