MOSL: PIDILITE INDUSTRIES (Buy)-Shift to formal trade to be faster in adhesives
Pidilite Industries: Shift to formal trade to be faster in adhesives
(PIDI IN, Mkt Cap USD7.0b, CMP INR903, TP INR1065, 18% Upside, Buy)
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.
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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