MOSL: PIDILITE INDUSTRIES (Upgrade to Buy)-Return to double-digit volume growth augurs well for future

​Pidilite Industries: Return to double-digit volume growth augurs well for future

(PIDI IN, Mkt Cap USD6.0b, CMP INR819, TP INR975, 19% Upside, Upgrade to Buy)

• PIDI’s 2QFY18 results were better than expectations. Net sales grew 7.9% YoY to INR15.3b, with 12% volume growth in the Consumer Bazaar segment. EBITDA was up 17.0% YoY (est. of +11%) to INR3.8b, while adj. PAT grew 9.6% YoY (est. of 4.6%) to INR2.5b.
  
• Gross margin contracted 50bp YoY to 53%. Staff costs increased 100bp YoY to 12%, while lower other expenses (-340bp YoY to 16.4%) led to EBITDA margin expansion of 190bp YoY to 24.6%. A sharp decline in advertising expenses led to lower other expenses.
  
• Consolidated segmental: Reported Consumer Bazaar segment revenues were up 1.4% YoY to INR13.1b. Segmental EBIT margin improved sharply by 530bp YoY to 29.2%. Consumer Bazaar EBIT grew 24% to INR3.8b. Industrial segment sales declined 6.1% to INR2.3b, with the margin contracting 460bp to 14.4%.
  
• Concall highlights: 1) Early days on shift to organized players, but dealers are increasingly purchasing from companies that are fully compliant. It also appears that companies that comply and have a large distribution network are gaining at the cost of others. 2) VAM costs have increased to USD1,000 now, after remaining flat at USD920 between June and September 2017.