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Centrum Broking
PI Industries (Buy)
CMP: ₹1,509.2
Target: ₹1,840
A leading custom synthesis and manufacturing (CSM) player with an enviable domestic portfolio as well, PI Industries (PI) is a solid investment play for the next 18-24 months, given the carnage visible across industries due to the ongoing Covid-19 crisis.
The steadily tightening environment norms in China and the renewed focus of global chemical/Pharma companies to shift dependence from China post Covid-19 is a key growth driver for PI, which already has an established and proven competency recognised across global players.
Valuation: PI Industries is trading at above five-year multiples driven by a muted FY21E EPS, but we believe, notwithstanding the ongoing Covid-19 crisis impact, growth for the company will sustain at 20 per cent+ levels over the next few years. Further, given the PEG ratio of about 1x at CMP (last 3-year average at >2.5x), we see material upside at current valuations of 28.1x PER/18.4x EV/EBITDA and 5.5x PBV, in view of the robust 19/27.9/27.5 per cent CAGR expected in revenue/EBITDA/PAT over FY20-22E.
We value the company at 1.25x PEG FY22, translating to a price-to-earnings ratio of 34x FY22 EPS and a target price of ₹1,840. Initiate coverage with a ‘buy rating.’
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