RESULTS REVIEW 3QFY17 17 FEB 2017

PI Industries
BUY
INDUSTRY AGROCHEMICAL Tough times, retain faith
PI Industries (PI) 3QFY17 revenues stood at Rs 4.9bn Outlook for CSM looks grim in the near term, owing
CMP (as on 16 Feb 2017) Rs 863
(-5% YoY), led by weakness in the CSM business. A to the weakness in global agrochemicals. However
Target Price Rs 915 better product mix and lower RM cost led to EBITDA commercialisation of 2-3 new molecules/year in the
Nifty 8,778 margin of 21% (+100 bps YoY), pushing up EBITDA to CSM segment, and the strong order book in CSM
Rs 1.0bn (+0.3%). Higher other income and Jambusar (4.4x FY16 segmental revenues) keep long-term
Sensex 28,301
tax benefits boosted APAT to Rs 940mn (+33%). growth prospects positive.
KEY STOCK DATA
Bloomberg PI IN Normal monsoons and favourable policies have We remain positive on PI. Maintain BUY with a TP of
boosted the agricultural sector recently. In the longer Rs 915/sh (25x Dec-18 EPS).
No. of Shares (mn) 138
term, sustained policy boosts (irrigation, market
MCap (Rs bn) / ($ mn) 119/1,770
access for farmers and rural infrastructure) will drive Highlights of the quarter
6m avg traded value (Rs mn) 137 up far incomes and push up penetration of
STOCK PERFORMANCE (%) agrochemicals. PI is well placed in the domestic Custom synthesis: Revenues were at Rs 3.2bn (-12%).
52 Week high / low Rs 964/495 market, led by a robust domestic portfolio with focus The order book remains flat at $ 850mn. PI has
on in-licensing and regular launch of new products. commercialised 3 new molecules in 9MFY17 (Total
3M 6M 12M
commercialised molecules are ~25)
Absolute (%) 0.3 10.2 30.7 PIs biggest hurdle will be maintaining its market
Relative (%) (3.6) 9.4 12.9 share in Nominee Gold (rice herbicide), as Gharda Domestic agri-inputs: Revenues were at Rs 1.7bn
Chemicals and Insecticides India have launched the (+14% YoY).
SHAREHOLDING PATTERN (%)
Promoters 51.55 same product. As per our estimates, this product Near-term outlook: Domestic business should do well
contributes ~25% of agri-inputs revenues (~10% of owing to record sowing in the rabi season. However,
FIs & Local MFs 12.29
total). Typically, there is an erosion of 30% in CSM results will be muted. Stock should trade weak.
FIIs 21.98
realisations over 2-3 years post exclusivity. Any major correction is a buying opportunity.
Public & Others 14.18
Source : BSE Financial Summary (Consolidated)
(Rs mn) 3QFY17* 3QFY16* YoY (%) 2QFY17* QoQ (%) FY16 FY17E FY18E FY19E
Net Sales 4,879 5,110 (4.5) 5,441 (10.3) 20,968 23,155 26,200 30,334
Satish Mishra EBITDA 1,034 1,031 0.3 1,279 (19.2) 4,346 5,416 5,802 6,797
satish.mishra@hdfcsec.com APAT 940 708 32.7 1,014 (7.3) 3,153 4,327 4,402 5,192
+91-22-6171-7334 Diluted EPS (Rs) 6.9 5.2 32.7 7.4 (7.3) 23.1 31.7 32.2 38.0
P/E (x) 37.4 27.2 26.8 22.7
Deepak Kolhe EV / EBITDA (x) 27.3 21.6 19.8 16.5
deepak.kolhe@hdfcsec.com RoE (%) 30.5 32.1 25.8 24.7
+91-22-6171-7316 Source: Company, HDFC sec Inst Research, * standalone
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
 PI INDUSTRIES : RESULTS REVIEW 3QFY17

Quarterly Financials Snapshot (Standalone)

