Robust  Dec  quarter  margin  a  shot  in  the  arm for  PI Industries

The agrochemicals company’s earnings have been strong with Ebitda (earnings before interest, taxes, depreciation and amortization) margin rising by nearly 390 basis points (bps) year-on-year to 25.7%, coming in at a multi-quarter high. One basis point is 0.01%. A favourable product mix and operating leverage helped margin performance. With stable commodities prices and better operating efficiencies, the management expects to maintain the Ebitda margin at 23-24%.

View Full Image

Prashant Biyani, vice president, institutional equity, Elara Capital, said, “While we are expecting 24% margin band to be maintained, it could see a marginal improvement in H2FY24. But since many geographies are having surplus channel inventory globally, it has potential to impact PI Industries business in FY24, and we may revise the estimates at that time.” The management expects to maintain revenue growth of over 20%. Here, the launch of new products should help. In the nine-month ended December, PI Industries has commercialized three new products in its exports business and seven in domestic agri brands. In Q3, the company derived about 82% of its revenue from exports, which saw a growth of 23% y-o-y. This was driven by 9% volume growth and 14% growth coming from price, currency and favourable product mix. The segment has seen an uptick in custom synthesis manufacturing (CSM) exports order book to about $1.8 billion, which offers good visibility. Domestic revenues were subdued, growing by just about 2% due to adverse weather conditions and higher channel inventory. Overall revenue growth stood at 19% to ₹1,613 crore, missing analysts’ expectations. However, better margin performance meant Ebitda growth was relatively higher at 40%.

Meanwhile, the company has guided for capex of ₹500 crore and around ₹800 crore for FY23 and FY24, respectively. Even so, the company is evaluating a pharma acquisition, which analysts point could be an overhang on the stock in the near-term.

While the stock has gained since the results, year-to-date returns are broadly flattish.Valuations appear steep. The stock trades at nearly 36 times estimated earnings for FY24, according to Bloomberg data. “We are enthused by strong operating leverage and solid bottom-line growth in the near term while pharma acquisition remains a key overhang,” said a report by Nuvama Research.