28 May 2012
4QFY12 Results Update | Sector: Consumer
Pidilite Industries
BSE SENSEX
S&P CNX
16,218
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
4,920
PIDI IN
506.1
188/134
4/6/22
86.2
1.6
CMP: INR170
TP: INR186
Buy
Pidilite Industries (PIDI) reported better than expected results for 4QFY12. Adjusted PAT grew 42% YoY to
INR749m (v/s our estimate of INR566m) on sales of INR6.9b (v/s our estimate of INR6.7b). 4.4x increase in
other income and 270bp decline in tax rate boosted PAT growth.
Consumer and Bazaar sales grew 22.3% YoY, led by strong momentum in volume growth and pricing. EBIT
margin for this segment was up 40bp YoY.
Industrial Chemical sales grew 5% YoY after 2% YoY decline in 3QFY12. EBIT for the segment declined 19% YoY
and EBIT margin contracted 490bp YoY.
Continued robust growth in the Consumer and Bazaar segment, despite price hike in Fevicol indicates
strong consumer demand. Post a weak 3QFY12, the Industrial business has reported modest performance,
indicating improving exports scenario.
We note that PIDI benefited from declining VAM prices in 4Q, resulting in gross margin expansion of 350bp
QoQ. On a YoY basis, gross margin decline has reduced to 115bp from 330bp in 3QFY12.
Valuation and view
We remain positive on the volume growth scenario in Consumer and Bazaar products. Declining VAM prices
are also positive for the company. However, we remain cautious, as INR depreciation can negate the impact
of declining VAM prices on margins.
We estimate PAT CAGR of 25% over FY12-14 and our EPS estimates stand at INR8.3 for FY13 and INR10.1 for
FY14. Maintain
Buy,
with a target price of INR186.
Amnish Aggarwal
(AmnishAggarwal@MotilalOswal.com); +91 22 3982 5404

Pidilite Industries
Key takeaways from concall
Consumer and Bazaar products saw 22.3% sales growth in 4Q. Growth was higher
in the domestic market; exports remain under pressure. Construction Chemicals
sales increased by 30% YoY. Growth in Consumer and Bazaar sales is a mix of both
volume and value growth of ~11.5% each.
Industrial Chemicals sales remain under pressure due to weak exports and slow
demand growth in the domestic market.
VAM prices for the quarter were around INR55/kg; in dollar terms, VAM prices
hover at USD1,000-1,100/MT. PIDI keeps inventory of 30-40 days of raw material.
Business in South America and North America remained under pressure,
reporting a decline in sales during the quarter, while business in the Middle East
and South East Asia performed well.
The status of the synthetic elastomers project remains the same as in the previous
quarter, where the Board has directed a consultant to look into a few more
issues. PIDI has so far spent INR3.5b on the project.
Standalone sales up 15.6% YoY; EBITDA margin expands 30bp YoY
PIDI reported better than expected results for 4QFY12. Adjusted PAT grew 42%
YoY to INR749m (v/s our estimate of INR566m).
Sales grew 15.6% YoY to INR6.9b (v/s our estimate of INR6.7b), led by ~14% volume
growth in the Consumer and Bazaar segment.
Gross margin expanded 350bp QoQ to 46.7% due to declining VAM prices. On a YoY
basis, the decline in gross margin reduced to 115bp from 330bp in 3QFY12.
VAM prices have steadily declined from the peak.
50bp YoY decline in employee costs and 60bp YoY decline in other expenditure
led to EBITDA margin expanding 30bp YoY to 14.7%.
Other income grew 82% YoY while the tax rate declined 270bp YoY and 455bp QoQ.
QoQ tax rate remains stable
Gross margins decline 330bp; EBITDA margins down 260bp
Source: Company/MOSL
28 May 2012
2

