Management Speak: PI Industries (Outperformer) - On a growth path

We present key takeaways from our meeting with the management of PI industries (PI), which highlights company’s strong growth prospects.

• Strong growth visibility for CSM business plausible: Management‘s guidance of 20%+ CAGR for its CSM (custom synthesis) business over 4-5 years seems plausible, and is based on its current order book of US$1.3bn. PI signs orders just before commercialisation of molecules and invests in capacities only based on confirmed orders. Besides, the global agrochemical industry, which was marred by high channel inventories and subdued commodity prices, is witnessing a strong recovery, which is aiding order book build-up.
• Rich product pipeline in the domestic business: PI has a rich product pipeline spread over 5 years, as the company expects to introduce 3-4 innovative products per year via in-licensing/co-marketing arrangements. We believe this should help drive healthy double-digit growth in the domestic agri-input business over next 5 years. PI has adopted a multi-crop approach (earlier largely focused on rice) and is looking to change its product mix towards value-added crops.
• Prioritising growth: Owing to strong demand and vast opportunities in the contract manufacturing space, PI will prioritize growth over profitability. Management intends to secure current margin levels and reinvest the surplus into building capabilities for penetrating pharmaceutical and speciality chemicals CSM verticals. Meaningful contribution from these investments will begin post FY23E and should be a key driver for PI’s medium to long term growth. PI has also flagged a step-up in capex over next 2-3 years (Rs3.5bn/pa versus Rs1.5-2bn in the past) to cater to the growing business opportunities.

Innovation-led business model with sound long-term prospects: Management remains upbeat on the growth of its CSM and domestic businesses. A pickup in global agrochemical demand, new product launches in the domestic and CSM businesses and a strong order book should drive brisk growth with steady profitability. Strong order book position (~USD1.3bn) backed by a rapidly expanding pipeline of pre-commercialized projects will drive sustained growth in the CSM business in the near to medium term. Differentiated product offerings should boost prospects in the domestic business. Given PI’s scalable business model and its strong near to medium term growth outlook, we maintain our Outperformer rating with a target price of Rs1,079.