Private Client Research

Rating

Buy

Sector

Pesticides & Agrochemicals

Company

PI Industries Ltd

Pesticides & Agrochemicals

July 20, 2020

Sensex: 37418.99

CNX Nifty: 11022.20

NSE: PIIND

BSE: 523642

Reco Price

Rs. 1705

Price Target (1 Year)

Rs. 2050

Upside

20.23%

Date

July 20, 2020

Sensex

37418.99

CNX Nifty

11022.20

Exchange

Code

NSE

PIIND

BSE

523642

Stock Data

CMP (Rs)

1701.05

Face value (Rs)

52 Week Range (Rs)

1789.80 - 970.10

Market cap (Rs Crores)

25804.94

Price To Book Value (x)

5.82

P/E Ratio (x)

58.49

EV/EBIDTA (x)

35.77

One Year indexed Stock Performance

PI Industries Ltd Sensex

Return (%)

12m

36m

Absolute

10.72

19.20

56.59

122.75

Sensex

7.18

-9.90

-1.61

17.28

Shareholders

(in %)

10-Jul

Promoter

46.75

Public

53.16

Others

0.09

Total

100

+91 22 6639 3000

research@stockaxis.com

Profile

PI Industries (PI) is an agri-based chemistry solution provider. It currently operates 3 formulation facilities as well as 8 multi-product plants at 3 manufacturing locations. It has successfully leveraged its capabilities across the agri-sciences value chain by providing integrated and innovative solutions to its customers through strategic partnerships. It has strong research and development team, state-of-the-art manufacturing services, a strong brand building team, robust distribution presence in India. Company provides services in various areas, including contract research, process development, analytical method development, process safety data generation and process detailed engineering.

CSM is main in-charge for growth of company, Also demand revival and strong monsoon conditions will boost their revenues.

CSM business to grow sequentially:
Increased demand for existing CSM (custom synthesis manufacturing) solutions and increased requirement by innovator companies. Company is expecting to perform well in this division. These are contract manufacturing services, which are associated with their multinational innovators. Global inventory levels have come down, which is expected to boost demand, leading to sustained growth momentum for CSM business. PI was able to convert some of its long term contract in CSM division. Management has indicated that CSM business will remain stable for the coming 2 to 3 years, with revenue growth of 20% and margin improvement by up-to 100 bps. CSM business has been grown by 24% yoy in last quarter (4Q FY20).

Focus on innovation:
PI Industries has always given preference to innovation and believes in R & D of new products. PI is also known for its technical expertise. Company has launched 3 molecules in FY 20, management guided along this there are 3 to 4 new launch of molecules in FY21. This process helps them to capitalize entire product life cycle. Company also has a strong product pipeline in R&D stage. PI uses its deep global relations to enhance the R&D activities.

Wide geographic reach and large distribution network:
PI Industries been one of the oldest player in the agrochemical segment, PI Industries has legacy of more than 6 decades. PI Industries is present in more than 30 countries. It has more than 10000 distributors globally also company has deep relations with some global innovators.

Strong order book in CSM:
CSM division contributes around 66% of revenues in FY20; it is the major growth driver in company’s top line. CSM revenues clocked 22% yoy increase for its recent quarter (4Q FY 20), while for FY20 it grown by 24% yoy. Company has seen a global demand revival in Agchem industry. Company remains optimistic on CSM growth backed by order book of US$ 1.5 billion. Even PI is been able to retain its some contracts in CSM division and remaining are in negotiation phase. Management has also raised its Capex guidance by 150 crores.

Covid 19:
Covid-19 would have a limited impact on PI Industries; as government has permitted all the companies to operate which are engaged in agricultural activities. PI Industries being an agrochemical company can continue its business operations within country. We also expect huge demand for agrochemical’s due to this lockdown as there is huge demand for fruits and vegetables. We believe there would be minimal Impact on PI Industries export business.

Industry

Indian agrochemical industry
The Indian economy traditionally being an agrarian economy has seen a tectonic shift from an agriculture industry based economy to become a service industry based economy. More than half of its population is dependent on agriculture as its primary occupation.

The Green Revolution in the early 1970s helped India become a food surplus country from a food deficient country and currently ranks amongst the top 15 exporters of agricultural products in the world. However, despite all these achievement the agriculture sector is facing a number of issues which includes reduction of arable land, lower per hectare yield, increase in pest attacks and lower farmer income. This is where agrochemicals have an important role to play.

Agrochemical landscape in India
India is currently the 4th largest manufacturer of agrochemicals after The United States, Japan and China. Currently, its agrochemicals market is valued at $4.1 billion and is expected to grow at a growth rate of 8.3 percent to reach $8.1 billion by 2025.

