Broker’s call: PI Industries (Reduce)

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Target: ₹3,650

CMP: ₹3,805

PI Industries is likely to face slower growth from its top molecule pyroxasulfone (about 60 per cent of CSM business) over FY25E/26, due to global inventory adjustments.

Kumiai Chemical (innovator) has recently lowered its agchem segment guidance by about JPY5 billion on account of revenue decline in pyroxasulfone sales. We expect that this reduction in guidance to lead to lower revenue, of up to ₹150-200 crore for PI. The company started FY25 with 20 per cent revenue growth guidance and gradually revised it down to 9-10 per cent.

PI has launched and scaled-up some agrochem active ingredients (AI) in FY24-25, albeit which are largely off-patented. We believe there are currently no patented molecules that could offset revenue loss from pyroxasulfone. We build in about 17.2 per cent CAGR for CSM sales ex-pyroxasulfone, over FY24-27, to factor-in optionality for acquisition of a company in the agri-space, new molecule order from any innovator, or ramp-up in existing molecules in its portfolio. PI has acquired two businesses on the pharma front that have a portfolio in pre-clinical/generic pharma CSM. These acquisitions will take a couple of years to ramp up and contribute meaningfully.

We lower our multiple to 28x from 30x earlier, building in concentration risk and lower visibility on scaling up of newer patented molecules. We maintain Reduce, trimming our TP to ₹3,650.