P.I. Industries (1100 cr. Order-Book + Unique Bus.Model)- Concall Key Takeaways- View
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Re: P.I. Industries (1100 cr. Order-Book + Unique Bus.Model)- Concall Key Takeaways-
CRISIL has upgraded its ratings on the bank facilities of PI Industries Ltd (PI; part of the PI group) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Positive/CRISIL A2+’.
The upgrade reflects improvement in the PI group’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 the PI group’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 the PI 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 the PI group’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 the PI group’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 of PI and its wholly owned subsidiaries, PIIL Finance & Investments Ltd (PFIL), PI Life Science Research Ltd (PLSRL), and PI Japan Co Ltd (PJCL), together referred to as the PI group. This is because all these companies have the same promoters, and business and financial linkages among each other. PFIL handles the investment activities of PI, 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 the PI group’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 the PI group 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 Group
PI was 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, PI entered the energy-metering business, which was also hived off into a separate company, Secure Meters Ltd. To overcome cyclicality in the agrochemicals industry, PI diversified into the polymer compounding business in the 1990s; the business was sold to Rhodia SA, France, in December 2010. Furthermore, in the mid 1990s, PI diversified into the CSM business for global agrochemical innovator companies.
Thus, PI currently 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.
The PI group 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.
The PI group 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.
CRISIL has upgraded its ratings on the bank facilities of PI Industries Ltd (PI; part of the PI group) to ‘CRISIL A/Stable/CRISIL A1’ from ‘CRISIL A-/Positive/CRISIL A2+’.
The upgrade reflects improvement in the PI group’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 the PI group’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 the PI 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 the PI group’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 the PI group’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 of PI and its wholly owned subsidiaries, PIIL Finance & Investments Ltd (PFIL), PI Life Science Research Ltd (PLSRL), and PI Japan Co Ltd (PJCL), together referred to as the PI group. This is because all these companies have the same promoters, and business and financial linkages among each other. PFIL handles the investment activities of PI, 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 the PI group’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 the PI group 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 Group
PI was 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, PI entered the energy-metering business, which was also hived off into a separate company, Secure Meters Ltd. To overcome cyclicality in the agrochemicals industry, PI diversified into the polymer compounding business in the 1990s; the business was sold to Rhodia SA, France, in December 2010. Furthermore, in the mid 1990s, PI diversified into the CSM business for global agrochemical innovator companies.
Thus, PI currently 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.
The PI group 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.
The PI group 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.
Re: P.I. Industries (1100 cr. Order-Book + Unique Bus.Model)- Concall Key Takeaways-
Hi Maheshi,
I am really impressed the way you have digged all the information. I can also make it out that you tracking this business very closely from long time.
Few questions for you... how many companies do you track in same manner?
This business never came in my net to do further research. I thought to share with you my views in regards to this.
I do 3 simple test to filter the company as I don't want to invest in poor quality companies.
I don't like companies with lot of borrowings as I see a risk of equity dilution, default etc. PI industries gearing ratio is 1.10 times! Not a good sign.
Return on equity is really good (40%) but look at total money (Equity+Debt) required to generate that.
Finally with cash flow they generated net cash flow of only 16.40 Crore. And they spent 91 Crore. Nothing wrong in that but low cash generation by business is a concern.
I would like to know your findings in regards to the above points. Don't you think they are more important to do more research on then on any other thing?
Cheers
Aziz
valueoperations.com
Hi Maheshi,
I am really impressed the way you have digged all the information. I can also make it out that you tracking this business very closely from long time.
Few questions for you... how many companies do you track in same manner?
This business never came in my net to do further research. I thought to share with you my views in regards to this.
I do 3 simple test to filter the company as I don't want to invest in poor quality companies.
- Net gearing Ratio
- Return on Equity
- Surplus Cash flow
I don't like companies with lot of borrowings as I see a risk of equity dilution, default etc. PI industries gearing ratio is 1.10 times! Not a good sign.
Return on equity is really good (40%) but look at total money (Equity+Debt) required to generate that.
Finally with cash flow they generated net cash flow of only 16.40 Crore. And they spent 91 Crore. Nothing wrong in that but low cash generation by business is a concern.
I would like to know your findings in regards to the above points. Don't you think they are more important to do more research on then on any other thing?
