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In 1QFY12 Pidilite Industries (PIDI) posted 17% YoY volume growth in consumer and bazaar products (CBP) and
8-9% volume growth in industrial chemicals (IP). However a slowdown in GDP and industrial activity can reduce
growth in the IP segment. Gross margins were down 350bp due to a 20% YoY increase in VAM (Vinyl Acetate
Monomer) prices, but prices have cooled to USD1,300/ton from a high of USD1,400/ton (prices were about USD1,000/
ton in December 2010). PIDI increased prices by 5-6% of its flagship adhesive brand Fevicol towards the end of
June (after a 1-1.5% increase in May 2011). The benefits of the price increase will be reflected in the coming
quarters. New launches like Fevicol Marine, Newcoat and waterproofing products have been well received in the
market.
International subsidiaries reported 1QFY12 EBIT of INR35m, up from INR20m a year earlier. North America reported
a 50% increase in EBIT. Losses in Egypt and NAE declined and margins in South America declined due to input
cost pressure.
Valuation and view: 3% cut in estimates; 18.4% PAT CAGR over FY11-13; Buy
We believe PIDI has strong pricing power in consumer products, and margins will rebound in the coming quarters,
as the impact of the price increase takes effect. We are reducing FY12 gross margin estimates from 46.4% to 46%
and EBITDA margins from 19.7% to 19.1%. We are reducing FY12 EPS estimates by 3% and FY13 EPS estimates
by 1% to factor in higher input costs. We believe PIDI is a compelling play on the expected growth opportunity in
home interiors and construction. The stock trades at 23.5x FY12E EPS of INR7.4 and 19.3x FY13E EPS of
INR9.1. Maintain Buy with an SOTP-based target price of INR193, an 11% upside.
PIDI posted 17% YoY volume growth in consumer and bazaar products (CBP) and 8-
9% volume growth in industrial chemicals (IP) in 1QFY12. However a slowdown in
GDP and industrial activity can reduce growth in the IP segment.
Gross margins were down 350bp due to a 20% YoY increase in VAM (Vinyl Acetate
Monomer) prices. However, prices have now cooled to USD1,300/ton from a high of
USD1,400/ton (prices were about USD1,000/ton in December 2010).
PIDI increased prices by 5-6% of flagship adhesive brand Fevicol towards the end of
June (after a 1-1.5% increase in May 2011), the benefits of which will be reflected in
coming quarters.
New launches like Fevicol Marine, Newcoat and waterproofing products have been
well accepted in the market.
International subsidiaries reported 1QFY12 EBIT of INR35m, up from INR20m in
FY11. North America posted a 50% increase in EBIT and losses in Egypt and NAE
declined. Margins in South America declined due to input cost pressures.
The synthetic elastomer project is expected to be commissioned in 1HFY13; PIDI
has spent INR3.3b on the project so far.
We are reducing FY12 gross margin estimates from 46.4% to 46% and EBIDTA
margins from 19.7% to 19.1%. We are reducing FY12 EPS estimates by 3% and
FY13 EPS estimates by 1% to factor in higher input costs.
PIDI is a compelling play on the expected growth opportunity in home interiors and
construction. Maintain Buy with an SOTP-based target price of INR193, an 11%
upside.
Standalone: Sales momentum intact; gross margins fall, Fevicol prices
up 6%
1QFY12 sales of INR7.7b were up 22% YoY but gross profit was up 13% as gross
margins were down 350bp to 44.7%, led by a 20% increase in VAM prices.
A 130bp increase in other expenses (low base effect in 1QFY11 and an increase in ad
spends from 3% to 4% of sales) resulted in EBITDA margin decline of 470bp to
20.1%. PAT was flat YoY as the tax rate was up 270bp.
VAM prices in 1QFY12 were up 20% YoY. They increased from USD1,000/ton in
December 2010 to a high of USD1,400/ton, but have cooled to USD1,300/ton.
