P I Industries Ltd. (PI) ` 538 (14/12/12) BUY

TMP I Industries Ltd. (PI) ` 538 (14/12/12)BUYPI stands out in agrochemical sector with its different business model. It has twodivisions - agri inputs division supplies to domestic markets from its own productsand in-licensed products of MNCs. Other business concentrates on Custom synthesis& contract manufacturing (CSM) of chemicals which mainly find applications in agriculture.Company has recently announced raising of ` 150 Crs. through equity related instruments.Based on the prevailing market price, equity capital will go up by ~ ` 1.4 Crs. to ` 13.92 Crs.(11% dilution).A CONSILIUM INFORES & ADVISORS INITIATIVE FOR BALANCE EQUITY BROKING (INDIA) PVT LTD

P I Industries Ltd.TMBSE SENSEX/S & P NIFTY 19317.25/5879.60SectorAgrochemicalsMarket Cap./Free Float (` Crs.) 1347.15/484.97Market Price as on 14/12/12 ` (FV ` 5/-) 53852 Week High/Low ` 595.25/424.00Equity Shares Outstanding (in Crs.) 2.504P/E Ratio (Times) (for FY ‘12) 15.91P/B (Times) (for FY '12) 4.2EV/EBITDA (Times) (FY ‘12) 10.9ROE % (FY ‘12) 26.7Shareholding Pattern as onSep ‘12 (%)Highlightsu Apart from selling its own products in Agri inputs,Company in-licenses and co- markets products of MNCs inthe domestic market, which firms about 48% of domesticrevenues.u The CSM exports continues to grow at a brisk pace.At any given point in time PI has about 25-30 product attheir initial research stage, which is representative of thepotential upside in business. Currently, there are over adozen products that have reached the commercializationstage. Order pipeline for existing products is very strongand consists primarily of multi-year orders with protectionagainst currency fluctuation and raw material pricing builtin.u The new manufacturing facility at Jambusar (Gujarat),is expected to commence operations in third quarter of FY’13. The facility will give additional capacities to the Companyto service its growing order book and also offer various taxbenefits as it has been set up in SEZ.Share Price Performanceu Company expects to introduce 2/3 products in CSMbusiness during 2H of FY ’13. In agri inputs, 1 new in-licensedproduct will be introduced during FY ’14.u Debt Equity ratio of the Company has improved from1.24 x in FY ’11 to 0.82 x in FY ’12 as a result of issue of equityshares on conversion of preference shares and debentures atpremium.P I Industries Ltd.is also available on www.balance-equity.co.in

P I Industries Ltd.TMBusiness modelPI was incorporated in 1947 and today the business is divided in to two divisions – Agri inputs and Custom Synthesis & Manufacturing.It operates three formulations and two manufacturing facilities, as well as four multi product plants across Gujarat and Jammu.Under agri input business it produces API, intermediates & formulations for plant protection products – insecticides, fungicides &herbicides - specialty plant nutrient products & fertilizers and hybrid seeds. It licenses new products from global innovators toregister & market them in India exclusively. This business derives strength from strong distribution network ( 9000 distributors and40,000 retail points) & several brands from Company’s own stable as well as in-licensed products from several global companies.The Fine Chemicals business unit of PI focuses on Custom Synthesis, which includes dealing in custom synthesis and contractmanufacturing of chemicals, including techno commercial evaluation of chemical processes, process development, lab & pilot scale upas well as commercial production. The Company has a decent product portfolio of patented molecules, as result of exclusive tie-upswith leading agro-chemical, pharmaceutical and fine chemical companies around the world. PI has made substantial investments inbuilding state of art process research and manufacturing facilities of chemical intermediates and active ingredients with special focuson strong process R&D capabilities. This business unit is expected to be the primary growth driver with strong revenue visibility.Company had three wholly owned subsidiary companies as on March ’12. Subsidiary operations are small, however, all ofthem reported profit at net level in FY ’12.Details of Subsidiary Companies (100% owned)For FY '12 (` Crs.) Revenues Net ProfitP I Life Science Research Ltd. 3.27 1.33P I Japan Co. Ltd. 2.74 0.09PILL Finance & Investments Ltd. * 0.26 1.57* Net profit of PILL includes profit on sale of land ` 1.76 Crs.P I Industries Ltd.is also available on www.balance-equity.co.in

