1QFY17 Result Review HOLD PI Industries Ltd. Better performance continued, valuations stretch; maintain HOLD PI Industries Ltd (PI) reported strong 1QFY17 result with a revenue growth of ~15.4%/12.9% YoY/QoQ, respectively, at Rs 6.8bn led by export/domestic business growth of 20%/10%, respectively. EBITDA stood at Rs.1.6bn YoY/QoQ, a growth of 23.3%/55.8% led by better product mix. EBITDA margin expanded by ~154 bps YoY to 24.2%. Revenue growth backed by CSM business: In 1QFY17 the company posted revenue of Rs 6.8bn, a YoY/QoQ growth of ~15.4%/12.9%, respectively, mainly led by 20% growth in the exports revenue. We expect revenue to grow at a CAGR of ~20% over FY16p-18e on account of abovenormal expectation of monsoon, strong CSM order book. CSM business Update: In recent past, PI witnessed some pressure in CSM business due to softening in global markets mainly because of erratic atmosphere. PI has not seen a major change in CSM business environment. However, the company has witnessed 20% growth with the revenue contribution of Rs 34bn in 1QFY17. Currently, CSM business has 23 product molecules. The total order book for the CSM business stood at $850 mn. The company expects CSM business to grow by 18-20% in FY17. Also, PI is venturing into pharmaceutical molecules for CSM business. Domestic agri-input business: PI has seen 10% growth on its domestic agri-input business despite a delayed onset of rainfall. PI is hopeful to get better traction from newline of products like Vibrant, Biovita, Osheen, Keefun and Legacee. Sector: AGRI 4 th August, 2016 Price Price Target Up/Down (%) 777 Rs. 734-6 Bloomberg Code PI IN Reuters Code PIIL.BO. Share Holding (%) Promoters As on 30th June, 2016 51.72 FII's 16.97 DII's 12.05 Stock Data Nifty 8,545 Sensex 27,698 52 week high/low 803/495 Maket Cap (Rs. bn) 108 Price performance (%) 1M 3M 6M 1Y Absolute 9.6 25.5 19.3 19.2 Relative to Sensex 8.0 15.0 5.3 20.4 EBITDA growth seen at 23.3% YoY: 1QFY17 EBITDA stood at Rs. 1.6bn a YoY/QoQ growth of 23.3%/55.8% respectively. EBITDA margin expanded by 154bps mainly due to better product mix (higher contribution of branded products, moderating input prices and higher contribution from CSM business). We expect EBITDA margin expansion of 105bps over FY16p-18e led by better product mix, higher contribution from Jambusar plant and higher contribution from CSM business. Valuation: The stock has recently run-up by ~23% in last three months on account of good set of 1QFY17 result and management commentary. However we feel that the valuations are little stretched at 23x PE on EPS FY18e, therefore we recommend to book the profits at this stage. None the less, we remain bullish on the sector and the company from medium to long term perspective. The stock currently trades at 30.5x/24.3x FY17e/FY18e EPS. We expect the company s revenue/earnings to grow at a CAGR of ~20%/22% respectively over FY16p-18e. We maintain our HOLD