PI Industries was founded and incorporated by the name Mewar Oil and General Mills Ltd. in 1946. The company operates with a unique business model in the Agchem space of providing an innovative solution to its customers from R&D to Distribution. It is also one of the leading players in the Indian and the Global market.
The company’s shares have a 52-week price band of INR 2160-970 and a total market cap of 288 billion which makes it a Large-Cap company. The shares have a P/E ratio of 52.4 and a dividend yield of 0.21%.
Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The categories are as follows.
- Economic Moat
- Business Model and Management
- Growth Ratios
- Profitability Ratios
- Cash Flow Ratios
- Liquidity and Solvency Ratios
- Efficiency Ratios
- Valuation Ratios
- ROE (Du Pont Analysis)
- Future Prospects
(All units are INR Millions except ratios and per share data)
You can also get the complete excel model for learning fundamental analysis by clicking the link below:
1.Economic Moat (★ ★ ★ ★ ☆)
The company operates in the AgriChem industry where market dominance is achieved through R&D, approvals, scale and distribution network. The company has around 50+ years of experience with 20+ Global Innovators and strong pipeline molecules based on crop solutions and Indian needs. On the distribution and scale front, the company has 28 stock points, 10,000+ distributors and 70,000+ retail points.
PI Industries is also a leading Ag-chem distribution Company in India with a leading market share in certain crops. It is also India’s largest CRAMS company with over 90% Revenue from patented products. This overall shows a wide economic moat for the company protected heavily by intangible assets. Therefore this category gets 4 stars in PI Industries fundamental analysis.
2. Business Model and Management (★ ★ ★ ★ ★)
The business model of the company is such that it is involved in providing an innovative solution to its customers from R&D to distribution. The company also has more than 50+ years Creating Market Leading Brands with significant revenue from brands ranked No 1 or 2 in the market and some brands which are more than a decade old. It is involved in pre-launch trails, Product Launch campaigns and Post-launch efforts which include Print and Electronic Media promotion and geographical expansion.
The company also recently completed the acquisition of ISAGRO Asia and will now be one of the leading players in the horticulture segment in India. The management is also looking forward to enhancing capacity utilization from current 20-25% to >90% to more than triple the revenue generation in next a couple of years. This overall indicates a good business model with a focus on core growth.
Dr Raman Ramachandran is the Managing Director and CEO of the company and is one of the prominent names in the Industry. Mr Prashant Hegde is the CEO of Agchem Brands and has 25+ years of experience with multinational and Indian companies. Mr Subhash Anand is the CFO and has 28+ years managerial and professional experience. The management overall is stable and has shown interest in shareholder’s wealth. Therefore this category gets 5 stars in PI Industries fundamental analysis
3. Growth Ratios (★ ★ ★ ★ ★)
The revenue has seen a 20% CAGR growth over the last 10 years. The Operating Income and Net income has also increased by 19.33% and 29% CAGR respectively. This also indicates increasing operational expenses and reducing profitability as the scale increases. The working capital has been positive and the Cap-Ex has increased over the years. This indicates good growth prospects in the future. Therefore this category gets 5 stars in PI Industries fundamental analysis
4. Profitability Ratios (★ ★ ★ ★ ☆)
The gross margin has almost flattened over the years and this is due to the nature of the business. The other margins along with return on assets have shown a slight decline over the years. This is due to increasing operating costs and competition. However, the margins are likely to remain flattened in the future without any significant improvement. Therefore this category gets 4 stars in PI Industries fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ★ ☆)
The net income margin has declined and the Cap-Ex as a percentage of sales has increased in recent years. The free cash flow as a percentage of net income has been fluctuating due to business integrations, acquisitions and new projects. The operating cash flow growth has also shown signs of improvement. This overall indicates a good cashflow position. Therefore this category gets 4 stars in PI Industries fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ★ ★ ★)
The company does not have any significant long term debt in its capital structure therefore the financial leverage and debt to equity ratio are very low. The company also has good profitability and hence there is no significant concern regarding its solvency. The current and quick ratios are also stable and signify good asset liquidity for the company. Therefore this category gets 5 stars in PI Industries fundamental analysis.
7. Efficiency Ratios (★ ★ ★ ☆ ☆)
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
Overall the business efficiency has declined over the years as the company expanded into new products and across new geographies. The inventory days are high and the payable period has decreased from 171 days to 135 days. The receivable days have also been stable but the cash conversion cycle has been positive and increasing. This indicates deteriorating efficiency for the company. Therefore this category gets 3 stars in PI Industries fundamental analysis.
8. Valuation Ratios (★ ★ ★ ★ ☆)
The shares have almost been trading at increasing multiples in recent years which indicates that the market expects aggressive growth in the near term. The company has a significant market share act and the competition has increased much over the years. The multiples, however, are driven by some fundamental factors and are expected to improve in the near future. Therefore this category gets 4 stars in PI Industries fundamental analysis.
9. ROE 5 way Du Pont Analysis (★ ★ ★ ★ ☆)
The leverage ratio has declined over the years and the asset turnover has been stable. The tax efficiency and interest burden ratios have remained almost stable over recent years. The operating margin, however, has seen some decline during the period. Overall the Return on Equity has been stable over the years. Therefore this category gets 4 stars in PI Industries fundamental analysis.
10. Future Prospects (★ ★ ★ ★ ☆)
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The effect of Covid-19 outbreak will only be of temporary revenue loss due to disrupted supply chains. The management has not shown any indicators of conserving CAPEX inorder to maintain liquidity.
- ISAGRO’s acquisition, 22 patent applications, a $1.5 billion CSM order book, introduction of an intermediate used in COVID-19 drug has been new growth drivers for PI Industries during FY 2020.
- The management has also commissioned 2 new multiproduct plants, 2 new products in CSM and 3 new products in the domestic business which can be the growth drivers of the near future for the company.
Overall the company has shown improved operational efficiency with increasing scale and has new R&D pipeline which will drive the revenue in the coming years. Therefore this category gets 4 stars in PI Industries fundamental analysis.
Overall Fundamental Rating:
PI INDUSTRIES SHARES (4.2/5)
Therefore it is a 4-star stock
★ ★ ★ ★ ☆
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|Economic Moat||★ ★ ★ ★ ☆|
|Business & Management||★ ★ ★ ★ ★|
|Growth Ratios||★ ★ ★ ★ ★|
|Profitability Ratios||★ ★ ★ ★ ☆|
|Cash Flow Ratios||★ ★ ★ ★ ☆|
|Liquidity & Solvency||★ ★ ★ ★ ★|
|Efficiency Ratios||★ ★ ★ ☆ ☆|
|Valuation Ratios||★ ★ ★ ★ ☆|
|ROE (Du Pont Analysis)||★ ★ ★ ★ ☆|
|Future Prospects||★ ★ ★ ★ ☆|
|Overall Fundamental Rating||★ ★ ★ ★ ☆|
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)