Key Takeaways from PI Industries concal held today : (1) For Q4FY13, Agri-Input revenues stood at 105 cr.

a flat YoY performance. For FY13, Agri-Input revenues stood at 553 cr., a YoY growth of 9.95 %. For Q4FY13, CSM revenues stood at 225 cr. a YoY growth of 65.4 %. For FY13, CSM revenues stood at 595 cr., a YoY growth of 59.09 %. Jambusar facility contributed only 15 cr. to Q4FY13 revenues and is expected to contribute ~100 cr. in revenues in FY14. Company has guided for a 25 % YoY growth for its CSM segment and 20 % YoY growth for AgriInput segment for FY14. Management has the visibility of atleast 25-30 % yearly growth in CSM segment for the next 3 years based on only the current order book. EBITDA margins for Q4FY13 took a hit of ~265 basis points because of 'starting-up' expenses of Jambusar facility which commenced commercial production in January'2013. These expenses are projected to rationalise in FY14 with rising contribution from Jambusar facility to company's total revenues. For FY14, management is confident of a 100-125 basis points improvement in consolidated EBITDA margins. CSM Order-book at the end of FY13 is at USD 305 mn. Company is planning to implement the second phase at Jambusar facility by December'2013 for which negotiations with a global innovator are at an advanced stage. Company is planning a CAPEX of 100 cr. in FY14 which will be met completely by internal accruals. This CAPEX includes CAPEX towards second phase at Jambusar facility. Company retired ~30-35 cr. high cost debt in Q4FY13 out of the proceeds received from 117 cr. QIP issue raised during February'2013. Inlicensed products contributed ~50 % to the domestic Agri-Input revenues in FY13 up from 40 % in FY12. Company is planning to launch one novel insecticide and one broad-spectrum fungicide in domestic Agri-Input space during 2HFY14.

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View post Concall : Jambusar facility, which turned out only half of the anticipated revenues, was the main culprit of lower EBITDA margins during Q4FY13. The second reason was ~300-350 basis points overall degrowth in yearly margins in domestic Agri-Input space during FY13 (our ground checks had already indicated this fact) because of bad monsoons. Both these factors should recede to a great extent in FY14 as ~100 cr. revenue (lower than our anticipated 120 cr.) from Jambusar facility should take care of the associated costs as well as a likely better monsoon this year should bring back the margins in domestic Agri-Input space. Even with such dismal turnout from Jambusar facility, to our surprise, CSM segment recorded robust growth of ~65 % on YoY basis in Q4FY13 which is very comforting and signifies that committed deliveries that were likely to be deilivered from Jambusar facility are delivered intime from Panoli plant which augurs well for the future of CSM segment. Once Jambusar facility stabilises by Q2FY14, this should mean a consistent higher quarterly run-rate from CSM segment for PI. For the first time since inception, CSM segment revenues surpassed Agri-Input segment (595 cr. from CSM v/s 553 cr. from Agri-Input). This is a very healthy sign as barring temporary hiccups like Jambusarcommercialisation costs, margin scenario for CSM should be robust starting 2HFY14 as delivery assignments are all patented molecules. Hence, management's projection of 100-125 basis points improvement in consolidated (blended) EBITDA margins in FY14 is prudent and on a conservative side. Provided the monsoons turn out good, management has projected a 20 % growth in domestic Agri-Input space during FY14. We feel its better to be conservative and assume an easily reachable 12-15 % growth in AgriInput segment with slightly better margins as margins are unlikely to scale-up fast because of losses suffered by farmers last year. Hence, on a consolidated basis, we expect PI Ind. to end FY14 with CSM revenues at 750 cr. and AgriInput revenues at 630 cr. translating to a consolidated revenue figure of 1380 cr.. We expect PI's consolidated FY14 EBITDA margins at minimum 16.8 % which translates to EBITDA of 232 cr.. After adjusting for higher depreciation costs because of new Jambusar facility and stable finance costs with 30 % Tax Rate, PAT for FY14 should stand at minimum 129 cr. which translates into an EPS of 9.51. If we extrapolate further onto FY15, then, PI's CSM revenues should stand at minimum 960 cr. (assuming nil revenues from second phase of Jambusar facility which is likely to be commissioned by 1HFY15) while PI's Agri-Input revenues should stand at minimum 710 cr. (assuming most conservative 10-12 % growth even for FY15). Hence, consolidated revenues for PI in FY15 should come at minimum 1670 cr. with atleast 17.5 % EBITDA margins meaning an EBITDA of 292 cr.. After adjusting for depreciation, finance costs and assuming flat 30 % Tax Rate (without incorporating much benefit of Tax Holiday of Jambusar facility), PAT for FY15 should come at 170 cr. translating into an EPS of 12.55 as there is not likely to be any equity dilution till FY15.

FY14e

FY15e

Revenue
Agri-Inputs CSM

1380
630 750

1670
710 960

EBITDA PAT

232 129

292 170

EPS

9.51

12.55

Now comes the crucial aspect the Valuations at which PI Ind. is trading at present which could determine whether its prudent to Hold on to our holdings, Add on to our Holdings or Exit from our Holdings in PI at current market price (CMP). CMP assumed here is INR 125 and based on it the crucial valuation parameters are provided below :

FY14e

FY15e

Price-to-Earning (P/E)

13.14

9.96

EV/Sales

1.35

1.11

EV/EBITDA

8.03

6.38

Mcap/Sales

1.22

1.01

At a price of 125 a share, PI Ind. is trading at one of historically lowest traded multiples. Hence, Exit is completely out of question. Now, comes the second possibility of Hold a definite Yes as a shareholder of PI having invested in the company from a long term point of view current rate is not atall a right price to Sell the current holding when the company is on verge of entering into its significant phase of growth. Lastly, the possibility of Add on to the current holding at CMP a Safe strategy on SIP basis as the company is likely to move on to higher and higher trading range after passing of each quarterly results.

Although we always respect the markets and feel market forces are wisest to assign right valuations to any stock at any particular point of time -- but -- aberrations happen in case of thinly traded shares and that is what is happening to PI Ind. at present. Because of lower than anticipated one quarter margin performance and significant rise in relative free (public) float because of split in face value from INR 5 to INR 1, the share price is facing undue pressure which has made the current valuations an attractive investment proposition. Once the current selling lot is absorbed, PI should soon stabilise in a trading range of 132-140 before declaration of Q1FY14 results post which new trading range can be arrived at.