Destimoney-+Pidilite+Industries+Limited.pdf

7/27/2019 Destimoney-+Pidilite+Industries+Limited.pdf

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Pidilite Industries Limited

(PIDILITE)ACCUMULATE

19 September 2013Destimoney Research


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Pidilite Industries Revising to ACCUMULATE

Key Data

Bloomberg Code PIDI IN

NSE Code PIDILITIND

BSE Code 500331

Sector Chemicals

Industry FMCG

Face value (`per share) 1Book value (`per share) 33.8

Dividend yield 1.0%

52 Wk.(H/L)(`) 302.85/188.60

Market Cap. (`mn) 128,160

(````Mn Standalone) FY12 FY13 FY14E FY15E

Net Sales 28,163 33,317 39,065 45,448

EBITDA 4,864 6,131 7,500 8,869

EBITDA Margin 16.4% 17.3% 18.2% 18.5%

EPS (`per share) 6.6 9.0 10.6 12.5

P/E (x) 37.9 27.8 23.6 20.0

EV/Sales 4.2 3.5 3.0 2.6EV/EBITDA 24.2 19.2 15.7 13.3

Price Performance CY10 CY11 CY12 YTD

Absolute 55.9% -5.2% 51.2% 14.9%

Relative 37.9% 19.4% 23.5% 11.3%

ACCUMULATETARGET :```270

CMP :```250

Shareholding pattern Relative stock performance (Sep12=100)

Jun-13 Mar-13 Dec-12 Sep-12

Promoters 70.1% 70.1% 70.1% 70.6%

FII 13.9% 13.6% 13.2% 13.1%

DII 5.3% 5.6% 5.3% 5.0%

Bodies Corporate 1.2% 1.3% 1.9% 1.9%

Others 9.5% 9.4% 9.5% 9.4%

Total 100.0% 100.0% 100.0% 100.0%

Source: Company, Destimoney Research, Bloomberg

80

98

116

134

152

Sep-12

Oct-12

Nov-12

Nov-12

Dec-12

Jan-13

Jan-13

Feb-13

Mar-13

Mar-13

Apr-13

May-13

May-13

Jun-13

Jul-13

Aug-13

Aug-13

Sep-13

Nifty Pidilite


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Pidilite Industries Strong brands shield from tough economicenvironment

We had initiated coverage on Pidilite Industries Limited based on its leadership position in the Adhesive and

Sealant Space. The company reported an 11.2% YoY rise in its Q1FY14 top-line to`10.1bn, largely driven by higher volume.

Consumer and bazaar products segment reported 13.2% YoY growth, while the performance of industrialproducts segment was muted during the quarter due to weak domestic sales.

The companys gross margins improved on yearly basis. on the back of relatively lower material costs. Part ofthis savings were invested in promotional activities resulting in higher other expenses. Overall EBIDTA marginwitnessed improvement of 117 bps on yearly at 22.1%.

The performance of all overseas subsidiaries, excluding Brazil, was broadly satisfactory in Q1FY14, as salesgrew ~14% YoY on a constant currency basis. Additionally, the company indicated that its Brazilianoperations are expected to turn cash positive by the end of FY14 which would further augment the overallperformance.

The company acquired adhesive business of Pune-based, Suparshva Adhesives Limited (SAL), in a slump saleagreement which would further strengthen its presence at the lower end of the market. SAL sells productsunder the Falcofix brand.

The company had invested ~`3.6bn Elastomer project which is still not operational. Earlier it was planning to

start pilot production or get JV partner in the same. In the conference call, the management has indicated

that there would not be further investment in the project till it brings a strategic partner for the same. In near term, sharp rupee depreciation is likely to put pressure on margins as the company may not be able to

pass on the rise in costs to consumer in current scenario. Therefore, we revise our recommendation toACCUMULATE with a target price of```270 per share.


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Source: Company

During Q1FY14, the companys top-line was boosted by robust performance from its Consumer & Bazaar

Products segment. Other expenses were higher on YOY basis due to more spent on promotional activities.

On an annual basis, finance costs for the period were substantially lower due to the repayment of FCCBs inDecember 2012. As a result, PAT climbed 21.7% YoY to`1.6 bn in Q1FY14.

