We maintain an ‘outperform’ rating on PI Industries with a revised price target of Rs 460 (Rs 440 earlier) as we roll-forward the valuation to September 2015. We keep the target P/E unchanged at 18x, but believe that if PI maintains its c.30% ROE profile, the stock could re-rate higher over the medium term. We believe management’s guidance for a pick-up in CSM revenue is achievable, given the strong and visible execution schedule highlighted by the company, strong traction in the order book, leading to enhanced visibility, de-bottlenecking initiatives, which are expected to increase capacity from Q3FY15 and lower base-effect heading into H2FY15.
While PI’s headline results were disappointing with a 14% decline in the CSM business and flat domestic revenue growth y-o-y, the management attributed the weakness in CSM to the planned delivery schedule from customers. It expects a significant improvement in CSM revenue in the coming quarters. PI’s CSM order book grew 20% q-o-q to $520 million and the company also increased its inventory level by Rs 150 crore y-o-y to prepare for dispatches in the coming quarters. StanC believes that with de-bottlenecking and new capacities set to commission, PI remains well-positioned to deliver significant growth in the coming quarters.
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