Recommendation From Pesticides & Agro Chemicals

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.

GOOD MONSOON TO TRIGGER DEMAND

HERE IS WHY
Acquisition of Isagro Asia to increase growth opportunities
Better monsoon to increase demand for company’s product
Better financial performance

The upcoming Rabi season will spread dewdrops of artificial nourishment to crops. This artificial nourishment will increase the productivity of the farms and returns on your portfolio by investing in our pick for ‘Choice Scrip’, which is PI Industries Ltd, a company engaged in diversified businesses of agricultural inputs, fine chemicals, contract research and manufacturing services (CRAMS), polymers, and engineering services. PI Industries is today ranked amongst the top five Indian agrochemical manufacturers, marketers and exporters. The company operates in two distinct market segments: domestic agricultural input (AI) and custom synthesis and manufacturing (CSM) 

On a consolidated basis, the total income of the company from operations rose by 24.5 per cent to Rs.754 crore in Q1FY20 from Rs.606 crore in the same period of FY19. The EBITDA grew by 28 per cent to Rs.151 crore Q1FY20 from Rs.118 crore in the same quarter of the previous year. Its net profit climbed 23.2per cent to Rs.118 crore in the Q1FY20 from Rs.82 crore in the same quarter of FY19. The growth of the company was driven primarily by 59 per cent improvement in exports where it continues to benefit from increased requirement for commercialised molecules and new additions. 

In the current quarter of FY20, PI Industries executed an offer with lsagro SpA for acquisition of the business of

Isagro Asia, which is engaged in contract manufacturing, local distribution and exports of agro chemicals. The transaction value estimated at Rs.345 crore net of cash and debt will be subjected to closing adjustments. The consummation of the proposed transaction is expected in Q3FY20. Post this acquisition, PI Industries expects encouraging growth opportunities across its business model and will seek initiatives to augment business progress. This acquisition will provide PI access to additional manufacturing capacities that will help it meet the growing demand of global customers and synergy benefits of adjacent manufacturing site while de-risking the supply chain of a few products. 

Due to delay in the monsoon season last year, the demand was dampened in the domestic market. But for the current year due to heavy rainfall and increased water level it is expected that the demand will increase in the domestic market. Considering this scenario, the company is undertaking capacity expansion at Jambusar and introducing 3-4 new products. These will help PI leverage its presence and position in the crop segments and create additional value for the company and all stakeholders, including the farmers. The company’s management believes that the trade war in China has created opportunities in India, which may benefit the business. On valuation front, the stock of PI Industries is trading at PE ratio 41.28 with ROE of 18.77 per cent. The valuation looks reasonable compared to its peer group and the type of growth the company. is exhibiting. By the virtue of the above factors, we recommend our reader-investor to BUY this stock.