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MOSL: PI INDUSTRIES (Buy)-Near-term pain in CSM, healthy order book expansion

​PI Industries: Near-term pain in CSM, healthy order book expansion

(PI IN, Mkt Cap USD1.9b, CMP INR811, TP INR952, 17% Upside, Buy)

• Revenue growth constrained, but margins continue to expand: PI's overall revenue rose modestly by 3.6% to INR6b (in-line) in 4QFY17 from INR5.8b in 4QFY16, as continued soft demand in global agrochemicals exerted pressure on international production. EBITDA margin expanded 680bp from 18.6% in 4QFY16 to 25.4% (est. of 21.4%) in 4QFY17, led by operating efficiency and a margin-friendly product mix. EBITDA rose 42% YoY to INR1.5b (est. of INR1.3b), while adj. PAT grew 41% YoY to INR1,352m (est. of INR935m) aided by EBITDA margin expansion and a significantly lower tax rate (-4% v/s 2.3% in 4QFY16). For FY17, revenue grew 9%, EBITDA margin expanded 360bp to 23.4% and adj. PAT rose 47.7% to INR4,574m.
  
• CSM growth yet to recover, order book remains healthy: CSM is expected to see soft performance in 1HFY18, but gain momentum later in the year led by likely positive developments in global agrochemicals. CSM grew at 5% YoY and agri input at 2% YoY due to the lack of infestation. PI's order book rose to ~USD1b (8-9 molecules), of which USD200m has been added in last six months, in spite of execution of orders. Along with a growing order book, commercialization of new molecules will enable growth of 10% in FY18.