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Pidilite: Higher demand boosts profitability - Views on News from Equitymaster

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Pidilite: Higher demand boosts profitability

Jul 22, 2010

Pidilite Industries has announced its 1QFY11 results. The company has reported a 22% YoY and 26% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net sales grow by 22% YoY during 1QFY11. This is led by strong demand in the consumer & bazaar products and industrial products segments.
  • Operating (EBITDA) margins improve by 1.3% during the quarter. This is on the back of lower staff costs and other expenditure though partly offset by higher raw material costs (all as percentage of sales).
  • Net profits grow by 26% YoY. This is due to higher operating income and lower foreign exchange loss recorded during the quarter. The growth was however capped as a result of lower other income and higher effective tax rate.

Standalone financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Sales 5,197 6,315 21.5%
Expenditure 3,986 4,759 19.4%
Operating profit (EBDITA) 1,211 1,556 28.4%
Operating profit margin (%) 23.3% 24.6%  
Other income 29 13 -56.6%
Interest 76 82 7.9%
Depreciation 114 108 -5.2%
Profit before tax 1,050 1,378 31.3%
Exceptional gains/(losses) (62) (10)  
Tax 140 300 114.9%
Profit after tax/(loss) 848 1,067 25.8%
Net profit 848 1,067  
Net profit margin (%) 16.3% 16.9%  
No. of shares (m) 253 506  
Diluted earnings per share (Rs)*   6.2  
P/E ratio (x)*   21.5  
* On a trailing 12-month basis

What has driven performance in 1QFY11?
  • Pidilite’s net sales grew by 22% YoY during 1QFY11. This was on the back of strong performance from both its consumer & bazaar product, and industrial products segments. The former grew by 21% YoY while sales for the latter were up 22% YoY. However, sales of the ‘others’ category, consisting of VAM (also a raw material for Pidilite) fell by 28%. This is due to the company being able to procure VAM from other sources more cost effectively than manufacturing it.

    Segment-wise performance
    (Rs m) 1QFY10 1QFY11 Change
    Consumer & bazaar products 4,105 4,974 21.2%
    % of revenue 77.8% 77.9%
    Industrial products 1,145 1,394 21.7%
    % of revenue 21.7% 21.8%
    Others 25 18 -27.9%
    % of revenue 0.5% 0.3%
    Total revenues 5,276 6,386 21.0%

  • Pidilite’s operating profit grew by 28% YoY during the quarter, led by lower staff costs and other expenditure (as percentage of sales). While staff costs declined from 10% of sales in 1QFY10 to 8.9% in 1QFY11, other costs declined from 27.6% to 26%. The margins would have been better but for a rise in raw material costs, which moved up from 39.1% of sales in 1QFY10 to 40.5%.

  • Pidilite’s net profits increased by 26% YoY during the quarter. This was a result of strong growth in operating income, a lower foreign exchange loss, and lower depreciation costs. However, the effective tax rate that increased from 13% to 22% put some pressure on this growth.

What to expect?
At the current price of Rs 134, the stock is trading at a multiple of 21.5 times its trailing 12-month earnings. The company has done well during 1QFY11 on the back of higher demand for its products. Given the scope in education, home décor and automobiles, we remain positive on the company’s long term growth prospects.

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Feb 21, 2019 11:59 AM


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