Cheers
Aziz
valueoperations.com
Re: P.I. Industries (1100 cr. Order-Book + Unique Bus.Model)- Concall Key Takeaways-
Hi Aziz,
Will reply to your queries 1-by-1,
The quantity of companies I track in same manner depends on how many companies I can find which have appealing story like PI and Jubilant....As you must be aware, many companies come across us and we need to go deep into each company to assess its prospect as a good IO but very few companies pass the test..... Those companies who pass the test, I go into detail rgdg. its operational segment, co.'s positioning in each segment, history of execution of company, management bandwidth & credibility, prospect of operational segments, company's financials, BS, parameters, etc.
Now, rgdg. the points you raised specifically on PI Ind., rgdg. gearing, roi & cf.... you are right in your saying that these points are extremely important but when you look at them, you can't look at them in isolation...
You need to go into the history of a company to look at what will be its future ROI, Surplus Cash Flow as well approximate gearing it will require....If I talk rgdg. Pi Ind., this company has built a strong foundation over last 10 years in CSM business by building strong relationship with global innovators which is critical for success of CSM business which is focussed on patented molecules......Once the relationship and trust is buolt over many years the next phase is scale-up which is a capital-intensive phase as its an asset-heavy business.... Once the scale-up infra is set-up the scale-up is very fast as working capital requirement is almost nil in CSM business and there will be robust cash generation accompanied with exponential growth in revenues....
The gearing that you are seeing right now will not remain here and improve considerably from Fy13 onwards once the new plant of CSM segment starts in Q4Fy12....
Your point that 'look at the money required to generate' 40 % ROI.......this is normal for a business model like this and if you closely study the business model you yourself will understand that..... If even with the money deployed growth would have not come then that would have been a concern as then the company would have gone into a trap which was a chance till FY11.... But now, as at FY12 if you ask me then I will say thats not atall a concern as the management is now focussing on reducing its debt by robust cash generated internally.... Even if you look at the whole picture, with expected revenues of Rs. 1000 cr. for FY12 with PAT of Rs. 110 cr. +, a debt of Rs. 200 odd cr. on an equity capital of just 12.52 cr. is not atall bad and it actually depicts an excellent management of business.....
Your third point rgdg. low cash generation.... again you are looking it in isolation.... For setting up a CSM plant the company had a CAPEX of Rs. 140 odd cr. of which 80 cr. was spent last year.... this is the reason why cash generated got depressed...... With the plant getting commisioned in Q4FY12 and no major CAPEX required for Fy12 and FY13, you will see significant improvement in Cash Flow Generation from current FY12 onwards.....
Lastly, I don't know whether you have gone through all my postings or not but still to explain you briefly, PI's CSM business has an order book of more than 1500 cr.... It is worthwhile to note here that revenues of CSM business for FY12 are expected to be only Rs. 300-320 cr. which means 5 times current revenues are already bookled to be executed for next 3 years..... In other words, it means that the CAPEX which is incurred over last 2 years the offtake of that is already tied up and I don't think many other companies we find in which CAPEX is secured in such a way........ Rgdg, the risks to order-book, they are minimal as it is comprises of patented molecules for which only there are 2 vendors world-wide of which PI is the one...
To go further, the margins of CSM business are upwards of 22-23 % which means once the scale up starts in FY13, it will mean a robust cash generation.... Accompanied with it will be the steadily growing Agri-input business for which already 8 products slate is ready to be launched in next 3 years..... Here we are not including any upsides from PI-Sony relationship for which PI Industries will be a joint patent holder and an exclusive supplier....
To conclude, the 3 parameteres you look at are critical for any investment opportunity but if you look at them in isolation then you run the risk of not investing in a solid safe investment opportunity..... You just go through all the past 10 years annual reports of Pi Ind as well as concall transcripts of PI Ind. and I am sure you will come out much more convinced and have a better understanding of Pi Ind.'s business.... If you want I can mail you all the materials....
Feel free to get back to me in case of any query
Rgds.
Hi Aziz,
Will reply to your queries 1-by-1,
The quantity of companies I track in same manner depends on how many companies I can find which have appealing story like PI and Jubilant....As you must be aware, many companies come across us and we need to go deep into each company to assess its prospect as a good IO but very few companies pass the test..... Those companies who pass the test, I go into detail rgdg. its operational segment, co.'s positioning in each segment, history of execution of company, management bandwidth & credibility, prospect of operational segments, company's financials, BS, parameters, etc.
Now, rgdg. the points you raised specifically on PI Ind., rgdg. gearing, roi & cf.... you are right in your saying that these points are extremely important but when you look at them, you can't look at them in isolation...
