A Block deal of 1 lakh shares happened on NSE at 12:12 p.m. today in PI at the rate of 545…with this it seems only 25 thousand more shares of Std.Chtd.PE remaining to be absorbed alongwith ~50-70 thousand shares of ESOP…stock moving into much stronger hands now which should help in much awaited significant rerating of the company on the bourses…
Rgds.
Discl. - PI Ind. forms part of my core portfolio
| Outcome of Board Meeting |
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| PI Industries Ltd has informed BSE that the Board of Directors of the Company at its meeting held on December 06, 2012, inter alia, has approved the following, subject to the approval of shareholders by way of postal ballot:- 1. Raising of funds upto Rs. 150 Crores through equity related instruments pursuant to Section 81 of the Companies Act, 1956. 2. Alteration in Articles of Association of the Company. |
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as per market sources Std.Chtd. is now out of PI almost completely and now just some ESOP selling is remaining in PI…however, a higher range might be maintained untill funds are raised post which real rerating should start…
Hence, Likely to move in a range till fund-raising proposal approved in Jan’2013 as only then weighted average price will be 545-570 at which price funds are likely to be raised…post fund-raising only the real rerating-move will start…till then provides excellent investment opportunity…
I am holding on to my entire position and will avoid trading as expect much higher rate in CY2013…
Language of postal ballot notice will be interesting to watch for noting the purpose of fund-raising…whether its for CSM segment or agri-input segment…former is most likely…
Feel free to get back to me in case of any query.
Rgds.
Hi Mahesh,
Wouldn’t there be equity dilution due to this fund raising through equity mode? Wouldn’t price correct further after this?
Since the theme of increase in CSM contribution is getting delayed isn’t it better to wait now?
Cheers
Vinod
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Hi Vinod,
Not atall…any price correction beyond this level (520-570), although not impossible (as nothing is impossible in markets) but is highly unlikely and its like hoping for something irrational which no one can predict…However, since your logic of price correction is equity dilution due to fund-raising and delay in contribution from CSM segment, then, the price correction because of these two factors is simply impossible…I will explain you in detail below as to why i say this :
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The quantum of fund-raising amount for which approval is sought is INR 150 cr…Std.Chtd.PE’s entire large stake of 15 % in Pi was absorbed in the range of INR 530-570 between August-2011 & December-2012…12.6 % of this stake was absorbed by 3 entities, Sequoia, JP Morgan and Citigroup… Sequoia purchased at avg. 528, JP Morgan purchased at avg. 536 and Citigroup only last month purchased at avg. 569…remaining 2.4 % stake of Std.Chtd.PE was absrobed in last two weeks between 530-545 by entities whose name are still not known…
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Now, this fund-raising proposal comes exactly at a time when Std.Chtd.PE’s entire stake is getting sold…So, the price of placement can’t be below Citigroup’s last month’s entry price of 569 or unknown entities’ purchase price 530-545 in last two weeks…Hence, maximum 25 lakh shares of FV 5 will be issued to raise funds this time which increases the equity capital to just 13.83 cr. from current 12.58 cr…its not a major dilution but a minor 9.9 % dilution for second round of funding…
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Here, what all guys are ignoring is the fact that PI raised 50 cr. in first round of funding from Std.Chtd.PE. for 15 % stake…Avg. Price at which PI placed Std.Chtd.PE entire 15 % stake (ofcourse in tranches since it was a PE funding and linked to achieving of milestones) in 2009 was INR 132 (FV 5)…What PI management has given is a clear 3.1 times (309 %) return in a span of just 3 years to the PE player which establishes its credibilty firmly in PE-industry…
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Now, PI is going for second round of funding by diluting lesser equity (9.9 %) and raising 2.5 times higher amount it raised in 2009…IF a PE player makes entry for second round of funding it will be great news for shareholders as a similar return can be expected from the management few years down the line…but, even if this time fund-raising is done via other route like QIP or something then also entry price of Citigroup, Sequoia will ensure that much higher return is generated by 2015 from PI…
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Even if you look at business and earnings angle this stand is clearly justified…although we are waiting for the notice of postal ballot which will clearly state the purpose for which the funds are raised…from Q2FY13 concall interaction its evident that management is going for second phase of Jambusar project…Hence, what it will do is raise the contribution of CSM segment from current 374 cr. of FY12 to ~980 cr. in FY16…PI’s agri-input segment would have also gone up to a scale of ~900 cr. by FY16…Hence, on an equity capital of 13.83 cr. which is unlikely to be raised beyond this level as already funds for this growth will get tied up by this second round of funding, we will have EBITDA of minimum 332 cr. and PAT of atleast 198 cr. which translates to an EPS of INR 71.7 on an expanded capital of 13.83 cr in FY16…
