About the Company

PI Industries is in the field of AgriSciences having a strong presence in both the Domestic and Export markets. Founded in 1946, they work with a unique business model across the Agchem value chain from R&D to distribution providing innovative solutions by partnering with the best. Known for the technological capabilities in Chemistry/ Engineering related services and on the other hand, have built leading brands over the last 72 years and connected with more than 84,000 retail points pan India.

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Q3FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 869.5 722.7 20.31% 918 -5.28% 2563.9 2073.9 23.63%
PBT 169 138.9 21.67% 168.8 0.12% 469.5 388.2 20.94%
PAT 120.4 107.3 12.21% 122.8 -1.95% 344 283.3 21.43%

 

Consolidated Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 868.9 722.2 20.31% 918.3 -5.38% 2553.4 2073.6 23.14%
PBT 169.8 139.5 21.72% 169.3 0.30% 471.9 367.6 28.37%
PAT 121.1 107.7 12.44% 123.2 -1.70% 345.9 284.8 21.45%

Detailed Results

    1. The company witnessed good revenue growth of more than 20% YoY in both standalone and consolidated terms.
    2. The profits for the company were similarly good with PBT and PAT rising 22% and 12% YoY in both standalone and consolidated terms.
    3. The EBITDA for the company grew 24.6% YoY and EBITDA margins stood at 21.9%.
    4. The revenues were up mainly on the back of a 19% improvement in exports and 24% improvement in domestic business.
    5. Overall the 9MFY20 was good for the company with revenues rising 23% YoY and profits rising 21% YoY.
    6. EBITDA for 9MFY20 was up 31.7% YoY while EBITDA margins in the period were at 21%.
    7. The effective tax rate for the company was at 27%.
    8. The net debt position of the company as of 31st December 2019 was Rs 252 Cr.
    9. The company has announced an interim dividend of Rs 3 per share.
    10. The company has also completed the acquisition of Isagro Asia. Total consideration paid out for this transaction was Rs 455 Cr. The domestic distribution business of this company will be transferred to Jivagro Ltd and the rest will be merged with PI Industries.
    11. The board of directors has approved fundraising of Rs 2000 Cr to support the next leg of growth for the business. The details of this fundraising are yet to be decided.

