Shares of agrochemicals major PI Industries Ltd have witnessed a significant decline of approximately 22% over the past six months. This downturn reflects subdued global and domestic demand, which has negatively impacted the company's recent earnings and investor sentiment. The core of the challenge lies in its Custom Synthesis and Manufacturing (CSM) segment, a crucial unit that contributed about 77% of total revenue in the first half of the fiscal year ending September 2025 (H1FY26).
Major Client's Guidance Cut Hits Core Product
The company now confronts a fresh hurdle that could intensify the downward pressure on its stock. A key development involves Japanese agrochemical giant Kumiai Chemicals, a major customer of PI Industries. Kumiai recently lowered its revenue and profit guidance for the fiscal year 2026. The company anticipates a 5% decline in revenue and a sharp 32% fall in operating profit, citing pricing pressure and muted herbicide demand in certain overseas markets.
This revision is critical for PI Industries because it supplies the herbicide pyroxasulfone to Kumiai. The lowered outlook directly clouds the revenue visibility for PI from this key product. Analyst Saurabh Ahire from PL Capital highlighted the dependency, noting, "Our analysis shows that, in FY25, pyroxasulfone constituted 54% of PI’s CSM revenue and 43% of its overall revenue. This reduced to 44% and 34% in H1FY26." He further pointed out that other agrochemical products individually contribute no more than 7-8% to the CSM segment, making the decline in pyroxasulfone sales a significant dampener.
Earnings Downgrades and the Search for a Plan B
In response to these headwinds, several brokerages have revised their earnings estimates for PI Industries downwards. For instance, JM Financial Institutional Securities reduced its FY27-28 earnings per share (EPS) estimates by around 4%. The brokerage cautioned that PI is likely to see only a muted incremental contribution from pyroxasulfone in FY27. Consequently, the company needs a substantial push from the rest of its agricultural portfolio and new avenues like pharmaceuticals, biologicals, and electronic or specialty chemicals.
However, achieving meaningful contributions from these newer businesses will not be instantaneous. The pharmaceutical segment, though showing promising 54% year-on-year revenue growth in Q2FY26, remains in a ramp-up phase. Higher overheads and one-off costs are currently impacting its profitability, keeping it loss-making. The company is actively onboarding new clients and investing in an integrated Contract Research, Development, and Manufacturing Organization (CRDMO) platform for this vertical.
In the electronic and specialty chemicals business, PI has already commercialized five or six products and has capacity expansions underway. While these strategic moves are directionally positive for creating new earnings streams, the company's immediate fate remains closely tied to the performance of its core agro-chemicals business.
Broader Industry Headwinds and Outlook
The global crop protection industry is navigating multiple challenges, including distributor and farmer destocking, weak price realizations, and overcapacity from Chinese manufacturers. PI's management expects the recovery to be gradual, forecasting a modest improvement in global demand starting in the third quarter of FY26 (Q3FY26). However, a full recovery is not anticipated until the second half of FY26 (H2FY26).
Agrochemical exports remained soft in H1FY26 as customers delayed deliveries to rebalance inventories. Domestically, the upcoming Rabi season is crucial for H2 performance. While good water reservoir levels and a supportive paddy crop offer positive prospects, management has cautioned that fast-changing weather patterns remain a risk.
For the full fiscal year FY26, PI Industries has provided an EBITDA margin guidance of 25-27%, despite achieving a margin of around 28% in H1FY26. In the near term, performance for the December quarter (Q3FY26) is expected to be muted. Emkay Global Financial Services projects a low-single-digit year-on-year dip in FY26 revenue, following a 12% decline in H1FY26 sales.
Currently, the stock is trading at approximately 28 times its estimated FY27 earnings. Analyst Ahire added, "PI is better placed on margin than some domestic peers such as Coromandel International Ltd, Anupam Rasayan India Ltd and Dhanuka Agritech Ltd, but as of now there are no visible upside positive triggers for the stock." The company's journey ahead hinges on successfully navigating the current agrochemical slump while accelerating the growth of its newer business verticals.