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Now, lets extrapolate current FY13 numbers to include per share estimates by incorporating expanded equity of 13.83 cr. (for second round of funding proposed)…as said in my previous post, for current FY13 at consolidated level, PI should see a revenue of 1064 cr. with EBITDA of atleast 186 cr. and PAT of 103 cr…hence, on expanded equity capital of 13.83 cr. it will translate to an EPS of INR 37.3…Taking CMP at 550, this is perfectly within the 15 times TTM EPS PI has traded historically, and therefore significant price correction beyond this level is highly unlikely as we are already into Q3FY13…
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With rgds. to your contention that “delay in contribution from CSM segment”, its a thing of the past as already phase 1 of new Jambusar facility has started and key thing to note here is that for second phase of the project, time-gap will be much shorter as the common infrastructure is already in place and only machinery will need to be installed…
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Having said all these, key monitorables will be the structure of fund raising asto whether single PE player comes or multiple entities come ; , purpose of fund-raising, management commentry post fund-raising and quantum of rise in order-book because of recent arrangements entered into for which fund-raising is planned (if atall fund-raising is meant for that and not for any acquisition). However, Pi strory is getting more promising every passing day and my analysis makes me believe that we are sitting on verge of next growth phase of PI which will generate good shareholder wealth.
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Feel free to get back to me in case of any further query.
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Rgds.
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Discl.- I have PI as part of my core portfolio and my views have to be taken in that regard.
My Reply to some queries on PI Ind. of some knowledgeable members :
Query 1
Sir, with the equity raising plan comes the dilution and with the dilution, your eps drops down, now if the eps drops down and the stock is still trading at the same price, your pe goes up from x to y? So, it becomes expensive mathematically
Reply to Query 1 :
this is exactly what i have explained in my reply posted in my previous post to other knowledgeable member’s query…your logic is perfectly right but you can’t look the dilution in isolation of other critical factors like quantum of equity dilution, quantum of gain in financials because of such equity dilution, historical commanded multiples of company, etc.
As you said, and as you can read in my previous post, its only after incorporating equity dilution that FY13’s EPS will be INR 37.3…Hence, at 550, company will trade at 14.74 P/E which is within the historical TTM P/E of 15 since we are already into the end of Q3FY13…Now, if this planned fund raising is for 2nd phase of jambusar project then in all probability, 2nd phase will commence from Q3FY14 or latest by Q4FY14…so, the numbers that we had previously projected for FY14 and FY15 will need to be revised upwards…
another aspect is management’s strategy of keeping its order-book stagnant at USD 300 mn. which invited lot of concerns from financial community members including me…but the management’s reply everytime this concern was raised was that unless we see compelling lucrative orders coming we will not book other phases of jambusar project and will keep the visibility to 2-2.5 years CSM capacities…in just concluded concall (Q2FY13), management’s reply was they are negotiating for some huge molecules and based on their finalisation, will plan 2nd phase of jambusar project by Q1FY14…now, since the funds are raised, in all probability, the contracts are getting sealed and therefore 2nd phase is planned…when these orders will make their way into order-book by March-April-2013, what it will do is considerably increase the visibility of CSM segment beyond 3 years which will eventually let PI command richer valuations and therefore higher multiples on the bourses than historical ones…
So, on one hand we have PI trading at historically lowest valuations already (even after providing for planned equity dilution) and on the other hand we have the possibility of its commanded multiples getting expanded within two qrtrs…hence, inspite of minor equity dilution, what we have is no possible significant correction from current rate but, yes, the upsides only future will tell for which triggers are imminent but its translation into realty will happen gradually…prudent investment calls for preservation of capital first while at the same time leaving ample scope for significant capital appreciation and PI fits both criterias perfectly as inspite of all negatives, Pi has consolidated in tight range for more than one year and history suggests that significant wealth creating companies have always taken a time correction by consolidating in range rather than taking a price correction…
Feel free to get back to me in case of any query.
