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Pidilite: High costs dampen profit growth
Oct 21, 2010

Pidilite Industries has announced its 2QFY11 results. The company has reported a 15.4% YoY growth in sales and a 3.4% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Net sales of Pidilite grew by 15.4% YoY during 2QFY11. This was led by strong demand in the consumer & bazaar products and industrial products segments.
  • Operating (EBITDA) margins fell by 2.8% during the quarter. This is on the back of higher raw material costs and other expenditure though partly offset by lower staff costs (all as percentage of sales).
  • Net profits fell by 3.4% YoY. This is due to lower operating income and higher effective tax rate during the quarter. However, higher other income provided some support to the bottom line.
  • Net profit for 1HFY11 grew by 11.3% YoY while the net profit margins declined by 1%. This decline is a result of increase in raw material costs and other expenditure as well as rise in effective tax rate. The decline could have been sharper but for higher other income, fall in depreciation and lower exceptional losses during the period.


Standalone financial snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Sales 5,109 5,896 15.4% 10,306 12,211 18.5%
Expenditure 3,891 4,654 19.6% 7,877 9,413 19.5%
Operating profit (EBDITA) 1,218 1,242 2.0% 2,429 2,798 15.2%
Operating profit margin (%) 23.8% 21.1%   23.6% 22.9%  
Other income 12 47 298.3% 41               60 47.2%
Interest 78 89 14.0%                154 169 9.7%
Depreciation                 126                 111 -12.2%                240 219 -8.9%
Profit before tax 1,025 1,090 6.3% 2,075 2,470 19.0%
Exceptional gains/(losses) (22) (18)                  (84) (29)  
Tax                 148                 245 65.2%                288 545 89.3%
Profit after tax/(loss)                 855                 827 -3.4% 1,704 1,896 11.3%
Net profit margin (%) 16.7% 14.0%   16.5% 15.5%  
No. of shares (m)                 253                 506                  253 506  
Diluted earnings per share (Rs)*         6.1  
P/E ratio (x)*         24.3  
* On a trailing 12-month basis

What has driven performance in 2QFY11?
  • Pidilite's net sales grew by 16% YoY during 2QFY11. This was on the back of strong performance from both its consumer & bazaar product, and industrial products segments. The former grew by 16% YoY while sales for the latter were up 19% YoY. However, sales of the ‘others' category, consisting of VAM (also a raw material for Pidilite) fell by 73% YoY. 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) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Consumer & bazaar products 3,931 4,558 15.9% 8,037 9,531 18.6%
    % of revenue 75.8% 76.2%   76.8% 77.1%  
    Industrial products 1,176 1,400 19.1% 2,321 2,794 20.4%
    % of revenue 22.7% 23.4%   22.2% 22.6%  
    Others 82 22 -73.0% 107 40 -62.4%
    % of revenue 1.6% 0.4%   1.0% 0.3%  
    Total revenues 5,189 5,980 15.2% 10,464 12,366 18.2%

  • Pidilite's operating profit grew slower than top line. For the quarter the company recorded a 2% YoY growth in operating profits. This was a result of higher raw material costs and other expenditure (as percentage of sales). While raw material costs increased from 39.5% of sales in 2QFY10 to 39.8% in 2QFY11, other expenditure increased from 27% to 29.9%. The margins would have been worse but for a fall in raw material costs, which moved from 9.6% of sales in 2QFY10 to 9.2%.

  • Pidilite's net profits fell by 3.4% YoY during the quarter. This was a result of weak growth in operating income, and higher effective tax rate. However, higher other income and a fall in depreciation provided some relief to the company's bottom line.

What to expect?
At the current price of Rs 148, the stock is trading at a multiple of 24.3 times its trailing 12-month earnings. The company has done well during 2QFY11 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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