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Initiating Coverage | 11th August 2011
PI Industries Ltd.
Dalmia Research Center is the research desk of Dalmia Securities Private Limited (the “Firm”), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision
A DALMIA RESEARCH CENTRE REPORT
www.dalmiasec.com
Harvesting Growth
PI Industries Ltd. (PII) has rightly placed itself for the next level of growth
from the changing scenario of the Indian agriculture. The company has
transformed itself to India’s only custom synthesis player, where more than
90% of the molecules are patented. Given the growing demand to feed a
billion mouths, millions of whom transit to a superior diet every year, rising
food prices and with the world's second-largest arable area the
opportunities for PII are innumerable.
At the CMP of Rs 984/-, the company is currently valued at P/E multiple of
12.3 and 8.4 of FY12E and FY13E earnings respectively indicating fair
valuation. We have valued the company at Rs 1052/- which is 6.8% higher
than the current price. We initiate coverage with a “NEUTRAL”
recommendation.
Investment Rationale
Favourable dynamics of the agricultural sector
The present dynamics of agriculture are quite promising for a good agriculture
season in 2011-12. Government’s strong focus and policy initiatives to enhance
agriculture productivity by declaring higher MSP’s of agriculture produce for 2011-
12 as well as indication of normal monsoon are opening up the increased usage
of agrochemicals by the farmers to protect their yields and increased productivity.
Burgeoning custom synthesis order book of US$ 300 million
Custom Synthesis business of PI entails dealing in custom synthesis and contract
manufacturing of chemicals including techno commercial evaluation of chemical
processes, process development, lab & pilot scale up as well as commercial
production. Order book of US$ 300 million with tenure of execution ranging from
2-4 years, this business unit is expected to be the primary growth driver with
strong revenue visibility.
Riding on new product launch, to outperform the industry
PI’s agri-input business grew by 38% Y-o-Y in FY11 outperforming the estimated
industry growth of about 15% for FY11 mainly on account of substantial growth of
newly launched products over the next year as well as launch of couple of new
products in the pipeline gives greater visibility in the agri-input area.
Valuation:
Over the next three Net sales and PAT is expected to grow by 30% and 39%
respectively. The EBIDTA margin is expected to improve from 17% to above
18.5% over the same period. At the CMP of Rs 984/-, the company is currently
valued at P/E multiple of 12.3 and 8.45 of FY12E and FY13E earnings
respectively indicating fair valuation. We have valued the company at Rs 1052/-
on combination of P/E, EV/EBIDTA, FCFF and FCFE on standalone basis
(Contribution from subsidiaries are negligible) giving equal weightage to all, which
is 6.8% higher than the current price. We initiate coverage with a “NEUTRAL”
recommendation on this stock.
Financials: (Rs in Mn)
Particulars 2009 2010 2011 2012P 2013P
Net Sales 4,622 5,428 7,193 9,025 12,109
EBIDT 581 815 1,233 1,744 2,465
PAT 172 354 641 1,001 1,459
EPS (Rs) 48.50 49.91 57.31 79.92 116.50
P/E 2.31 5.63 10.20 12.32 8.45
EV/EBITDA 4.12 4.22 7.26 7.94 5.41
** Stock Split from Rs. 10/- to Rs. 5/ from 18th August 2011.
Rating : NEUTRAL CMP : Rs. 984.40
Bloomberg: PI IN Reuters: PIIL.BO
Face Value (Rs)** 10.00
Equity Share Capital (Mn) 1252.00
Share Outstanding (Mn) 125.20
Market Cap (Mn) 12324.7
Book Value / share 187.91
Daily Avj. Volume 24771
52 W High 1209..40
52 W Low 388.00
Shareholding pattern (%)
Promoter 63.77
Foreign 16.16
Institutions 0.67
Public & Others 19.51
Relative Performance Analysis
PE Band
Chanchal Biswas +91 33 66120525 [email protected]
PI Industries Ltd.
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Table of Contents
Investment Rationale 3
Industry Outlook 6
Financial outlook 9
Valuation & Outlook 10
Price Target Derivation 11
Price Target Evaluation 12
Risk & Concern 12
Peer Comparison 13
About the Company 13
Business segment 14
Financial Detail 15
PI Industries Ltd.
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Custom synthesis - the main growth driver
With the expected growth trajectory of PI Industries, the custom synthesis division emerges as the main growth driver for
PI as India continues to be the preferred destination for outsourcing custom synthesis and contract manufacturing related
projects. With over 14 years of experience, PI has created a knowledge database in the custom synthesis business over
several years to enable it to provide value added services and build trustworthy relationships with its key customers. It is
associated with the leading innovators in the fine chemical industry in Europe and Japan. A key attribute of PI is its
process research expertise and its ability to quickly scale up to commercial manufacturing. It has over the years proven
these capabilities by developing more than 300 molecules at various stages of process development with up to 15 step
chemical reactions. A primary differentiator for PI is the trust it enjoys with key innovator companies owing to its non-
compete business model.
