Thread by @soicfinance

Pi Industries Concall Update *Q2 FY20*

Industries Q2FY21 Concall

I will be dividing this concall into 3 parts: Business, Risk and Management

Business

Both the existing molecules and the recently commercialized molecules have seen a good uptick.

More than 10 products in the

R&D pipeline in pharma. Commentary of Global Agri Innovators has shown robust strength.

Domestic Business improved by 33% and the export business grew by 25%. Topline grew by 28%.ISAGRO forms 11% of the consolidated topline.

Utilization levels are heading back to Pre-covid levels. Going forward, focusing more to improve the asset utilization levels.

EBITDA margins expanded by 293 bps due to better product mix and operating leverage. Capex done till H1FY21 is 116 crores, target for the entire year

is 600 crores. 100-150 crores of CAPEX will likely spill over to next year due to covid disruptions. Order book was maintained at $1.5 billion. Domestic business ex of ISAGRO grew at mid-single
digits, as we are rationalizing the portfolio and a substantial part of the portfolio,

comes from Early post-emergence Herbicide, parts of India has experienced early monsoon, this impacted demand (rice).
ISAGRO continues to enjoy high double-digit growth, has helped us diversify into other pesticides which are used for vegetables, fruits and Plantation

(Tea plantation was extremely good this time). It has helped to hedge the Domestic Portfolio.1 Multipurpose plant to be commissioned by next year.

Have launched 1 molecule in CSM business and 2 in the Domestic business. Few products to commercialize in the next half in the CSM

business and both the molecules launched in domestic business are targeting rice.

Management

All about acquisition
Focusing on utilizing the QIP funds within next 6 Quarters, can expect to do something in next few quarters and not wait for the next 6 quarters.

We have opportunities insights where we can easily deploy 3000 crores and sustainably generate returns better than what we are doing today.

Key criterion for capex and acquisition: deploy additional capital at a higher ROCE.

Acquisition is mainly being done to shorten the process and sustainably create another growth engine for next few decades like what we have done with CSM business.

Actively looking for Pharma assets and have engaged a leading consultant to help us evaluate synergies and

potential areas of business. Given the pipeline we have, few more plants are in the pipeline. Not expecting this speed of growth to accelerate, guiding for 20%+ growth in next 6-8 quarters.

In next 3-5 years, we see ourselves achieving the next level of scale and to emerge as an innovation-led organisation with diversified businesses.

RISK

MEIS eligibility has been capped by the government at 2 crores(last year at 15-18crores quarterly). Government has announced an alternative plan.
Sluggish mid SINGLE digits growth in the domestic agri ex of ISAGRO.

Acquisition-related risk is there as in the past many acquisitions have failed.

My view: Last year they acquired ISAGRO for 350 crores, 300 crore topline and 20% utilization with single-digit margins, this year margins have improved and the topline has increased to nearly 450 odd crores (Multiple of 3-3.5 times EV/EBITDA) .

Given the past track record of execution and capital allocation, can the management successfully diversify into Pharma and create another engine of growth successfully?

Such is the nature of high-quality managements is that they always bring an element of optionality which can help them to keep expanding their size of the opportunity.