PI Industries Ltd lost 3% after the promoters pared their stake in the company by 6% to 51.7%. With the recent loss, the stock is down 8% since the September quarter results announcement. In comparison, the S&P BSE 500 index lost 4% during the period. Note that the stock fell despite the company’s reiteration that its outlook remains robust.
To recap, performance in the September quarter, though better than most industry peers, was anything but exciting. Revenue increased just 5%. Custom synthesis and manufacturing (CSM), from which the company derives close to half of the revenues, did not see any growth. Despite this, the stock ratings more or less remained unchanged. That was due to the management’s assurance of a strong revenue growth for the full year.
The company is expanding the CSM plant at Jambusar in Gujarat. The second phase of the plant was commissioned in September. The third phase is expected to come on stream in the current quarter or the next. The two phases are estimated to generate an additional revenue of Rs.170-200 crore, the management told analysts.
“We believe that CSM growth could surprise on the upside given the management’s guidance of Rs.3-3.5 billion revenues from Jambusar itself in FY16. Jambusar I had done Rs.1.3 billion revenues last year,” Ambit Capital Pvt. Ltd said in a note.
Based on the revenue projections, sales for the full year are expected to grow by 15%. In the first half of the fiscal year, they increased 11%. “Management guided 18-20% sales growth in the custom synthesis segment with overall sales growth of 15% in FY16,” Elara Securities (India) Pvt. Ltd said in a note.
The current quarter results should reflect some benefits of the capacity additions. That will give confidence to the Street that PI Industries is on track to optimize revenues from the new facility, which could aid growth in the next fiscal year as well. On optimal utilization, the plant at Jambusar is estimated to generate revenue of about Rs.600 crore, analysts say. A timely scale-up will also help justify valuations. Compared with 10-18 times the one-year estimated price-to-earnings per share multiple of Insecticides (India) Ltd, Rallis India Ltd and Dhanuka Agritech Ltd, PI Industries is trading at 23 times.