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Pidilite: Robustness continues. - Views on News from Equitymaster
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Pidilite: Robustness continues.
Jan 23, 2008

Performance summary
  • Topline grows 37% YoY and 31% YoY for 3QFY08 and 9mFY08 respectively.
  • Demerger of the Vinyl Acetate Monomer (VAM) manufacturing undertaking of Vinyl Chemicals (VCIL), a strategic investment of Pidilite, was approved. The figures for the quarter and nine months ended 31st December 2007 have been accordingly adjusted.

  • Margins expand by 1.1% due to lower raw material costs in 3QFY08.

  • Profits up 69.4% YoY led by margin expansion and higher other income. For 1HFY08, bottomline is up 62% YoY.

Financial performance snapshot
(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Net sales 2,838 3,889 37.0% 8,878 11,668 31.4%
Expenditure 2,452 3,316 35.2% 7,388 9,568 29.5%
Operating profit (EBDITA) 386 573 48.5% 1,490 2,100 41.0%
EBDITA margin (%) 13.6% 14.7%   16.8% 18.0%  
Other income 42 98 133.3% 108 228 111.1%
Interest 22 51 131.8% 45 111 146.7%
Depreciation 76 95 25.0% 220 280 27.3%
Profit before tax 330 525 59.2% 1,333 1,937 45.3%
Extraordinary item/expense 15 11 -26.7% 83 46 -44.6%
Tax 74 106 43.2% 296 343 15.9%
Profit after tax/(loss) 241 408 69.4% 954 1,548 62.3%
Net profit margin (%) 8.5% 10.5%   10.7% 13.3%  
No. of shares (m) 252.4 252.4   252.4 252.4  
Diluted earnings per share (Rs)*         7.1  
Price to earnings ratio (x) 22.4% 20.2%     21.3  
*On a trailing 12-months earnings

What has driven performance in 3QFY08?
  • Pidilite’s topline grew by 37% YoY. The company continues to witness strong growth due to its strong brands and product portfolio. The consumer and bazaar division grew by 30% YoY, while industrial division grew by 18% YoY. During the quarter, the demerger of the Vinyl Acetate Monomer (VAM) manufacturing undertaking of Vinyl Chemicals (VCIL), a strategic investment of Pidilite, was approved. The revenues of VAM were to the tune of Rs 564 m, contributing 13% to the topline.

    Segment-wise performance
    (Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
    Consumer & bazaar products 2,404 3,123 29.9% 7,607 9,537 25.4%
    PBIT margin (%) 16.3% 15.9%   19.7% 21.1%  
    % of revenue 75.8% 72.1%   76.5% 73.7%  
    Industrial products 815 960 17.8% 2,597 2,963 14.1%
    PBIT margin (%) 11.3% 11.1%   11.2% 12.4%  
    % of revenue 25.7% 22.2%   26.1% 22.9%  
    Others   564     1,067  
    PBIT margin (%)   16.3%     9.4%  
    % of revenue   13.0%     8.2%  
    Less: intersegment 49 315 542.9% 259 622 140.2%
    Total revenues 3,170 4,332 36.7% 9,945 12,945 30.2%
    PBIT margin (%) 15.3% 16.0%   18.0% 19.2%  

  • The margins for the quarter expanded by 1.1% YoY led by effective cost management. For 9mFY08, the margins improved by 1.2% basis points led by 2.3% YoY reduction in raw material costs as a percentage of sales.

  • On the divisional front, PBIT margins of the Consumer and Bazaar segment fell to 15.9% (16.3% in 3QFY07), while that of Industrial products remained at 11%. VAM’s margins were at 16%.

  • The bottomline grew by 69% YoY in the quarter. Higher margins and other income (up 133% YoY) led to the strong growth. Even the tax outgo was low, with effective rate reducing from 22.4% in 3QFY07 to 20.2% in 3QFY08. The growth would have been higher but for the 132% YoY rise in interest expenses. The company raised US$ 40 m from issue of zero coupon Foreign Currency Convertible Bonds (FCCBs) in December 2007. After payment of US$ 1.04 m for certain issue related expenses, the company has utilised US$ 1.8 m for investment in equity capital of its overseas subsidiaries.

What to expect?
At the current price of Rs 151, the stock is trading at a price to earnings multiple of 21.3 times its trailing 12 month earnings. The robust growth momentum continues led by a strategy of new product launches and line extensions. Further its wider retail foray and inorganic growth initiatives will also aid the topline. Pidilite’s global ventures have also put forth good performance. Having said that, while its strong brands and ability to pass on the higher costs are a matter of comfort, the high valuations remain a concern.

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