Detailed Stock Analysis of PI Industries Ltd
In this article, we are going to do PI Industries stock analysis, in which we will discuss the company overview, key financials, and valuation aspects.
Detailed Stock Analysis by Invest Yadnya
- Pi Industries was founded and incorporated by the name of Mewar Oil & General Mills Ltd in 1947 in Udaipur, Rajasthan (India). It was named PI Industries Ltd in 1993 to reflect its new diversified businesses.
- PI Industries Ltd is engaged in the business of Agri-inputs, Fine chemicals and CRAMS (Contract Research and Manufacturing Services), Polymers and Engineering Services.
- Thus, Services offered by the company include :
- Contract Research & Manufacturing Services in the areas of Fine Chemicals, Agro Chemicals and Pharma intermediates.
- It is India’s largest CRAMS company with over 95% of revenue from Patented Products.
- Crop protection, Specialty products, Plant nutrients and Seeds: Pesticides, Fungicides, Herbicides etc.
- Engineered plastics and compounds for automobiles, electrical appliances, and home appliances.
- Today, PI Industries is ranked among the top five Indian Agrochemical manufacturers, marketers and exporters, with a leading market share.
- The company has a PAN India presence through a vast distribution network :
- 30+ Countries
- 10,000+ Distributors & Dealers
- 60,000+ Retail Points
- It has 3 subsidiaries named :
- PI Life Sciences Research Ltd
- PILL Finance & Investments Ltd
- PI Japan & Co. Ltd
PI Industries Stock Analysis – Unique Business Model
- Current Market Capitalization = Rs.20,533 Cr, Midcap Company
- Return on Capital Employed (ROCE) = 24.66%
- Return on Equity (ROE) = 19.14%
- The company has good ROCE and ROE numbers.
- Debt to Equity Ratio = 0, Debt-free company
PI Industries Ltd – Sales & Net Profit Growth %
- On account of Sales and Net Profit‘s historical CAGR growth for TTM (Trailing 12 Months), 3 years and 5 years, we can see that the company has had considerably good and consistent growth over the last 3 and 5 years.
- Also, for TTM, the sales of PI Agro Chemicals have increased significantly by almost 24%. In spite of the decline in Domestic operations due to erratic monsoon, PI Industries has delivered a growth of 24% driven by exports.
Valuation of PI Industries Ltd
- The 1-year return of the stock of PI Agro Chemicals is 76%. The current Price to earnings ratio is 44.61. And the historical average PE ratios for the last 3, 5 and 10 years are 29.5, 29 and 20.7 respectively.
- Thus, PII Industries Inc.’s share price is currently trading at a premium valuation as compared with its historical valuation.
- The rally of 76% in the share price over the last 1 year is mainly on account of :
- Availability of a lot of opportunities to India in the chemical manufacturing business amidst challenges to China
- 24% growth in Sales over last 12 months period (TTM) driven by growing export business
- Consistently improving Operating profit margin %
- New Product launches and enhancement in capacity
PI Industries Ltd – Shareholding Pattern as of September 2019
- Strong promoter holding, about 51.38%, with 0 pledged percentage is a very positive sign for the company.
- Consistent rise in FII’s stake over last 4 quarters. current holding is 14.69%
- Mutual funds also have a significant stake of 16.83%.
- Other DIIs and the general public hold around 2.99% and 14% respectively.
- Challenges around China have increased the number of inquiries and is expected to have a positive impact on the export business. China’s strict effluent norms and rising wage costs are expected to bring a lot of opportunities to India in the chemical manufacturing business.
- As long as PI Industries is able to scale up to meet the growing demand in the Chinese market, it will be able to take advantage of such opportunities.
- Capital Expenditure Set to Increase
- The company incurred a capital expenditure of Rs. 347 Cr in H1 FY20 and the management has given a Capital Expenditure guidance of Rs. 450 Cr for FY20.
- Significant investments in the recent period have led to new product launches and enhancement in capacity.
- It is expected that the company is going to increase its capital expenditure in the coming years.
- Earnings Visibility :
- The company’s top line is expected to grow at a healthy 21% CAGR for FY19-21E driven by the growing export business and new product launches. However, declining domestic revenue amidst a slowdown remains a concern for the management.
- But, EBITDA margin % is improving consistently to almost 21% fuelled by effective measures towards controlling cost and other expenses.