• JUNE 27, 2002

Pidilite: Some sticky issues

Adhesives and sealants major, Pidilite Industries', improved its showing in FY02. The company registered a 12% topline growth during the year. Backed by cost controls, Pidilite showed a slight improvement in operating margins.

(Rs m)FY01FY02Change4QFY02
Net Sales4,3824,91612.2%1,052
Other Income8169-14.4%26
Operating Profit (EBDIT)81592813.9%185
Operating Profit Margin (%)18.6%18.9% 17.6%
Interest 7042-40.3%9
Profit before Tax66176615.9%154
Profit after Tax/(Loss)4805218.7%79
Net profit margin (%)10.9%10.6% 7.5%
No. of Shares 25.225.2 25.2
Diluted Earnings per share*19.020.6 12.5
P/E Ratio 10.2 16.8

Pidilite's flagship product ‘Fevicol’ is a generic name for adhesives in India and commands 60% market share. The company is backed by a strong R&D base and has pioneered almost 60% of the products it sells. Therefore, its products command a huge price premium over competing brands. The companies other major brands are 'M-seal', 'FeviKwik' and 'Ranipal'.

Despite lower interest outgo (down 40% YoY), Pidilite's net profit only saw a small improvement of 9% YoY. Higher depreciation provisioning as well as deferred taxes pruned bottomline growth. However, given the company's focus on cost efficiencies and debt restructuring the company's long term outlook looks encouraging.

Cost break-up
(Rs m)FY01FY02Change
Raw material1,6381,80510.2%
Staff 31637117.3%
Packing material4955184.7%
Total expenditure3,5673,98811.8%

Though competition has come in branded adhesives and sealents with 'Parcol' as well the Kitply Group's 'Kitcol', Pidilite has managed its grip on the market through innovative products. The company is also a famed marketer of adhesives. Its product ad-campaigns for Fevikwik and Fevicol are top award recipients. However, Pidilite has a knack of acquiring products or brands that are seemingly unrelated to its existing product folio.

Its entry into the branded fabric whitener through acquisition of 'Ranipal' in FY00 is still viewed with skepticism. During the year, Pidilite has commissioned 14 wind mills costing Rs 203 m. The company has also acquired the trademark, 'Steelgrip', know-how and some equipments along with business of Electrical Insulation Tape from Bhor Industries for a consideration of Rs 87 m.

At the current price of Rs 210 the stock trades at a P/E of 10x and market cap to sales of 1.1x FY02 earnings. Though the valuations are on the lower side of the FMCG spectrum, this is largely as a consequence of the general downturn in the economy, as well as the company's moves into other brands and products. However, in the longer term, it is company's focus on its branded adhesives business that will stand investors in good stead.

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