PI Industries: Strong FY21 outlook, de-risking plans bode well for company

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The stock of PI Industries, India’s second largest agrochemicals company by market capitalisation, hit record levels of Rs 2052.75 intraday before ending 7.4 per cent higher on Thursday. The price movement came on the back of strong June quarter results and a robust growth outlook for FY21.

 
Despite the Covid-19 disruption, the company posted a 41 per cent increase in revenues led by the domestic business. Like its peers, the company reported a strong domestic growth of 76 per cent led by demand spill-over from the March quarter.

 
A sharp jump in acreage, timely onset of monsoons improved the demand, which coupled with higher sales of key brands such as herbicide Nominee Gold, aided sales. Contribution from Isagro Asia, acquired in November, also boosted overall growth. Labour issues led to a higher sale of herbicides for the sector and for the company.

 
For FY21, the company indicated that domestic growth would be in the 20-22 per cent band outperforming the market growth which is expected to be in the 10-15 per cent range. The growth would be led by key brands and new product launches.

Its custom synthesis and manufacturing (CSM) segment (exports) too, posted a robust 23 per cent growth despite the Covid-19 related disruption. Raw material management and adequate capacity helped it meet demand requirements of clients.

 
The company expects exports to grow by 20 per cent this year on the back of demand for commercialised products. It indicated that in addition to increased enquiries due to supply chain disruption and US-China tensions, a couple of molecules were also in the development stage.

 
While gross margins were down 280 basis points due to lower profitability of Isagro, the company highlighted that margins for the acquired business will improve on higher utilisation and increased sales.

 
The near-term trigger for the stock and the trajectory of return ratios will depend on the deployment of the Rs 2,000 crore raised in the recent qualified institutional placement issue. What’s positive from the Street’s perspective is the company's plan to derisk its business by expanding into new geographies, diversifying into pharma intermediates and inorganic acquisitions.


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