29 May 2013
4QFY13 Results Update |
Sector: Consumer
Pidilite Industries
BSE Sensex
20,161
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
S&P CNX
6,111
PIDI IN
506.1
147.1/2.6
297/154
12/33/54
CMP: INR291
TP: INR285
Downgrade to Neutral
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
34.3
8.5
23.8
0.9
28.7
7.2
19.2
1.0
23.6
6.0
15.8
1.2
2013 2014E 2015E
33.3
6.1
4.4
8.5
21.0
34.0
24.9
31.8
35.5
40.1
7.5
5.3
10.1
19.5
40.6
24.9
33.8
34.7
47.9
8.9
6.5
12.3
21.7
48.7
25.3
34.0
34.2
4QFY13 PAT ~15% ahead of estimate:
Pidilite Industries' (PIDI) standalone
sales for 4QFY13 grew 16.7% to INR7.6b (v/s our estimate of INR7.8b), EBITDA
margin expanded 170bp to 16.4% (v/s our estimate of 15.1%) and adjusted
PAT grew 27.6% to INR957m (v/s our estimate of INR837m), supported by
other income of INR235m (our estimate was INR188m).
Segmental performance:
Consumer & Bazaar sales were up 17%, while
Industrial Products reported 13% growth. Consumer & Bazaar EBIT grew 38%
and margin expanded 350bp to 23.2%, while Industrial Products margin stayed
flat at 12.4%. We estimate 8-9% volume growth in Consumer & Bazaar
segment.
EBITDA margin expands 170bp:
Gross margin expanded 120bp on sustained
easing of VAM prices. Moreover, savings in other expenses (down 40bp)
enabled 170bp EBITDA margin expansion to 16.4%.
Consolidated results:
Consolidated sales, EBITDA and PAT grew 16.6%, 34.5%
and 27.1%, respectively. Subsidiary losses expanded ~2.5x to INR178.6m in
4QFY13 and ~3.6x to INR368m in FY13.
Valuations expensive; downgrading to Neutral:
We are revising our earnings
estimates upwards by 3-4% to factor in the higher than expected operating
margin and other income. The stock trades at 28.7x FY14E and 23.6x FY15E
EPS. The all-time high P/E multiples adequately reflect Fevicol's strong core
franchise and expected margin improvement. The stock has outperformed
the markets by 53% in the last 12 months (up 78% in absolute terms).
Downgrade to
Neutral,
with a revised target price of INR285 (23x FY15E EPS;
20% discount to Asian Paints).
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +9122 3982 5404
Sreekanth P.V.S.
(Sreekanth.P@MotilalOswal.com); +9122 3029 5120
Investors are advised to refer through disclosures made at the end of the Research Report.

Pidilite Industries
Pidilite Industries 4QFY13 Concall Highlights
Volume growth in Consumer bazaar segment - ~10.5%. For overall business the
volume growth stood at ~11.5%.
Other expenditure higher overheads like power and fuel cost and also due to
higher volume growth.
Non- operating income up on account of higher treasure income.
Consumer Bazaar segment profitability increase primarily on account of lower
raw material costs.
Industrial business sales growth driven by strong growth in exports
VAM prices - 1,000 USD.
Overseas business registered constant currency growth of 5.5%, with North
America regions growing at a modest pace. Auto products grew 2.5%, while
Student art materials grew 5.5%.
Margins in North America were under pressure due to higher input costs.
Brazil continues to remain under pressure; 4QFY13 growth at 0.7%. Material
costs went down 100bp QoQ and also savings in SG&A costs enabled reduction
in loss.
Middle East & Africa business registered a modest growth of 7.5% impacted by
political turmoil.
South and South East Asia business registered a healthy 44% growth driven by
Thailand and Bangladesh.
Standalone sales up 16.7%; 120bp gross margin expansion, EBITDA margins
expand 170bp
Pidilite Inds 4QFY13 standalone sales grew 16.7% to INR7.6b (est INR7.8b)
Gross margins expanded 120bp led by correction in VAM prices; savings in other
expenses (down 40bp) enabled EBITDA margin expansion of 170bp YoY to 16.4%
(est 15.1%)
PBT grew 42% supported by 55% growth in other income to INR235mn (est
INR188m). However, due to 730bp YoY increase in tax rate, adjusted PAT grew 25%
to INR957mn (est 837m)
Reported PAT grew 40% to INR992mn due to exceptional items pertaining to gain
on prepayment of sales tax deferred liability to the tune of INR106.8m, offset by
diminution in value of investment in Brazil subsidiary of INR 53m.
Strong 170bp expansion in EBITDA margins
Recurring PAT up 27.6%
Source: Company, MOSL
29 May 2013
2