rating with a price target of Rs 734. (23x PE on EPS FY18e). Relative Performance 200 150 100 50 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 BSE Sensex Source:-Bloomberg Feb-16 Mar-16 Apr-16 May-16 PI Industries Jun-16 Jul-16 Exhibit 1: Financial summary (Rs mn) Y/E March FY14 FY15 FY16p* FY17e FY18e Net sales 15955 19403 20968 24957 30071 Growth (%) 38.6 21.6 8.1 19.0 20.5 Operating margin (%) 18.1 19.3 20.7 21.3 21.8 PAT 1881 2476 3153 3472 4346 Adjusted PAT 2292 3020 3472 4346 20 EPS (Rs) 13.8 16.8 22.2 25.5 31.9 Growth (%) 93.5 21.8 31.8 15.0 25.2 P/E(x) 9.4 46.1 35.0 30.5 24.3 ROE (%) 30.8 28.9 29.3 25.9 25.4 ROCE (%) 23.1 24.8 26.0 23.4 24.1 Debt/equity (x) 0.2 0.1 0.1 0.0 0.0 P/Bv (x) 2.6 11.8 9.0 7.0 5.5 Vaishali Parkar Kumar vaishali.parkar@bobcaps.in +91 22 6138 9382
Exhibit 2: 4QFY16 Financial (Rs Mn) 1QFY17 1QFY16 YoY (%) 4QFY16 QoQ (%) Net Sales 6,834 5,921 15.4 6,052 12.9 Raw Material Cost 3,331 3,130 6.4 3,180 4.7 %of net sales 49 53 53 Staff Cost 558 416 34.1 569-2.0 %of net sales 8.2 7 9 SG&A 1,290 1,031 25.1 1,240 4.0 %of net sales 18.9 17 20 EBITDA 1,656 1,343 23.3 1,063 55.8 %of net sales 24.2 22.7 17.6 Depreciation 178 115 55.3 170 4.9 %of net sales 2.6 1.9 2.8 EBIT 1,478 1,229 20.3 893 65.5 %of net sales 21.6 20.8 14.8 Interest/(Interest income) 16 27-41.0 26-38.7 Other Income 113 86 31.0 89 26.3 PBT 1,575 1,288 22.3 956 64.7 Provision for tax(including deferred tax) -306-429 -28.7-14 2,167.4 Recurring PAT 1,269 859 47.8 943 34.6 Exceptional Items (Loss)/Gain 0 0 0 Reported PAT 1,269 859 47.8 943 34.6 EPS (Rs) 10.6 7.1 48.7 8.1 30.0 Source: Company, BOBCAPS Management Discussion: 1) Total revenue to grow at ~20% in FY17, 2) expects to launch 2-3 products in domestic agri input segment and CSM business 3) capex of Rs 4bn over 2 years, 4) tax rate to remain at 22-23% in FY17 led by Jambusar plant in SEZ and investment in R&D, 5) PI to introduce a new rice herbicide named, Legacee during Kharif 2016, 6) ~70% in- licensing products contribute in domestic agri-input business. Equity research 2
Financials Exhibit 3: Income Statement Net sales 15,955 19,403 20,968 24,957 30,071 growth (%) 38.6 21.6 8.1 19.0 20.5 COGS 11,083 11,154 11,585 14,339 17,127 Staff Cost 1,108 1,413 1,875 2,321 2,797 R&D Cost 79 194-250 301 SG&A Cost 795 2,898 3,162 2,737 3,298 EBITDA 2,890 3,744 4,346 5,310 6,548 growth (%) 60 30 16 22 23 Depreciation 316 498 543 858 990 EBIT 2,574 3,246 3,803 4,451 5,559 Other income 158 237 216 227 238 Interest paid 118 97 95 48 2 Extraordinary/Exceptional items (1) 184 134 - - PBT 2,614 3,386 3,924 4,630 5,795 Tax 733 1,094 904 1,157 1,449 Minority interest - - - - - PAT 1,881 2,476 3,153 3,472 4,346 Non-recurring items 1 (184) (134) - - Adjusted PAT 1,881 2,292 3,020 3,472 4,346 growth (%) 93 22 32 15 25 Exhibit 4: Balance Sheet Cash & Bank balances 438 341 561 1,041 2,261 Other Current assets 6,931 8,899 9,266 9,663 11,475 Investments 5 5 5 5 5 Net fixed