Motilal Oswal : Target 800
Growth to rebound; margin expanding due to better mix
Revenue growth below estimate; to recover in 2HFY16, driven by CSM: PI reported overall revenue of INR4,461m (est. INR5,204m) in 2QFY16 as against INR4,266m in 2QFY15, a 4.6% YoY growth. Domestic agri-inputs registered a 10% growth while CSM exports growth was flat during the quarter. Despite a poor south-west monsoon, the company’s performance in the domestic-agri business was encouraging—driven by growth in branded portfolio of products. In the CSM business, the management informed that revenue has been deferred to 2HFY16 as the off-take was lower in 2QFY16.
EBITDA margin expands 200bp; adj. PAT below estimate: EBITDA margin expanded 200bp to 19% (est. 18.1%), led by better mix of products within the domestic agri and CSM exports business coupled with softening of raw material prices. EBITDA during the quarter stood at INR848m (est. INR942m) as against INR726m in 2QFY15, up 16.7% YoY. Adj. PAT grew from INR455m in 2QFY15 to INR550m (est. INR598m) in 2QFY16, a 21% YoY growth. Tax rate was lower at 27.7% due to higher capitalization; the management has guided for 30% rate for the full year.
Outlook remains strong: Jambusar Phase II is now operational and Phase III will be operational by December 2015 (income tax exempt for first 5 years); coupled with commercialization of 1-2 molecules every year, this shall drive the CSM revenue going ahead. The order book in CSM as on September 30 is USD610m and the company has received 20% more inquires than last year. The long-term outlook in domestic agri-business continues to remain strong with the launch of Vibrant and re-launch of Bio-Vita expected by year-end.
Valuation and view: With best-in-class capital efficiency (40% RoCE), insignificant debt-to-equity and robust growth outlook (21% revenue CAGR and 26% PAT CAGR), we believe PI is one of the best plays on India’s agri sector and CSM opportunities. We believe mix change in favor of the R&D-intensive CSM business would continue to drive rerating for the stock. PI trades at 31x FY16 EPS and 23x FY17 EPS. We maintain Buy rating with a target price of INR800, valuing the stock at 28x FY17E earnings.
| Subscribe To Our Free Newsletter |
