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Pidilite: High input costs dent full year performance - Views on News from Equitymaster
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  • Jun 18, 2014 - Pidilite: High input costs dent full year performance

Pidilite: High input costs dent full year performance
Jun 18, 2014

Pidilite Industries announced its results for the quarter and year ended March 2014. The company reported an 18% YoY growth in revenues and 10% YoY decline in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated revenues increase by 18% YoY during the quarter.
  • Operating profits decline by 12.4% YoY as margins contract by 3.6% YoY to 10.4% during the quarter. Margin contraction is due to higher input costs.
  • Net profits decline by 10% YoY during 4QFY14.
  • During full year FY14, consolidated revenues and profits rise by 17% YoY and 6% YoY respectively.
  • Board recommends dividend of Rs 2.7 per share translating into a dividend yield of about 0.9%.

Consolidated financial snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Revenues 8,390 9,906 18.1% 36,781 42,832 16.5%
Expenditure 7,215 8,876 23.0% 30,835 36,062 17.0%
Operating profit (EBDITA) 1,176 1,030 -12.4% 5,946 6,770 13.9%
Operating profit margin (%) 14.0% 10.4%   16.2% 15.8%  
Other income 217 199 -8.3% 705 449 -36.3%
Interest 50 27 -45.1% 155 163 5.3%
Depreciation 174 199 14.0% 686 812 18.3%
Forex loss/ (gain) 23 38 60.3% 15 56 260.4%
Exception items 13 (1) -110.4% 18 (65) -455.2%
Profit before tax 1,158 964 -16.7% 5,813 6,123 5.3%
Tax 358 246 -31.2% 1,595 1,653 3.6%
Profit after tax/(loss) 800 718 -10.3% 4,218 4,471 6.0%
Share of profit of associates 21 12 -41.0% 24 30 26.1%
Minority interest (8) 0 -101.2% (2) (3) 20.8%
Net profit after tax 813 731 -10.1% 4,240 4,498 6.1%
Net profit margin (%) 9.5% 7.3%   11.5% 10.4%  
No. of shares (m)         512.6  
Basic earnings per share (Rs)         8.7  
P/E ratio (x) *         34.3  

What has driven performance in 4QFY14?
  • Pidilite Industries' (PIL) reported a revenue increase of 18% YoY during the quarter ended March 2014. Growth was led by the company's consumer bazaar and industrial products segments, which grew by about 17 to 18% YoY each during the quarter. As per the company's management, the volume growth was in lower double digit levels, with the balance growth coming in from price hikes. However what impacted the company during the quarter was the hike in prices of key input costs - Vinyl Acetate Monomer (VAM) to be precise; the price of which increased by 40 to 50% on a YoY basis. While the Rupee appreciation has helped curb the impact to some extent, PIL was not able to hike prices to the full extent, thereby leading to lower margins. Nevertheless, the company has taken a price hike of 4 to 6% across its product categories; and it is looking to hike prices once again in the coming quarter - mainly for those products that use VAM. The key reason for high VAM prices was supply side issues. But as per the management, the same is expected to correct in about two quarters as supply side issues get resolved. But it seems that there will be a certain amount of pressure over the next two quarters. Apart from this, the company's costs remained under control.

  • Coming to the segmental operating performance, the consumer bazaar and industrial products segment both witnessed margin pressure during the quarter gone by. EBIT margin of the former declined by 4.6% YoY while that of the latter contracted by 4% YoY.

  • During FY14, company's revenues and profits increased by 17% YoY and 6% YoY respectively. During this period, the consumer products division led growth with a 16% YoY rise in revenues, while revenues of the industrial segment increased by 15% YoY. However margins of the former remained flat for the full year, while that for the latter declined by 1.6% YoY.
What to expect?
At the current price of Rs 300, the stock is trading at a multiple of about 25 times our FY16 estimated earnings per share and at about 34 times its trailing twelve month earnings. Given the issues the company is facing with input costs, some pressure is expected in the short term, especially from the margin perspective. Notwithstanding the decline in margins during the quarter gone by, we would like to wait for another quarter or two before making any key changes to our forward estimates. The benefit of the doubt should go to the company due to its long term track record and its ability to pass on prices. We as such reiterate our 'hold' view on the stock from a long term perspective.

We would like to remind subscribers that for the purpose of diversifying risk no stock should form more than 5% of one's portfolio. Please visit our asset allocation page for more details.

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