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India Equity Research Reports, IPO and Stock News
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Growth driven by consumer
and bazaar, margin expansion
from falling raw material prices
Action/valuation: Upgrade to Buy with ~22% potential upside
We upgrade PIDI to Buy from Reduce, as we gain confidence in its solid
top-line growth (22% in 3Q, projected at ~19% in FY13-FY14) in the
consumer and bazaar segment, driven by new product launches. The
company is also benefiting from falling raw material prices and a
strengthening INR. We have raised concern about its elastomer project in
the past, and we believe this has underpinned the stock’s significant
underperformance (~17%) versus the CNX midcap index since the end of
November. As we await more clarity around this project by March 2012,
we think that valuation is now compelling. Our revised FY13-FY14 EPS
estimates (up ~12.7%) support our revised target price of INR174 (up
23%), which is still based on the three-year average P/E of 17.5x
Catalyst: Margin expansion driven by falling raw material prices
VAM prices are down ~20% since the peak in Q1FY12 in USD terms, but
have been largely offset by a depreciating INR in Q3. However, we believe
that declining VAM prices (~23% in CY12) and an appreciating INR vs
USD (~8% in CY12) should lead to margin expansion in the near term.
Probability of shelving/ divestment of the elastomer project is high
While the outcome of the elastomer project’s consultant review has been
delayed to Mar’ 12, given that the project continues to be on hold, and
considering media reports suggesting a potential divestment, we see the
probability of management not going ahead with this project as higher
now. We highlighted the risks of this project in our report “Risks outweigh
rewards concerns around the elastomer project” published on 29 Nov’11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Growth driven by consumer
and bazaar, margin expansion
from falling raw material prices
Action/valuation: Upgrade to Buy with ~22% potential upside
We upgrade PIDI to Buy from Reduce, as we gain confidence in its solid
top-line growth (22% in 3Q, projected at ~19% in FY13-FY14) in the
consumer and bazaar segment, driven by new product launches. The
company is also benefiting from falling raw material prices and a
strengthening INR. We have raised concern about its elastomer project in
the past, and we believe this has underpinned the stock’s significant
underperformance (~17%) versus the CNX midcap index since the end of
November. As we await more clarity around this project by March 2012,
we think that valuation is now compelling. Our revised FY13-FY14 EPS
estimates (up ~12.7%) support our revised target price of INR174 (up
23%), which is still based on the three-year average P/E of 17.5x
Catalyst: Margin expansion driven by falling raw material prices
VAM prices are down ~20% since the peak in Q1FY12 in USD terms, but
have been largely offset by a depreciating INR in Q3. However, we believe
that declining VAM prices (~23% in CY12) and an appreciating INR vs
USD (~8% in CY12) should lead to margin expansion in the near term.
Probability of shelving/ divestment of the elastomer project is high
While the outcome of the elastomer project’s consultant review has been
delayed to Mar’ 12, given that the project continues to be on hold, and
considering media reports suggesting a potential divestment, we see the
probability of management not going ahead with this project as higher
now. We highlighted the risks of this project in our report “Risks outweigh
rewards concerns around the elastomer project” published on 29 Nov’11.
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