PIIND has (thanks to the price correction it has witnessed recently) reached an interesting point right now wherein markets seem to be discounting the worst despite its consistently superior past financial performance v/s all its peers. If we refer the data provided in above table of almost all the listed agrochemical players of India, PIIND has exhibited a relatively great consistency in revenue growth performance with an extreme focus on profitability v/s all its peers. A decade is not a short time-span indeed.
Today, if we take consolidated financials into consideration, PIIND is the third largest player in the listed space operating at highest EBITDA margin. And, not only this, PIIND has exhibited one of the best OCF to EBITDA conversion ratios amongst all peers and its 'Cumulative OCF generation as % of Size of Operations in FY07' is second best amongst all listed peers (almost twice of each one).
So, the question arises (as is raised in this forum) asto why despite such a superior performance history, PIIND is losing its mojo when almost all its listed peers are finding increasing attention of long term investors/fund managers and their share price is appreciating (or at worst remaining stagnant) v/s depreciating share price of PIIND ?? Infact, because of this contradictory trend, players like Insecticides India & Bharat Rasayan have narrowed valuation multiples gap with PIIND despite their weak business model as also weak cash generation and balance sheet management history. Bharat Rasayan has infact started trading at premium to PIIND if we take some valuation multiples into consideration while Dhanuka and Astec are trading at premium to PIIND on almost all valuation multiples. The answer to this contradictory trend could be that markets discount the future and not the past. So, does PIIND future look so bleak v/s its peers' future ??
Here, if we take just one known aspect, i.e., Order-book of CSM segment into consideration (1 bn. USD) then also it gives revenue visibility of 55 % of current scale of operation for next 5 years. Forget here the tie-ups/JV route PIIND has taken for its domestic agri-input segment which could give great stability to domestic business over long run.
Management has guided for soft H1FY18 but, if we look at history of such companies which possess strong derisked business model like PIIND has and high pedigree management which PIIND possess then in such phases share prices of such companies go into stagnation rather than depreciation. They take time correction as opposed to price correction untill and unless there is some question mark on long term sustenance of their business model. With PIIND there doesn't seem to be such risk (atleast visible to me). Hence, the current price correction (which is amplified by peers price performance as well as market performance) could be because of one of three reasons (as per my thinking) :
(1) There is some unknown coming,
(2) There is a big shareholder/group of big shareholders (like institutions) which have a big lot to sell and till that quantity gets absorbed prices will correct/remain subdued,
(3) There is some reasonable fund raising via stake sale is on cards which will be at lower than CMP so share price will find that level and remain there till the event is passed.
Discl. - Invested in PIIND and Adding