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Agrochemical / Result Update

PI Industries
CMP: Rs 1,100
High Points
Results better expected. than

DOLAT CAPITAL

Target Price: Rs 1,380


PI Industries Q1FY12 results beat estimates

View: Buy

PI Industriess Q1 FY12 revenue grew 58.7% YoY to Rs 2.07bn. On a like-tolike basis (excluding polymers) revenue growth stood significantly higher at 83% YoY. The agri-input business (70% of sales) grew 84% YoY to Rs 1.45bn, mainly led by strong volume growth in existing products, while no new products were launched during the quarter. However, it expects 2-3 new launches in ensuing quarters. The Custom Synthesis Manufacturing (CSM) segment also grew by a healthy 83% YoY to Rs 621mn, driven by newly commercialised products and growth in the already-launched products. Healthy order book (USD 340mn) ensures higher revenue visibility. Operating performance significantly improved post divestment of the lowmargin polymer business. Operating margins increased to 20.9% (up 590bps YoY), led by a favorable product mix in the agri input business (higher contribution from in-licensing revenues) and benefit of operating leverage in CSM. PII realised Rs 730mn from sale of the polymer business (gain of Rs 303mn reflected in exceptional items). The inflow from sales proceeds has strengthened its balance sheet, with debt on books reduced to Rs 1.3bn (Rs 2.5bn in March 2011). The related tax outgo on gains stood at Rs 75mn. Recurring PAT (excluding exceptional items) has more than doubled to Rs 251mn. New product launches and timely execution of orders in CSM are likely to accelerate the growth momentum. The PII-Sony collaboration is making steady progress, while revenue contribution is expected FY13E onwards.
Q1FY12 Result
Particulars Net Sales Other Operating Inc. Income from Operations Other Income Total Income Total Expenditure PBIDT OPM (%) Interest PBDT Depreciation PBT (w/o EOI) Tax Profit After Tax (before EOI) EOI - Gains/ (Losses) PAT Q1FY12 2065 3 2068 0 2068 1636 432 20.9% 50 381 42 340 164 176 303 480 Q1FY11 1299 4 1303 0 1303 1108 195 14.9% 36 159 35 124 26 98 0 98 YoY (%) 58.9 58.7 58.7 47.7 121.7 39.2 140.5 18.5 175.1 533.6 80.3 390.9 Q4FY11 2125 1 2126 0 2126 1727 399 18.8% 54 345 43 302 99 204 0 204 QoQ (%) -2.9 -2.7 -2.7 -5.2 8.2 -6.3 10.4 -3.3 12.3 65.9 -13.6 135.3

Agri-inputs and Custom Synthesis grow more than 80% YoY. Realises Rs.730mn on sale of polymer biz, which further strengthens Balance Sheet. Favourable product mix aids margin expansion. View: Maintain BUY with a revised target price of Rs 1380.

India Research

BSE Sensex NSE Nifty Scrip Details Equity (Dil.) Face Value Market Cap 52 week High/Low Avg. Volume (no) Bloomberg Code Reuters Code

18,197 5,482

Rs 126mn Rs.10/Rs.14bn USD 308mn Rs.1209 / 388 13,338 PI IN PIIL.BO

Shareholding Pattern as on June11(%)

Financials (Consolidated)
Year FY10 FY11 FY12E FY13E Net Sales# 5,425 7,210 8,924 11,607 % growth 17.2 32.9 23.8 30.1 EBIDTA 875 1,252 1,839 2,398

OPM % PAT % growth 16.1 419 72.8 17.4 651 55.4 20.6 1,072** 64.7 20.7 1,451 35.3

EPS(Rs.)* 33.2 51.6 85.0 115.0

% growth 72.8 55.4 64.7 35.3

PER(x) 33.1 21.3 12.9 9.6

ROANW % 34.3 35.7 38.9 35.3

ROACE % 23.1 26.5 32.3 35.8

*Rs.Mn # Includes Other operating income, *EPS figures are on fully diluted equity for FY10-13E, **Excludes gain on Polymer business sale of Rs 303mn

Sr. Analyst: Bhavin Shah Tel : +9122 4096 9731 E-mail: bhavin@dolatcapital.com

Associate: Vishal Kothari Tel : +9122 4096 9748 E-mail: vishal@dolatcapital.com

August 1, 2011

India Research

DOLAT CAPITAL
PIIs revenue grew 58.7% YoY to Rs 2.07bn. On a like-to-like basis (excluding the polymer business) revenue growth stood significantly higher at 83% YoY. The agri input business (70% of sales) grew 84% YoY to Rs 1.45bn, mainly led by strong volume growth in existing products while no new products were launched during the quarter. CSM also grew 83% YoY to Rs 621mn, aided by newly-commercialised products and growth in older products. EBITDA margins rose 590bps YoY to 20.9%, led by a favourable product mix. Raw material costs declined 330bps to 53.2% of sales, employee expenses stood 160bps lower at 8.1% and other expenses declined 104bps YoY at 18% of sales. Interest expense grew 39.2% YoY at Rs 50mn, while depreciation costs rose 18.5% YoY to Rs 42mn. Sales proceeds from divestment of the polymer business stood at Rs 730mn while profit on sale gets reflected by up to Rs 303mn in exceptional items. The related tax amount is guided at Rs 75mn. Consequently recurring PAT has more than doubled to Rs 251mn.

