Stock Update

Negatives priced in, maintain Buy with revised TP of Rs.850

Key points
PI Industries
ŠŠ Weak quarter: PI Industries Limited (PI)
Reco: Buy | CMP: Rs713 reported weak performance for Q1FY2018, with
numbers coming below our estimates across
parameters. The topline for the quarter at
Company details Rs.584.8 crore declined by 14% YoY on account
Price target: Rs850 of weak demand scenario, attributed to channel
destocking because of GST implementation
Market cap: Rs9,815 cr in domestic markets and slow demand revival
in global agri-chemicals market. Operating
52-week high/low: Rs950/674
margin for the quarter at 22.3% declined by
NSE volume: (No of shares) 1.5 lakh 190BPS YoY, below our estimate, on account
of weak topline growth coupled with one-off
BSE code: 523642 spends in consultant fees and brand building for
NSE code: PIIND new launches. Consequently, EBITDA at Rs.130
crore declined by 22% YoY and was below our
Sharekhan code: PIIND estimate of Rs.168 crore. PAT for the quarter
Free float: (No of shares) 6.6 cr stood at Rs.100 crore, down 21% YoY and below
our estimate of Rs.126 crore.
ŠŠ New product launches and re-stocking post
Shareholding pattern GST to drive domestic business; CSM revival
seen in H2FY2018: Volume off-take in the
Institutions domestic business is slated to revive post the
16%
successful rollout of GST, as dealers resort to
Corporate re-stocking in anticipation of good demand
Bodies
2%
for agro chemicals. However, a few parts of
Promoters
the country could see sales moderating due
Foreign
51% 19%
to uneven distribution of monsoon. Further, PI
has introduced three new products (one maize
Public and
herbicide and two rice fungicides) during the
Others quarter and has lined up two new product
12% launches during FY2018. Further, utilisation
of the new plant at Jambusar (phase 3) is
likely to ramp up over the next 2-3 quarters.
Price chart Cumulatively this is likely to drive volumes for
950
domestic market. Secondly, the CSM business
is exhibiting early signs of revival, as channel
900 inventory in global markets is correcting as well
850 as prices for select commodities have shown
signs of firming up. Management has guided
800
for a revival in the CSM business in 2HFY2018.
750 Therefore, FY2019 could witness a full impact of
the revival in the CSM business. We expect PI’s
700
revenue to report a 12% CAGR over the next two
650 years.
Aug/16

Dec/16

Aug/17
Apr/17

ŠŠ Outlook: Outlook for the domestic business is

intact on account of re-stocking exercise post
GST rollout, new product launches and gradual
Price performance
ramping up of Jambusar (phase 3) plant. Given
(%) 1m 3m 6m 12m the slower-than-anticipated recovery in global
agri-chemicals markets, pick-up in the CSM
Absolute -13.0 -19.6 -22.3 -13.4 business is expected over medium to long term.
Relative to Sensex -11.8 -22.7 -30.2 -23.7 Management has pointed towards a demand
revival 2HFY2018 onwards.

August 14, 2017 10

Sharekhan Stock Update

ŠŠ Valuation: Maintain Buy with a revised PT of ŠŠ The company has launched three new products
Rs.850: PI’s management has guided for modest in Kharif season, which includes one maize
10% topline growth and margins to be around herbicide (Elite) and two rice fungicides (Header
23% levels for FY2018. Given the near-term and Fender). In addition to this, it has planned
concerns and subdued results for Q1FY2018, we to launch two new products in the 9(3) space
have revised downwards our earnings estimates during FY2018. Going ahead, in FY2019, PI has
by 2.5% and 4% for FY2018 and FY2019, lined up the launch of 2-3 new products.
respectively. Nevertheless, 25% correction in
stock price in the past six months already factors ŠŠ PI has announced capex of Rs.150 crore for
in weak earnings for FY2018. CSM business has FY2018 towards enhancing R&D capabilities
bottomed out and is exhibiting early signs of and technology upgradations.
revival, which would lead to topline growth in ŠŠ The recently commissioned plant at Jambusar
FY2019. We maintain a Buy recommendation (Phase 3) is expected to ramp up its production
on the stock with a revised price target (PT) of in the coming 2-3 quarters.
Rs.850.
ŠŠ The company has guided for a higher tax rate
Result Rs cr of 20-21% going ahead, as tax benefits at the
Particulars Q1FY18 Q1FY17 YoY(%) Q4FY17 QoQ (%) Jambusar plant have reduced.
Revenue 584.8 683.4 -14.4 627.3 -6.7
EBITDA 130.4 165.6 -21.2 153.7 -15.1 Revenue mix:
Other Income 12.6 11.3 11.4 (2.1) -692.9
Overall revenue for the quar¬ter declined by
Depreciation 19.7 17.8 10.8 18.5 6.4
14.5% YoY, triggered by a steep decline in the CSM
Interest 1.4 1.6 -13.1 3.1 -55.3
(exports) business, attributable to muted demand
PBT 121.9 157.5 -22.6 129.9 -6.2 in global agri-chemicals markets. The domestic
Tax 21.8 30.6 -28.8 (5.3) -514.7 business declined by 12% YoY on account of one-
Adj PAT 100.1 126.9 -21.1 135.2 -25.9 off event of de-stocking by dealers ahead of GST
RPAT 100.1 126.9 -21.1 135.2 -25.9 rollout.
OPM (%) 22.3 24.2 (190) 24.5 (220)
BPS BPS Revenue mix Rs cr
Particulars Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%)
Valuation Rs cr Agri Business 300 340 -11.8 431 -30.4
Particulars FY16 FY17 FY18E FY19E CSM Business 284 343 -17.2 196 44.9
Net sales 2,197.3 2,382.9 2,606.1 2,991.0 Total 584 683 -14.5 627 -6.9
EBIDTA 429.4 550.5 593.1 692.0
Adj PAT 309.7 457.4 448.8 527.1 Order book:
EBIDTA Margin 19.5% 23.1% 22.8% 23.1% Order book for the quarter was steady at $1
PAT Margin 14.1% 19.2% 17.2% 17.6% billion on a QoQ basis, pointing towards a muted
EPS 22.9 33.9 33.2 39.0 demand scenario globally. The existing prod¬ucts
P/E 31.1 21.0 21.4 18.3 in the global markets continue to perform better
RoCE 33.4% 33.4% 29.9% 28.8% and the company is likely to continue its trend of
RoE 30.2% 33.1% 24.8% 23.3% commercializing 2-3 new molecules every year.
Concall updates: Order book Rs cr
ŠŠ Order book of the CSM business for Q1FY2018 Particulars Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%)
remained steady at $1 billion sequentially, Order Book ($ 1000 850 17.6 1000 0.0
mn)
however it increased by 17% YoY. Of the
total order book, around 90% is towards
manufacturing patented products.

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

August 14, 2017 11

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