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Pidilite: Bond with the best
Jul 25, 2007

Performance Summary
  • Topline rises by 28% YoY, led by more than 20% YoY growth in both the divisions.

  • Margins remained stable at 21% due to lower raw material and other costs.

  • Profits up 53% YoY led by higher other income and lower tax outgo.

Rs(m) 1QFY07 1QFY08 (%) Change
Net sales 2,920 3,726 27.6%
Expenditure 2,317 2,949 27.3%
Operating profit (EBDITA) 603 777 28.9%
EBDITA margin (%) 20.7% 20.9%  
Other income 22 58 163.6%
Interest 6 17 183.3%
Depreciation 71 84 18.3%
Profit before tax 548 734 34.0%
Extraordinary item/expense (1) (1) 0.0%
Donations 38 28 -26.3%
Tax 130 125 -3.8%
Profit after tax/(loss) 379 580 53.1%
Net profit margin (%) 13.0% 15.6%  
No. of shares (m) 252.4 252.4  
Diluted earnings per share (Rs)*   5.5  
Price to earnings ratio (x)   26.0  
* 12 month trailing earnings      

What is the company’s business?
Pidilite is the market leader in craftsmen products, DIY (Do-it-Yourself) products and industrial specialty chemicals. The product range can be broadly classified into two main categories – consumer products and speciality industrial products. On the consumer side, it has products under art materials, publications, adhesives and sealants, fabric care and car care segments. For the less contributive industrial product range, it has products in industrial adhesives, industrial pigments, leather chemicals and textile resins to offer. It has a diverse portfolio in both these segments and its offerings include renowned brands like Fevicol, Steelgrip, Acron and M-seal.

What has driven performance in 1QFY08?
‘Majboot’ performance: The company registered an overall growth of over 27.6% YoY in revenues during the quarter. With high growth in the construction sector, the demand for company’s product portfolio continues to remain strong. Consumer products continued their strong growth momentum and clocked a 25% YoY growth in the June 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. Some of Pidilite's brands like Fevicol, M-Seal and Dr Fixit are household names in the consumer market. The consumer products segment accounts for a lion's share of revenue (77% of sales) and the industrial chemicals division chips in with the rest.

As for the industrial products segment, which supplies adhesives, resins and pigments to industries, revenues have grown by 23% YoY in this quarter. The management has also made several acquisitions in niche areas to extend its portfolios and get access to newer regions. The company through its subsidiaries in Brazil and Middle East has been acquiring companies producing range of products in adhesives and art material. The company is consistently working towards de-risking the portfolio through such new product launches and international forays. We believe that with a robust economy and the boom in housing, products of Pidilite in the construction chemicals and adhesive business would continue to be indirect beneficiaries

Segment-wise performance
(Rs m) 1QFY07 1QFY08 Change
Consumer & bazaar products 2,577 3,225 25.1%
% of revenue 76.2% 76.5%  
Industrial products 807 991 22.8%
% of revenue 23.8% 23.5%  
Total revenues 3,384 4,216 24.6%

Cost break-up
As a % of net sales 1QFY07 1QFY08
Total Cost of goods 50.1% 49.8%
Staff Cost 8.2% 8.6%
Other Expenditure 21.1% 20.7%
Stable margins: Pidilite has maintained its operating margins at 1QFY07 levels at nearly 21%. While staff costs (as percent of sales) went up from 8.2% of sales in 1QFY07 to 8.6% in this quarter, savings in raw material and other costs have helped margins. On a segmental basis, the industrial products division reported a fall in PBIT margins during the quarter, mainly due to weaker bargaining power owing to higher competition and limited exposure to this market. Consumer products saw a margin expansion of 150 basis points. The company’s revenue mix is changing and is getting more skewed towards consumer products, which is a positive as margins are much higher in this segment.
PBIT 1QFY07 1QFY08 Change
Consumer & bazaar products 595 794 33.4%
as a % of divison 23.1% 24.6%  
% of total PBIT 84.9% 87.3%  
Industrial products 106 115 8.5%
as a % of divison 13.1% 11.6%  
% of total PBIT 15.1% 12.7%  
Total 701 909 29.7%

Strong bottomline: Stable operating margins, higher other income and lower tax outgo has helped Pidilite post a 53% YoY growth in bottomline. But for a higher interest charge, the net profit growth would have been higher.

What to expect?
At the current price of Rs 144, the stock is trading at a price to earnings multiple of 26 times its trailing 12 month earnings. Pidilite is consistently introducing a steady stream of new product launches/product extension. It is also eyeing international areas of growth. Consistent high quality of products, high brand recall rate, width and depth of product range coupled with wide marketing network provide the kind of competitive advantage, which is hard to replicate. We believe that the growth of the company is expected to remain strong, being an indirect beneficiary of the boom in construction segment.

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