PI Industries Ltd Stock Research Report

Resilient Performance Amidst Global Uncertainties

Est. Vs. Actual for Q2FY25: Revenue: INLINE; EBITDA: BEAT; PAT: BEAT

Change in Estimates post Q2FY25

FY25E/FY26E: Revenue: -5%/-6%; EBITDA: -5%/-8%; PAT: -6%/-8%

Recommendation Rationale

1. Recovery expected in the domestic segment, exports may soften:

During the quarter, PI witnessed a 6% YoY reduction in the domestic segment. However, given the positives on reservoirs and traction in new products, it expects double-digit growth in domestic revenue during H2. On the other hand, while the company reported a 12% growth in agchem exports, it anticipates some softness in the agchem export segment due to continued global industry challenges and resulting uncertainties. Accordingly, the management has lowered its expectations for export growth to single-digit or near double-digit growth for H2.

• Lowering guidance to high single-digit revenue growth for FY25:

The company delivered a 5% YoY revenue growth during the quarter, despite adverse market conditions. However, the management mentioned that global players are watching inventory levels and are not willing to commit to spending at this moment. Additionally, a major customer of the company has filed for bankruptcy, prompting the company to hold on to the inventory meant for them. Accordingly, the management has lowered its overall revenue growth guidance from 15% to high single-digit or early double-digit growth for FY25.

• Long-term levers intact:

High inventory with innovators negatively impacted revenues in the Pharma segment during the quarter. However, the management mentioned that the integration of CRO, CDMO, and API platforms is on track and progressing well, with expected constant order visibility and volume pickup in H2. The company is also confident of growth coming from the commercialization of new molecules and significant traction in newly launched products.

Sector Outlook: Cautiously Positive

Company Outlook: The management has guided for high single-digit revenue growth, compared to the earlier guidance of 15%, as the global industry landscape continues to be challenging. However, it has maintained the guidance of 25-26% EBITDA margins for FY25, driven by an improving product mix and disciplined working capital management. PI has a robust pipeline of over 20 products at different stages of development and registration. It plans to spend (Capex) Rs 800-900 Cr for FY25.

Current Valuation: 28x FY27E (Earlier: 30x FY26E)

Current TP: Rs 4,880/share (Earlier TP: Rs 4,980/share)

Recommendation: We upgrade our rating on the stock from HOLD to BUY considering attractive valuations post the recent correction in stock price while long-term growth prospects remain intact.

PI Industries Ltd Stock Research Report

Financial Performance:

The Company’s consolidated revenues stood at Rs 2,221 Cr, reflecting a 5% YoY and 7% QoQ growth, in line with estimates. Gross margins improved to 51.8%, up from 46.6% in Q2FY24. The company reported EBITDA of Rs 628 Cr, a 14% YoY and 8% QoQ increase, surpassing estimates by 5%. EBITDA margin came in at 28.3%, compared to 26.0% in Q2FY24 and 28.2% in Q1FY25. The improvement in gross margins and EBITDA was primarily due to a favourable product mix and operating leverage. PAT stood at Rs 508 Cr, up 6% YoY and 13% QoQ, exceeding the estimate of Rs 471 Cr

Valuation & Recommendation:

PI remains focused on exploring growth opportunities while improving profitability through a better product mix and disciplined working capital management. Despite current industry-related challenges and high inventory levels with innovators, we expect revenue growth to accelerate as newer products and the Pharma business contribute more significantly in the coming years. Consequently, we roll forward our estimates to FY27E and value the stock at 28x FY27E. We upgrade our rating on the stock to BUY with a revised target price of Rs 4,880 per share, implying an upside of 15% from the CMP.

Key Financials (Consolidated)