PI Industries' Q3FY19 results (Outperformer) - Strong all-round performance
Q3FY19 result highlight
- PI reported another quarter of strong revenue growth led by its CSM business which is treading back to its recovery path well. Revenues grew by 32% yoy to Rs7.07bn (much ahead of our est of Rs6.4bn)
- CSM business reported strong 40% yoy growth (est: 23%yoy) on ramp up in demand of existing products, while despite weak rabi sowing domestic business revenues grew by 9%yoy (slightly below est: 10% yoy ) owing to PI’s differentiated product offering and partially aided by a low base.
- Gross margins declined by 90bps yoy to 46.6% (est 46%) ; improved sequentially by 370bps. Positive operating leverage and improved product mix led to EBITDA margin expansion of 150bps to 21% (est 19.2%).
- Higher tax rate restricted further PAT growth. Reported PAT stood at Rs1.07bn (est :Rs872m) , up 33% yoy
Key positives: Strong revenue growth, EBITDA margin expansion
Key negatives: Decline in Gross margins
Impact on financials: Increase EPS by 5.2% in FY20E to factor in strong revenue and EBITDA growth outlook .Introduce FY21E EPS of Rs44.5/sh
Valuations & view
PI’s performance improved significantly on the back of strong volume growth in the CSM business, while favourable product mix and positive operating leverage led to margin expansion. 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 (~USD1.3bn) 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 Rs3-3.5bn 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 revised target price of Rs1034
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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