Buy P.I. Industries; target of Rs 4530: Prabhudas Lilladher

Prabhudas Lilladher is bullish on P.I. Industries has recommended buy rating on the stock with a target price of Rs 4530 in its research report dated April 28, 2023.

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April 29, 2023 / 10:03 IST

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Prabhudas Lilladher's research report on P.I. Industries

PI Industries (PI) in a press release announced acquisition of two entities through its 100% owned subsidiary PI Health Science (PIHS) in pharma space for a combined consideration of ~Rs 7.1bn (excl. Rs2bn of performance linked payouts over next six years) to be funded through internal accruals and QIP proceeds (Rs 20bn raised in July’20). The transaction includes: 1) Therachem Research Medilab’s (TRM US) two wholly-owned subsidiaries in India and certain assets in US and 2) Archimica SPA. Cash purchase consideration of a) USD 50mn for TRM US’ subsidiaries with an additional performance-linked payout not exceeding USD 25mn over next six years and b) EUR 34.2 mn for Archimica. PI expects deal completion in 1QFY24 to be earnings accretive from immediate effect. We believe this would largely remove long overhang on the stock in terms of deployment of QIP funds (raised in July’20) coupled with foray in pharma CSM to diversify risks. Valuations for combined transactions (at ~Rs7.1bn, excl. Rs2.0bn of performance linked payouts over next 6 years) look reasonable at 1.1x/4.2x price/sales and price/EBITDA as against PI’s valuation of 7x/29x FY23E. As per our internal estimates, this deal looks EPS accretive to the tune of 5-8% for FY24/25E (to be largely led by superior margin profile of combined acquired entities at ~27%).

Outlook

However, we await further details from the management before incorporating in our estimates. We continue to maintain our positive stance on the stock also keep it as our preferred pick in the sector. Maintain ‘BUY’ with unchanged TP of Rs 4530 based on 40XFY25 EPS.

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