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MOSL: Morning India (22/March/18): 1. Pidilte Industries; 2. Technology

MOrning India (22/March/18): 1. Pidilte Industries; 2. Technology

 

Today’s top research idea

Pidilte Industries: Shift to formal trade to be faster in adhesives

We met Pidilite Industries’ (PIDI) management to get an update on how its business is progressing. Key takeaways:

• In the domestic business, the existing well-penetrated categories are expected to grow at ~1.5x of GDP growth, led by repeated usage. Newer and smaller businesses, too, have the potential to grow at 2-4x of GDP growth, driven by rising penetration.
• Internationally, PIDI will now focus more on emerging markets like South-East Asia, the Middle East, Bangladesh and Thailand. Investments in the US and Brazil businesses will be put on the back burner.
• With the Goods & Services Tax (GST) now getting streamlined, management expects conversion from unorganized to organized trade to be faster in adhesives than in staples. Strict tax compliance norms are expected to test the survival of unorganized (~30% of the market) and even smaller players.
• Margins might come under pressure in the near term owing to commodity cost inflation.
• We maintain Buy on PIDI with a target price of INR1,065, based on 45x March FY20E EPS – at a 15% premium to the three-year average P/E.

Piping hot news

US Fed raises key interest rate by 0.25%, sees two more hikes in 2018

• The Federal Reserve raised interest rates on Wednesday and forecast at least two more hikes for 2018, signaling growing confidence U. S. tax cuts and government spending will boost the economy and inflation and lead to more aggressive future tightening.