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Key takeaways from the Q1FY12 Concall of PI Industries :
Conclusion :
Before concall I was expecting that Pi might have grossed 125 cr. from agri-input segment in Q1FY12 but it has turned out to be even better at 145 cr. which is really a pleasant surprise.
The margins of agri-input segment have almost expanded 250 basis points which augurs well and depicts efficient management by the company of input price fluctuations. Although, I feel that to end fiscal FY12 with a 19 % margins in agri-input space might be a daunting task as two new products are planned to be launched in next six months which might put slight pressure on margins. However, 17.5-18 % margins are easily achievable in agri-input segment on a yearly basis.
Now, to come to my earlier stated point asto why this year might be the blockbuster year for PI as far as agri-input segment goes.... If i just cite here the example of last year i.e. FY11, Q2 was the highest qrtr. as far as revenues were concerned (for agri-input segment). It clocked almost 123 cr. in Q2FY11 from agri-input alone.... This is the reason why before upping the guidance of FY12, management rightfully decided to wait for the performance of Q2FY12... This depicts the quality of management to under-promise and over-deliver which is a healthy sign.
Now, forget the astonishing 84 % growth that Pi's agri-input segment registered in Q1 and evenif I take just a nominal 30-40 % growth for Q2FY12, it makes me believe that PI will easily surpass Dhanuka and Insecticides in FY12... Now, here I have not calculated the upside that could arise from newly launched products in case they are received very well by the channels and end-farmers.
As far as CSM segment is concerned, a 83 % growth YoY is on a lower scale and so immaterial and in any case, for CSM business the real growth stroy will start from FY13 onwards once the new plant gets fully operational. Just consider here a simple case, a 1500 cr. order-book is pending and already company has 25-30 molecules still in the pipeline under evaluation as on date which equal to a similar amount (each molecule has avg. revenue generating potential of 10-15 mn. USD)... The interesting thing here is that majority of these molecules are from non-agri space which depicts a good diversification as far as segmental order-book is concerned.
Sony-PI relationship is proceeding as per schedule and although analysts tried to put words in management's mouth to speak out regarding meaningful contribution from the venture in FY13 but I expect a joint patent to be filed by PI-Sony in FY14 only and this centre could very well become a billion dollar opportunity for PI in coming decade.
To conclude, I will base my FY12 expectations based on Q2FY12 topline (as margins are not a concern).. If its able to achieve a topline in excess of 250 cr. for Q2FY12 then no one can stop PI Industries to attain a 1000 cr. revenue mark this fiscal itself with EBITDA of around Rs. 200-210 cr. and PAT of Rs. 105-110 cr. without exceptional gain which entails to an EPS of Rs. 84 on the conservative side.
India Equity Research Reports, IPO and Stock News
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Key takeaways from the Q1FY12 Concall of PI Industries :
- Agri-Input segment grew by 84 % YoY to stand at Rs. 145 cr. in Q1FY12.
- CSM segment grew by 83 % YoY to stand at Rs. 62.1 cr. in Q1FY12.
- CSM segment has the current order-book of USD 340 mn. (~INR 1500 cr.) and has a great visibility of business and will be the key growth driver going ahead.
- EBITDA for the qrtr. Was at Rs. 43.2 cr. which translates into an EBITDA margin of 20.89 %, a 596 basis points expansion YoY. Such healthy EBITDA margins were the result of better product-mix in both the operational segments, benefits due to inventory whose price had escalated and intelligent input-cost management.
- Company expects to improve EBITDA margins further even from current levels in the next two to three years taking into account product-pipeline and sales visibility that the company has in both the operational segments.
- Agri-Input segment attained margins of around 19 % while CSM segment attained margins of around 22-23 % for Q1FY12.
- Balance Sheet for the qrtr. has improved significantly with debt level getting reduced from Rs. 248 cr. as at 31st March 2011 to Rs. 133 cr. as of 30th June 2011. Working Capital Turns have improved considerably from around 3 as at 31st March 2011 to 4.6-4.7 as at 30th June 2011. Debtors level is at Rs. 146 cr. (31st March – 177 cr.) and inventory level is at Rs. 185 cr. (31st March – 147 cr.).
- Planned CAPEX is at Rs. 125 cr. spread over two years including current year for commisioning of new multi-product plant for CSM segment. Erection-Installation-
Development work is going on at full swing since last 4 months, equiplments and machinery are already ordered and some have already reached the site and the company is expecting to commision the plant by December 2011 or latest in Q4FY12.