Financial highlights

Concall key updates


Agri inputs business (AIB) AIB grew 84% YoY to Rs 1.45bn, primarily aided by strong volume growth in existing products. It hiked prices of a few products due to higher input prices. Overall growth was equally boosted by Nominee Gold (rice herbicide) and other products within the portfolio. Operating margins stood at 19%, aided by higher revenue contribution from in-licensed products. The management plans to launch two in-licensed molecules (one a broadspectrum insecticide) and a couple of products under co-marketing agreements during FY12E. The share of in-licensed products in sales is expected to increase from 35% to 50% in coming years. The share of herbicide in its portfolio can potentially increase to 30% in coming quarters from 25% while that of insecticides can reduce from 60 to 55%. CSM CSM (30% of sales) grew 83% YoY to Rs 620mn, while operating margins is guided at 22-23%. PIIs order book position as of June 2011 stood at USD 340mn. It has added orders worth USD 40mn during the quarter alone. Average execution time for orders in hand stands at 3-4 years. Product pipeline includes 25-30 products mostly non agro in early stages of development. Sony collaboration update The progress in this research association has been satisfactory. Material revenue contribution will only begin in FY13E. Currently we havent factored any upside accruing from it.

August 1, 2011

PI Industries

India Research

DOLAT CAPITAL

Other key updates The company has guided a capex of Rs 1.25bn (over two years) towards setting up its greenfield facility at Jambusar, Gujarat. Inflow of sale proceeds from polymers has resulted in significant reduction in debt from Rs 2.5bn to Rs 1.33bn. Debtors have reduced from Rs 1.77bn in March 2011 to Rs 1.46bn, while inventories rose from Rs 1.47 to Rs 1.85bn.

Revised Estimates
Particulars (In.Rs.Mn) Revised* Earlier Change % FY12E FY13E FY12E FY13E FY12E FY13E Sales 8,924 11,607 8,508 10,989 4.9 5.6 EBITDA 1,839 2398 1,559 2,023 18.0 18.5 PAT 1072 1,451 893 1,211 20.0 19.8 Higher Contribution from Agri-input biz & increase in EBITDA Margins aided by favourable product mix.

Valuations
We expect 27% revenue CAGR over FY11-13E, aided by rising contribution from CSM (from 33% in FY11 to 42% of sales, excluding polymers in FY13E). Divestment of polymers has boosted operating performance and strengthened balance sheet position. We expect 49% earnings growth over FY11-13E non dilutive capex. At CMP, the stock trades at 12.9x FY12E and 9.6x FY13E earnings. We maintain our Buy recommendation with revised target price of Rs 1380 (12x FY13E earnings).

August 1, 2011

PI Industries

India Research
INCOME STATEMENT Particulars Net Sales Other Operating Income Income from Operations Other income Total Income Total Expenditure Raw Material Stock Adjustmnt Purchase of Finished Goods Employee Expenses Other Expenses EBIDTA (Excl. Other Income) EBIDTA (Incl. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Prior Period Adjustments Extra Ordinary Exps/(Income) Profit Before Tax Tax Deferred Tax Net Profit Minority Interest Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Preference Capital Share Premium Other Reserves Net Worth Revaluation reserve Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Other Liabilities Total Capital Employed Applications of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balance Loans and Advances sub total Less : Current Liabilities & Provisions Current Liabilities Provisions sub total Net Current Assets Misc Expenses (Deferred Rev Exp) Total Assets E-estimates Mar10 5,425 0 5,425 11 5,437 4,550 3,025 23 136 471 897 875 886 183 704 132 572 0 0 572 133 20 419 0 419