You need to go into the history of a company to look at what will be its future ROI, Surplus Cash Flow as well approximate gearing it will require....If I talk rgdg. Pi Ind., this company has built a strong foundation over last 10 years in CSM business by building strong relationship with global innovators which is critical for success of CSM business which is focussed on patented molecules......Once the relationship and trust is buolt over many years the next phase is scale-up which is a capital-intensive phase as its an asset-heavy business.... Once the scale-up infra is set-up the scale-up is very fast as working capital requirement is almost nil in CSM business and there will be robust cash generation accompanied with exponential growth in revenues....
The gearing that you are seeing right now will not remain here and improve considerably from Fy13 onwards once the new plant of CSM segment starts in Q4Fy12....
Your point that 'look at the money required to generate' 40 % ROI.......this is normal for a business model like this and if you closely study the business model you yourself will understand that..... If even with the money deployed growth would have not come then that would have been a concern as then the company would have gone into a trap which was a chance till FY11.... But now, as at FY12 if you ask me then I will say thats not atall a concern as the management is now focussing on reducing its debt by robust cash generated internally.... Even if you look at the whole picture, with expected revenues of Rs. 1000 cr. for FY12 with PAT of Rs. 110 cr. +, a debt of Rs. 200 odd cr. on an equity capital of just 12.52 cr. is not atall bad and it actually depicts an excellent management of business.....
Your third point rgdg. low cash generation.... again you are looking it in isolation.... For setting up a CSM plant the company had a CAPEX of Rs. 140 odd cr. of which 80 cr. was spent last year.... this is the reason why cash generated got depressed...... With the plant getting commisioned in Q4FY12 and no major CAPEX required for Fy12 and FY13, you will see significant improvement in Cash Flow Generation from current FY12 onwards.....
Lastly, I don't know whether you have gone through all my postings or not but still to explain you briefly, PI's CSM business has an order book of more than 1500 cr.... It is worthwhile to note here that revenues of CSM business for FY12 are expected to be only Rs. 300-320 cr. which means 5 times current revenues are already bookled to be executed for next 3 years..... In other words, it means that the CAPEX which is incurred over last 2 years the offtake of that is already tied up and I don't think many other companies we find in which CAPEX is secured in such a way........ Rgdg, the risks to order-book, they are minimal as it is comprises of patented molecules for which only there are 2 vendors world-wide of which PI is the one...
To go further, the margins of CSM business are upwards of 22-23 % which means once the scale up starts in FY13, it will mean a robust cash generation.... Accompanied with it will be the steadily growing Agri-input business for which already 8 products slate is ready to be launched in next 3 years..... Here we are not including any upsides from PI-Sony relationship for which PI Industries will be a joint patent holder and an exclusive supplier....
To conclude, the 3 parameteres you look at are critical for any investment opportunity but if you look at them in isolation then you run the risk of not investing in a solid safe investment opportunity..... You just go through all the past 10 years annual reports of Pi Ind as well as concall transcripts of PI Ind. and I am sure you will come out much more convinced and have a better understanding of Pi Ind.'s business.... If you want I can mail you all the materials....
Feel free to get back to me in case of any query
Rgds.
Hi Maheshi,
I am really impressed the way you have digged all the information. I can also make it out that you tracking this business very closely from long time.
Few questions for you... how many companies do you track in same manner?
This business never came in my net to do further research. I thought to share with you my views in regards to this.
I do 3 simple test to filter the company as I don't want to invest in poor quality companies.
I don't like companies with lot of borrowings as I see a risk of equity dilution, default etc. PI industries gearing ratio is 1.10 times! Not a good sign.
Return on equity is really good (40%) but look at total money (Equity+Debt) required to generate that.
Finally with cash flow they generated net cash flow of only 16.40 Crore. And they spent 91 Crore. Nothing wrong in that but low cash generation by business is a concern.
I would like to know your findings in regards to the above points. Don't you think they are more important to do more research on then on any other thing?
Cheers
Aziz
valueoperations.com
I am really impressed the way you have digged all the information. I can also make it out that you tracking this business very closely from long time.
Few questions for you... how many companies do you track in same manner?
This business never came in my net to do further research. I thought to share with you my views in regards to this.
I do 3 simple test to filter the company as I don't want to invest in poor quality companies.
- Net gearing Ratio
- Return on Equity
- Surplus Cash flow
I don't like companies with lot of borrowings as I see a risk of equity dilution, default etc. PI industries gearing ratio is 1.10 times! Not a good sign.
Return on equity is really good (40%) but look at total money (Equity+Debt) required to generate that.
Finally with cash flow they generated net cash flow of only 16.40 Crore. And they spent 91 Crore. Nothing wrong in that but low cash generation by business is a concern.
