MOSL: PIDILITE INDUSTRIES (Buy)-Growth delivered-Watch out for commodity inflation
Pidilite Industries: Growth delivered; Watch out for commodity inflation
(PIDI IN, Mkt Cap USD6.0b, CMP INR877, TP INR1050, 20% Upside, Buy)
- PIDI’s 3QFY18 reported consol. net sales grew 15.6% YoY to INR15.4b. Underlying standalone volume & mix growth stood at 22%, with 23% volume & mix growth in Consumer & Bazaar. Consol. EBITDA rose 29.2% YoY to INR3.7b (est. of INR3.3b), while adj. PAT grew 17.3% YoY to INR 2.4b (est. of INR2.2b).
- gross margin expanded 20bp YoY to 53.4%, while comparable gross margin shrunk ~100bp YoY. PIDI witnessed signs of commodity cost inflation. Lower staff costs (-110bp YoY to 11.3%) and other expenses (-120bp YoY to 18.1%) led to EBITDA margin expansion of 250bp YoY to 24% (est. of 22%).
- Consolidated segmental performance: Reported Consumer Bazaar segment revenues were up 7% YoY to INR13b, with segmental EBIT growing 24.1% YoY to INR3.7b. Segmental EBIT margin expanded sharply up by 380bp YoY to 27.9%. Reported Industrial segment revenue grew by 12.3% to INR2.5b, with segmental margin expanding 190bp YoY to 16.9%.
- Concall highlights: 1) Saw growth across categories in 3QFY18. 2) New construction in bigger towns is under stress, but the situation is improving. 3) Witnessing signs of commodity cost inflation. 4) Company has taken 5-10% price hikes in part of the portfolio witnessing commodity inflation (solvent and rubber-based adhesives); it has also hired third party to look for cost items where savings can be achieved. No target yet for quantum of savings.
Pidilite Industries is engaged in the manufacturing and selling of consumer and bazaar products and speciality industrial chemical. Co.'s business is divided into three major segments: consumer & bazaar products, industrial products and other segments. Consumer & bazaar products consist of mainly adhesives, sealants, art materials and construction chemicals. Industrial products consists of organic pigments, industrial resins and industrial adhesives. Other segments consist of VAM manufacturing unit of Vinyl Chemicals (India) Ltd.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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