Recommendation from Pesticides & Agro Chemicals Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

PI INDUSTRIES LTD : PROFITING FROM THE RIGHT FORMULAE

HERE IS WHY
✓Huge growth potential
✓Focus on cost reduction
✓Good returns on capital employed

PI Industries Ltd. is a leading player in the agro-chemicals space having strong presence in both domestic and export markets. It manufactures plant protection and specialty plant nutrient products and solutions under its agricultural inputs business. It is also one of India’s leading custom synthesis (CSM) companies engaged in providing contract research and contract manufacturing services to global innovators. It has state-of-art facilities in Gujarat having integrated process development teams with in-house engineering capabilities.

The company reported net sales of Rs 3,366.50 crore in FY20. It had reported net sales of Rs 2,840.90 crore in FY19, an increase of 18.5 per cent. The company reported PBIDT of Rs 717.80 crore in FY20, an increase of 24.53 per cent. It had reported PBIDT of Rs 576.40 crore in FY19. The company reported PAT of Rs 455.80 crore in FY20, an increase of 11.12 per cent. It had reported PAT of Rs 410.20 crore in FY19. The company has reported cash from operating activities of Rs 698 crore in FY20 as against Rs 390 crore reported in FY19.

It registered net sales at Rs 1,162.10 crore in December 2020, up by 36.75 per cent from Rs 849.80 crore in December 2019. The top-line grew on the back of solid growth in both domestic (+26.2 per cent YoY) and export (+32.7 per cent YoY). Its PBIDT was Rs 275.50 crore in December 2020, up 47.72 per cent from Rs 186.50 crore in December 2019. The EBITDA margin expanded 260 bps YoY to 24.4 per cent on account of higher sales and improvement in capacity utilisation.

Its quarterly net profit was at Rs 195.60 crore in December 2020 as against net profit of Rs 121.20 crore in December 2019, an increase of 61.39 per cent. The increase in PAT was driven by higher sales and other income, improved working capital management and lower tax rate during the quarter. The demerger of the B2C business of Isagro to Jivagro happened in Q4FY21 while the merger of CSM business of Isagro with PI is expected in Q1FY22 post regulatory approvals. Upgradation of its Isagro production facility would be completed in the next few months.

Regarding the CSM export business, one more MPP plant will be ready in Q1FY22 and 5-6 pipeline molecules are to be commercialised in the next fiscal year. The management remains positive on the business outlook and has also highlighted strong growth expectations from Q4FY21. The company has maintained a strong order book of USD 1.5 billion with sustainable growth in the next 3-4 years. In the near term it is expected that the company has plans to enter new geographies, expanding into pharmaceutical intermediates as well as business expansion through the inorganic route to drive earnings’ growth.

A capex of Rs 320 crore was incurred during 9MFY21. The company is almost debt-free. Its median sales growth is 21.61 per cent of the last 10 years. The company has also managed to keep costs under control and effectively managed inventory levels to meet the upcoming demand. With new product launches, strong order book, commercialisation of new plants in the near-term and strong demand for its branded products, the growth momentum should continue in the upcoming quarters. The total debt to equity ratio is 0.19. On the returns front, it has ROE and ROCE of 18.63 per cent and 23.10 per cent, respectively. By virtue of these factors, we recommend our readerinvestors to BUY this stock.