P I Industries Ltd.TMAgri InputsNOMINEE GOLD , a rice herbicide is one of the key drivers for PI and continued to do well in FY ’12. Company is also promotingnew techniques including direct seeded rice vs. present practice of transplanted rice, enabling significant water and labour costsavings for farmers. In FY ’12, PI successfully introduced two broad spectrum modern fungicides - CLUTCH and SANIPEB, one wheatherbicide - WICKET, and a broad spectrum insecticide - OVAL. It also reached the final stages of registration approval for two newbroad spectrum insecticides, which are expected to be launched in the domestic market in the current year.In Agri inputs division company introduced few new molecules and plans to introduce 2 more in the current year whichhave good potential to become category leaders. It has signed agreements for 6 new molecules (in insecticide / herbicide / fungicidesegments) to strengthen its product portfolio and sustain growth momentum.Custom research & SynthesisIn this division the Company has a strong order pipeline for the next 3 - 5 years and is well positioned to capitalize on the expectedgrowth in the contract research and manufacturing market. PI has started commercial production of a promising new product,which is expected to contribute significantly to revenues in the current fiscal and in future.The Research and Development team continues to work on new areas of fine chemical business and have successfully carriedout synthesis and scale-up for several new molecules in the area of agrochemicals, pharmaceutical intermediates and imagingchemicals. At any point of time Company has product pipeline of 25-30 products at different stages of R & D being evaluated forcommercialization over a period of time. As a result of this, three new patented products shall get commercialized in FY ‘13, addingto growth in the custom synthesis business. During the year, some more high growth potential products were added to the R&D andprocess research pipeline of the Company.Company’s research collaboration with M/s Sony Corporation of Japan continues to progress well and supports the developmentof commercial processes in the area of electronic chemicals. With the success of the PI - Sony research collaboration, PI expects topartner with some new customers.Order book for CSM business as on Sept. ’12 stood at US $ 318 million, which will be executed over next 1-1 ½ years.P I Industries Ltd.is also available on www.balance-equity.co.in

P I Industries Ltd.TMAgri IndustryOn an average, around ~10%-30% of yield is lost in India due to pests. It is estimated that the highest food grain loss is dueto weeds (28%), by diseases (25%), by insects (23%), during storage (10%) and others (14%). Despite this, the per hectarepesticide consumption in India is significantly lower than global averages and currently stands at 0.5kg/ha, vis-à-vis 14kg/ha in S.Korea and 7kg/ha in USA suggesting ample scope for long term growth of the industry.The key reasons for low pesticide consumption have been lack of affordability of agrochemicals and low awareness aboutpotential losses coupled with low reach and accessibility of products. However, with rising MSPs driving higher farm incomes andsignificant focus of companies on education and extension programs for farmers, the scenario is changing rapidly.According to CMIE data, the Indian crop protection industry was sized at `13,700 Crs. (domestic consumption) in FY ‘10.While the industry registered a CAGR of ~8.2% over FY 2000-10, growth has accelerated to 11.2% CAGR over FY ‘05-‘10. Going ahead,the crop protection industry is expected to grow at 10-12% CAGR.India is the 4th largest manufacturer of crop protection chemicals behind USA, Japan and China. India is also one of the mostdynamic generic pesticide manufacturers in the world though highly fragmented in nature. According to industry data, more than 60technical grade pesticides are being manufactured indigenously by 125 producers, including 60 large and medium scale enterprises.Most Indian technical manufacturers are focused on off-patent pesticides, which account for ~ 70% of the domestic market. Further,there are more than 1,200 pesticide formulators pan India. The industry landscape includes multinational companies, medium sizedIndian Companies and hundreds of regional formulators.P I Industries Ltd. is also available on www.balance-equity.co.in

