MOSL: PI INDUSTRIES (Buy)-Another quarter of strength in CSM-Upcoming plants reinforce revenue visibility
PI INDUSTRIES: Another quarter of strength in CSM; Upcoming plants reinforce revenue visibility
(PI IN, Mkt Cap USD2.2b, CMP INR1095, TP INR1265, 16% Upside, Buy)
- Beat on revenue; EBITDA/PAT in-line: Revenue increased 25% YoY to INR7.5b (our estimate: INR7.1b) in 1QFY20. EBITDA grew 28% YoY to INR1.5b (our estimate: INR1.4b), with the margin expanding 60bp YoY to 20.1% (our estimate: 19.9%). Adj. PAT was up 23% YoY to INR1b (in-line).
- Product mix change dents gross margin: CSM revenue grew 59% YoY, led by increased requirement for commercialized molecules and addition of a new molecule (was commercialized during the quarter). Domestic revenue declined 13% YoY owing to erratic/delayed advent of the south-west monsoon and higher trade inventory. Gross margin contracted 180bp YoY, mainly on account of a change in product mix.
- Concall takeaways: (i) Two plants are expected to commence operations (one in 3QFY20, other in 4QFY20). (ii) Management maintained its guidance for overall revenue growth of 20%+ for FY20, with 50-100bp EBITDA margin expansion, mainly on account of operating leverage. (iii) CSM order book as of 1QFY20 stands at USD1.4b (almost similar to 4QFY19).
- Valuation view: Despite lower revenue in the domestic agro-chemical business, overall revenue growth was at 25% YoY, mainly led by CSM. Also, PI is set to commence operations at two new plants in FY20, which would act as a key growth driver for its CSM business, providing strong revenue growth visibility. We maintain our estimate of revenue/EBITDA/adj. PAT CAGR of 20%/26%/25% over FY19-21. We value the stock at 27x FY21E EPS (in line with its one-year forward multiple over the last three years) and arrive at a TP of INR1,265 (16% upside). Maintain Buy.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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