Pidilite Industries - Impressive comeback - ICICI Securities

Pidilite Industries (PIDI) has reported a strong beat in Q2FY21 with consolidated revenue up 4.1% YoY at Rs18.8bn (I-Sec: Rs18.4bn) driven by 7.4% YoY volume and mix growth in consumer & bazaar (C&B) segment. EBITDA margin rose sharply to 27.5% (I-Sec: 23.5%), up 690bps YoY, led by cost control and gross margin expansion of 260bps YoY. The silver lining for the quarter was: a) Double-digit growth in PIDI's 'Emerging India' (rural and small towns accounting 30% of its overall sales in FY20) business, and b) double-digit growth in international subs. Going forward, growth prospects for PIDI may improve driven by metros and tier-1 cities opening up in Q3FY21 and the recent acquisition of HAMSPL. Despite the recent increase in VAM prices, we expect its EBITDA margin to remain firm in 24-25% range over the next few quarters led by its product mix improvement, cost optimisation and operating leverage. Retain HOLD.

- Valuation and outlook: Factoring in Q2FY21 performance, we increase our earnings estimates by 0.2%/0.7% for FY21E/FY22E, respectively. We now expect PIDI to report revenue and adjusted PAT CAGRs of 8.2% and 15.4%, respectively, over FY20-FY22E. We revise our target price to Rs1,520 (earlier: Rs1,508) based on 50x FY22E earnings and maintain our HOLD rating on the stock. Key downside risks: Further increase in VAM prices, higher competitive intensity in construction chemicals segment and sustained slowdown in construction activities.

- Consolidated sales grew 4.1% YoY. PIDI's Q2FY21 standalone revenue grew 3.7% YoY, while its consolidated sales grew 4.1% YoY to Rs18.8bn with international subsidiaries outperforming its domestic ones with double-digit growth. Domestic subs revenue declined by 12.3% YoY with Nina Percept revenues (its waterproofing subs) declining 35.6% YoY. PIDI, which derives ~30% of its sales from semi-urban/rural areas, has seen healthy double-digit growth. Growth was also healthy in construction chemicals and DIY products. The company saw better growth in Oct'20 vs Oct'19 led by festive base YoY. We expect PIDI's consolidated revenue to grow at 8.2% CAGR over FY20-FY22E.

- EBITDA margin surprises positively led by softening input costs and cost control. PIDI reported 690bps YoY expansion in its consolidated EBITDA margin to 27.3% (I-Sec: 23.5%) as a result of moderation in input costs and cost control. VAM prices consumption average was US$765/t in Q2FY21 vs US$901/t YoY. Currently, VAM prices have moved swiftly to US$900/t. While we expect higher input prices to start reflecting from Q4FY21, we believe, the benefits of cost rationalisation, superior positive mix and operating leverage will offset VAM pricing pressures and drive EBITDA margin higher to 25.2% in FY22E.

- Reported PBT at Rs4.8bn, up 27% YoY: PIDI reported a consolidated PBT of Rs4.8bn (I-Sec: Rs4.2bn), up 27% YoY, due to the strong beat in operational performance. Consolidated adjusted PAT came in at Rs3.6bn, up 3% YoY. We expect the company to report 15.4% PAT CAGR over FY20-FY22E.

Shares of PIDILITE INDUSTRIES LTD. was last trading in BSE at Rs.1581 as compared to the previous close of Rs. 1564.85. The total number of shares traded during the day was 13283 in over 1621 trades.

The stock hit an intraday high of Rs. 1588.5 and intraday low of 1566.2. The net turnover during the day was Rs. 21004223.

Source : Equity Bulls

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