Pidilite - PIDI Still LITE on Valuation - PRIME

PIDI – A Leader in its segment

The company has a well-established distribution network and a strong brand in many of the sub segments in which it operates. It has developed many new products in the adhesive & sealants and construction & chemicals sub-segments where there is limited competition and low penetration. In most segments where it operates, PIDI faces competition from local producers who lack financial strength, economies of scale and have a poor distribution network and a weak brand image.

PIDI's Consumer & Bazaar segment to drive sales growth

We expect revenues of the company to grow at a CAGR of 17-18 per cent during FY12-FY14 primarily driven by strong growth in its Consumer & Bazaar Products segment. Construction and Paint Chemicals division which includes brands like Dr. Fixit will lead the growth in the segment with a 23-24 per cent CAGR over the same period followed by a 18-19 per cent growth in its cash cow business of adhesives and sealants which includes brands like Fevicol, Fevistik, Fevikwik and M-Seal etc.

Valuation

At the CMP of Rs. 232, Pidilite is trading at 27.5x FY13E EPS and 22.4x FY14E EPS. PIDI is trading at a discount to its peers. This discount is unjustified given that it enjoys leadership position in various segments in which it operates, having strong brand recall and continued good prospects for various products that it offers in the market. We have assigned a P/E multiple of 26x to its FY14E EPS of Rs. 10.4 (about 15 per cent discount to Asian Paints) implying a potential upside of about 16 per cent from the CMP of Rs. 232. We initiate coverage on Pidilite Industries Ltd with a BUY rating with a target price of Rs. 270.

Source : Equity Bulls

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