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Pidilite: Some sticky issues

Jun 27, 2002

Adhesives and sealants major, Pidilite Industries', improved its showing in FY02. The company registered a 12% topline growth during the year. Backed by cost controls, Pidilite showed a slight improvement in operating margins.

(Rs m) FY01 FY02 Change 4QFY02
Net Sales 4,382 4,916 12.2% 1,052
Other Income 81 69 -14.4% 26
Expenditure 3,567 3,988 11.8% 867
Operating Profit (EBDIT) 815 928 13.9% 185
Operating Profit Margin (%) 18.6% 18.9%   17.6%
Interest 70 42 -40.3% 9
Depreciation 165 190 14.8% 48
Profit before Tax 661 766 15.9% 154
Tax 182 245 35.1% 75
Profit after Tax/(Loss) 480 521 8.7% 79
Net profit margin (%) 10.9% 10.6%   7.5%
No. of Shares 25.2 25.2   25.2
Diluted Earnings per share* 19.0 20.6   12.5
P/E Ratio   10.2   16.8
*(annualised)        

Pidilite's flagship product 'Fevicol' is a generic name for adhesives in India and commands 60% market share. The company is backed by a strong R&D base and has pioneered almost 60% of the products it sells. Therefore, its products command a huge price premium over competing brands. The companies other major brands are 'M-seal', 'FeviKwik' and 'Ranipal'.

Despite lower interest outgo (down 40% YoY), Pidilite's net profit only saw a small improvement of 9% YoY. Higher depreciation provisioning as well as deferred taxes pruned bottomline growth. However, given the company's focus on cost efficiencies and debt restructuring the company's long term outlook looks encouraging.

Cost break-up
(Rs m) FY01 FY02 Change
Raw material 1,638 1,805 10.2%
Staff 316 371 17.3%
Packing material 495 518 4.7%
Others 1,118 1,294 15.7%
Total expenditure 3,567 3,988 11.8%

Though competition has come in branded adhesives and sealents with 'Parcol' as well the Kitply Group's 'Kitcol', Pidilite has managed its grip on the market through innovative products. The company is also a famed marketer of adhesives. Its product ad-campaigns for Fevikwik and Fevicol are top award recipients. However, Pidilite has a knack of acquiring products or brands that are seemingly unrelated to its existing product folio.

Its entry into the branded fabric whitener through acquisition of 'Ranipal' in FY00 is still viewed with skepticism. During the year, Pidilite has commissioned 14 wind mills costing Rs 203 m. The company has also acquired the trademark, 'Steelgrip', know-how and some equipments along with business of Electrical Insulation Tape from Bhor Industries for a consideration of Rs 87 m.

At the current price of Rs 210 the stock trades at a P/E of 10x and market cap to sales of 1.1x FY02 earnings. Though the valuations are on the lower side of the FMCG spectrum, this is largely as a consequence of the general downturn in the economy, as well as the company's moves into other brands and products. However, in the longer term, it is company's focus on its branded adhesives business that will stand investors in good stead.

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