Rgds.
Query 2
Hi Mahesh,
I am a learner of F.A.and perhaps my querries might be very basic.
I want to know company has debt of 232 crores, what will happen to it, will new Pe funding will be used to retire some debt, secondly will the equity gets diluted to the percentage terms as PE pours money ( by buying stake at the decided price ).
Or the entire PE money is used for capacity expansion.
please pardon me if these querries sounds like a fool.
Reply to Query 2 :
Not atall your queries are perfect and its heartening to note that inspite of you being just a beginner, as you say, still, right kind of queries are coming to your mind which normally come only after slight graduation…good to see this and its only by our collective efforts and debates that we collectively come on right track for evaluating a company…
Now, regarding your queries…as far as debt of 232 cr. is concerned, it will not retire in the short term because company is still in an expansion mode for its new jambusar project which has the potential to generate five times current CSM segment revenues…however, free cash flows which were not that significant uptill now, will rise substantially going forward in case this proposed equity dilution is planned for 2nd phase of jambusar project and not much other CAPEX in the form of new acquisition for agri segment is planned…
if the company is going for equity-fund-raising rather than debt for 2nd phase of the project then its a great news for shareholders as it will eventually generate lot of cash starting FY14 because CSm is a high margin business…however, it is better to wait for details to be out post Q3FY13 numbers when we will be exactly able to predict the quantum of positive impact on financials of FY14-FY15 of the 2nd phase as also proposed fund-raising…
with regards to your other queries, i think entire current fund-raising will be used to expand and debt will be kept stagnant in the short term and gradually reduced going forward…
as far as quantum of equity dilution, i have already stated in my previous post that i don’t more than 25 lakh shares of face value 5 will be issued for fund raising which will dilute the equity by only 9.9 % to raise it to 13.83 cr. from current 12.58 cr…the equity dilution is small but its positive impact on financials could be much larger starting FY14…
Feel free to get back to me in case of any further query.
Rgds.
hi mahesh/others following pi industries,
got a link for evoting on the resolution for incresing the equity/changing of article of association,but i could not get any info/management explanation on the rationale or why would they want a minority shareholder to vote for the resolution .Where can i find them .just read your explanation above ,but i was always taught that cost of equity > cost of debt.It would be kind of you if you could explain
I have got another one for axis also and i would like to vote but with all information and the management argument for the resolutions.
Hi Mahesh,
Any idea as to who are the subscribers to this QIP? and what to expect next??
http://www.bseindia.com/xml-data/corpfiling/AttachHis/PI_Industries_Ltd_300113.pdf
rgds,
Hi bijou,
Apologise for delay in reply as was away from desk and hopefully will resume by next week… Will give my reply in detail then…for the time being, you ned to look at many factors and can’t look at one factor in isolation…for pi, the best route for shareholders wealth creation was equity fund raising and management has proactively raised the funds…this is a very healthy sign and shareholders will see benefits of this in cy2013…this company, in all probability will create exceptional wealth in current year.
Rgds.
Link: http://www.bseindia.com/xml-data/corpfiling/AttachHis/PI_Industries_Ltd_300113.pdf
rgds,
The details will be out soon…all I can say at this moment is that this company is progressing extremely well and focused and result in terms of price appreciation should follow soon…
Discl. Holding on to entire position in Pi with price for review at 865 and my views have to be taken in that regard.
Rgds.
PI concludes QIP process
Raises Rs. 117.33 crore at Rs. 609.60 per share
Gurgaon, January 31, 2013: PI Industries Ltd (PI), a leading Indian Agri-input and Custom Synthesis company has concluded its fund raising exercise through Qualified Institutional Placement (QIP) process.
The Company raised Rs. 117.33 crore through the QIP route; which saw participation by some highly reputed investors in India and across the globe. The Company accordingly will issue 19,24,656 equity shares of face value of Rs. 5 per equity share at a price of Rs. 609.60 including a premium of Rs. 604.60. Post issue the promoters holding will be 58.85% as against 63.35% on December 31, 2012.
The response to this QIP issue is a testimony to PIâs growth oriented financial performance and confidence of the investors in PIâs differentiated business model.
PI has identified several growth opportunities in its areas of business and intends to use the net proceeds received from this issue for augmenting long term resources for future expansion, meeting long term working capital requirements and for other general corporate business purposes allied to the business.
