PI INDUSTRIES LTD

PI INDUSTRIES  BSE CODE 523642

EARLIER KNOWN AS PESTICIDES INDIA LTD, AND INCORPORATED IN 1947, THE COMPANY HAS TWO MAIN REVENUE STREAMS:

1.       AGROCHEMICALS

IN  AGROCHEMICALS, THE COMPANY IS A LEADING PLAYER IN THE AGRO CHEM SPACE WITH A UNIQUE MODEL OF OUTLICENSING PATENTED MOLECULES FROM MNC COMPANIES AND LAUNCHING THEM IN INDIA.  ITS FLAGSHIP BRAND IS NOMINEE GOLD WHICH HAS ATTAINED A LEADERSHIP STATUS IN THE RICE HERBICIDE SPACE.    IN THIS SPACE THE COMPANY HAS STRONG DISTRIBUTION REACH WITH MORE THAN 1500 DISTRIBUTORS AND SELLS ITS PRODUCTS THROUGH 25000 RETAILERS.

2.       CUSTOM SYNTHESIS

THE COMPANY IS  A PREFERRED PARTNER FOR MANY MNC COMPANIES TO DO CUSTOM SYNTHESIS OF THEIR PATENTED MOLECULES DUE TO THE STRENGTHS IN PROCESS RESEARCH AND MANUFACTURING.   THE COMPANY ENTERS INTO THESE CONTRACTS ESPECIALLY DURING EARLY PART OF THE LIFE CYCLE OF  MOLECULES WHERE THE MARGINS ARE HIGHER.  CURRENTLY THE ORDER BOOK OF THE COMPANY IS IN EXCESS OF  300 MILLION USD TO BE EXECUTABLE OVER THE NEXT 3-4 YEARS. THIS DIVISION IS LIKELY TO BE THE GROWTH DRIVER OF THE COMPANY GOING FORWARD AND MARGINS HERE ARE ALSO BETTER.

IN BOTH THE ABOVE SEGMENTS THE COMPANY HAS SHOWN ITSELF TO BE A RELIABLE TRUSTWORTHY PARTNER FOR ITS FOREIGN CLIENTS WITH A NO CONFLICT BUSINESS MODEL.

FINANCIALS:

THE EQUITY CAPITAL IS AROUND 12 CRORES WITH 1.2 CR SHARES OF RS 10 EACH OUTSTANDING .

CURRENT MARKET CAP IS AROUND 900 CRORES.

PROMTERS HOLDING IS AROUND 63% WITH NO PLEDGING. STANCHART PE HOLDS AROUND 15% WITH ROWANHILL INVESTMENTS HOLDING 9%. ALONG WITH OTHER HNI AND ALL THE ABOVE HOLDING THE TOTAL HOLDING COMES TO AROUND 90% DUE TO WHICH THE FLOATING STOCK IS LIMITED.

TOTAL DEBT IS AROUND 248 CRORES AS ON MARCH 11. CASH ON HAND IS AROUND 50 CRORES.

ROE  FOR FY 11 IS AROUND 35.

YEAR 2006 2007 2008 2009 2010 2011 SALES 268 319 376 462 542 719 OP 17.4 21.53 27.4 52.81 74.3 108 OPM 6.49 6.74 7.28 11.43 13.7 15 NP 4 4.5 6.3 23 41 64 EPS 33 51

RECENT DEVELOPMENTS

1.       THE COMPANY ALSO HAD A POLYMER DIVISION WHICH WAS A LOW MARGIN BUSINESS AND THE COMPANY SOLD IT OFF TO A FRENCH COMPANY RHODIA SA FOR A CONSIDERATION OF AROUND 70 CRORES. THIS MONEY WOULD BE UTILISED TO EXPAND THE EXISTING BUSINESSES.

2.       THE COMPANY HAS ACQUIRED LAND IN STERLING SEZ IN JAMBUSAR NEAR BARODA AND WILL DEVELOP ENHANCED CAPACITIES FOR CUSTOM MANUFACTURING TO CATER TO THE EXISTING AND EXPECTED ORDER BOOK.  A TOTAL AMOUNT OF 125 CRORES HAS BEEN EARMARKED FOR THIS.  MOST OF THE INVESTMENT IN THIS PROJECT WOULD BE FOR THE CUSTOM SYNTHESIS BUSINESS.

