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Thursday, November 10, 2011

{GS} Re: Q2FY12 Estimate for PI Industries Ltd. [NSE - PIIND ; BSE - 523642]

Key Takeaways from Q2FY12 Concall of PI Industries Ltd. :

(1) Agri-Input segment grew by 35 % YoY in H1FY12 to stand at Rs. 295
cr.. For Q2FY12, Agri-Input segment grew by 9.28 % YoY to stand at Rs.
153 cr.

(2) CSM segment grew by 140 % YoY in H1FY12 to stand at Rs. 154 cr..
For Q2FY12, CSM segment grew by 174.62 % YoY to stand at Rs. 92 cr.

(3) Unexpected heavy rain spell followed by a dry and cloudy spell
affected the revenues of Agri-Input segment in Q2FY12. However, Rabi
season looks promising because of increase in water in reservoirs
leading to better plantation.

(4) EBITDA for H1FY12 grew by 48 % YoY to stand at Rs. 80.08 cr.. For
Q2FY12, EBITDA grew by 13.1 % YoY to stand at Rs. 37.3 cr.

(5) Company decided to incur high Operating Expenses as well as high
SG&A expenses in Q2FY12 itself and take a one-time hit on EBITDA
margins by keeping long term growth in focus. Such expenses were
necessitated by scale-up of CSM business as well as two new product
launches in Agri-Input Segment. As per management, such high
expenditure, especially on SG&A front (~ Rs. 9 cr.), is not likely to
get repeated in Q3 or Q4 and so EBITDA margins of H2FY12 are likely to
be substantially better than H1FY12.

(6) Company launched two new products in Agri-Input segment ; one
insecticide and one fungicide. Insecticide was launched in tie-up with
Bayer while fungicide was launched in tie-up with BASF. Both are high
potential products with insecticide catering to crops like Tea,
Chillies, etc. and fungicide catering to Vegetables.

(7) Company's flagship product, Nominee Gold, continued its growth
momentum with revenues from this product increasing by 60 % YoY in
H1FY12 despite taking a severe hit in Q2FY12 because of unfavourable
weather conditions.

(8) Order-book of CSM segment at the end of H1FY12 stands at USD 325
mn. as there were no fresh intake of orders in Q2FY12. However, as per
the management, negotiations are progressing well and substantial
order-wins are expected in H2FY12.

(9) Company's balance sheet has considerably improved YoY with debt-to-
equity ratio standing at 0.69 as compared to 1.16 year before. Company
expects to end fiscal FY12 with debt levels similar to that are at the
end of H1FY12 (Rs. 170 +/- 10 cr.). Inventories of Rs. 213 cr.
includes Rs. 125 cr. inventory from Agri-Input segment and Rs. 12.5
cr. inventory w.r.t. projects (upcoming CSM facility) that will
subsequently get converted to capital-work-in-progress in due course.

(10) In CSM segment, company has commercialised one new molecule in
H1FY12 while molecules that were commercialised in FY11 are
significantly scaled-up.

(11) Company expects to end FY12 with revenues of close to Rs. 900
cr. with 325-340 cr. coming from CSM segment and rest coming from Agri-
Input segment.

(12) Overall EBITDA margins are expected to settle at 18-18.5 % for
FY12. Going forward, company expects substantial improvement in EBITDA
margins in both the segments with CSM margins expected to improve to
22-23 % and Agri-Input segment margins expected to improve to 19.5-20

Conclusion :

Agri-Input segment was the main culprit for lower revenue growth for
Q2FY12 as due to unfavourable weather conditions entire sector
suffered and PI was also not spared. Inspite of substantial headwinds
faced by its main operational segment, viz. Agri-Input, and that too
in its highest contributing quarter (Q2) of the fiscal, company was
able to attain an overall revenue growth of 31.3 % YoY (excluding
Polymer Segment which is sold-off, the like-to-like YoY growth comes
to 41.45 %) and a QoQ growth of 18.8 % on a consolidated basis because
of an exceptionally good performance of company's other operational
segment, viz., CSM.

Unfavourable weather conditions coincided with two new product
launches in Agri-Input segment and as the initial cost during any
product launch is high, EBITDA margins suffered to stand at just 15.3
% for Q2FY12. However, these one-time expenses have to be looked at in
the light of benefits that they are likely to accrue in H2FY12 as
almost all the expenses (especially SG&A) w.r.t. two product launches
are written-off in Q2FY12 itself and no expenses are pending to be
written-off in Q3 or Q4. Hence, EBITDA margins are likely to improve
substantially in H2FY12.

