RESULTS REVIEW 1QFY19 07 AUG 2018 PI Industries INDUSTRY AGROCHEMICAL CMP (as on 07 Aug 2018) Rs 766 Target Price Rs 900 Nifty 11,389 Sensex 37,666 KEY STOCK DATA Bloomberg PI IN No. of Shares (mn) 138 MCap (Rs bn) / ($ mn) 106/1,545 6m avg traded value (Rs mn) 57 STOCK PERFORMANCE (%) 52 Week high / low Rs 1,035/674 3M 6M 12M Absolute (%) (12.4) (6.6) 2.8 Relative (%) (19.3) (17.1) (13.9) SHAREHOLDING PATTERN (%) Promoters 51.43 FIs & Local MFs 17.81 FPIs 15.18 Public & Others 15.58 Source : BSE Archit Joshi archit.joshi@hdfcsec.com +912261717316 Nilesh Ghuge nilesh.ghuge@hdfcsec.com +912261717342 First among equals PI Industries (PI) 1QFY19 Sales/EBITDA/PAT are not comparable on a YoY/QoQ basis due to change in the accounting standards to modified retrospective approach. The numbers hereon till 4QFY19 will not be comparable on a YoY basis. Though the gross margins were under pressure due to supply constraints and China s situation, PI has been trying to derisk its procurement by moving away from the Chinese sources. We expect margins to normalize going forward. PI Industries is currently operating its plants at a ~95% capacity utilization, the company has thus planned a capex of Rs 2.5 bn for FY1921E. The multi purpose plants are expected to generate 1.5x asset turns at peak utilizations. PI s biggest hurdle will be maintaining its market share in Nominee Gold (rice herbicide), as Gharda Chemicals and Insecticides India have launched the same product. Sowing in Rice and Cotton is down by 6.2% and 4.0% YoY respectively. PI s CSM business was muted in the last two years, led by weakness in BUY the global Agrochemical market. We expect the scenario to improve in 2HFY18. PI has a strong CSM order book of US$ 1.1 bn and an execution time frame of 35 years. Commercialization of 34 molecules every year is likely to propel the domestic growth. PI also has a strong capex plan of ~Rs 2.5 bn (asset turns of 1.5x) and is expected to add 2 multipurpose plants by end of FY19. We remain positive on PI and Maintain BUY with a TP of Rs 900/sh (25x Jun 20EPS). Highlights of the quarter Custom synthesis: The order book remains strong at USD 1.1bn Domestic agriinputs: Revenues registered a 23.0% growth YoY. The company has already commercialized one molecule in Domestic agriinputs segment and is likely to launch 34 more molecules in FY19. Nearterm outlook: Monsoon is key for the Indian agricultural sector, we anticipate a PAT growth of 12.9% in FY19E. Financial Summary (Standalone) (Rs mn) 1QFY19* 1QFY18 YoY (%) 4QFY18 QoQ (%) FY18 FY19E FY20E FY21E Net Sales 6,056 5,532 9.5 6,251 (3.1) 20,963 22,771 25,155 28,206 EBITDA 1,181 1,304 (9.5) 1,347 (12.3) 4,312 4,934 5,537 6,514 APAT 817 1,001 (18.4) 1,054 (22.5) 3,116 3,676 4,147 4,818 Diluted EPS (Rs) 5.9 7.3 (18.4) 7.6 (22.5) 22.5 26.6 30.1 34.9 P/E (x) 34.0 28.8 25.5 21.9 EV / EBITDA (x) 24.8 20.9 18.8 15.7 RoE (%) 30.1 20.7 19.8 19.4, 1QFY19 numbers are not comparable on YoY/QoQ basis due to change in accounting method. HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
