PI INDUSTRIES - Expansion, robust R&D to drive growth - Edelweiss

Our recent visit to PI Industries' (PI) Jambusar (Gujarat) custom synthesis (CSM) plant and Udaipur (Rajasthan) R&D facility reaffirms our positive outlook on the company's innovation-led business model as well as its long-term growth strategy. The Jambusar SEZ facility has one plant currently and PI is planning to set up four more plants at the site over the next four years. The company has started work on plant 2, which is expected to come up by April-May 2015. PI is continuously improving plant efficiency, which will spur margin; moreover, better absorption of common infrastructure cost on account of new plants will boost margin. Further, we are fairly convinced with innovation-led CSM business post visiting its Udaipur R&D facility and interaction with the team. We believe CSM business will continue to post robust growth riding strong order book, further bolstered by Jambusar expansion. Maintain 'BUY'.

Jambusar facility: Key growth driver

Jambusar plant 1 is operating at full capacity and change in product mix is expected to drive near-term growth. PI has started work on plant 2 at the site, which is expected to be completed by April-May 2015. The company has invested INR1.8bn in Jambusar plant 1 including infrastructure cost and is expected to incur capex of INR1bn/p.a. over the next four years (including Jambusar expansion).

Udaipur R&D facility: Growth DNA

Our interaction with the company's R&D team at the Udaipur facility indicated that wide presence in chemistries provides PI an edge over competition. PI's state-of-theart R&D facility and team reaffirm our positive stance on innovation-led CSM business.

Outlook and valuations: Positive; maintain 'BUY'

We are positive on PI from the long-term perspective riding strong CSM earnings visibility led by healthy order book and robust pipeline of in-licensed products. We maintain 'BUY' recommendation with target price of INR323 based on 14x FY16E EPS. We are factoring in discount to Bayer Cropscience/Rallis India, which we value at 20x/18x FY16E EPS.

Source : Equity Bulls

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