PI Industries deal for ISLL’s API biz to perk up earnings
PremiumPI Industries’ FY23 Ebitda is likely to increase by 10.5%, while its profit after tax may rise by 6.5% due to the acquisition
PI Industries Ltd’s performance for the June quarter was softer than expected. What then explains the 12% surge in its share price over Friday’s close? PI Industries had released its quarterly results on Friday after market hours. Its announcement about acquiring the active pharmaceutical ingredient (API) and intermediate business of Ind-Swift Laboratories Ltd (ISLL) seems to have caught the eye of investors. The acquisition would be on a slump sale basis at an enterprise value of ₹1,530 crore.
Analysts see this acquisition as the firm’s strong foray into the pharma business, something that it had been planning. ISLL has a diversified portfolio of more than 20 products, and is a market leader in several of them. It also has a good R&D product pipeline. The revenue of ISLL’s API business was ₹837 crore for FY21 and the Ebitda margin stood at 23%, said analysts at Sharekhan in a note. Ebitda is earnings before interest, tax, depreciation and amortization. Based on these, they estimate that the valuation is at a reasonable 7.8 times FY21 EV/Ebitda. Given that the Ebitda margin is 100 basis points higher than that of PI Industries, the acquisition is expected to boost the latter’s profitability. Sharekhan analysts estimate that PI Industries’ FY23 Ebitda would increase by 10.5%, while its profit after tax may rise by 6.5% due to the acquisition. Those at Motilal Oswal Financial Services Ltd have raised earnings per share estimates for FY23 by 4%.
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Meanwhile, the firm’s domestic sales were impacted due to slower agriculture activities given the delay in the progress of monsoon. Coupled with a high base, domestic revenues dropped 13% year-on-year (y-o-y). Another pressure point was the increase of 26% in overheads. One-time expenses pertaining to covid management, consulting fees and other costs related to various strategic projects were behind this increase. Ergo, the 9% increase in Ebitda on a y-o-y basis is an optical relief. Both revenue and Ebitda have fallen short of Street estimates.
That said, revenues from custom synthesis manufacturing (CSM) lent support. CSM sales contribute more than two-thirds of the overall revenue for the company and grew 31% y-o-y. The firm’s strength lies in the CSM segment that remains a strong growth driver. The order book was robust at $1.5 billion and ensures sustainable growth for the next three years, said analysts. Additionally, the firm plans to commercialize six new molecules in FY22, of which the commissioning of three is under progress. It also plans to launch three new molecules in the domestic market in the current quarter.
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