Pidilite Industries Ltd.

NSE: PIDILITIND | BSE: 500331 | ISIN: INE318A01026 |Industry: Specialty Chemicals
|Expensive Rocket

Pidilite Industries Ltd.    
09 Jan 2019
Falling crude prices, GST mean more opportunities for Pidilite, the Fevicol makers

By Suhani Adilabadkar

Not many people outside the industry know the name Pidilite (which is in 9 stock screeners), but everyone knows its signature brand Fevicol, thanks to the ingenious marketing campaign the company built around the product. “Fevicol Ka Mazboot Jod Hai, Tutega Nahin”, still rings in our childhood memories.

The 'Ultimate Adhesive' had an expansive  distribution network and astute branding that made it a household name over the past 60 years. Introduced as a substitute for animal fat glue for binding woodworks, Fevicol transformed from an industrial to a generic mass product. The company behind this brand, Pidilite Industries, is the market leader in adhesives, while its product portfolio ranges from adhesives, sealants, waterproofing solutions to construction chemicals, arts & crafts, industrial resins and polymers.

Synonymous with quality and trust, the company stock price followed stellar product growth turning into a multibagger giving more than 400% returns over the past five years.

Quick Takes

  • Market leader in adhesives, Pidilite, a multi-bagger delivered more than 400% returns over the past five years.
  • PAT CAGR has been 18% whereas EBDITA and Revenue moved at 17% and 11% respectively from FY2013-18.
  • Pidilite aims to focus on its future growth drivers, waterproofing, floor coatings and wood finishing.
  • GST and lower crude prices are major tailwinds for the company. 50% of the company’s raw material linked to crude oil are imported.

Glued to Growth and Strength

Glued to growth, Pidilite Industries rode on its flagship brand, Fevicol and its variants Fevistick, MSeal, Fevikwik and Dr.Fixit, market leaders in their respective specialities, to a 70% market share in the Indian adhesive market. In the mid 1990s, Pidilite split its
business into two major segments, Consumer Bazaar and Industrial chemicals.

Consumer Bazaar (C&B) constitutes the core business comprising Adhesives and Sealants, Construction and Paint Chemicals and Art and Craft Material, roughly 84% of total revenues. With products such as Fevicol and MSeal enjoying monopolies, the Adhesive segment remains the major revenue source, garnering 55% of total sales of the company. The industrial segment constitutes the remaining 16% with products such as industrial resins, industrial adhesives and pigments.

The company has typically been financially stable - over the past five financial years, PAT CAGR has been 18% whereas EBDITA and Revenue moved at 17% and 11% respectively. Stable balance sheet, debt free and strong cash flows provided the requisite resistance to uncertain market variations seen during demonetization and input swings due to crude volatility.

The September quarter results were however, hampered by higher crude prices as Pidilite’s major raw material VAM (vinyl acetate ethylene) constituting 18% of its total raw material cost is a crude derivative. In totality, 50% of the company’s raw material linked to crude oil are imported and thus rupee depreciation was also a major spoiler for quarterly margins. As oil prices have softened, this pressure should ease up. The September quarter however saw operating margins fall 380 basis points with a Net Profit decline of 8% YoY even though revenues exhibited growth momentum of 15% in September quarter FY19.

What will drive future growth?

Pidilite’s success revolves around two of its main product strategies, “For Every Problem, An expert solution” and “Addressing Unserved and Underserved consumer segments”. The company launched Fevicol Marine with the introduction of marine
plywood to cater to water prone areas. Dr Fixit, another pathbreaking product providing waterproofing solutions aims to serve a vast underserved Indian housing sector.

On the same lines, heat resistant ‘Fevicol Heatx’ and Fevicol Ezeespray, convenient spray adhesive for speedy laminate pasting were launched. Thus, Pidilite has a track record of identifying nascent product needs and successfully filling the demand gap with new product launches. As a result, the company boosts strong core business due to constant product innovation knitted with strong brand recall, mass consumer connection and wide distribution network.

Apart from the core business growth, Pidilite has well identified its future growth drivers, waterproofing, floor coatings and wood finishing. Though analysts might dub it as Pidlite’s ‘shopping spree’, the company is moving in the right direction enhancing and consolidating its product portfolio at the same time.

Waterproofing solutions undertaken through its subsidiaries Percept waterproofing and BESI were further buffeted by acquiring Nina
Waterproofing in 2015. Wood coating and finishing business was initiated through joint venture with ICA Itlay in 2016. Further accelerating its growth lever, Pidilite acquired CIPY Polyurethanes in early 2018 entering floor coating and resin flooring segment.

Last but not the least, the Adhesive technical arsenal is also being refurbished through collaboration with Jowat SE of Germany, one of the global leaders in industrial adhesive industry.

Though these long-term benefits will take time to fructify. The near-term horizon seems to be rosy. GST implementation has enlarged Pidilite’s operational spectrum and with no serious threat from near or far-away competitors, stock valuation might become even more dearer now especially with crude hovering around $50 levels.

Pidilite Industries .. has an average target of 1199.40 from 7 brokers.
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