The brokerage has a ‘buy’ call on the stock with a target price of ₹3,750, implying a potential upside of 11 percent
PI Industries Ltd is a prominent player in the agrochemicals sector, with a presence in over 30 countries and four global offices located in India, Japan, China, and Germany. The company’s export markets include the USA, Brazil, and Saudi Arabia, among others. PI Industries owns and operates five formulation facilities and thirteen multi-product plants, producing a range of agricultural chemicals such as insecticides, fungicides, herbicides, and specialty chemicals for use in farms. Notably, the company is a major producer of generic molecules like Profenofos, Ethion, and Phorate in India.
Stock Price Trend
The stock declined 1 percent in February, extending losses for the third straight month. It was down 4 percent in January and almost 7 percent in December.
In the last 1 year, the stock has delivered over 11 percent returns.
Currently trading at ₹3,375.75, the stock is 16 percent away from its 52-week high of ₹4,010, hit on June 21, 2023. Meanwhile, it has advanced almost 18 percent from its 52-week low of ₹2,870, hit on March 28, 2023.
Earnings
In the September quarter, the company reported a 43.5 percent year-on-year (YoY) jump in net profit at ₹480.5 crore. In the corresponding quarter last year, PI Industries posted a net profit of ₹335 crore. The company’s revenue from operations increased 19.6 percent to ₹2,117 crore as against ₹1,770 crore in the corresponding period of the preceding fiscal.
At the operating level, EBITDA jumped 27.7 percent to ₹551.5 crore in the second quarter of this fiscal over ₹431.9 crore in the corresponding period in the previous fiscal.
However, for the third quarter, expectations remain weak for the chemical sector in the near term and the chemical manufacturers are likely to see a soft Q3. The impact of weak demand, inventory destocking, and lower realisations continues to be felt by manufacturers. PI Industries as per Jefferies should see a 10 percent yoy growth though margins may decline sequentially on a negative operating leverage. Pharma segment revenues for PI Industries should also grow sequentially on planned product schedules with EBITDA margins turning positive.
Investment Rationale
Strong CSM performance: CSM AgChem exports exhibited a robust 22 percent YoY growth, driven by increased volumes and a favorable product mix. The order book for CSM exports reached approximately $1.8 billion in Q2FY24. Despite the entry of new players in Pyrosulphane, CSM remains confident in its revenue potential, given differentiated markets and longer patents on combination products. The company anticipates growing demand for both existing and newly commercialised molecules. PI Industries launched three new molecules in the quarter and plans to introduce two more in H2FY24, aligning with its strategy to commercially launch 4-5 new molecules each year. Despite certain pressures in generics, PI Industries remains resilient to global macro headwinds, focusing on biological and bio-stimulant products, identifying new chemistries, and building blocks to drive future growth, said the brokerage.
Capex & pharma segment to drive growth in future: PI has spent a total of ₹763 crore (pharma acquisition of ₹497 crore) and plans further ₹800 crore investments in new capacities. The company also has committed ₹80-100 crore per annum for upgrading pharma facilities and developing technological capabilities. PI is looking to expand inorganically to strengthen its pharmaceuticals business. The company is also considering onshore expansion to create production capacity close to its customer markets (USA or Europe), it stated.
Business strategy: PI Industries continues to concentrate on intellectual property-backed products, leveraging its niche capabilities and maintaining a robust product pipeline, leading to a notable 22 percent growth in the innovative molecules category. The company also entered into an agreement with Koppert for sustainable agriculture initiatives, further noted the brokerage.
Outlook
Axis recommends a BUY rating on the stock as it witnessed a recent price correction due to news of Chinese players entering Pyrosulphane business, one of the key products for PI Industries. “We believe patent protection till FY27-28 in PI’s key markets and on combination products will help continue to protect the CSM book. PI Industries’ strong track record, long-term relationships, and ability to innovate new molecules gives us the confidence to value it 27x Sep’FY26E resulting in a near-term target price of ₹3,750, implying an upside of 11 percent from the CMP,” it said.
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Published: 05 Feb 2024, 12:42 PM IST