Ground conditions for Agri-Input segment have also substantially
improved because of good monsoons with water levels in all the 81
major reservoirs across the country in the first week of November'2011
at 119.309 bn. cubic centimeters which is 105 % of last year's storage
and 119 % of the average storage of last one decade. These conditions
augur very well for coming Rabi Season and that is the reason why
management conservatively estimates a revenue of Rs. 280 cr. from Agri-
Input segment in H2FY12.

Also, regarding CSM segment the visibility is extremely high with
management's conservative estimate of its contribution put at Rs.
170-185 cr. in H2FY12.

In above paras we have used the phrase 'conservative estimate'
because, as per our analysis, the figures provided by the management
are the minimum the company can achieve in both the operational
segments. This is because, if we look at the forex hedge taken by the
management and the order-execution mandate that company has till
March'2012 at USD 48 mn. for CSM segment, the CSM segment is likely to
atleast attain a revenue figure of Rs. 200-210 cr. in H2FY12. Here, we
need to remember that even in Q2FY12, CSM segment has operated at an
EBITDA margin of 20 % + and if we extrapolate this margin to H2FY12
then CSM segment itself is likely to contribute ~Rs. 40-44 cr. in
EBITDA in H2FY12. Similarly, we have seen the worst in terms of Agri-
Input segment revenues in Q2FY12 and with water levels in reservoirs
at all-time high, Rabi season is expected to contribute handsomely in
H2FY12 and management estimte of Rs. 280 cr. revenue contribution from
this segment is on a conservative side. However, here the story will
be margins which got severely affected in Q2FY12 because of one-time
expenses written-off w.r.t. new product launches. As benefits of costs
incurred start flowing in coupled with good growth in revenues because
of improved ground conditions, EBITDA margins for this segment are
conservatively estimated to be in the range of 18-20 % for H2FY12
which will mean an EBITDA contribution of ~Rs. 50-56 cr. from this

To conclude, what we will have in H2FY12 on a consolidated basis is
an EBITDA of Rs. 90-98 cr. for H2FY12 and if we add it to the EBITDA
achieved by PI in H1FY12 then for entire FY12, EBITDA comes to Rs.
170-178 cr.. Now, with debt-levels projected to be at Rs. 170 +/- 10
cr. and after deducting depreciation, interests costs and taxes, PAT
for fiscal FY12 comes to Rs. 91-96 cr. without exceptional gains (of
Rs. 23 cr.) which means a diluted EPS without exceptional gains of Rs.
36.3 – 38.3. Hence, ultimately what we have is a Rs. 900 cr. company
with a strong visibility of atleast 30 % growth for next two fiscals
trading at a P/E of just 14 on FY12e numbers of which first half has
already passed.

As the time goes by and Q3FY12 numbers come out, FY13 numbers will
come into picture wherein contribution from the new CSM facility will
kick-in which will change the entire landscape as CSM segment, on a
conservative basis is likely to post revenues of Rs. 650 cr. for FY13
with EBITDA margins of 21 % +. FY13 will also see the new products
that are launched in this FY12 fiscal (in association with Bayer and
BASF) start contributing handsomely to the revenues and profits of PI
and even if we consider no growth from this segment and assume that
revenues from Agri segment will remain at FY12 levels of Rs. 575 cr.
with lowest EBITDA margins of 17 % then also we have an EBITDA of Rs.
233 cr. for fiscal FY13 which after deducting all expenses w.r.t.
depreciation, interest and highest taxes gives us a PAT of Rs. 128 cr.
which means a conservative EPS of Rs. 51 for FY13. If we apply the
historical P/E valuation commanded by PI even in worst market
conditions at 15 times current fiscal numbers and 12 times forward
then also within six months we have a minimum rate of Rs. 610 which
will be the lowest Best Buy rate at that time. We don't think that in
current uncertain markets we have many safe companies like PI with a
credible management and tremendous growth visibility and so with
minimal positive trigger the stock is expected to get significantly
rerated upwards.