Investor Conference Call Highlights

  1. The company’s new product Awkira has seen positive response in the recent rabi season.
  2. The management expects the company’s distribution and crop reach to get stronger post-acquisition of Isagro.
  3. The company will also repurpose Isagro’s existing plants to enhance the company’s manufacturing capacity and this is expected to start operations in FY21.
  4. The management has stated that the main objectives of the fundraising plan is to
    • scale-up organic growth and expansion,
    • scale-up niche technologies that the company has developed in the last few years,
    • and to diversify into adjacent verticals which could be CDMO or CSM for pharma or specialty chemicals or even nutraceuticals or carbonizing chemicals.
  5. The company is yet to finalize which way to go in the new verticals.
  6. The management has clarified that the company sources less than 10% of its raw materials from China in the CSM business mostly. So it will not face any significant disruption from the coronavirus event if it drags on further.
  7. The company has started a new multiproduct plant in the quarter and another will be commissioned by the end of Q1FY21.
  8. The company has plans to start one more plant in FY21 by Q2FY21.
  9. The management has acknowledged that the revenue generation for the company is more in H2 of the year typically and this is expected to continue.
  10. The company has already done Capex of Rs 550 Cr in Fy20 so far and is expected to do Rs 50 Cr more by the end of the year. This number is not including the Isagro transaction.
  11. The estimated Capex for FY21 is around 250-300 Cr.
  12. The management has stated that the company is likely to go the equity route for the fundraising target of Rs 2000 Cr and stay away from the debt raising. This is because it believes that to scale up niche technologies it is better to go the equity route at present and it will consider raising debt at a future appropriate time.
  13. The management has mentioned that it has seen a rise in new inquiries and thus it is considering increasing the company’s R&D pipeline.
  14. The management has specified that the niche technologies that it was talking about scaling up are in different verticals and not in agrichemicals.
  15. The management has mentioned that it expects to fully align the new capacity addition from Isagro for its demand pipeline within the next 6-9 months.
  16. The current order book for the company is around Rs 140 Cr.
  17. The management has refrained from commenting on the new Pesticide Management Bill and has said that it will need to observe for a few quarters to understand the full impact of this legislation.
  18. The Capex required for the new plants in FY21 is around Rs 175-200 Cr.
  19. The management has stated that it has not seen any margin erosion in the domestic business and the margins remain flat QoQ.
  20. The management aims to maintain an asset turnover of 1.5 times from the new capacities being added. This will be achieved at full capacity utilization which should take 12-18 months. The management also expects to maintain the same margin profile as now after adding the new capacities.
  21. The total number of products that the company sells at present is 21-22.
  22. The company will have an impact on revenues in Q4 from the shutdown due to an accident in the Jambusar plant. The impact is expected to be Rs 40-50 Cr at max. In the long term, this is expected to have minimal impact.
  23. The management has stated that the company already has all the necessary environmental approvals for its current basket of products and also for those in the R&D pipeline.
  24. The company has a workforce of 300-350 scientists in its R7D division. The major focus of research is on niche technologies and CSM.
  25. The management has admitted that despite good macro occurrences like water reservoir levels rising to lead to better acreages, the company still faces challenges from working capital and pricing pressure from competition.
  26. The company is looking to integrate the manufacturing of Isagro with its export product line. The company will also keep servicing Isagro’s domestic business with its existing capacity as its product line is complementary to the company’s product line. Thus the manufacturing assets will be merged with PI while the distribution will be kept separate.
  27. The company will currently use the 25% tax rate. The company won’t be eligible for the 15% tax in its new facilities as the new plants will already be in the SEZ where there is 0 tax.
  28. The management has stated that the company will maintain its current pace of introducing 2-3 new products every year.
  29. The management maintains that it remains cautious in its investment into new products and divisions and is not looking to enter into particular demand areas with excess capacity. It will only be investing in areas where the company its niche via R&D.
  30. The management is confident of achieving good revenue growth of almost doubling in the next 4 years while maintaining the current margin profile all the time.

Analyst’s View

PI Industries have been one of the most consistent performers in the agrichemicals business. The current quarter was very good for the company with growth in both domestic and export businesses. The company is now looking to capitalize on its strong product pipeline and diversify into adjacent verticals like specialty chemicals or pharma. The management is looking to raise around Rs 2000 Cr to grow the company organically and expand into these new verticals. The company is also adding new capacities through new plant additions and the addition of the manufacturing assets of its latest acquisition Isagro. Despite all these positive developments, the management reassures that it remains cautious and will not be aggressive in its investment and capital allocation. It remains to be seen how the summer pans out for the domestic business which suffered due to erratic Kharif crop season last year. Nonetheless, given the strong product pipeline, robust business channels in both export and domestic business and the promise of new revenue sources from adjacent verticals, PI Industries remains an important stock to watch for any investor interested in the complex chemical space.

 


 

 

 

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 918 735.4 24.83% 766.4 19.78% 1684.4 1351.2 24.66%
PBT 168.8 122.8 37.46% 131.7 28.17% 300.5 227.4 32.15%
PAT 122.8 94.4 30.08% 100.8 21.83% 223.6 176 27.05%
Consolidated Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 918.3 735.4 24.87% 766.2 19.85% 1684.5 1351.3 24.66%
PBT 169.3 123 37.64% 132.8 27.48% 302 228.3 32.28%
PAT 123.2 94.6 30.23% 101.6 21.26% 224.8 176.8 27.15%

 

Detailed Results

    1. The company witnessed good revenue growth of more than 24% YoY in both standalone and consolidated terms.
    2. The profits for the company were similarly good with PBT and PAT rising 37% and 30% YoY in both standalone and consolidated terms.
    3. The EBITDA for the company grew 43% YoY and EBITDA margins stood at 21%.
    4. The revenues were up mainly on the back of a 55% improvement in exports.
    5. Domestic revenues declined 12% due to erratic monsoon and higher trade inventory.
    6. Overall the H1FY20 was good for the company with revenues rising 25% YoY and profits rising 27% YoY.
    7. EBITDA for H1FY20 was up 36% YoY despite softness in the domestic market and ramp up costs in new facilities.
    8. The effective tax rate for the company was at 27%.
    9. The cash position of the company as of 30th September 2019 was Rs 171 Cr.
    10. The company launched a new product ‘Awkira’ in the quarter.