Order book nearly 6 times the revenue
The custom synthesis division has contributed around 37% to standalone revenue (excluding the polymer business),
which is now poised to grow substantially over the next few years fueled by order book of US$ 300 million with tenure of
execution ranging from 2-4 years. As on 31st March 2011, this order book in nearly 5.6 times of the custom synthesis
business for FY’11 revenue. From FY12E, as per the management guidelines, the custom synthesis division is expected
to contribute around 40% of the total revenue.
The Company’s new manufacturing site located at the SEZ of Jambusar is presently under construction and will get
commissioned in the last quarter of FY12. The commissioning of this additional capacity will help in catering to the
additional demand and achieving the business growth in the coming years. With the commissioning of the new
manufacturing facility at Jambusar, the multiyear contracts and sound order book position, it is expected to continue to
contribute significantly to revenues and earnings of the Company.
Growing margins
Custom synthesis will remain a key growth driver for the Company. The business has demonstrated robust growth with
high margins. The custom synthesis division commands the highest EBIDTA margin for PI across the business division
at 21% and the management expects to increase it to over 25% in the next 2 years.
With consistent performance in terms of timely product supply, quality and services, PI has established strong credibility
with its customers thereby getting an opportunity to work on newly patented products, which offer better opportunities of
growth and long term prospects for the company.
Custom Synthesis workflow
(Source: Dalmia Research + Company)
Customer Enquiry
Secrecy Agreement
Feasibility Study Process
evaluation
Bench scale trials
Quality Validation
Pilot scale trials
Evaluation of cost
estimation
Customer approval
Manufacturing & Supply
PI Industries Ltd.
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Agri – Input division to continue with growth trajectory
Over the years PI has shifted its core focus in Agri – Input business by gradually shifting from being a generic
manufacturer of the reverse engineered off-patent agro-chemical products to developing & having strong relationships
with global MNCs and having exclusive marketing rights to distribute their products in India. The key strength of the
company are-
∗ One of the leading agrochemical companies in India.
∗ Over 45 years of experience in rural marketing.
∗ Business built on strong understanding of crop requirements and solutions.
∗ Developed some of the best brands in the industry that are leaders in their category.
∗ One of the world’s largest producers of generic molecules like Profenofos, Ethion, Phorate etc.
∗ Dedicated team for product trials to generate data, product evaluation and for registration.
∗ Has more than 25 years of association with large multinationals for some of the products in India.
∗ Pioneers in the introduction of granular formulation and the largest sellers in that segment.
Product Portfolio:
Agri input business has achieved a robust growth of ~38% on YoY basis in FY11 and will find it relatively easier to
maintain and grow its margins given that several brands in our portfolio are segment leaders. There is also a concerted
strategy to develop strong market positions where a majority of its brands are either #1 or #2 in their respective
categories. As a result there is a premium created for the brands under the PI umbrella. An apt example for the same is
“Nominee Gold‟ which is all set to become the leading rice herbicide in the country. Acceptance levels are high as the
product is technically superior to all available alternatives.
Common Name Brand Name Common Name Brand Name
Insecticides Fungicides
Alphamethrin 10 % EC RODEO® Iprobenfos 48% EC KITAZIN
Carbofuran 3% CG (encapsulated) DIAFURAN® 3G Metiram 70 % WG SANIT™
Chlorfenapyr 10% SC LEPIDO® Herbicides
Cypermethrin 10% EC Colt® 10 Atrazine 50% WP SOLARO® 50
Cypermethrin 25% EC Colt® 25 Fenoxaprop - p - ethyl 10 EC JUPITER
Ethion 40 % + Cypermethrin 5 % EC COLFOSTM Pretilachlor 50 % EC ALCOR® 50 EC
Ethion 50% EC FOSMITE® 50 Thiobencarb 50% EC SATURN® 50 % EC
Imidacloprid 17.8 % SL JUMBO™ Bispyribac Sodium 10% SC NOMINEE GOLD® 10 % SC
Metaldehyde 2.5% DP SNAILKIL® 2.5 % Bait Plant Nutrients
Monocrotophos 36% WSC KADETT® 36 Seaweed (Ascophyllum nodusum) BIOVITA
Phorate 10 % CG FORATOX® 10 Gr Seed Treatment Chemicals
Profenofos 40%+Cypermethrin 4%EC ROKET® 44 EC Imidacloprid 48% FS DISPEL® 48
Profenofos 50% EC CARINA® 50 EC Imidacloprid 70 % WS FUNDA 70% WS
Propargite 57 % EC SIMBAA™ 57% EC Thiamethoxam 70 % WS MAXIMA® 70% WS
Thiamethoxam 25 %WP MAXIMA® 25 % WG
(Source: Dalmia Research + Company)
PI Industries Ltd.
