Key Takeaways from Q2FY12 Concall of PI Industries Ltd. : (1) Agri-Input segment grew by 35 % YoY in H1FY12 to stand at Rs.

295 cr.. For Q2FY12, Agri-Input segment grew by 9.28 % YoY to stand at Rs. 153 cr. (2) CSM segment grew by 140 % YoY in H1FY12 to stand at Rs. 154 cr.. For Q2FY12, CSM segment grew by 174.62 % YoY to stand at Rs. 92 cr. (3) Unexpected heavy rain spell followed by a dry and cloudy spell affected the revenues of Agri-Input segment in Q2FY12. However, Rabi season looks promising because of increase in water in reservoirs leading to better plantation. (4) EBITDA for H1FY12 grew by 48 % YoY to stand at Rs. 80.08 cr.. For Q2FY12, EBITDA grew by 13.1 % YoY to stand at Rs. 37.3 cr. (5) Company decided to incur high Operating Expenses as well as high SG&A expenses in Q2FY12 itself and take a one-time hit on EBITDA margins by keeping long term growth in focus. Such expenses were necessitated by scale-up of CSM business as well as two new product launches in Agri-Input Segment. As per management, such high expenditure, especially on SG&A front (~ Rs. 9 cr.), is not likely to get repeated in Q3 or Q4 and so EBITDA margins of H2FY12 are likely to be substantially better than H1FY12. (6) Company launched two new products in Agri-Input segment ; one insecticide and one fungicide. Insecticide was launched in tie-up with Bayer while fungicide was launched in tie-up with BASF. Both are high potential products with insecticide catering to crops like Tea, Chillies, etc. and fungicide catering to Vegetables. (7) Company's flagship product, Nominee Gold, continued its growth momentum with revenues from this product increasing by 60 % YoY in H1FY12 despite taking a severe hit in Q2FY12 because of unfavourable weather conditions. (8) Order-book of CSM segment at the end of H1FY12 stands at USD 325 mn. as there were no fresh intake of orders in Q2FY12. However, as per the management, negotiations are progressing well and substantial order-wins are expected in H2FY12. (9) Company's balance sheet has considerably improved YoY with debt-to-equity ratio standing at 0.69 as compared to 1.16 year before. Company expects to end fiscal FY12 with debt levels similar to that are at the end of H1FY12 (Rs. 170 +/- 10 cr.). Inventories of Rs. 213 cr. includes Rs. 125 cr. inventory from Agri-Input segment and Rs. 12.5 cr. inventory w.r.t. projects (upcoming CSM facility) that will subsequently get converted to capital-work-in-progress in due course. (10) In CSM segment, company has commercialised one new molecule in H1FY12 while molecules that were commercialised in FY11 are significantly scaled-up. (11) Company expects to end FY12 with revenues of close to Rs. 900 cr. with 325-340 cr. coming from CSM segment and rest coming from Agri-Input segment. (12) Overall EBITDA margins are expected to settle at 18-18.5 % for FY12. Going forward, company expects substantial improvement in EBITDA margins in both the segments with CSM margins expected to improve to 22-23 % and Agri-Input segment margins expected to improve to 19.5-20 %.

