Prabhudas Lilladher is bullish on PI Industries and has recommended accumulate rating on the stock with a target of Rs 370 in its May 22, 2014 research report.
"Though PI's Q4 reported numbers were below expectations due to lower margins, management clarified that it included few one-offs. Adjusting for those one-offs, EBITDA stood at Rs629m, 52 percent YoY with margins of 17.3 percent above estimates. Adjusted PAT stood at Rs478m, 146 percent YoY (PLe: Rs357m). Company continues to deliver consistently far superior earnings growth due to its unique business model. For FY15E, they expect to clock 25 percent YoY blended top-line growth. Management guided for 25 percent YoY growth in both segments (we have modeled for 25 percent YoY growth in custom synthesis; however in domestic business we have modeled for 16 percent YoY growth due to ensuing risk of El-Nino). On the margins side, management highlighted that 50-70bps of margin improvement is achievable next year (we have conservatively modeled for margin improvement of 30bps)."
"Jambusar Phase-II is likely to come up by next year (Q3FY16E) which will accelerate growth momentum. Reduction in net debt and improvement in working capital (net working capital reduced by 20 days) has further improved Balance Sheet. Robust cash flow generation, going forward, will be used to meet capex requirements. Product launches are likely to continue in FY15E. PI expects to commercialize three new products in Custom synthesis, while in domestic market, it will launch two new inlicensed molecules in FY15E. Post the emergence of a stable, decisive and industryfriendly govt. at the Centre, we expect investor appetite to return for quality midcaps. With increased visibility of earnings growth/FCF generation/reduction of debt/, comparable RoE/RoCEs to domestic peers, PI is likely to witness further rerating. We upgrade target multiple to 17x (previous 14x) resulting in target price of Rs 370(previous Rs300). Maintain as top pick in agri-inputs space," says Prabhudas Lilladher research report.
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