• OUTLOOK ARENA
  • VIEWS ON NEWS
  • 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
Expenditure3,5673,98811.8%867
Operating Profit (EBDIT)81592813.9%185
Operating Profit Margin (%)18.6%18.9% 17.6%
Interest 7042-40.3%9
Depreciation16519014.8%48
Profit before Tax66176615.9%154
Tax18224535.1%75
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
*(annualised)    

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%
Others1,1181,29415.7%
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.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407