- Company plans to launch two new products in this fiscal year in Agri-Input segment (one is a broad-spectrum insecticide), most probably in Q2 and Q3. In all, as on date, company has a pipeline of 7-8 products to be launched in the span of coming 3 years in Agri-Input segment.
- Company will think of raising its 40 % growth guidance given for FY12 after seeing the business of Q2FY12 which is the most critical quarter for Agri-Input segment. Till the month of July 2011, the qurter has performed as per the expectations.
- Company follows a unique business model (as far as CSM segment is concerned) of focus on patented and early-life cycle molecules which derisks it from almost all the adversities of business. Also, there are only handful of companies operating in Europe and Japan which follow similar business model with no competition arising from India as also China. To add further, the probability of emergence of any competition in near future is also very low becuase of intense entry barriers as well as tremendous efforts required to establish such a business model. To get the business related to patented or early lifecycle molecules, a sound and rigourous internal control and quality system has to be in place which requires many years; IPR-respect is the prime criteria for such business-relationship and it has to be depicted by building relationship with the innovator over many years ; A company wishing to procure patented or early-lifecycle molecules related business has to go through a strict evaluation process by the innovator company at many levels which takes atleast 2 to 3 years.
- PI Industries has built a strong association with innovator companies around the world, especially in Agri space, over the span of last 12 years by demonstrating utmost repect to IPR while formulating a no-conflict business model and over last 3 years it has been busy charting out the strategies to benefit the most out of such association and unique business model. The exponential growth that the company has registered since last few quarters has been the result of the same and is expected to continue over next many years with good expansion in margins.
Conclusion :
Before concall I was expecting that Pi might have grossed 125 cr. from agri-input segment in Q1FY12 but it has turned out to be even better at 145 cr. which is really a pleasant surprise.
The margins of agri-input segment have almost expanded 250 basis points which augurs well and depicts efficient management by the company of input price fluctuations. Although, I feel that to end fiscal FY12 with a 19 % margins in agri-input space might be a daunting task as two new products are planned to be launched in next six months which might put slight pressure on margins. However, 17.5-18 % margins are easily achievable in agri-input segment on a yearly basis.
Now, to come to my earlier stated point asto why this year might be the blockbuster year for PI as far as agri-input segment goes.... If i just cite here the example of last year i.e. FY11, Q2 was the highest qrtr. as far as revenues were concerned (for agri-input segment). It clocked almost 123 cr. in Q2FY11 from agri-input alone.... This is the reason why before upping the guidance of FY12, management rightfully decided to wait for the performance of Q2FY12... This depicts the quality of management to under-promise and over-deliver which is a healthy sign.
Now, forget the astonishing 84 % growth that Pi's agri-input segment registered in Q1 and evenif I take just a nominal 30-40 % growth for Q2FY12, it makes me believe that PI will easily surpass Dhanuka and Insecticides in FY12... Now, here I have not calculated the upside that could arise from newly launched products in case they are received very well by the channels and end-farmers.
As far as CSM segment is concerned, a 83 % growth YoY is on a lower scale and so immaterial and in any case, for CSM business the real growth stroy will start from FY13 onwards once the new plant gets fully operational. Just consider here a simple case, a 1500 cr. order-book is pending and already company has 25-30 molecules still in the pipeline under evaluation as on date which equal to a similar amount (each molecule has avg. revenue generating potential of 10-15 mn. USD)... The interesting thing here is that majority of these molecules are from non-agri space which depicts a good diversification as far as segmental order-book is concerned.
Sony-PI relationship is proceeding as per schedule and although analysts tried to put words in management's mouth to speak out regarding meaningful contribution from the venture in FY13 but I expect a joint patent to be filed by PI-Sony in FY14 only and this centre could very well become a billion dollar opportunity for PI in coming decade.
To conclude, I will base my FY12 expectations based on Q2FY12 topline (as margins are not a concern).. If its able to achieve a topline in excess of 250 cr. for Q2FY12 then no one can stop PI Industries to attain a 1000 cr. revenue mark this fiscal itself with EBITDA of around Rs. 200-210 cr. and PAT of Rs. 105-110 cr. without exceptional gain which entails to an EPS of Rs. 84 on the conservative side.
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