Hi Vinod,
with rgds. to FY13 and FY14 EPS estimates, I have covered it in my post before this in reply to Hemant Gupta's query, you can refer that......
Now, I will cover your second last query -- FY13 should see domestic agri and CSM segments contributing equally or atmost in 55:45 ratio......There are three reasons why I feel PI should command much higher multiples on bourses than presently it is commanding and I will detail out all the three reasons below :
(1) Over last 3 years post Std.Chtd. PE entering PI, the company has shown remarkable improvement in minority shareholders' wealth creation as well as communication....PI has adopted one of the most transparent practices and has been proactive in implementation of almost all initiatives concerning investors in broader sense.....the most recent one being extending evoting facility which is going to be followed by simultaneous hosting of virtual AGM.....
Not many companies follow such practices in India Inc today and this clearly reminds me of beginning phases of Infosys management which was in a similar fashion proactive in implementation of best corporate practices.......PI also has a distinguished board (but the only thing of difference is its late hosting of concalls as also not detailing out separate revenue streams in press release/presentation post results.....hope this will be corrected soon)....
History has shown that such companies always command much higher multiples on bourses than their peers command whereas here we have Pi trading atpar or lower than its bigger peers....In a scenario of concurrence of factors where kharif is good and CSM visibility is good, PI has to now start commanding much higher multiples closer to its bigger peers as the scale of operation of PI will itself demand such rerating and closely held shareholding structure of PI will trigger such rerating as no one will want to feel left out....
(2) I will detail out below past five years performance of each of PI's operating segments :
|
|
FY12 |
FY11 |
FY10 |
FY09 |
FY08 |
|
|
|
|
|
|
|
|
Agri
Input Revenue
(in
` cr.)
YoY
Growth
|
503
22.98 % |
409
36.78 % |
299
7.94 % |
277
6.94 % |
259
15.11 % |
|
|
|
|
|
|
|
|
Custom
Synthesis & Maufacturing (CSM) Revenue
(in
` cr.)
YoY
Growth |
374
56.48 % |
239
21.93 % |
196
41.01 % |
139
87.83 % |
74
34.54 % |
CSM segment has been a star performer over last 5 years albeit on a lower base but with increasing base management has taken all the steps to see that the growth rate of the segment remains at reasonable level.....It was FY07 when management started execution of CSM business model from Panoli plant and just see the growth post that.....Now, when this old facility will be peaking up at ~500 cr. yearly run-rate current fiscal, new Jambusar plant has started execution which has the capacity to run at ~2200 cr. yearly run rate at peak level....
As I had explained in 2011 also, CSM is a segment which will bring a lot of operational efficiencies with rising scale and therefore generate a great amount of cash for the company......The business model of PI CSM segment is such that once products are commercialised it will generate substantial revenues as the time passes...Between FY08 to FY12 there were not many commercialised molecules which could give PI a good foothold in world CSM segment (patented) landscape......But, post FY14, PI will have good number of assignments on coomercial scale which will mean PI getting its due recognition as well as rising revenues with expanding margins.....This is the business model which prudent fund managers love to invest and therefore you are seeing increasing participation from FIIs and FIs in PI's equity even at the rate of 609....Once the results of this business model are visible in terms of actual numbers PI will be ultimately commanding much higher multiples......
(3) Third one is the domestic agri segment of PI itself where again Pi is working with a unique business model which enables efficient inventory management and high visibility of PI amongst end-consumers, the farmers......I have detailed above performance of agri segment too wherein you can see that post launch of Nominee in FY10, PI's performance has improved drastically and outperformed almost all peers.......But, the reason I am bullish on is not Nominee but Osheen i.e. dinotefuran which I strongly believe could become 100 cr. product in two years time....
Detailing below initial work I had done on dinotefuran in 2012 post which I upgraded PI to Buy from Hold in November'2012......since here copy of image is not supported so pasting the entire text of the image below for your ref.......
India is :
World's 2nd Largest Producer of Rice
with28 % Global Rice Area
But it
Produced
104.3 mn. tonnes of Rice
from an Area of44.4 mn. hectares
Rice Productivity in India is just
2.3 tons/hectare
v/s
China's 6.5 , US's 7.5 & Australia's 10.1 tons/hectare
( even Indonesia, Bangladesh & Vietnam have higher Rice Productivity
at 4.3, 2.9 & 4.2 tons/hectare respectively )
Cause of Rice Crop Damage :
over 800 insect species damaging Rice
in one way or other but amongst them,
about 20 species are of major importance
and of regular occurrence.
These insect pests cause huge economic loss to rice-growing farmers
Plant-hoppers and Leaf-hoppers are one of the major pests
known to infest Rice in India,
Among them, Brown Plant hopper (BPH) -- Nilaparvata lugens;
White-backed Plant hopper (WBPH) -- Sogatella furcifera, &
Green Leaf hopper (GLH) -- Nephotettix virescens
are most damaging ones.
