India Equity Research: Pidilite

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.

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25 August 2014

Pidilite Industries: Buy : Business Line

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22 September 2013

Technicals: Astrazenca pharma, MRF, Pidilite, Karur Vysya Bank, PNB, Bank of Baroda:: Business Line

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03 February 2013

Pidilite Industries' 3QFY13 :: Motilal Oswal

 Pidilite Industries' 3QFY13 standalone sales grew 21.6% to INR8.3b (est
INR8.4b); EBITDA margins expanded 80bp to 18.1% (est 18.8%), adjusted PAT
grew 20% YoY to INR1.04b (est INR1.1b) supported by higher-than-expected
other income of INR164m (est INR100m). Reported PAT grew 67.2% as it
included a) forex gains of INR89.3m, against a forex loss in base and
b) reversals of INR109.9m in interest expense due to FCCB conversion.
 Consumer Bazaar segment registered 16% volume growth in 3QFY13.
 PIDI reported healthy gross margin expansion of 200bp on account of sustained
easing of VAM prices. Despite healthy gross margin expansion and savings in
staff cost by 60bp, the steep increase in other expenses (up 180bp) curtailed
EBITDA margin expansion to 80bp to 18.1%.
 During the quarter it benefited from FCCB conversion as 104 bonds with a
face value of USD0.1m per bond were converted into equity shares. Hence,
PIDI reported a forex income of INR89mn v/s forex expense of INR25m in
3QFY13.
 Consumer & Bazaar sales were up 23.9% led by double digit volume growth
(16%). EBIT margins expanded 30bp YoY to 23.4%.
 Industrial Products reported 15% growth in sales; EBIT declined marginally
by 12bp to 11%.
 The stock trades at 21.2x FY14E and 18x FY15E EPS, we roll forward to FY15 and
maintain Buy with a revised target price of INR275 (23x FY15E EPS). We value
PIDI at 20% discount to Asian Paints.

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12 November 2012

Pidilite Industries: Valuation appears full:: Nomura research,

Valuation appears full, see limited upside
Moderating growth in the
consumer business, weakness
in the industrial business

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20 August 2012

Technical Analysis: Cadila, Gujarat Gas, Bank of India, Pidilite, NIIT tech, Lovable Lingerie, : Business Line,

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14 June 2012

Pidilite Industries: In fair value zone after recent outperformance: Nomura research,

Longer-term story intact but
near-term headwinds on rawmaterial
and elastomer persist

Action/Valuation: Cut to Neutral; don’t see upside from current levels
We downgrade Pidilite to Neutral, as we believe the stock is now in a fair
value zone after its recent outperformance although concerns over raw
material prices and the elastomer project still persist. We continue to
derive our target price based on a P/E multiple of 17.5x on FY14F adj EPS
of INR9.66 (we have scaled back our FY14F estimate by ~3%).
Increasing VAM price and depreciating INR suggest margin pressure
We expect VAM prices to remain high, backed by strong demand for
ethylene (a key raw material for VAM) and high crude oil prices (Nomura
forecasts per barrel to average USD110 in FY13F and USD105 in FY14F
vs ~USD98 in FY12. Since VAM is imported, depreciation of the rupee vs
the US dollar would further add to raw material headwinds for Pidilite.
Slowing demand in domestic market & export to limit price increase
We expect moderating growth in consumer & bazaar (C&B) on slowing
new construction and industrial products, reflected in weak IIP numbers, to
constrain Pidilite’s ability to pass on rising raw material costs. For FY13F,
we build in margin declines in the C&B and industrial-product divisions.
Overseas subsidiaries performance remains a concern
Overseas subsidiaries (especially Brazil and the Middle East) continue to
be a drag on group performance.
Catalyst: Outcome on the progress of the elastomer project, which is
currently on hold, should remove an overhang on the stock’s
multiple

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03 June 2012

Pidilite Industries 4QFY12: Margin higher despite rising raw material prices; Buy:: Anand Rathi

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01 April 2012

Sizzling Stocks - Ranbaxy Laboratories, Pidilite Industries :: Business Line

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Sizzling Stocks - Ranbaxy Laboratories (Rs 469)

After taking support in the price band between Rs 400 and Rs 410, Ranbaxy skyrocketed 13 per cent with good volumes in the last week. With this up move the stock appears to have resumed its medium-term uptrend that has been place since its December 2011 trough.

However, the stock is facing key long-term resistance ahead at Rs 475 and the 200-day moving average is around this level.

Following a testing of this resistance at Rs 475, a conclusive breakthrough of it will take the stock higher to Rs 510 and then to Rs 530 in the medium-term. Next resistance is at Rs 555. Conversely, failure to surpass the aforesaid resistance will pull the stock down to Rs 445 or even to the Rs 400-410 support band in the same time frame. A fall below Rs 400 will mar the stock's medium-term uptrend and drag the stock down to Rs 370 and then to its long-term significant support at Rs 350.

