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Encouraging performance; near-term margin pressure

* Pidilite Industries (PIDI) reported strong consolidated revenue growth of 21% YoY in 1QFY27. Standalone revenue grew 22% YoY, led by underlying volume growth of 11% (est. 11%). In the C&B business, value/volume growth stood at 22%/12% YoY. B2B segment saw 14% value growth and 7% volume growth. Export business declined 8% due to the ongoing West Asia conflict. * Gross margin (GM) contracted 70bp YoY to 53.5% due to higher RM prices. Due to the West Asia conflict, VAM prices increased to USD1,370/ton from USD924/ton in 1QFY26. To mitigate the cost, PIDI is taking a calibrated price hike (2-12% in 1Q) across products.

* EBITDA grew strongly by 27% YoY (est. 15%). Consolidated EBIT growth for the consumer business was healthy at 26% YoY (20% in FY26) and B2B business EBIT was up 30% (10% in FY26).

* PIDI’s volume growth trajectory remains encouraging, especially amid a challenging demand environment. Operating margins could contract in the near term owing to cost inflation. Given its market leadership, PIDI is better placed in such an inflationary scenario. We model a CAGR of 15% in revenue and 14% in EBITDA over FY26-28E. Given the limited upside, we reiterate our Neutral rating on the stock with a TP of INR1,700 (50x FY28E EPS).

Beat on profitability; volume up 11%

* Consistent double-digit volume growth: Consol. sales grew by a strong 21% YoY to INR45.5b (est. INR44.3b). Underlying volume growth remained strong at 11% (est. 11%, 15% in 4QFY26). UVG was 12% for C&B businesses and 7% for B2B businesses.

* Strong twenties growth in C&B: Consumer & Bazaar (C&B) segment revenue rose 22% YoY to INR36.8b (est. INR35.3b), EBIT grew 26% YoY to INR11.9b (est. INR10.7b) and EBIT margins expanded by 90bp YoY to 32.3%.

* Mid-teens growth in B2B: B2B segment revenue was up 14% YoY at INR9.2b (est. INR9.3b), EBIT increased by 30% to INR1.7b (est. INR1.5b), and EBIT margins expanded by 230bp YoY to 18.8%.

* Better operating margin delivery continues: GM contracted by ~70bp YoY to 53.5% (est. 54.0%), impacted by the West Asia crisis. Employee expenses rose 11% YoY and other expenses increased by 16% YoY. EBITDA margin expanded by 120bp YoY to 26.2% (est. 24.4%).

* Strong profitability growth in twenties: EBITDA was up 27% YoY (est. 15%). PBT grew 28% YoY to INR11.8b (est. INR10.3b). Adj. PAT increased 28% YoY to INR8.6b (est. INR7.7b).

Valuations and view

* We increase our EPS estimates by 4-5% for FY27 and FY28.

* PIDI’s volume growth trajectory remains 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 high level of over 24% in FY26 due to rising input cost inflation. We model a CAGR of 15% in revenue and 14% in EBITDA over FY26-28E.

* Given the limited upside, we reiterate our Neutral rating on the stock with a TP of INR1,700 (50x FY28E EPS).

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