Exports are expected to fare even better and are expected to grow at a rate of 8.6 percent to reach $4.2 billion by 2025. In spite of these achievements the country lags in terms of usage of agrochemicals. Per hectare consumption of agrochemicals is currently less than 1 kg which when compared to other developed countries, is less in volume terms. Presently, the maximum use of crop protection chemicals is seen in paddy cultivation followed by cotton.

Bifurcation of agrochemicals
Currently agrochemicals are broadly divided into two main types: Soil Nutrients, Crop Protection Chemicals. The further bifurcation of Crop protection chemicals is as mentioned below.

Insecticides: These chemicals are used to protect pest attack on the plants.
Fungicides: These are used to control spread of diseases caused by fungus in plants and animals.
Herbicides: These are used to control the growth of weeds in the cultivation area.
Bio Pesticides: These are generally derived from natural sources like animals, plants, bacteria and other minerals.
Others: such as Plant Growth Regulators, Nemotocides, Rodenticides, fumigants etc.

Reasons for Increased use of Agrochemicals in Domestic Markets The current use of agrochemicals in the Indian market is very low and is approx. 0.65 kg per hectare which is far less as compared to The United States where it is 4.58 kg per hectare. Low consumption of agrochemical is also a reason for the low yield per hectare production of agricultural products in India. Also, around 25 percent of the total crops produced in India are destroyed due to pest attack.

Agrochemicals can play an important role in curbing the pest attacks this leading to increased productivity. Also the world population is growing at a rapid pace. India is currently home to approx. 18 percent of the world population whereas covers only 2 percent of the landmass. There is a surge in demand to meet the dietary needs of this ever increasing population, however the arable land remains constant, hence there is a need to increase the per hectare production which can be done by efficient use of agrochemicals. Currently, India ranks amongst the top 15 manufacturers of agricultural products. With the increase in agricultural production, there will be huge scope for export of these products.

Horticulture and floriculture have also started gaining prominence in India. The Government of India with an eye on increasing the production of agricultural products has been launching various schemes like ‘Mission for Integrated Development of Horticulture’ etc. This has led to increased use of agrochemicals, mainly fungicides.

There has been a lot of awareness amongst the farmers regarding the use of agrochemicals, and the right way for its applications. Also, it has been one of the key objectives of the Prime Minister of India Mr. Narendra Modi to “Double farmer’s income by 2022.” Thus, there will be a definite increase in consumption of agrochemicals and soil nutrients.

Source: Company, world of chemicals

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

DESCRIPTION	Mar-17	Mar-18	Mar-19	Mar-20	Mar-21 E	Mar-22 E
Net Sales	2276.83	2277.09	2840.90	3366.50	4039.80	4928.60
% Growth	9.00%	0.00%	25.00%	18.50%	20.00%	22.00%
Raw Material Cost	1204.07	1161.24	1552.90	1847.40	2264.60	2735.30
Employee Cost	222.62	243.17	264.70	320.90	323.20	418.90
Other Expenses	295.32	377.30	449.60	480.40	606.00	714.60
Total Expenditure	1722.01	1781.71	2264.50	2705.08	3193.80	3868.90
EBITDA (Excl OI)	554.82	495.38	576.40	717.80	846.00	1059.60
Growth(%)	28.00%	-11.00%	16.00%	24.53%	17.86%	25.25%
EBITDA Margins(%)	24.00%	22.00%	20.00%	21.32%	20.94%	21.50%
Depreciation	73.04	82.95	93.00	136.70	117.70	125.30
EBIT	481.78	412.40	483.40	581.10	728.40	934.30
Other Income	36.62	60.25	59.50	48.90	69.40	69.40
Interest	8.77	7.33	5.00	17.00	18.50	16.50
Exceptional Income / Expenses	0.00	0.00	0.00	0.00	0.00	0.00
Profit Before Tax	509.63	465.34	537.90	613.80	779.30	987.20
Provision for Tax	50.10	97.86	127.70	157.20	186.90	248.80
Profit After Tax	459.53	367.48	410.20	456.60	592.40	738.50
PATM (%)	20.00%	16.00%	14.00%	13.56%	14.66%	14.98%
Earnings Per Share	33.39	26.66	29.74	33.08	39.05	48.68

Source: Stockaxis Research, Company Data

Valuation

PI Industries has a legacy over 6 decades into agrochemical industry, management guided that there’s soft revival in global demand and CSM business to grow. During the year CSM business has continued to surprise and it was better than our expectations and we believe CSM will continue to surprise in future on the back of new molecules/new clients and healthy order book. We maintain a buy on PI Industries based on strong growth prospects in CSM/exports business, global demand revival in industry and backed by stable monsoon conditions domestically.

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