Due to changes in accounting standards, an impact of Rs 740mn/Rs 300mn/Rs 210 mn was seen on Sales/EBITDA/PAT. Gross margins fell due to inability to pass on RM inflation, PI Industries is now looking at other sourcing options moving away from the Chinese sources. Quarterly Financials Snapshot (Standalone) (Rs mn) 1QFY19 1QFY18 YoY (%) 4QFY18 QoQ (%) Net Sales 6,056 5,532 9.5 6,251 (3.1) Material Expenses 3,235 2,729 18.6 3,227 0.3 Employee Expenses 660 600 10.1 683 (3.4) Other Expenses 980 899 9.0 994 (1.4) EBITDA 1,181 1,304 (9.5) 1,347 (12.3) Depreciation 220 197 11.7 212 3.7 EBIT 961 1,107 (13.2) 1,135 (15.3) Other Income (Including EO Items) 102 126 (18.9) 191 (46.5) Interest 17 14 22.3 18 (7.6) PBT 1,046 1,219 (14.2) 1,307 (20.0) Tax 229 218 5.2 253 (9.4) RPAT 817 1,001 (18.4) 1,054 (22.5) EO (Loss) / Profit (Net Of Tax) APAT 817 1,001 (18.4) 1,054 (22.5) AEPS (Rs/sh) 5.9 7.3 (18.4) 7.6 (22.5), 1QFY19 numbers are not comparable on YoY/QoQ basis due to change in accounting method. Margin Analysis (% of Net Sales) 1QFY19 1QFY18 YoY (bps) 4QYF18 QoQ (bps) Material Expenses as % of Net Sales 53.4 49.3 409 51.6 180 Employee Expenses as % of Net Sales 10.9 10.8 6 10.9 (3) Other Expenses as % of Net Sales 16.2 16.3 (7) 15.9 28 EBITDA Margin (%) 19.5 23.6 (408) 21.5 (205) Net Profit Margin (%) 13.5 18.1 (461) 16.9 (337) Tax Rate (%) 21.9 17.9 404 19.3 256, 1QFY19 numbers are not comparable on YoY/QoQ basis due to change in accounting method. Page 2
Quarterly Performance Net Sales And Growth Order Book And Quarterly Revenue Sales growth in 2HFY19 is expected to be better than 1HFY19. Order book in CSM has remained at the same level, at US$ 1.1 bn. 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Net Sales Rs mn 1Q FY15 3QFY15 1Q FY16 3QFY16 1QFY17 Growth YoY (RHS) % 3QFY17 1QFY18 3QFY18 1QFY19 60 50 40 30 20 10 (10) (20) 1,400 1,200 1,000 800 600 400 200 Order Book (US$ mn) US$ mn Quarterly Revenue (US$ mn), RHS US$ mn 1Q FY15 2QFY15 3QFY15 4QFY15 1Q FY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 80 70 60 50 40 30 20 10 Execution time frame for the current order book is between 35 years. Annual CSM and Domestic business Agriinputs EBIDTA Margin (RHS) 100% 80% Custom synthesis 30% 25% Return Ratios ATR (RHS) RoCE RoE 40.0 X 35.0 30.0 2.5 2.0 60% 40% 20% 20% 15% 10% 5% 25.0 20.0 15.0 10.0 5.0 1.1 1.1 1.5 1.0 0.5 0% 0% FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Page 3
Assumptions FY15 FY16 FY17 FY18 FY19E FY20E FY21E We are expecting a growth of 12/14/13% in FY19/FY20/FY21E within the CSM segment as there are execution risks despite a healthy order book. Revenues (Rs mn) Agriinput 7,782 8,232 8,637 8,705 9,401 10,247 11,221 Custom Synthesis 11,615 12,735 14,128 14,066 15,753 17,959 20,294 Total 19,397 20,967 22,765 22,771 25,155 28,206 31,515 YoY Growth (%) Agriinput 15.9% 5.8% 4.9% 0.8% 8.0% 9.0% 9.5% Custom Synthesis 25.7% 9.6% 10.9% 0.4% 12.0% 14.0% 13.0% Total 21.6% 8.1% 8.6% 0.0% 10.5% 12.1% 11.7% The domestic business is expected to grow at 89% on the back of launch of new 34 