Buy PI Industries; target of Rs 4200: Sharekhan

Sharekhan's research report on PI Industries

Robust Q3FY23 performance with a 24% y-o-y growth in CSM revenues and a 143 bps beat in OPM at 25.7% (up 387 bps y-o-y). PAT of Rs. 352 crore (up 58% y-o-y) was 17% above our estimates, reflecting strong margins, higher other income and lower tax. CSM revenues grew by 24% y-o-y to Rs. 1,329 crore was led by a 9% volume growth and 14% from favourable product mix, price & currency impact. Domestic revenue growth muted at 1.6% y-o-y due to high channel inventory. Margins remained strong led by better product mix, benefit of operating leverage and strict control over fixed overheads. The management maintained CSM revenue growth guidance of over 20% for the coming years, which we believe is conservative. PI expects new product launches to drive double-digit growth for domestic business and guided that current margin is sustainable. It invested Rs. 68 crore in PI Health Sciences and CSM order book remains strong at $1.8 billion. The recent 16% fall in stock price from 52-week high level is an investment opportunity given consistent earnings outperformance.

Outlook

We maintain a Buy rating on PI Industries with an unchanged PT of Rs. 4,200. A potential acquisition in the pharmaceutical space would improve long-term earnings growth outlook and makes us constructive on the stock. Stock trades at 27.7x its FY2025E EPS.

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