25 May 2016
Q4FY16 Results Update | Sector: Fertilizers
PI Industries
Buy
BSE SENSEX
25,881
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm/ Vol m
Free float (%)
S&P CNX
7,935
PI IN
137.1
87.0 / 1.3
756/495
-1/0/-6
159.7 / 0.3
48.3
CMP: INR634
TP: INR790 (+25%)
4QFY16 results in line with estimates; Strong recovery in FY17
Financials & Valuations (INR b)
Y/E Mar
2016 2017E 2018E
Net Sales
21.0
25.2
30.2
EBITDA
4.3
5.6
6.9
PAT
3.0
3.9
4.9
EPS (INR)
22.1
28.2
35.9
Gr. (%)
22.8
27.5
27.3
BV/Sh (INR)
85.8 108.5 137.7
RoE (%)
29.2
29.0
29.2
RoCE (%)
26.8
27.4
28.6
P/E (x)
28.7
22.5
17.7
P/BV (x)
7.4
5.8
4.6
Estimate change
TP change
Rating change
Revenue in line with estimate:
P I Industries Ltd (PI) reported revenue of
INR5,848m (vs. our estimate of INR5,907m) in 4QFY16, up 9% YoY, led by the
Agri business which grew by 17% YoY, while CSM grew by 6% YoY. EBITDA
margin expanded by 60bp YoY to 18.3% (vs. our estimate of 19.7%). EBITDA
stood at INR1,073m (vs. our estimate of INR1,164m), up 12.6% YoY. Adjusted
PAT grew by 64% YoY to INR934m (vs. our estimate of INR759m), due to lower
tax of INR14m in 4QFY16, as compared to INR253m in 4QFY15, as a result of
tax benefits enjoyed from the Jambusar facility. The strong growth in PI’s Agri
business was driven by growth across all its products, boosted by horticulture.
High execution visibility, good monsoon to aid strong recovery in FY17:
CSM’s
order book stood at USD850m (4.4x FY16 revenue), up 47% YoY, and included
orders from new products as well as some long-term contracts of 4-5 years, as
compared to earlier contracts of 3-4 years. With signs of a pick-up in the global
agri-chem market, steady launch of 2-3 new commercial molecules by PI every
year and two of its new Jambusar plants now on stream, CSM is expected to
recover and record a CAGR of 21% over FY16-18. The domestic agri-chem
business is also expected to post a strong CAGR of 19% over FY16-18, on the
back of newly launched products, like Vibrant, as well as good traction in other
products, and expectations of a normal monsoon.
Foray into pharma CRAMS to be the new trigger:
The company will foray into
CRAMS for early intermediates for pharma where it has already identified the
products and is conducting due diligence at an advanced stage. PI will leverage
its existing relationship and target new clients across geographies with the
minimal initial investment expected to be INR200m.
Valuation and view:
We expect a CAGR of 20% in revenue and 27% in PAT over
FY16-18, led by expansion of 130bp in EBITDA margin for FY17 and 80bp for
FY18 (higher capacity utilization), and lower tax rate of 24% due to benefits
from the new Jambusar facilities. We maintain
Buy
rating with a target price of
INR790, valuing the stock at 22x FY18E EPS.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Chintan Modi
(Chintan.Modi@MotilalOswal.com); +912239825422/Kaustubh
Kale
(Kaustubh.Kale@MotilalOswal.com); +912230102498
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
PI Industries
Revenues in-line, PAT higher due to low tax rate
PI reported overall revenue of INR5,848m (est. INR5,907m) in 4QFY16, a 9% YoY
growth led by Agri business which grew 17% while CSM grew 6%.
EBITDA margin expanded 60bp to 18.3% (est. 19.7%). EBITDA stood at
INR1,073m (est. INR1,164m), up 12.6% YoY.
Adj. PAT grew 64% to INR934m (est. INR759m) in 4QFY16 due to low tax of
INR14m compared to INR253m in 4QFY15 due to tax benefits on account of
Jambusar facility.
Strong growth in Agri business was driven by growth across all products boosted
by horticulture.
