MOSL: PI INDUSTRIES (Buy)-Back-ended growth expected in FY18-2HFY18 to see recovery from subdued growth so far

​PI Industries: Back-ended growth expected in FY18; 2HFY18 to see recovery from subdued growth so far

(PI IN, Mkt Cap USD1.6b, CMP INR754, TP INR890, 18% Upside, Buy)

• Revenue miss, but EBITDA and PAT exceed estimates: PI’s revenue declined 1.9% YoY to INR5,611m (est. of INR6,256m) in 2QFY18. EBITDA margin shrunk 60bp YoY to 21.8% (est. of 17.4%) in 2QFY18, led by a 390bp YoY contraction in the gross margin to 48.1% and a 160bp rise in employee expense to 10.8% of net sales. EBITDA declined 5% YoY to INR1,222m (est. of INR1,091m). Consequently, adj. PAT declined 21% to INR803m (est. INR759m) from INR1,014m in 2QFY17. The decline in revenue is partly attributable to the change in accounting standards; excise in 2QFY17 was reported as an expense item above EBITDA; however, it is net off from gross sales in 2QFY18. Excise stood at INR279m in 2QFY17 (our estimate in 2QFY18 was flat).
  
• Domestic business revives, CSM to follow suit: The domestic agro-chemicals business grew 13% YoY, in spite of generic product pressure on Nominee Gold. The company launched three new products for BASF in 1HFY18, and two more launches are expected in FY18 for the domestic market in segments where the company has little presence, thereby broadening the scope. Global agchem industry has also witnessed falling inventory levels, providing improved visibility of a revival in offtake.