PIDI increased prices of its flagship Fevicol adhesive by 5-6% at the end of June
after a 1-1.5% price increase in May. The management expects the benefits of the
price increase to be reflected in the coming quarters.
Consumer and bazaar, industrial sales up; new launches evoke good
response
Consumer and bazaar products (CBP) sales were up 23% YoY, led by volume growth
of 16-17%. Sales momentum was strong and new launches like Fevicol Marine,
Newcoat and waterproofing products evoked good consumer response.
EBIT was up 5.4% as margins declined 430bp. 1QFY11 was the quarter with the
highest EBIT margin (30.2%), so the base effect has also kicked in.
Industrial products (IP) sales were up 18.4% on 8-9% volume growth. EBIT was up
5.7%, as margins declined 210bp. PIDI has relatively little pricing power in IP, which
resulted in delay in passing on the input cost increase to customers.
Overseas operations performance mixed; Elastomer project to be
commissioned in 1HFY13
Overseas sales grew 13% and EBITDA increased from INR20m to INR35m. All
subsidiaries reported improved performance except Brazil. Subsidiaries are unlikely
to turn profitable over the next couple of years.
South America sales were up 4% but margins declined due to higher input costs.
North America sales were up 4.3%, EBITDA increased 50%. Middle East and Africa
sales were up 86% and losses declined in Egypt and the UAE. South East Asia sales
were up 19% and PIDI plans to increase capacity in Thailand and Bangladesh.
PIDI's elastomer plant is expected to start operations in 1HFY13 against our
expectations of the end of FY12.
3% cut in estimates, 18.4% PAT CAGR over FY11-13; Buy
We believe PIDI has strong pricing power in consumer products and margins will
rebound in the coming quarters as the impact of price increases kicks in.
We are reducing our FY12 gross margin estimates from 46.4% to 46% and EBITDA
margins from 19.7% to 19.1%. We are reducing FY12 EPS estimates by 3% and
FY13 EPS estimates by 1% to factor in higher input costs.
We believe PIDI is a compelling play on the expected growth opportunity in home
interiors and construction.
The stock trades at 23.5x FY12E EPS of INR7.4 and 19.3x FY13E EPS of INR9.1.
Maintain Buy with an SOTP-based target price of INR193, an 11% upside.
Company description
Pidilite Industries (PIDI) is the largest branded adhesives
player in India, with an iconic brand like Fevicol. Besides a
strong presence in adhesives, PIDI expanded its presence
in emerging segments like mechanized joinery, modular
furniture, flooring, automotive care and waterproofing
through Dr Fixit and Roff.
Key investment arguments
We expect strong consumer driven demand to continue
and drive 15%+ volume growth for PIDI in the future.
Strong brand leadership and pricing power will assist
margin expansion.
Successful completion of a synthetic elastomer project
(estimated cost INR5.5b; INR2.8b already spent) can
provide earnings upside after FY12.
Key investment risks
Continued increase in VAM prices could impact margins
in the near term as price increases will be with a lag.
Delay in commissioning the elastomer project and
longer-than-expected payback period could strain cash
flows.
Recent developments
Price increase of 5-6% being taken at the end of June
to cover the cost push in VAM other inputs will reflect
in margins from Q2FY11.
Valuation and view
We are reducing FY12 EPS estimates by 3% and FY13
EPS estimates by 1% to factor in higher input costs.
We believe PIDI is a compelling play on the expected
growth opportunity in home interiors and construction.
The stock trades at 23.5x FY12E EPS of INR7.4 and
19.3x FY13E EPS of INR9.1. Maintain Buy with an
SOTP-based target price of INR193.
Sector view
Our outlook on the sector is cautious given slower
income growth in the economy, which might impact
volumes and profit margins of companies.
Companies with low competitive pressures and broad
product portfolios will be able to better withstand a
slowdown in a segment.