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PI continues to evaluate newer molecules and are partnering with innovators for the same. The in-licensing model helps
us to work on newer innovative products where we work extensively in the field promotion area, building on our
knowledge base before looking to scale up to the next stage. There are 7-8 products in the pipeline with at least 2 new
launches slated for launch in FY2012. With a portfolio of ‘blockbuster’ products in-market and a pipeline of exciting new
products, PI is poised to scale up its business this year. The focus will remain on driving growth through exclusive
marketing rights for very promising products by lending the best distribution and marketing support. PI’s track record thus
far stands testament.
Portfolio of brand leaders and patented molecules
PIIL is one of India’s leading players in the Agri-Input industry, primarily dealing in agro-chemicals, specialty fertilizers,
plant nutrients and seeds. Several brands of PII enjoy leadership across the industry in their respective categories. PI is
the only Custom Synthesis business in the country where more than 90% of the molecules are patented or are at early
stage of commercialization.
Unique business model with non compete business division
PI Industries Ltd. (PIIL) is following a business model which is unique in India and in such model initial scale-up might be
slow but after achieving the critical scale, the growth will be exponential with decent margins since it is the critical
supplier for most of the products it serves. PII operates in the Agri-input and Custom Synthesis business. These two
divisions mutually complement each other wherein PII can get into an agreement to market a product in India, for which it
is already contract manufacturing for the innovator company, if it feels that the product would be a success in India.
Strong distribution network
PII, a pan-India company has been in the business for more than 40 to 50 years. Company has all majority products,
focusing on a variety of crops. To support the growth for agri Input business, it has got a strong distribution network to
achieve the targeted growth with five zonal offices, 24 branches, 220 sales staff, 800 field staff, 3000 distributors and
over 20,000 retailers. In terms of the custom synthesis business, it is 100% export-oriented business and is basically in
the developed nations, where all the innovative companies are located, which is basically Europe, Japan, and bits of
America.
Exit from non-core business to propel the operating margin
Company’s strategy to concentrate on its core businesses of Agri-inputs and Customs Synthesis business is well
focused with the divestment of the polymer business to Rhodia, S.A., a French multinational speciality chemical major.
The deal includes transfer of all assets, people, plant facility, R & D capabilities, customer base and logistic network in
India. The deal was concluded in April, 2011. The polymer business witnessed significant pressure on margins because
of input-cost pressures. Post this transaction PII is completely focused on both high margin and highly scalable
businesses. The proceeds from the sale transaction give it the flexibility to fund the growth plans for these businesses.
Capex plan to sustain high growth
The Company’s new manufacturing site located at the SEZ of Jambusar is presently under construction and the first
phase will get commissioned in the last quarter of FY12. The commissioning of this additional capacity will help in
catering to the additional demand and achieving the business growth in the coming years. The overall capex is guided at
Rs. 1250 mn for this facility in the next couple of years, out of which the company has already incurred Rs. 750 mn in the
FY11 for expanding its existing facilities at Ankleshwar. The company is optimistic about funding its major portion of its
future capex requirements through internal accruals on the back of robust growth in the future without expanding existing
debt-equity ratio.
PI Industries Ltd.
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Industry Outlook
Indian Agriculture in search of Second Green Revolution
Agriculture is the main stay of the Indian economy as it constitutes the backbone of rural India which inhabits more than
70% of total Indian population. India needs second green revolution to bring food security to its growing billion plus
population. Increasing population, high emphasis on achieving food grain self sufficiency, limited farmland availability
coupled with pressure to increase yield per hectare and growth in horticulture and floriculture will derive the usage of
agrochemicals in the future.
Key segmentsII
India is the fourth largest producer of agrochemicals globally, after United States, Japan and China. The agrochemicals
industry is a significant industry for the Indian economy. Stringent environmental norms in the West are causing
production capacities in agrochemical segment to shift to developing countries like China and India. The agrochemical
industry in India is different from the developed world for a number of reasons. Globally, herbicides constitute a large
proportion of the demand. On the other hand in India, insecticides comprise 67% of the market. Currently, in India crops
lost due to non-use of pesticides are estimated to be around USD 17 billion every year.
Pesticides consumption Share of loss caused by different pests
(Source: DRC + Insecticides India Ltd.)
