Q2FY24 Review: PI Industries: CSM continues to deliver healthy growth

10 Nov 2023 , 01:46 AM

PI Industries (PI) continued to deliver 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 concentration. Domestically, the environment was challenging and resulted into 2% decline. Pharma business was disappointing owing to streamlining of accounting policies across businesses which resulted into Ebitda loss of Rs183mn. Further, it also accounted for Rs401mn impact due to theft of material in transit. Management has maintained ~18-20% growth guidance and expects ramp up in pharma business to be gradual. Analysts of IIFL Capital Services cut their FY24-26 EPS by 3-5%, largely to moderate pharm business assumptions. Their TP rolled forward to Dec’24 rises marginally to Rs3,970 (30x Dec’25 P/E). 

CSM strong, domestic weak: 

PI reported 22% growth in CSM (exports) business driven by volume growth of ~21% and 1% from pricing, currency and favourable mix. Domestic business declined 2% due to delayed and erratic spread of monsoon although favourable product mix and improved working capital management helped contain financial impact. Gross margins expanded by 140bps to 46.6% driving a ~160bps improvement in Ebitda margins to 26%. Ebitda would have better but for Rs401mn costs attributable to material lost in transit. 

Integration of CRO-API platforms underway: 

Pharma business reported revenues of Rs1.04bn comprising of Rs651mn from Archimica and Rs68mn from Therachem. The management highlighted that revenues in Therachem will remain bulky on account of its campaign driven business model. The company is working with global advisors for business transformation across commercial, R&D, manufacturing and supply chain. Ind AS adjustment which resulted into Ebitda loss is seen as one-off and the performance will start looking up once policies are streamlined. 

Outperformance largely priced in: 

PI has outperformed industry in 1H’24 on the back of robust growth in CSM. Further, FY24 will see capex execution of Rs9bn and consolidation of acquisitions. Plans of launching ~4- 5 CSM products and developing a new R&D centre are also promising. However, at 32x FY25ii P/E, valuations offer limited upside. Hence, analysts of IIFL Capital Services remain cautious and would await dips for fresh buying.