Long term prospects appear bright given rising incomes
and low penetration
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In 1QFY12 Pidilite Industries (PIDI) posted 17% YoY volume growth in consumer and bazaar products (CBP) and
8-9% volume growth in industrial chemicals (IP). However a slowdown in GDP and industrial activity can reduce
growth in the IP segment. Gross margins were down 350bp due to a 20% YoY increase in VAM (Vinyl Acetate
Monomer) prices, but prices have cooled to USD1,300/ton from a high of USD1,400/ton (prices were about USD1,000/
ton in December 2010). PIDI increased prices by 5-6% of its flagship adhesive brand Fevicol towards the end of
June (after a 1-1.5% increase in May 2011). The benefits of the price increase will be reflected in the coming
quarters. New launches like Fevicol Marine, Newcoat and waterproofing products have been well received in the
market.
International subsidiaries reported 1QFY12 EBIT of INR35m, up from INR20m a year earlier. North America reported
a 50% increase in EBIT. Losses in Egypt and NAE declined and margins in South America declined due to input
cost pressure.
Valuation and view: 3% cut in estimates; 18.4% PAT CAGR over FY11-13; Buy
We believe PIDI has strong pricing power in consumer products, and margins will rebound in the coming quarters,
as the impact of the price increase takes effect. We are reducing FY12 gross margin estimates from 46.4% to 46%
and EBITDA margins from 19.7% to 19.1%. We are reducing FY12 EPS estimates by 3% and FY13 EPS estimates
by 1% to factor in higher input costs. We believe PIDI is a compelling play on the expected growth opportunity in
home interiors and construction. The stock trades at 23.5x FY12E EPS of INR7.4 and 19.3x FY13E EPS of
INR9.1. Maintain Buy with an SOTP-based target price of INR193, an 11% upside.
PIDI posted 17% YoY volume growth in consumer and bazaar products (CBP) and 8-
9% volume growth in industrial chemicals (IP) in 1QFY12. However a slowdown in
GDP and industrial activity can reduce growth in the IP segment.
Gross margins were down 350bp due to a 20% YoY increase in VAM (Vinyl Acetate
Monomer) prices. However, prices have now cooled to USD1,300/ton from a high of
USD1,400/ton (prices were about USD1,000/ton in December 2010).
PIDI increased prices by 5-6% of flagship adhesive brand Fevicol towards the end of
June (after a 1-1.5% increase in May 2011), the benefits of which will be reflected in
coming quarters.
New launches like Fevicol Marine, Newcoat and waterproofing products have been
well accepted in the market.
International subsidiaries reported 1QFY12 EBIT of INR35m, up from INR20m in
FY11. North America posted a 50% increase in EBIT and losses in Egypt and NAE
declined. Margins in South America declined due to input cost pressures.
The synthetic elastomer project is expected to be commissioned in 1HFY13; PIDI
has spent INR3.3b on the project so far.
We are reducing FY12 gross margin estimates from 46.4% to 46% and EBIDTA
margins from 19.7% to 19.1%. We are reducing FY12 EPS estimates by 3% and
FY13 EPS estimates by 1% to factor in higher input costs.
PIDI is a compelling play on the expected growth opportunity in home interiors and
construction. Maintain Buy with an SOTP-based target price of INR193, an 11%
upside.
Standalone: Sales momentum intact; gross margins fall, Fevicol prices
up 6%
1QFY12 sales of INR7.7b were up 22% YoY but gross profit was up 13% as gross
margins were down 350bp to 44.7%, led by a 20% increase in VAM prices.
A 130bp increase in other expenses (low base effect in 1QFY11 and an increase in ad
spends from 3% to 4% of sales) resulted in EBITDA margin decline of 470bp to
20.1%. PAT was flat YoY as the tax rate was up 270bp.
VAM prices in 1QFY12 were up 20% YoY. They increased from USD1,000/ton in
December 2010 to a high of USD1,400/ton, but have cooled to USD1,300/ton.