Pidilite Industries (Rs 177.5)

Pidilite Industries zoomed more than 12 per cent in the previous week, emphatically breaking out of key resistance at Rs 159 and Rs 168. But the stock is presently testing its important long-term resistance at Rs 180. The stock has breached the upper boundary of its daily Bollinger band. Further, its daily indicators and oscillators are featuring in the overbought area implying that the stock is on the brink of a near-term correction.

Hence, a downward reversal can pull the stock down to Rs 169 or to Rs 164 in the short-term. As long as the stock trades above Rs 159, its medium-term trend remains up. A decisive rally above Rs 180 will take the stock to new highs of Rs 200 and then to Rs 212 in the medium-term.

12 February 2012

Pidilite Industries: Upgrade to Buy: Nomura research,

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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.

10 February 2012

 3QFY12 results below expectations: Pidilite Industries ::Motilal oswal,

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 3QFY12 results below expectations: Pidilite Industries (PDID) 3QFY12 results were disappointing with
adjusted PAT declining 7% YoY to INR790m (vs our estimate of INR920m). Sales grew 16.5% YoY to INR6.9b led
by ~14-15% volume growth in consumer and bazaar product segments.
 INR depreciation impacts gross margins: Gross margins declined 330bp to 43.2% due to steep INR depreciation
and higher VAM (Vinyl Acetate Monomer) prices on a YoY basis. Industrial products segment reported 2%
decline in sales and 43% decline in profits due to poor export demand and inventory de-stocking.
 Estimates lowered: We have lowered our FY12 EPS estimates by 5% and FY13 EPS estimates by 2.6% to factor
in lower margins in the consumer business due to high input costs and declining sales in industrial chemicals.
However, going forward, we believe the company would gain from appreciating INR as VAM prices have
eased to USD1,000/MT.
 Positive on volume growth in consumer and Bazaar products: We remain positive on volume growth in the
consumer and Bazaar segments despite the management's cautious outlook. We also believe margins in the
consumer and Bazaar segments would start expanding from 1QFY13; however, the industrial chemicals
segment's margins would take time to recover.
 Valuations and View: We introduce our FY14 EPS estimate at INR10.1/share and forecast 25% PAT CAGR over
FY12-14. The stock price has reacted from INR190 levels due to concerns over falling margins and growth
outlook. It trades at 17.3xFY13E EPS of INR8.3 and 14.1xFY14E EPS of INR10.1. Maintain Buy with target price
of INR181, 27% upside from the current level.

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01 December 2011

Pidilite Industries: Downgrading to Reduce ::Nomura research,

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Risks outweigh rewards, concerns around the elastomer project

Action: Downgrading to Reduce with TP of INR 142
Following a transfer of coverage, we are downgrading Pidilite to Reduce
and scaling back our TP to INR142 as we factor in a more conservative
target multiple in context of weakening demand outlook, factor in
headwinds from higher raw material (VAM) prices mainly due to a
depreciating INR, and highlight increased uncertainty around the
prospects of its elastomer project.
Catalyst: Elastomer project put on hold, poses significant risks
Our detailed analysis on the elastomer project (~INR5bn of planned
investment, of which INR3.4bn or 23% of the total capital employed has
already been invested) indicates that it will be difficult for the project
ROCE to exceed the group cost of capital even in the next three years.
Our detailed analysis of this project, which will be majorly reliant on
exports, indicates that global demand for Polycholoroprene elastomer has
been adversely affected by an increasing trend of substitution in the
automotive and adhesive sectors by cheaper elastomers.
Valuation: Premium to the Sensex is the highest in eight years
After Pidilite’s outperformance this year (outperformed Sensex by ~25%
and midcap index by ~27% YTD), its valuation at 20.5x one-year forward
P/E multiple implies a ~68% premium to the Sensex, which is the highest
level in the past eight years. Our TP of INR142 is based on a one-year
forward P/E multiple of 17.5x, in line with its three-year average.
Favour a shift to Asian Paints ( Buy, TP INR 3500) at current levels
We flag Asian Paints, which has a similar end-market profile, as a more
compelling buy at this point for investors and believe that its current
valuation premium is justified given its stronger growth profile.

