We maintain ‘buy’ on PI Industries with a target price of Rs 800 per share, valuing the stock at 28x FY17e earnings. The stock currently trades around 28.9x FY16e and 22.1x FY17e EPS.
We believe mix change in favor of the R&D-intensive CSM business would continue to drive re-rating for the stock.
With best-in-class capital efficiency (40% RoCE), insignificant debt-to-equity and robust growth outlook (21% revenue CAGR and 26% PAT CAGR), we believe PI is one of the best plays on India’s agri sector and CSM opportunities.
We recently interacted with the management of PI Industries post the launch of ‘Vibrant’ – a rice protecting insecticide – to understand the product and its potential. Vibrant (Thiocyclam) is a broad-spectrum insecticide for rice treatment and can attack two pests (stem borer and lepidoptera/leaf folder) in a single application.
Farmers currently use two insecticides—one for stem borer and another for leaf folder. The new product is exclusive (registration u/s 9(3) of CIB) and has an in-licensing arrangement with Japanese MNC Nippon Kayaku—PI’s first tie-up with the MNC.
The product has undergone four years of development and testing. Our interactions with the management suggest that Vibrant does not cannibalize any of PI’s existing products.