Pidilite Industries Ltd - Growth Returns; Margin to Improve From Next Quarter; Result Update Q2FY15 :: Edelweiss PDF link

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Pidilite Industries Ltd. reported ~15% YoY growth in Q2FY15 revenues and stood at INR 1264cr. EBITDA margins contracted by 11bps YoY due to higher VAM prices. VAM prices have cooled off since the highs witnessed few months back. The company took a price increase of 3% in August in VAM affected products. Consolidated volume growth in consumer & bazaar segments stood at 10% each and 7.7% in the Industrial segment. International business reported a growth of 6.3% YoY. A strong pedigree, proven brand recall, sturdy cash flows, high return ratios (>30% ROCE), net cash balance sheet and healthy dividend payout make this company attractive. We continue to believe in Pidilite’s strong long-term story, although in the short term the stock looks expensive.

Revenue growth reported at 15% YoY

Pidilite recorded decent revenue growth in this quarter, with the top-line reported at INR 1264cr, expanding by 14.9% YoY. Consumer & Bazaar business saw a volume growth of 10% YoY while the Industrial business grew by 7.7% YoY. Overseas business grew by 6.3% YoY. South East Asia business grew by 4.4% YoY. Growth in the Middle East & Africa region stood at 57.6% YoY. USA reported 7% YoY growth in sales. We maintain our revenue growth outlook of 17% CAGR over FY14-FY16E.

EBITDA margins decline marginally 

EBITDA for the quarter grew by 14% YoY to INR 215 cr while EBITDA margins contracted marginally by 11bps YoY. Higher VAM prices continued to impact Q2FY15 margins unfavorably. VAM prices have peaked out, consolidating at USD1450 levels. The period of August-September witnessed a USD40 decline in VAM prices and the same is expected to drop further by ~1% each month. VAM is a key raw material component for Pidilite at 15% of the total Raw Materials consumed. The management foresees VAM prices stabilising at ~USD 1400-1440 per ton levels in the coming months. The company reported a growth of 18% YoY in PAT from INR 116 cr last year to INR 137 cr.

LINK

https://www.edelweiss.in/research/Pidilite-Industries-Ltd--Growth-Returns;-Margin-to-Improve-From-Next-Quarter;-Result-Update-Q2FY15/10005150.html