IGI Logo

Higher input price delays EBITDA margin recovery…

About the stock: Pidilite is a market leader in the adhesive and sealants business.

* The company’s consumer & bazaar (C&B) segment (adhesives & sealants, construction & paint chemical, art & craft materials) contributes 80% to topline while the B2B segment (industrial adhesive, resins and pigments) contributes ~20% to topline

* Has 4700+ distributors, strong balance sheet (RoE, 20%, RoCE, 24%)

Q1FY22 Results: Strong revenue recovery led by both C&B and B2B segments.

* Revenues were up 121% YoY to ~| 1937 crore (down 13% QoQ)

* EBITDA margin came in at 18%, lower than our estimate of 19% due to higher-than-expected fall in gross margin

* PAT jumped 14x YoY to | 218 crore

What should investors do?

Pidilite’s share price has grown by ~3x over the past five years (from ~| 700 in July 2016 to ~| 2220 levels in August 2021).

* We maintain our HOLD rating on the stock

Target Price and Valuation: We introduce FY24E and roll over our valuation on FY24 earnings. We valued Pidilite at | 2390, 65x P/E of FY24E EPS

Key triggers for future price performance:

* The management is aiming at the ‘core segment’ (adhesive, sealants) and ‘growth’ segment to grow at 1-2x, 2-4x of GDP, respectively, in the long term

* Revival in the real estate business will be key demand driver for C&B segment, going forward

* Addition of premium products in the portfolio such as Araldite, cost optimisation measures will help drive EBITDA margin of the company.

Alternate Stock Idea: We like Asian Paints in our coverage.

* Asian Paints is the market leader in the decorative paint and expanding its product portfolios along with dealer expansion in tier II and tier III cities

* BUY with a target price of | 3665

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer