Pidilite Industries (2QFY15) : Resilient performance. Maintain NEUTRAL :: HDFC Securities

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Resilient performance
Pidilite’s 2QFY15 revenues grew by a robust 14% to
Rs 12.5bn (despite high base), led by 10% YoY volume
growth. However, on the negative front, EBITDA
margin contracted 81bps to 16.4% led by higher
COGS and staff costs. The Consumer & Bazaar
segment witnessed 221bps YoY EBIT margin
contraction. Aided by higher other income and lower
finance costs and tax rate, APAT grew 13.3% YoY to
Rs 1.4bn.
We remain enthused by Pidilite’s improving product
mix, R&D capability and distribution network. In
addition, almost 60% of Pidilite’s portfolio will be
positively impacted from the anticipated recovery in
macro environment. We like Pidilite’s superior
quality and high growth business. However,
valuations are rich. Retain NEUTRAL with a TP is Rs
435 (27x FY17E).
EBITDA margin contracts, recovery likely
 Despite an adverse base (2QFY14 : 21.6% YoY),
operating revenues grew 14.0% YoY (10% volume led).
 EBITDA margin contracted 81bps led by higher COGS
(+65bps) and staff costs (+33bps). This was partially
offset by lower other expenditure (-17bps).
 Domestic gross margin declined 107bps YoY on account
of higher VAM prices (up 45% YoY) and YoY INR
depreciation in 2QFY15. As per the management, VAM
prices have peaked (VAM prices have corrected by 1%
each in August and September). Furthermore, the price
hike initiated in May-2014 (3-3.5%) and August-2014
(3-4%) and stable INR would fully reflect in 2HFY15.
This along with reduction in freight (due to lower diesel
prices) would benefit EBITDA margins.
Consumer & Bazaar had a tough quarter
 Impacted by a high base, Consumer & Bazaar sales
grew 15.1% YoY (vs 20.7% in 1QFY15) to Rs 10.3bn with
EBIT margin declining 221bps. Higher VAM prices in
2QFY15 and higher depreciation hurt EBIT margins.
 Industrial segment (moderation in exports) revenues
grew 7.7% to Rs 2.3bn as EBIT margin remained flat YoY
to 11.5% bps. Price hikes (3-4%) aided margins.
 International subsidiaries grew a mere ~5% YoY (6.3%
in const currency) due to weakness in Brazil and US.
Valuations and views
 As we roll forward our earnings to FY17, we raise our
TP to Rs 435 (27x FY17E). Retain NEUTRAL.


LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009610