With over 50 years of experience in the agri input sector, PI has positioned itself as an integrated entity with a differentiated business model driven by respect for intellectual property and delivering value to its partners.
Edelweiss Financial Services Limited acted as the sole global co-ordinator and book running lead manager to this successful QIP issuance.
Q3FY13 results of PI Industries to be announced on 12th Feb. 2013....Provided below are my estimates :
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Q3FY13e |
Q3FY12 |
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Revenue Agri-Inputs CSM |
232 â 245 102-105 130-140 |
190 102 88 |
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EBITDA |
37.4 â 42.1 |
30.7 |
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PAT |
18.5 â 21.5 |
11.43 |
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EPS |
7.3 â 8.5 |
4.55 |
Post QIP shareholding pattern announced…
8,20,000 shares picked up by ICICI Prudential Discovery Fund, Citigroup added ~1,50,000 shares to its holding making its total holding in PI at 13,49,260 shares or 4.98 % equity of PI…another 11 lac shares picked up by unnamed FIIs…since 11 FIIs have absorbed 11 lac shares so their name is not disclosed since they may be falling below 1 % equity of the company each…
Successful QIP placement at INR 609.6 per share to reputed FIs and FIIs which has raised Institutional holding in the company to 24.28 % demonstrate conviction in strength of business model of PI and this augurs very well for minority shareholders of the company.
Expectation of lower than expected results because of poor rabi is keeping the price subdued…if khaif’2013 turns out good then agri-input segment which has been a laggard and the main reason of current lower valuations should also start performing which should commence rerating process for this promising company…
Q3FY13 results on 12th Feb and management’s commentry thereafter will be interesting to watch…
Rgds.
Thanks a ton Mahesh for your regular updates.
what time frame can we see for the re rating to happen.
Hi Maverick,
Within CY2013 for sure…timing depends on positive triggers unfolding in the form of :
either normal kharif’2013,
or some acquisition which is long overdue and as per sources, management is most serious about now than ever before,
or a major order announcement based on which management has decided to start second phase of Jambusar project,
or some major alliance like that announced in 2010 with Sony for which management has been hard negotiating about with major MNC innovators…
You see Maverick, trigger can come in any form but the main thing to note with PI now is it is trading well within its historical trading range inspite of company performing well year after year and its management demonstrating the utmost proactiveness and transparency while dealing with investor community in general and not only large investors…
The corporate governance standards followed by the company call for it commanding much higher valuation multiples than it is currently commanding and this anomaly has to get corrected on slightest whiff of visibility improving in CSM segment which should happen for sure in the medium term as otherwise fund-raising for second phase of Jambusar project would not have happened in such a haste…
The concern amongst key market players I talk to rgdg. PI is that domestic agri-input segment might prove a drag amidst consistently growing CSM segment in case kharif’2013 turn out bad as inventory levels are building up in the industry particularly in fertiliser segment…however, many few people are aware that PI has demonstrated good ability to withstand bad phases as the sales policies it follows are unique which restrict inventory build-up issue atleast for PI…PI follows a no-return policy and is very proactive in collections and so PI is much better placed than other agri-input companies of India…also, its focus on introducing selected unique products in the marketplace put it in high regard amongst agri supply channel as well as farmers and so Pi might be least affected in downturn and most beneficiary in an upturn…
If kharif’2013 indications are good in April’2013 it will result in adjusting of valuations of agrochemical cos. in general which have suffered in FY13 and in such a scenario Pi might be big beneficiary as market players’ biggest concern because of which they have held up buying decision in an otherwise promising company will get addressed
Feel free to get back to me in case of any query.
Rgds.
Thanks mahesh for the detailed work.
I had one query though… as we know citi had entered pi at around 609 and they have also announced at the exchange regarding jambusar facility… and csm segment is growing at a good pace why the stock has retracted to 600…
as we know there are 3-4 factors which will lead to re rating and the company is on path on two of them i.e. a new private equity showing confidence at such valuations and the announcement of jambusar facility… then why because of the only possibility of weak kharif season the prices are subdued… what can be the downside mahesh…
sorry to bother you with so much questions… but it will be really helpul if we can analyze these…
Thanks mahesh for the detailed work.
