Buy PI Industries; target of Rs 956: HDFC Securities

HDFC Securities' research report on PI Industries

Gross margins continue to be under pressure (contracted by 513 bps YoY to 42.9%) due to higher input costs which have off-set the higher volume growth both in domestic and exports (CSM) businesses. The growth in the domestic (24% YoY) and CSM (32% YoY) businesses was majorly led by a higher volume growth. The management maintained its guidance of 18-20% for FY19 and expects to be on the higher side of the range, given a strong visibility for 2HFY19. The CSM order book hasn’t changed much (~US$ 1.1bn) since the last quarter. The company plans to launch 2-3 products every year in both businesses. We believe that a growth of 32% YoY in the CSM segment.

Outlook

PI Industries is now available at 23.8/20.4x FY19/FY20E EPS and is expected to exhibit strong RoCEs (19.8%/19.8%) over the same period. PI also has a strong capex plan of ~Rs 2.5 bn (asset turns of 1.5x) and is expected to add 2 multipurpose plants by end of FY19. We remain positive on PI and maintain BUY with a TP of Rs 956/sh (25x Sept’20EPS).