PI Industries: A decent Q4, positive FY21 guidance lifts sentiment

Robust order book, rising international opportunities should drive earnings

PI Industries' growth of 6 per cent in consolidated revenue for the March quarter (Q4) is decent against the backdrop of the lockdown. What's more impressive is the agrochemical player's growth guidance of 20 per cent for 2020-21. These helped the stock gain 4.7 per cent on Friday, though some of it was lost on Monday. At a time when the economic environment is gloomy, the growth outlook should keep sentiments elevated.

While the domestic business was down about 12 per cent year-on-year (YoY) due to the lockdown, the same was compensated by a 12 per cent rise in exports. The integration of Isagro, acquired in the December 2019 quarter, also helped improve Q4 numbers as the acquired operations posted 10 per cent YoY growth.

PI’s operating performance was also decent with the earnings before interest, tax, depreciation, and amortisation (Ebitda) growing 8.4 per cent to Rs 187 crore. A 79 per cent jump in depreciation due to the start of two new plants pulled down profit before tax 16.7 per cent, but lower taxes restricted the fall in net profit (Rs 110 crore) to 11.7 per cent YoY.

 

 

The new plants are being scaled up and will help drive growth in FY21. The pace of progress, however, would depend on labour and material availability, and the easing of travel restrictions. Moreover, the impact of the Covid-19 crisis on Q4 revenues and Ebitda was Rs 100 crore and Rs 22 crore, respectively, and PI expects to recoup the lost revenue in the current quarter as export orders remain intact.

Analysts also believe its 20 per cent growth guidance for FY21 looks achievable as the outlook of global customers remains robust with no indication of changes in the demand forecast. PI's order book at $1.5 billion remains strong and provides 3-5 years of revenue visibility. Notably, the order book improved by $100 million during Q4, and considering $90 million execution (revenue) in Q4, new orders wins stood at around $190 million, which is higher than the order wins seen in the last two quarters.

Further, PI’s strong relationship with Japanese customers could help, with Japanese firms looking to increase outsourcing from India. Commentary from key US customers also indicates a continued increase in volumes and should aid PI Industries over the next 2-3 years, say analysts at Emkay Research, leading them to remain constructive on the business trajectory.

The domestic market is another positive element. It is likely to see healthy good growth with a normal monsoon forecast and strong sales. Analysts at Credit Suisse who have an outperform rating on the stock say that revenue momentum seems to be intact.