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Pidilite: Robust operating performance - Views on News from Equitymaster
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Pidilite: Robust operating performance
Oct 22, 2009

Performance summary
  • Net sales grow by 7% YoY during 2QFY10, led by strong demand in the consumer and bazaar segment.
  • Operating margins expand by 9.1% during the quarter, leading to a 93% YoY jump in operating profits.
  • Net profits grow by a robust 240% YoY, led by better operating margins and lower foreign exchange loss during the quarter.


Consolidated financial snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Sales 5,406 5,797 7.2% 10,956 11,607 5.9%
Expenditure 4,789 4,606 -3.8% 9,494 9,254 -2.5%
Operating profit (EBDITA) 616 1,190 93.1% 1,462 2,353 60.9%
Operating profit margin (%) 11.4% 20.5%   13.3% 20.3%  
Other income 84 60 -28.6% 141 145 2.8%
Interest 85 95 11.8% 143 182 27.5%
Depreciation 155 169 9.3% 290 315 8.5%
Exceptional gains/(losses) (204) (25)   (317) (67)  
Profit before tax 257 962 274.1% 854 1,934 126.6%
Tax 16 148 826.9% 114 288 152.3%
Profit after tax/(loss) 241 814 237.5% 740 1,646 122.6%
Share in profits of associates (3) 2   (1) 4  
Minority share 2 -   4 0  
Net profit 240 816 240.2% 742 1,650 122.3%
Net profit margin (%) 4.4% 14.1%   6.8% 14.2%  
No. of shares (m)         253.1  
Diluted earnings per share (Rs)*         7.8  
P/E ratio (x)*         21.1  
* On a trailing 12-month basis, adjusted for extraordinary items

What has driven performance in 2QFY10?
  • Pidilite’s net sales grew on the back of consumer & bazaar products segment, which showed sales increase of 14% YoY during the quarter. The Industrial products segment witnessed a slowdown in sales with growth at 3% YoY.

  • Pidilite’s operating profit grew by 93% YoY during the quarter, led by lower material costs. Total material cost fell by 3% YoY during the quarter due to lower commodity prices and the strengthening of the rupee against the US dollar. Operating income was also supported by lower advertisement spending as per planned reduction by the company. The operating costs would have been higher but for an increase of employee costs by 0.4% to 5.4% as a percentage of sales.

  • Pidilite has 14 overseas subsidiaries. The sales of the international business increased by 14% YoY during the quarter while losses at EBIT level stood at Rs 30 m as compared to a loss of Rs 89 m during 2QFY09. This reduction in loss has been due to saving in selling, general and administration expenses as well as fall in costs of key raw materials.

  • Pidilite’s net profits saw an increase of 238% YoY during 2QFY10. This was on the back of higher operating income. Higher net profit was also aided by lower foreign exchange losses. When adjusted for foreign exchange variation, the net profits witnessed growth of 89% YoY.

Segment-wise performance
(Rs m) 2QFY09 2QFY10 (%) Change 1HFY09 1HFY10 (%) Change
Consumer & bazaar products 4,094 4,656 13.7% 8,341 9,422 13.0%
% of revenue 72.8% 78.7%   73.2% 79.5%  
Industrial products 1,139 1,176 3.2% 2,228 2,321 4.2%
% of revenue 20.3% 19.9%   19.5% 19.6%  
Others 388 82 -79.0% 832 107 -87.2%
% of revenue 6.9% 1.4%   7.3% 0.9%  
Total revenues 5,621 5,913 5.2% 11,401 11,849 3.9%

What to expect?
At the current price of Rs 165, the stock is trading a multiple of 21.1 times its trailing 12-month earnings. While the company has done well during 2QFY10 (largely on the back of lower operating costs and lesser foreign exchange losses), we do not expect this trend to continue. We are however, positive on the company’s long term growth prospects given the scope in education, home decor and automobiles.

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