PI Industries overtakes UPL as biggest agrochemical stock in India

Niche product businesses typically command strong investor confidence. PI Industries Ltd, the niche player in the agrochemicals custom synthesis and manufacturing (CSM) space, has gained more than 50% in the past year. It is now the most valuable agrochemical player by market capitalization. Its market cap stands at around ₹35,000 crore, compared to United Phosphorus Ltd’s (UPL) valuation of ₹33,750 crore.

For PI, the momentum in the CSM business remains strong in export markets. Exports grew 25% in Q2. Its order book of $1.5 billion should help sustain growth in the medium term. The company now plans to enter the pharma and fine chemicals business segments, which is expected to aid growth. Timely execution of capex is key to drive execution capabilities.

In its domestic business, the acquisition of the Asia portfolio of Italy-headquartered Isagro is expected to help growth prospects. Its domestic revenue growth of 33% remained strong in Q2, reflecting the strength in the agri economy. Similar triggers should support UPL’s domestic prospects too. UPL clocked a strong 18% year-on-year growth in Q2 on a much higher base. UPL’s revenue stood at ₹1,409 crore against PI’s ₹359 crore.

UPL overall is a much larger peer with marketing presence in multiple geographies. Its India business contributes just about 16% to overall revenues. It derives much of its revenue from Latin America (about 47%) and the rest from Europe, US and other markets.

Though the company’s H1FY21 performance may have been soft with pandemic hitting Q1 sales in key geographies, the second half may be much stronger. Price hikes in emerging markets will take care of currency devaluations, while high domestic soy and corn prices in Brazil pushing farmers’ incomes adds to prospects. PI nevertheless scores in terms of a stronger balance sheet and its net debt to Ebitda (earnings before interest, tax, depreciation and amortization) stood at 0.3x compared to UPL’s around 3.1x at the end of FY20.

On valuations, PI is trading at a much richer 44 times FY22 analysts’ earnings estimates v/s UPL’s 8.3 times. To sustain these, PI will have to continue its growth momentum. For UPL investors, playing catch-up will mean the likely deleveraging fructifies soon.