Scope for growthI
India uses around 280 grams per hectare of pesticide, which when compared to Japan's usage of 11 kg per hectare is
minimal. The foremost reason being, in India only 25-30 per cent of the farmers are aware of the use of pesticides. The
avoidable crop losses due to pests in different crops vary from 20-90 per cent depending upon the crop and pest
infestation. Per hectare consumption of pesticides in India is one of the lowest and has the potential to grow at scorching
rate in the near future.
(Source: DRC + Insecticides India Ltd.)
PI Industries Ltd.
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Growth DriversII.
Today, Government of India is concerned about Food security and to increase food production. But, the question is
how to achieve this? Is it possible without agro chemicals? Since the growth of the agriculture is linked to the
monsoon and income of the farmer, we have seen the farmers have started to invest in agri-inputs and more
specifically in the crop protection chemicals in the last two years. The Indian Agrochemicals Industry is expected to
grow at 7.5 % over the next 3-4 years due to growing need for food grain to feed above 1 billion people. Even as
India's population burgeoned by 17 per cent in the last 10 years, its farm output expanded at just half that rate.
Despite growing demand for food, the land devoted to agriculture has dwindled in the last 20 years.
Indian Agrochemical Market PI Industries Ltd.
Size (INR Mn) Growth (%) Sales (INR Mn) Growth (%) Market Share (%)
2009 59840 13.3 4621 13.9 7.7
2010E 65120 8.8 5428 17.5 8.3
2011E 67200 3.2 7193 32.5 10.7
2012(P) 72240 7.5 8913 23.9 12.3
2013(P) 77658 7.5 12109 35.9 15.6
(Source: The Hindubusinessline, Insecticdes India Ltd. and DRC)
PI Industries, which is in the agri-business for more than 40 years and having exclusive marketing right for
newly patented molecules have outperformed the industry continuously over the last three years. The
market share of the company is growing steadily over the years and is expected to 15.6% due to company’s
initiative to shift towards the high margin patented molecule from the low margin generic molecule.
Key growth drivers include –
∗ Limited farmland availability and growing
exports: India has ~158 million hectares of
gross cultivated area and the scope for
bringing new areas under cultivation is
severely limited. Available arable land per
capita has been reducing globally and is
expected to reduce further. The pressure is
therefore to increase yield per hectare which
can be achieved through increased usage of
agrochemicals. Indian agrochemical exports
accounted for ~50% of total industry size.
∗ Growth in demand for food grains: India has 17% of the world’s population and less than 2% of the total
landmass. Increasing population and high emphasis on achieving food grain self-sufficiency as highlighted in
the FY11budget, is expected to drive growth. The pesticide consumption in India is just 3% of the global
consumption leaving large scope for growth.
Population Pesticide Usage
PI Industries Ltd.
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∗ Food Security: India is adding one Australia every year and it is estimated that by 2020, food grain
requirement will be 300 million tonnes. The food grain production has nearly stagnated since 1996. In the
last decade it has remained within the range of 200million tonnes to 230 million tonnes. With growing
population. So, food grain production must increase by 5 million tonnes a year. At the same time it is also
estimated that 20% of the area under food grains will shift to vegetables, pulses and chillies.
(Source: Economic Survey + DRC)
∗ Low consumption of food grains: The per capita consumption of food grain, presently quite low in India
and is expected to increase as the
income and number of middle class is
likely to increase. There has been a
sharp decline in per capita grain
output as well as grain consumption in
the economy as a whole. At increasing
per capita income levels, an
increasing amount of grain is
consumed as animal products, so the
total per capita grain consumption
rises fairly sharply with rising income.
The share of direct cereal demand in
the household food budget does
decline, but there is an absolute
increase of total cereal demand and no decline in its overall share in the food budget.
∗ Low Yield: India’s crop yield is quite low in comparison to world. Ensuring food availability for the 1.15
billion people necessitates higher yield of the farm products.
(Source: FAS/USDA + DRC)
The top three -
∗ 43% of food grains production comes from U.P, Punjab & W.B.
∗ 47% of oilseeds production comes from M.P, Maharashtra, Rajasthan.
∗ 62% of cotton production comes from Maharashtra, Gujarat, A.P.
Together, these states accounts for more than 70% of pesticides use in India. Pesticides use contributes to
higher agricultural productivity in these states.
Country/ Yield Wheat Rice Oil Seeds Cotton
tons/hectare tons/hectare tons/hectare Kgs/hectare
USA 2.99 7.94 2.79 871
India 2.91 3.19 0.96 486
China 4.74 6.59 2.13 1315
Pakistan 2.65 3.64 1.36 697
EU-27 5.37 6.49 2.69 888
World 3.01 4.22 2.07 733
PI Industries Ltd.