Revenues (INR m)
39%
16%
-8%
4,712
1QFY15
4,266
2QFY15
5,049
3QFY15
5,370
4QFY15
5,548
1QFY16
4,461
2QFY16
48%
Growth (%)
Exhibit 1: Revenue growth trend
18%
5%
1%
5,110
3QFY16
9%
5,848
4QFY16
Source: Company, MOSL
Exhibit 2: CSM growth trend
CSM Revenues (INR m)
55%
44%
2,250
8%
2,110
3,380
-14%
2QFY15
3QFY15
4QFY15
1QFY16
3,650
2,842
26%
2,110
8%
6%
4QFY16
Growth (%)
3,660
3,852
0%
2QFY16
1QFY15
3QFY16
Source: Company, MOSL
Exhibit 3: Domestic agri growth trend
Domestic Agri Revenues (INR m)
26%
30%
2,150
1,670
2,460
-2%
-13%
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1,720
10%
35%
2,706
Growth (%)
2,340
9%
1,450
2,004
17%
1QFY15
Source: Company, MOSL
25 May 2016
2
 Motilal Oswal Financial Services
PI Industries
Exhibit 4: EBITDA trend (INR m)
EBITDA
23%
17%
19%
18%
Margin (%)
24%
19%
21%
18%
15%
11%
Exhibit 5: PAT trend (INR m)
PAT
12%
Margin (%)
16%
11%
13%
14%
16%
1,080
726
941
953
1,358
848
1,048
1,073
717
490
622
603
873
582
725
953
Source: Company, MOSL
Source: Company, MOSL
High execution visibility, good monsoon to aid strong recovery in FY17
Order book in CSM stood at USD850m (4.4x FY16 revenues), growing 47% over
FY15. It included orders from new products and also some long term contracts
of 4-5 years compared to 3-4 year contract earlier.
With signs of pick up in global agri-chem market, steady launch of 2-3 new
commercial molecules every year and 2 new Jambusar plants now on stream,
CSM is expected to recover at CAGR of 21% over FY16-18.
Domestic agri-chem business is also expected to post strong growth of 19%
CAGR over FY16-18 on back new products launched like Vibrant and good
traction in other products as well, in view of normal monsoon expectations..
New developments to drive long term growth
The company forayed into CRAMS for early intermediates for pharma where it
has already identified the products and is conducting due diligence at advanced
stage. It will leverage its existing relationship and will target new clients across
geographies while the initial investment is expected to be minimal at INR200m.
P I launched a new herbicide named ‘Legacy’ which is co-marketing product with
Bayer.
Also signed a JV with Mitsui agro chemicals to provide regulatory services for
registering products in India where it will receive fee based income.
Other conference call highlights
Overall guidance of 18-20% revenue growth with 150bp EBITDA margin
expansion.
Commercialized 3 new molecules in CSM in 2HFY16, another 3 products will be
launched in FY17
Tax rate guidance for FY17 and FY18 at 24% due to benefit from new plants in
Jambusar
R&D spends for FY16 stood at 1.5% of sales
Capex plans of INR2b with additional plant to come up in Jambusar
Total commercialized molecules stand at 18-20 while new product launches in
domestic agri business is targeted towards rice.
25 May 2016
3
 Motilal Oswal Financial Services
PI Industries
Valuation and View
We value PI at 22x FY18E EPS, which we believe is justified considering:
PI boasts of a unique business model—a strong R&D-led custom synthesis
business (60% of revenues) build over the last two decades, and an equally
compelling domestic agro-chemicals business (40% of revenues), largely built by
in-licensing arrangements with major global agro-chemicals innovators.
With a mere 10% penetration, we believe there is untapped growth potential in
PI’s largest product—Nominee Gold, which (along with new products like
Osheen, Vibrant) will continue to drive growth momentum for the domestic
agro-chemicals business.
With a strong order book amounting to USD850m, the CSM business has robust
revenue visibility—book-to-bill of 4.4x; we thus expect 20% revenue CAGR over
FY16-18. We believe the foray into new segments like pharmaceuticals and
electronics chemicals will be the next key growth drivers for the CSM business.
With best-in-class capital efficiency (27% post tax RoCE, low debt equity, robust
growth outlook—20% revenue CAGR and 27% PAT CAGR), we believe PI is one
of the best plays on India’s agri sector and CSM opportunities.
We value the stock at 22x FY18E earnings and
maintain Buy
with a target price
of INR790.
