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In a league of its own
PI Industries’s (PI) results and management commentary on future outlook indicates robust business momentum and clear growth visibility for 2-3 years, despite gloomy agchem environment globally and negative business outlook from one of its key clients. Sizeable sustained capex guidance (Rs4.0-4.5bn p.a. for the next 2-3 years) for investment in 4 new plants (2 in FY20 & FY21 each), increasing number of products moving from R&D stage to commercialisation and continued demand traction for existing products gives us comfort of superior earnings growth visibility for the next 2 years. Domestic business is expected to see tepid growth due macro headwinds but outperformance is likely to continue with the launch of 2 potentialblockbuster products i.e. PB Rope L and Pyroxasulfone. On the CSM side, PI is also building blocks for diversification from agchem to electronic chemicals, magnetic chemicals and early stage intermediates of pharma to maintain its growth momentum over the next decade. Topline/EBITDA/PAT are expected to grow at a CAGR of 20%/27%/24% driven by superior earnings growth visibility on the back of sustained business momentum. Maintain BUY with target price of Rs1278 based on 28x FY21E earnings.
No signs of slowdown in CSM offtake despite gloomy global agchem environment:
CSM business continues to grow at a healthy pace driven by increased demand for existing molecules and commercialization of new molecules. According to the management, there is a clear 2-3 year growth visibility for existing products. Most of the incremental growth is coming from higher business from existing clients.
Additionally, PI is getting lot of new enquiries and client conversion rate has significantly improved since last year. The company has a robust R&D pipeline with a lot of work is going on at Kilo pilot scale.
Buliding blocks for diversification from agchem business:
PI is gradually diversifying from agrochemicals to electronic chemicals, magnetic chemicals and Pharma early intermediates. PI has several products in R&D pipeline from these categories and some product are at pilot stage. The hunt for inorganic growth in pharma CSM continues. While the management is building several building blocks for the non-agchem CSM business, these segments are unlikely to contribute more than 10% of revenue cumulatively even after 5 years (according to the management).
Guidance maintained; 4 new plants to commercialise by FY21:
The management maintained its revenue growth guidance of +20% along with margin expansion of 50-100 bps. Capex guidance of Rs4.0-4.5bn for FY20 remains intact. The company will commercialise 1 plant each in 2QFY20 & 4QFY20 and 2 plants in FY21.
7 new launches planned in FY20:
PI plans to launch 7 new products in FY20 of which 3 would be in domestic segment. 4 new molecules are expected to be commercialised in CSM segment which is expected to take the total molecule count to 23-27 next year.
Domestic business to remain tepid this year:
Domestic business declined by 13% in 1Q and is expected to remain tepid due to below normal monsoon till date.
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