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Recommendations India

PI Industries Q1FY15 results update

July 30, 2014, Wednesday, 07:26 GMT | 02:26 EST | 10:56 IST | 13:26 SGT
Contributed by Nirmal Bang

PI Industries posted strong quarter with 16% growth in sales for the quarter. However, key highlight of the quarter is improvement in margins which has moved up by ~348 up yoy and ~859 bps qoq (Q1 is seasonally strong quarter in terms of margins) to 22.9%. The company is expected to end FY15 with sales growth of 20% with 100-200 bps improvement in margins (as against the earlier guidance of 25% growth and stable margins).

Key Highlights

- CSM: Key highlight of the quarter was increase in order book to $435mn from $395 mn in Q4FY14 despite clocking revenues of Rs 225 cr (up 8% yoy). Q3 and Q4 quarters are expected to high growth quarters as the company is expecting few products to get commercialized in addition with higher volumes from existing products. Top 5 products contribute 45% of revenues and Top 5 customers’ accounts for 50-60% of revenues. Jambusar plant is working at its full capacity hence the company is undergoing Phase II expansion and putting up two new lines at the site which are expected to be operational by Q2FY16 with capex of Rs 300 cr spread over FY15-16. Management has guided for 20% growth for FY15.

- Agri: PI industries’ Agri segment has reported healthy sales growth of 24.5% at Rs 246cr for the quarter. The performance is backed equally by both volume growth (12-13%) and mix of price and product mix (12-13%). One in-licensed insecticide to be launched in Q2FY15 and one more product in Rabi season. despite posting good growth in Q1, the company has lowered its guidance to 20% as a cautious move owning to current monsoon season.

Valuation & Recommendation

We believe that healthy order book of CSM, strong balance sheet and new product launches in Agri Input segment will drive near to medium term growth. On the other hand CSM segment gaining traction with higher margins is acting as a de-risk model to domestic business. In addition, macro factors like low per-capita pesticides consumption in the country, increasing MSPs and increasing acceptance for the need of crop protection products make PI Industries a good long term bet. We continue to maintain our positive stance on the stock. We recommend to HOLD the stock for the price target of Rs 465 (20x on FY16E EPS)