Buy PI Industries, target price Rs 1,835: Motilal Oswal

Motilal Oswal has given a buy rating to PI Industries with a target price of Rs 1,835. The share price of the company moved up by 0.07 per cent from its previous close of Rs 1593.85. The last traded stock price is Rs 1,595.

In the fourth quarter of FY20, the company’s revenue was Rs 8.6 billion against brokerage estimate of Rs 9.6 billion, up 6 per cent year on year (including Isagro’s performance, which was absent in the base quarter). EBITDA stood at Rs 1.86 billion against brokerage estimate of Rs 2.08 billion), up 7 per cent year on year; EBITDA margins expanded 20bp year on year to 21.8 per cent against brokerage estimate of 21.6 per cent). However, adjusted PAT declined 12 per cent year on year to Rs 1,107 million against brokerage estimate of Rs 1,478 million). FY20, revenue/ EBITDA/PAT grew 19 per cent/25 per cent/11 per cent year on year.

Investment Rationale

PI Industries closed FY20 on a strong note with revenue/EBITDA growth of 19 per cent/25 per cent year on year, mainly driven by 31 per cent revenue growth in the CSM business. For FY21, management remains confident of achieving 20 per cent+ revenue growth. The brokerage believes the company has levers in place for sustaining growth momentum in the near term as it recently commenced two multi-purpose plants ramping up operations. Plus revenue from the Isagro acquisition, sustained growth momentum in the CSM business on the back of strong $1.5-billion order book, and product launches in the domestic market provide earnings visibility.

Additionally, PI has successfully marked its entry into the pharma value chain by tying up with a few large pharma companies in Japan and India, thus garnering an additional growth lever. The brokerage maintains its estimates for FY21/FY22E and values the stock at 30 times FY22E EPS to arrive at a target price of Rs 1,835, implying 15 per cent upside.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 855.20 crore, up .64 per cent from last quarter sales of Rs 849.80 crore and up 6.26 per cent from last year's same quarter sales of Rs 804.80 crore. The company has reported net profit after tax of Rs 109.90 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 51.35 per cent stake in the company as of March 31, 2020, while FIIs held 12.13 per cent, DIIs 21.62 and public and others 14.89 per cent.