Near-term headwinds loom for PI Industries after a good Q1

Investors in PI Industries Ltd stock are treading carefully. The management’s cautious view on near-term outlook could be one reason. Shares of the company are lower by about 1% in the past two trading days even though June quarter (Q1FY24) results were better-than-expected.

Sure, management maintained its revenue growth guidance of 18-20% per annum (excluding pharma business) for FY24, but it also said it would review its guidance post Q2. So far, it has not seen a dramatic change in demand or deferment in orders, said the management in the earnings call.

“PI Industries’ business (exp-orts) is into patented products. So, there are no issues related to excess inventories or pricing pressure from China, as is case with generics segment. However, global uncertainties across markets are to be monitored as they could impact business,” said Rohan Gupta, director, Nuvama Institutional Equities.

Here, some factors may aid the company’s prospects. For one, custom synthesis manufacturing (CSM) or exports order book is healthy and should sustain the growth momentum. Additionally, PI Industries has a steady launch pipeline both in exports as well as in the domestic market. For instance, it plans to commercialize 4-5 products every year in its CSM export business. That apart, pharma business is expected to boost revenue gro-wth in the coming years. The company has also planned for capital expenditure spending for FY24 of 850-900 crore for its agrochemical business. Coming to Q1 results, consolidated revenue rose by 24% year-on-year to 1,910 crore. Growth was driven by a 33% increase in CSM revenue, which contributes about 80% of total revenue. CSM business growth was mostly led by volume, which increased by 29% last quarter. Most of the remaining revenue comes from domestic agri business, which was weak owing to monsoon conditions.

Overall, a favourable product mix and operating leverage have helped Q1 Ebitda margin expansion of 210 basis points to 24.5%. The management expects FY24 margin to be in the range of 24-25%. The stock has gained 17% in the past year. Himanshu Binani, analyst from Prabhudas Lilladher said the stock rerating from here on depends on consistent growth, sustaining margin and progress in the pharma business. “Though the company had been diversifying its business to new products and segments (pharma), it still faces risks on account of high product and client concentration and patent expiry of a product next year,” he added. In this backdrop, meaningful upsides in the stock may be capped.

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Updated: 13 Aug 2023, 08:13 PM IST

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