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Pidilite: Mixed quarter - Views on News from Equitymaster

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Pidilite: Mixed quarter
Jul 24, 2008

Performance summary
  • 24% YoY growth in the consumer division segment leads to a 34% YoY increase in the topline.
  • The margins for the quarter decline by 320 basis points on account of higher raw material costs

  • Excluding extraordinary items, profits are down 8% YoY led by margin decline, higher interest expense and forex losses.



Financial picture
Rs(m) 1QFY08 1QFY09 (%) Change
Net sales 3,726 4,976 33.5%
Expenditure 2,947 4,093 38.9%
Operating profit (EBDITA) 779 883 13.3%
EBDITA margin (%) 20.9% 17.7%
Other income 36 40 12.4%
Interest 17 51 195.4%
Depreciation 84 106 26.3%
Foreign Exchange Difference 22 (113) -
Profit before tax 735 653 -11.2%
Extraordinary item/expense 29 10 -66.0%
Tax 126 94.3 -25.2%
Profit after tax/(loss) 580 549 -5.4%
Net profit margin (%) 15.6% 11.0%
No. of shares (m) 252.4 253.1
Diluted earnings per share (Rs)* 7.3
Price to earnings ratio (x) 19.6
* 12 month trailing earnings

What has driven performance in 1QFY09?
  • Pidiliteís topline reported a growth of 33.5% YoY in 1QFY09. The results are however not comparable to the extent of VAM revenues (Rs 500 m sales in 1QFY09) as the previous year figures do not include those. Excluding the said demerged unit, the sales are up 20% YoY. Consumer products continued their strong growth momentum and clocked a 24% YoY growth in the current quarter. Adhesives and sealants continue to be the largest category of products for the company and have carved a niche for themselves in direct consumer products. The consumer products segment accounts for a lion's share of revenue (70% of sales) and the industrial chemicals division and VAM chips in with the rest.

  • The margins in the quarter have declined by 320 basis points on account of higher raw material costs, which stood at 56% of sales as compared to 53.6% in 1QFY08. Even the other expenditure has increased to 18% from 16.9% in 1QFY08.

    PBIT 1QFY08 1QFY09 (%) Change
    Consumer & bazaar products 794.1 906 14.1%
    as a % of divison 24.6% 22.6%
    % of total PBIT 87.4% 83.4%
    Industrial products 115 141 22.3%
    as a % of divison 11.6% 11.5%
    % of total PBIT 12.6% 12.9%
    Others - 40
    as a % of divison - 8.0%
    % of total PBIT - 3.7%
    Total 909 1,087 19.6%

  • On the divisional front, PBIT margins of the Consumer and Bazaar segment declined to 22.6% from 24.6% in 1QFY08. Industrial products margins marginally improved by 0.3% in 1QFY09. VAMís margins were at 8%.

  • Excluding the extraordinary items and donations, the bottomline for 1QFY09 declined by 8% YoY on account of lower margins, higher interest expenses and foreign exchange loss (pertaining to foreign currency loans). The company had raised US$ 40 m from issue of zero coupon FCCB in 3QFY08. However, lower taw outgo bought some relief. The tax rate has reduced from 17.7% to 12.3% in 1QFY09.

What to expect?
At the current price of Rs 143 the stock is trading at a price to earnings multiple of 19.6 times its trailing 12 month earnings. The company continues with its growth momentum led by high quality and variety of products, high brand recall and wide marketing network. Further, it is also investing in its overseas subsidiaries to increase its presence. Pidilite invested US$ 12.8 m for investment in equity capital of its overseas subsidiaries and US$ 12.4 m for capex in the current quarter. Rising crude price has a direct effect on vinyl acetate monomer (VAM), which is the key raw material for Pidilite. With crude prices touching all time highs in recent times, the company did witness margin pressure. Though the growth in sales would continue, the real challenge for the company lies in keeping its operating costs under control over the medium term.

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