Robust financial performance in Q1FY14

Particulars (```Mn) Q1FY14 Q4FY13 Q1FY13 QoQ YoY

Total Income from Operations (net) 10,148 7,608 9,125 33.4% 11.2%

a) Net sales / Income from Operations 10,099 7,554 9,077 33.7% 11.3%

b) Other Operating Income 49 54 48

Expenses 7,909 6,360 7,218 24.3% 9.6%

a) Cost of materials consumed 4,522 4,288 4,704

b) Purchases of stock-in-trade 549 370 396

c) Changes in inventories of finished goods, WIP and stock-in-trade 396 -695 -63

d) Employee benefits expense 909 756 788 20.3% 15.4%e) Other expenses 1,532 1,641 1,392 -6.7% 10.0%

EBITDA 2,240 1,248 1,907 79.5% 17.5%

Depreciation and amortisation expense 153 139 124

EBIT 2,087 1,109 1,783

Other Income 90 235 139

Finance Costs 36 36 91

Exceptional items - -54 0 - -Foreign Exchange Difference Expense/(Income) -77 18 -1

PBT 2,217 1,343 1,832

Tax Expense 595 352 498

PAT 1,623 992 1,334 63.6% 21.7%


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Consumer & Bazaar Products segment continued to perform better

Segment-wise Sales

Source: Company

During Q1FY14, the Consumer & Bazaar Products segment posted a 13.2% YoY rise in revenues to`8.4 bn

on the back of high single digit volume growth, with the Art Materials sub-segment remaining shielded

during the period.

However, the Industrial Products segment showed muted growth of 0.8% YoY during the period, following

weak demand. The benign performance can be partly attributed to the early onset of monsoon and LBTstrikes that took place in Maharashtra in May-2013.

On an annual basis, PBIT margin in the Consumer & Bazaar Products segment improved 182 bps, largely due

to lower material cost. However, PBIT margin in the Industrial Products segment declined by 193 bps, due to

higher ex- Venyl Acetate Monomer (VAM) raw material (i.e. other monomers) costs and as the company lacks

pricing flexibility in this division.

26.9%

22.5% 23.4% 23.2%

28.7%

12.2%9.8%

11.0% 12.4% 10.3%

0%

8%

16%

25%

33%

Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14

Consumer & Bazar Products Industrial Products

Segment-wise PBIT Margins

0.0

0.3

0.6

0.8

1.1


`Bn

Consumer & Bazar Products Industrial Products (including Others)


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Margin profile remained protected in challenging environment

EBITDA & EBITDA Margins PAT & PAT Margins

During the quarter, the companys EBITDA margin climbed 117 bps YoY to 22.1%, as it benefited from a

reduction in material costs and an increase in sales.

A significant drop in finance cost due to repayment of FCCBs has led to a 137 bps YoY increase in PATmargin to 16.0%.

However, a sharp rupee depreciation could impact margins going forward, as VAM prices, one of the key raw

material for the company is currently being imported.

Source: Company

20.9%

17.9% 18.1%16.4%

22.1%

0%

6%

12%

18%

24%

0

620

1,240

1,860

2,480


`Mn

EBITDA (LHS) EBITDA Margin (RHS)

14.6%

12.7%

14.8%

13.0%

16.0%

0%

5%

10%

15%

20%

0

450

900

1,350

1,800


`Mn

PAT (LHS) PAT Margin (RHS)


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Satisfactory overseas performance provides long term visibility

During Q1FY14, overseas subsidiaries reported a ~19.0% growth in sales, while on constant currencyterms, sales grew ~14.0%.

The South American business has swung to profit in Q1FY14 on account of robust sales growth coupled withimprovement in gross margin. However, Brazilian operations remained subdued due to sluggish economy andpressure on its currency.

In North America, sales climbed ~6% mainly due to decent performance from its Cyclo (6.7%) and SargentArt businesses (5.9%). EBITDA margin also improved due to selective price increases along with betterproducts mix.

Sales in South & South East Asia witnessed ~20.4% sales growth in constant currency, on the back of robustperformance in Bangladesh.

However, sales in Egypt and Dubai were under pressure due to political turmoil in the Middle East.

