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Volume trajectory endures; better margin delivery

• Pidilite Industries (PIDI) reported consolidated revenue growth of 11% YoY in 1QFY26. Standalone revenue grew 11% YoY with underlying volume growth (UVG) of 10% (est. 12%). Value/volume growth stood at 10%/9% YoY in consumer business and 12%/13% in B2B business. The impact of pricing is coming down and is likely to stay at the same level for the rest of FY26. Rural growth continues to outperform urban growth. In FY26E, we model 10% volume growth and 12% revenue growth.
• Gross margin (GM) expanded 30bp YoY but contracted 90bp QoQ to 54.1%. GM is expected to remain stable, with no major volatility in VAM prices. PIDI continues to prioritize reinvestment in brand building and customer acquisition. EBITDA margin grew 110bp YoY to 25.1%, an 18-quarter high. EBITDA grew strongly by 16% YoY.
• Consolidated EBIT growth for the consumer business was healthy at 18% YoY (10% in FY25). B2B business EBIT growth stood at 20% (53% in FY25).
• PIDI’s volume growth trajectory is inspiring, particularly in the current challenging environment. Operating margins are at elevated levels (>23% EBITDA margin), and the company expects margin expansion to continue in FY26. Given rich valuations, we reiterate our Neutral rating on the stock with a TP of INR3,200 (55x Jun’27E EPS).

Better delivery of consumer business on growth and margin

• Strong volume growth sustains: Consol. sales grew by 11% YoY to INR37.5b (est. INR37.4b). UVG remained strong at 9.9% (est. 12%, 9.8% in 4QFY25). UVG was 9.3% for C&B businesses and 12.6% for B2B businesses.
• Healthy growth in Consumer & Bazaar (C&B): Revenue rose 10% YoY to INR30.1b (est. INR29.7b), segmental EBIT grew by 18% YoY to INR9.5b (est. INR8.7b), and segmental EBIT margins expanded by 210bp YoY to 31.5%.
• B2B outperformance continues: B2B segment revenue was up 11% YoY at INR8.1b (est. INR8.2b), segmental EBIT rose 20% to INR1.3b (est. INR1.3b), and segmental EBIT margins expanded by 130bp YoY to 16.5%.
• Double-digit growth in profitability: GM expanded 30bp YoY to 54.1% (est. 55%). Employee/other expenses increased by 11%/5% YoY. EBITDA margin improved 110bp YoY to 25.1% (est. 23.5). EBITDA grew 16% YoY to INR9.4b (est. INR8.8b). PBT rose 19% YoY to INR9.2b (est. INR8.4b). Adj. PAT increased by 19% YoY to INR6.7b (est. INR6.2b).
• Subsidiary performance: Domestic subsidiaries reported sales growth of 12% and EBITDA growth of 32%, driven by the softening of input costs. International subsidiaries grew by 6% YoY, with EBITDA growth of 9%.

Highlights from the management commentary

• PIDI remains cautiously optimistic as domestic macroeconomic conditions continue to improve, supported by a favorable monsoon, steady demand— particularly from the construction sector—lower interest rates, and recent policy measures aimed at improving liquidity.
• Geopolitical uncertainty has a limited impact on the business and is largely confined to B2B operations. However, this exposure is small. The project business is witnessing robust growth, and the company expects to sustain double-digit volume growth in B2B going forward. ? Demand trends remain healthy, with double-digit UVG across segments. Growth is broad-based across regions, categories, and products. Roff has shown strong momentum, and Dr. Fixit is witnessing incremental growth.
• The key competitor in the tile adhesive segment is the MNC, Laticrete, which entered the market earlier and has maintained a strong hold on the project segment. The company now holds the No. 2 position, having built a solid presence in the project space. While the overall market is growing at 2x GDP, the company is outpacing it with growth at 1.5x the market rate.

