MOSL: PIDILITE INDUSTRIES (Neutral)-Results below expectation-expect normalcy from 3QFY18

​Pidilite Industries: Results below expectation; expect normalcy from 3QFY18

(PIDI IN, Mkt Cap USD6.6b, CMP INR805, TP INR810, 1% Upside, Neutral)

• PIDI’s 1QFY18 results came in below expectations. Gross sales were down 1.3% YoY to INR16.7b. Net sales declined 2.6% YoY (est. of flat growth) to INR15.3b, with flattish volume growth (est. of flat growth) in the Consumer Bazaar segment. EBITDA was down 18.5% YoY (est. of -4% YoY) to INR3.2b, while adj. PAT declined 16.7% YoY (est. of -6.1%) to INR2.3b.
• Gross margin contracted 60bp YoY to 51.7%, led by uptrend in key raw material costs. Staff costs increased 150bp YoY to 11.8%. Other expenses were up 200bp YoY to 18.9%, led by 39.6% increase in adspend due to timing difference between advertisement and promotion spends compared to 1QFY17. EBITDA margin thus contracted 410bp YoY (est. of -150bp YoY) to 21%.
• Consolidated segmental performance: Consumer Bazaar revenues were down 1.6% YoY to INR14.3b. Segmental EBIT margin shrunk sharply by 390bp YoY to 23.0%. Consumer Bazaar EBIT declined 15.7% to INR3.3b. Industrial segment was flat at INR2.5b, with margin contraction of 360bp to 14.7%.
• Concall highlights: 1) No significant schemes launched in 1QFY18 to push stock. Provided certain amount of money to channel partners for loss on stock due to GST transition; accounted fully in other expenses in 1QFY18. 2) Company had taken price hikes in segments that were affected more by RM inflation; no price hikes taken in bigger products like Fevicol and Fevikwik. 3) Company sees reasonable pick-up in demand after 1st week of July.