Investor Conference Call Highlights

  1. The challenges of Chinese manufacturers have led to a boost in inquiries from international players in the industry.
  2. The uneven monsoon had created challenges for the domestic agro-industry but the company expects it to be beneficial for Rabi crops as reservoir levels are at their highest levels in the last 5 years.
  3. The management has guided that they expect the company to maintain its momentum to deliver the 20%+ growth target which was defined at the start of the year.
  4. The management is also confident of delivering margin improvement of 50 to 100 bps by the end of the year.
  5. The majority of the revenues for the quarter were driven by the order book.
  6. The management has mentioned that typically there is a 3- 5-year window for product deliveries. The exact time varies from product to product and on requirement basis.
  7. Overall for FY20, the management expects an effective tax rate of 24%.
  8. The company has a positive cash flow of Rs 171 Cr in the quarter despite undergoing Capex of Rs 347 Cr.
  9. The management has guided that they see a growth rate of 20%+ over the next 3 years based on their existing pipeline and their various stages of commercialization for new molecules.
  10. The management maintains that the company has managed its raw material procurements sustainably and they are not vulnerable to price volatility.
  11. The company is set to launch a new herbicide called pyroxasulfone for wheat and it will be able to properly feel the market opportunity in around 3-4 months of actual ground use of the product.
  12. The management has stated that they have been able to gain export market share because of growth in their operating segments which have done well in the recent past.
  13. The company expects to launch 1 plant in FY20 in Jambusar.
  14. The Capex projection for FY21 is around Rs 300 Cr.
  15. The management is guiding for good growth in the CSM (Custom Synthesis & Manufacturing) business for the next few years.
  16. The management maintains that the agrochemicals space will continue to expand at its current pace for the next 5-7 years at least.
  17. The company is also working on developing opportunities to develop other verticals other than agrochemicals in the next 3-5 years.
  18. The management believes that Indian chemical manufacturers have emerged as reliable outsourcing partners for global companies given stronger governance, regulations and environmental requirements.

Analyst’s View

PI Industries have been one of the most consistent performers in the agrichemicals business. The domestic performance of the company continued its decline while exports boomed to provide good overall performance for the quarter. The company also managed to sequentially improve EBITDA margins by more than 200 bps. The company has been on a steady growth path and it seems like they will comfortably achieve their growth guidance of more than 20% for the year. The erratic monsoon may have caused a decline in the domestic agro market but it has raised reservoir levels which bodes well for the upcoming Rabi crop season. Thus PI industries look like a good investment prospect in the specialty chemicals industry, given their consistent export growth and the expectations of a good rabi crop season. However, the valuation at current levels seems to have priced in almost all the near term positives.

 


 

 

 

Notes from Annual Report FY18-19

Management Discussion Analysis

Global Industry Overview

The global agricultural market saw a year of mixed sentiments in FY19 where agricultural commodities rose in the first half after weakening in the second half. Latin America proved to be a bright spot led by Brazil which saw the cotton acreage rise by more than 25% in FY19. Going forward, the increase in soybean acreage and the normalization of inventories is expected to lead to a higher demand for insecticides in the region.

The EU market was plagued by drought-like conditions which led to a decrease in demand for agrochemical consumption. North America showed good signs of demand revival due to the increase in corn acreage in 2019. Overall, uncertainty still persists in the wake of US-China trade wars which have led to weakening soybean prices. Asia Pacific and India are expected to provide a boost in demand on the back of good monsoons in the region.

