Shares of PI Industries Ltd rose 10.15% on Friday as the company marked its long-awaited foray into the pharmaceutical sector with its latest series of acquisitions.
PI Health Science Ltd, the pharmaceutical arm, has acquired the US assets of Therachem Research Medilab (TRM US) and its Indian subsidiaries: TRM India and Solis Pharmachem, and has also agreed to purchase certain US assets of TRM US. It also fully acquired Archimica SpA of Italy.
Consequently, a key overhang is out of the way of the stock. What's more, analysts are bullish on this move given the comfort it is seen to provide on valuations and earnings prospects. โWe see the combined sales/Ebitda of $640/170 crores for a consideration of $Rs 700 crore as a lucrative deal, with an implied EV/Ebitda of 4.2x,โ said a report by Nuvama Research. Taking acquisition-led growth into account, the research house has increased its FY24/25E EPS by 9/11%.
PI Industries management expects the deals to be completed in the first quarter of fiscal year 24 and generate earnings effective immediately. The transactions will be made in cash and will be funded by qualifying institutional placement proceeds and internal accruals.
The acquisitions will give the company's pharmaceutical segment a boost in the active pharmaceutical ingredients (API) and contract development and manufacturing organization (CDMO) space. โThe recent acquisition of PI Industries will help it create a differentiated position in the pharmaceutical industry by leveraging its core competencies through partnerships with leading innovators. For example, TRM is engaged in API manufacturing with specialization in the rare disease segment,โ said Sneha Poddar, AVP Retail Research, Brokerage and Distribution at Motilal Oswal Financial Services. In addition, this diversification helps to reduce the risks of concentration and seasonality. The company obtains more than 80% of its income from exports and the rest from the domestic market, both predominantly in agrochemicals, which is a seasonal business.
Now, investors would expect the company's March quarter (Q4FY23) earnings. It is likely to put up a decent show in the fourth quarter with revenue growth year-over-year (yoy) of about 20% and an Ebitda margin of 24%, estimates Prabhudas Lilladher.
For FY24, management feedback on the product launch process will be key.
Meanwhile, over the past year, PI Industries shares have far outperformed the benchmark Nifty50 index, returning 17%.
The timely closing of the new agreements and the significant expansion of operations in the newly acquired entities would be among the factors that would decide the further reclassification of the shares.