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∗ Growth of horticulture & floriculture: Buoyed by 50% growth experienced by Indian floriculture industry in
last 3 years, Government of India has launched a national horticulture mission to double production by 2012.
Growing horticulture and floriculture industries will result in increasing demand for agrochemicals, especially
fungicides.
∗ Increasing awareness: As per Government of India estimates, total value of crops lost due to non-use of
pesticides is around USD 17 billion every year. Companies are increasingly training farmers regarding the
right use of agrochemicals in terms of quantity to be used, the right application methodology and appropriate
chemicals to be used for indentified pest problems. With increasing awareness, the use of agrochemicals is
expected to increase.
Financial Outlook
Growth to continue
PII’s revenue is estimated to grow at a CAGR of 29% over FY11E-FY14E mainly on account of substantial
contribution from custom synthesis business. The custom synthesis in FY11 contributed around 30% of
the topline. From FY12 onwards, after the exit from polymer business, the custom synthetic business is
expected to contribute around 40% to the topline and by FY14 it would be the same contributor as
agriinput business to the topline.
EBIDTA and PAT margin to improve in FY12
The operating profit and net profit margin increased to 17.2% & 8% in FY11 from 13% & 3% in FY09
respectively, on account of improved margins in domestic agri-input, increased revenues from custom
synthesis and exit from lower margin polymer compounding business, better capacity utilization and
efficient overheads cost management. PII’s margins have seen an uptrend in the recent years and
expected to improve further in FY12, backed by new product launches and improving product margins as
well as exit from non-core business.
PI Industries Ltd.
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ROCE and ROE are expected to continue growth
In the last 3 years, PII has continuously raised its ROCE and ROE, on the back of robust growth and
expanding margins, The Company has healthy return ratios with ROE & ROCE pegged at 31.6% and
27.3% respectively for FY11. The return ratios are expected to improve further in FY12E due to exit from
non-core business.
Debt – Equity ratio to improve further
The debt-equity ratio which is currently hovering over 1 is expected to cool off to 0.6 in FY12 due debt
repayment of around Rs.1000 million from the proceeds of sale transaction of polymer business. In FY12
and FY13 additional loan of Rs. 250 million and Rs. 500 million will be sourced for the expansion plan.
PI Industries Ltd.
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Valuation and outlook:
We estimate PI to post EPS of INR 79.7 and INR 116.50 in FY12 and FY13 respectively, on a standalone
basis, as contribution from its subsidiaries are negligible. PI is currently available at 12.5x and 8.6x P/E
of FY12E andFY13E, respectively. On EV/EBITDA basis, the stock is trading at 8.5x and 5.5x for FY12E
and FY13E EBIDTA respectively. We have valued the company on combination of P/E multiple,
EV/EBIDTA, FCFF and FCFE on standalone basis giving equal weightage to all.
At our target price of INR 1052 per share, PI trades at 9x FY13E EPS. Even comparing with its peers - PI
looks fairly valued at its current valuations.
On the business front, our key expectations are based on solid business diversification both in
products and markets. Product diversification is important as government regulation play a major role
in the industry and ban on any product can affect sales significantly. PII offers this model of strong
diversity in market and product and on the market diversification, with a strong distribution network
spread throughout the country PI is sure make the new launches successful and withstand the
uncertainties due to monsoons and regional seasonality.
Price target derivation
We initiate with 'NEUTRAL' recommendation on PII Industries Ltd. Our price target is based on FCFF & FCFE
on standalone business with combination of P/E and EV/ EBIDTA multiple.
Valuation In Rs.
25% of weightage on P/E 262
25% of weightage on
EV/EBIDTA 226
25% of weightage on FCFF 296
25% of weightage on FCFE 268
Total standalone value 1,052
CMP 984
Upside (%) 6.8
Our valuation methodology is based on following assumptions
� We have valued standalone business on DCF considering projections from FY12E – FY16E and
discounted for same period.
� We have considered Risk free rate: 8.5%, Expected market return: 16.0%, adjusted beta: 0.68 and
cost of debt at 11.5%.
� Core business is valued on P/E and EV/EBIDTA multiple method, target P/E & EV/EBIDTA of 9x and
5x respectively on FY13E earnings and EBIDTA. Equal weights given to all the four method to arrive
at the final Target Price.
� EBIDTA margins is considered at 18.8% in FY12E and FY13E and reduced to by 50 bps every year
till FY16E.
