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Pidilite Industries - Q1FY21 Result Update - ICICI Securities

Posted On: 2020-08-08 22:21:19

Pidilite's Q1FY21 performance was muted. However, this was perceived to be on account of nationwide lockdown. The positive takeaway from the conference call is: 1) month on month improvement in demand, 2) emerging India (semi urban, rural regions), recorded double digit revenue growth in May-June 2020, 3) plants are operating at capacity utilisation of 75-80%, 4) raw material prices remained benign (average consumption cost 15% lower vs. Q1FY20), 5) expectation of demand recovery in urban regions (contributes ~65-70% in total sales) post easing of lockdown restrictions. On the margin front, gross margin expansion of ~210 bps YoY was mainly due to benign raw material prices but higher fixed cost dragged EBITDA margin to 7.6% in Q1FY21. Finally, PAT fell ~95% YoY, tracking lower sales and operating profit in Q1FY21. We believe opening up of 90%+ retail outlets coupled with unlocking of metro regions would help in faster recovery in volume growth, going forward. We believe Pidilite with a strong brand patronage coupled with pan-India distribution network is likely to recover fast with a recovery in economic activities.

Valuation & Outlook

At the CMP, the stock is trading at 78x FY21E and 50x FY22E earnings. We believe a continuous demand recovery in July 2020 coupled with favourable input prices would intact Pidilite's earnings, going forward. Given its strong brand and balance sheet condition (with stringent working capital management), the recovery in volume growth justifies its premium valuations. We tweak our earnings estimate upward for FY22E by ~6% and revise our rating from HOLD to BUY with a target price of Rs. 1580/share.

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Shares of PIDILITE INDUSTRIES LTD. was last trading in BSE at Rs.1376.9 as compared to the previous close of Rs. 1331.85. The total number of shares traded during the day was 124084 in over 8734 trades.

The stock hit an intraday high of Rs. 1392.8 and intraday low of 1322.15. The net turnover during the day was Rs. 169767604.

Source: Equity Bulls

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