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Emkay Global
PI Industries (Buy)
CMP: ₹1,450
Target: ₹1,241
We increase PI Industries’ target price to ₹1,450 from ₹1,305 and turn overweight in sector EAP from marginal UW, factoring in faster execution of Custom Synthesis & Manufacturing (CSM) order book in the wake of Isagro (Asia) Agrochemicals Pvt Ltd (IAPL) acquisition.
We also raise our FY21E revenue/EBITDA/PAT by 6 per cent/16 per cent/11 per cent as we take into account the ramp-up of IAPL’s under-utilised capacity. PI Industries had earlier guided for double-digit revenue growth, driven by growth in its CSM business.
IAPL’s overall revenues declined at a CAGR of 3.9 per cent over FY15-18 as its domestic business lagged industry growth due to lack of pan-India presence and growing competition in generics. Exports to parent Isagro SpA, Italy, also fell 53 per cent over FY16-18.
We continue to value the stock at 28x FY21E EPS (5-year/10-year average: 29.7x/22.3x) due to: a) strong order book visibility (2.7x FY20E revenues); b) industry-leading revenue growth; and c) strong OCF generation to fund capex. Reiterate BUY.
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