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Pidilite: All round growth - Views on News from Equitymaster
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Pidilite: All round growth
May 29, 2008

Performance summary
  • Topline grows by 33% YoY in FY08 led by 25% YoY growth in consumer division.
  • Margins expand by 1.2% for the full year due to lower raw material costs.

  • Excluding extraordinary item, profits up 50% YoY led by margin expansion and lower tax outgo.

  • The overseas subsidiaries revenues grew by 84% YoY for the year.

  • The board declares a dividend of Rs. 1.75 per equity share (face value Re.1). (dividend yield of 1.2% )

Financial performance snapshot
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 2,666 3,685 38.2% 11,544 15,353 33.0%
Expenditure 2,342 3,193 36.3% 9,730 12,760 31.1%
Operating profit (EBDITA) 324 492 51.9% 1,814 2,593 43.0%
EBDITA margin (%) 12.2% 13.4% 15.7% 16.9%
Other income 82 25 -69.5% 190 253 33.2%
Interest 18 50 177.8% 63 161 155.6%
Depreciation 83 105 26.5% 303 385 27.1%
Profit before tax 305 362 18.8% 1,638 2,300 40.4%
Extraordinary item/expense 15 13 -13.3% 98 59 -39.8%
Tax 45 16 -64.4% 341 359 5.3%
Profit after tax/(loss) 245 333 36.0% 1,199 1,882 57.0%
Net profit margin (%) 9.2% 9.0% 10.4% 12.3%
No. of shares (m) 252.4 253.0 252.4 253.0
Diluted earnings per share (Rs)* 7.4
Price to earnings ratio (x) 19.6
* On a trailing 12-months earnings

What has driven performance in FY08?
  • The companyís topline reported a growth of 33% YoY in FY08. The consumer division grew by 25% YoY contributing 72% of the sales. Industrial division revenues jumped 15.8% YoY. VAM (which the company has demerged into a separate company in FY08) earned Rs 1,588 m for the full year. The results are however not comparable to the extent of VAM revenues as the previous year figures do not include those. Turnover for FY08 excluding the said demerged unit is up 37.5% YoY.

  • The margins for both the period under consideration have improved. While labour and other expenses were lower (as a percent of sales) in 4QFY08, raw material costs fell from 56.6% in FY07 to 54.9% in FY08 leading to a 1.2% jump in operating margins in FY08.

    Segment-wise performance
    (Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Consumer & bazaar products 2,143 2,688 25.4% 9,750 12,225 25.4%
    PBIT margin (%) 13.0% 16.3% 18.2% 20.1%
    % of revenue 72.5% 65.9% 75.6% 71.8%
    Industrial products 873 1,056 21.0% 3,470 4,019 15.8%
    PBIT margin (%) 13.5% 12.9% 11.8% 12.5%
    % of revenue 29.5% 25.9% 26.9% 23.6%
    Others - 521 - 1,588
    PBIT margin (%) 13.6% 10.8%
    % of revenue 12.8% 9.3%
    Less: intersegment 60 186 210.0% 319 808 153.3%
    Total revenues 2,956 4,079 38.0% 12,901 17,024 32.0%
    PBIT margin (%) 13.4% 15.8% 17.0% 18.4%

  • On the divisional front, PBIT margins of the Consumer and Bazaar segment increased by 180 basis points to 20.1% (18.2% in FY07). Industrial products marginally improved by 0.8% in FY08. VAMís margins were at 10.8%.

  • Excluding the extraordinary items (donations), the bottomline for 4QFY08 by 33% YoY, while that in FY08 rose by 49.7% YoY. Higher margins and lower tax outgo has aided the jump. The tax rate has reduced from 20.8% to 15.6% in FY08. The consolidated topline is up 37% YoY and bottomline increased by 55% YoY in the full year. The overseas subsidiaries revenues grew by 84% YoY for the year.

  • Pidilite International Pte. Ltd. a wholly owned subsidiary (WOS) of the Company has decided to subscribe for 49% stake of Bamco Supply and Services (Thailand), which will be engaged in procuring, importing and supplying various chemicals and allied products, along with associated services, to companies in Thailand. Pidilite USA Inc. U.S.A. (WOS) has acquired recently the business and certain assets of Power Poxy Inc. U.S.A. for total Consideration of US $ 1.1 m. The company is engaged in business of manufacture and sale of Consumer Adhesives and Sealants.

  • On the domestic front, the Company acquired assets and business of branded Sealants and Adhesives for Rs.134 m in 4QFY08 from Hardcastle & Waud Manufacturing. (Hawco).

What to expect?
At the current price of Rs 146, the stock is trading at a price to earnings multiple of 19.6 times its trailing 12 month earnings. The company continues with its good performance mainly due to concerted efforts towards brand building activities in its consumer and bazaar segment. Its strong brands, diversified product offerings and wide distribution network are helping the companyís growth. Further, though the crude oil prices are a cause of worry for Pidilite as its raw materials are petrochemical based and are dependent on petrochemical cycle, inspite of rising crude prices, the company has been able to expand margins shows its strong branding effort. Its approach of strengthening its core brands with the launch of new products coupled with strategic acquisitions would enable it to sustain its healthy revenues.

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