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Regular price hike to offset cost pressure…
• Pidilite recorded revenue CAGR of 18% during FY10-14 driven by the
consumer & bazaar segment, which recorded 19% CAGR. We believe
Pidilite will record sales CAGR of 19% in FY14-17E, supported by a
revival in industrial product segment. The EBITDA margin declined
~50 bps YoY in FY14 (~250 bps YoY in Q1FY15) due to adverse
VAM price movement on demand-supply mismatch and lag impact
of currency depreciation. We believe subsequent price hikes would
help in easing margin pressure, going forward, while EBITDA margin
will improve 50 bps in FY14-17E
• Pidilite has acquired the adhesive business of Blue Coat Pvt Ltd on a
slump sale basis for a cash consideration of | 263.6 crore.
Acquisition of Blue Coat would help the company to provide
synergies in the industrial product business
Market leader in adhesive segment
Pidilite Industries (Pidilite) is a dominant play in India’s growing adhesive
and industrial chemical market with a market share of ~70% in its leading
brand categories in the organised segment. The company’s two major
segments, consumer & bazaar (C&B) and speciality industrial chemical
have grown at a CAGR of ~20% and ~15% (standalone), respectively, in
FY10-14. The consumer & bazaar segment contributes ~79% of Pidilite’s
standalone revenue. This segment has grown mainly driven by the
adhesive and sealants segments, which contributes ~50% to the
company’s consumer & bazaar segment revenue (FY14). We believe since
the segment growth is largely driven by construction, repair and
maintenance, sales growth in the consumer and bazaar will be at 18.5%
CAGR in FY14-17E on the back of an increase in penetration in smaller
towns (population below 50,000).
Revival in industrial activities to drive industrial chemical demand
The specialty industrial segment contributes ~21% of Pidilite’s
standalone revenue. This segment has grown at 20% CAGR during FY10-
14 mainly driven by growth in demand from packaging, cigarettes,
stickers, labelling, footwear, etc. The specialty industrial segment has
three major sub-segments: industrial adhesive, industrial resins and
organic pigments & preparations. We have modelled industrial segment
revenues will grow at a CAGR of ~19% for FY14-17E led by strong
growth in industrial adhesives & resins.
Strong brand: More of consumer pull model
Pidilite Industries is one of the well known adhesive companies in India
for the quality and reach to end users. Fevicol, the legacy brand of the
company, is a generic name in the adhesive category in India. In spite of
the strong brand, the company has kept its marketing and selling
expenses at ~4% of sales to gain market share.
Upgrade to BUY: call on strong fundamentals with economic revival
We roll over our valuation on FY17E considering the revival in the Indian
economy on cards and Pidilite being a strong brand in the adhesive
segment is well positioned to capitalise the growth momentum. We
believe efficient deployment of cash for inorganic growth would be an
added advantage. We estimate revenues, earnings CAGR of ~19%, 20%,
respectively, in FY14-17E on the back of demand from tier II, –tier III cities.
We believe a recovery in margin coupled with strong return ratios would
justify the company’s re-rating possibilities. We upgrade our rating to
BUY with a revised target price to | 462/share valuing at 30x FY17E.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
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Regular price hike to offset cost pressure…
• Pidilite recorded revenue CAGR of 18% during FY10-14 driven by the
consumer & bazaar segment, which recorded 19% CAGR. We believe
Pidilite will record sales CAGR of 19% in FY14-17E, supported by a
revival in industrial product segment. The EBITDA margin declined
~50 bps YoY in FY14 (~250 bps YoY in Q1FY15) due to adverse
VAM price movement on demand-supply mismatch and lag impact
of currency depreciation. We believe subsequent price hikes would
help in easing margin pressure, going forward, while EBITDA margin
will improve 50 bps in FY14-17E
• Pidilite has acquired the adhesive business of Blue Coat Pvt Ltd on a
slump sale basis for a cash consideration of | 263.6 crore.
Acquisition of Blue Coat would help the company to provide
synergies in the industrial product business
Market leader in adhesive segment
Pidilite Industries (Pidilite) is a dominant play in India’s growing adhesive
and industrial chemical market with a market share of ~70% in its leading
brand categories in the organised segment. The company’s two major
segments, consumer & bazaar (C&B) and speciality industrial chemical
have grown at a CAGR of ~20% and ~15% (standalone), respectively, in
FY10-14. The consumer & bazaar segment contributes ~79% of Pidilite’s
standalone revenue. This segment has grown mainly driven by the
adhesive and sealants segments, which contributes ~50% to the
company’s consumer & bazaar segment revenue (FY14). We believe since
the segment growth is largely driven by construction, repair and
maintenance, sales growth in the consumer and bazaar will be at 18.5%
CAGR in FY14-17E on the back of an increase in penetration in smaller
towns (population below 50,000).
Revival in industrial activities to drive industrial chemical demand
The specialty industrial segment contributes ~21% of Pidilite’s
standalone revenue. This segment has grown at 20% CAGR during FY10-
14 mainly driven by growth in demand from packaging, cigarettes,
stickers, labelling, footwear, etc. The specialty industrial segment has
three major sub-segments: industrial adhesive, industrial resins and
organic pigments & preparations. We have modelled industrial segment
revenues will grow at a CAGR of ~19% for FY14-17E led by strong
growth in industrial adhesives & resins.
Strong brand: More of consumer pull model
Pidilite Industries is one of the well known adhesive companies in India
for the quality and reach to end users. Fevicol, the legacy brand of the
company, is a generic name in the adhesive category in India. In spite of
the strong brand, the company has kept its marketing and selling
expenses at ~4% of sales to gain market share.
Upgrade to BUY: call on strong fundamentals with economic revival
We roll over our valuation on FY17E considering the revival in the Indian
economy on cards and Pidilite being a strong brand in the adhesive
segment is well positioned to capitalise the growth momentum. We
believe efficient deployment of cash for inorganic growth would be an
added advantage. We estimate revenues, earnings CAGR of ~19%, 20%,
respectively, in FY14-17E on the back of demand from tier II, –tier III cities.
We believe a recovery in margin coupled with strong return ratios would
justify the company’s re-rating possibilities. We upgrade our rating to
BUY with a revised target price to | 462/share valuing at 30x FY17E.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
LINK
http://content.icicidirect.com/mailimages/IDirect_PidiliteInds_Sept14.pdf
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