Posting here my detailed reply to a leading analyst’s query on target price as well as investment horizon for PI Ind. :
Have already sent pdf of the latest annual report to you in previous mail…
As you must be aware, the current market price of PI Ind. is Rs. 795.
With rgds. to investment horizon and target price, frankly speaking, its the stock for the long haul as if the story materialises as expected, the current rate could be a history…since its main story will unfold from FY13 onwards, once its new plant for CSM segment will operationalise fully (in last qrtr. of FY12)… It will be FY13 which will see exponential jump in topline coupled with good expansion in margins as current CSM order book of around Rs. 1350 cr. is almost 6 times its current topline of CSM segment.
Also, the business model which PI Ind. has adopted is a unique one in India and there are almost no comparable peers domestically…95 % of the current CSM business as well as the order-book of PI Ind. comprises of patented molecules which no other company of India has… The closest like-to-like business model is of Divis Lab. which already trades at 25+ price-to-earning-multiple as compared to PI Ind. 14 pe-multiple… Internationally, PI Ind. competes with the likes of Lonza, DSM and Saltigo and is succesful in winning orders against them which is evident from its robust order-book.
Even PI Ind. second operational segment, viz., Agri-Input, follows a unique business model of focus on innovative patented molecules rather than generic ones and the company is expected to derive far superior margins alongwith good growth (of course dependent on monsoons) because of its in-licensing focus. The strong positioning of Pi Ind. in agri segment is evident from the fact that in FY11 it has clocked highest growth of 36 % which no other company,including likes of Rallis, Bayer, Insecticides and Dhanuka, was able to achieve.
The third and the most important aspect of PI Ind. is its R&D capability because of which it was able to forge a collaboration with the electronics giant Sony Corp. just 6 months before in Jan.2011. They both have set-up a joint R&D centre here in India to invent organic chemicals to be used in futuristic products like flexible televisions and Solar, and once something comes out of this R&D centre within two or three years, PI Ind. will be a joint patent-holder alongwith Sony for that and will also be one of the prominent supplier for the same which will see it command a much higher valuation (in terms of multiples and all) on the bourses.
All and all, when we have a company which has a clean management with a decade of growth track-record, and the backing by the likes of Standard Chartered PE and Halcyon Resources; which has already achieved a reasonable scale of around 700 cr. as also a low floating stock of hardly 10 % (since 64 % of the equity is held by promoters, 9 % held by PAC, 15 % held by Standard chartered PE and 2 % held by Halcyon Resources and its Associate) and still the counter is available at a trailing 12 month p/e of just 14.9 (on expanded capital of 12.52 cr.) and a forward FY12e p/e of just 11.3 and FY13e p/e of just 6.1 its a rare thing since the company, which otherwise should get a scarcity premium because of its unique and derisked business model and low floating stock is actually available at a discount.
Hence, I feel that this stock has to be for the long haul and no specific target can be put on it as once the rerating happens the current rate should be the history. I am ataching here the reports that I feel are a must read before taking any kind of exposure to the stock… In case you require past 10 years annual reports of the company as well as the audio transcript of the concall then do tell me I will be more than happy to provide you the same.
Your valuable views are invited and feel free to get back to me in case of any further query.
Rgds.
