Decent set of numbers from PI given the inventory build up and competition coming in key products. In the investor presentation, management has guided 15% growth, reducing from 18-20% being mentioned earlier. Looks like there will be slower growth for the next few quarters, need to wait for the con call tomorrow to get further details.
disc- invested and remains one of my top 3 holdings
As per PPT - https://www.bseindia.com/xml-data/corpfiling/AttachLive/f0ce5213-df5c-4d98-a57e-6c840b6364ab.pdf
Slide 17 - targeting to achieve ~15% revenue growth with sustained improvement in profits.
On congervative if we consider 15% revenue growth with same profit margin of 22%, EPS of FY 25 is 127.6, with that EPS forward PE comes to 28. Seems cheap with PI quality.
Disc: Invested and views are biased.
Over the last 6 years promotors have reduced stake from 51.35% to 46.09%. Going below 50% ownership does not instill faith. Did management provide any commentary on this?
Is it due to promoter’s selling?
No, mainly it is due to QIP that company done for fund raising.
PI had a softer quarter, with sales growing by 11% and EPS by 32%. They are guiding for 15% sales growth in FY25 with similar margins but higher tax rates which might keep EPS muted in FY25. Besides that, they have grown very well in this downturn and have clearly differentiated themselves from other agchem/chemical cos. Concall notes below.
FY24Q4
Targeting 15% sales growth in FY25 and higher growth (18-20%) starting FY26; 49-50% gross margins and 26% EBITDA margins
70% of CSM growth in FY24 came from new molecules commercialized in past 3-years
New products: 7 (domestic), 6 (CSM); 8-10 in CSM in FY25
6% revenue drop in domestic agchem in FY24 (29% growth in biologicals)
Higher tax rate in FY25 (24%)
Weaker pharma revenues due to deferral of customer orders (315 cr. vs 563 cr. In FY23). Investments will happen for the next 1.5 years after which EBITDA margins will increase
FY24 capex : 1080 cr. (including 490 cr. for pharma acquisition); Plan 800 cr. In FY25
Order book increases to $1.75bn
Disclosure: Invested (position size here, no transactions in last-30 days)
PI Industries (PI) has built a solid business model. It has strengthened its presence in the Custom Synthesis Manufacturing (CSM) segment within the agrochemical industry. Going ahead, the company aims to diversify into the pharmaceutical segment and other niche chemistry. It continues to build a strong domestic agrochemical franchise by launching improved products in the crops and pesticide segments over the years.
PI Industries’ focus on CSM export has been the key differentiator from other agrochemical and chemical players in India.
From FY14-24, the company has an industry-beating track record of:
PI’s moat (i.e. the ability to maintain a competitive edge over its competitors) lies in its strong export-focused CSM business. No other Indian player offers the width and consistency that PI does. The company leverages this by consistently launching new molecules.
In 2023, the company ventured into:
through the acquisition of Therachem Research Medilab, LLC and Archimica SpA.
Despite a ₹70 crore PBT loss in its pharma segment, PI Industries reported an EBITDA margin of around 28% for the quarter. The company reaffirmed its goal of achieving a 50% to 51% gross margin and a 25% to 26% EBITDA margin for the year. Considering that quarter-to-quarter variations are expected due to changes in product mix and supply schedules.
On the domestic front, the company continues to provide farmers with advanced crop protection solutions with a steady flow of new products.
In Q1FY25, it launched two innovative brands:
With over 20 products in its pipeline for domestic launches, PI Industries is expecting a healthy visibility of growth in the coming year.
It formed a strategic alliance with Koppert to innovate in the Agricultural Biologicals domain. Biologicals revenue grew by 39% year-on-year, supported by a favourable product mix and operating leverage.
What do you think about this?
Hi team, why has the management stake come off in the last few years? Is there some data that I’ve missed out.
QIP was only In 2020 after that there was no QIP
Yet stake has reduced, just checking if you guys have any take on the same
Dilution because of QIP done after covid for exploring opportunities in Pharma space
Below PI Ind chart showing EPS growth and PE derating - this might be temporary due to (1) Overall negativity on agri/pesticide sector (2) Reduced rate of growth (3) Investors are relocating their money to hot sectors.
However, this is the best time to start accumulating if the company fundamentals are strong, promoters are honest and having growth vision. There is always delay between capital investment and its outcome for any company. But when this phase ends, uptrend of earning and upward re-rating of PE will give significant return.
Management indicated clear slowdown in CSM/export business in next two quarters. Their clients are in wait and watch mode regarding confirmed orders for 2025. Pyroxasulfone a key molecule that PI produces for Kumiai is coming off patent.
Pharma is yet to contribute meaningfully. They are primarily depending on domestic agrochem to do much better in the remaining FY25, where as in the last few years, it has been CSM/export that has fueled the growth and domestic growth has been muted. In other words, they are expecting the part of the business which hasn’t done well for the past 7-8 years to do well this year.
While the new molecules are growing significantly (40-42% as per management Q2 concall), they constitute only 16-18% of CSM business. Older molecule growth is sluggish due to inventory build up and there is additional headwind when Pyroxasulfone comes off patent.
Their partnership with Kumiai in 2017 helped in fuelling the growth in the last few years. Kumiai had negative growth in 2024 and indicated slow growth over next couple of years. PI has invested in new areas of growth, but it will take some time before they start contributing meaningfully.
Thus there is uncertainty in the short term causing overhang on the price. How long will the demand environment take to turn around - management was transparent that they may get a view of this over next two quarters. In other words, they don’t know right now.
Technically the stock has broken 40W EMA indicating significant weakness.
Is it a good time to buy? I would say it really depends on one’s timeframe. Expecting quick turnaround could result in disappointments. In longer term, it has excellent management, proven technical capabilities, demonstrated ability to scale, good portfolio of molecules - thus likely to do well.
Disc - one of my long term holding from 700 levels. I booked partial profit a few months back and continue to hold significant amount. I am not SEBI registered advisor and this is not buy/sell recommendation.
@newrb Fully agree with your inputs.
When sector facing headwinds, stronger company will still do better and when sector will have tailwind the stronger company in the sector will be rewarded! yes, but when it will happen no one knows !!
Few things I have observed about these type of business be it agchem be it pharma:
One is that it’s a business characteristic where 1 product contribute significant portion of revenue.
Second New product takes the place of old blockbuster product but it takes 2-3 years for that.
Albeit pyroxasulfone will see price cuts, slowly other products ( fluindapyr, fluxapyroxad) might contribute more.
Plus the next leg of growth (PI 2.0) will come from Pharma as TAM is very big compared to agrochemicals.
Serious negative news for PI Industry -
Isn’t the total demand is around 100 crores for a 55000 crore mcap company? i think the amount is negligible.
Also they have disagreed with the demand…so we will wait and see…
Disc: not invested, just watching.
After this, with total contingent liability of around 300 crores I don’t think it is that big of a negative news for company it will be just 3% of equity
regular customs issue. classification is disputed in most cases by department, and such cases are resolved only at CESTAT level.
