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Pidilite: Demand boosts profitability - Views on News from Equitymaster

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Pidilite: Demand boosts profitability

Jan 29, 2010

Performance summary
  • Net sales grew by 15% YoY during 3QFY10, led by strong demand in the consumer and bazaar segment.
  • Operating margins expand by 12.1% during the quarter to stand at 17.4%. This increase comes of the back of lower material costs partly offset by higher advertising expense.
  • After registering a net loss in the corresponding quarter last year, the company’s bottom line ended in the black this quarter. This performance was led by higher operating income and lower forex loss registered during the quarter
  • Net profits for 9mFY10 grew by 315% YoY, while the net margins recorded an increase of 9.8%. This increase was aided by growth in operating income and higher other income during the quarter.


Consolidated financial snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Sales 4,586 5,274 15.0% 15,678 16,985 8.3%
Expenditure 4,344 4,354 0.2% 13,839 13,607 -1.7%
Operating profit (EBDITA) 241 920 281.6% 1,839 3,377 83.6%
Operating profit margin (%) 5.3% 17.4%   11.7% 19.9%  
Other income 1 70 6218.2% 6 111 1683.9%
Interest 104 78 -25.2% 247 260 5.2%
Depreciation 140 173 23.3% 431 488 13.3%
Profit before tax (3) 739   1,168 2,740  
Exceptional gains/(losses) (212) (25)   (529) (92)  
Tax (12) 117   102 405 297.5%
Profit after tax/(loss) (202) 597   537 2,243 317.5%
Share in profits of associates (1) 2   (2) 6  
Minority share 2 (1)   5 (1)  
Net profit (201) 599   541 2,249 315.6%
Net profit margin (%) -4.4% 11.4%   3.5% 13.2%  
No. of shares (m) 253 253   253 253  
Diluted earnings per share (Rs)*         11.2  
P/E ratio (x)*         17.6  
* On a trailing 12-month basis

What has driven performance in 3QFY10?
  • Pidilite’s net sales grew on the back of consumer & bazaar products segment, which showed a sales growth of 19% YoY during the quarter. The Industrial products segment witnessed a growth of 13.6% in sales. However, sales of others category consisting of VAM fell by 89%. This is due to the company being able to procure VAM from other sources more cost effectively than manufacturing it.

  • Pidilite’s operating profit grew by 281% YoY during the quarter, led by lower material costs. Total material cost fell by 13% YoY during the quarter due to lower commodity prices and the strengthening of the rupee against the US dollar. Growth in operating income was capped due to increase in other expenses as a result of higher advertisement spending during the quarter. Other expenses increased by 1.5% to end at 19.7% as a percentage of sales.

  • Pidilite has 14 overseas subsidiaries. The sales of the international business increased by 15% YoY during the quarter. However when adjusted for foreign currency translation, sales growth was only 10% YoY. Losses at EBITDA level stood at Rs 31 m as compared to a loss of Rs 64 m during 3QFY09.

  • As noted, Pidilite’s net profits registered in the black during the quarter after a loss in the corresponding quarter last year. The company registered a net loss of Rs. 201 m in 3QFY09 while the net profit for 3QFY10 was Rs. 599 m. However when adjusted for foreign exchange variation, the net profits witnessed a stunning growth of 9713% YoY during the quarter.

What to expect?
At the current price of Rs 197, the stock is trading at a multiple of 17.6 times its trailing 12-month earnings. While the company has done well during 3QFY10 (largely on the back of lower operating costs and lesser foreign exchange losses), we do not expect this trend to continue. We are however, positive on the company’s long term growth prospects given the scope in education, home decor and automobiles.

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