Performance of overseas subsidiaries

Source: Company

Revenue YOY%Chg

Constantcurrencygrowth

EBIDTA

```mn Q1FY14 Q1FY13 Q1FY14 Q1FY13

North America 499.6 438.5 13.9% 6.7% 35.2 22.2

South America 359.7 277.4 29.7% 32.7% -16.3 -44.1

Middle East & Africa 77.1 85.9 -10.2% -11.9% -8.9 -0.3

South & South East Asia 189.6 144.4 31.3% 20.4% 40.0 29.0

Total 1126.0 946.2 19.0% 14.2% 50.0 6.8


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Pidilite should face margin pressure in near term; however long termgrowth prospects look intact on the back of strong brand portfolio

Given the sharp depreciation of rupee in last few months, the company is likely to witness sudden rise in its rawmaterial cost. In current slowdown scenario, we believe that the company to take moderate price hikes, which may

not cover the costs fully.

The company plans to spend ~`1.25bn to`1.75bn on its capacities during FY14.

We remain positive on the companys growth prospects in adhesive and sealant market due to its strong brands andexpect the company to grow at a CAGR of 16.4% over the next three.

Currently we are not considering overseas performance for valuation purpose and valuing the businesses at book value. Overall

performance is expected to gain traction once there is a pick up in activity in most its overseas subsidiaries and the recent

acquisition in India.

Standalone Performance Estimates

0%

5%

10%

15%

20%

0

15,000

30,000

45,000

60,000

FY12 FY13 FY14E FY15E FY16E

`Mn

Revenue (LHS) EBIDTA Margin(RHS) Net Margin (RHS)


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Considering the market leadership position in its

products and ability to sustain growth in itsconsumers and bazaar products segment, weremain positive on the company.

At CMP of `250 per share, the stock is currentlytrading at 23.6 times its FY14 and 20.0 times of its

FY15 earnings.

We revise our rating on Pidilite Industries Limited toACCUMULATE with a target price of ```270 pershare.

Valuation and recommendation

Parameters FY12 FY13 FY14E FY15E

EPS (`per share) 6.6 9.0 10.6 12.5

P/E (x) 37.9 27.8 23.6 20.0

P/B 9.3 7.4 6.1 5.0

ROE 24.4% 26.6% 25.8% 25.1%

ROCE 29.1% 31.4% 32.2% 31.6%

EV/EBIDTA 24.2 19.2 15.7 13.3

Relative stock performance (Sep12=100)

80

98

116

134

152

Sep-12

Oct-12

Nov-12

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Dec-12

Jan-13

Jan-13

Feb-13

Mar-13

Mar-13

Apr-13

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Jul-13

Aug-13

Aug-13

Sep-13

Nifty Pidilite


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Standalone Financials

```Mn FY12 FY13 FY14E FY15E

Net Sales 28,163 33,317 39,065 45,448

Operating expense 23,299 27,185 31,565 36,579

EBIDTA 4,864 6,131 7,500 8,869

Depreciation 479 532 588 653

EBIT 4,385 5,599 6,912 8,216

Interest 245 122 108 108

Other Income 428 659 486 502

EBT 4,441 6,196 7,290 8,611

Tax 1,096 1,588 1,869 2,207

PAT 3,345 4,608 5,422 6,404

````Mn FY12 FY13 FY14E FY15E

Liabilities

Share Capital 508 513 513 513

Reserves & Surplus 13,209 16,812 20,495 25,040

Deferred Tax Liability 454 484 484 484

Long term borrowings 923 - - -

Long term provision 101 143 143 143

Other Current Liabilities 7,810 7,433 8,476 9,861

Total Liabilities 23,006 25,384 30,110 36,040

Assets

Tangible Assets 4,717 5,120 6,089 6,493Intangible Assests 242 217 160 103

Capital WIP 3,713 4,087 4,087 4,087

Total Fixed Assets 8,673 9,424 10,336 10,683

Non-Current Investments 2,419 2,623 2,623 2,623

Other LT Assets 250.88 242.28 242.28 242.28Current Assets 11,663 13,095 16,908 22,492

Total Assets 23,006 25,384 30,110 36,040

Ratios FY12 FY13 FY14E FY15E

EBIDTA Margin (%) 16.4% 17.3% 18.2% 18.5%

Net Margin (%) 11.2% 13.0% 13.1% 13.3%

ROCE 29.1% 31.4% 32.2% 31.6%RONW 24.4% 26.6% 25.8% 25.1%

Balance SheetIncome Statement

Source: Company, Destimoney Research


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Key Risks

The company has invested a huge amount of money in the Synthetic Elastomer plant in Dahej, Gujarat to

manufacture Polychloroprene. The completion of this plant is surrounded with uncertainties due tocontinuous delays.

Recent depreciation of the Rupee against the US Dollar can be a major cause of concern.


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Destimoney-+Pidilite+Industries+Limited.pdf