BackAfter a surge in shares, PI Industries clocks strong profit growth in FY21
Demand and realizations for most chemicals, in both specialty and agri-chemicals segments, remain reasonably strong
PremiumPI Industries Ltd has ended FY21 on a strong note, thanks to favourable demand and higher realizations in its chemicals business. Earnings rose 62% during FY21, and it’s not surprising that the stock has gained more than 74% over the last year.
Robust sales growth of 40% year-on-year (y-o-y) during the March quarter was driven by a 47% rise in exports and 11% growth in domestic sales. Exports contributed to more than four-fifths of sales.
However, the fourth-quarter performance had some disappointments too. The operating performance was below expectations. Ebitda (earnings before interest, tax, depreciation and amortization) growth was lower at 22% year-on-year and margins contracted 290 bps. Analysts attribute the margin compression to an adverse sales mix, withdrawal of MEIS (Merchandise Export from India Scheme) and lower yields in the newly commercialized molecules and unit.
The newly acquired firm Isagro registered an impressive 51% y-o-y revenue growth, said the firm. However, the acquired portfolio has lower margins that will improve gradually, say analysts.
Analysts expect margin recovery to happen except for impact due to MEIS. PI Industries is likely to offset this gradually by increases in volumes and some price hikes, according to analysts.
The Street is being watchful of the company’s foray into pharmaceutical manufacturing, for which it had already raised funds. Analysts at Emkay Global Financial Services Ltd said that “lack of announcement on any utilization of QIP proceeds was a disappointment".
The management said it is in an advanced stage of negotiations for a sizeable pharma asset. Analysts at Kotak Institutional Equities said the closure of the pharma asset acquisition (likely in the next two-three months) should accelerate overall revenue growth and extend the high-growth phase.
Meanwhile, demand and realizations for most chemicals, in both the specialty and agri-chemicals segments, remain strong.
The company added two manufacturing facilities leading to capacity enhancement of up to 15% in key products. Also, after commercializing four new products for exports during FY21, another four-five launches are expected in FY22 . A similar number of new product launches in the domestic market is set to strengthen its portfolios and lead to crop diversification.
Against this backdrop, analysts feel the management guidance of 15% revenue growth during FY22 (earlier 20%) is conservative. Analysts at Emkay have maintained their revenue/Ebitda estimates and expect the management to revise their guidance upwards by Q2FY22 once the second covid-19 wave subsides.
However, they say that the stock is currently trading at about 32-33 times FY23 earnings, which appears optically expensive.
Initiatives in pharma and fine chemicals could, nevertheless, lead to upgraded target multiples, say analysts.
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