Accumulate PI Industries; target Rs 570: Dolat Capital

“PI Industries’ Q2 FY12 revenue grew 31.4% YoY to Rs 2.46bn. On a like-to-like basis (excluding polymers) revenue growth stands higher at 45% YoY. The agri-input business (62% of sales) grew 9.9% YoY to Rs 1.53bn. Growth and margins were hit as continuous rainfalls during the later part of the quarter discouraged farmers to apply higher margin products. Instead they opted for granules, which accrue lower margins. The custom synthesis manufacturing (CSM) segment almost tripled YoY to Rs 920mn, aided by scale up in sales from existing molecules and commercialisation of new products. Healthy order book (USD 325mn) continues to ensure higher revenue visibility.”

“Operating performance for the quarter was subdued due to 1) increased manufacturing expenses ensuing ramp-up in CSM business and 2) higher selling & advertisement expenses incurred on recent product launches. EBITDA margins stood at 15% (down 340bps YoY) as other operating expenses as percentage of sales increased to 19.6% (up 400bps YoY). Raw materials and employee costs stood at 58% (unchanged YoY) and 7.4% (down 60bps YoY) respectively. PAT was at Rs 194mn, up 3.3% YoY. Tax rate stood at 30.3%. New product launches and timely execution of orders in the CSM business will continue to accelerate growth momentum. At the same time, the management expects margins to improve as CSM achieves more specialisation in operations. We reiterate our positive stance on the company and the agro-chem sector.”

“We expect 27% revenue CAGR over FY11-13E, aided by rising contribution from CSM (from 33% in FY11 to 42% of sales, excluding polymers in FY13E). Divestment of polymers has boosted operating performance and strengthened the balance sheet position. We expect 36% earnings growth over FY11-13E assuming non dilutive capex. We reiterate our positive stance on the company and the agro-chem sector. At CMP, the stock trades at 15.2x FY12E and 11x FY13E earnings. We revise our recommendation to Accumulate with a revised target price of Rs 570 (12x FY13E earnings),” says Dolat Capital research report.

Non-Institutions holding more than 90% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.