Q3FY24 Review: PI Industries: Exports slowing down

13 Feb 2024 , 02:29 PM

Though PI Industries (PI) reported numbers came in strong, it was led by consolidation of pharma business and one-time benefit from recovery of theft material (Rs700mn in sales). The key earnings driver CSM business CSM growth slowed down to 13%YoY (from 33% in Q1 and 22% in Q2) despite driven by driven by volume growth and ramp up in newly commercialised products. Management has maintained ~18-20% growth guidance and expects ramp up in pharma business to be gradual. Lower tax rate is likely to continue for one more year. Analysts of IIFL Securities raise FY24-25 earnings by 2-6% on the back of lower tax rate (14- 15%) and cut FY26 earnings by 3%. Their TP rolled forward to Mar’25 comes down marginally to Rs3,485 (30x Mar’26ii P/E). 

CSM growth slowing down: 

On a reported basis, PI delivered sales/Ebitda/Pat growth of 17%/33%/27%YoY. The performance consists of Pharma revenues and one-time benefit from recovery of theft material. Adjusting for pharma revenues, sales growth would have been 9.7%YoY. CSM growth slowed down to 13%YoY despite driven by volumes and ramp up in newly commercialised products. CSM order book too declined by US$100mn to $1.7bn. Domestic business declined by 6% due to delayed and erratic spread of monsoon. 

Development expenses drags pharma profitability: 

Pharma business revenues stood at ~Rs1.27bn, however Ebitda was just Rs4mn. As per the management, pro-forma EBITDA for M9FY24, before development spends of ~Rs350mn stood at ~16%. The development spends will be continued for couple of quarters, post which profitability is expected to pick up. 

Outperformance ending soon: 

PI delivered sales/Ebitda/pat growth of 20%/31%/38% during M9FY24 while the industry peers struggled with destocking and price corrections. Such outperformance came on the back of robust 22% growth in the CSM business (2/3rd of revenues) which will run into high base from Q1’25 onwards. This coupled with the weak guidance by Kumiai Chemicals on Axeev (Pyroxasulfone, 3yr Cagr of 4.8%) will create headwinds in FY25.