3.       THE COMPANY HAS ESTABLISHED A RESEARCH CENTRE IN COLLOBORATION WITH SONY CORP JAPAN . THE CENTRE WILL BE ENGAGED IN THE DEVELOPMENT  OF COMMERCIALLY VIABLE PROCESSES FOR MOLECULES INVENTED BY SONY.  WITH THIS SONY HAS RECOGNIZED THE ABILITIES AND COMMITTMENT OF PI INDS. THE OUTCOME OF THIS RESEARCH CENTRE WOULD BE TO FIND USE OF FUTURISTIC PRODUCTS LIKE FLEXIBLE TELEVISION, SOLAR CELLS ETC.

AS PER THE ORDER BOOK STATUS AND SOME RESEARCH REPORTS, THE COMPANY IS EXPECTED TO SHOW GOOD PROFIT GROWTH OF AROUND 35-40% CAGR FOR THE NEXT 2-3 YEARS.

AT CURRENT MARKET PRICE OF AROUND 715, THE STOCK IS AVAILABLE AT A PE OF AROUND 10 BASED ON EXPECTED EPS OF 70 FOR FY 12.

LOOKING AT THE GROWTH PROSPECTS WITH THE COMPANY ENTERING  HIGHER GROWTH TRAJECTORY , THIS COULD BE CONSIDERED FOR INVESTMENT WITH A 3-5 YEAR VIEW.

POSITIVES:

1.       COMPANY IS ON THE CUSP OF EXPLOSIVE GROWTH FOR THE NEXT FEW YEARS.

2.       AVAILABLE AT REASONABLE VALUATIONS OF AROUND 10-11 TIME FY 12 EXPECTED EPS OF AROUND 70.

3.       MANAGEMENT HAS PROVEN ITSELF OVER THE YEARS GUIDING THE COMPANY ON THE PATH OF GROWTH AND GETTING RECOGNITION FROM ENTITIES LIKE SONY CORP AND WINNING TRUST OF VARIOUS MNC CLIENTS.

4.       SALE OF THE LOW MARGIN POLYMER BUSINESS HAS TWIN ADVANTAGES OF BRINGING IN CASH FOR EXPANSION OF REMAINING AGROCHEM AND CUSTOM SYNTHESIS BUSINESS AND WILL ALSO HELP IN EXPANDING MARGINS GOING FORWARD AS THE MARGINS IN BOTH THE ABOVE BUSINESSES ARE HIGHER AND EXPECTED TO IMPROVE FURTHER.

NEGATIVES:

1.       ANY DELAY IN EXPANSION COULD AFFECT THE COMPANY’S REVENUES.

2.       COMPANY HAD HIGH DEBT OF AROUND 240 CRORES AS ON MARCH 11 WHICH IS LIKELY TO GET ADDRESSED DUE TO BETTER WORKING CAPITAL MANAGEMENT AND CASH TO BE RECEIVED FROM RHODIA FROM SALE OF POLYMER BUSINESS.

3.       LIQUIDITY OF THE COMPANY’S SHARES IS VERY LOW  WHICH COULD BE CONSTRUED AS A RISK FACTOR.

4.       VERY POOR MONSOONS COULD AFFECT THE COMPANY’S PROSPECTS ESP IN THE AGROCHEM BUSINESS.

TECHNICALS:

AFTER POSTING A RECENT HIGH OF 797 IN APRIL 11, THE STOCK IS CONSOLIDATING IN THE RANGE OF AROUND 690 TO 750 CURRENTLY.

Acknowledgement:  This stock has been brought to my notice by Mahesh Shah who is an equity analyst.