molecules every year. We remain watchful of the CSM segment as it has been under pressure since the last few quarters and do not change our estimates. EBIDTA Margin (%) 19.5% 20.5% 23.9% 21.6% 22.0% 23.1% 23.2% Agriinput 17.2% 19.0% 18.7% 16.6% 17.0% 18.0% 18.0% Custom Synthesis 21.0% 21.4% 27.0% 24.7% 25.0% 26.0% 26.0% ource: Company, HDFC sec Inst Research Change In Estimates (Rs mn) FY19E Old FY19E New % Ch Net Sales 25,155 25,155 EBIDTA 5,537 5,537 APAT 4,147 4,147 AEPS (Rs/sh) 30.1 30.1 Source: HDFC sec Inst Research (Rs mn) FY20E Old FY20E New % Ch Net Sales 28,206 28,206 EBIDTA 6,514 6,514 APAT 4,818 4,818 AEPS 34.9 34.9 Page 4
Peer Set Comparison Mcap (Rs bn) CMP (Rs/sh) Rating* TP (Rs/sh)* EPS (Rs/share) P/E (x) ROE (%) FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E UPL 330 647 BUY 700 44.8 53.6 60.7 14.4 12.1 10.7 22.7 22.6 21.5 PI Industries 106 766 BUY 900 30.1 34.9 39.1 26.3 22.6 20.2 19.8 19.4 18.4 Rallis India 40 204 BUY 275 9.8 11.8 13.9 20.8 17.3 14.6 15.6 17.4 18.4 Dhanuka Agritech 30 606 BUY 676 28.0 30.7 35.0 21.6 19.7 19.3 20.1 18.9 18.5 Insecticides India 16 790 BUY 914 45.1 53.8 59.3 17.5 14.7 13.3 15.8 16.1 15.3, *As per last report published Page 5
Income Statement (Consolidated) (Rs mn) FY17 FY18 FY19E FY20E FY21E Net Revenues 22,768 22,771 25,155 28,206 31,515 Growth (%) 8.6 0.0 10.5 12.1 11.7 Material Expenses 11,632 11,690 12,942 14,348 16,103 Employee Expenses 2,226 2,432 2,651 2,973 3,151 Other Operating Expenses 3,378 3,715 4,025 4,372 4,964 EBIDTA 5,533 4,934 5,537 6,514 7,296 EBIDTA Margin (%) 24.3 21.7 22.0 23.1 23.2 EBIDTA Growth (%) 28.3 (10.8) 12.2 17.7 12.0 Depreciation 730 830 855 904 988 EBIT 4,802 4,104 4,682 5,610 6,308 Other Income (Including EO Items) 366 603 672 595 627 Interest 72 53 37 28 19 PBT 5,096 4,653 5,316 6,177 6,915 Tax 501 979 1,170 1,359 1,521 Share Of Profit/(loss) Of Associate (1) 2 RPAT 4,594 3,676 4,147 4,818 5,394 EO (Loss) / Profit (Net Of Tax) APAT 4,594 3,676 4,147 4,818 5,394 APAT Growth (%) 47.5 (20.0) 12.8 16.2 11.9 AEPS 33.2 26.6 30.1 34.9 39.1 AEPS Growth (%) 47.5 (19.9) 12.9 16.2 11.9 Balance Sheet (Consolidated) (Rs mn) FY17 FY18 FY19E FY20E FY21E SOURCES OF FUNDS Share Capital 138 138 138 138 138 Reserves 16,134 19,111 22,594 26,748 31,478 Total Shareholders Funds 16,272 19,248 22,731 26,886 31,616 Longterm Debt 830 463 363 263 163 Shortterm Debt Total Debt 830 463 363 263 163 LT Provisions & Others 399 416 416 416 416 Net Deferred Tax Liability (198) (267) (267) (267) (267) TOTAL SOURCES OF FUNDS 17,303 19,861 23,243 27,298 31,928 APPLICATION OF FUNDS Net Block 9,450 9,977 9,884 11,230 12,492 CWIP 773 899 2,458 2,458 2,458 Investments 9 12 12 12 12 LT Loans & Advances 28 39 39 39 39 Other Noncurrent Assets 377 453 453 453 453 Total Noncurrent Assets 10,637 11,379 12,846 14,192 15,453 Inventories 4,320 4,520 5,169 5,796 6,476 Debtors 4,237 5,268 5,996 6,723 7,512 Cash & Equivalents 2,151 2,902 1,939 3,795 6,239 Other Current Assets 1,472 1,928 3,861 3,861 3,861 Total Current Assets 12,179 14,618 16,964 20,174 24,087 Creditors 2,878 3,687 4,118 4,620 5,164 Other Current Liabilities & Provns 2,636 2,450 2,449 2,449 2,449 Total Current Liabilities 5,513 6,136 6,567 7,068 7,612 Net Current Assets 6,666 8,481 10,398 13,106 16,475 TOTAL APPLICATION OF FUNDS 17,303 19,861 23,243 27,298 31,928 Page 6