Pidilite Industries
Consumer and Bazaar sales up 22.3% YoY; Industrial sales up 5% YoY
Consumer and Bazaar
sales grew 22.3% YoY, led by volume growth of ~14% YoY.
EBIT margin for this segment was up 40bp YoY, aided by declining VAM prices.
The continued robust growth in consumer and bazaar segment despite price hikes
in Fevicol indicates strong consumer demand. However management has indicated
that operating environment is challenging, momentum in growth in likely to
continue.
Industrial product
sales grew 5% YoY after 2% YoY decline in 3QFY12. EBIT for the
segment declined 19% YoY and EBIT margin contracted 490bp YoY. On a QoQ basis,
EBIT margin expanded 180bp. The 4QFY12 performance indicates improving exports
scenario, unlike 3QFY12, when sales were impacted due to weak exports and
customers delaying purchases on account of price increases. However, growth in
this segment remains a concern due to weak economic scenario in India as well as
other markets. Also, currency depreciation and commodity prices pose a threat to
profitability.
Segmental: Industrial segment drags down overall performance
Segmental
Consumer and Bazaar
Sales (INRm)
Sales Growth (%)
EBIT (INRm)
% Contribution
EBIT Growth %
EBIT margin %
Industrial Products
Sales (INRm)
Sales Growth (%)
EBIT (INRm)
% Contribution
EBIT Growth %
EBIT margin %
1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12
4,974
21.2
1,505
87.6
23.7
30.2
1,394
21.7
245
14.3
24.3
17.6
4,558
15.9
1,186
86.1
6.4
26.0
1,400
9.8
223
16.2
-16.4
15.9
4,499
26.5
1,144
83.9
28.2
25.4
1,425
33.1
261
19.1
27.8
18.3
4,098
27.1
791
77.1
26.6
19.3
1,575
24.4
272
26.5
10.3
17.3
6,127
22.8
1,586
87.7
5.4
25.9
1,662
22.8
259
14.3
5.7
15.6
5,604
23.2
1,281
85.5
9.7
22.9
5,521
22.6
1,303
90.9
15.5
23.6
5,009
22.3
988
84.9
32.9
19.7
1,646
1,400
1,655
17.6
-2.1
5.0
243
148
205
16.2
10.3
17.6
8.4
-43.2
-18.7
14.8
10.6
12.4
Source: Company/MOSL
Brazil market remains under pressure; elastomer project still on hold
International sales declined ~4.2% YoY (3.3% YoY in constant currency terms). South
America (40% of international sales) reported flat revenue; however, on the
margins front, performance has taken a beating - down from INR93m to INR34m,
as Brazil continues to be under pressure. Sales in North America grew 4% to
INR1,276m, while EBITDA increased by 10%. Sales in Middle East and Africa at
INR296m and South Asia at INR427m performed well, with margins improving.
The elastomer project continues to be on hold. The company has so far invested
INR3.54b in the project.
Valuation and view
We remain positive on the volume growth scenario in Consumer and Bazaar
products. Declining VAM prices are also positive for the company. However, we
remain cautious, as INR depreciation can negate the impact of declining VAM
prices on margins.
We estimate PAT CAGR of 25% over FY12-14 and our EPS estimates stand at INR8.3
for FY13 and INR10.1 for FY14. Maintain
Buy,
with a target price of INR186.
28 May 2012
3

Pidilite Industries
Pidilite Industries: an investment profile
Company description
Pidilite Industries (PIDI) is the largest branded adhesives
player in India, with an iconic brand like Fevicol. Besides
a strong presence in adhesives, it has expanded its
presence in emerging segments like mechanized
joinery, modular furniture, flooring, automotive care and
waterproofing through brands like Dr Fixit and Roff.
Recent developments
Elastomer project still under hold and board has not
given any approval.
Valuation and view
We maintain our FY13 and FY14 EPS estimates at
INR8.3 and INR10.1, respectively.
The stock trades at 24.3x FY13E EPS. Maintain
Buy,
with SOTP-based target price of INR186.
Key investment arguments
We expect strong consumer-driven demand to
continue and drive 15%+ volume growth for the
company.
Strong brand leadership and pricing power will assist
margin expansion in the future.
Sector view
We have a cautious view on the sector given the
slower income growth in the economy, which might
impact volumes as well as profit margins of
companies.
Companies with low competitive pressures and
broad product portfolios will be able to better
withstand any slowdown in a particular segment.
Longer term prospects appear bright, given rising
incomes and low penetration.
Key investment risks
Continued increase in VAM prices which could impact
margins in the near term as price increases will be
with a lag.
Delay in commissioning elastomer project and longer
than expected payback period which could strain
cash flows.
Comparative valuations
P/E (x)
EV/EBITDA (x)
EV/Sales (x)
P/BV (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
Pidilite
24.3
20.6
16.8
13.0
3.0
2.5
6.4
5.0
Asian Paints
29.4
23.2
18.8
14.6
3.1
2.5
10.6
8.4
EPS: MOST forecast v/s consensus (INR)
MOSL
Forecast
8.3
10.1
FY13
FY14
Consensus
Forecast
8.2
9.9
Variation
(%)
0.7
2.5
Target price and recommendation
Current
Price (INR)
170
Target
Price (INR)
186
Upside
(%)
9.4
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Mar-12
Promoter
Domestic Inst
Foreign
Others
70.8
5.8
12.4
11.0
Dec-11
70.8
6.3
12.4
10.6
Mar-11
70.7
7.6
10.6
11.0
28 May 2012
4

Pidilite Industries
Financials and Valuation
28 May 2012
5

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