PI Industries: Maintain ‘hold’ with a TP of Rs 3,506


On balance, we maintain ‘hold’ with a TP of Rs 3,506 (48x Q3FY23E EPS).

The way forward: Inorganic growth: We interacted with PI Industries’ joint managing director Rajnish Sarna. Key takeaways: i) The Ind Swift (ISL) acquisition has helped PI enter the pharma segment. ii) Potential for doubling ISL revenue along with margin expansion over the next three–four years. iii) While near-term growth will be driven by improved utilisation of existing assets (targeting 2–2.3x asset/turn) and introduction/commercialisation of new products, inorganic growth is the way forward. In our view, following ISL’s successful integration, PI’s premium valuation would sustain. Meanwhile, watch out for execution in pharma APIs. Retain ‘hold’ with a TP of Rs3,506 (48x Q3FY23E EPS).

Top-5 highlights: Is inorganic growth the way forward? With two successful acquisitions at attractive valuations under its belt, management is scouting for more such opportunities in the domestic market as well as globally. This, they believe, will accelerate growth by reducing regulatory hurdles and long gestation period needed to create assets. Can PI sustain near-term growth with current assets? Near-term focus will be more on operating leverage and better utilisation of existing assets by moving up the value chain with a target asset/turnover of 2–2.3x (up from 1.7x in FY21).

After entering agro and pharma, what’s the next focus? While agro and pharma remain the key growth drivers, the company is evaluating opportunities in technological platforms for scaling up production across the specialty chemicals business. PI is also looking at new distribution avenues in the CSM space. Is China + one benefitting Indian players? Globally, many players are looking at alternatives other than China. In this context, India is the best alternative given other countries have several limitations. Are government policies helping India’s chemical industry? The chemicals industry needs greater government support. For instance, bringing the industry in the ambit of the PLI scheme/export incentives would be beneficial.

Outlook and valuation: Growth concern addressed; maintain ‘hold’: PI has been the market leader in agrochemical CSM, and we believe the acquisition of ISL will help it mark its presence in pharma APIs, enhancing the overall addressable market. As acquisition opportunities remain solid in this space, management aims to continue to accelerate growth inorganically. The company, we believe, will continue to command a premium valuation led by best asset allocation and above-industry returns ratios. However, we remain watchful of PI’s entry into the pharma space and successful integration of ISL. On balance, we maintain ‘hold’ with a TP of Rs 3,506 (48x Q3FY23E EPS).

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