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

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