PL Stock Report: P.I. Industries (PI IN) - Q2FY24 Result Update – Strong performance; outlook remains positive - BUY

P.I. Industries (PI IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs3,648 | TP: Rs4,600

Q2FY24 Result Update – Strong performance; outlook remains positive

Quick Pointers:

• CSM/domestic revenue growth of +22%/-2% YoY respectively.
• CSM order book at USD1.8bn (Flat YoY and QoQ).

PI Industries (PI) 2QFY24 results were better than ours and consensus estimates with Revenue/EBITDA/PAT growth of 20%/28%/44% YoY (PLe 12%/15%/16% YoY) led by robust performance in the exports segment. CSM revenues were up 28% YoY to Rs16.3bn, while domestic revenues remained subdued at 2% YoY to Rs4.84bn (PLe Rs5.3bn) as focus was largely towards efficient WC management than that of volume growth. Favorable product mix resulted in gross margin expansion of 140bps YoY to 47%, while higher gross profit coupled with operating leverage resulted in EBITDA margin expansion of 160bps YoY to 26.0% (PLe25.0%). CSM order book position stood at USD1.8bn (Flat YoY sequentially).

Citing robust demand momentum, PI continues to guide revenue growth of 18-20% YoY along with consistent margin improvement primarily driven by strong enquiries in CSM business and new launches in domestic segment. The twin pharma acquisition announced recently (in april’23) is also anticipated to support overall growth going forward. We largely maintain our EPS estimates for FY24/25E factoring in company’s robust performance in 2Q’24 and expect Revenue/PAT CAGR of 21%/23% (FY11-23, 20%/28%) over FY23-25E. Maintain ‘BUY’ with revised TP of Rs4,600 (earlier Rs4,850) based on 35xFY26E EPS.

Demand traction in exports drives overall performance: Consolidated revenues were up 20% YoY to Rs21.2bn (PLe Rs19.9bn) led by +28%/-2% YoY growth in CSM/domestic revenues. Exports revenues were up 28% YoY to Rs16.3bn (Excl. Pharma revenue of Rs719mn at Rs15.6bn up 22% YoY; PLe Rs15.6bn). Domestic revenues remained subdued and were down 2% YoY to Rs4.84bn (PLe Rs5.3bn). Favorable product mix resulted into gross margin expansion of 140bps YoY to 47%; while higher gross profit coupled with operating leverage has resulted in EBITDA margin expansion of 160bps YoY to 26%.PAT increased by 44% YoY to Rs4.8bn (PLe Rs4.0bn).

Focus on operational excellence to unlock value and efficiencies: PI has identified capacity enhancement for 13 molecules in CSM business (overall capacity enhancement of ~10% YoY).

Remains confident on achieving 18-20% revenue growth: PI maintained its guidance of achieving revenue growth of 18-20% for next few years with improvement in margins led by better operating leverage and ramping up of new products.