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Pidilite: Sticky quarter - Views on News from Equitymaster

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Pidilite: Sticky quarter
Feb 6, 2009

Performance summary
  • Topline reports a growth of 4.4% YoY in 3QFY09. During 9mFY09, the topline increases by 18.4% YoY
  • Faster growth in expenses than in sales led to the operating profits decline by 50% YoY and 12% YoY respectively during both the period under consideration.
  • Excluding extraordinary items, profits are down 70% YoY led by the decline in operating margins and higher interest expenses during 3QFY09.


Financial performance snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 3,925 4,099 4.4% 11,790 13,962 18.4%
Expenditure 3,315 3,795 14.5% 9,567 12,003 25.5%
Operating profit (EBDITA) 609 304 -50.1% 2,222 1,959 -11.8%
EBDITA margin (%) 15.5% 7.4%   18.9% 14.0%  
Other income 6 2 -68.3% 14 8 -39.4%
Interest 51 96 87.3% 111 222 99.6%
Depreciation 95 114 20.4% 280 346 23.6%
Profit before tax 469 96 -79.5% 1,845 1,400 -24.1%
Foreign exchange 56 (197)   93 (496)  
Extraordinary item/expense 11 5 -56% 46 15 -68%
Tax 106 (12) -111.6% 343 101 -70.4%
Profit after tax/(loss) 409 (94) -122.9% 1,549 787 -49.2%
Net profit margin (%) 10.4% -2.3%   13.1% 5.6%  
No. of shares (m) 252.4 253.1   252.4 253.1  
Diluted earnings per share (Rs)*         4.4  
Price to earnings ratio (x)         21.5  
* On a trailing 12-months earnings

What has driven performance in 3QFY09?
  • Pidilite’s topline reported a growth of 4.4% YoY in 3QFY09. During 9mFY09, the topline increased by 18.4% YoY. In 3QFY09, the consumer division saw a muted growth of 2% YoY, while industrial segment revenues increased by 7% YoY. Sales were lower on account of general slowdown and reduction in volume offtake. Other segment (VAM) saw a decline of 31% YoY. Exports grew by 15% YoY during the quarter. During the nine month period, all the divisions saw a double digit growth.

    Segment-wise performance
    (Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
    Consumer & bazaar products 3,123 3,183 1.9% 9,537 10,957 14.9%
    PBIT margin (%) 15.9% 12.1%   21.1% 17.8%  
    % of revenue 67.2% 69.3%   70.3% 69.3%  
    Industrial products 960 1,022 6.5% 2,963 3,514 18.6%
    PBIT margin (%) 11.1% 8.0%   12.4% 11.7%  
    % of revenue 20.7% 22.2%   21.8% 22.2%  
    Others 564 390 -30.9% 1,067 1,335 25.1%
    PBIT margin (%) 16.3% 2.8%   9.4% 5.2%  
    % of revenue 12.1% 8.5%   7.9% 8.4%  
    Total revenues* 4,647 4,595 -1.1% 13,567 15,806 16.5%
    PBIT margin (%) 14.9% 10.4%   18.3% 15.4%  
    *excludes intersegment revenues
  • Faster growth in expenses than in sales led to the operating profits decline by 50% YoY and 12% YoY respectively during 3QFY09 and 9mFY09 respectively. Higher material costs coupled with rupee depreciation led to the fall. On the PBIT front, all the segments reported a decline in PBIT margins.

  • As compared to 3QFY08, Pidilite as posted net loss to the tune of Rs 94 m in the current quarter. However, excluding the extraordinary items (currency translation difference in respect of Foreign Currency Convertible Bonds (FCCB)) and donations, the bottomline for 3QFY09 stood at Rs 109 m, declining by 70% YoY on account of lower operating margins, other income and higher interest expenses. For 9mFY09, the profits were down by 14% YoY.

  • Pidilite has 14 overseas subsidiaries. The revenue from them stood at Rs 1799 m. However they continue to book losses and are not expected to breakeven on account of currency depreciation and slowdown in US and domestic construction activities. The company continues to invest in them.

What to expect?
At the current price of Rs 95 the stock is trading at a price to earnings multiple of 21.5 times its trailing 12 month earnings.. Slowdown and higher raw material costs has caused worries for the company. However, the raw material prices have declined in recent times. Some key input prices have declined by as much as 20%. This will help the company clock better margins going forward. At the same time its international ventures would continue to face tough times.

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