INDIA MOTOR PARTS LTD-- IMPAL

IMPAL CMP 680,BSE CODE 590065

INDIA MOTOR PARTS IS A TVS GROUP COMPANY WHICH TRADES BRANDED SPARE PARTS OF AUTO ANCILLARIES IN THE REPLACEMENT MARKET.  IT HAS TIE UP WITH VARIOUS AUTO ANCILLARIES COMPANIES TO SELL THE BRANDED PARTS.

OVER THE PAST FEW YEARS, STRONG GROWTH IN THE SALES OF AUTO SECTOR HAS CREATED A WONDERFUL OPPORTUNITY FOR A COMPANY (ONE OF A KIND) LIKE IMPAL.

THERE HAS BEEN INCREASING AWARENESS AMONG CONSUMERS TO GO FOR BRANDED SPARES FOR THE PURPOSE OF REPAIRING THEIR VEHICLES DUE TO BETTER QUALITY AND INCREASED LIFE OFFERED BY THESE PRODUCTS.

THE BEST THING ABOUT THIS COMPANY IS THAT EVEN IF DUE TO INFLATION AND OTHER ISSUES RELATED TO SLOWDOWN ETC WHEREIN THERE IS SLOWDOWN IN THE AUTO SPACE, THIS COMPANY WILL CONTINUE TO GROW CONSISTENTLY BECAUSE THERE WILL BE MORE FOCUS AMONG CONSUMERS TO GO FOR FREQUENT REPAIRS IN THEIR VEHICLES INSTEAD OF PURCHASING NEWER VEHICLES DUE TO LESSER SPENDING POWER.  PLUS WITH INCREASED AWARENESS OF THE BENEFITS OF BRANDED HIGHER QUALITY SPARES, THERE ARE INCREASED GROWTH PROSPECTS FOR THE COMPANY.

AND IF THE AUTO SALES INCREASE, THEN ALSO THIS COMPANY ENJOYS MORE NUMBER OF CUSTOMERS FEW YEARS DOWN THE LINE.

A LOOK AT THE FINANCIALS OF THE LAST FEW YEARS SHOWS CONSISTENT GROWTH BY THE COMPANY. PLUS THERE HAS BEEN GOOD REWARD FOR THE SHAREHOLDERS IN TERMS OF CAPITAL APPRECITAION AND HIGHER DIVIDENDS.

EQUITY IS SMALL AT 4.16 CRORE WITH AROUND 41 LAC SHARES OUTSTANDING. PROMOTER HOLDING IS AT 52%. MARKET CAP BASED ON CMP IS AROUND 281 CRORES.

YEAR	06	07	08	09	10	11
SALES	207	227	244	300	358	429
% GROWTH		10%	7.5%	26.2	19%	19.83%
OP	14.5	17	18.18	26	37.29	40.8
NP	9	10.8	12	17.37	24.75	28.17
% GROWTH		20%	10%	44%	42.6%	13.8%
EPS	20.8	25	27.24	40	59	67.7

COMPANY HAS DECLARED (INTERIM) DIVIDEND OF RS 17 PER SHARE.

COMPANY HAS ALL THE ATTRIBUTES OF A RETAIL STORY AVAILABLE AT REASONABLE VALUATION.

POSITIVES:

1.       LOW CAPEX BUSINESS MODEL

2.       CONSISTENT GROWTH

3.       REASONABLE VALUATIONS OF A PE OF AROUND 10 BASED ON LATEST RESULTS.

4.       CONSISTENT FREE CASH FLOW GENERATION.

5.       INCREASING DIVIDENDS OVER THE YEARS

6.       ALL THESE YEARS, THE GROWTH HAS BEEN ACHIEVED WITHOUT EQUITY DILUTION OR INCREASING DEBT.

7.       HEALTHY RETURN RATIOS

NEGATIVES:

1.       UNLESS THE MANAGEMENT AGGRESSIVELY RAMPS UP OPERATIONS IN DIFFERENT REGIONS, EXPLOSIVE GROWTH MIGHT NOT OCCUR.

2.       COMPANY MIGHT BE EXPOSED TO SOME ISSUES LIKE DEBTORS ETC.

3.       THREAT OF COMPETITION EXISTS.

4.       VERY POOR LIQUIDITY