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Pidilite: Building bonds!

Oct 24, 2007

Performance summary
  • Impeccable consistency in the topline continues as sales rise by 19% YoY in 2QFY08 yet again.

  • Margins expand by 3.5% due to lower operating costs.

  • Profits up 70% YoY led by higher operating income.

  • For 1HFY08, topline is up 23% YoY, while bottomline is up 60% YoY.

Financial performance snapshot
(Rs m) 2QFY07 2QFY08 Change 1HFY07 1HFY08 Change
Net sales 3,120 3,705 18.8% 6,040 7,431 23.0%
Expenditure 2,619 2,981 13.8% 4,936 5,929 20.1%
Operating profit (EBDITA) 501 724 44.6% 1,104 1,502 36.1%
EBDITA margin (%) 16.1% 19.5%   18.3% 20.2%  
Other income 44 67 52.3% 66 125 89.4%
Interest 17 32 88.2% 23 49 113.0%
Depreciation 73 80 9.6% 144 164 13.9%
Profit before tax 455 679 49.3% 1,003 1,414 41.0%
Extraordinary item/expense 30 6 -80.0% 68 35 -48.5%
Tax 92 111 20.7% 222 237 6.8%
Profit after tax/(loss) 333 562 68.9% 713 1,142 60.2%
Net profit margin (%) 10.7% 15.2%   11.8% 15.4%  
No. of shares (m) 252.4 252.4   252.4 252.4  
Diluted earnings per share (Rs)*         6.4  
Price to earnings ratio (x) 20.2% 16.3%     25.8  
* On a trailing 12-months 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 2QFY08?
Growth continues: The company has continued to show consistency in the financial performance. The topline grew by 19% YoY for 2QFY08. The company’s increased focus on brand building activities has aided the growth. The present revenue mix is heavily skewed in favour of the branded consumer product group, which accounts for 76% of the total revenues (73% in 2QFY07). Strong brands like Fevicol, FeviKwik, Dr Fixit, M-Seal nearly dominate the markets. The industrial products segment contributed 24% to total revenues and has grown by 3.8% for the quarter. In order to maintain the growth momentum, the company continued its tradition of new product launches and augmenting product offerings. Further, its acquisitions and superior marketing and advertising support are also aiding its growth.

Segment-wise performance
(Rs m) 2QFY07 2QFY08 Change 1HFY07 1HFY08 Change
Consumer & bazaar products 2,626 3,189 21.4% 5,203 6,414 23.3%
PBIT margin (%) 19.5% 22.8%   21.3% 23.7%  
% of revenue 72.9% 75.9%   74.5% 76.2%  
Industrial products 975 1,012 3.8% 1,782 2,003 12.4%
PBIT margin (%) 9.4% 14.4%   11.1% 13.0%  
% of revenue 27.1% 24.1%   25.5% 23.8%  
Total revenues* 3,601 4,201 16.7% 6,985 8,417 20.5%
PBIT margin (%) 16.8% 20.8%   18.7% 21.2%  
* Excludes inter-segment revenue

Expanding margins: The margins for the quarter expanded by 3.5% YoY. The main raw material for Pidilite is vinyl acetate momomer (VAM), a derivative of crude. Rising crude prices have a direct effect on the raw material cost. However, Pidilite has not been affected by the rise in the raw material prices due to its leadership position thereby passing the hike to the customers. On the divisional front, PBIT margins of the Consumer and Bazaar segment touched 22.8% (19.5% in 2QFY07), while that of Industrial products touched 14.4% (9.4% in 2QFY07). The strong brands help the company command a premium in the market.

Cost break-up
As a % of net sales 2QFY07 2QFY08 1HFY07 1HFY08
Total Cost of goods 59.7% 53.9% 56.7% 53.2%
Staff Cost 7.3% 8.4% 7.7% 8.5%
Other Expenditure 17.0% 18.1% 17.3% 18.0%

Higher profits: Higher operating income and lower tax outgo led the bottomline to rise by 69% YoY during the quarter. The tax rate has reduced to 16% in 2QFY08 from 20% in 2QFY07. The company had commissioned three plants in Himachal Pradesh in 2006 and its fourth unit became operational in Baddi in February 2007, thereby reducing the tax rates. Further lower donations (extraordinary) too aided the performance. However, interest costs were higher due to funding of its expansion and acquisitions plans.

What to expect?
At the current price of Rs 166, the stock is trading at a price to earnings multiple of 25.8 times its trailing 12 month earnings. The company’s products are excellent examples of branding a commodity and being able to command a premium over the competitors. The focus on branded products aided by new launches and acquisitions has paid off well. Strong marketing strategy is further helping the company. It is further increasing its capacities to increase the penetration levels. Also, its appetite for acquisitions remains strong. Though we remain positive on the growth prospects of the company, valuations remain a concern.

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Feb 20, 2020 (Close)


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