Buy PI Industries; target of Rs 4200: Sharekhan

Sharekhan's research report on PI Industries

PI Industries (PI) has recently announced the acquisition of TRM (CDMO play) and Archimica (generic API play) at purchase consideration of $75 mn and Euro34.2 mn, respectively. The deal valuation of 5.4x FY2022 EV/EBITDA is reasonable and would be EBITDA accretive by 7-8% for FY2024E/FY2025E. TRM would help cater to global pharma innovators as its R&D team works closely with US biotech companies and big pharma companies based in Asia-Pacific for the development of products, while Archimica provides access to regulated/developed pharma markets. TRM/Archimica has impressive financials with revenue of $33 mn/$45 mn and EBITDA margin of 42%/16%. PI’s pharma foray would remove the long pending overhang of QIP cash utilisation and revenue concentration on agrochemical, given diversification towards pharma. Even post the recent acquisitions, PI would have strong net cash position of Rs. 1,973 crore to pursue both organic and inorganic growth opportunities. We expect PI’s PAT to clock a strong CAGR of 27% over FY2022-FY2025E and growth would further improve post integration and ramp-up of recently acquired pharma companies.

Outlook

We maintain our Buy rating on PI with an unchanged PT of Rs. 4,200. The stock trades at 30.4x its FY2025E EPS.

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