PI Industries: 1QFY19 Result : Indian Growth Continues, CSM Hit by New Accounting Standard

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India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/6040" target="_blank" data-smartkarma-citation="entities:6040:1">Pi Industries (PI IN)</a> reported revenue growth of 29% YoY in 2QFY19. The Custom Synthesis Manufacturing (CSM) segment recorded a 33% revenue growth YoY while the Indian revenue (Agri input) growth was at 24% YoY in 2QFY19.</p>
<p>Reported EBIDTA stood at Rs 1,346 mn vs Rs 1,222 mn in 2QFY18. EBIDTA margins reported at 18.6% vs 21.8% in 2QFY18. PAT stood at Rs. 944 mn vs Rs 803 mn in 2QFY18.</p>
<p>EBITDA margins declined due to higher crude prices, higher input costs and a lag in the price reset with customers. We expect EBITDA margins to improve from 3Q FY19E as crude prices have cooled off and higher prices may be charged to customers.</p>
<p>We have valued PI at 22 times the business EPS estimates for the year ending September 20E, of Rs 38 per share. We have added the cash value of Rs 22 per share as of 30th September 2018 to arrive at the fair value estimate of Rs 858 per share over the next 12 months.</p>
<table class="table table-striped">
<tbody>
<tr>
<td>Particulars</td>
<td style="text-align: right;">FY17</td>
<td style="text-align: right;">FY18</td>
<td style="text-align: right;">FY19E</td>
<td style="text-align: right;">FY20E</td>
<td style="text-align: right;">FY21E</td>
</tr>
<tr>
<td>PE (X)</td>
<td style="text-align: right;">                 25</td>
<td style="text-align: right;">                 31</td>
<td style="text-align: right;">              28</td>
<td style="text-align: right;">              22</td>
<td style="text-align: right;">              18</td>
</tr>
<tr>
<td>ROCE</td>
<td style="text-align: right;">30%</td>
<td style="text-align: right;">24%</td>
<td style="text-align: right;">23%</td>
<td style="text-align: right;">24%</td>
<td style="text-align: right;">25%</td>
</tr>
<tr>
<td>ROE</td>
<td style="text-align: right;">33%</td>
<td style="text-align: right;">21%</td>
<td style="text-align: right;">20%</td>
<td style="text-align: right;">21%</td>
<td style="text-align: right;">22%</td>
</tr>
</tbody>
</table>
<div class="content-caption"><em>Source: PI Industries Annual Report 2018 and Trivikram Consultants Research as of 12th November 2018</em></div>
<div class="content-caption"><em>E= Estimates</em></div>

Pi Industries (PI IN) reported revenue growth of 29% YoY in 2QFY19. The Custom Synthesis Manufacturing (CSM) segment recorded a 33% revenue growth YoY while the Indian revenue (Agri input) growth was at 24% YoY in 2QFY19.
Reported EBIDTA stood at Rs 1,346 mn vs Rs 1,222 mn in 2QFY18. EBIDTA margins reported at 18.6% vs 21.8% in 2QFY18. PAT stood at Rs. 944 mn vs Rs 803 mn in 2QFY18.
EBITDA margins declined due to higher crude prices, higher input costs and a lag in the price reset with customers. We expect EBITDA margins to improve from 3Q FY19E as crude prices have cooled off and higher prices may be charged to customers.
We have valued PI at 22 times the business EPS estimates for the year ending September 20E, of Rs 38 per share. We have added the cash value of Rs 22 per share as of 30th September 2018 to arrive at the fair value estimate of Rs 858 per share over the next 12 months.



Particulars
FY17
FY18
FY19E
FY20E
FY21E


PE (X)
                 25
                 31
              28
              22
              18


ROCE
30%
24%
23%
24%
25%


ROE
33%
21%
20%
21%
22%



Source: PI Industries Annual Report 2018 and Trivikram Consultants Research as of 12th November 2018
E= Estimates

PI Industries 2QFY19- Margin Improvement Expected from 3Q FY19