P I Industries Ltd.TMCustom Synthesis & Manufacturing IndustryThe Global Fine chemical Industry is estimated to be ~ US $ 300 billion by the year 2015 having a growth rate of 7-8 % with stronganchors in Asia. Of this, the addressable portion of CSM is estimated at ~$ US 85 billion. Although India currently accounts for lessthan 5% of the CSM business globally, this share is expected to grow substantially over the next 5-7 years. The Indian CSM industry isexpected to grow at much faster pace than the ~12% CAGR of the global CSM market.Outsourcing to India is on the rise owing to compelling benefits including world-class research and manufacturinginfrastructure, large well qualified talent pool, moderate R&D and manufacturing costs and high capital efficiency. India already has thehighest number of USFDA and UK MHRA approved plants for pharma products globally. With 170 approved plants, India has becomea natural outsourcing destination for global companies, seeking to achieve accelerated time to market and superior cost efficiencies.Traditionally, India has been the outsourcing destination for Intermediates and Active Pharmaceutical Ingredients (~ 60% oftotal outsourcing has been in this segment). However, the outlook is changing rapidly as many Indian companies have expanded theirofferings under contract manufacturing and have also built capabilities in the areas of contract research for discovery and development.FinancialsGenerally Company earns 16-18% EBITDA margins on its Agri inputs business, while EBITDA margins for CSM business rangesbetween 18-20%. CSM business contributes about 35-40% of total revenues.While there was marginal increase in prices of crop protection chemicals in 1H of FY ’12, prices were under pressure in 2H.PI could maintain comparatively better margins in most of its products due to its leadership position and quality. Industry as a wholesuffered due to erratic rainfall, low crop productivity, poor crop economics and reduced acreage for some crops , negatively impactingfarmer’s ability and desire to invest in crop protection products.Despite challenging conditions, net total revenue for FY ’12 went up by 36% without Polymer Compounding division revenues,which was sold off in June ’11 quarter. The Company continues to show high growth in revenues due to its introduction of novelproducts and ramp up in exports. Domestic revenues grew by 22% in FY ’12, whereas custom synthesis revenues recorded 62%growth y-o-y due to demand surge in already commercialized products. 22% growth in Agri input division was driven by successfulramp up of sales from newly launched in-licensed products, expansion of distribution network and strategy of consistent additionof new products to the portfolio. This growth was achieved despite several challenges like increasing cost of production due to higherraw material, manpower, energy and transportation costs and inability of farmers to realize Minimum Support Price in many parts ofthe country impacting crop economics for them. Further, change in subsidy system for fertilizers, export restrictions on leading crops,P I Industries Ltd. . is also available on www.balance-equity.co.in

P I Industries Ltd.TMcrop holidays in certain areas and unfavourable rains for crops such as pulses and soyabeans impacted Agri input demand. Significantvolatility in Indian Rupee also contributed to the woes of the industry.CSM exports showed strong growth momentum and grew at 63% y-o-y in FY ’12 , which was driven mainly by supply of somenewly patented active ingredients and key intermediates. More than 90% of revenues of custom synthesis exports are derived frompatented products (active ingredients/intermediates) indicating high technological capabilities of the Company as well as trustedrelationships with global innovators. Since most of these products are at early stage of their life cycle, they auger well for future growthof the Company.Domestic business of agri inputs suffered in Q1 due to late rains and its resultant impact on demand. Despite weak demandindustry was able to effect price rise between 6-9% in Q1. For Q2 of FY ’13, PI reported revenue growth of 22%, whereas profit at netlevel went up by 33%. Q2 saw high revenue growth of 28% in agri inputs while CSM business saw 12% growth on higher base of lastyear. For first half of FY ’13 overall revenue went up by 19% while net profit went up by 44%. Custom Synthesis business revenues for1H went up by 29% as against 14% growth in agri inputs.Company is incurring ` 150 Crs. capex during current year, out of which ` 25 Crs. will be normal capex. Next year Companyexpects to spend ` 100 Crs by way of capex.Revenue & profit trend in last five years (` Crs.)120010008006004002000FY '08 FY '09 FY '10 FY '11 FY '12Revenues EBITDA PATP I Industries Ltd.is also available on www.balance-equity.co.in