Citi has initiated coverage with a buy rating on PI Industries , an agrochemicals and custom synthesis & manufacturing (CSM) player, citing strong long-term growth prospects and proven ability to capture them. It has set a target price of Rs 1,060 per share on the stock that rallied 2.5 percent intraday Monday.
The brokerage house says its domestic agri-input business is seeing a structural demand growth and near-term demand uptick driven by decent monsoons this year. Its CSM business with a strong order book (OB) adds a clear visibility of 3-4 years.
With both businesses having a differentiated model, PI has garnered market share and this trend will continue, it feels.
Domestic business contributes 40 percent and CSM segment 60 percent to total revenue.
The brokerage house says a low pesticide consumption in India (0.6kg per hectare versus 5-13kg/hectare in developed countries-China) provides a multi-year growth opportunity to established players (like PI Industries) with a pan-India presence.
PI has more than 29 branches, 8,000 distributors, more than 40,000 retail outlets and has a successful track record of introducing branded products under exclusive contracts. Overall branded in-licensed products contribute 65-70 percent of revenues of agri-input business and result in PI having higher margins versus peers.
In its CSM business, PI has not only built strong relationships with Japanese and European innovators but also a deep experience in complex chemistry and a reputation for respecting intellectual property rights. To these customers, PI is either an exclusive supplier or one of the two suppliers for specified chemicals, the brokerage house says.
Currently around 90 percent of CSM revenues are related to inputs for patented products, which locks-in its customers. Further order book of USD 850 million provides a strong visibility of around 3-4 years, Citi says.
Risks according to the brokerage house are weather related fluctuations, keener than expected generic competition for in-licensed products in India and a delay in commercialising new molecules.
At 11:02 hours IST, the scrip of PI Industries was quoting at Rs 824.25, up Rs 17.50, or 2.17 percent on the BSE.
Posted by Sunil Shankar Matkar