PI Industries' Q1FY19 results (Outperformer) - Soft quarter, CSM guidance maintained
Q1FY19 result highlight
- PI industries revenues increased by 9.5%yoy to Rs6.05bn (below est of Rs6.5bn). While 23% yoy growth in domestic business was ahead of est of 11%, flat CSM revenues was sharply below est of 24% yoy growth.
- Management guided that CSM revenues were impacted by adoption on Ind-AS 115 norms on revenue recognition and delayed shipments. However, they didn’t provide a specific LTL growth no. Despite this blip, company has maintained 18-20% growth guidance for FY19 adj for the Rs740m revenues recognition impacted by the new guidelines.
- Gross margins declined by 409bps yoy to 46.46% due to higher raw material prices and unfavourable product mix. Despite stable employee costs and other expenses, EBITDA margins declined by 407bps yoy to 21.6%. EBITDA stood at Rs1.2bn (est:Rs1.4bn), down 9.5% yoy
- PAT declined by 18.4% yoy to Rs1.05bn (Rs1.34bn) due to lower other income, higher depreciation and higher tax rate.
- PI retrospective adoption of new accounting standard (Ind As 115) has resulted in a decrease in PBT by Rs75m for Q1FY19.
Key positives: Healthy growth in domestic business
Key negatives: Lower CRAMS sales; Gross margin decline
Impact on financials: EPS cut by 5.7%/3.9% in FY19/20E respectively to factor increase in raw material costs and operating expenses
Valuations & view
PI’s performance for the quarter is subdued as the CSM business was impacted by adoption of Ind AS 115 along with delay in shipments. However, the domestic business remained strong with traction in new product launches. Despite this softness in Q1, mgt remains upbeat on CSM growth outlook. In FY19E, with pickup in demand in global agrochemicals markets, new product launches for domestic business and CSM business and strong order book position we expect PI to trend back to its growth trajectory. The strong order book position (~USD1.1bn) backed up with a rapidly expanding pipeline of pre-commercialization projects will drive sustained growth in the CSM business. PI has strengthened its domestic business with the agreements with BASF and JV with Mitsui for registration of new products in India. We maintain our outperformer recommendation considering the long term prospects of PI’s innovation led business model with revised target price of Rs876
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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