Cash Flow (Consolidated) (Rs mn) FY17 FY18 FY19E FY20E FY21E Reported PBT 5,096 4,653 5,316 6,177 6,915 Nonoperating & EO items (366) (603) (672) (595) (627) Interest expenses 72 53 37 28 19 Depreciation 730 830 855 904 988 Working Capital Change (1,783) (1,204) (2,880) (853) (924) Tax Paid (501) (979) (1,170) (1,359) (1,521) OPERATING CASH FLOW ( a ) 3,248 2,751 1,487 4,302 4,850 Capex (1,499) (1,482) (2,321) (2,250) (2,250) Free cash flow (FCF) 1,749 1,269 (834) 2,052 2,600 Investments (5) (3) Nonoperating Income 366 603 672 595 627 Others 5 3 INVESTING CASH FLOW ( b ) (1,133) (879) (1,649) (1,655) (1,623) Debt Issuance/(Repaid) (415) (366) (100) (100) (100) Interest Expenses (72) (53) (37) (28) (19) FCFE 1,263 850 (971) 1,924 2,481 Share Capital Issuance Dividend (562) (663) (664) (664) (664) Others FINANCING CASH FLOW ( c ) (1,049) (1,082) (801) (792) (783) NET CASH FLOW (a+b+c) 1,067 790 (963) 1,856 2,444 EO Items, Others 526 (38) Closing Cash & Equivalents 2,151 2,902 1,939 3,795 6,239 Key Ratios FY17 FY18 FY19E FY20E FY21E PROFITABILITY (%) GPM 48.9 48.7 48.5 49.1 48.9 EBITDA Margin 24.3 21.7 22.0 23.1 23.2 EBIT Margin 21.1 18.0 18.6 19.9 20.0 APAT Margin 20.2 16.1 16.5 17.1 17.1 RoE 32.8 20.7 19.8 19.4 18.4 Core RoCE 30.5 19.5 18.4 19.0 19.5 RoCE 30.2 20.0 19.4 19.2 18.3 EFFICIENCY Tax Rate (%) 9.8 21.0 22.0 22.0 22.0 Asset Turnover (x) 1.5 1.2 1.2 1.1 1.1 Inventory (days) 69 72 75 75 75 Debtors (days) 68 84 87 87 87 Other Current Assets (days) 24 31 56 50 45 Payables (days) 46 59 60 60 60 Other Current Liab & Provns (days) 42 39 36 32 28 Cash Conversion Cycle (days) 91 98 102 102 102 Debt/EBITDA (x) 0.1 0.1 0.1 0.0 0.0 Net D/E (0.1) (0.1) (0.1) (0.1) (0.2) Interest Coverage 71.7 88.5 143.9 220.1 361.2 PER SHARE DATA EPS (Rs/sh) 33.2 26.6 30.1 34.9 39.1 CEPS (Rs/sh) 38.5 32.6 36.3 41.5 46.3 BV (Rs/sh) 117.7 139.4 164.8 195.0 229.3 DPS (Rs/sh) 3.4 4.0 4.0 4.0 4.0 VALUATION P/E 23.8 29.7 26.3 22.6 20.2 P/BV 6.7 5.7 4.8 4.1 3.4 EV/EBITDA 19.5 21.6 19.4 16.2 14.1 OCF/EV (%) 3.0 2.6 1.4 4.1 4.7 FCF/EV (%) 1.6 1.2 (0.8) 1.9 2.5 FCFE/MarCap (%) 1.2 0.8 (0.9) 1.8 2.3 Dividend Yield (%) 0.4 0.5 0.5 0.5 0.5 Page 7
RECOMMENDATION HISTORY 1,100 1,050 1,000 950 900 850 800 PI Inds TP Date CMP Reco Target 14Aug17 712 BUY 950 28Oct17 755 BUY 830 10Jan18 985 NEU 953 6Feb18 822 NEU 848 13Apr18 850 NEU 870 16May18 812 NEU 885 9Jul18 795 BUY 874 7Aug18 766 BUY 900 750 700 Rating Definitions 650 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period Aug17 Sep17 Oct17 Nov17 Dec17 Jan18 Feb18 Mar18 Apr18 May18 Jun18 Jul18 Aug18 NEUTRAL : Where the stock is expected to deliver ()10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than ()10% returns over the next 12 month period Page 8
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