assets 5,691 6,659 9,463 10,605 11,615 Goodwill - - - - - Other non-current assets 162 428 495 495 495 Total assets 13,227 16,332 19,790 21,809 25,851 Current liabilities 4,377 6,105 6,142 5,449 6,067 Borrowings 1,361 815 1,250 520 20 Other non-current liabilities 545 448 679 679 679 Total liabilities 6,282 7,367 8,072 6,648 6,766 Share capital 136 137 137 137 137 Reserves & surplus 6,809 8,828 11,581 15,024 18,947 Shareholders' funds 6,945 8,965 11,718 15,161 19,084 Total liabilities 13,227 16,332 19,790 21,809 25,851 Equity research 3
Exhibit 5: Cash Flow Profit after tax 1,881 2,476 3,153 3,472 4,346 Depreciation 165 498 543 858 990 Chg in working capital (63) (534) (360) (1,091) (1,193) Total tax paid (45) (184) (134) - - Cash flow from operations 1,937 2,256 3,203 3,240 4,143 Capital expenditure (470) (1,465) (3,347) (2,000) (2,000) Change in investments 0 (0) - - - Cash flow from investments (470) (1,465) (3,347) (2,000) (2,000) Free cash flow 1,466 790 (144) 1,240 2,143 Issue of shares 1 0 1 - - Net inc/dec in debt (937) (546) 436 (730) (500) Dividend (incl. tax) (159) - (307) (338) (423) Other financing activities (94) (525) 101 309 (0) Cash flow from financing (1,190) (1,070) 230 (760) (923) Inc/(Dec) in Cash & Bank bal. 277 (280) 86 480 1,220 Exhibit 6: Ratio analysis Y/E Mar F14 F15 F16p* F17e F18e Per share data (Rs) EPS 13.8 16.8 22.2 25.5 31.9 CEPS 16.1 20.5 26.2 31.8 39.2 DPS 2.3 1.8 2.3 2.5 3.1 BV 50.9 65.7 86.0 111.3 140.1 Profitability ratios (%) Gross margins 23.6 35.2 35.8 33.2 33.7 Operating margins 18.1 19.3 20.7 21.3 21.8 Net margins 11.8 11.8 14.4 13.9 14.5 Valuation ratios (x) PE 9.4 46.1 35.0 30.5 24.3 P/BV 2.6 11.8 9.0 7.0 5.5 EV/EBITDA 2.1 6.3 5.4 4.4 3.6 EV/Sales 0.4 1.2 1.1 0.9 0.8 RoE 30.8 28.9 29.3 25.9 25.4 RoCE 23.1 24.8 26.0 23.4 24.1 RoIC 22.4 24.1 26.3 24.5 26.5 Equity research 4
Sales and Dealing Team Anil Pawar Senior Manager Dealing +91-22-6138 9325 anil@bobcaps.in Sachin Sambare Manager Dealing +91-22-61389331/33 sachin.sambare@bobcaps.in Ashwin Patil Executive Dealing +91-22-6138 9326 ashwin@bobcaps.in Research Team Sectors Vaishali Parkar Kumar Analyst Agri, Auto, Defence +91-22-6138 9382 vaishali.parkar@bobcaps.in Padmaja Ambekar Analyst Auto Ancillary, Infra, Midcap +91-22-6138 9381 padmaja.ambekar@bobcaps.in Akanksha Tripathi Analyst Footwear, FMCG +91-22-6138 9383 akanksha.tripathi@bobcaps.in Rishabh Mehta Analyst Textile, FMCG, Infra, Chemicals +91-22-6138 9384 rishabh.mehta@bobcaps.in Hareesha Kakkera Associate Bio Tech, Pharma +91-22-6138 9351 hareesha@bobcaps.in Retail Dealing Team Kshitij Kelkar +91-22-61389386 kshitij@bobcaps.in Kiran Sawardekar +91-22-61389385 kiran@bobcaps.in Nisha Rasal +91-22-61389385 nisha@bobcaps.in Debt Dealing Team Minaxi Tiwari +91-22-61389336 minaxi.tiwari@bobcaps.in UTI Tower, 3rd Floor, South Wing, Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051. 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