Q4FY23 Review: PI Industries: FY24 awaits large capex, Pharma integration

22 May 2023 , 10:47 AM

PI Industries’ (PI) Q4 results were impacted due to lower gross margins and one-off costs. Nonetheless, management provided a confident outlook of 18-20% organic revenue growth for next year. FY24 will see capex execution worth Rs9bn and consolidation of twin Pharma acquisitions. While there are several other strategic initiatives underway, management will primarily concentrate on integrating and streamlining Pharma business over the coming years.

Q4 margins below expectation: 

PI saw some pressure on margin during Q4FY24, leading to a below-expected result. While there was a modest miss of 4% in revenues, gross margins at 44.8% were 215bps below IIFLe. Dip is attributable to change in revenue mix towards lowmargin products. Other expense for Q4 include one-time costs of Rs250mn, pertaining to acquisition, and advisory fees along with annual provisions. A large portion of this will be non-recurring in nature.

FY24 capex now seen at Rs9bn: 

Capex guidance for Organic business is Rs8.5-9bn for FY24. Of this, Rs3bn is backlog carried forward from previous year. From the above capex, there would be 2 new MPPs to be commissioned. While there are several strategic initiatives underway, management will primarily concentrate on integrating and streamlining Pharma business over the coming years. PI has also engaged global advisory consultants for this purpose.

Revenue growth guidance of 18-20% for FY24: 

Management is targeting revenue growth guidance of 18-20% for FY24, with continued improvement in margins. However, this guidance is on an organic basis and excludes incremental contribution from Pharma integration (to be consolidated post Q1FY24). Analysts of IIFL Capital Services revised estimates imply revenue growth at lower-end of the guidance band, owing to rising headwinds in global Agrochemicals market and El-Nino conditions for domestic business. Hence, they remain cautious and would await dips for fresh buying.

Analysts of IIFL Capital Services cut FY24-26 EPS by 2-4%, implying lower-end revenue guidance of 18-20% (at an organic level) and downward revision of their estimates from Pharma acquisitions (based on estimated numbers for FY23). Hence, their TP drops to Rs3,675 (30x Jun’25 P/E) from Rs3,745.