The world agrochemicals industry was valued at $215 billion in 2016. It is expected to grow at a CAGR of 4.1% and reach $308 billion by 2025. The main driver for growth in this industry is the rising population in the world. According to Roland Berger, agrochemical sales are expected to grow by up to 2% above the global GDP each year until 2035. Considering this rate, the agrochemicals are expected to be the fastest-growing segment in the world chemical industry. According to the World Bank, Soft commodity prices are expected to rise in FY20 which is also typically a good sign for agrochemical makers.

Crop protection chemicals are expected to be growing at a CAGR of 5.5% till 2025. According to International Fertilizers Association, the application of fertilizers is expected to grow at a CAGR of 5% at least till 2022. Overall, the global crop protection market is expected to grow at >6% in the same period.

 

Indian Agriculture Industry Overview

The Indian agricultural sector saw a downturn due to below normal monsoons last year which saw less sowings in general and increased the price of crops. Combined with the increase in MSPs (Minimum Support Price) by the government, farm incomes are expected to get a good boost. The main long term challenges for the Indian Agricultural industry are:

 

Agrochemical Industry Overview

 

Agrochemical production in India grew at a CAGR of 4.3% from FY14 to FY18. It grew by 2.9% in FY19. In the long term, due to the rising population in India, the production of crops is expected to rise which should lead to a higher demand for agrochemicals in India.

India has been a net exporter of agrochemicals and this sector has gotten a good boost due to India emerging as a global contract research and manufacturing hub. The main advantages of India in this space are:

 

Agrochemical exports have grown at a CAGR of 12.8% in the past 4 years while the share of North American agrochemical exports has risen from 13% in Fy14 to 17% in FY18 showing the critical nature of this region to the industry. Latin America, EU, and Asia have also emerged as important destinations for agrochemical exports for the industry.

 

Company Overview 

The company saw a good FY19 with domestic revenue growth of 16.5% YoY despite the muted year for the agricultural industry in India due to the below-average monsoons in 2018. The company also achieved a sales milestone of Rs 10 billion.

In Dinotefuron, increased brand awareness activities for Osheen led to growth in co-marketing activities. In the herbicide segment, the company’s leading brand Nominee Gold expanded its customer base and achieved the highest ever treated acreage despite facing tough competition from generics.

 

 

The company launched 2 new products in FY19 which were COSKO and FANTOM. These launches have helped the company leverage the channel presence very well, exploit the available market opportunity and gain a better market share from stronghold markets. On the other hand, the company was also able to make an entry into the markets with a relatively weak presence.

The company’s exports grew 29.4% YoY showcasing good improvement in global industry demand and sentiment. The company continued to develop alternate vendors in the domestic market to reduce its dependency on Chinese raw material suppliers that shall help the company in the coming years. Commercialization of 3 new molecules during the year along with the enhanced utilization of multi-purpose plants at Jambusar SEZ and commissioning of a new plant, is expected to provide further growth momentum to the exports in the coming years.

 

Research & Development

In FY19, the company successfully carried out the synthesis of 48 new development molecules. Out of these, 18 molecules were scaled up successfully for their next stage of development and 6 molecules were transferred to the next stage. The R&D team also undertook process improvements for 23 projects in order to identify cost improvement opportunities and then implement 16 such project improvements at the plant level.

 

Subsidiaries & Joint Ventures 

The details of the company’s subsidiaries and joint ventures are as follows:

  1. PI Life Science Research Ltd:

This subsidiary posted a net profit of Rs 1.9 Cr mostly on account of various R&D activities for developing new products. The company owns a stake in 2 more companies through PI Life Sciences. They are:

  • Solinnos Agro Sciences Pvt Ltd (49% Owned): Solinnos posted a profit of Rs 6 Lacs in FY19.
  • PI Kumai Pvt Ltd (50% Owned): PI Kumai posted a profit of Rs 3 Lacs in FY19.
  1. PI Japan Co Ltd:

This subsidiary posted a net profit of JPY 3.15 million in FY19.