21 November 2011

Pidilite Industries: TP: INR179 Buy: Motilal oswal,

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 Pidilite Industries (PIDI) 2QFY12 results were below our estimates with the company reporting adjusted PAT of
INR864m (v/s our estimate of INR1,009m). Standalone sales increased 20.5% to INR7.1b (v/s our estimate of
INR7.3b) backed by volume growth of 12-13% and realization increase of ~8%.
 We estimate consumer and bazaar products volume growth of 14-15% and industrial products volume growth of
~9% in 2QFY12. Gross margins declined 420bp YoY and 120bp QoQ as VAM (vinyl acetate monomer) prices were
up 45-50% YoY.
 Although PIDI increased prices of its flagship brand, Fevicol, by ~5%, towards the end of 1QFY12, it was insufficient
to cover input cost inflation. Savings in employee costs (down 20bp) and other expenditure (down 130bp) restricted
EBITDA margin decline to 280bp at 18.3%.
 EBITDA grew 4.8% to INR1.3b. PBT increased 5.2% and adjusted PAT increased only 2.2% due to a 260bp rise in
the tax rate. International business reported 5% sales growth with EBITDA of INR5m v/s INR22m in 2QFY11.
Margins were under pressure in North America, the Middle East and Brazil and sales declined by 17% in the US.
Valuation and view: Cutting estimates 3-5%; maintain Buy
We are reducing FY12 and FY13 estimates by 3-5%, factoring in (1) lower margins due to higher input costs and (2)
increased cash balance due to a delay in the elastomers project. We are reducing our target price from INR193 to
INR179 (20x FY13E EPS + INR4/share for the international business). The stock trades at 23.9x FY12E EPS of INR7
and 19.2x FY13E EPS of INR8.8. Maintain Buy.

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26 October 2011

Pidilite Industries; Target – Rs 190 ::Way2Wealth :: Diwali Picks 2011

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Company Background and Business Model
Pidilite Industries, promoted by the Parekh family, is an established player in
adhesives and specialty chemicals in India. It has a diversified product portfolio
comprising adhesives, sealants, construction chemicals, paint chemicals, art
materials, industrial resins and organic pigments. The company’s major brands
include Fevicol, Fevikwik, M-Seal and Dr Fixit. The company exports its products to
more than 80 countries. Pidilite derives ~12% of revenues from international
markets. The Company has 14 Overseas subsidiaries (4 direct and 10 step-down)
including those having significant manufacturing and selling operations in USA,
Brazil, Thailand, Dubai, Egypt and Bangladesh.
Financials
The Company has been posting healthy financials over the years as suggested
from 20.6%, 29% and 28% CAGR in net sales, PAT and operating profits between
FY07-11. Its return ratios have historically been healthy. For FY11, it reported
ROCE and ROE of 33% and 32% respectively. However, this takes into account its
investment in international subsidiaries and the Elastomer project. Adjusted for
these, the ROCE and ROE would have been higher.
Investment Argument
• Strong brand equity: Its legacy brand 'Fevicol' is clearly the market leader
holding a 70% market share. The Company has a special knack for creating a
demand for almost non-existent segments which makes them a market leader.
With its excellent branding and marketing techniques, Pidilite products enjoy
the highest branding recall.
• Enjoys strong pricing power: The Company enjoys strong pricing power in
all sub-segments with a market share of over 80% in each. It has been able to
pass on any rise in raw material costs to end-consumers, though after a lag.
• Turnaround in international operations: Pidilite’s international business has
been posting losses due to its low scale of operations. In FY11 international
business reported 12% increase in turnover to Rs 302 cr however EBIDTA
declined by 57% to Rs 4 crore. The company is taking initiatives to revamp
management and increase revenue. Management expects this segment to
start contributing to PAT in FY12.
• Elastomer project coming on stream: The plant was earlier expected to
commence commercial production in March 2010, and its production capacity
was estimated at 25,000tpa. This project was delayed by the economic
slowdown in 2008-09, and is now slated for completion by end-FY12.
Management expects this business to start contributing to earnings from
FY13. So far the company has spent around Rs 300 crore on the project and
another Rs 200 crore will be spent on the project to ensure its stability. The
management expects payback in 4-5 years.
Valuations:
With the extensive distribution network, excellent brand image and introduction of
new products, Pidilite would be able to leverage its strength and cater to the
growing demand from user industries. Its excellent return ratios, low debt: equity
ratio, cash rich status and a good track record of paying consistent & healthy
dividends are some of its financial strengths. The recent fall in crude oil prices
augurs well for the Company as it will reduce its raw material cost and improve the
margins. At the CMP of Rs 158, the stock is quoting at P/E of 20.5x its FY12E EPS
of Rs 7.7.
Technicals
Pidilite is having a history of consolidation and delivering longer rallies after
breakout. Recently the level of Rs 160 where healthy consolidation has taken place
has been taken out. This neckline at Rs 160 has now changed its status from
resistance to support. Considering its history, next leg of rally can take this stock to
new highs. Accumulate around Rs 160 levels for target of Rs 190.

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