Hold P.I. Industries; target of Rs 1355: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on P.I. Industries

PI Industries reported better than expected results driven by outperformance from the CSM segment (up 52% YoY; PLe- 19%). Management commentary on future outlook indicates robust business momentum and clear growth visibility for 2-3 years, despite gloomy agchem environment globally. PI is all set to ride the multi-year growth in the CSM segment as its enhanced R&D capabilities, supply scarcity related issues in China and increased focus on outsourcing by the innovators are bearing fruit in the form of big product wins and significant surge in deal pipeline. With the robust growth visibility, PI may be in a continuous investment phase (capabilities and capacities) leading to robust business growth but limited headroom for margin expansion from current levels. Sizeable sustained capex guidance (Rs3.0-4.5bn p.a. for the next 2-3 years) for investment in 4 new plants (2 in FY20 & FY21 each), acquisition of ISAGRO's Asia business, increasing number of products moving from R&D stage to commercialisation and continued demand traction for existing products gives us superior earnings comfort. Acquisition of ISAGRO's Asia business even though gives them readymade capacity (with minimum fresh investment needs), it will be ~100 bps margin dilutive in FY21 for PI. While the medium term growth remains intact driven by robust business outlook & earnings visibility, the stock at 33.6x/26.8x FY21/FY22 earnings offers limited upside in the short term.

Outlook

We incorporate ISAGRO Asia financials, roll over to Sept'21 earnings and downgrade the stock to Hold (from Buy) with revised target price of Rs 1355 (Previous- 1278) based on 28x Sept'21 earnings of Rs 48.4.

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