Sharekhan has given Buy recommendation for PI Industries with a target price of Rs. 3900 in its research report issued on Aug 02, 2021
Sharekhan’s research report on PI Industries
Q1FY22 PAT stood at Rs. 187 crore, rising 28.7% y-o-y but missing our estimate by 7% due to weak revenue growth of 12.6% y-o-y and a 135 bps miss in margin at 20.8% (down 77 bps y-o-y) offsetting a 174 bps y-o-y expansion in gross margin to 43.8%. Revenues missed estimates led by a 13.2% fall in revenues of the domestic business amid a delayed monsoon while CSM revenue growth was strong at 31% y-o-y. The fall in margins reflects a sharp jump in staff costs and overheads. Management maintained its revenue growth guidance of 15% y-o-y for FY22. The acquisition of pharma API & intermediate business (to get completed by Q3FY22) of Ind-Swift Laboratories is at reasonable valuation of 7.8x FY21 EV/EBITDA and earnings accretive by 6.5%. The likely turnaround and scalability of products of the acquired business with leverage of PI’s strong R&D could result in earnings upgrade over FY23E-24E.
We maintain a Buy rating on PI Industries with a revised PT of Rs. 3,900 as we see strong earnings growth led by both organic and inorganic growth opportunities. The acquisition addresses the concern of cash utilisation and PI’s ability to turnaround would result in improvement in earnings profile (both margin and return ratios) in long term.