15 September 2020
Update | Sector: Consumer
Pidilite
BSE SENSEX
39,044
S&P CNX
11,522
CMP: INR1,498
TP: INR1,385 (-8%)
Neutral
Transformative changes underway
In a presentation (link) in our Annual Global Investor Conference recently, Mr Bharat
Puri – MD of Pidilite (PIDI), highlighted two factors that could drive transformational
change at the company level:
Faster growth in the ‘Growth’ and ‘Pioneer’ categories would lead to contribution
from these categories increasing from around one-third of sales combined to
around half of sales over the next three to four years. This would provide
significant impetus to the topline over the medium term, something that has been
lacking in recent years.
Technology implementation in distribution in recent years is boosting efficiency
and elevating distributor ROI, enabling the company to retain channel loyalty in
the current uncertain times.
We maintain a Neutral rating on the stock from a one-year perspective on account
of fair valuations (58.5x FY22 EPS) and uncertain near-term recovery, especially in
the B2B part of the business (~15% of sales). However, initiatives to grow the
Growth and Pioneer categories could go a long way in revitalizing medium-term
sales and earnings growth, which have dropped significantly in the past four
years. These metrics reported an 8–10% CAGR over the past four years v/s ~16%
and ~20%, respectively, in the first six years of the decade.
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
PIDI IN
513
761.1 / 10.2
1710 / 1186
6/-16/4
1223
Financials Snapshot (INR b)
Y/E Mar
2020 2021E
Sales
72.9
62.7
Sales Gr. (%)
3.0
-14.0
EBITDA
15.8
12.7
Margins (%)
21.6
20.2
Adj. PAT
11.7
8.7
EPS (INR)
23.1
17.1
EPS Gr. (%)
24.5
-26.2
BV/Sh.(INR)
87.7
95.6
Ratios
RoE (%)
27.3
18.6
RoCE (%)
25.0
17.3
Payout (%)
30.2
44.0
Valuations
P/E (x)
64.9
87.9
P/BV (x)
17.1
15.7
EV/EBITDA (x)
47.3
58.4
Div. Yield (%)
0.5
0.5
Shareholding pattern (%)
As On
Jun-20 Mar-20
Promoter
70.2
69.9
DII
8.1
8.0
FII
11.2
11.5
Others
10.5
10.6
FII Includes depository receipts
Stock Performance (1-year)
Pidilite Inds.
1,800
1,500
Sensex - Rebased
2022E
83.2
32.6
18.3
22.0
13.0
25.6
50.3
112.1
24.7
23.3
29.3
58.5
13.4
40.2
0.5
Growth and Pioneer categories to grow faster
In the past few years, the company has undertaken a series of acquisitions and
tie-ups (see Exhibit 2), many of which are likely to attain critical size in the
upcoming years. The company has also increased its stake in some of these
businesses in recent years. The share of the ‘Growth’ and ‘Pioneer’ categories
has gradually increased from ~25% of sales to ~33%, but the needle is likely to
move even more sharply for these segments in the next three to four years,
resulting in a ~50% contribution to sales from these segments. Products in the
Growth category, which we believe would drive a significant portion of this
growth, include Dr. Fixit (waterproofing), WD-40 (maintenance spray), Nina
Percept (waterproofing), ICA-Pidilite (wood coating), and the international
business. On the other hand, Pioneer brands/tie-ups comprise Roff (tile
adhesives), Jowat (industrial adhesives), Cipy (floor coating), Tenax (adhesives
and coatings for marble, granite, and stone), Grupo Puma (mortar and plasters
for flooring and walls), and Litokol (epoxy grout).
Jun-19
69.8
8.0
11.5
10.8
Distribution and penetration growth – key focus in Growth business
Rapid expansion in the Growth business is attributable to significant efforts on
category creation in recent years. This is likely to continue going forward, along
with increased distribution and penetration. Furthermore, for the international
business, the focus would be more on markets similar to India and deploying an
‘India-like’ approach in terms of strategy. The expansion of brands such as
Fevikwik to nearly 4m outlets (now among the best distributed consumer brands
in the country) is testimony to the company’s out-of-the-box thinking on
distribution expansion. On a broad basis, ‘Growth’ category brands and
segments are likely to grow at 2–4x GDP growth.
1,200
900
Krishnan Sambamoorthy – Research analyst
(Krishnan.Sambamoorthy@MotilalOswal.com)
Research analyst: Dhairya Dhruv
(Dhairya.Dhruv@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.