Valuation appears full, see limited upside
Moderating growth in the
consumer business, weakness
in the industrial business
Action: Maintain Neutral, valuation largely reflects resilient but
moderating growth in the business
The share price of PIDI is up 35% YTD vs. the Sensex’s return of 21%.
The stock currently trades at 20.3x FY14F EPS which is broadly in line
with its 5-year historical average even as growth is moderating in its
consumer and bazaar (C&B) business (~80% of its topline) where y-y
growth of 17.1% in 2Q was the weakest in the last 8 quarters and
weakness is evident in the industrial products division which posted a
mere 3.6% y-y growth along with significant margin compression.
Management outlook and our analysis of industry data also does not
indicate a substantial pick-up in the near term but indicates increasing
competition from some organized players in its fast-growth C&B subsegment
of construction chemicals.
Catalyst- Clarity on the outcome of the elastomer project
Positive: INR strengthening, easing VAM prices; Negative: Growth
tapering off further in the C&B and the industrial business, uptick in VAM
prices, continuation of uncertainty around the elastomer project
Valuation: We raise our target price to INR214 (from 169)
We have raised our price target to INR214 as we now value the company
at a P/E multiple of 21.3x (15% discount to our target multiple for Asian
Paints) applied to the FY14F-FY15F EPS average and now explicitly
deduct the INR7/share for capex incurred so far in the elastomer project
(where ~29% of its total capital employed is invested), which in our view
has a high likelihood of being written off.
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