PI Industries target raised on strong Q1

Updated: Jul 31 2014, 07:09am hrs
We reiterate our outperform rating on PI Industries and raise our June 2015 target price to R440 (from R330), based on 18x one-year forward P/E (16x earlier).

Our target P/E is lower than the current one-year forward P/E of 22x. We raise the target to account for (a) a consistently strong RoE of c.30%; (b) our FY14-17e EPS CAGR of 28%; and (c) strong visibility over the CSM business with a book-to-bill ratio of 2.4x.

PI reported strong Q1FY15 results with 16% y-o-y revenue growth, driven by 26% growth in domestic crop protection business and 7% in the CSM business. Ebitda margin expanded 350 bps y-o-y, driven predominantly by favourable pricing and mix improvement in the domestic pesticides business. The company had net cash of R27 crore as of June 30, 2014.

While growth in the CSM business was relatively muted in Q1FY15, the company expects a pick-up from Q3FY15, driven by commercialisation and scaling up of new molecules. CSM order book stood at $435 million.

According to the management, the Phase-II of the Jambusar capacity is expected to commence operations in Q2FY16 and the outlook for the domestic business is dependent on the progress of monsoons and sowing patterns in Q2FY15. The company intends to launch one new insecticide molecule in the current quarter and is in the process of completing registration formalities for another molecule to be launched in the rabi season.

Standard Chartered Securities