(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Muted revenue growth due to Net Sales 4,879 5,110 (4.5) 5,441 (10.3)
weakness in CSM (-12% YoY) Material Expenses 2,263 2,486 (9.0) 2,497 (9.4)
Traded Goods 250 313 (20.2) 247 1.3
Employee Expenses 532 486 9.4 525 1.4
Other Expenses 800 794 0.8 894 (10.5)
EBITDA 1,034 1,031 0.3 1,279 (19.2)
Higher other income and tax Depreciation 183 137 33.6 181 0.8
benefits from Jambusar EBIT 851 894 (4.8) 1,098 (22.5)
further boosted APAT Other Income (Including EO Items) 133 80 66.7 134 (0.4)
Interest 12 27 (57.7) 13 (12.8)
PBT 973 947 2.7 1,219 (20.2)
Tax 33 238 (86.2) 205 (84.0)
RPAT 940 708 32.7 1,014 (7.3)
EO (Loss) / Profit (Net Of Tax) - - - - -
APAT 940 708 32.7 1,014 (7.3)
AEPS (Rs/sh) 6.9 5.2 32.7 7.4 (7.3)
Source: Company, HDFC sec Inst Research

Margin Analysis
(% of Net Sales) 3QFY17 3QFY16 YoY (bps) 2QFY17 QoQ (bps)
The company managed to
Material Expenses as % of Net Sales 46.4 48.7 (226) 45.9 50
improve margins with an
Traded Goods as % of Net Sales 5.1 6.1 (100) 4.5 59
improvement in the product
Employee Expenses as % of Net Sales 10.9 9.5 139 9.6 126
mix and lower RM cost
Other Expenses as % of Net Sales 16.4 15.5 87 16.4 (2)
EBITDA Margin (%) 21.2 20.2 101 23.5 (233)
Net Profit Margin (%) 19.3 13.9 540 18.6 63
Tax Rate (%) 3.4 25.2 (2,181) 16.8 (1,343)
Source: Company, HDFC sec Inst Research

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 PI INDUSTRIES : RESULTS REVIEW 3QFY17

Quarterly Performance
Revenues Share Between Agri-inputs And CSM Strengthening Margins
Agri-inputs Custom Synthesis Net Sales Growth YoY (RHS) EBITDA Margin (RHS)
100% 7,000 Rs mn % 60
90%
6,000 50
Change in product mix is 80%
48 49 47
51 53 58 40
leading to healthy margins 70% 5,000
67 72 72 71 66
60% 30
4,000
50% 20
3,000
40% 10
30% 2,000 -
52 51 49 53 47
20% 42 1,000
33 28 28 29 34 (10)
10%
- (20)
0%

2QFY15
3QFY15
4QFY15

2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
1Q FY15

1Q FY16
2QFY15

3QFY15

4QFY15

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17
1Q FY15

1Q FY16
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Order book in CSM remains
healthy
CSM: Order-book And Quarterly Revenues Sowing As On 3-Feb-17 (mn hactare)
Order Book (US$ mn) Quarterly Revenue (US$ mn), RHS Crop Rabi-17 Rabi-16 % change
Sowing was at record high of 900 US$ mn US$ mn 70
Wheat 31.8 29.7 6.9%
65 mn hectares (+6% YoY) led 800 60
700 Rice 2.6 2.9 -11.8%
by Pulses (+11%), Wheat 50
600
(+7%) and Oilseeds (+6%) 40 Pulses 16.0 14.4 11.1%
500
400 30
Coarse Cereals 5.8 6.1 -5.7%
300
20
200 Oilseeds 8.4 7.9 6.1%
100 10
- - Total 64.5 61.0 5.7%
2QFY15

3QFY15

4QFY15

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17
1Q FY15

1Q FY16

Source: Ministry of agriculture, HDFC sec Inst Research

Source: Company, HDFC sec Inst Research

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 PI INDUSTRIES : RESULTS REVIEW 3QFY17

Yearly Performance
Change In Revenue Mix Leading To Higher Margins Revenue Growth
Agri-inputs Custom synthesis Agri-inputs CSM YoY Gr (RHS)
EBIDTA Margin (RHS)
35.0 Rs bn 50.0%
100% 25%
Higher share of custom 20% 30.0
40.0%
80% 20%
synthesis leading to better 51% 25.0
62% 61%
margins 60% 15% 20.0 30.0%

15.0 20.0%
40% 10%
10.0
20% 5% 10.0%
5.0
0% 0% - 0.0%
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E

FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Strong Free Cash Flows Healthy Return Ratios