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Price target Evaluation:
FREE CASH FLOW CALCULATION
Cost of equity (%) 13.60
Equity Return (%) 13.60
Beta 0.68
Risk-free return (%) 8.50
Expected market return (%) 16.00
Debt/Equity(X) 0.6
Cost of debt (%) 11.50
Cost of capital (%) 12.81
Terminal growth rate 6.5
Equity 125.27
Face Value 10
Y/E March FY10 FY11 FY12E FY13E FY14E FY15E FY16E
CFO 12 7 32 214 1,224 1,309 1,511
Marginal tax rate (%) 26 23 23 25 26 26 26
Interest expended 183 182 172 240 232 218 188
Capex (346) (913) (250) (250) (100) (100) (100)
FCFF (380) (946) (256) (94) 1,066 1,154 1,364
Net borrowings 260 (535) 981 (678) 721 (85) (144)
FCFE (74) (1,441) 763 (714) 1,845 1,123 1,267
FCFF
Terminal Value 23,010
FCFF
(380)
(946)
(256)
(94)
1,066
1,154 1,364
Discounting year
-
1
2
3 4
PV
(256)
(83)
838
803 15,049
NPV
16,350
Less-Debt
1,807
Add-Cash
295
NPV for Shareholder
14,839
NPV per share
1,185
FCFE
Terminal Value Less Debt 17,197
FCFE
(74)
(1,441)
763
(714)
1,845
1,123 18,464
Discounting year
-
1
2
3 4
PV
763
(628)
1,430
766 11,087
PV per Share
61
(50)
114
61 885
NPV per share
1,071
PI Industries Ltd.
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Peers Comparison:
Sales (Rs. Mn)
NP Margin (%)
Op. Margin (%)
P/E EV/EBIDTA EV/Sales P/Bv D. Yield Market Cap. (Rs. Mn)
United Phosp. 28091.4 5.61 17.38 6.3 19.02 3.3 3.22 1.27 72806
Excel Crop Care 7022.8 7.67 11.30 4.7 4.02 0.45 0.99 2.01 2058
Rallis India 10467.2 12.06 18.84 24.7 15.43 2.91 5.89 1.31 29623
Sabero Organics 4127.2 3.94 8.29 31.4 14.87 1.23 3.67 0.91 4464
Meghmani Organ.
8446.9 5.00 10.82 6.7 7.09 0.77 0.63 3.04 3356
Jubilant Inds. 2470.1 3.36 4.70 5.2 12.97 0.61 0.54 0 1516
Nag. Agrichem 5679.1 1.05 8.75 37.7 6.72 0.59 0.87 4.35 1719
P I Inds. 7185.6 8.92 17.20 15.6 9.96 1.71 4.21 0.5 9918
Risks & Concerns to our Target Price
∗ Drop in realisation beyond our assumptions, increase in cost of raw materials will have major impact on profitability of the company.
∗ The pesticide demand is mainly linked to growth of the agriculture i.e. mainly dependent on monsoons. These vicissitudes of the monsoon and the act of God continue to play the main role in the pesticide industry.
∗ Any delays in the operational time frame of the company’s new facilities in Gujarat (Baroda SEZ) would act as deterring factor for the company’s growth plans.
∗ The presence of manufacturer of spurious product ( starting from pesticides to seeds) may have an impact on the sales anytime.
∗ Government policies on crop procurement and ban of certain pesticides may affect the financial position of the company.
About the company
PI Industries (PII) is a leading Indian Agri-input and Custom Synthesis company. Founded in 1947, it was earlier
known as Pesticides India and was renamed PI Industries in 1993 to reflect its new diversified businesses. PII was
set up by the late Mr. P P Singhal, as an edible oil refinery unit. It later ventured into the agrochemicals formulation
business, which is currently its major revenue driver. In 1978, the company diversified into mining and mineral
processing; this business was later hived off into a separate company, Wolkem India Ltd. PII also entered the
energy metering business in the 1980s which was also was hived off into a separate company, Secure Meters Ltd.
To mitigate risks relating to its exposure to cyclicality in the agrochemicals industry, PII diversified into polymer
compounding in the 1990s. Also, in the mid-1990s, PII entered the CRAMS business, which currently accounts for
nearly 33% of the company’s revenues. From April 2011, the polymer business has been divested to Rhodia, S.A., a
French multinational speciality chemical major.
Plant Location: PII currently operates through three formulation and two manufacturing facilities as well as four
multi product plants under its three business units across Jammu and Gujarat.
PI Industries Ltd.
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Business Segment: PII is into the following two business areas namely Agri Input and custom synthesis
• Agri-Input Business
PI is one of India’s leading players in the Agri-Input industry, primarily dealing in agro-chemicals, specialty fertilizers,
plant nutrients and seeds. This venture is the flagship business (unit) for which PI enjoys tremendous brand recognition
across several industry leading products. The Company has exclusive rights with several global Corporations for
distribution in India and is constantly evaluating prospects to further expand its product portfolio. Given the inevitable
surge in demand for food grain production in the agriculture sector, the opportunities for Argo-Chem Companies are
innumerable. PI Industries is favorably positioned to contribute to the growth in this space by leveraging its long standing
association with business partners and intensive network of distributors across India.
