Pidilite Industries - Consumer business healthy; Buy - Anand Rathi

Pidilite Industries (Pidilite) reported healthy 2QFY13 results, with revenue and PAT up 15% and 26% respectively. Though EBITDA margin was down 60bps due to higher other expenditure, lower taxes helped it post 26% PAT growth. It has not yet finalised plans for elastomer project, but we expect economic revival and lower input costs to drive revenues and margins. We retain Buy with TP of Rs.235.

- Consumer-bazaar products growing well. Pidilite reported revenue growth of 15.2% on the back of ~7% higher volumes and price hikes. The consumer and bazaar products segment reported revenue growth of 17.5% and industrial products 3.5%.

- EBITDA margin lower than estimates. The company's reported EBITDA margin was lower 60bps due to higher other expenditure. EBIT margin of consumer and bazaar products segment was down 10bps, whereas that for industrial products segment was down 320bps. Effective income tax rate is down 210bps and net profit is up 25.8%, yoy.

- Status quo maintained on elastomer project. Pidilite is yet to finalise plans for its elastomer project. It indicated that various options on the project are being discussed at the board level. However, it has not committed any funds towards the project even in 2QFY13.

- Outlook. With fall in crude oil prices/rupee appreciation, the company will be able to expand margins. So far, it has held on to its margins with select price hikes. With the company turning debt free, we expect other income to be higher, going forward. Also, revival in the economy will help industrial products to post double-digit growth. We expect Pidilite to report revenue and earnings CAGR of 19% and 22%, respectively.

- Valuation. We value the stock at target price of Rs.235. Our valuation is at target PE of 25x on FY14e earnings. Risks. Higher raw material prices and delay in resolving the synthetic elastomer project.

Source : Equity Bulls

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