Visit http://indiaer.blogspot.com/ for complete details Pidilite Q2FY11 Concall: Key Takeaways
(PIDI IN, INR 147, Not Rated )
Price hike: In Q2FY11, Company has seen a price hike of 3% YoY and a volume growth of
~10%. Price increase has been taken in both Consumer and Industrials, but price increase in
Indus trials is higher as raw material pressure is higher in this segment. Company does not
believe in taking frequent price hikes and likes to take a long term view of raw material
prices. Some restocking was done by dealers due to price hike due to which some sales got
preponed in Q1FY11. Normally Q1 and Q2 sales are similar. There is a lag of 2-3 quarters in
passing on raw material pressure in industrials as customers are big.
Impact of floods: Some disruption due to heavy monsoon was seen in adhesive and
construction particularly in North India.
Sales spilt: H1 is always bigger than H2, so operating leverage is bigger.
Subsidiaries: US, Thailand and Bangladesh have done quite well. Overall 6% sales growth in
rupee terms and double digit in foreign currency. Only Dubai is below expectations as
demand is soft. Singapore is very small (last year loss was due to goodwill). US doing well
and should be profitable. Only Dubai, Egypt (not able to scale up) are in EBITDA loss. Brazil
(due to amortization of Goodwill) could be in PAT loss in FY11.
Bangladesh & Egypt subsidiaries: Some part of sales from India will be transferred to
local plant. But not all products (only Fevicol will be locally manufactured). Bangladesh is
largely for home consumption. Egypt will be used to enter other countries of Africa as free
trade agreement is there.
FY12 guidance for subsidiaries: Overall subsidiaries should be profitable at PAT level.
Construction chemicals: it’s a large market and Pidilite is largely in repair segment. 70% of
construction chemical sales is from repair. Construction chemical and Paint together is 18%
out of sales out of which dominant part is construction chemical business.
Elastomer: Demand and price outlook has improved significantly. Price is now ~5 USD
compared to a low of USD 2.8 per kg. 1st phase capacity is 20,000 tons per year. Pilot plant
to test technology has been successful. Now Company has to build the main plant. Company
has invested till now INR 2800 mn.
New products: New products like Marine are doing quite well. US launches-cyclo auto
aftermarket already started, but not full scale. Needs to make it affordable as cost is high.
Ad spends: Done for category development and not due to competition. It has doubled in
absolute terms (INR 200 mn in Q2 and Q1 each). It will continue at 3.5-4% of sales (at
current levels which has started from H2FY10)
Debt: Gross debt of INR 3200 mn out of which FCCB is INR 1700 mn, NCD is 600 mn, 250
mn is 250 mn, 350 mn is sales tax deferred loan. Net debt of INR 1000 mn.
Interest expenses: INR 98 mn: 87 mn in standalone; 33 mn is one off for repurchase of
non convertible debenture. So it will be lower at ~ 50 mn going forward.
Capex: For regular operations, 500-750 mn. For Elastomer business, FY11 will not see m uch
Capex. But for FY12, it could be ~1700 mn in case full plant is built.
Tax rates: Could go up a bit next year by ~100 bps hike. As 1 more units will be out of tax
shield. 3 units in Himachal Pradesh have now come out of 100% tax shield.
INR 750 mn of FCCB for FY13 is outstanding. INR 750 mn of FCCB for FY12 has been
completely extinguished (INR 200 mn in Q1FY11 and INR 500 mn in Q2FY11).
Gross margins: Q2FY11 margins reflect current raw material prices. However the key raw
materials follow their own pricing in spite of being derivatives of crude.
Acquisitions: Company is open to acquiring local brands and keeps looking for a suitable
opportunity.
Food segment: Pidilite is not in this business currently.
n Pidilite Q2FY11: Impacted by higher raw materials, ad spends and higher tax
rate
· Net Sales grew at a moderate rate 13.6% Y-o-Y to INR 6584 mn. EBITDA was flat
YoY and PAT declined by ~3 % Y-o-Y.
· Raw material costs which were quite low last year due to slowdown, have increased
by 14.6%. This trend is likely to continue going forward as VAM (major RM for the
company) is expected to move up on the back of increasing crude prices. We believe
that EBITDA margins achieved in FY10 were high and are not sustainable.
· Considerable increase in tax rate (tax rate increased by 820 bps YoY and 80 bps
QoQ), as most its plant which enjoyed tax benefits till last year no longer do so.
Thereby PAT margin reduction by ~200 bps.
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