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Pidilite: Growth sticks - Views on News from Equitymaster
 
 
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  • May 29, 2003

    Pidilite: Growth sticks

    Pidilite Industries, the adhesives and sealants major, declared its FY03 results recently. For the full year, the company's topline has grown at an encouraging 17%, backed by aggressive marketing strategy adopted during the year.

    (Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
    Net Sales 1,052 1,247 18.6% 4,916 5,743 16.8%
    Other Income 26 8 -69.8% 69 57 -17.7%
    Expenditure 867 1,089 25.6% 3,988 4,643 16.4%
    Operating Profit (EBDIT) 185 158 -14.6% 928 1,100 18.5%
    Operating Profit Margin (%) 17.6% 12.7%   18.9% 19.2%  
    Interest 9 7 -26.7% 42 30 -27.4%
    Depreciation 48 59 21.5% 190 225 18.8%
    Profit before Tax 154 101 -34.5% 766 902 17.7%
    Extraordinary items - -   - -  
    Tax 75 29 -61.0% 245 309 25.9%
    Profit after Tax/(Loss) 79 71 -9.5% 521 593 13.8%
    Net profit margin (%) 7.5% 5.7%   10.6% 10.3%  
    No. of Shares (m) 25.2 25.2   25.2 25.2  
    Diluted earnings per share* (Rs) 12.50 11.32   20.65 23.50  
    P/E ratio (x)         10.2  
    (* annualised)            

    In its consorted effort of diversifying its products portfolio, the company during the year bought 'Bulbond' and 'Vitapon' brands for a consideration of Rs 72 m to enhance its adhesives business. Apart from these, Pidilite also acquired three smaller brands (Kalvyl, Tracol, Parvyl) in the same segment for nearly Rs 19 m. The acquisition of new brands would help the company in consolidating its position in the adhesives segment. Its flagship brand 'Fevicol' however, continues to command over 50% market share in the adhesives segment.

    Raw material % of Net sales 4QFY02 4QFY03 Change FY02
    Increase/Decrease in stock 2.0% 3.8% 93.3% -1.0%
    Consumption of Raw Materials 33.8% 37.1% 9.9% 37.7%
    Staff Cost 9.8% 10.8% 10.1% 7.5%
    Packing Material Consumption 9.4% 10.6% 13.3% 10.5%
    Other Expenditure 27.5% 25.0% -9.0% 26.3%

    The company has indicated of adopting an aggressive marketing strategy in a bid to increase its market share. This is reflected in the 27% spurt in staff costs as well as a 17% growth in packaging expenses during FY03. Raw material expenses as a percentage of net sales were however constant during the year at just over 37%. On the whole, as this did not affect the company's operating margins during the year. infact, the company saw a marginal improvement in the OPM during the year.

    Despite interest expenses going down by 27% YoY, Pidilite's net profit was up only 14% YoY. This is due to higher depreciation provisioning as well as reduction in tax holidays, which the company enjoyed. Consequently, bottomline growth was subdued.

    PBIT margin 4QFY02 4QFY03 FY02 FY03
    Consumer Bazaar Products 23.7% 19.4% 22.2% 23.3%
    Industrial Products 8.1% 3.5% 11.0% 8.3%
    Total PBIT margin 18.6% 14.4% 18.9% 18.9%

    During the March quarter, the topline grew by 19% indicating growth consistency in the companyís strategy. However, during the quarter, the company has not been able to control its operating expenses. As a result of which the operating margins fell by 490 basis points YoY. The increase in expenses is attributed to the rise in raw material, staff cost and packaging cost. Apart from this, higher depreciation provisioning and lower other income resulted in the company posting a 35% fall in profit before tax. However, a 61% dip in tax outgo, floored the net profit decline to only 10%.

    At the current price of Rs 239 the stock trades at a P/E of 10x and market cap to sales of 1.1x FY03 earnings. Valuations are on the lower side of the FMCG spectrum, largely due to the companyís focus on one specific segment (adhesives) as well as its family controlled management. Despite the 4QFY03 disappointment, we believe that the quarterís performance was a blip and the company is likely to continue treading its growth path backed by aggressive branding and positioning of its bazaar segment products.

     

     

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