PI Industries: maintain “hold” with a TP of Rs 3.506

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Overall, we maintain “hold” with a TP of Rs 3,506 (48 x Q3FY23E EPS).

The Way Forward: Inorganic Growth: We interacted with PI Industries Deputy Managing Director Rajnish Sarna. Key takeaways: i) The acquisition of Ind Swift (ISL) has helped PI enter the pharmaceutical segment. ii) Potential to double ISL turnover and expand margin over the next three to four years. iii) While short-term growth will be driven by better use of existing assets (targeting 2 to 2.3 times the asset / turn) and the introduction / commercialization of new products, inorganic growth is the way forward . In our opinion, after the successful integration of ISL, the valuation of the IP premium would be maintained. Meanwhile, pay attention to execution in pharmaceutical APIs. Keep “hold” with a TP of Rs3.506 (48 x Q3FY23E EPS).

Top 5 Highlights: Is Inorganic Growth the Way Forward? With two successful acquisitions at attractive valuations to its credit, management is seeking further opportunities of this type in the domestic and global market. According to them, this will accelerate growth by reducing regulatory hurdles and the long gestation period required to create assets. Can PI support short term growth with current assets? In the short term, the focus will be more on operating leverage and better use of existing assets by moving up the value chain with a target asset / turnover of 2 to 2.3x (compared to 1.7x at during fiscal year 21).

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After entering agro and pharma, what is the next goal? While agro and pharma remain the main growth drivers, the company is evaluating opportunities in technology platforms to increase production across the specialty chemicals business. PI is also studying new distribution routes in the CSM space. Does China + one benefit Indian players? Globally, many players are looking for alternatives other than China. In this context, India is the best alternative as other countries have several limitations. Are government policies helping the Indian chemical industry? The chemical industry needs more government support. For example, bringing industry within the scope of the PLI program / export incentives would be beneficial.

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Outlook and valuation: concern for growth resolved; maintain “hold”: PI has been the market leader in agrochemical CSM, and we believe that the acquisition of ISL will help it establish its presence in pharmaceutical APIs, thereby improving the overall addressable market. While acquisition opportunities remain strong in this space, management aims to continue to accelerate growth in an inorganic way. The company, in our view, will continue to benefit from a blue chip valuation thanks to the best asset allocation and higher return ratios than the industry. However, we remain attentive to the entry of PI into the pharmaceutical space and the successful integration of ISL. Overall, we maintain “hold” with a TP of Rs 3,506 (48 x Q3FY23E EPS).

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