In an earlier piece (Keep An Eye On PI Industries. There Is A Chance For Bumper Gains) I have explained the entire nitty gritty of PI Industries and also drawn attention to all the research reports on the subject.
Later, I pointed out that Cartica Capital, which has an unblemished track record for finding winning stocks, has invested Rs. 316 crore in buying 52,94,249 shares of PI Industries.
Now, we have the good fortune of understanding from Teresa C Barger, fund manager with Cartica Capital, why PI Industries was considered worthy of such a large investment.
In an interview to ET Teresa C Barger said:
“ET Now: Your latest buy is PI Industries. What is the rationale for investing in this one?
Teresa C Barger: First of all, we think that it is a very good company. It is very important to us that our companies be well-run and have great management, have a great business model with visibility as to how they can have sustainable revenue growth and margin growth. A part of the Modi agenda is to have agriculturally productive India. India’s agricultural productivity has lagged tremendously. This is a policy that is in a right place and PI is addressing one of the key issues in India — which is getting productivity up in the agricultural sector.”
| P I Industries Ltd – Financial Overview | ||||||
| (in Cr.) | 2015 | 2014 | 2013 | 2012 | 2011 | |
| Income Statement | ||||||
| Revenue | 1,939.65 | 1,594.92 | 1,150.53 | 877.09 | 719.30 | |
| Other Income | 23.16 | 15.61 | 8.37 | 5.19 | — | |
| Total Income | 1,962.81 | 1,610.54 | 1,158.90 | 882.28 | 719.30 | |
| Expenditure | -1,569.68 | -1,309.30 | -970.90 | -701.21 | -595.69 | |
| Interest | 8.63 | -11.86 | -22.44 | -24.59 | -18.19 | |
| PBDT | 401.76 | 289.38 | 165.56 | 156.49 | 105.42 | |
| Depreciation | -49.16 | -31.37 | -21.81 | -17.11 | -15.59 | |
| PBT | 352.60 | 258.01 | 143.75 | 139.38 | 89.83 | |
| Tax | -109.35 | -74.27 | -47.40 | -38.84 | -25.72 | |
| Net Profit | 243.25 | 183.74 | 96.35 | 100.54 | 64.12 | |
| Equity | 13.66 | 13.61 | 13.55 | 12.52 | 11.19 | |
| EPS | 17.84 | 13.52 | 7.57 | 40.27 | 57.73 | |
| CEPS | 21.41 | 15.80 | 43.61 | 46.97 | 71.24 | |
| OPM % | 20.27 | 18.89 | 16.34 | 20.65 | 17.19 | |
| NPM % | 12.54 | 11.52 | 8.37 | 11.46 | 8.91 | |
Other experts are echoing the same sentiments for PI Industries.
Saurabh Mukherjea of Ambit Capital earlier called the stock a “safe haven”. He repeated the advice by stating that it has “good visibility on earnings momentum”.
| P I Industries Ltd – Ratios | |||
| Figures in Rs crore | 2014 | 2013 | 2012 |
| Debt-Equity Ratio | 0.28 | 0.56 | 0.93 |
| Operating Margin (%) | 16.43 | 14.45 | 14.90 |
| Net Profit Margin (%) | 9.95 | 7.34 | 7.95 |
| Return on Capital Employed (%) | 34.42 | 25.13 | 25.45 |
| Return on Net Worth (%) | 30.52 | 22.93 | 30.73 |
Gaurav Mehta of Ambit Capital gave a more detailed explanation. He said that PI Industries is a “buy at these levels for sure for us because if you look at the fundamental delivery in terms of results, etc this is one stock that has continued to out beat expectations”. He added that “Expectations themselves have been lofty and yet the company has continued to out beat expectations especially the custom synthesis manufacturing (CSM) business which is now 60 percent of revenues, closer to 70 percent of the bottomline that continues to grow significantly better than expectations. The domestic agri business in itself grows at something like 17-18 percent. However, the two put together, we think in terms of earnings the company looks very likely to grow at something like 30 percent plus over the foreseeable future, over the next two-three years. So, in that context the stock which has return on equity (RoEs) in excess of 30 percent and which trades at something like 20 times FY17 earnings, obviously optically, doesn’t look like it is too cheap but given the earnings trajectory, given the return ratio profile and given the underlying drivers of the business we think that it is a good buy even at these levels”.
Gaurav Mehta projected a price target of Rs 825 for PI Industries, which offers a 23% upside from the CMP of Rs. 669.
Vikas Khemani of Edelweiss Securities is also bullish on PI Industries. He explained that agriculture productivity in India has to go up and that companies which are focused on improving the productivity of the agriculture are going to do well. He emphasized that the “government understands this part very well and they are taking certain structural steps in terms of enabling these kind of opportunities and they are making sure that there is lot of investment happen in improving the productivity of their agriculture side and that trend has to be played out”.
So, there is an entire galaxy of experts who are bullish on PI Industries. Will it live up to expectations and deliver bumper gains remains to be seen.
What I find unsettling about this company is the low volumes in the script. If so many brokerages are pursuing it, then where are the volumes? Are they pushing this so that volumes can be built up?
At FY14 earnings (the only number I can see on Moneycontrol), the PE works out to something like 49. Is this justified? Forward looking PEs are good if the current PEs make the investment worthwhile. Ignoring that would mean a higher price, even for a good business. Even Warren buffett was not such a fan of paying a higher price. Technically the price charts have also been quite flatish and unattractive, though weeklys have been very alluring. Just my views.