  1. PILL Finance & Investments Ltd:

This subsidiary posted a net profit of Rs 12 Lacs in FY19.

 

Financial Performance in 2018-19

  • The company maintained its robust revenue growth with FY19 revenues growing 22% YoY to Rs 2841 Cr.

 

  • FY19 Profits have been reasonable with PAT growing 11% YoY to Rs 407.7 Cr.

 

  • The reason for this is additional deferred tax expenses of around Rs 10 Cr incurred in FY19.

 

  • The cash from operations came in at Rs 384.8 Cr with the debt to equity ratio falling to near zero.

 

  • The company saw long term borrowings drop to Rs 9.9 Cr from Rs 46.3 Cr in FY18.

 

  • The company made an addition of Rs 375 Cr in gross fixed assets for the expansion of manufacturing and Research & Development capacities.

 

 

Operational Performance in 2018-19

 

  • The company had launched a new molecule in FY19 and is expected to launch 2-3 new molecules in the current financial year.

 

  • The company has been the first to roll out a tech-enabled system for optimal availability of products in important seasons and also to drive better performance on the right solutions.

 

  • During FY19, the company had commercialized 3 new molecules and expects to commercialize at least 3-4 new molecules in the next 2 years.

 

  • The company site in Jambusar has won the Golden Peacock and Environmental Management Award for the third time.

 

  • The company commissioned a new MPP plant at Jambusar in February 2019.

 

  • The management has guided that they expect revenue growth to stay above 20% for the next 2 years. Moreover, the company expects the commercialization of the 3-4 new molecules to help maintain the export revenue growth momentum for the next 2 years.

 

  • The current order book of the company is close to Rs 135 Cr. Capex for the coming financial year is expected to be around Rs 400 to 450 Cr.

 

  • The company was working at more than 90% capacity utilization at its plants.

 

  • The company has gained clarity on the demand commitments from export clients for the near future which has driven them to the decision to ramp up capacity expansion and increase projected Capex to more than Rs 400 Cr from Rs 200 Cr guided earlier.

 

Analyst’s View

PI Industries has been one of the most consistent performers in the agrichemicals business. They have performed reasonably well despite the slowdown in domestic business from the delayed monsoons due to the export growth of the company. The company is on schedule for its massive CAPEX plans and intends to continue this yearly schedule even in FY21. Furthermore, they have indicated that they are willing to increase their CAPEX from current should the need arise or undertake any new acquisitions should such an opportunity arise. The company’s stance as such is very aggressive and it remains to be seen whether they will be able to achieve their guidance as smoothly as they have in the recent past. Nonetheless, given the company’s stellar record, their expansion into new markets for existing products and their robust future product pipeline, PI industries deserves a good look for any investor interested in investing in Agrichemicals.


 

 

Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 766.4 615.8 24.46% 827 -7.33%
PBT 131.7 104.8 25.67% 168.4 -21.79%
PAT 100.8 81.7 23.38% 124.4 -18.97%

 

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 766.2 615.9 24.40% 826.9 -7.34%
PBT 132.8 105.3 26.12% 170.1 -21.93%
PAT 101.6 82.2 23.60% 126.7 -19.81%

Detailed Results

    1. The company witnessed good revenue growth of more than 24% YoY in both standalone and consolidated terms.
    2. The profits for the company were similarly good with PBT and PAT rising 26% and 23% YoY in both standalone and consolidated terms.
    3. The EBITDA for the company grew 28% YoY and EBITDA margins stood at 20.1%.
    4. The revenues were up mainly on the back of a 59% improvement in exports.
    5. Domestic revenues declined 13% due to erratic monsoon and higher trade inventory.
    6. The company has launched a new insecticide brand called ‘Cosco SC’ in the last quarter.

