Growth concerns weigh on PI Industries; stock slips 12% in 2 days

The stock saw sell-off after reports indicated that the company might feel pressure on its key product -- pyroxasulfone -- due to capacity additions in China

Shares of PI Industries continued to stay under pressure for a second straight day on Wednesday, down 3 per cent at Rs 3,389.95 on the BSE in the intraday trade, on growth concerns. The stock of the pesticides & agrochemicals company slipped 5 per cent from its intraday high of Rs 3,577.05 today.

In the past two trading days, the market price of PI Industries has dipped 12.5 per cent after reports indicated that the company might feel pressure on its key product -- pyroxasulfone -- due to capacity additions in China.

Brokerage firm Motilal Oswal Financial Services (MOFSL) has, however, said that the management has denied any such news of negative impact on the company, calling it mere speculation, and indicated that there is no such stress on the company's full-year guidance and growth.

The brokerage further highlighted that pyroxasulfone is a patented product (until 2025 in developed markets), and will not have much impact from the upcoming Chinese facilities.

On the bourses, the stock hit a low of Rs 3,271.35 on October 26, and has corrected 18 per cent from its 52-week high level of Rs 4,010 touched on June 21.

"PI's stock price has been under pressure over the last few weeks due to several events related to pyroxasulfone such as, Shandong Weifang Rainbow Chemical, a Chinese company, announcing its foray into the manufacturing of pyroxasulfone. It is setting up a 2,000 MTPA plant with an investment of RMB 300m. This is the third Chinese company announcing a capacity for pyroxasulfone, which can have a negative impact on PI's exports. Kumiai has cut it FY24 guidance, thereby indicating demand pressure. Since Kumiai is one of the largest clients of PI, a guidance cut translates into a weak outlook for the company," MOFSL said.

Further, the global agrochemical industry is still witnessing oversupply from China, and lower demand in key geographies such as Latin America. The anticipation of global stress catching up with PI is another reason why the stock has been under pressure, the brokerage firm added.

That said, MOFSL expects PI to sustain near-term growth momentum led by consistent growth in the CSM business, driven by a strong order book ($1.8 billion), 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.

Meanwhile, in Q2FY24 earning conference call, PI said that heightened climatic variations are impacting both the pattern of sowing, application and usage of crop protection. 

"During the Kharif, we experienced erratic monsoons consequently forcing farmers to hold back on application of certain crop protection products. The continuously falling prices of raw materials coming in from China moreover, is putting pressure on selling prices across generic portfolios," the management said.

PI maintained its guidance of achieving revenue growth of 18-20 per cent for next few years with improvement in margins led by better operating leverage and ramping up of new products.