Prabhudas Liladhar has come out with a28 pages Report on PI Industries dated 19th August 2013…Recommends Buy with a price target of 175
Rgds.
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Domestic agriâinputs business â strong distribution network and increasing share of inâlicensed molecules have been the key to success:
âinputs business â strong distribution network and increasing share of inâlicensed molecules have been the key to success:
PI has emerged as a leading player in the domestic agrochemicals industry through its wide distribution network and strenghtening product portfolio. Companyâs clear-cut strategy of steering away from manufacturing of âme-tooâ products, while increasing the share of in-licensed molecules, has paid rich dividends.
Consequently, share of in-licensing as a % of domestic agri-inputs revenues as increased to 60% in Q1FY14 from 20% in FY09. Companyâs flagship product, _Nominee Gold _(in-licensed from Kumiai, Japan) is one of those few products which contributes domestically more than Rs1bn of revenues annually. PI remains confident that _Nominee Gold _will become the largest herbicide brand in India.
**PI has emerged as a leading player in the domestic agrochemicals industry through its wide distribution network and strenghtening product portfolio. Companyâs clear-cut strategy of steering away from manufacturing of âme-tooâ products, while increasing the share of in-licensed molecules, has paid rich dividends.
Consequently, share of in-licensing as a % of domestic agri-inputs revenues as increased to 60% in Q1FY14 from 20% in FY09. Companyâs flagship product, _Nominee Gold _(in-licensed from Kumiai, Japan) is one of those few products which contributes domestically more than Rs1bn of revenues annually. PI remains confident that _Nominee Gold _will become the largest herbicide brand in India.
_Nominee Gold _(in-licensed from Kumiai, Japan) is one of those few products which contributes domestically more than Rs1bn of revenues annually. PI remains confident that _Nominee Gold _will become the largest herbicide brand in India.
ï **Robust pipeline of inâlicensed molecules to drive growth: **Through its noncompete business model, strong distribution network and a credible history of new products launches, PI has been able to partner with global giants and build a robust pipeline of novel products. PI currently has 8-10 novel products in pipeline and plans to launch two products annually over the next few years. We believe consistent launch of new molecules will enable PI to garner incremental market share and strengthen its positioning in the domestic market. Introduction of novel molecules not only boosts the growth proposition, it also provides for profitable growth as these molecules are newer chemistry and carry higher margins.
**Robust pipeline of inâlicensed molecules to drive growth: **Through its noncompete business model, strong distribution network and a credible history of new products launches, PI has been able to partner with global giants and build a robust pipeline of novel products. PI currently has 8-10 novel products in pipeline and plans to launch two products annually over the next few years. We believe consistent launch of new molecules will enable PI to garner incremental market share and strengthen its positioning in the domestic market. Introduction of novel molecules not only boosts the growth proposition, it also provides for profitable growth as these molecules are newer chemistry and carry higher margins.
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Custom synthesis business â Reaping the benefits now of firstâmover advantage: Though PI entered the custom synthesis space in mid-1990s, this business gained traction only from FY08 onwards due to the high gestation period of this business model. Custom synthesis business requires building longterm relationships with innovator companies through competent process research, ability to quickly scale-up to commercial manufacturing, maintaining the confidentiality clause, demonstrating research expertise etc. Once such trust was established, PIâs investments have started paying off and the company is now comfortably sitting on a large order book. Custom synthesis revenues have grown at a CAGR of 58% to Rs5.9bn in FY13 from Rs2.3bn in FY11.
â Reaping the benefits now of firstâmover advantage**: Though PI entered the custom synthesis space in mid-1990s, this business gained traction only from FY08 onwards due to the high gestation period of this business model. Custom synthesis business requires building longterm relationships with innovator companies through competent process research, ability to quickly scale-up to commercial manufacturing, maintaining the confidentiality clause, demonstrating research expertise etc. Once such trust was established, PIâs investments have started paying off and the company is now comfortably sitting on a large order book. Custom synthesis revenues have grown at a CAGR of 58% to Rs5.9bn in FY13 from Rs2.3bn in FY11.