Investor Conference Call Highlights

  1. The company maintains a robust outlook for FY20 with good visibility of order book.
  2. The current order book for the company stands at $1.4 billion.
  3. The CAPEX for the current year is expected to be around Rs 400-450 Cr. Out of this Rs 160 Cr has already been spent in the current quarter.
  4. The demand outlook for domestic business is expected to remain flat.
  5. The company remains confident in its export business demand despite increasing competition as they are confident in the opportunity area for their innovations.
  6. The company is slowly diversifying from pure agrochemicals to specialty chemicals and are looking to develop other lines of business as well.
  7. They also remain on the lookout for potential acquisitions and other avenues for inorganic growth.
  8. The company has quite a few products in its R&D pipeline and are also working for pilots for some of them.
  9. The company remains confident of maintaining the current revenue growth rate of more than 20% for the rest of the financial year.
  10. Despite the muted domestic demand due to late monsoons, the company expects the revenues to balance out by the end of the Kharif season and even get decent growth.
  11. The company expects to achieve single-digit growth in the domestic business in this financial year.
  12. The management states that around 75% of growth is expected from the existing molecules and it takes at least a 3-year cycle for a new molecule to start earning stable revenues for the company. Thus their business model will become more visible after 3 to 5 years.
  13. The company has also indicated that the CAPEX target for the year is not a hard set and can be revised upwards if the need arises from any source.
  14. The management expects an improvement in EBITDA margins of 50 to 100 bps on a full-year basis.
  15. The 2 new upcoming plants and the recently started plants all produce intermediates and are not involved in making pharmaceuticals.
  16. The company is on track for the rabi season and their release of the wheat herbicide as they have just received the regulatory approval for this product.
  17. The company believes that at a reasonable optimal level, any new product launched will have lower volumes at the start and within 3-4 years should reach 80%-85% capacity utilization. Only then will the company be able to achieve asset turnover of 1.25-1.5 times from the new product lines.
  18. The upcoming plants will be commissioned in Q3 and Q4 of the current financial year.
  19. For the product Nominee Gold Bispyribac Sodium, the domestic manufacturing will commence in the next 2 months.
  20. The company is also planning on setting up 2 more plants which are expected to be commissioned by the second half of FY21.
  21. The company expects finance costs to remain stable while depreciation to go up as per their capitalization plans.
  22. According to the current product pipeline, the company expects to maintain its revenue growth of >20% for the next 3 to 5 years.
  23. The company sees a positive trend in the agrichemical business worldwide. This is due to lower inventory levels and an increase in usage in Latin America countries. Developed markets scenarios remain mixed but the company is optimistic about its prospects as they are expending and registering their products in new countries each year thus expanding their export destination footprint.
  24. Currently, the non-agrichemical segment counts for <10% of revenues and the company expects to stay close to 10% as the company grows in the next 3-5 years.
  25. The company has added 4-5 clients so far this year.

Analyst’s View

PI Industries have been one of the most consistent performers in the agrichemicals business. They have performed reasonably well despite the slowdown in domestic business from the delayed monsoons due to export growth of the company. The company is on schedule for their massive CAPEX plans and intends to continue this yearly schedule even in FY21. Furthermore, they have indicated that they are willing to increase their CAPEX from current should the need arise or undertake any new acquisitions should such an opportunity arise. The company’s stance as such is very aggressive and it remains to be seen whether they will be able to achieve their guidance as smoothly as they have in the recent past. Nonetheless, given the company’s stellar record, their expansion into new markets for existing products and their robust future product pipeline, PI industries deserves a good look for any investor interested in investing in Agrichemicals.

 


Q4 2019 Updates

Financial Results & Highlights

                                                                Standalone Financials (In Crs)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 827 644.2 28.38% 722.7 14.43% 2901 2368.7 22.47%
PBT 168.4 130.7 28.84% 138.9 21.24% 534.6 463.6 15.31%
PAT 124.4 105.4 18.03% 107.3 15.94% 407.7 366.6 11.21%

 

                                                                Consolidated Financials (In Crs)
FY19 FY18 %  Change
Sales 2900 2368.9 22.42%
PBT 537.9 465.5 15.55%
PAT 410.2 367.6 11.59%

 

Detailed Results

    1. The company maintained its robust revenue growth with Q4 and FY19 revenues growing 28% and 22% YoY respectively.
    2. Profit growth for Q4 has been good with PBT and Pat growing 28% and 18% YoY.
    3. FY19 Profits have been reasonable with PBT and PAT growing 15% and 11% YoY.
    4. There was an additional deferred tax expenses of around Rs 10 Cr incurred in FY19.
    5. The company also saw long term borrowings drop to Rs 9.9 Cr from Rs 46.3 Cr in FY18.

