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Pidilite: A mixed year - Views on News from Equitymaster
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Pidilite: A mixed year
May 21, 2009

Performance summary
  • The company reports a 15% YoY growth in the topline during FY09. The consumer and industrial division witnesses double digit growth.
  • For the whole year, the margins shrink to 14.5% from 17.9% in FY08. The margins are hampered mainly on account of higher raw material prices.
  • The company sees a decline in PBT during both the periods under consideration mainly on account of higher interest and depreciation costs.
  • The Board recommends a dividend of Rs 1.75 per share (dividend yield 1.5%).


Financial performance snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 3,759 3,874 3.0% 15,549 17,836 14.7%
Expenditure 3,198 3,249 1.6% 12,772 15,251 19.4%
Operating profit (EBDITA) 562 625 11.3% 2,777 2,585 -6.9%
EBDITA margin (%) 14.9% 16.1%   17.9% 14.5%  
Other income 15 6 -56.8% 28 15 -48.4%
Interest 50 96 93.6% 161 318 97.8%
Depreciation 105 126 20.0% 385 472 22.6%
Profit before tax 422 409 -3.0% 2,259 1,810 -19.9%
Foreign exchange (63) 336   29 (161)  
Extraordinary item/expense 3 2 -33% 42 17 -60%
Minority - -   - -  
Tax 20 67 234.0% 363 168 -53.7%
Profit after tax/(loss) 335 676 101.6% 1,884 1,464 -22.3%
Net profit margin (%) 8.9% 17.4%   12.1% 8.2%  
No. of shares (m) 252.4 253.1   252.4 253.1  
Diluted earnings per share (Rs)*         5.8  
Price to earnings ratio (x)         19.5  
* On a trailing 12-months earnings

What has driven performance in FY09?
  • Pidilite reported a 15% YoY growth in the topline during FY09. The consumer and industrial division witnessed double digit growth. The VAM (vinyl acetate monomer) segment saw a 3% YoY growth. For 4QFY09, the sales growth was, however, lower at 3% YoY. On account of the slowdown, the industrial and VAM segments saw a drop in revenues. Even the consumer division saw lower sales of 9% YoY.

    Segment-wise performance
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Consumer & bazaar products 2,688 2,927 8.9% 12,225 13,884 13.6%
    PBIT margin (%) 16.3% 20.4%   20.1% 18.3%  
    % of revenue 63.0% 68.9%   68.6% 69.2%  
    Industrial products 1,056 1,012 -4.1% 4,019 4,527 12.6%
    PBIT margin (%) 12.9% 11.8%   12.5% 11.7%  
    % of revenue 24.8% 23.8%   22.5% 22.6%  
    Others 522 307 -41.2% 1,589 1,642 3.3%
    PBIT margin (%) 13.5% 7.5%   10.7% 5.7%  
    % of revenue 12.2% 7.2%   8.9% 8.2%  
    Total revenues* 4,265 4,246 -0.5% 17,832 20,052 12.4%
    * excludes intersegment revenues

  • For the whole year, the margins shrunk to 14.5% from 17.9% in FY08. The margins were hampered mainly on account of low margins during 3QFY09 (7.9%) due to a huge surge in crude prices witnessed earlier. The operating margins during the quarter, however, improved by 1.2% YoY mainly on account of lower raw material prices. The company’s input costs fell 2% YoY.

  • On the divisional front, PBIT margins of the industrial segment and VAM division witnessed a decline during both the periods under consideration. However, the consumer and bazaar segment saw some recovery during the quarter.

  • The company witnessed a decline in PBT levels during both the periods under consideration mainly on account of higher interest and depreciation costs. Lower other income further aggregated the fall. Excluding the extraordinary items (donations and forex), the bottomline fell by 15% YoY during the quarter, while for the full year, it fell 25% YoY.

  • On a consolidated basis, the topline grew by 15% YoY led by the 16% revenue jump in consumer segment. The profits, excluding extraordinary items declined 37% YoY. The subsidiaries grew by 20% YoY during the year. Most of the subsidiaries continue to incur losses owing to additional expenses for business development.

What to expect?
The year has been a mixed one with better sales but lower margins. The economic slowdown did affect its topline performance. However, with the scenario expected to improve, demand may pick up. The business development costs coupled with currency volatility continues to affect its international operations. The overseas subsidiaries have taken several measures to improve sales and reduce costs. The losses are expected to reduce in the current financial year.

At the current price of Rs 113 the stock is trading at a price to earnings multiple of 19.5 times its trailing 12 month standalone earnings and 25.6 times its consolidated earnings. Though we believe that the growth of the company is expected to pick up, being an indirect beneficiary of the boom in the construction segment, valuations remain on the higher side.

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