PI’s revenue declined 1.9% y-o-y to Rs 5,611 million in 2QFY18. EBITDA margin shrunk 60bp y-o-y to 21.8 % in 2QFY18, led by a 390bp y-o-y contraction in the gross margin to 48.1 % and a 160 bp rise in employee expense to 10.8% of net sales. EBITDA declined 5 % y-o-y to Rs 1,222 million. Consequently, adjusted PAT declined 21 % to Rs 803 million from Rs 1,014 million in 2QFY17. The decline in revenue is partly attributable to the change in accounting standards; excise in 2QFY17 was reported as an expense item above EBITDA; however, it is net off from gross sales in 2QFY18. Excise stood at Rs 279 million in 2QFY17. The domestic agro- chemicals business grew 13% y-o-y in spite of generic product pressure on Nominee Gold. The company launched three new products for BASF in 1HFY18, and two more launches are expected in FY18 for the domestic market in segments where the company has little presence, thereby broadening the scope. Global agchem industry has also witnessed falling inventory levels, providing improved visibility of a revival in offtake.
With the industry witnessing signs of a global agchem revival, we believe PI is well braced to leverage its strong order book and aid growth, with continuous commercialisation of new products. FY18 is expected to be a back-ended growth year, with improvement largely expected in the quarters to follow. We largely maintain our estimates and value the stock at 25x FY19E EPS, arriving at a PT of `890, implying an 18 % upside. Maintain ‘Buy’. PI’s revenue declined 1.9 % y-o-y to Rs 5,611 million in 2QFY18.
However, the decline in revenue is partly attributable to the change in accounting standards; excise in 2QFY17 was reported as an expense item above EBITDA; however, it is net off from gross sales in 2QFY18. The domestic market witnessed a revival in demand post GST, which was also aided by new product launches (three new launches in 1HFY18), leading to growth of 13% in domestic revenues. EBITDA margin shrunk 60bp y-o-y to 21.8% in 2QFY18, led by a 390bp y-o-y contraction in the gross margin to 48.1% and a 160bp rise in employee expense to 10.8% of net sales. The quarter witnessed pressure on margins on account of softness in export demand as well as product mix in the domestic market.
