PI Industries' Q4FY19 results (Outperformer) - Good quarter; Strong guidance
Q4FY19 result highlight
- PI continued to report strong revenue growth led by its CSM business. During the quarter, revenue growth was ahead our estimates, while PAT was in line with our estimates.
- Revenues grew by 29% yoy to Rs8.04bn (ahead of our est of Rs7.7bn). CSM business reported strong 39% yoy growth (est: 29.4%yoy) on new product commercialisation and ramp up in demand of existing products, while domestic business revenues grew by 4%yoy (below est: 11% yoy) on weak rabi sowing.
- Gross margins declined by 264bps yoy to 45.7% (est 47.4%). Despite higher raw material costs and operating expenses (up 33%) , positive operating leverage and improved product mix led to marginal 10bps decline in EBITDA margins to 21.4% (est 22.6%).EBITDA increased by 27.6%yoy to Rs1.71bn (est :Rs1.74bn)
- Despite higher other income, higher tax rate of 26.1% (est 23%) vs. 19.3% in Q4FY18 restricted PAT growth, PAT grew by 18% to Rs1.24bn (slightly below est : Rs1.25m)
Key positives: Strong revenue growth led by CSM business
Key negatives: Decline in Gross margins
Impact on financials: Increase EPS by 4.2% for FY21E to factor in strong revenue/EBITDA guidance
Valuations & view
PI’s performance improved significantly during FY19 on the back of strong volume growth in the CSM business. 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 (~USD1.35bn) 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 Rs4-4.5bn 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 Rs1221 (26x FY21E EPS)
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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