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Pidilite: A strong performance - Views on News from Equitymaster
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Pidilite: A strong performance
Oct 31, 2013

Pidilite Industries announced its results for the quarter ended September 2013. The company reported a 22% YoY growth in revenues and a 24% YoY increase in profits. Here is our analysis of the results.

Performance summary
  • Consolidated revenues increase by 22% YoY led by strong performance in industrial product segment.
  • Operating profits increase at a faster pace of 32% YoY as margins expand by 1.3% YoY to 17.2%.
  • Profits during 2QFY14 up by 24% YoY.
  • During 1HFY14, consolidated revenues and profits up by 17% YoY and 25% YoY respectively.

Financial snapshot
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Revenues 9,047 11,001 21.6% 19,073 22,238 16.6%
Expenditure 7,613 9,103 19.6% 15,749 18,053 14.6%
Operating profit (EBDITA) 1,434 1,898 32.3% 3,324 4,185 25.9%
Operating profit margin (%) 15.9% 17.2%   17.4% 18.8%  
Other income 138 82 -40.6% 298 179 -40.0%
Interest 41 62 52.2% 152 116 -23.2%
Depreciation 170 208 22.7% 331 400 20.9%
Forex loss/ (gain) 81 59 -26.9% 80 (16)  
Profit before tax 1,281 1,650 28.8% 3,059 3,863 26.3%
Tax 325 475 46.2% 824 1,073 30.2%
Profit after tax/(loss) 956 1,175 22.9% 2,235 2,790 24.8%
Share of profit of associates 1 10 1980.0% 2 7 187.5%
Minority interest (0) (1)   (1) (2)  
Net profit after tax 957 1,185 23.9% 2,237 2,795 24.9%
Net profit margin (%) 10.6% 10.7%   11.7% 12.5%  
No. of shares (m)         512.6  
Basic earnings per share (Rs)         9.3  
P/E ratio (x) *         30.0  

What has driven performance in 2QFY14?
  • Pidilite Industries' (PIL) reported a revenue growth of 22% YoY during the quarter. Growth was led by the company's industrial products division which increased by 27% YoY and formed over 19% of gross revenues. Its largest business segment the consumer products division reported a growth of about 20% YoY. As per the company, it was a mix of pricing action as well as volumes that led to higher growth levels, with more weight on the latter.

  • As for its international business, the same did well in most regions barring the Middle East and Africa. What is even better is that the operating performance of these companies, which had been lagging for a long time, also improved significantly. As per the management, improvements in product mix were a large reason for the improvement in performance in these regions, which contributed to the overall profitability of the company. During the same quarter last year, PIL's overseas operations were not breaking even at the EBIDTA level. While the management has guided of similar trend in terms of profitability going forward, about the growth rates, the same cannot be said.

  • PIL's operating profits increased by 32% YoY during the quarter largely due to lower advertising and promotional expenses (as a percentage of sales). Company's profit before tax figure increased by 29% YoY, while profits grew at a relatively slower pace of 24% YoY on the back of a higher tax outgo. The latter was on account of higher tax surcharge coupled with the end of certain tax benefits for its manufacturing plants.

  • As for the performance during the half year period ended September 2013 (1HFY14), PIL's revenues and profits increased by 17% YoY and 25% YoY respectively. Operating margins during the period stood at 18.8% as compared to 17.4% during the corresponding period last year.

What to expect?

At the current price of Rs 280, the stock is trading at a multiple of about 26 times our FY16 estimated earnings per share and at about 30 times its trailing twelve month earnings. While the improving performance of its international subsidiaries comes in as a good surprise during the quarter, we would prefer to wait for a quarter or two before we factor in the same into our estimates. The same would hold true for growth numbers of the domestic segment. Given that input costs have been pretty much flat, the company is not expected to go in for any major price hikes in the short term. As such, the growth would largely come in from volumes.

Volume growth in the quarter came in strong largely on the back of focus of the company to gain more business from small towns essentially places with a population of more than 10,000 and less than 50,000. The company would be focusing on this segment given that the growth rates in this segment is nearly double that of the larger tier 1 cities, as per the company.

The stock of PIL has moved up by 19% since the recommendation date of September 11 2013. With this we believe the stock no more remains a buy and as such have a Hold view on the stock.

We would like to reiterate to our subscribers that for the purpose of diversifying risk no stock should form more than 5% of one's portfolio. Please visit our asset allocation page for more details.

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