Exhibit 6: Year PE band
Exhibit 7: 10 Year PB band
Source: Company, MOSL
Source: Company, MOSL
25 May 2016
4
 Motilal Oswal Financial Services
PI Industries
Quarterly metrics
Exhibit 8: Quarterly metrics
1QFY15
Revenues (INR M)
Agri-input
CSM
Revenue growth (%)
Agri-input
CSM
2,460
2,250
2QFY15
2,150
2,110
3QFY15
1,670
3,380
4QFY15
1,720
3,650
1QFY16
2,706
2,842
2QFY16
2,340
2,110
3QFY16
1,450
3,660
4QFY16
2,004
3,852
26%
8%
-2%
-14%
30%
44%
35%
55%
10%
26%
10%
0%
-13%
8%
17%
6%
Source: Company, MOSL
25 May 2016
5
 Motilal Oswal Financial Services
PI Industries
Story in charts
Exhibit 9: Higher contribution from CSM
Domestic agri-inputs
39%
36%
42%
CSM exports
Exhibit 10: Order book to revenue ratio in CSM
Revenue USD mn
Order book to revenue
3.9
60%
60%
Order book USD mn
4.4
3.1
850
52%
58%
59%
60%
2.8
2.6
61%
64%
58%
48%
42%
41%
40%
40%
40%
78 300
FY12
110 305
FY13
153
395
578
187
FY15
192
FY16
FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Source: Company, MOSL
FY14
Source: Company, MOSL
Exhibit 11: Consistently strong asset turnover
Asset Turnover (x)
1.8
1.4
1.4
1.8
1.5
1.6
1.6
Exhibit 12: High cash flow generating
Free cash flow (INR m)
3,122
1,548
728
156
(47)
(490)
FY13
1,765
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
FY12
FY14
FY15
FY16E
FY17E
FY18E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 13: Expected to be debt-free by FY17
0.7
Exhibit 14: Post tax RoCE to improve to 29% (%)
27.6
28.6
0.4
0.1
0.1
(0.0)
25.1
18.5
0.1
16.9
26.8
27.4
FY12
FY13
FY14
FY15
FY16E
FY17E
(0.1)
FY18E
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
Source: Company, MOSL
Source: Company, MOSL
25 May 2016
6
 Motilal Oswal Financial Services
PI Industries
Key assumptions
Exhibit 15: Assumption sheet
FY12
Revenues (INR m)
Domestic agro-chemicals
CSM
Revenues growth (%)
Domestic agro-chemicals
CSM
EBITDA (INR m)
Domestic agro-chemicals
CSM
EBITDA margins (%)
Domestic agro-chemicals
CSM
16%
18%
12%
19%
16%
19%
16%
21%
16%
24%
17%
26%
18%
26%
23%
59%
1,434
783
672
9%
61%
1,806
664
1,132
22%
54%
2,889
1,039
1,785
19%
24%
3,727
1,276
2,400
6%
10%
4,345
1,349
2,995
18%
21%
5,567
1,702
3,865
20%
20%
6,936
2,163
4,719
8,791
5,052
3,731
FY13
11,515
5,500
6,001
FY14
15,955
6,700
9,250
FY15
19,403
7,973
11,430
FY16
20,967
8,486
12,481
FY17E
25,169
10,013
15,155
FY18E
30,164
12,016
18,148
Source: Company, MOSL
25 May 2016
7
 Motilal Oswal Financial Services
PI Industries
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2011
7,200
32.7
1,152
16.0
157
995
185
104
0
914
263
28.8
0
651
651
55.4
2011
112
2,025
2,137
2,383
326
4,846
3,617
1,076
2,541
335
5
3,760
1,410
1,750
70
530
1,794
1,660
133
1,966
4,846
2012
8,791
22.1
1,434
16.3
173
1,261
199
51
321
1,434
398
27.8
0
1,036
804
23.5
2012
125
3,129
3,254
2,468
329
6,051
4,160
1,185
2,975
810
5
4,226
1,788
1,722
94
622
1,965
1,781
184
2,261
6,051
2013
11,514
31.0
1,806
15.7
220
1,586
218
82
0
1,450
477
32.9
0
973
973
21.0
2013
136
5,182
5,317
2,172
483
7,972
6,178
1,398
4,781
605
5
5,956
2,418
2,625
161
752
3,375
3,151
224
2,581
7,972
2014
15,955
38.6
2,889
18.1
316
2,573
118
158
0
2,613
733
28.1
0
1,880
1,880
93.2
2014
136
6,809
6,945
1,223
437
8,605
6,829
1,563
5,267
425
5
7,482
3,188
2,568
438
1,289
4,574
4,251
324
2,908
8,605
2015
19,403
21.6
3,727
19.2
498
3,229
97
420
0
3,552
1,093
30.8
0
2,459
2,459
30.8
2015
137
8,828
8,965
1,148
369
10,481
7,050
1,724
5,326
1,332
5
9,668
3,782
3,826
341
1,719
5,851
5,437
413
3,817
10,481
2016
20,968
8.1
4,346
20.7
543
3,803
95
216
0
3,924
904
23.0
0
3,020
3,020
22.8
2016
137
11,581
11,718
1,250
563
13,531
11,730
2,267
9,463
0
5
10,321
3,948
3,978
561
1,834
6,259
6,047
212
4,062
13,530
2017E
25,169
20.0
5,587
22.2
700
4,887
80
259
0
5,067
1,216
24.0
0
3,851
3,851
27.5
2017E
137
14,683
14,819
750
563
16,132
13,730
2,967
10,763
201
5
12,017
4,338
4,482
997
2,200
6,855
6,601
254
5,162
16,132
(INR Million)
2018E
30,164
19.8
6,938
23.0
796
6,141
30
337
0
6,448
1,548
