Strong December quarter margin helps PI Industries

The agrochemicals company’s earnings have been strong with EBITDA (earnings before interest, tax, depreciation and amortization) margin growing nearly 390 basis points (bps) year-on-year to 25.7%, hitting multi-quarter high coming to a higher level. One basis point is 0.01%. A favorable product mix and operating leverage helped margin performance. With stable commodity prices and improved operating efficiencies, the management expects to maintain EBITDA margin at 23-24%.

Prashant Biyani, Vice President, Institutional Equity, Elara Capital said, “While we expect to maintain the 24% margin band, it may see marginal improvement in H2FY24. But since there is surplus channel inventory globally in many geographies, this has the potential to impact PI Industries’ business in FY24, and we may revise estimates at that time. Management expects to maintain revenue growth of over 20%. New products should help. In the nine months ended December, PI Industries commercialized three new products in its export business and seven new domestic agri brands. In the third quarter, the company derived almost 82% of its revenue from exports, which saw a growth of 23% year-on-year. This was driven by 9% volume growth and 14% growth coming from price, currency and favorable product mix. The segment has seen growth in the Custom Synthesis Manufacturing (CSM) export order book to around $1.8 billion, offering good visibility. Domestic revenue grew approximately 2% due to unfavorable weather conditions and higher channel inventory. Overall revenue growth of 19% 1,613 crore, missed analysts’ expectations. However, the improved margin performance meant that EBITDA growth was relatively high at 40%.

Meanwhile, the company has guided for capex 500 crores and around 800 crores for FY23 and FY24 respectively. Still, the company is evaluating a pharma acquisition, which analysts say could weigh on the stock in the near term.

While the stock has gained since the results, year-to-date returns have been roughly flat. Valuations are showing an uptick. The stock trades at around 36 times estimated earnings for FY24 Bloomberg Figures. “We are encouraged by strong operating leverage and solid bottom-line growth in the near-term, while the pharma acquisition remains a key driver,” said a report by Nuwama Research.