I would like to know your findings in regards to the above points. Don't you think they are more important to do more research on then on any other thing?
Cheers
Aziz
valueoperations.com
Re: P.I. Industries (1100 cr. Order-Book + Unique Bus.Model)- Concall Key Takeaways-
Hi Maheshi,
Thanks again for such in detail reply. After reading your comments it looks you are too optimist of this business. You are investing on speculation that things will go right in future for this company.
The share capital of 19.29 Crores (not 12.52 Crore if I look at standalone numbers for March 11) plus all the retained earnings that you are missing to add in your calculations adds up to 210.64 Crore of contributed equity as the company retains almost 90% of its profits back into business.
In last 5 years company generated around 155 Crore through its operations and have spent 217 Crores. How will they pay their debts? Have you had a word or read on how the management is looking to pay its debt?
My approch towards investment is very conservative in nature. I know this company is trading at great discount to its fair value but misses on the paramenters of quality. I would let go this opportunity as there are many other available. But all the best to you.
Regards
Aziz
valueoprations.com
Hi Maheshi,
Thanks again for such in detail reply. After reading your comments it looks you are too optimist of this business. You are investing on speculation that things will go right in future for this company.
The share capital of 19.29 Crores (not 12.52 Crore if I look at standalone numbers for March 11) plus all the retained earnings that you are missing to add in your calculations adds up to 210.64 Crore of contributed equity as the company retains almost 90% of its profits back into business.
In last 5 years company generated around 155 Crore through its operations and have spent 217 Crores. How will they pay their debts? Have you had a word or read on how the management is looking to pay its debt?
My approch towards investment is very conservative in nature. I know this company is trading at great discount to its fair value but misses on the paramenters of quality. I would let go this opportunity as there are many other available. But all the best to you.
Regards
Aziz
valueoprations.com
Re: P.I. Industries (1100 cr. Order-Book + Unique Bus.Model)- Concall Key Takeaways-
Hi Aziz,
First and foremost, I need to correct your figures as it seems you are not following the company closely and even not going into detail rgdg. developments and mentioning the figures.... Rgdg. your equity capital point that you are referring to as 19.29 cr.... Its totally wrong as you are just looking at FY11 Annual report where 8.10 cr. worth of CCPS are counted in equity capital which are subsequently converted into equity in April 2011... Hence, the correct latest up-to-date figure of equity capital is 12.52 cr....
Your second point that co. retains 90 % of the earnings, yes, it has done so in past because it was building assets for CSM business for which order book worth INR 1500 cr. + is there as on date (FY11 revenues at 256 cr.)....
Rgdg. your third point that in last 5 years co. has earned 155 cr. and spent 217 cr., again you are missing the study of asset heavy businesses wherein initial spend is high and once that is made company enjoys fruits of that thereafter for many years by earning eceptional EBITDA margins.... Just to give you an example in current FY12 PI Industries is likely to post PAT of 100 cr. + without including the extraordinary gains......
Also, you have missed my Q1FY12 key takeaways note otherwise you would have found that debt is now considerably reduced and balance sheet is stregthened quite a bit....Balance Sheet for the qrtr. has improved significantly with debt level getting reduced from Rs. 248 cr. as at 31st March 2011 to Rs. 133 cr. as of 30th June 2011. Working Capital Turns have improved considerably from around 3 as at 31st March 2011 to 4.6-4.7 as at 30th June 2011. Debtors level is at Rs. 146 cr. (31st March 177 cr.) and inventory level is at Rs. 185 cr. (31st March 147 cr.).
Lastly your contention that its a speculation of businesses turning right in future, my dear friend, already businesses have turned right and all the capacities of the company are booked for next 3 years... what more safety you will find in any other company than this ?
To conclude, i still maintain that in my decade old carrer in financial markets, I have rarely found such growing company with most credible management at such valuations and so still it commands a Safest Buy status in current uncertain markets.
Feel free to ask any query you have.
Rgds.
Hi Aziz,
First and foremost, I need to correct your figures as it seems you are not following the company closely and even not going into detail rgdg. developments and mentioning the figures.... Rgdg. your equity capital point that you are referring to as 19.29 cr.... Its totally wrong as you are just looking at FY11 Annual report where 8.10 cr. worth of CCPS are counted in equity capital which are subsequently converted into equity in April 2011... Hence, the correct latest up-to-date figure of equity capital is 12.52 cr....
Your second point that co. retains 90 % of the earnings, yes, it has done so in past because it was building assets for CSM business for which order book worth INR 1500 cr. + is there as on date (FY11 revenues at 256 cr.)....
