A Detail Equity Research Report on Pidilite Industries Limited

Summary

A Detail Equity Research Report on Pidilite Industries Limited with a tagline Building Bonds in a New Ways.

PIDILITE INDUSTRIES LIMITED

CMP: Rs. 2454/-   Target : Rs. 2796/-

SENSEX:  66079/-   NIFTY:   19689/-

KEY STOCK STATISTICS:

Market Capitalization (crs):  1,24,567/-

Book Value: Rs.150.30 /-

Face Value: Rs.1 /-

52 week High/Low:  2796/2250

P/E Ratio: 89.90

P/BV: 16.30/-

Dividend Yield: 0.45/-

Company Background:

ü  Pidilite Industries Limited is a leading manufacturer of adhesives and sealants, construction chemicals, craftsmen products, DIY products and polymer emulsions in India. Most of the products have been developed through strong in-house R&D.

ü  Our brand name Fevicol has become synonymous with adhesives to millions in India and is ranked amongst the most trusted brands in the country.

ü  Some of our other major brands are M-Seal, Fevikwik, Fevistik, Roff, Dr. Fixit, Fevicryl, Motomax, Hobby Ideas, Araldite.

ü  The company's adhesive business in the country of India with a 70% market share.

SHAREHOLDING PATTERN (%):

source: Company , KFO Research

RETURNS(%):

source: Company , KFO Research

BUSINESS OUTLOOK:

The Indian economy provides a large opportunity to the Company to market its differentiated products. The additional spending in Government programmes like rural employment schemes and higher capex spending emphasizes the focus on infrastructure and increasing disposable income in the hands of common people. This will act as a catalyst for the growth of the economy which will eventually create demand for the Company’s products. Further, the home improvement area offers opportunities for growth given the focus on affordable housing, new construction as well as renovation.

Slower growth of the Indian economy and stress in sectors such as construction could impact the performance of the Company. While there are near term concerns around increased interest rates and the consequent impact of this on market growth, the Company is confident of the medium to long-term prospects of the home improvement sector and remains focused on delivering consistent and profitable volume-led growth.

Overseas subsidiaries, by virtue of their relatively smaller size, remain vulnerable to the political and economic uncertainties of their respective countries and the rise in geo-political tensions could dampen the performance of the subsidiaries.

Source:Company, KFO Research

FUTURE OUTLOOK:

The Company is taking actions to drive demand generation initiatives to deliver profitable volume growth. The existing subsidiaries in India have delivered strong sales and profit growth, despite demand and inflationary pressures. A series of actions and initiatives have been taken to maintain and strengthen the performance in the year. New manufacturing facilities for three subsidiaries are to be commissioned in the current year which will enable them to address the market opportunity. The Company’s major international subsidiaries are in Brazil, Sri Lanka, Thailand, Egypt, Dubai and Bangladesh. The business environment in some of these countries remains subdued due to geo-political tensions, currency challenges and inflation. However, the management is taking various steps to increase sales and market share in their respective geographies along with improvement in performance of these subsidiaries. The subsidiary in USA has decided to wind down its business in the current year.

Source:Company, KFO Research

BUSINESS HIGHLIGHT & ANALYSIS:

PROS

• Company is almost debt free.
• Company has been maintaining a healthy dividend payout of 41.4%

CONS

• Stock is trading at 17.5 times its book value

Growth Drivers:

ü  Investing in future-ready supply chain (stepped up capex, 24 capacity building projects, digitization & automation).

ü  Maintaining people as a competitive edge ('Great place to work’, continued hiring)

ü  Investing in emerging areas/ business models (digital platforms, Pidilite Ventures)

ü  Significant thrust on sustainability.

ü  Premiumization, innovation, and reinforcing brand leadership in the Core (e.g., Fevicol)

ü  Scaling-up Growth categories through penetration, brand, and portfolio (e.g., Roff, Dr. Fixit)

ü  Managing unprecedented input cost inflation effectively through pricing interventions.

ü  Executing on a large pipeline of productivity initiatives.

ü  Growing presence in most African countries through distribution expansion.

VALUATIONS:

ü  On the basis of Discount Cash Flow Valuation Method, we are recommending ‘Buy’ for the stock. Since the stock offers good opportunity, we initiate a ‘BUY’ signal on the stock with 12-month price target of Rs 2796/- share an upside of 13.94 % from current levels.

PEER COMPARISON:

BALANCE SHEET (RS. IN CRS):ssBBALANCEALANCEE

CASHFLOW STATEMENT (RS. IN CRS):

PROFIT AND LOSS ACCOUNT (RS. IN CRS):PROFIT AND LOSS ACCOUNTSPource : O sOURCEURCE

OURCS

source: www.sharescart.com

so

urce:  Company, KFO Research