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Home / Markets / Mark To Market /  PI Industries’ investors draw comfort from CSM strength

Shares of PI Industries Ltd scaled fresh highs on Wednesday, taking the year-to-date gains to more than 50%. Notably, its market capitalization is also more than 51,000 crore now.

Investors seem to draw comfort from the firm’s robust growth in the custom synthesis manufacturing (CSM) segment and recent acquisition of active pharmaceutical ingredient (API) and intermediate business of Ind-Swift Laboratories Ltd, which marks its foray into the market.

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The company reported 31% growth in CSM for the June quarter despite the second wave restrictions, a continuation of the momentum from 35% growth seen in FY21. The segment contributed more than two-thirds of the revenues and has a strong order book of more than $1.5 billion as of June quarter. Analysts believe that this would ensure growth for the next three years. The company highlighted that 90% of CSM revenues are from patented molecules, which augur well for growth prospects. Further, the company has been adding new molecules too. Having commercialized five in FY21, the company plans about six new molecule launches in FY22. Of these, three already had been launched in the June quarter.

In its annual report, the company indicated that it will operationalize two manufacturing facilities with the capacity enhancement of about 15% in key products and also commissioning of a pharma lab.

Its acquisition of the API and intermediate business of Ind-Swift Laboratories is expected to help in boosting revenues as well as growth. The acquisition is estimated to drive FY23 Ebitda by 10.5%, while its profit after tax may rise by 6.5%, estimate analysts at Sharekhan.

“Growing its presence in the pharma API space remains critical going forward," a Motilal Oswal Financial Services Ltd report said.

That said, there are some challenges for the company. The lower-than-expected rainfall remains a near-term concern. As such, domestic revenues declined 13% year-on-year due to base effect and delayed rainfall. Analysts hope that a diverse portfolio would cushion it earnings.

PI Industries’ stock has been trading at an average of 33 times its one-year forward earnings for the past three years, point out analysts at Motilal Oswal. Considering the acquisition of the API business and growth trajectory, valuations appear modest.

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