On Nov 2, 10:41 am, mahesh <> wrote:
> CRISIL has upgraded its ratings on the bank facilities ofPIIndustriesLtd (PI; part of thePIgroup) to 'CRISIL A/Stable/CRISIL
> A1' from 'CRISIL A-/Positive/CRISIL A2+'.
> The upgrade reflects improvement in thePIgroup's business risk
> profile, driven by the group's increasing scale of operations and the
> improving profitability of its agricultural inputs division, which in
> turn is because of healthy growth in the group's higher-margin in-
> licensing/co-marketing products segment. The upgrade also factors in
> the improvement in thePIgroup's financial risk profile marked by
> strengthening of capital structure following the conversion of
> optionally convertible debentures (OCDs) into equity, and the
> utilisation of sale proceeds from the sale of the group's polymer
> compounding business for debt reduction. CRISIL believes that thePI
> group's financial risk profile will further improve over the medium
> term, with increasing cash accruals, reduction in gearing, and
> improvement in debt protection metrics, because of improving operating
> performance.
> The ratings reflect thePIgroup's established position in the
> agricultural (agro) chemicals business, with moderate operating
> efficiencies, and growing presence in the CSM segment, leading to
> improved revenue visibility and stable profitability. The ratings also
> factor in the group's healthy financial risk profile, marked by a
> healthy net worth and improving gearing and debt protection metrics.
> These rating strengths are partially offset by thePIgroup's working-
> capital-intensive operations and exposure to risks related to
> cyclicality in the agrochemicals industry.
> For arriving at its ratings, CRISIL has combined the business and
> financial risk profiles ofPIand its wholly owned subsidiaries, PIIL
> Finance & Investments Ltd (PFIL),PILife Science Research Ltd
> (PLSRL), andPIJapan Co Ltd (PJCL), together referred to as thePI
> group. This is because all these companies have the same promoters,
> and business and financial linkages among each other. PFIL handles the
> investment activities ofPI, while PLSRL handles the contract research
> and development (R&D) activities, and PJCL is the group's marketing
> front in Japan.
> Outlook: Stable
> CRISIL believes that thePIgroup's credit risk profile will remain
> stable over the medium term, driven by its increasing scale of
> operations in both the custom-synthesis and manufacturing (CSM) and
> agricultural input businesses. The group is also expected to benefit
> from its improving profitability in agricultural inputs business
> because of increasing revenue share from in-licensed and co-marketed
> products. The outlook may be revised to 'Positive' if the group
> sustains its consolidated revenue growth and profitability, while it
> diversifies its customer base in the CSM division. On the other hand,
> the outlook may be revised to 'Negative' if thePIgroup is unable to
> maintain the growth in its revenue or if its operating margin
> declines, leading to deterioration in its capital structure, or if it
> undertakes a large debt-funded capex programme without adequately
> tying up for its enhanced capacities.
> About the GroupPIwas set up in 1947 as an edible oil refinery unit by the late Mr. P
> P Singhal, father of the current chairman, Mr. Salil Singhal. The
> company later ventured into the agrochemical formulations business,
> which currently is its major revenue driver. In 1978, it diversified
> into mining and mineral processing, which was hived off into a
> separate company, Wolkem India Ltd. In the 1980s,PIentered the
> energy-metering business, which was also hived off into a separate
> company, Secure Meters Ltd. To overcome cyclicality in the
> agrochemicals industry,PIdiversified into the polymer compounding
> business in the 1990s; the business was sold to Rhodia SA, France, in
> December 2010. Furthermore, in the mid 1990s,PIdiversified into the
> CSM business for global agrochemical innovator companies.
> Thus,PIcurrently has two business segments: agricultural inputs and
> CSM. The company also has three wholly owned subsidiaries: PLSRL, an
> R&D subsidiary; PFIL, an investment subsidiary; and PJCL, a marketing
> front office in Japan.
> ThePIgroup has agrochemical manufacturing facilities and five
> multiproduct plants for CSM in Panoli (Gujarat), one formulation
> facility in Jammu (Jammu and Kashmir), and one R&D unit in Udaipur
> (Rajasthan). The group is currently focused on expansion in CSM and
> has no significant investment plans for its agrochemical unit. It
> plans to add capacities for its CSM division over the medium term at a
> cost of Rs.1.5 billion.
> ThePIgroup reported a profit after tax (PAT) of Rs.651.0 million on
> net sales of Rs.7.9 billion for 2010-11 (refers to financial year,
> April 1 to March 31), against a PAT of Rs.419.0 million on net sales
> of Rs.5.9 billion for 2009-10.
> On Oct 24, 2:38 pm, mahesh <> wrote:
> > Board will meet on 5th November 2011 to consider Q2FY12 results..
> > Rgds.
> > On Oct 11, 10:02 am, mahesh <> wrote:
> > > Starting new thread as previous thread is closed...
> > > My Q2FY12 Estimate forPIIndustries(Consolidated) :
> > > Total Revenue = INR 245 - 270 cr.  (Q2FY11 - 186.97 cr.)
> > > EBITDA = INR 45.3 – 49.8 cr.  (Q2FY11 - 34.38 cr.)
> > > Breakup of Revenues – Segmentwise
> > > Agri Input = INR 185 - 198 cr. (Q2FY11 – 140 cr.)
> > > CSM = INR 60-72 cr. (Q2FY11 – 33.5 cr.)- Hide quoted text -
> > - Show quoted text -- Hide quoted text -
> - Show quoted text -

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