Pidilite Industries Ltd. share price target

Margin to normalise with recovery in input cost going forward Raw material prices remained benign during the quarter (average consumption cost of US$800/t vs. US$940/t in Q3FY20). However, recovery in input prices (spot price of VAM US$1300/t) and restoration of advertisement costs, going forward, will result in normalised EBITDA...

Pick-up in economic activity in the areas of construction, automobile, furniture, etc. and continued weakness in raw material prices should benefit Pidilite in the months ahead. At current price levels however, the upside remains limited. We maintain our HOLD rating on the stock with a revised TP of Rs. 1,674 based on 60x FY22E adj. EPS. Topline back on pre-COVID levels, beats expectations Pidilite saw its Q2FY21 consolidated revenue shoot up to Rs. 1,880cr (+114.2% QoQ, +4.1% YoY) on account of substantial recovery seen across all its business segments....

Acquisition of Araldite to strengthen product portfolio Pidilite acquired HAMSPL for a cash consideration of ~| 2100 crore. The acquisition valued at ~5x sales (~50% discount to Pidilite's TTM MCap/sales) is fairly valued. HAMSPL manufactures and sells adhesives, sealants and other products under well-known brands such as Araldite, Araldite Karpenter and Araseal in India with a market share of ~30% (market leader in the epoxy adhesive category). We believe strong margin profile of HAMSPL (in line with Pidilite) and product profile would help expand...

PIDI has returned to growth trajectory with strong double digit growth from Rural and Semi Urban areas leading revival across Construction Chemical and DIY portfolio. B2B segment continued to face headwinds, however signs of recovery were visible in the fag end of the quarter. We remain positive on PIDI due to its strong business moat and sustained investment behind categories of future like 1) waterproofing 2) construction chemicals and aids 3) Wood coatings and 4) Floor coatings etc. We believe investment in Huntsman will not only provide PIDI with leadership position but will also...

Pidilite's Q2FY21 results were ahead of our estimate as the improvement in business conditions was better than our anticipation. Consumer Bazaar segment has witnessed strong recovery with +9% growth (55% decline in Q1FY21). Though B2B reported 13% YoY...

Consolidated revenue grew by 4.1% y-o-y to Rs. 1,880.3 crore (driven by a sales and volume mix of 3.6%), ahead of our expectation of Rs. 1,842.9 crore. The consumer bazaar business registered volume and mix growth of 7.2%, while B2B (largely industrial products) business declined by 8.4% in Q2FY2021 (but recovered from 53% decline in Q1). Improved growth in the consumer business is attributable to double-digit growth in the rural markets and tier-IV towns. Globally, the American region registered a strong growth of ~52% in revenues and EBIDTA margins improved to 26% (excluding one-time tax gain of Rs. 9.5 crore). Benign input prices (largely those of VAM) aided in gross margins to remain high by 256 bps to 55.9%....

The company targets ~INR1b revenue or higher for the Pioneer categories over the next The Core business (Fevicol and sub-brands Fevikwik, M-Seal, and Fevicryl) is likely to grow at 12x GDP. This means that and Bazaar (C&B;) and B2B products over the next three to four years, by the end of which the Growth and Pioneer categories are likely to comprise around half of sales. The companys clutter-breaking marketing is also Compared with the erstwhile approach of focusing on a multitude of geographies, including the US and Brazil, in recent years, the company has decided to focus on certain emerging markets with high growth potential and where an India-like All the Pioneer category brands are in the nascent categories; thus, the company is trying to grow the categories using innovation and technology and by leveraging on R&D; is gaining increasing importance, with a nearly 2.5x increase seen in R&D; spends over the past five years.

While the structural investment case remains intact, the recent earnings track record, lower ROCEs (in the mid-20 levels) v/s consumer peers, and valuations of 54x FY22 do not leave much room for us to turn constructive from a one- Overall gross margins expanded 210bp YoY to 53.5%. Revenue from domestic subsidiaries declined 82.2% YoY to INR295m in 1QFY21; EBITDA stood at INR308m v/s INR176m in 1QFY20. The management expects this to continue in the near term, with the caveat that these low levels are unlikely to sustain as the demand Improvement in the demand scenario is likely to lead to positive topline and FY2022 is likely to be muted. While the structural investment case remains intact, the recent earnings track record, lower ROCEs (in the mid-20 levels) v/s consumer peers, and valuations of 54x FY22 do not leave much room for us to turn constructive from a one-year with TP of INR1,335 (50x Jun22 EPS).

Sharp decline in Q1 revenue amid lockdown Consolidated revenue fell ~56% YoY to ~| 878 crore in Q1FY21 due to sales loss for almost 40 days in domestic operations amid lockdown. The standalone revenue fell ~57% YoY led by ~58% decline in volume mix. Overseas subsidiaries recorded revenue de-growth of ~36% YoY led by revenue decline of ~49%, ~30% and ~25% YoY in Asia, Middle East and America regions, respectively. Further, domestic subsidiaries also recorded a sharp revenue fall of 82% YoY led by sharp fall in volume. Post relaxation...