Accumulate PI Industries; target Rs 742: Dolat Capital
Dolat Capital is bullish on PI Industries and has recommended accumulate rating on the stock with a target price of Rs 742 in its February 22, 2013 research report.
February 23, 2013 / 12:36 IST
Dolat Capital is bullish on PI Industries and has recommended accumulate rating on the stock with a target price of Rs 742 in its February 22, 2013 research report.
"PI Industries' topline for Q3FY13 grew 48.6% YoY to Rs 2.83bn led by better than expected growth in Custom Synthesis biz while the Agri inputs business witnessed muted performance. AIB (39% of sales) revenues grew by mere 7.6% YoY to Rs 1.10bn mainly due to poor crop conditions. Growth was mainly volume driven. The company has so far launched two in-licensed products – both are insecticides - ‘Osheen' and ‘Fluton'. It anticipates launching two more tie-up based products (both insecticides) in FY14E. The management does not foresee near term threat on - ‘Nominee Gold' exclusivity based sales (introduced in FY10). Notably, they stated formulating this product from the technical is relatively difficult. PI has guided 15% growth in Agri biz. for FY14E led by new launches and assuming a normal monsoon.During the quarter, CSM revenues grew by a stellar 95.5% (currency benefits 8- 9%) to Rs 1.72bn on a low base in the corresponding period last year. Order book position stands in the range of USD 305-308mn. So far 14-15 products have been commercialized. The company shall be commercializing 2-3 new products in the ensuing quarter. The new Jambusar SEZ plant (on-stream in January'13) will contribute Rs 300- 400mn to the topline in Q4FY13E. Net working capital in this segment is 45 days (lower than Agri biz.) and operates on 30% ROCE. Tax benefits attributed to the new SEZ plant shall aid earnings growth in the coming years with ramp up in operations.EBITDA margins inched up by mere 30bps YoY to 16% despite increased contribution from high margin CSM revenues due to lower profitability in its Agri biz. Raw material costs stood higher by 470bps YoY at 58.4% of sales. Employee costs stood lower by 200bps YoY to 7% while other expenses stood lower by 300bps YoY at 18.5% of sales. The company reported forex gain of Rs 7mn (forex loss of Rs 65mn in Q3FY12). Interest expense stood higher by 52% YoY to Rs 71mn while depreciation cost stood higher by 16% YoY at Rs 50mn.Tax rate stood higher than expected at 34% (20% in Q3FY12). Adjusted for forex impact, PAT grew by 29.8% YoY to Rs 233mn. The management maintains its 30% YoY overall revenue growth guidance for the year .Traction in CSM export segment revenues to offset deceleration in Agri biz, The new plant at Jambusar SEZ shall contribute Rs 300-400mn during the fiscal and shall contribute over Rs 1bn in FY14E. We expect new product launches and timely execution of orders in the CSM business to continue to accelerate earnings growth momentum. The company successfully concluded QIP of Rs 1.17bn (post dilution equity now at Rs 135.46mn). The QIP proceeds shall be utilized towards capex and working capital requirements and also latent inorganic opportunities.We expect 23% revenue CAGR over FY13-15E, aided by rising contribution from CSM (from 43% in FY12 to 57% of sales in FY15E). We have built in a conservative growth estimates on the Agri-inputs segment, given the underlying market conditions (15% CAGR over FY13-15E). However, commencement of new plant at Jambusar (dedicated for CSM exports) shall accelerate earnings growth momentum and drive operating leverage. We expect 32% earnings growth over FY13-15E assuming a non dilutive capex. At CMP, the stock trades at 12x FY14E and 9.4x FY15E earnings. We recommend accumulate with a revised target price of Rs 742 (11x FY15E earnings)," says Dolat Capital research report.FIIs holding more than 30% 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.To read the full report click on the attachment 
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