Conclusion : Agri-Input segment was the main culprit for lower revenue growth for Q2FY12 as due to unfavourable weather conditions entire sector suffered and PI was also not spared. Inspite of substantial headwinds faced by its main operational segment, viz. Agri-Input, and that too in its highest contributing quarter (Q2) of the fiscal, company was able to attain an overall revenue growth of 31.3 % YoY (excluding Polymer Segment which is sold-off, the like-to-like YoY growth comes to 41.45 %) and a QoQ growth of 18.8 % on a consolidated basis because of an exceptionally good performance of company's other operational segment, viz., CSM. Unfavourable weather conditions coincided with two new product launches in Agri-Input segment and as the initial cost during any product launch is high, EBITDA margins suffered to stand at just 15.3 % for Q2FY12. However, these one-time expenses have to be looked at in the light of benefits that they are likely to accrue in H2FY12 as almost all the expenses (especially SG&A) w.r.t. two product launches are written-off in Q2FY12 itself and no expenses are pending to be written-off in Q3 or Q4. Hence, EBITDA margins are likely to improve substantially in H2FY12. Ground conditions for Agri-Input segment have also substantially improved because of good monsoons with water levels in all the 81 major reservoirs across the country in the first week of November'2011 at 119.309 bn. cubic centimeters which is 105 % of last year's storage and 119 % of the average storage of last one decade. These conditions augur very well for coming Rabi Season and that is the reason why management conservatively estimates a revenue of Rs. 280 cr. from Agri-Input segment in H2FY12. Also, regarding CSM segment the visibility is extremely high with management's conservative estimate of its contribution put at Rs. 170-185 cr. in H2FY12. In above paras we have used the phrase 'conservative estimate' because, as per our analysis, the figures provided by the management are the minimum the company can achieve in both the operational segments. This is because, if we look at the forex hedge taken by the management and the order-execution mandate that company has till March'2012 at USD 48 mn. for CSM segment, the CSM segment is likely to atleast attain a revenue figure of Rs. 200-210 cr. in H2FY12. Here, we need to remember that even in Q2FY12, CSM segment has operated at an EBITDA margin of 20 % + and if we extrapolate this margin to H2FY12 then CSM segment itself is likely to contribute ~Rs. 40-44 cr. in EBITDA in H2FY12. Similarly, we have seen the worst in terms of Agri-Input segment revenues in Q2FY12 and with water levels in reservoirs at alltime high, Rabi season is expected to contribute handsomely in H2FY12 and management estimte of Rs. 280 cr. revenue contribution from this segment is on a conservative side. However, here the story will be margins which got severely affected in Q2FY12 because of one-time expenses written-off w.r.t. new product launches. As benefits of costs incurred start flowing in coupled with good growth in revenues because of improved ground conditions, EBITDA margins for this segment are conservatively estimated to be in the range of 18-20 % for H2FY12 which will mean an EBITDA contribution of ~Rs. 50-56 cr. from this segment. To conclude, what we will have in H2FY12 on a consolidated basis is an EBITDA of Rs. 90-98 cr. for H2FY12 and if we add it to the EBITDA achieved by PI in H1FY12 then for entire FY12, EBITDA comes to Rs. 170-178 cr.. Now, with debt-levels projected to be at Rs. 170 +/- 10 cr. and after deducting depreciation, interests costs and taxes, PAT for fiscal FY12 comes to Rs. 91-96 cr. without exceptional gains (of Rs. 23 cr.) which means a diluted EPS without exceptional gains of Rs. 36.3 38.3. Hence, ultimately what we have is a Rs. 900 cr. company with a strong visibility of atleast 30 % growth for next two fiscals trading at a P/E of just 14 on FY12e numbers of which first half has already passed. As the time goes by and Q3FY12 numbers come out, FY13 numbers will come into picture wherein contribution from the new CSM facility will kick-in which will change the entire landscape as CSM segment, on a conservative basis is likely to post revenues of Rs. 650 cr. for FY13 with EBITDA margins of 21 % +. FY13 will also see the new products that are launched in this FY12 fiscal (in association with Bayer and BASF) start

contributing handsomely to the revenues and profits of PI and even if we consider no growth from this segment and assume that revenues from Agri segment will remain at FY12 levels of Rs. 575 cr. with lowest EBITDA margins of 17 % then also we have an EBITDA of Rs. 233 cr. for fiscal FY13 which after deducting all expenses w.r.t. depreciation, interest and highest taxes gives us a PAT of Rs. 128 cr. which means a conservative EPS of Rs. 51 for FY13. If we apply the historical P/E valuation commanded by PI even in worst market conditions at 15 times current fiscal numbers and 12 times forward then also within six months we have a minimum rate of Rs. 610 which will be the lowest Best Buy rate at that time. We don't think that in current uncertain markets we have many safe companies like PI with a credible management and tremendous growth visibility and so with minimal positive trigger the stock is expected to get significantly rerated upwards.