Pidilite Industries - Target Price Rs. 305 - Dolat Capital

- Converting commodities into Brands: Pidilite has been successful in converting commodity product into strong brands. Fevicol one of its flagship brand in adhesive (commodity) segment is a case in point where the company has a leadership position with 70% market share. The strategy of the company is to replicate the same in other segment with its brands like M-Seal and Dr Fixit.

- Multiple growth drivers: Pidilite broadly has two segments consumer bazaar (77% of sales) and industrial (22% of sales). Within each of these segments there are different products which cater to various industries. While overall growth of the company would track the growth in GDP, we believe the growth in growing awareness consumer segment will also be the important factor. The Industrial segment will track the growth in IIP.

- Huge opportunity in construction chemicals: Construction chemicals segment being part of the consumer bazaar provides a huge opportunity. The company has a leadership position in the retail segment. Its Dr Fixit brand has a strong brand recall for water proofing solutions. We believe that having a first mover advantage, it is well placed to take advantage of this opportunity in the medium term.

Valuation: We estimate 21% CAGR in PAT for Pidilite Industries on a consolidated basis. We expect operating performance to improve as raw material prices remains benign. At CMP of Rs. 281, the stock trades at 28x FY14E EPS of Rs. 10.2 and 23x FY15E EPS of Rs. 12.2. We have a target price of Rs. 305.

Source : Equity Bulls

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