FCF Capex CFO N D/E (RHS) ATR (RHS) RoCE RoE

5,000 Rs mn x 1.2 40.0 X 2.5

The company will generate 4,000 1.0 35.0
3,000 2.0
free cash flows despite capex 0.8 30.0
2,000
of ~Rs 1.8bn p.a. 0.6 25.0 1.5
1,000
0.4 20.0
- 1.0
0.2 15.0
(1,000)
- 10.0 1.5 1.6 1.7 2.0 2.1 1.7
(2,000) 1.5 0.5
5.0 1.4 1.4
(3,000) (0.2)
(4,000) (0.4) - -

FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

FY19E
FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

FY19E

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 4
 PI INDUSTRIES : RESULTS REVIEW 3QFY17

Assumptions
FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Revenues (Rs mn)
Agri-input 5,595 6,712 7,782 8,232 8,891 10,224 11,962
Custom Synthesis 5,910 9,237 11,615 12,735 14,263 15,975 18,371
We expect strong growth in Total 11,505 15,948 19,397 20,967 23,154 26,199 30,333
both segments YoY Growth (%)
Agri-input 11.3 20.0 15.9 5.8 8.0 15.0 17.0
Custom Synthesis 58.4 56.3 25.7 9.6 12.0 12.0 15.0
Total 31.2 38.6 21.6 8.1 10.4 13.2 15.8

Tax-rate will increase in FY18 EBIDTA margin (%) 15.6 17.9 19.5 20.6 23.3 22.1 22.3
owing to reduction in tax Agri-input 13.0 16.0 17.2 19.1 19.0 17.5 17.5
Custom Synthesis 18.1 19.3 21.0 21.5 26.0 25.0 25.5
benefit from the Jambusar
facility
Tax Rate (%) 33.0 28.8 31.0 22.4 16.1 22.0 22.0

Cash conversion cycle (days) 83 65 77 74 76 76 76

Capex (Rs bn) 1.8 0.5 1.1 3.3 1.8 1.8 1.8
Source: Company, HDFC sec Inst Research

Change In Estimates
(Rs mn) FY18E Old FY18E New % Ch (Rs mn) FY19E Old FY19E New % Ch
Change in estimates factoring Net Sales 28,212 26,200 (7.1) Net Sales 33,521 30,334 (9.5)
decreasing CSMs growth. EBIDTA 6,009 5,802 (3.4) EBIDTA 7,127 6,797 (4.6)
APAT 4,522 4,406 (2.6) APAT 5,313 5,194 (2.2)
AEPS 33.1 32.3 (2.6) AEPS 38.9 38.0 (2.2)
Source: HDFC sec Inst Research

Page | 5
 PI INDUSTRIES : RESULTS REVIEW 3QFY17

Peer Valuation
Mcap CMP TP EPS (Rs/sh) P/E (x) P/BV (x) ROE (%)
Rating
(Rs bn) (Rs/sh) (Rs/sh) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E
AGROCHEMICALS
UPL 354.8 700 NEU 720 31.3 37.6 43.7 22.3 18.6 16.0 3.7 3.1 2.6 21.4 21.5 21.1
PI Industries 117.8 863 BUY 915 31.7 32.3 38.0 27.2 26.7 22.7 7.7 6.2 5.1 32.1 25.8 24.7
Rallis India 47.9 246 BUY 270 9.6 11.7 14.1 25.5 21.1 17.4 4.3 3.8 3.3 18.5 19.0 20.4
Dhanuka Agritech 38.3 765 BUY 820 24.8 31.3 39.3 30.8 24.4 19.5 6.8 5.7 4.7 23.8 25.2 26.4
Insecticides India 11.5 556 BUY 635 26.5 33.2 41.9 21.0 16.8 13.3 2.5 2.2 1.9 12.6 14.0 15.4
FERTILISERS
Coromandel Int 100.4 345 BUY 365 14.8 20.3 25.7 23.3 16.9 13.4 3.7 3.3 2.8 16.8 20.6 22.6
Chambal Fertilisers 33.3 80 BUY 100 9.7 9.8 10.0 8.3 8.2 8.0 1.2 1.1 1.0 15.9 14.4 13.2
CHEMICALS
SRF Ltd 88.6 1,543 NEU 1,600 85.0 93.9 110.9 18.1 16.4 13.9 2.9 2.5 2.2 17.1 16.5 17.1
Vinati Organics 37.7 730 BUY 820 26.0 33.8 38.5 28.0 21.6 19.0 5.8 4.8 3.9 22.6 24.2 22.7
GHCL 25.3 2,586 BUY 3,200 118.0 142.1 165.9 21.9 18.2 15.6 3.4 3.0 2.6 16.6 17.5 18.0
Navin Fluorine 354.8 700 NEU 720 31.3 37.6 43.7 22.3 18.6 16.0 3.7 3.1 2.6 21.4 21.5 21.1
Source: Company, HDFC sec Inst Research

