Insides of PI Industries

Incorporated in 1947, PI Industries focuses on complex chemistry solutions in agri-sciences. It has business model across the Agchem value chain from R&D facility at Udaipur to distribution providing innovative solutions. The facility includes advanced research and development labs, kilo plants and pilot plants with National Accreditation Board for Testing and Calibration Laboratories (NABL) certification. With strength of over 1,800 employees, the Industries currently operates a strong infrastructure set-up consisting three formulation facilities as well as eight multi-product plants under its three manufacturing locations. These state-of-art facilities have integrated process development teams with in-house engineering capabilities.

The company provides solutions across the fields of research and development, regulatory services, manufacturing services, application development, marketing, distribution and customer connect initiatives. PI Industries has successfully leveraged its capabilities across the agri-sciences value chain by providing integrated and innovative solutions to its customers connected with more than 40,000 retail points in India.

For the first quarter of 2018, revenue of the company declined by 13 per cent year over year (YoY) to Rs 550 crore. The growth for revenue is impacted owing to decline in domestic and export business. Going forward, healthy growth is expected in both segments. EBITDA decreased 21 per cent at Rs 130 crore owing to higher employee cost jumping by 8 per cent and other expenditure at 6 per cent. Other expenditure increased owing to consultancy charges. The profit after tax clocked at Rs 100 crore.

Custom synthesis and manufacturing (CSM) segment

In the last years, CSM business was muted led by weakness in the global agrochemical market. The exports business declined by 12 per cent due to the weakness in the global agrochemical sector. The revenues stood at Rs 300 crore. The order book remains strong and healthy at one million US dollars. This scenario is expected to improve in the second half of fiscal 2018. The higher share of custom synthesis is leading to better margins. The higher gross margins are negated by higher other expenditure and employee cost.

Domestic business

On the other hand, PI Industries’ domestic agri-business de-grew by 15 per cent owing to channel de-stocking led by GST implementation. The revenues stood at Rs 250 crore for agri-business and the agri-business contributes 10 per cent of the total revenues. During the quarter, three 9(3) products were launched.

Owing to lower inventory build-up by dealers and retailers, the disruption caused by the implementation of GST in the quarter is believed to be temporary. In the long term, better farm income, improved irrigation facilities and lower penetration will drive growth. The company is well positioned in the domestic market, driven by a robust domestic portfolio with a focus on in-licensing and specialty products.

Capex and tax rate

The company will generate free cash flows despite capex of Rs 180 crore per annum. Tax rate will be in the range of 19 to 21 per cent and it will increase in fiscal 2018 owing to reduction in tax benefit from the plant in Jambusar.

Future ahead

The financial year started on a good note, with a normal monsoon, pick-up in sowing and moderate increases in minimum support prices (MSPs). In the short term, monsoon is the key for the Indian agricultural sector. The stock will closely track the sentiments around this season. The kharif sowing increased one per cent YoY to 9.4 crore ha, driven by rice growing two per cent, cotton jumping at 18 per cent and 9 per cent hike in sugarcane.

The biggest hurdle for the company will be maintaining its market share in Nominee Gold (rice herbicide), as Gharda Chemicals and Insecticides India have launched the same product. This product contributes 25 per cent to agri-inputs revenues. Typically, there is an erosion of 30 per cent in realisations over two to three years, post exclusivity.

The stance for the company is positive given the strong return ratios and a healthy balance sheet, which helps PI to stand out amongst peers. Commercialisation of two to three new molecules every year in the CSM segment, and a strong order book that is 4.7 times the segmental revenues for 2017 keeps long-term growth prospects positive. 

neha.seth@outlookindia.com