PI’s FY17 annual report reveals that the company generated improved free cash flow for the year, driven mainly by lower capex.
PI’s FY17 annual report reveals that the company generated improved free cash flow for the year, driven mainly by lower capex. Management reiterates that H1 FY18 will be soft for custom synthesis, but the outlook for H2 is positive, and that PI’s efforts to diversify into fine chemicals will eventually yield results, although more specifics are not provided. Margin expansion in FY17 was aided by higher export incentives and decrease in certain expenses. We analyse these and other takeaways in this note.
PI generated Rs 2.1 billion in free cash flow for FY17, up from Rs 590 million in FY16, with the improvement driven by a sharp decrease in capex to Rs 1.4 billion (against Rs 3.2 billion in FY16).
ROE improved to 32.8% (+320bps YoY), driven entirely by improved Ebitda margins and a lower tax rate, whereas the asset turnover ratio declined for the second successive year, possibly explaining the reduction in capex in FY17.
Management commentary emphasises that PI is trying to diversify beyond agro-chemicals into the fine chemicals space, but does not offer more specifics or set a timeline or revenue targets.
In terms of new products, PI launched one new rice herbicide, Legacee, in the domestic market and commercialised four new molecules in custom synthesis. In FY18, PI plans four new launches (with BASF) in the domestic market.
PI’s spending on R&D and overall employee headcount have increased sharply in the past two years. Eleven new molecules progressed to the “next stage” in FY17, the same number as in FY16. Revenues from Asia grew 47% in FY17, offsetting an 83% decrease in revenues from Australia. Price Waterhouse will be company’s new auditors for five years beginning FY18.