The BPH caused widespread devastation of Rice Crop
during Kharif 2008 in North India and again
during Kharif 2010 , it was serious in sporadic pockets.
Yield loss was as high as 50-90 %.
Effectiveness of Dinotefuran against BPH :
Quick down action against BPH
within 24 hours of Spraying
v/s
all existing insecticides' action against BPH
only after 3 days of Spraying
Provides Long Duration of Control against BPH
for 20 days after Spraying
v/s
all existing insecticides' which prevent BPH
for only 7 days after Spraying
Can Beat Rains if Sprayed 3 hours before it
~80 gms. of Insecticide
required to be mixed with 150 liters of Water
for treating
One Acre of Crop
|
Case Study -- 1 in
2 Plots at Nambur Village of Guntur Territory, Andhra Pradesh â
where Brown Plant hopper (BPH) was the main pest
|
|
Dinotefuran
(
Launched by PI -- brand 'OSHEEN' ) |
Buprofezin
(
Till Date best BPH control molecule available in the industry ) |
|
|
|
|
Dinotefuran
showed 90 % control of BPH |
Buprofezin
showed 20 % control of BPH |
|
Case Study -- 2 in
1 Plot at Nambur Village of Guntur Territory, Andhra Pradesh â
where Green Leaf hopper (GLH) was the main pest
|
|
Dinotefuran
(
Launched by PI -- brand 'OSHEEN' ) |
Buprofezin
(
Till Date best BPH control molecule available in the industry ) |
|
|
|
|
Dinotefuran
showed 95 % control of GLH |
Buprofezin
showed 25 % control of GLH |
PI Ind. advantage for Dinotefuran :
Catering to ~5 % of Total Indian Rice Acreage
( 2.22 mn. hectares = 54.85 lac Acres )
via Nominee Gold which itslef is a 100 cr.+ Product
~80 gms. of OSHEEN (Dinotefuran) required to treat
1 Acre of Paddy Crop
which provides direct
Cross-Selling Market Size of
~ 350 cr. to PI Industries for OSHEEN
( 80 gms. OSHEEN required in 1 Acre Paddy Crop ;
Price of 80 gms. of OSHEEN = ~INR 640 ;
54.85 lac Acres x INR 640 = INR 351 cr. )
PI already enjoys high credibility amongst Rice-growing farmers
because of success of Nominee Gold which will immensely help
in percolating benefits of OSHEEN amongst farmers quickly
therebygaining of quick marketshare for OSHEEN
Hence, if monsoons turn out good then it will be great news for PI's domestic agri segment but even if monsoons turn out somewhat tepid then also PI's basket of products are expected to let it outperform peers....agrochemical consumption in India is so low that the sector will be least affected amongst all other agri inputs....this is not to say that it will not degrow in case of terrible monsoons...it can, but it will pick up faster and at much stronger pace because of its extremeley low penetration in India.....
Current valuations of PI factor in negatives of reasonably bad agri segment (not terribly bad) but don't factor in positives of robust CSM segment which is imminent post implementation of second phase of Jambusar project......Hence, I say that rerating is due for PI.....
Now, with rgds. to historically commanded multiples....again I will detail below initial work I had done on PI before December'2012 :
|
|
|
|
till FY10 |
Infrequently
& Intermittently Traded |
|
|
|
|
in FY10 |
Thinly
Traded with Average
Daily Volume in FY10 at just 450 shares |
|
Real
Trading in PI Industries Started from FY11 |
|
|
TTM
P/E Multiple Range |
Forward
P/E Multiple Range |
|
|
|
|
|
FY11 |
13.89
â 17.51 (
Base = EPS of FY10 ) |
9.48
â 11.95 (
Base = EPS of FY11 ) |
|
|
|
|
|
FY12 |
19.93
â 23.63 (
Base = EPS of FY11 ) |
13.70
â 16.66 (
Base = EPS of FY12 after excluding one-time gain from sale of
Polymer Business ) |
|
|
|
|
|
FY13 (
till 30th November 2012
) |
15.15
â 17.54 (
Base = EPS of FY12 after excluding one-time gain from sale of
Polymer Business ) |
11.96
â 13.85 (
Base = EPS of FY13e ) |
It was only after raising of funds from Std. Chtd. PE that real trading in PI started on the bourses......I had covered data given above only till 30th November 2012 post that, valuations of PI have appreciated considerably which is not factored in above table......While considering EPS estimates of FY13 in above table I had not considered QIP fund raising as it was announced only in December 2012.......
PI is trading at the lower end of its commanded multiples at present....What multiples should be assigned to PI that I will leave for the markets to decide....For me, if the factors remain as they are at present, then I will not sell single share of my holding in PI till the rate of 865 which I have kept as the review rate........
Feel free to get back to me in case of any further query.
Rgds.
