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PI Industries' management is aiming at a 2-year timeline to integrate and scale up returns post takeover of a Pharma/CDMO asset through M&A with the company also having two targets in sight, but admitted that such assets are scarce and entail premium valuations, said brokerage and research firm Nirmal Bang.

The brokerage house hosted a group investor meeting on Friday (25th Nov’22) at a virtual investor conference with PI Industries Ltd (PI Ind) management, led by Rajnish Sarna, Joint Managing Director and Manikantan Viswanathan, Chief Financial Officer. 

“PI Ind management sounded positive about the prospects for CSM and the domestic CPC business while asserting that it is actively pursuing a buyout in Pharma CSM space in India/overseas that is a strategic fit. The company also highlighted PI Ind’s robust product pipeline, its thrust on developing innovative technology/digitization and the ESG focus," the note stated.

Nirmal Bang has maintained its Buy rating on PI Indistries shares with a target price (TP) of 4,213 apiece. The chemical stock has given multibagger return of more than 255% in the last 5 years and is currently trading around its 52-week high level of 3,698 per share it had hit earlier this month on the BSE.

PI Ind is looking for Pharma asset(s) involved in CDMO for pharma intermediates and APIs in India and overseas. It is currently evaluating two potential targets. The strategy is to acquire customers/products along with regulatory approvals for the asset and ramp-up scale at the earliest. The management did not share any timeline for this though, it adde.

“Consummation of an M&A deal of high value in terms of potential growth rate, margins and access to products/customers; new orders that could imply higher growth/margins and enhanced visibility in the core CSM business," the brokerage added.

Though, downside risks, as per Nirmal Bang could be delay in M&A and higher-than-expected valuation implied for any new acquisition, slower-than-expected growth in CSM order book, higher-than-expected investment and longer lead time to develop non-agrochemicals business, including Pharma, adverse weather conditions can affect the prospects for PI Ind’s domestic CPC business and sustained increase in input costs as well as freight & energy costs are added concerns. 

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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