Pidilite Industries - 'Stick with this Fevicol' - Microsec

Established Brand name: Pidilite has strong brands like Fevicol, Dr.Fixit, Fevi Kwik, m-seal, hobby ideas, moto max, Fevi stik etc. Fevicol has become the household name in india and is the largest selling white adhesive brand in india. With established brand name in the field of adhesives and construction chemical, the prospect of the company appears promising in the future.

Strong Financials with Consistent Growth : The company's net sales and profit have grown at 10 year CAGR growth of 18% and 21% respectively. With Strong ROE of 26.9% and D/E ratio of 0.24, the fundamental of the company looks strong.

Adding new products to strengthen its product line : Fevicryl Hobby Ideas, a leading hobby acrylic colours brand, added to its wide range of products by launching Sparkling Pear Colours. These colours give a unique sparkling shine to hand painted articles on fabric and non-fabric surfaces. Also Dr. Fixit Kwikflor Cementitious Flooring Solutions was launched specifically to level and renovate industrial floors that are exposed to heavy loads and frequent abrasions. Wudfill, a cynoacrylite adhesive, was launched for the first time in India for the woodworking segment. This product is used to fill holes and knots in wood.

Announcement of any positive development on Elastomer project will add a new positive trigger to the stock: Though the elastomer project where the company has already incurred a capex of INR350 crore is currently on hold from 2 years but any positive development on the project will add a new positive trigger to the stock.

The company had issued total FCCBs (Foreign Currency Convertible Bonds) of USD 40 million in December 2007 which are due to be redeemed on December 2012. The company has successfully completed the redemption process by partly converting the bonds into shares and by partly making the payment in cash for the purpose of redeeming the total FCCB amount. This successful redemption of FCCB may further provide strength to the stock.

At the CMP of INR212, the stock discounts its FY13E EPS of INR7.6 by 27.9x and its FY14E EPS of INR9.5 by 22.4x. With Strong Brand Value, Consistent financial growth, Strong ROE and innovated product line, the prospect of the company looks bright. The Stock has historically traded at a 3Yr average P/E of 28x as per Bloomberg. We Assign a P/E multiple of 27x to its FY14E EPS of INR9.5 to arrive at the target price of INR256 for the stock.

Source : Equity Bulls

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