PIDI increased prices of its flagship Fevicol adhesive by 5-6% at the end of June
after a 1-1.5% price increase in May. The management expects the benefits of the
price increase to be reflected in the coming quarters.
Consumer and bazaar, industrial sales up; new launches evoke good
response
Consumer and bazaar products (CBP) sales were up 23% YoY, led by volume growth
of 16-17%. Sales momentum was strong and new launches like Fevicol Marine,
Newcoat and waterproofing products evoked good consumer response.
EBIT was up 5.4% as margins declined 430bp. 1QFY11 was the quarter with the
highest EBIT margin (30.2%), so the base effect has also kicked in.
Industrial products (IP) sales were up 18.4% on 8-9% volume growth. EBIT was up
5.7%, as margins declined 210bp. PIDI has relatively little pricing power in IP, which
resulted in delay in passing on the input cost increase to customers.
Overseas operations performance mixed; Elastomer project to be
commissioned in 1HFY13
Overseas sales grew 13% and EBITDA increased from INR20m to INR35m. All
subsidiaries reported improved performance except Brazil. Subsidiaries are unlikely
to turn profitable over the next couple of years.
South America sales were up 4% but margins declined due to higher input costs.
North America sales were up 4.3%, EBITDA increased 50%. Middle East and Africa
sales were up 86% and losses declined in Egypt and the UAE. South East Asia sales
were up 19% and PIDI plans to increase capacity in Thailand and Bangladesh.
PIDI's elastomer plant is expected to start operations in 1HFY13 against our
expectations of the end of FY12.
3% cut in estimates, 18.4% PAT CAGR over FY11-13; Buy
We believe PIDI has strong pricing power in consumer products and margins will
rebound in the coming quarters as the impact of price increases kicks in.
We are reducing our FY12 gross margin estimates from 46.4% to 46% and EBITDA
margins from 19.7% to 19.1%. We are reducing FY12 EPS estimates by 3% and
FY13 EPS estimates by 1% to factor in higher input costs.
We believe PIDI is a compelling play on the expected growth opportunity in home
interiors and construction.
The stock trades at 23.5x FY12E EPS of INR7.4 and 19.3x FY13E EPS of INR9.1.
Maintain Buy with an SOTP-based target price of INR193, an 11% upside.
Company description
Pidilite Industries (PIDI) is the largest branded adhesives
player in India, with an iconic brand like Fevicol. Besides a
strong presence in adhesives, PIDI expanded its presence
in emerging segments like mechanized joinery, modular
furniture, flooring, automotive care and waterproofing
through Dr Fixit and Roff.
Key investment arguments
We expect strong consumer driven demand to continue
and drive 15%+ volume growth for PIDI in the future.
Strong brand leadership and pricing power will assist
margin expansion.
Successful completion of a synthetic elastomer project
(estimated cost INR5.5b; INR2.8b already spent) can
provide earnings upside after FY12.
Key investment risks
Continued increase in VAM prices could impact margins
in the near term as price increases will be with a lag.
Delay in commissioning the elastomer project and
longer-than-expected payback period could strain cash
flows.
Recent developments
Price increase of 5-6% being taken at the end of June
to cover the cost push in VAM other inputs will reflect
in margins from Q2FY11.
Valuation and view
We are reducing FY12 EPS estimates by 3% and FY13
EPS estimates by 1% to factor in higher input costs.
We believe PIDI is a compelling play on the expected
growth opportunity in home interiors and construction.
The stock trades at 23.5x FY12E EPS of INR7.4 and
19.3x FY13E EPS of INR9.1. Maintain Buy with an
SOTP-based target price of INR193.
Sector view
Our outlook on the sector is cautious given slower
income growth in the economy, which might impact
volumes and profit margins of companies.
Companies with low competitive pressures and broad
product portfolios will be able to better withstand a
slowdown in a segment.
Long term prospects appear bright given rising incomes
and low penetration
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