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Research
Accumulate Pidilite Industries - Unmatched brand equity , high on innovations - Prabhudas Lilladher
Posted On : 2013-04-26 21:01:00( TIMEZONE : IST )
PIDI has more than 70% share in adhesives with Fevicol and leadership in waterproofing with Dr Fixit. Dominating market shares and strong brands enable strong pricing power. PIDI has been high on innovations in adhesives and waterproofing segment. Recent launches include Fevicol Speedx and Fevicol Wudfill in adhesives and Dr Fixit Raincoat, Dr Fixit LW+ and Dr Fixit KwikFlor in Construction chemicals.
Volume growth has slowed down; Margins expand: Volume growth has softened by 2-3% to 10-12% in 9MFY13. Consumer products has seen volume growth of 13-14%. Volume growth recovery is likely to be slow, given general slowdown in the economy.
Construction chemicals to maintain high growth: Construction chemicals business has been growing at 25% CAGR led by innovations under Dr Fixit and Roff brands. Entry of Berger Paints and Asian Paints is likely to further increase awareness and demand for these products.
Industrial chemicals recovery to be slow: Industrial chemicals has been hit by lower demand from exports market. Direct exports are 25% of its sales, while sales to export oriented segments are ~15%. Slow recovery is likely due to soft demand in overseas markets.
International business likely to turnaround in 2/3 years: International business continues to report losses due to lack of scale in key markets of North and South America. We expect turnaround in International business led by strong growth in Fevicol brand in Bangladesh; it has EBIT margins similar to Indian business.
Synthetic elastomer project still hangs in limbo: PIDI is yet to decide on the fate of project; exit can provide some upside in the stock. Estimate 23% PAT CAGR over FY13-15; BUY: We expect PIDI to report 19% CAGR in sales & 22.8% CAGR in PAT over FY13-15 led by 90bps margin expansion. Balance sheet remains strong, with expected net cash of Rs8bn by FY15. Stock trades at 19.2xfY15 earnings. BUY with a target of Rs279.
