PI Industries' Q3FY20 results (Outperformer) - Strong performance continues;guidance intact

Q3FY20 result highlight

• PI reported another quarter of healthy  revenue and EBITDA growth, ahead of our estimates, led by both  CSM as well as domestic business
• Revenues grew by 20% yoy to Rs8.5bn (ahead of our est of Rs8.3bn). CSM business reported 24% yoy growth to Rs6.4bn on ramp up in demand of existing products and new product commercialisation, while domestic business revenues registered 20%yoy growth to Rs2.06bn owing to increase in Rabi acreage leading to healthy volume gains
• Gross Margins remained flat yoy at 46.6% , however improved qoq by 420bps (above our est 44%) on improvement in product mix and moderation in RM costs
• Higher other expenses (+13% yoy) and staff costs (+20% yoy) restricted further margin expansion. EBITDA margins stood at 21.9% (up 90bps yoy)  vs est 21.5%.EBITDA came at Rs1.86bn vs est Rs1.78bn; up 25.5%% yoy 
• Increase in depreciation costs (up 36% yoy, in line with est) and higher tax rate of 28.7% vs 22.8% in Q3FY19 (est: 22%) restricted further PAT growth. PAT grew by 13%yoy at Rs1.21bn (in line with est: Rs1.20bn)
• PI's board has approved fund raising upto Rs20bn (enabling resolution) to support next leg of growth strategy for business. Broadly the QIP fund will be invested in 3 areas 1)existing organic business growth and scale up  1) development of new and niche  technology and 3) diversification in adjacent verticals like pharma CSM, imaging chemicals , speciality chemicals , nutraceuticals etc

Impact on financials: Increase FY20E/FY21E EPS by 3%/2% respectively.  Introduce FY22e EPS of Rs59.5/sh

Valuations & view

PI’s performance in Q3FY20 was driven by ramp up in the CSM business with increased traction in existing and new molecules coupled with recovery in the domestic business on healthy rabi acreage driving volumes In the near term, PI’s strong order book position (~USD1.4bn) 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 recently announced bolt-on acquisition of Isagro Asia seems to be a good strategic fit for PI’s business and should augment growth prospects for both CSM as well as domestic business. We maintain our outperformer recommendation considering the long term prospects of PI’s innovation led business model with revised target price of Rs1,786 (30x FY22E EPS)