13,000% jump in 10 years, 0% last year! Many are still betting on a big takeoff

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NEW DELHI: This stock has been a ‘100 bagger’ for investors, surging 13,000 per cent in last 10 years.

But scrip disappointed the Street with FY18 earnings, leading to zero return in last one year. The stock now trades at its five-year average forward PE multiple of 22 times.

We are talking about agri-sciences firm PI Industries.

Revenues for this company, whose custom synthesis and manufacturing (CSM) segment (exports business) accounts for 70 per cent of sales and domestic agri-input segment (domestic business) brings in the rest, were flat for the financial year. Operating profit fell 11 per cent and adjusted net income 20 per cent.

Investors are worried whether the multibagger is past its prime, but analysts have kept their fingers crossed.

In FY18, the company faced many challenges in exports business thanks to a sharp inventory drawdown in Latin American markets, adverse currency movements, problems in raw material procurement and delay in shipments in the second half of the year.

All of this led the Street cut earnings and price targets for FY19 and FY20. Even as they have cut price targets on the stock, most brokerages say they believe in the company’s ability to sail through such headwinds.

Credit Suisse has a price target of Rs 950 against Rs 1,050 earlier and expects FY19 to be a year of recovery for the company. The stock traded at Rs 835-odd level on Friday.

PI Industries is targeting a top line growth of 18-20 per cent this financial year and hoping to achieve margin expansion across domestic and exports markets on new product launches.

The company is looking to backward-integrate certain raw materials, where it faced problems in the past. It has developed 6-7 alternative vendors in India for certain raw materials that were being imported from China. But the reliance on Chinese raw material has fallen to nearly 16-17 per cent from over 30 per cent earlier.

The company intends to launch 4-5 new products in domestic market in FY19. It is looking scale up volumes in existing molecules in export market besides commercialising 4-5 new molecules.

The stock has fallen 4 per cent in last three months and its one-year return has fallen to 2 per cent.

“PI Industries has underperformed for the last six quarters, delivered lower-than-expected earnings growth in last three out of four quarters. But we are still backing it up on the basic assumption that the market size for the business is humongous. The diversification from agrochemicals is going to play out over the next few years. Remember, this company still generates very decent ROEs, ROC and has literally zero debt,” Amit Khurana of Dolat Capital told ETNow.

Motilal Oswal Securities says headwinds restraining growth in FY18 are behind and PI would deliver robust volume growth, backed by new product ramp-up and expanded capacity.

“We estimate 16 per cent sales growth in FY19 -12 per cent growth in domestic business, 19 per cent growth in CSM, and deferment of orders to the tune of Rs 70 crore from FY18 to FY19. The company’s return on equity (RoE) may stay around 22 per cent, and with a healthy free cash flow, we value the stock at 24 times FY20E EPS,” the brokerage said.

The target price at Rs 958 is 18 per cent higher than the prevailing level.

Kotak Securities has cut FY20 EPS estimates for the company by 1-4 per cent, factoring in modestly lower domestic and CSM revenues. The brokerage, though, remains positive given the strong growth potential of CSM business due to firm export order book of $1.2 billion and a well-established domestic franchise.

The company incurred capex to the tune of Rs 170 crore in FY18 and expects to spend around Rs 500 crore cumulative in FY19/20 for debottlenecking some of the plants and for expanding into 4th and 5th lines at Jambusar. These new capacities are expected to come in 2HFY19,

The company’s biggest hurdle for the company would be maintaining its market share in Nominee Gold (rice herbicide), as Gharda Chemicals and Insecticides India have launched the same molecule, said HDFC Securities.

Source: Economic Times