Most of molecules that PII sell in India are In-license molecules, so the kind of molecule product that PII are dealing in
and the new ones coming today in the market, easily they have life of not less than 15 to 20 years, before getting
converted into generic.
• Custom Synthesis Business
The Fine Chemicals business unit of PI focuses on Custom Synthesis which entails dealing in custom synthesis and
contract manufacturing of chemicals including techno commercial evaluation of chemical processes, process
development, lab & pilot scale up as well as commercial production of fine chemicals which find application in agriculture,
pharmaceutical, electronics, imaging, Printing, etc.. The Company has an impressive product portfolio as result of
exclusive tie-ups with leading agro-chemical, pharmaceutical and fine chemical companies around the world. PI has
made substantial investments in building state of art process research and manufacturing facilities of chemical
intermediates and active ingredients with special focus on strong process R&D capabilities. This business unit is
expected to be the primary growth driver with strong revenue visibility as India continues to be a preferred destination for
outsourcing Custom Synthesis and contract manufacturing related projects. With exceptional growth opportunities in the
offing this business segment is poised for great success.
The company has built a very strong customer base comprising of leading chemical companies in Europe & Japan, and
based on its strong reputation, the customer base is steadily enlarging. This is backed by world class R&D and
Manufacturing facilities to service its customers.
Insecticides
Fungicides
Herbicides
Plant Nutrients
Agro Chemicals
Pharma Intermediates
Specialty
Chemicals
Major Products
Custom Synthesis Agri - Inputs
PI Industries Ltd.
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Financials (Standalone*) *Contribution from subsidiaries are negligible
Profit & Loss A/C: (In Rs. Million)
Year-end: March FY 09 FY 10 FY 11 FY 12 (P) FY 13 (P)
Net Sales 4,621.8 5,428.2 7,193.0 9,024.6 12,109.1
Growth (%) 22.9 17.4 32.5 25.5 34.2
Total Expenditure 4,206.6 4,590.4 6,255.5 7,575.4 9,939.2
Purchases of Goods Traded 241 136 205 205 205
Cost of Raw Material 2,726 3,025 4,294 5,394 7,306
RM as % of Net sales 59.0 55.7 59.7 59.8 60.3
Operating Expenses 249 362 487 534 584
Personnel expenses 395 432 551 661 793
Administrative, selling & other expenses 488 529 664 810 972
Research & Development expenses 49 51 55 72 79
EBDITA 581.0 815.3 1,232.7 1,744.2 2,465.0
Growth (%) 87.6 40.3 51.2 41.5 41.3
EBIDTA (%) 12.6 15.0 17.1 19.3 20.4
Depreciation 111.7 127.9 152.4 163.0 173.0
Other Income 7.4 11.1 7.3 7.3 7.3
EBIT 469.3 687.5 1,080.3 1,581.2 2,292.0
Interest/Financial Charges 222.8 183.1 181.9 171.6 240.1
PBT 246.5 504.4 898.3 1,409.6 2,051.9
Total Tax 74.6 150.7 257.2 408.5 592.5
PAT 171.9 353.7 641.2 1,001.1 1,459.4
PAT Growth (%) 20,527 106 81 56 46
PAT (%) 3.7 6.5 8.9 11.1 12.1
PI Industries Ltd.
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Balance Sheet: (In Rs. Million)
Year-end: March FY 09 FY 10 FY 11 FY 12 (P) FY 13 (P)
Sources of Funds
Equity 35.4 70.9 111.9 125.3 125.3
Reserves & Surplus 890.7 1247.0 1913.5 2882.6 4195.4
Total Shareholders fund 926.1 1523.9 2106.3 3088.8 4401.7
Total Debt 2038.4 1503.4 2484.0 1806.5 2527.7
Secured Loans 1894.1 1053.2 1559.8 1594.5 2315.7
Unsecured Loans 144.3 450.2 924.2 212.0 212.0
Total Liabilities 2964.5 3027.3 4590.4 4895.3 6929.4
Application of Funds
Gross Block 2578.2 2912.3 3591.2 3911.9 4161.9
Accumulated Depreciation 796.1 920.4 1073.0 1236.0 1409.0
Net Block 1782.2 1991.9 2518.2 2675.9 2752.9
Capital Work-in-Progress 74.1 86.3 320.7 250.0 250.0
Investments 18.1 19.7 19.7 19.7 19.7
Current Assets,Loans and Advances
Inventories 1,042.2 1,027.9 1,409.8 1,689.4 2,291.5
Sundry Debtors 922.6 1,030.7 1,762.6 1,865.0 2,714.0
Cash and Bank Balances 41.9 49.3 81.6 295.2 1,519.2
Loans and Advances 301.6 344.9 502.1 638.0 930.0
Total Current Assets 2308.3 2452.8 3756.1 4487.7 7454.7
Less: Current Liabilities & Provisions 972.1 1253.5 1701.4 2136.0 3067.0
Net Current Assets 1336.2 1199.3 2054.7 2351.7 4387.7
Total Asset 3214.2 3297.2 4913.3 5297.2 7410.3
Net Deffered Tax Liability (249.70) (269.90) (322.90) (401.90) (480.90)
Total Assets 2,964.5 3,027.3 4,590.4 4,895.3 6,929.4
PI Industries Ltd.
