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Solid performance; Outlook positive

Pidilite is a leading manufacturer of adhesives in India. It owns the flagship Fevicol brand. In FY21, Pidilite derived ~80% & ~22% of its turnover from Consumer & Bazar products and Industrial Products segment, respectively.

* Consolidated revenue grew 44.7% YoY to Rs. 2,236cr, led by Consumer and Bazar segment (+54.6% YoY) and B2B business (+21.3% YoY).

* EBITDA rose 53.1% YoY, with margin expanding 110bps YoY on lower costs. Resultantly, adj. PAT surged 62.6% YoY.

* Long-term outlook looks promising. Given the brand value, Company is well-positioned to pass on any inflationary pressures to the consumer. Also, synergy benefits from recent acquisition are expected to be reflected in upcoming quarters with improved market share. Hence, we upgrade our rating on the stock to BUY with revised target price of Rs. 2,131 based on 67x FY23E adj. EPS.

Topline driven by C&B growth

For Q4FY21, consolidated revenue increased 44.7% YoY to Rs. 2,236cr (-2.8% QoQ), partially due to lower revenue base in Q4FY20 and higher volumes. Overall volume grew 39.7% YoY, primarily driven by 45.3% YoY growth in C&B volumes and 25.9% B2B volumes. By end-user type, Consumer and Bazaar segment grew 54.6% YoY to Rs. 1,730cr and Industrial Products segment was up 21.3% YoY to Rs.535cr. Overall Demand for adhesives has proved to be non-discretionary with volume sales rebounding quickly to stable levels as soon as the lockdown/travel restrictions are lifted. From geographical perspective, Q4FY21 Domestic subsidiaries revenue surged 94.1% YoY to Rs. 301cr, while overseas subsidiaries in Asia, Middle East -Africa, Americas saw 23.5%, 21.0% and 45.9% YoY growth, respectively.

Inflation in input prices pressurizes margin sequentially

Gross margins contracted 394bps QoQ to 50.8% due to sharp inflation and volatility in VAM (raw material) prices. The cost pressures have put less strain on the company as compared to other fragmented players. Overall EBITDA rose 53.1% YoY to Rs.461cr (- 28.1% QoQ), with margin of 20.6% (+110bps YoY, -730bps QoQ). Moving forward, we expect waterproofing segment and wood finish market to act as growth catalysts.

Key concall highlights

* Company recorded average consumption cost of USD 1200/t vs. USD 875/t in Q3FY21. VAM commodity prices soared to USD 2,000 from USD 800. Simultaneously, price hikes for fevicol is in 4-6% range during last 3 months.

* Capex budget of Rs.350cr will be directed towards company’s plan of improving market share in rural and small towns.

Valuation

While demand uncertainties remain in the near-term due to lockdowns in various states of India, long-term outlook remains promising once the industrial and economic activity stabilizes. Given the brand value, company is well-positioned to pass on any continued inflationary pressures to the consumer. Also, synergy benefits from recent acquisition are expected to be reflected in upcoming quarters with improved market share. Hence, we upgrade our rating on the stock to BUY with a revised target price of Rs. 2,131 based on 67x FY23E adj. EPS.

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