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Key Takeaways
Consumer, bazaar demand strong, industrial segment demand slows
In spite of a 5-7% price increase in the consumer and bazaar segments, demand in
this segment has been strong with no major change. The segment posted 16-17%
volume growth in 1QFY12
In the industrial segment, demand was slower due to a steeper price hike of 8-9%
and a slowdown in user industries.
The management expects consumer and bazaar products growth to be healthy
though industrial growth may slow in the near term.
Input cost pressure
VAM (vinyl acetate monomer) prices increased 40% over the past few months and
packing costs were steady. However recent trends indicate that VAM prices softened
to USD1,300/ton from USD1,400/ton (USD1,000/ton in December 2010).
The management indicated that if input costs corrected significantly, PIDI would
correct prices as its brands are at a 15-20% premium to competition.
Elastomer project
The elastomer project is on schedule with expected commissioning in 2HFY13. Total
capex has been INR3.3b with another INR2.2b-2.5b to be incurred in the next one
year.
Current product prices are trading at USD5/kg. At USD4.5/kg and full capacity
utilization, PIDI expects INR5b of sales a year with EBITDA margins of over 20%.
All international businesses improve except South America
PIDI's International business was under pressure in FY11. In FY12 PIDI's operations
are expected to be profitable in the US, Bangladesh and Thailand. The company's
losses are reducing in Egypt and Dubai but in Brazil operations are face strong
competition.
PIDI is not considering international acquisitions and will look at developing Africa
and the Middle East as markets, organically.
Valuation and view
We believe PIDI has strong pricing power in consumer products and margins will
rebound in coming quarters as the impact of price increases sinks in. We believe
PIDI is a compelling play on the expected growth opportunity in home interiors and
construction.
The stock trades at 21.7xFY12E EPS of INR7.4 and 17.7xFY13E EPS of INR9.1. Maintain
Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Consumer, bazaar demand strong, industrial segment demand slows
In spite of a 5-7% price increase in the consumer and bazaar segments, demand in
this segment has been strong with no major change. The segment posted 16-17%
volume growth in 1QFY12
In the industrial segment, demand was slower due to a steeper price hike of 8-9%
and a slowdown in user industries.
The management expects consumer and bazaar products growth to be healthy
though industrial growth may slow in the near term.
Input cost pressure
VAM (vinyl acetate monomer) prices increased 40% over the past few months and
packing costs were steady. However recent trends indicate that VAM prices softened
to USD1,300/ton from USD1,400/ton (USD1,000/ton in December 2010).
The management indicated that if input costs corrected significantly, PIDI would
correct prices as its brands are at a 15-20% premium to competition.
Elastomer project
The elastomer project is on schedule with expected commissioning in 2HFY13. Total
capex has been INR3.3b with another INR2.2b-2.5b to be incurred in the next one
year.
Current product prices are trading at USD5/kg. At USD4.5/kg and full capacity
utilization, PIDI expects INR5b of sales a year with EBITDA margins of over 20%.
All international businesses improve except South America
PIDI's International business was under pressure in FY11. In FY12 PIDI's operations
are expected to be profitable in the US, Bangladesh and Thailand. The company's
losses are reducing in Egypt and Dubai but in Brazil operations are face strong
competition.
PIDI is not considering international acquisitions and will look at developing Africa
and the Middle East as markets, organically.
Valuation and view
We believe PIDI has strong pricing power in consumer products and margins will
rebound in coming quarters as the impact of price increases sinks in. We believe
PIDI is a compelling play on the expected growth opportunity in home interiors and
construction.
The stock trades at 21.7xFY12E EPS of INR7.4 and 17.7xFY13E EPS of INR9.1. Maintain
Buy.
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