Valuations and view

• We increase our EPS estimates by 3% each for FY26 and FY27 on better margin delivery in 1QFY26.
• PIDI’s core categories still enjoy GDP multiplier. The advantage of penetration and distribution can help PIDI deliver healthy volume-led growth in the medium term. EBITDA margin is already high (23% in FY25). We do not estimate much expansion as growth drivers (consumer acquisition, distribution expansion, and brand investments) will require high opex. We build in a CAGR of 13%/14%/16% in revenue/EBITDA/PAT during FY25-27E.
• PIDI stands out for its market-leading position in the adhesives market, along with a strong brand and a solid balance sheet. However, we believe the current valuation limits the upside potential. As a result, we reiterate our Neutral rating on the stock with a TP of INR3,200 (premised on 55x Jun’27E EPS).

Highlights from the management commentary Demand environment and outlook

• The company remains cautiously optimistic as domestic macroeconomic conditions continue to improve, supported by a favorable monsoon, steady demand—particularly from the construction sector—lower interest rates, and recent policy measures aimed at improving liquidity.
• However, the company stays vigilant about potential risks arising from geopolitical developments, which may disrupt supply chains and create uncertainty around global tariffs.
• Rural growth continues to outpace urban growth.
• In its core categories, the company aims to grow at 1-2x GDP, while in its emerging or growth categories, it targets 2-4x GDP. However, given the current demand environment, growth may remain at the lower end of these ranges.
• Demand trends remain healthy, with double-digit UVG seen across segments. Growth is broad-based across regions, categories, and products. Roff has shown strong momentum, and Dr. Fixit is witnessing incremental growth.
• The company’s core portfolio continues to perform well, and its new, innovative product offerings are also gaining traction. New projects and premiumized products have also started delivering strong performance and these demand trends appear to be sustainable going forward.
• During the quarter, value and volume growth remained closely aligned, suggesting that growth was primarily volume-driven, with minimal contribution from pricing.
• Pricing contributed ~70bp to growth in 1QFY26, and the company expects pricing impact to remain within this range for the rest of FY26.
• Price increases will be tactical in nature. With no significant commodity inflation currently seen, the company does not plan any major price hikes.
• Geopolitical uncertainty has a limited impact on the business and is largely confined to B2B operations. However, this exposure is small. The project business is witnessing robust growth, and the company expects to sustain double-digit volume growth in B2B going forward.
• Competitive intensity remains high in the tile adhesive segment in Hyderabad and in select other categories in Gujarat. However, the company has seen sequential improvement in these markets.
• In Kerala, the business continues to face some challenges, but the company is actively evaluating the situation and working towards resolution.
• Tile adhesive products are priced marginally higher than competitors, reflecting their quality and value proposition.
• Unofin, originally targeted at the retail segment, is now being increasingly used in large-scale projects. While it is a habit-changing product that will take time to scale, it offers significant benefits—such as a 20-25-year lifespan and water resistance. The company is focusing on engaging both architects, who understand the product benefits, and end customers such as building owners.
• The company’s Haisha Paints business continues to make steady progress and is currently present in five southern states—Telangana, Andhra Pradesh, Odisha, Karnataka, and Tamil Nadu. The focus remains on "Rurban" (rural and smaller town) markets, with consistent QoQ growth.
• The key competitor in the tile adhesive segment is the MNC, Laticrete, which entered the market earlier and has maintained a strong focus on the project segment. The company now holds the No. 2 position, having built a solid presence in the project space. While the overall market is growing at 2x GDP, the company is outpacing it with growth at 1.5x the market rate.
• The company continues to evaluate opportunities, particularly in the premium end of the market. It remains open to acquisitions in the home improvement space and actively monitors potential targets to strengthen its portfolio.

Cost and margin

• Gross margin moderated slightly on a QoQ basis, partly due to product mix and marginally higher VAM consumption compared to 4Q. The company expects gross margins to remain in the 54-55% range through FY26.
• The company maintains its EBITDA margin guidance of 20-24% for FY26.

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