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Pidilite: Lower costs boost profitability
May 20, 2010

Pidilite Industries Limited has announced its FY10 results. The company has reported a 9% YoY and 100% YoY growth in sales and net profits respectively. Here is our analysis of the results

Performance summary
  • Net sales grew by 17% YoY during 4QFY10, led by strong demand in the consumer & bazaar product and industrial products segments.
  • Operating (EBITDA) margins fell by 0.5% during the quarter to stand at 15.6%. This fall comes on the back of higher other expenditure as a percentage of sales partly offset by lower raw material costs as a percentage of sales.
  • The company's net profits for the quarter fell by 19% YoY. This is due to a foreign exchange gain recorded in 4QFY09 against a loss recorded in 4QFY10. When adjusted for foreign exchange gain, the net profit for the quarter grew by 62%.


Standalone financial snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Sales 3,874 4,524 16.8% 17,836 19,498 9.3%
Expenditure 3,249 3,820 17.6% 15,251 15,411 1.1%
Operating profit (EBDITA) 625 705 12.7% 2,585 4,087 58.1%
Operating profit margin (%) 16.1% 15.6%   14.5% 21.0%  
Other income 6 18 185.7% 15d> 72 390.4%
Interest 96 58 -39.5% 318 286 -10.0%
Depreciation 126 115 -8.6% 472 464 -1.8%
Profit before tax 409 549 34.3% 1,810 3,409  
Exceptional gains/(losses) 334 (7)   (178) (120)  
Tax 67 (7)   168 354 110.3%
Profit after tax/(loss) 676 550 -18.6% 1,464 2,935 100.5%
Share in profits of associates - -   - -  
Minority share - -   - -  
Net profit 676 550   1,464 2,935 100.5%
Net profit margin (%) 17.4% 12.2%   8.2% 15.1%  
No. of shares (m) 253 506   253 506  
Diluted earnings per share (Rs)*         5.8  
P/E ratio (x)*         20.1  
* On a trailing 12-month basis

What has driven performance in FY10?
  • Pidilite's net sales grew by 9% YoY on the back of consumer & bazaar product and industrial products segments. The consumer & bazaar products segment grew by 15% YoY while the industrial products segment grew by 13% YoY. However, sales of others category, consisting of VAM fell by 88%. 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 58% YoY during the year, led by lower material costs. Total material cost fell by 7% YoY 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 staff costs. Staff costs increased by 1% to end at 10.1% as a percentage of sales.

  • Pidilite's net profits doubled during the year. This was a result of strong growth in operating income, higher other income and fall in depreciation charges. The growth could have been higher but for higher tax expense as a result of previous year's tax provision being written back. However when adjusted for foreign exchange variation, the net profits witnessed a growth of 86% YoY during the year.

    Segment-wise performance
    (Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
    Consumer & bazaar products 2,762 3,223 16.7% 12,894 14,817 14.9%
    % of revenue 69.4% 71.4% 69.8% 75.4%
    Industrial products 937 1,261 34.5% 4,108 4,653 13.3%
    % of revenue 23.5% 27.9% 22.2% 23.7%
    Others 281 31 -88.9% 1,467 176 -88.0%
    % of revenue 7.1% 0.7% 7.9% 0.9%
    Total revenues 3,980 4,515 13.4% 18,470 19,646 6.4%

What to expect?
At the current price of Rs 116, the stock is trading at a multiple of 20 times its trailing 12-month earnings. While the company has done well during FY10 (largely on the back of lower operating costs), 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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