The way forward: Inorganic development: We interacted with PI Industries’ joint managing director Rajnish Sarna. Key takeaways: i) The Ind Swift (ISL) acquisition has helped PI enter the pharma segment. ii) Potential for doubling ISL income along with margin expansion more than the next three–four years. iii) While close to-term development will be driven by enhanced utilisation of current assets (targeting 2–2.3x asset/turn) and introduction/commercialisation of new items, inorganic development is the way forward. In our view, following ISL’s thriving integration, PI’s premium valuation would sustain. Meanwhile, watch out for execution in pharma APIs. Retain ‘hold’ with a TP of Rs3,506 (48x Q3FY23E EPS).
Top-5 highlights: Is inorganic development the way forward? With two thriving acquisitions at appealing valuations below its belt, management is scouting for more such possibilities in the domestic industry as nicely as globally. This, they think, will accelerate development by decreasing regulatory hurdles and lengthy gestation period required to build assets. Can PI sustain close to-term development with existing assets? Near-term focus will be more on operating leverage and greater utilisation of current assets by moving up the worth chain with a target asset/turnover of 2–2.3x (up from 1.7x in FY21).
After getting into agro and pharma, what’s the next focus? While agro and pharma stay the crucial development drivers, the corporation is evaluating possibilities in technological platforms for scaling up production across the specialty chemical compounds company. PI is also searching at new distribution avenues in the CSM space. Is China + one benefitting Indian players? Globally, several players are searching at options other than China. In this context, India is the most effective option provided other nations have quite a few limitations. Are government policies assisting India’s chemical sector? The chemical compounds sector requires higher government assistance. For instance, bringing the sector in the ambit of the PLI scheme/export incentives would be helpful.
Outlook and valuation: Growth concern addressed retain ‘hold’: PI has been the industry leader in agrochemical CSM, and we think the acquisition of ISL will aid it mark its presence in pharma APIs, enhancing the all round addressable industry. As acquisition possibilities stay strong in this space, management aims to continue to accelerate development inorganically. The corporation, we think, will continue to command a premium valuation led by most effective asset allocation and above-sector returns ratios. However, we stay watchful of PI’s entry into the pharma space and thriving integration of ISL. On balance, we retain ‘hold’ with a TP of Rs 3,506 (48x Q3FY23E EPS).