Page | 6
 PI INDUSTRIES : RESULTS REVIEW 3QFY17

Income Statement (Consolidated) Balance Sheet (Consolidated)

(Rs mn) FY15 FY16 FY17E FY18E FY19E (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 19,403 20,968 23,155 26,200 30,334 SOURCES OF FUNDS
Growth (%) 21.6 8.1 10.4 13.2 15.8 Share Capital 137 137 137 137 137
Material Expenses 11,154 11,586 11,924 14,131 16,278 Reserves 8,828 11,581 15,112 18,753 23,048
Employee Expenses 1,430 1,875 2,262 2,374 2,747 Total Shareholders Funds 8,965 11,718 15,249 18,890 23,185
Other Operating Expenses 3,092 3,162 3,551 3,892 4,513 Long-term Debt 167 1,230 430 430 430
EBIDTA 3,727 4,346 5,416 5,802 6,797 Short-term Debt 981 291 291 291 291
EBIDTA Margin (%) 19.2 20.7 23.4 22.1 22.4 Total Debt 1,148 1,522 722 722 722
EBIDTA Growth (%) 29.0 16.6 24.6 7.1 17.2 LT Provisions & Others 238 291 291 291 291
Depreciation 498 543 732 776 881 Net Deferred Tax Liability 369 563 563 563 563
EBIT 3,229 3,803 4,684 5,025 5,915 TOTAL SOURCES OF FUNDS 10,719 14,093 16,824 20,465 24,760
Other Income (Including EO Items) 420 350 526 646 766 APPLICATION OF FUNDS
Interest 97 95 55 29 29 Net Block 5,327 8,750 9,131 10,110 10,984
PBT 3,552 4,057 5,156 5,643 6,653 CWIP 1,719 924 1,611 1,611 1,611
Tax 1,093 904 829 1,239 1,461 Investments 5 5 5 5 5
RPAT 2,459 3,153 4,327 4,404 5,192 LT Loans & Advances 41 284 284 284 284
EO (Loss) / Profit (Net Of Tax) - - - - - Other Non-current Assets 21 48 48 48 48
APAT 2,459 3,153 4,327 4,404 5,192 Total Non-current Assets 7,113 10,011 11,078 12,057 12,931
APAT Growth (%) 30.8 28.2 37.2 1.8 17.9 Inventories 3,782 3,948 4,440 5,024 5,817
AEPS 18.0 23.1 31.7 32.2 38.0 Debtors 3,826 3,978 4,507 5,100 5,904
EPS Growth (%) 30.8 28.2 37.2 1.8 17.9 Cash & Equivalents 341 561 1,701 3,728 6,288
Source: Company, HDFC sec Inst Research Other Current Assets 1,270 1,292 1,227 1,227 1,227
Total Current Assets 9,219 9,779 11,875 15,079 19,236
Creditors 3,538 3,661 4,108 4,651 5,387
Other Current Liabilities & Provns 2,075 2,036 2,021 2,021 2,021
Total Current Liabilities 5,613 5,696 6,130 6,672 7,408
Net Current Assets 3,606 4,083 5,746 8,408 11,828
TOTAL APPLICATION OF FUNDS 10,719 14,093 16,824 20,465 24,760
Source: Company, HDFC sec Inst Research

