Chemical manufacturer PI Industries (PI) has built a strong business model by strengthening its presence in the custom synthesis manufacturing (CSM) segment in the agrochemical industry. Going ahead, the company aims to diversify into the pharmaceutical segment and other niche chemistry, Motilal Oswal said in a note.

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The brokerage said that PI continues to build a strong domestic agrochemical franchise with the launch of better products in the crops and pesticide segments over the years.

The company's focus on export CSM has been the key differentiator compared to other agchem or chemical players in India, Motilal said in a note.

PI's CSM business specialises in agrochemicals, primarily patented molecules, which account for 90% of revenue. The company collaborates with global agrochemical innovators to optimise the manufacturing process, reduce costs, and enhance product quality.

The company has strong partnerships with more than 20 global customers, including Kumiai Chemicals, Nissan Chemicals, Mitsui Chemicals, Bayer, BASF and Corteva.

PI's moat lies in its strong export-focused CSM business, as no other Indian player offers the width and consistency that PI does, believes Motilal. The company is banking on this factor by consistently launching new molecules.

"Where global generic agrochemical companies are facing headwinds in the form of subdued prices and volumes due to overcapacity in China, PI is faring well on the back of its CSM business focused on patented molecules (volume growth of 29% year-on-year in Q1FY23)," it said.

The company has a robust pipeline of molecules at various stages, including R&D and recent commercialisation. PI commercialised one molecule in Q1FY24 and plans to launch four to five more molecules annually from FY24 onward, as per its guidance, Motilal said.

PI has a strong track record of an industry-beating revenue compound annual growth rate (CAGR) of 18% in FY16-23, and a sustainable margin profile of over 20% in FY16-23; 24% in FY23.

PI may sustain near-term growth momentum

According to Motilal, PI has levers in place to sustain near-term growth momentum, led by a consistent growth in the CSM business, driven by a strong $1.8 billion order book, faster commercialisation of new molecules plans 4-5 launches every year, and sales ramp-up in existing molecules; product launches in the domestic market (7 launches in FY23 and plans 5 launches in FY24); and recent acquisitions in the pharma API and CDMO space.

The brokerage maintains a 'buy' rating on the counter, with a target price of Rs 4,560 per share, indicating a potential upside of 34 percent from the current market levels.

Motilal believes that any correction in the stock is an opportunity to buy a quality business at a better valuation. "The stock has traded at an average P/E (price-earnings) of 37 times/35 times over the last three/five years on a one-year forward basis."

"We ascribe 36 times FY25E earnings per share (EPS) after considering the strong growth outlook for existing businesses and its acquisition in the pharma segment – which adds up to PI’s total addressable market (TAM) (from $31.5 billion to $136.5 billion in 2022), providing a long runway for growth," it said.

Shares of PI Industries Ltd rose nearly 2% to hit an intra-day high of Rs 3,475 apiece from day's low of Rs 3,416.75, taking the six-month gain to more than 14%. Notably, its market capitalisation is also more than Rs 52,690 crore now.

First Published:Oct 10, 2023 12:45 PM IST