ï **Strong pipeline of patented products in custom synthesis augurs well over the mediumâterm: **Under the CSM business, around 25-27 products are in the pipeline currently, while 13-14 products have been commercialized as of now. Generally, 45-50% of the products in the pipeline get commercialized and the revenue potential of a successful molecule is US$10-15m. As of June 30 2013, order book stood at US$307m which implies visibility for the next 2-2.5 years of companyâs CSM capacities (incl. the newly commissioned Jambusar facility). We would like to highlight that order book is understated, given the fact that it only includes multi-year orders, while expected annual renewals are not accounted for in the order book. In PIâs custom synthesis segment, order-book based business accounts for 60% of the revenues, while the balance 40% is through renewal of annual orders. Further, PI is the only custom synthesis player in India where patented molecules or molecules which are in the early stage of their commercialization period contribute ~80-85% of the annual business of this segment. PI benefits from commercialization of such molecules as these molecules are patented and they have a significantly long life cycle.
**Strong pipeline of patented products in custom synthesis augurs well over the mediumâterm: **Under the CSM business, around 25-27 products are in the pipeline currently, while 13-14 products have been commercialized as of now. Generally, 45-50% of the products in the pipeline get commercialized and the revenue potential of a successful molecule is US$10-15m. As of June 30 2013, order book stood at US$307m which implies visibility for the next 2-2.5 years of companyâs CSM capacities (incl. the newly commissioned Jambusar facility). We would like to highlight that order book is understated, given the fact that it only includes multi-year orders, while expected annual renewals are not accounted for in the order book. In PIâs custom synthesis segment, order-book based business accounts for 60% of the revenues, while the balance 40% is through renewal of annual orders. Further, PI is the only custom synthesis player in India where patented molecules or molecules which are in the early stage of their commercialization period contribute ~80-85% of the annual business of this segment. PI benefits from commercialization of such molecules as these molecules are patented and they have a significantly long life cycle.
ï **Expect earnings to compound at a CAGR of 39% over FY13â15E: **We expect PIâs revenues to grow at a CAGR of 23% during FY13-15E (expect PIâs domestic business to grow at a CAGR of 18.7% during FY13-15E, while custom synthesis is expected to grow at a CAGR of 26.9% over FY13-15E). Margins are likely to improve by 190bps to 17.6% by FY15E driven by improvement in domestic agriinputs business, increasing share of in-licensed business and higher proportion of custom synthesis which carries higher margins. We expect PIâs earnings to increase at a CAGR of 39% with EPS likely to increase to Rs13.9 in FY15E.
**Expect earnings to compound at a CAGR of 39% over FY13â15E: **We expect PIâs revenues to grow at a CAGR of 23% during FY13-15E (expect PIâs domestic business to grow at a CAGR of 18.7% during FY13-15E, while custom synthesis is expected to grow at a CAGR of 26.9% over FY13-15E). Margins are likely to improve by 190bps to 17.6% by FY15E driven by improvement in domestic agriinputs business, increasing share of in-licensed business and higher proportion of custom synthesis which carries higher margins. We expect PIâs earnings to increase at a CAGR of 39% with EPS likely to increase to Rs13.9 in FY15E.
ï Recommend âBUYâ with target price of Rs175: We value PI at 12.5x FY15E earnings resulting in target price of Rs175 (upside potential of 34%) and recommend âBUYâ. At CMP of Rs131, stock is trading at 12.4x FY14E earnings.
Recommend âBUYâ with target price of Rs175: We value PI at 12.5x FY15E earnings resulting in target price of Rs175 (upside potential of 34%) and recommend âBUYâ. At CMP of Rs131, stock is trading at 12.4x FY14E earnings.
saying,it peril.We Q&A