Q1FY24 Review: PI Industries: Performance better than the rest

11 Aug 2023 , 03:26 PM

In Q1, PI Industries (PI) delivered a stellar performance, on the back of healthy growth and margins demonstrated by the CSM (export) business. The business has been shielded from the current industry challenges due to its product mix. Domestically, the environment is challenging but demand has improved from Jul’23. Pharma business is expected to improved quarterly revenues starting Q2, but near-term margins will likely hover around ~13-15%. Management has maintained ~18-20% growth guidance, but has also admitted to being “cautiously optimistic” in the current environment. Analsyst of IIFL Capital Services increase their FY24-26 EPS by 0-2% (implying lower-end revenue growth guidance of 18-20%), largely on account of a moderate increase margin assumptions. Hence, their TP increases to Rs3,950 (30x Sep’25 P/E) from Rs3,675. 

Pharma business expected to ramp up over next few quarters: 

While Pharma revenue was Rs443mn in Q1, this is expected to ramp up over next few quarters. Management is targeting revenues of ~Rs5-5.2bn in FY24. Margins are likely to be moderate at ~13-15% due to one-time acquisition and integration costs. However, these will likely improve significantly from thereon. Management is trying to build this into a scalable and differentiated business. 

“Cautiously optimistic”: 

While the management is cautiously optimistic for scale-up in demand of the existing and newly commercialised products, it maintained ~18-20% growth guidance for FY24 (excluding inorganic growth from Pharma). Given that most of its CSM products are intermediates for new-age molecules (as against generics), demand for PI’s products likely to be less impacted by current headwinds. 

Positives seem priced in: 

FY24 will see capex execution worth Rs9bn and consolidation of twin Pharma acquisitions. Plans of launching ~4-5 CSM products annually and developing a new R&D centre are also promising. However, at 32x FY25 P/E, valuations are rich and price in the most upside. An elongated period of agrochemical slowdown could lead to sharp cuts in estimates and may present near-term headwinds. Hence, analysts of IIFL Capital Services remain cautious and would await dips for fresh buying.