PI Industries' Q4FY18 results (Outperformer) - Disappointing quarter, Strong recovery expected in FY19
Q4FY18 result highlight
- PI industries reported revenue growth below our expectation. Revenues growth was subdued at 3%yoy to Rs6.25bn (est: Rs6.8bn) owing to muted growth in the CSM business due to delay in export shipments. Domestic business registered healthy ~10.4% yoy growth
- Gross margins declined by 136bps to 48.4% due to higher raw material prices and unfavourable product mix. This combined with higher other expenses (up 127bps yoy) and higher employee costs (up 120bps) led to 382bps decline in EBITDA margins to 21.5%. EBITDA stood at Rs1.34bn (est:Rs1.4bn), down 12.3%
- Despite higher other income, PAT declined by 22% to Rs1.05bn (Rs1.1bn) due to higher depreciation (up 14.8% yoy) and higher tax rate (19.3% vs -3% in Q4FY17).
Key positives: Healthy growth in domestic business
Key negatives: subdued export revenues
Impact on financials: EPS increase by 14%/3.1% in FY19/20E respectively
Valuations & view
PI’s performance for the quarter impacted by subdued export business performance owing to delay in export shipment, while its domestic business remained healthy with traction in new product launches. In FY19E, with pickup in demand in the global agrochemicals markets, strong orderbook position and new product launches for domestic business and CSM business, we expect PI to trend back to its growth trajectory. In the long term, PI has strengthened its domestic business with the agreements with BASF and JV with Mitsui for registration of new products in India. Further, establishment of JV with Kumiai to produce bispyribac sodium in India will help the company remain competitive. In the export business, strong order book position (~USD1.15bn) and steady pipeline of products commercialisation will continue to drive the growth in the CSM business. Recovery in revenue growth, success in initiatives to drive non-agrochemicals category business in export and maintaining the new product launch momentum in the domestic business will be the key triggers for the stock price. We maintain our outperformer recommendation considering the long term prospects of PI’s innovation led business model with revised target price of Rs1024
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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