Investor Conference Call Highlights

  1. The company had launched a new molecule in FY19 and expecting to launch 2-3 new molecules in the current financial year.
  2. The company has been the first to roll out a tech-enabled system for optimal availability of products in important seasons and also to drive better performance on the right solutions.
  3. In domestic side, the previous year was hampered mainly due to lower than expected monsoons. This caused agri-outputs to be weaker than last year. There were droughts in many states which also negatively affected the agri-chemicals business everywhere. Even then domestic volume growth was moderate.
  4. In exports, the last quarter was very good and the company continues to have a healthy order book and a good pipeline in R&D currently.
  5. During FY19, the company had commercialised 3 new molecules and expects to commercialise at least 3-4 new molecules in the next 2 years.
  6. The company is also initiating work on a new multiproduct plant and are looking at options to expand current capacity.
  7. The company’s site in Jambusar has won the Golden Peacock and Environmental Management Award for the third time. This helps outline the high standards of their corporate practices and safety.
  8. Domestic Q4 revenues have grown at a modest 4% YoY to Rs 195 Cr while export revenues in the same period have grown 39% YoY to Rs 610 Cr.
  9. For FY19, Domestic revenues grew 16% YoY while export revenues grew 29% YoY.
  10. The company has reduced its debt to almost zero and brought down average days of working capital to 101 days from 108 days in FY18.
  11. The management has guided that they expect revenue growth to stay above 20% for the next 2 years. Moreover, the company expects the commercialization of the 3-4 new molecules to help maintain the export revenue growth momentum for the next 2 years.
  12. The current order book of the company is close to Rs 135 Cr. Capex for the coming financial year is expected to be around Rs 400 to 450 Cr.
  13. The company is working at more than 90% capacity utilization at their plants. They have also gained clarity on the demand commitments from export clients for the near future which has driven them to the decision to ramp up capacity expansion and increase projected capex to more than Rs 400 Cr from Rs 200 Cr guided earlier.
  14. The management sees that the factors like raw material costs and uncertainty in China which have driven margins lower in the short term are expected to persist for a while.
  15. The company expects to maintain similar capex schedule as FY20 in FY21 and FY22. This is because they anticipated a lot of demand currently. Nonetheless, the company will keep reviewing the capex situation every 6 months so that they may stay ready to take fast actions if needed.
  16. The company currently has enough land to build an extra 3 to 4 plants over and above the one already planned.
  17. The company has listed a few reasons for their confidence in increased export client demand commitments. They are:
    • Good worldwide growth particularly in Latin America.
    • Normalization of inventory levels which had ballooned in the last 2 to 3 years.
    • Supply uncertainties from Chinese competitors.
  18. The company has 2 products that have increased sales due to uncertainty in Chinese competitors who supply a similar product.
  19. The management has stated that R&D spending has increased 15% to 20% as compared to last year.
  20. In the short term, the company does not see any operating leverage benefits but they are always on the lookout for any such developments to capitalize on.
  21. The management expects to maintain the current asset turnover of 1.5 times going forward when capex is finished.
  22. The plant operated jointly with Kumiai producing Bispyribac Sodium is expected to start production from the second season of the year.

Analyst’s View

PI Industries have been one of the most consistent performers in the agrichemicals business. They have performed reasonably well on the domestic front despite the slowdown in the Indian agricultural market last year. Moreover, the export growth of the company has been phenomenal and is expected to persist in the near future. The company is planning to undertake some massive capex to be able to service the rising demand from export commitments. However, achieving the current rate of sales growth on a higher base could be a challenge for the company going forward. Nonetheless, PI Industries is a very good bet on the agrichemicals segment particularly with worldwide agriculture yields to rise in the near future and the expectation of a normal monsoon on the domestic front.

