Axis Securities picks PI Industries as 'Stock Pick of the Week'; Check Why

Axis Securities remains bullish on PI Industries and has called it the stock pick of the week for investors. Here is the investment rationale of Axis Securities

Axis Securities, Stock Pick of the Week: Domestic brokerage firm Axis Securities remains bullish on PI Industries and has called it the stock pick of the week for investors. PI Industries Ltd is a leading player in the agro-chemicals sector, with operations in over 30 countries and global offices in India, Japan, China, and Germany. The company's export markets include the USA, Brazil, and Saudi Arabia, among others. Notably, the company is a major producer of generic molecules such as Profenofos, Ethion, and Phorate in India.

Meanwhile, the shares of PI Industries started today's session at Rs 4204.80 and traded northward, hitting a 52-week high of Rs 4430 on the BSE on Monday. At around 02:30 PM, the stock was quoted at Rs 4395.90, up 4.54 per cent from its previous close of Rs 4204.80 on the BSE.

 

While assigning a Buy rating on the stock, Axis Securities, in its report, said that the company's management has maintained its revenue growth guidance of 15 per cent for FY25, driven by the new molecule pipeline and an expanding CSM book. The company expects EBITDA margins to sustain at 24-25 per cent due to an improved product mix, a higher share of exports in revenues, and consistent working capital requirements.

"PI Industries' strong track record, long-term relationships, and capability to innovate new molecules support a valuation of 33x FY26E, resulting in a near-term target price of Rs 4,644," said the brokerage in its report.

Here is the investment rationale of Axis Securities:

New products to drive growth: During the year, over 70 per cent of the export growth was driven by new products, highlighted Axis Securities. The management highlighted that one-third of these new products would come from the non-agrochemical sector, targeting end-user segments such as electronic chemicals, semiconductors, performance chemicals, and advanced polymers. Revenue from new products was approximately 25 per cent in FY24, with expectations to grow to around 30-35 percent over the next three years, which is anticipated to be margin accretive. The management expects CSM (Contract Services and Manufacturing) to remain strong with new commercialisation efforts. Additionally, the recovering global scenario, as per the brokerage, is expected to bolster the growth of Pyrosulphane, with limited negative impact from new competition in China.

Pharma business integration: Axis Securities pointed out that the management plans to integrate its CRO, CDMO, and API platforms into a single CRDMO entity. The company has commissioned an R&D facility in Hyderabad, equipped with over 65 scientists. PI Industries aims to expand its Pharma business both organically and inorganically, with a focus on business development to scale operations. "In FY24, PI invested Rs 46 Cr in business development and intends to continue investing in this area for the next two years. Following this period, the company anticipates achieving margins of over 20 per cent from the Pharma segment," said the brokerage.

Acquisition of Plant Health Care Plc: PI Industries anticipates that acquiring PHC will strengthen its presence in the biologicals sector, where it currently has eight products. This acquisition, as per the brokerage, is expected to leverage its innovative chemical product pipeline and complementary technologies, thereby supporting medium-term growth.

Gradual Revival in domestic segment led by biologicals: Domestic revenues were sluggish, declining by 5 per cent YoY in Q4 FY24, primarily due to a 6 per cent YoY reduction in volume driven by erratic and uncertain monsoon conditions. However, a better product mix and improved working capital management helped mitigate the financial impact, said the brokerage. Axis Securities further highlighted that, for FY25, the management plans to focus on portfolio diversification to drive high-quality revenue from newly introduced products and leverage technology-based approaches to enhance performance in the CSM business.