PI Industries' Q2FY19 results (Outperformer) - Strong revenue growth; Gross margins decline
Q2FY19 result highlight
- PI industries registered strong revenue growth of 29%yoy to Rs7.2bn (much ahead of our est of Rs6.45bn) led by healthy performance of both domestic as well as CSM business.
- Revenues from the domestic business grew by 24%yoy (est: 14% yoy ) led by traction in existing as well as new product launches , while the CSM business reported strong 33% yoy growth ( est: 16% yoy) on improved global demand and commercialisation of new molecules
- Gross margins declined by 512bps yoy to 42.9% due to raw material price inflation.(China environmental issues and currency depreciation).
- Despite stable employee costs and other expenses, EBITDA margins declined by 315bps yoy to 18.6%. EBITDA stood at Rs1.34bn (in line with est:Rs1.38bn), up 10.2% yoy
- Stable interest costs and lower tax rate (23.1% vs 28.7% in Q2FY18) led to 17.5% yoy growth in PAT. Reported PAT stood at Rs944m (est :Rs966m)
Key positives: Strong revenue growth in both domestic and CSM business
Key negatives: Decline in Gross margins
Impact on financials: Marginally cut EPS by 0.1%/1% in FY19/20E respectively to factor increase in raw material costs
Valuations & view
PI’s performance improved significantly on the back of strong volume growth in both domestic as well as CSM business. However, margins continued to remain under pressure due to higher raw material prices. Going forward management remains upbeat on both CSM as well as domestic business growth outlook. With pickup in demand in global agrochemicals markets, 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 (~USD1.1bn) backed up with a rapidly expanding pipeline of pre-commercialization projects will drive sustained growth in the CSM business. Healthy reservoirs levels boost up Rabi prospects for the domestic 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 Rs867
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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