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Cash Flow Statement: (In Rs. Million)
Year – End : March FY 09 FY 10 FY 11 FY 12 (P) FY 13 (P)
PAT 171.9 353.7 641.2 1,001.1 1,459.4
Depreciation 111.7 127.9 152.4 163.0 173.0
Deferred Tax 32.7 20.3 52.9 79.0 79.0
Other Income (7.4) (11.1) (7.3) (7.3) (7.3)
Inc/(Dec) in WC (292.6) 144.4 (823.1) (83.3) (812.1)
Cash from Operation (35.2) (108.1) (731.9) (102.4) (849.0)
Other Income 7.4 11.1 7.3 7.3 7.3
Net (Pur)/Sale of assets/Capex (324.7) (346.3) (913.3) (250.0) (250.0)
Net (Pur)/Sale of Investments (7.7) 1.6 - - -
Cash from Investing (325.0) (333.6) (905.9) (242.7) (242.7)
Dividends & tax thereon - (17.5) (58.3) (109.9) (146.6)
Net borrowing 260.5 (535.0) 980.6 (677.5) 721.2
Equity Issue - 35.4 41.0 13.4 -
Share premium - - 121.3 77.9 -
Cash from Financing 260.5 (517.0) 1,084.6 (696.2) 574.6
Adjustments/Extra Income 60.4 222.8 (162.3) - -
Cash flow 12.1 7.4 32.4 213.6 1,223.9
PI Industries Ltd.
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Ratios:
Year-end: March FY 09 FY 10 FY 11 FY 12 (P) FY 13 (P)
Per share values
EPS (Rs) 48.5 49.9 57.3 79.9 116.5
Cash EPS (Rs) 89.2 70.8 75.7 99.2 136.6
DPS (Rs) 0.0 2.1 4.5 7.5 10.0
Book Value (Rs) 261.3 185.9 181.0 240.1 344.9
Sales per share (Rs) 1556.8 873.7 747.5 841.7 1132.0
Valuations
P/E (x) 2.3 5.6 10.2 12.3 8.4
Cash P/E (x) 1.3 4.0 7.7 9.9 7.2
P/B (x) 0.4 1.5 3.2 4.1 2.9
P/S (x) 0.1 0.3 0.8 1.2 0.9
Profitability/returns/liquidity
EBIDTA Margin (%) 12.6 15.0 17.1 19.3 20.4
NPM (%) 3.1 5.7 7.7 9.5 10.3
ROCE (%) 19.6 28.9 27.3 36.2 36.0
ROE (%) 18.6 26.8 31.7 33.3 33.8
Debt/Equity 2.2 1.1 1.2 0.6 0.6
Interest coverage 2.1 3.8 5.9 9.2 9.5
Current ratio 2.4 2.0 2.2 2.1 2.4
Other Ratios
EV (Rs. Million) 2393.4 3444.5 8943.8 13842.9 13340.1
EBITDA (Rs. Million) 581.0 815.3 1232.7 1744.2 2465.0
EV/EBITDA 4.1 4.2 7.3 7.9 5.4
EV/Turnover 0.4 0.6 1.1 1.3 0.9
PI Industries Ltd.
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Contact Details – Institutional Relations
R F Jetha President, Institutional Operation [email protected] +912230272815-17
Malay Kampani Vice President - Institution [email protected] +919831246854
Dalmia Securities Private Limited
‘Ideal Plaza’ 11/1 Sarat Bose Road, Kolkata –700020 Phone No: 91-33-22806544-49, Fax No. – 91-33-22806643
Website – www.dalmiasec.com
Khetan Bhavan, Flat No. 17, 2nd Floor, 198 Jamshedji Tata Road Churchgate, Mumbai – 400020 Phone No: 91-22-30272815-17, Fax No – 91-22-30272820
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