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Hold P.I. Industries; target of Rs 1516: Prabhudas Lilladher

February 24
13:25 2020

Prabhudas Lilladher’s research report on P.I. Industries

PI’s results were marginally lower than our estimates due to higher than anticipated tax rate. Both domestic and CSM businesses continue to grow a rapid pace. It has also completed the acquisition of Isagro which will be incorporated in the financials 4Q onwards. PI plans to raise Rs 20 bn within the next 2 months to leapfrog its capabilities into newer adjacent verticals & niche technologies via organic/inorganic route. Our take from concall is that since capital requirement is immediate & sizeable (~52% of FY20E Balance Sheet size) there could be some kind of inorganic growth opportunity that the management may execute soon. The scale of PI’s business may increase by +50% from the Balance sheet perspective (FY20E BS size ~Rs 38 bn) and has potential to take it to a different trajectory. Given the sizeable nature of potential business expansion, we would wait for further developments to frame a view on this. In the existing business EBITDA margins are likely to remain flat @ 21.0-21.5% over the next 2 years as Isagro’s low margin business profile is likely to offset all the operating leverage benefits for PI. We have revised our topline/EBITDA/PAT estimates by 2%/4%/3% for FY21E and 3%/2%/0.7% for FY22E.

Outlook

We roll forward to FY22E earnings, maintain our HOLD rating and increase target price to Rs 1516 (Previous- 1355) based on 28x FY22 earnings.

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