24.0
0
4,901
4,901
27.3
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
(INR M)
2018E
137
18,668
18,805
0
563
19,367
15,230
3,763
11,467
241
5
15,706
5,270
5,372
2,424
2,641
8,052
7,747
305
7,654
19,367
25 May 2016
8
 Motilal Oswal Financial Services
PI Industries
Financials and Valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2011
5.8
7.2
19.1
0.4
9.0
2012
6.4
7.8
26.0
0.9
14.0
2013
7.2
8.8
39.2
1.0
16.2
2014
13.8
16.1
51.0
2.0
17.0
2015
18.0
21.6
65.6
2.5
16.9
35.2
9.7
4.5
23.4
0.4
35.3
20.7
18.5
1.5
83
122
144
1.1
29.8
18.5
18.9
1.4
68
133
132
0.7
22.7
16.9
17.2
1.4
79
131
171
0.4
30.7
25.1
24.7
1.8
56
126
169
0.1
30.9
27.6
26.8
1.8
69
124
178
0.1
2016
22.1
26.1
85.8
3.1
17.1
28.7
7.4
4.2
20.1
0.5
29.2
26.8
26.8
1.5
66
124
191
0.1
2017E
28.2
33.3
108.5
4.5
19.5
22.5
5.8
3.4
15.5
0.7
29.0
27.4
26.6
1.6
62
115
175
0.0
2018E
35.9
41.7
137.7
5.5
18.7
17.7
4.6
2.8
12.1
0.9
29.2
28.6
29.5
1.6
62
117
172
-0.1
Cash Flow Statement
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2011
1,152
77
-839
-180
0
210
-969
-758
0
20
-949
0
946
-177
-15
754
16
54
70
2012
1,434
331
-390
-400
69
1,044
-1,091
-47
0
51
-1,040
-28
359
-212
-100
20
24
70
94
2013
1,806
20
-425
-380
0
1,020
-1,510
-490
0
105
-1,405
1,187
-402
-251
-82
452
67
94
161
2014
2,889
19
-81
-743
104
2,188
-640
1,548
0
179
-461
40
-1,097
-115
-279
-1,451
276
161
437
2015
3,727
197
-971
-1,195
83
1,841
-1,685
156
0
274
-1,412
38
-153
-111
-300
-526
-96
437
341
2016
4,346
216
418
-904
0
4,076
-3,347
728
0
0
-3,347
0
102
-95
-516
-509
220
341
561
2017E
5,587
259
-664
-1,216
0
3,967
-2,201
1,765
0
0
-2,201
0
-500
-80
-749
-1,329
436
561
997
(INR Million)
2018E
6,938
337
-1,065
-1,548
0
4,662
-1,540
3,122
0
0
-1,540
0
-750
-30
-915
-1,695
1,427
997
2,424
25 May 2016
9
 Motilal Oswal Financial Services
PI Industries
Corporate profile
Company description
Exhibit 1: Sensex rebased
Mr. Piyush Singhal founded PI Industries in 1947 as
Mewar Oil and General Mills Limited, which was
predominantly into edible oils business. A decade
later, the company started selling agro-chemicals.
The name was changed to PI Industries in 1990s. PI
has two business activities: (a) Domestic Agri Inputs
offering plant protection products, and specialty
plant nutrient products and solutions, (b) Custom
Synthesis & Manufacturing (CSM) for contract
research and production of agro-chemicals,
intermediates and other niche fine chemicals for
global innovators
.
Exhibit 2: Shareholding pattern (%)
Dec-15
51.7
13.1
20.7
14.5
Promoter
DII
FII
Others
Source: MOSL/Bloomberg
Sep-15
58.4
8.8
17.0
15.9
Dec-14
58.4
8.5
17.9
15.2
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Cartica Capital Ltd
ICICI Prudential Long Term Equity Fund (Tax
Saving)
Axis Mutual Fund Trustee Ltd. A/c Axis
Mutual Fund A/c Axis Long Term Equity Fund
SBI Magnum Midcap Fund
Oppenheimer International Small Company
Fund
% Holding
5.7
4.4
2.6
2.1
1.9
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Salil Singhal
Mayank Singhal
Naresh Kapoor
Designation
Chairman & Managing Director
Managing Director & CEO
Company Secretary
Exhibit 5: Directors
Name
Anurag Surana
Narayan K Seshadri
Ramani Narula
Name
D Venkatrao S Sohoni
Pravin K Laheri
Rajnish Sarna
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Grant Thornton India LLP
K G Goyal & Co
R S Bhatia
S S Kothari Mehta & Co
Type
Internal
Cost Auditor
Secretarial Audit
Statutory
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
28.2
35.9
Consensus
forecast
25.2
31.0
Variation (%)
11.9
15.9
Source: Bloomberg
25 May 2016
10
 Motilal Oswal Financial Services
PI Industries
NOTES
25 May 2016
11
 Motilal Oswal Financial Services
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PI Industries
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Analyst ownership of the stock
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PI INDUSTRIES
No
No
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12