PI Industries - Temporary Blip, Fundamentals Intact; Result Update Q2 :: Edelweiss report

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PI Industries’ (PI) Q2FY15 sales, EBITDA and PAT fell 7.8%, 21.1% and 19.9% YoY versus our estimate of 8.7%, 12.5% and 7.2% growth, respectively. Below-estimated sales was primarily due to adverse weather conditions in India and postponement of custom synthesis (CSM) sales to H2FY15. Key positives were: (1) domestic agri input business grew ~12% YoY for H1FY15 despite challenging environment and flat performance in Q2FY15; and (2) CSM order book at USD520mn improved QoQ. Key negatives were: 1) CSM revenue fell ~14% YoY; 2) EBITDA margin declined by 290bps YoY despite 310bps improvement in gross margin impacted by lower operating leverage,; 3) inventory stood higher by INR1.1bn than March 2014 owing to CSM business. However, it is expected to liquidate in H2FY15. Management is confident about a strong H2FY15 (revenue growth of 40% YoY), led by expectations of better rabi crop and robust execution of CSM orders. The company maintained 20% YoY revenue growth with EBITDA margin of 19-20% for FY15. We are positive on PI’s long-term growth prospects, riding strong CSM earnings visibility on healthy order book and robust pipeline of in-licensed products.

Revenue decline surprised negatively

Net sales fell 7.8% YoY on lower CSM revenue (down ~14% YoY). Management indicated that CSM revenue was as per the operating plan/customer schedule.However the decline was mainly due to deferment of revenues to H2FY15. EBITDA margin dipped by 290bps YoY despite 310bps improvement in gross margin impacted by lower operating leverage. Gross margin improved led by: 1) higher contribution by CSM; and 2) price hike in domestic business. Adjusted PAT stood at INR0.46bn versus INR0.61bn estimate.

LINK
https://www.edelweiss.in/research/PI-Industries--Temporary-Blip,-Fundamentals-Intact;-Result-Update-Q2FY15/27389.html