DOLAT CAPITAL
CASH FLOW Particulars Mar10 Mar11 Mar12E Mar13E Profit before tax 572 914 1,510 2,020 Depreciation & w.o. 132 157 197 235 Net Interest Exp 183 181 133 143 Direct taxes paid (133) (207) (437) (569) Chg. in Working Capital (Non Cash) 130 (810) 106 (1,063) (A) CF from Opt. Activities 883 235 1,508 766 Capex {Inc./ (Dec.) in FA n WIP} (346) (941) (600) (600) Free Cash Flow 537 (707) 908 166 Inc./ (Dec.) in Investments (2) 0 0 0 Other (Bal fig) (39) (5) 88 114 (B) CF from Investing Activities (387) (946) (512) (486) Issue of Equity/ Preference 241 0 266 28 Inc./(Dec.) in Debt (535) 980 (1,078) 100 Interest exp net (183) (181) (133) (143) Dividend Paid (Incl. Tax) (17) (58) (59) (59) (C) CF from Financing (493) 741 (1,004) (74) Net Change in Cash 3 30 (8) 206 Opening Cash balances 51 54 84 76 Closing Cash balances 54 84 76 283 E-estimates IMPORTANT RATIOS Particulars (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. O.I.) EBIDTA Margin (incl. O.I.) Interest / Sales Gross Profit Margin Tax/PBT Net Profit Margin (B) As Percentage of Net Sales Raw Material Employee Expenses Other Expenses Mar10 Mar11 Mar12E Mar13E

Rs.mn Mar11 Mar12E Mar13E 7,202 8,918 11,602 7 6 5 7,210 8,924 11,607 0 0 0 7,210 8,924 11,607 5,958 7,085 9,209 4,294 4,722 6,168 (295) 0 0 205 178 232 597 727 944 1,156 1,457 1,866 1,252 1,839 2,398 1,252 1,839 2,398 181 133 143 1,071 1,706 2,255 157 197 235 914 1,510 2,020 0 0 0 0 0 0 914 1,510 2,020 207 437 569 56 0 0 651 1,072 1,451 0 0 0 651 1,072 1,451

Mar10 71 206 0 1,249 1,525 20 1,053 444 1,498 270 0 3,313

Mar11 Mar12E Mar13E 112 81 84 1,840 2,117 20 1,560 918 2,478 326 0 4,941 125 0 418 2,854 3,398 20 738 662 1,400 413 0 5,231 126 0 445 4,247 4,818 20 856 644 1,500 527 0 6,865

16.1 16.3 3.4 13.0 26.7 7.7 58.7 8.7 16.5

17.4 17.4 2.5 14.9 28.8 9.0 58.3 8.3 16.0

20.6 20.6 1.5 19.1 29.0 12.0 54.9 8.2 16.3

20.7 20.7 1.2 19.4 28.2 12.5 55.1 8.1 16.1 0.3 16.8 9.8 67 77 4.7 2.3 3.6 2933.4 115.0 115.0 133.6 4.0 3.5 381.9 35.3 35.8 36.9 1,100 9.6 13,878 1.2 15,095 1.3 6.3 2.9 0.4

2,924 923 2,001 86 5 1,028 1,034 54 347 2,463 1,191 51 1,243 1,221 0 3,313

3,617 1,076 2,541 335 5 1,410 1,766 84 503 3,763 1,568 134 1,702 2,061 0 4,941

4,552 1,273 3,279 0 5 1,833 1,588 76 551 4,048 1,931 169 2,101 1,947 0 5,231

5,152 1,508 3,644 0 5 2,447 2,130 283 651 5,511 2,105 190 2,294 3,216 0 6,865

(C) Measures of Financial Status Debt / Equity (x) 1.0 Interest Coverage (x) 4.9 Average Cost Of Debt (%) 10.3 Debtors Period (days) 70 Closing stock (days) 69 Inventory Turnover Ratio (x) 5.3 Fixed Assets Turnover (x) 1.9 Working Capital Turnover (x) 4.4 Non Cash Working Capital (Rs Mn) 1,166.5 (D) Measures of Investment EPS (Rs.) (excl EO) EPS (Rs.) CEPS (Rs.) DPS (Rs.) Dividend Payout (%) Book Value (Rs.) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.) (E) Valuation Ratios CMP (Rs.) P/E (x) Market Cap. (Rs. Mn.) MCap/ Sales (x) EV (Rs. Mn.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 33.2 33.2 77.7 2.1 6.3 215.2 34.3 23.1 23.5 1,100 33.1 7,796 1.4 9,240 1.7 10.6 5.1 0.2

1.2 0.4 6.9 13.8 9.1 6.9 89 65 71 75 5.1 4.9 2.0 2.0 3.5 4.6 1,976.8 1,870.7 51.6 51.6 72.2 4.5 8.7 189.2 35.7 26.5 27.0 1,100 21.3 12,306 1.7 14,700 2.0 11.7 5.8 0.4 85.0 85.0 101.3 4.0 4.7 271.3 38.9 32.3 32.8 1,100 12.9 13,777 1.5 15,100 1.7 8.2 4.1 0.4

August 1, 2011

PI Industries

India Research

DOLAT CAPITAL

August 1, 2011

Int en tio na lly Le ft B lan k


PI Industries

DOLAT CAPITAL
BUY ACCUMULATE REDUCE SELL Upside above 20% Upside above 5% and up to 20% Upside up to 5% Negative Returns

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