In recent annual general meetings, P I Industries Ltd and Bayer CropScience Ltd were cautious about their domestic agrochemical business and gave the impression that growth in the current fiscal year can be slower than last year, analysts say.
“On the back of three weak consecutive seasons, we expect working capital cycle is likely to deteriorate going forward. Generally, retailers sell agrochemicals on credit to dealers, which is to be repaid at the end of the harvesting season. From companies’ side, firms give credit of around three months to dealers. We expect debtors’ days to stretch further,” B & K Securities added.
This off course should not apply to the CSM part of the business as far as PI is concerned.
@madhug
I think you are late to catch on this. Management of almost all agrochemical firms have been indicating since last year of a slowdown in business. Dhanuka has slashed growth targets thrice over the last one year. The same is being echoed by research reports also
Excellent summary Hitesh. Thanks very much!
I was searching for concall transcripts however couldn’t find on company’s website and researchbyte. Do you know any other source ?
@hitesh2710 - The overall crash of agri commodity prices around the world will definitely affect agro-chemical producers like Bayer Cropscience, Syngenta and others who outsource their production to PI. I do not think we can take the growth in CSM business for granted. We have to keep it under watch for signs of weakness.
We will have to monitor the CSM orderbook and execution of that order book. But one has to take note of the fact that market has recognised PI as a high quality business and hence PI like Page might
be given more leeway.
Another way to look at it could be that since most of the CSM orderbook would be early life cycle molecules impact would be limited on CSM business.
But if one were to have a 3-5 year view then the uncertainties that prevail currently could provide decent entry points.
To add to Hitesh’s points, PI is placed at an interesting juncture right now…so far management has delivered excellently by not faltering on any of its commitments given to investor community and there is no reason to believe that in future such trend won’t continue…order book of CSM is also healthy and is maintained at 2-2.5 years which is very commendable at this scale…the rich valuations that we see is all the result of these…because of its exceptional past track record, minor uncertainties or falterings might be taken lightly by the markets and in such events it might only experience a time correction rather than a significant price correction…
However at the current scale of CSM, how long can it sustain 25 % p.a. growth that needs to be seen…if it can sustain for next six to seven years even a 20% growth its valuation multiples might be in a different orbit altogether and it might get very richly valued much richer than current multiples…for that first it will have to invest more as Jambusar might not be able to serve that kind of growth for more than next 3 years…secondly, with only agrochemical sector exposure, how scalable is the opportunity that needs to be seen as company’s attempts to diversify seems to have met with limited success so far.
PI Industries Ltd has informed BSE that the Company has commenced the commercial production at its second unit located at Sterling SEZ facility, Jambusar in State of Gujarat w.e.f. September 26, 2015.
The new unit will enhance the production capacity by nearly 1000 MT per annum at Its peak production.
Just read the news and wanted to inform the forum members and you beat me to it.
This is good news and management is fulfilling their commitments timely which again speaks highly of their execution skills. Q3 should see the full impact on the revenues that will get added from this plant.
However, I do not have how much revenue will be added from 1000 MT production at its peak. Time to dig the past data. Any one has the numbers off the hand?
The Company has posted a net profit of Rs. 582.20 million for the quarter ended September 30, 2015 as compared to Rs. 489.70 million for the quarter ended September 30, 2014. Total Income has increased from Rs. 4320.80 million for the quarter ended September 30, 2014 to Rs. 4505.50 million for the quarter ended September 30, 2015.
Though I was a bit hopeful of a better Q2, it looks like market has priced this stock superbly for the Q2 results (due to monsoon worries, may be) and the results came in just like that. Not much revenue growth but good margin kicker. Looks like margin improvement story is playing out as expected.
Today’s management interview stated that some revenue in CSM shifted to H2 (may be he is alluding to the new plant commissioning?)
Some calculations:
FY 15 revenue: 1939 (rounded off).
1939*1.18 = 2289 crore revenue estimate for FY 16 at lower guidance of management (18%-20%).
Revenue covered so far in H1 2016 is 995 crore, so revenue of 1293 crore estimated for H2 FY16. Company delivered net margins of 14.5% and as per Salil’s interview he expects margin improvement by a few basis points, so let’s assume 15% NPM.
So net profit for H2 FY 16 would come to around, 15% * 1293 = 194 crore, which gives an EPS of 14.25 and full year FY16E EPS of 14.25+10.6= 25 EPS.
What PE one gives is subjective but with 25 EPS for FY16E on a conservative basis as per management guidance, the stock looks like little down side and good upside. PI is turning out to be a sustainable story where one can invest without losing sleep.
Edit based on today’s con call: After today’s con call which I have attended, I would revise the EPS estimate to 23.65 based on,
15% blended growth as per Mayank.
The margins more or less would remain same (14.5 at net profit level).
But, whether it’s 25/23.65 etc. is not the matter of concern, but the broader picture of business prospects is what matters for long term investors like us. The management is confident on CSM growth and as usual domestic agri front monsoon will play a role.
Capex for this year is about 300 crore while already done for H1 is 187 crore.
Currently 18-20 products contribute to the CSM revenues and plans to commercialise 1-2 molecules each year (which is known anyway).
Effective tax rates to be lower than 30% (around 27%, with SEZ production providing the needed tax benefits)
The tone of Mayank indicates that CSM revenue is fairly robust and so is the future outlook.
Biovita - new product launch, which is the enhanced version of current product and with marketing strategy could attain Nominee Gold status in terms of revenue.
Disclosure: I hold so I may have vested interest on the stock.
The market was fretting about weak domestic agri sales but as per mgmt. CSM revenue have been weak or postponed to H2. I have felt that they have certain level of discretion in recognizing CSM revenue. Overall a good show expected in H2.
Inventory changes has a total of 37 cr. It does confirm that significant % of revenues could not be realized either due to client request as confirmed by management or due to internal delays. If one factors this in the financials, the numbers including revenues will be a significant jump. All indications for a better Q3 and H2.
Disc : I am holding and have vested interest on this stock
If they do eps of 25 this year and considering limited cash flow req due to completed capex and assuming 30% payout should not dividend be about 8 Rs ? Which means the interim dividend of Rs.1.2 is on the lower end (if we take it as about 50% of final dividend it must have been about Rs.4 ) ? Kindly share perspectives on this aspect .
I think one has to be a bit conservative in making assumptions and take management’s guidance with a pinch of salt. I work with an eps estimate of 22-23 based on which current price of 660 odd is fair price. With bouts of pessimism and optimism, it will swing above and below this price unless something meaningful comes out in q3 q4 results.
Till that time I expect the stock to remain sideways within a range of 50-60 Rs plus or minus the fair current price.
richdreamz
my workings as per the concall : 15% blended sales jump - total sales 2230 crs - 995 = 1235 Crs . He said (if i heard him right ) jump of minimum 100-150 bsp in margins but to be conservative i have taken net margins @ 15% (only 50 bsp taken) - 15% of 1235 crs=185.25 Crs - Eps for full year = 13.6+10.6=24.2
This is w/o considering 5% reduction in corporate tax rate . So your earlier no of 25 eps is v much logical i think .Also perhaps its about time may be by Nov/Dec when eps for the next fy might get discussed and factored ?