Page | 7
 PI INDUSTRIES : RESULTS REVIEW 3QFY17

Cash Flow (Consolidated) Key Ratios

(Rs mn) FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT 3,552 4,058 5,156 5,643 6,653 PROFITABILITY (%)
Non-operating & EO items (140) (87) (526) (646) (766) GPM 42.5 44.7 48.5 46.1 46.3
Interest expenses 97 95 55 29 29 EBITDA Margin 19.2 20.7 23.4 22.1 22.4
Depreciation 498 543 732 776 881 EBIT Margin 16.6 18.1 20.2 19.2 19.5
Working Capital Change (971) 10 (524) (634) (861) APAT Margin 12.7 15.0 18.7 16.8 17.1
Tax Paid (1,195) (1,080) (829) (1,239) (1,461) RoE 30.9 30.5 32.1 25.8 24.7
OPERATING CASH FLOW ( a ) 1,841 3,539 4,064 3,929 4,475 Core RoCE 26.5 27.1 28.4 25.0 26.4
RoCE 26.8 26.7 28.8 24.1 23.3
Capex (1,685) (3,181) (1,783) (1,750) (1,750)
EFFICIENCY
Free cash flow (FCF) 156 357 2,281 2,179 2,725
Tax Rate (%) 30.8 22.3 16.1 22.0 22.0
Investments 0.00 - - - -
Asset Turnover (x) 2.1 1.7 1.5 1.4 1.4
Non-operating Income 420 350 526 646 766
Inventory (days) 71 69 70 70 70
Others (197) (138) - - -
Debtors (days) 72 69 71 71 71
INVESTING CASH FLOW ( b ) (1,462) (2,969) (1,256) (1,104) (984)
Other Current Assets (days) 24 22 19 17 15
Debt Issuance/(Repaid) (153) 249 (800) - - Payables (days) 67 64 65 65 65
Interest Expenses (97) (95) (55) (29) (29) Other Current Liab & Provns (days) 45 40 36 32 28
FCFE (95) 512 1,426 2,150 2,696 Cash Conversion Cycle (days) 55 57 59 61 63
Share Capital Issuance 0 1 - - - Debt/EBITDA (x) 0.3 0.4 0.1 0.1 0.1
Dividend (300) (603) (731) (744) (877) Net D/E 0.1 0.1 (0.1) (0.2) (0.2)
Others 24 49 - (0) (0) Interest Coverage 35.6 42.2 94.3 193.8 228.3
FINANCING CASH FLOW ( c ) (526) (399) (1,586) (773) (907) PER SHARE DATA
NET CASH FLOW (a+b+c) (147) 170 1,222 2,052 2,585 EPS (Rs/sh) 18.0 23.1 31.7 32.2 38.0
EO Items, Others 51 49 (82) (25) (25) CEPS (Rs/sh) 21.6 27.1 37.0 37.9 44.5
Closing Cash & Equivalents 341 561 1,701 3,728 6,288 BV (Rs/sh) 65.6 85.8 111.6 138.3 169.7
Source: Company, HDFC sec Inst Research DPS (Rs/sh) 2.5 3.1 4.6 4.7 5.5
VALUATION
P/E 47.9 37.4 27.2 26.8 22.7
P/BV 13.2 10.1 7.7 6.2 5.1
EV/EBITDA 31.8 27.3 21.6 19.8 16.5
OCF/EV (%) 1.6 3.0 3.5 3.4 4.0
FCF/EV (%) 0.1 0.3 2.0 1.9 2.4
FCFE/MarCap (%) (0.1) 0.4 1.2 1.8 2.3
Dividend Yield (%) 0.3 0.4 0.5 0.5 0.6
Source: Company, HDFC sec Inst Research

Page | 8
 PI INDUSTRIES : RESULTS REVIEW 3QFY17

RECOMMENDATION HISTORY
PI Inds TP
Date CMP Reco Target
16-Feb-16 574 BUY 680
950 26-May-16 636 BUY 700
8-Jul-16 700 BUY 760
850
28-Jul-16 753 BUY 830
750 7-Oct-16 822 BUY 900
27-Oct-16 845 BUY 900
650
17-Feb-17 863 BUY 915
550 Rating Definitions
450
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period

Dec-16
Oct-16
Aug-16
Apr-16

Nov-16

Jan-17
Feb-16

Sep-16

Feb-17
May-16

Jun-16

Jul-16
Mar-16

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 9
 PI INDUSTRIES : RESULTS REVIEW 3QFY17

Disclosure:
We, Satish Mishra, PGDM, & Deepak Kolhe, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No

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Institutional Equities
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