Neutral Pidilite Industries Ltd for the Target Rs. 3,000 by Motilal Oswal Financial Services Ltd
Sustaining volume growth; rich valuations limit upside
* Pidilite Industries (PIDI) reported consolidated revenue growth of 8% YoY in 4QFY25. Standalone revenue grew 10% YoY, with underlying volume growth (UVG) of 10% (est. 10%). Consumer business witnessed value/volume growth of 9%/8% YoY. B2B business reported value/volume growth of 14%/16%. The impact of price cuts has been minimal, and the value-volume gap has now neutralized. Management aims to drive revenue growth primarily through volume expansion going forward.
* Urban demand improved in 4Q; however, rural demand growth continued to outpace urban demand growth. We estimate a CAGR of 12% each in revenue/EBITDA over FY25-27.
* GM expanded 160bp YoY to an 18-quarter high of 55%, driven by benign raw material prices. VAM dipped to ~USD880/t in 4QFY25 from USD925/t in 4QFY24. PIDI remains focused on reinvesting in branding and customer acquisition. EBITDA margin was up 30bp YoY at 20.1%. EBITDA grew 10%.
* Consolidated EBIT growth for the consumer business stood at 13% YoY (10% in FY25) and B2B business EBIT growth stood at 69% (53% in FY25).
* PIDI’s volume growth trajectory is inspiring, particularly in the current challenging environment. Operating margins are high (~23% EBITDA margin in FY25), and it will be crucial to monitor whether the company can sustain such high levels. Given rich valuations, we reiterate our Neutral rating on the stock with a TP of INR3,000 (55x Mar’27E EPS).
In-line performance; volume-led growth sustains
* Strong volume growth sustains: Consolidated sales grew 8% YoY to INR31.4b (est. INR31.4b). UVG remained strong at 9.8% (est. 9.7% in 3QFY25). UVG was 8% for C&B businesses and 16.4% for B2B businesses.
* Healthy growth in C&B: The C&B segment’s revenue rose 7% YoY to INR23.9b (est. INR26.6b), EBIT grew 13% YoY to INR6.2b (est. INR6.8b), and EBIT margin expanded 150bp YoY to 25.8%.
* B2B outperformance continues: The B2B segment’s revenue grew 14% YoY to INR8.1b (est. INR5.3b), EBIT rose 69% YoY to INR1.4b (est. INR0.5b), and EBIT margin expanded 570bp YoY to 17.5%.
* Double-digit growth in profitability: Gross margin expanded ~160bp YoY to 55% (53.2% est), led by moderate RM prices. Employee expenses increased 22% YoY and other expenses rose 7% YoY. EBITDA margin improved 20bp YoY to 20.1% (in line). EBITDA grew 10% YoY to INR6.3b (est. INR6.3b). PBT grew 20% YoY to INR6b (est. INR5.7b). Adj. PAT increased 20% YoY to INR4.5b (est. INR4.4b).
* In FY25, net sales, EBITDA, and APAT grew 6%, 11%, and 17%, respectively.
* Subsidiary performance: Domestic subsidiaries posted double-digit revenue and EBITDA growth YoY. Sales of international subsidiaries (excluding Pidilite USA and Pulvitec Brazil) were flat YoY.
Highlights from the management commentary
* PIDI remains cautiously optimistic about improved demand from a good monsoon, increase in government spends and increased construction activity.
* Haisha Paint is making steady progress in the paints segment and is currently present in five southern states—Telangana, Andhra Pradesh, Odisha, Karnataka, and Tamil Nadu.
* ‘Pidilite Ki Duniya’—the company’s rural outreach initiative—expanded its reach to around 16,500 villages in FY25, strengthening brand connect and category awareness in underserved markets.
* The company typically maintains 60-75 days of raw material inventory, with total days increasing modestly when including finished goods.
* Management is open to exploring opportunities in the EV and semiconductor sectors, given their high growth potential.
Valuations and view
* We broadly maintain our EPS estimates for FY26 and FY27.
* 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 model much expansion as growth drivers (consumer acquisition, distribution expansion, and brand investments) will require high opex. We build in a CAGR of 12%/12%/14% 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. We reiterate our Neutral rating on the stock with a TP of INR3,000 (premised on 55x Mar’27E EPS).
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