 


Q3 2019 Updates

Financial Results & Highlights

Standalone Financials (In Crores)

Q3FY19 Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18 9M% Change
Sales  722.7 553.8  30.5% 735.4 -1.73% 2073.9 1724.5  20.26%
PBT 138.9 98.3  41.3% 122.8  13.11% 366.2 332.9  10.03%
PAT  107.3 80.6  33.12% 94.4  13.66% 283.3 261.1    8.51%

Detailed Results

    1. The company has grown at a phenomenal rate of 32% YoY in revenues this quarter.
    2. The PBT and PAT for the current quarter are up 41% and 33% YoY respectively.
    3. Margins for the quarter were at 21% owing to a better product mix and improved realisation and operating leverage benefit.
    4. The cash surplus stood at Rs. 204 Cr as on 31st Dec ’18.
    5. 9M figures also showed decent growth with revenues up 20.26% as compared to last year while PBT and PAT growth stood at 10% and 8.5% respectively.
    6. The company has recently commissioned a new multi-product plant and commenced construction of 2 more plants.

Investor Conference Call Highlights

  1. Exports saw a growth of 40% YoY. This was result of global surge in demand for PI’s products.
  2. The domestic business grew 10% YoY despite softer demand due to poor rains in rabi season and lower agri-produce prices.
  3. Balance sheet has been further strengthened with almost 0 debt on the books now.
  4. Domestic revenue stood at 23% of total revenues and exports stood at 77% of total revenues.
  5. The management expects the company to maintain an annual growth rate of more than 20% in terms revenues for many years to come.
  6. The two new plants should be fully operational by the first quarter of 2020.
  7. The company is planning for a capex schedule of Rs 300-350 Cr per year for the next few years. Most of this would be used to construct the new plants mentioned above.
  8. The asset turnover is expected to stay table at 1.6 for the near future.
  9. The export demand upsurge is mainly attributed to the scale up of existing products that were introduced a few quarters ago.
  10. Currently the company has an order book of size $ 1.3 billion.
  11. Majority of revenues for the company comes from paddy.
  12. The company has reduced dependence on Chinese raw material supply to less than 20% in the current quarter from 40% two years ago and is expected to continue on this trend. They are also trying to fulfil their raw material demand using domestic supply sources and other Asian supply sources as much as possible.
  13. The management guides that margins should stay at 21% in the coming year.
  14. The domestic business has grown around 20% in 9M’19 despite unfavourable monsoon and general agro climatic conditions. This highlights the resilience of the business process and their success in their efforts to streamline their operations and achieve better customer retention.
  15. The company expects to generate enough cash in the coming years to be able to internally fund the capex schedule mentioned above.
  16. The company is waiting for regulatory approval to launch their wheat herbicide.
  17. The company should have Rs 8 to 10 Cr in forex gains this quarter.
  18. The company expects the existing product portfolio to be responsible for more than 80% of revenues in the coming 2 years.
  19. The company is also increasing investment into R&D and on building human resources.
  20. The management expects the domestic business to growing more than 10% per year in the coming few years.

Analyst’s View

PI Industries has been a consistent growth story in the agrichemicals business for many years now. Their wide export reach coupled with their resilient domestic business which has seen them grow 10% this 9 months despite an unfavourable monsoon and poor rabi rains have emphasized the consistency and reliability of their business. The company is also on a capex schedule which will add extra capacity in the coming years. Thus PI industries seems to be well on their way to comfortably be able to maintain their target growth rate of more than 20% each year for many years to come. Thus the company presents itself as a good opportunity for those betting on rising agriculture and agrichemicals both in India and abroad. However, valuation of the stock is a little too stretched at the moment. So, future returns from here on will be dictated by earnings trajectory going forward.

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