Buy PI Industries; target of Rs 958: Motilal Oswal

Motilal Oswal's research report on PI Industries

Revenue grew 3.2% YoY to INR6,251m (est. of INR6,392m) in 4QFY18. EBITDA declined 12% YoY to INR1,347m (est. of INR1,553m), with the margin contracting 390bp YoY to 21.5% (est. of 24.3%). Adj. PAT fell 22% YoY to INR1,054m (est. of INR1,156m) due to a higher tax rate (19.3% v/s -4% in 4QFY17). For FY18, revenue remained flattish at INR22,771m, EBITDA margin contracted 260bp to 21.7% and adj. PAT declined 20% to INR3,676m.

Outlook

We estimate 16% sales growth in FY19 - 12% growth in domestic business and 19% growth in CSM, assuming 16% constant currency growth, 2.5% currency depreciation and deferment of orders to the tune of INR700m from FY18 to FY19. However, on missed guidance for FY18 and recovery expected to be largely back-ended, we cut our earnings estimates of FY19/20 by 11%/10%. The company's RoE is expected to hover around 22%, and with likely healthy free cash flow (~INR6.7b over FY19/20E), we value the stock at 24x FY20E EPS, arriving at a PT of INR958 (18% upside). Maintain Buy.