Rgdg. your third point that in last 5 years co. has earned 155 cr. and spent 217 cr., again you are missing the study of asset heavy businesses wherein initial spend is high and once that is made company enjoys fruits of that thereafter for many years by earning eceptional EBITDA margins.... Just to give you an example in current FY12 PI Industries is likely to post PAT of 100 cr. + without including the extraordinary gains......
Also, you have missed my Q1FY12 key takeaways note otherwise you would have found that debt is now considerably reduced and balance sheet is stregthened quite a bit....Balance Sheet for the qrtr. has improved significantly with debt level getting reduced from Rs. 248 cr. as at 31st March 2011 to Rs. 133 cr. as of 30th June 2011. Working Capital Turns have improved considerably from around 3 as at 31st March 2011 to 4.6-4.7 as at 30th June 2011. Debtors level is at Rs. 146 cr. (31st March 177 cr.) and inventory level is at Rs. 185 cr. (31st March 147 cr.).
Lastly your contention that its a speculation of businesses turning right in future, my dear friend, already businesses have turned right and all the capacities of the company are booked for next 3 years... what more safety you will find in any other company than this ?
To conclude, i still maintain that in my decade old carrer in financial markets, I have rarely found such growing company with most credible management at such valuations and so still it commands a Safest Buy status in current uncertain markets.
Feel free to ask any query you have.
Rgds.
Hi Maheshi,
Thanks again for such in detail reply. After reading your comments it looks .........................
Thanks again for such in detail reply. After reading your comments it looks .........................
Re: P.I. Industries (1100 cr. Order-Book + Unique Bus.Model)- Concall Key Takeaways-
from initial looks, it seems that revenue is on the lower range of my estimates given before..
ebitda margins are lower than estimates probable reason might be forex loss of 8.85 cr. but how they have acounted it that i need to look at in detail....
Breakup of revenues in terms of agri and csm is crucial and will be known by wednesday...
overall results, especially ebitda are below estimates but Rs. 2 interim dividend could be sign of robust cash generation in second half..
From Press Release issued it seems that Agri-Input segment has been the culprit for lower growth in Q2FY12.... However, CSM segment has grown exceedingly well in Q2 which has somewhat negated the effect of Agri-segment tapid growth....
Rough calculations arrived from press release, put Agri segment revenues at ~149 cr. and CSM segment revenues at ~96 cr. for Q2FY12... Finer Details are still awaited.
Rgds.
from initial looks, it seems that revenue is on the lower range of my estimates given before..
ebitda margins are lower than estimates probable reason might be forex loss of 8.85 cr. but how they have acounted it that i need to look at in detail....
Breakup of revenues in terms of agri and csm is crucial and will be known by wednesday...
overall results, especially ebitda are below estimates but Rs. 2 interim dividend could be sign of robust cash generation in second half..
From Press Release issued it seems that Agri-Input segment has been the culprit for lower growth in Q2FY12.... However, CSM segment has grown exceedingly well in Q2 which has somewhat negated the effect of Agri-segment tapid growth....
Rough calculations arrived from press release, put Agri segment revenues at ~149 cr. and CSM segment revenues at ~96 cr. for Q2FY12... Finer Details are still awaited.
Rgds.
Re: P.I. Industries (1100 cr. Order-Book + Unique Bus.Model)- Concall Key Takeaways-
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 segment.
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.
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 segment.
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.
Re: P.I. Industries (1100 cr. Order-Book + Unique Bus.Model)- Concall Key Takeaways-
PI Ind. gets acknowledged as an Indian PowerBrand at Indian PowerBrands Conclave, London..
http://www.piindustries.com/content/pi-indian-power-brand
PI Ind. gets acknowledged as an Indian PowerBrand at Indian PowerBrands Conclave, London..
http://www.piindustries.com/content/pi-indian-power-brand
Re: P.I. Industries (1100 cr. Order-Book + Unique Bus.Model)- Concall Key Takeaways-
PI Ind. MD, Mr. Mayank Singhal is confident of crossing 1000 cr. revenue mark in FY13 with PAT of more than 130 cr.
Agri-Input head expects future growth driven by five products :
Nominee Gold,
Biovita(L),
Kitazin,
Simba,
Maxima
(source - co.'s inhouse magazine)
PI Ind. MD, Mr. Mayank Singhal is confident of crossing 1000 cr. revenue mark in FY13 with PAT of more than 130 cr.
Agri-Input head expects future growth driven by five products :
Nominee Gold,
Biovita(L),
Kitazin,
Simba,
Maxima
(source - co.'s inhouse magazine)
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