I had one query though… as we know citi had entered pi at around 609 and they have also announced at the exchange regarding jambusar facility… and csm segment is growing at a good pace why the stock has retracted to 600…
as we know there are 3-4 factors which will lead to re rating and the company is on path on two of them i.e. a new private equity showing confidence at such valuations and the announcement of jambusar facility… then why because of the only possibility of weak kharif season the prices are subdued… what can be the downside mahesh…
sorry to bother you with so much questions… but it will be really helpul if we can analyze these…
sure Maverick…
firstly, Citigroup has purchased major portion of PI at 570 and not 609…Its only 1.5 lac shares that were picked up in QIP at 609…rest of the holding is picked up at 570 from Std. Chtd. PE…However, this doesn’t matter much and I have mentioned this here only for your info…
Now, rgdg. stock retracting to 600…stock was hovering around 500-530 till 15th december 2012 and it was only post 1st Jan 2013, in a matter of just 12 days, it went up to 670…This rise was mainly because of QIP placement wherein company wanted to part with any equity only at 600+…hence, this was only to let QIP placement happen at the respective rate…Since QIP placement rate was 609.6, it was but natural for the stock to correct till that rate in absence of any positive triggers…
Now, forget this QIP episode and note few important things rgdg. PI’s stock…Its a company with low floating stock with just 3.46 % equity in the hands of retail public, another 3.2 % equity with HNIs which include certain guys who are close to management and 3.07 % equity with PMS guys and other corporate entitieswhich again include certain entities who are close to management…This effectively means that less than 10 % equity of the company can regularly change hands on the bourses out of which if we exclude those shareholders who might be close to the management, then only less than 7 % equity of PI is available for regular trading on the bourses…
Now, the second aspect, PI is not a speculative stock, in other words, PI’s management is clean like any bluechip large-cap company and is not involved in operators’ play and therefore speculators are least interested in trading in PI which eliminates speculative element from PI almost completely…In absence of much speculative element you only have stock price running up and down based on pure fundamentals and the triggers have to be strong and solid for a sustained rerating process to begin…
I would like to cite here the example of mine initiating coverage of PI way back in October’2010…At that time, conversion of CCPS were pending of Std. CHtd. PE and stock was not moving atall and was trading in the range of 510-600 (FV = 10) for 6 months inspite of positive triggers imminent…I was also confused and searched often for any negative element in the story which is hampering the rerating process to begin and my conviction was challenged as I always consider markets to be wisest…
then, on the verge of conversion of Std.CHtd.PE happening in April’2011, stock went up from 580 to 740 (FV= 10) in a matter of just 5 days from 1st April to 5th April and then conversion of CCPS happened in mid-April post which stock consolidated in the range of 700-760 till July’2011 post which finally the actual rerating took place wherein within 25 days of July month, stock went up from 750 to 1200 (FV = 10)…
This rerating happened amidst seemingly positive results, management embarking on IR initiatives by hosting regular concalls, management considering shareholder-friendly moves like split of FV from 10 to 5, etc…Also to note, general markets and market sentiment were weak in the entire period mentioned…
Moral of this entire argument is that in PI Ind. you can expect sharp rerating to happen and in that rerating process you can expect price discovery as well as appreciation to happen very fast…till then this stock will test your patience as it will move in a range — will not go much down but will not move significantly upwards also -----
Positive thing is that at present time, we are sitting at that stage of PI when long consolidation has already happened in the range of 500-600 for 14 long months as also stock is trading at lowest historically commanded multiples and now rerating process is about to begin on whiff of smallest positive trigger…seeds of such positive triggers are already sown by raising funds via QIP and now its only matter of time when we can expect positive triggers to unfold in public domain…it could take few months or few qrtrs. but it should definitely happen in CY2013 thats what my long tracking of PI makes me to believe…
With rgds. to your last query on possible downside, it should not be more than bottom of the consolidation range (500) thats what I feel…
Q3FY13 results tommorrow and management commentry thereafter will be interesting to watch.
Pi Ind. forms part of my core porfolio and my views have to be taken in that regard…
Feel free to ask any further query…I will be more than happy to address all your queries in my best possible way.
Rgds.
Mahesh …appreciate depth of your understanding/ conviction on PI
Mahesh, can you please share your other core holdings. And if possible respective reason for them forming part of your portfolio.
