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Volume trends stable; muted near-term earnings outlook

* Pidilite Industries (PIDI) reported consolidated revenue growth of 21% YoY in 2QFY27. Standalone revenue grew 22% YoY, led by 11% underlying volume growth (est. 13%). In the Consumer & Bazaar (C&B) business, value/volume growth was 21%/11% YoY. B2B segment saw 20% value growth and 9% volume growth. Demand remained resilient across rural and urban markets, with urban demand marginally outpacing rural growth this quarter, reversing the trend seen over the past few quarters.

* Gross margin (GM) contracted 650bp YoY to 48.6%, due to higher RM prices. Amid the West Asia conflict, VAM prices increased to USD1,630/ton (nearly doubled YoY) in 2QFY27 vs. USD1,370/ton in 1QFY27. Currently, VAM prices stood at USD1,200/ton. To mitigate the same, PIDI is taking a calibrated price hike (12-15% price hike in 1Q) across products, with a 3-5% hike in Oct’26. Further pricing actions will be calibrated based on demand conditions, competitive intensity and input cost movements.

* EBITDA margin declined 350bp YoY to 20.4% (vs. est. 22.5%). EBITDA saw just 3% YoY growth (vs. est. 13%), reflecting significant input cost pressure. EBITDA margin would remain in the range of 20-24% (toward higher end) in 2HFY27, with little better support from pricing.

* PIDI’s volume growth delivery is encouraging (11% average volume growth in the last six quarters) despite challenges. Cost inflation sensitivity is high, thereby EBITDA growth performance is expected to be muted (base is heavy with 25% EBITDA growth in previous three quarters). Given limited upside, we reiterate our Neutral rating with a TP of INR1,550 (45x Sep’28E EPS).

In-line revenue; drag on margins

* Consistent double-digit volume growth: Consol. sales grew by a strong 21% YoY to INR43.0b (est. INR42.7b). UVG remained strong at 11% (est. 13%, 11% in 1QFY27). UVG was 11% for C&B businesses and 9% for B2B businesses.

* C&B EBIT up 5%: C&B segment revenue rose 21% YoY to INR34.2b (in line), EBIT grew by 5% YoY to INR9b (est. INR9.9b), and EBIT margins contracted by 390bp YoY to 26.3%.

* B2B EBIT down 1%: B2B segment revenue grew 20% YoY to INR9.1b (est. INR8.8b), EBIT fell 1% to INR1.1b (est. INR1.4b), and EBIT margins contracted by 270bp YoY to 12.5%.

* Contraction in margins – GM contracted by 650bp YoY to 48.6% (est. 51.4%), impacted by the West Asia crisis. Employee expenses rose 9% YoY and other expenses increased by 10% YoY. EBITDA margin contracted by 350bp YoY and 600bp QoQ to 20.4% in 2QFY27 (est. 22.5%).

* Miss on profitability: EBITDA was up by 3% YoY (est. 13%, 27% in 1QFY27). PBT grew 5% YoY to INR8.3b (est. INR9.2b). Adj. PAT increased 6% YoY to INR6.1b (est. INR6.9b).

* In 1HFY27, revenue/EBITDA/APAT grew by 21%/16%/18%.

Highlights from the management commentary

* Management expects double-digit UVG to remain sustainable if India's real GDP growth stays in the 6.5-7% range. Demand-generation initiatives, an expanding portfolio and construction chemicals growth are expected to support further improvement in volume growth.

* Pidilite implemented price increases of around 12-15% in categories facing high input cost inflation, largely in two staggered phases during 1QFY27. In Oct’26, it initiated a further 3-5% price increase in select high-inflation categories.

* Management aims to gradually increase UVG from the current double-digit level toward the early teens in the medium term. UVG has improved steadily in the past three to four years, with annual increases of around 60-100bp.

* VAM prices, which remained at USD800-900/ton through FY26, surged to nearly USD2,000/ton following the West Asia conflict, before cooling to around USD900-1,000/ton in early 2QFY27 and subsequently rising to around USD1,200/ton.

Valuations and view

* We largely maintain our EPS estimates for FY27 and FY28.

* PIDI’s volume growth trajectory is encouraging, especially amid a challenging demand environment. PIDI stands out for its market-leading position in the adhesives market, along with a strong brand and a solid balance sheet.

* Operating margins could moderate in FY27 from the elevated level of over 24% in FY26, due to rising input cost inflation. We model 16% revenue and 15% EBITDA CAGR over FY26-28E.

* Given the limited upside, we reiterate our Neutral rating on the stock with a TP of INR1,550 (45x Sep’28E EPS).

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