Buy PI Industries; target of Rs 830: HDFC Securities

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26 Aug, 2025 12:21

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HDFC Securities' research report on PI Industries

PI Industries’ (PI) reported disappointing numbers in 2QFY18. Revenue grew marginally by 3.1% YoY to Rs 5.6bn. Weakness in global Custom Synthesis and Manufacturing  (CSM) impacted exports (-4.0% YoY, 54% of revenue). Domestic business  grew  (+13.0% YoY, 46% of revenue), and was supported by post-GST demand  and  launch  of  new products. EBITDA de-grew 4.5% YoY at Rs 1.2bn, largely  driven  by  an  increase  in  raw material and employee costs. The EBITDA  margin  stood at 21.8% (-174bps YoY). Higher tax rates led to 20.8% YoY de-growth in APAT at Rs 803mn. FY18  started on a good note, with normal monsoon in the Kharif season, but the  impact  of  GST  change,  which  weighed  on the domestic business. We believe  these  hiccups  are  temporary.  PI  is likely to increase product prices  in  3QFY18  to  offset  the recent rise in raw material costs. This would  help PI maintain margins. However, we expect good north-east monsoon in  the  latter  half  of the season is a positive sign, this would support domestic sales in 2HFY18.  PI’s  biggest  hurdle would be maintaining its market share in Nominee Gold (rice  herbicide), as Gharda Chemicals and Insecticides India have launched the same product. In 2QFY18, PI’s volumes grew 15%, but witnessed a drop in prices.  This  could be a concern for PI in the long run. PI’s CSM business was  muted  in  1HFY18,  led  by weakness in the global agrochem market.

Outlook

We expect  the scenario to improve in 2HFY18. PI has guided for a capex of ~Rs 1.4bn  in  2HFY18,  and  Rs  1.5-2.0bn  in FY19 for CSM and R&D. This helps provide  integrated,  innovative  and  long-term  solutions to existing and future global customers across the agrochem value chain.  Commercialisation  of  two  to  three  new  molecules every year in the CSM segment,  and a strong order book (4.7x FY17 segmental revenues), will keep long-term  growth  prospects robust. We remain positive on PI. Maintain BUY with a TP of Rs 830/sh (25x FY19E EPS).

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