Pidilite Industries
Consumer & Bazaar sales up 17%; Industrial sales grow 13%
Consumer & Bazaar sales were up 17% led by healthy volume growth (estimated
at ~8-9%). However EBIT margins improved 380bp YoY to 23.2% with 41.2% YoY
EBIT growth.
Industrial Products reported 13% growth in sales. EBIT margins expanded 50bps
to 12.4 with 18.8% YoY EBIT growth.
Stand-alone segmental performance
Segmental
Consumer and Bazaar
Sales (INRm)
Sales Growth (%)
EBIT (INR m)
Contribution (%)
EBIT Growth (%)
EBIT Margin (%)
Industrial Products
Sales (INRm)
Sales Growth (%)
EBIT (INR m)
Contribution (%)
EBIT Growth (%)
EBIT Margin (%)
1QFY12
6,135
23.0
1,535
88.7
2.0
25.0
1,654
17.8
233
13.4
-5.2
14.1
2QFY12
5,583
22.8
1,274
87.1
9.1
22.8
1,646
17.6
213
14.6
-5.0
12.9
3QFY12
5,483
21.8
1,269
89.9
12.5
23.1
1,441
0.8
161
11.4
-38.5
11.1
4QFY12
4,987
21.7
966
85.3
29.9
19.4
1,647
4.5
196
17.3
-22.3
11.9
1QFY13
7,437
21.2
1,999
90.9
30.3
26.9
1,849
11.8
226
10.3
-3.0
12.2
2QFY13
6,645
19.0
1,495
91.1
17.3
22.5
3QFY13
6,794
23.9
1,588
90.9
25.2
23.4
4QFY13
5,867
17.6
1,363
86.9
41.2
23.2
1,872
13.6
232
14.8
18.8
12.4
MOSL
1,705
1,657
3.6
15.0
166
183
10.1
10.5
-21.9
13.8
9.8
11.0
Source: Company,
FY13 performance highlights
Sales, EBITDA and PAT are up 18.3%, 24% and 25%, respectively.
Gross margins for the full year expanded 110bp to 45.2%, while EBITDA margins
expanded 80bp to 18.5%.
Consumer & Bazaar sales were up 20.7%; EBIT margins expanded 10bp to 24.1%,
EBIT grew 28.4%
Industrial products sales were up 10.6%; EBIT margins contracted 120bp to 11.4%,
EBIT remained flat.
Net cash of INR4.2b in standalone balance sheet (INR3.49b in FY12).
New
Old
FY15E
47,899
8,940
6,458
FY14E
40093
7476
5155
FY15E
47899
8940
6207
Change (%)
FY14E
FY15E
0.0
0.0
0.5
0.0
3.0
4.0
Source: Company, MOSL
Change in estimates (INR m)
FY14E
40,093
7,516
5,308
Net Sales
EBITDA
Adjusted PAT
Valuations expensive; downgrading to Neutral
Pidilite consistent volume growth in Consumer Bazaar segment(Fevicol) and sharp
margin improvement have driven the stock re-rating (Pidilite up 78% in 12 months,
outperformed the markets 53%)
At the CMP, the stock trades at 28.7x FY14E and 23.6x FY15E EPS. We believe current
valuations, at all time high P/E multiple, reflect the strong franchise of Fevicol
and expected improvement in margins adequately. These valuations do not leave
room for disappointment, making the risk-reward unfavorable.
Downgrade to
Neutral
with a revised TP of INR285 (unchanged P/E of 23x FY15E,
20% discount to Asian Paints).
29 May 2013
3

Pidilite Industries
Pidilite Industries: an investment profile
Company description
Pidilite Industries is the largest branded adhesives
player in India, with an iconic brand like Fevicol.
Apart from a strong presence in adhesives, company
has expanded into emerging segments like mechanized
joinery, modular furniture, flooring, automotive care
and water proofing through Dr Fixit and Roff.
Recent developments
Nil
Valuation and view
Key investment arguments
We expect strong consumer driven demand to
continue and drive 15%+ volume growth for the
company in the future.
Strong brand leadership and pricing power will
assist margin expansion in the future.
Successful completion of the synthetic elastomer
project (est. cost Rs5.5m; INR3.4b already spent) can
provide earnings upside post FY12.
The stock trades at 28.7x FY14E and 23.6x FY15E EPS.
We believe current valuations, at all time high P/E
multiple, reflect the strong franchise of Fevicol and
expected improvement in margins adequately.
These valuations do not leave room for
disappointment, making the risk-reward
unfavorable. Downgrade to
Neutral
with a revised
TP of INR285 (unchanged P/E of 23x FY15E, 20%
discount to Asian Paints).
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
Pidilite Inds.
P/E (x)
EV/EBITDA (x)
EV/Sales (x)
P/BV (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
28.7
23.6
19.2
15.8
3.6
2.9
7.2
6.0
Asian Paints
35.6
29.4
22.2
18.8
3.5
3.0
11.4
9.6
EPS: MOST forecast v/s consensus (INR)
MOSL
Forecast
10.1
12.3
Consensus
Forecast
9.9
12.0
Variation
(%)
1.8
2.8
FY14
FY15
Target price and recommendation
Current
Price (INR)
291
Target
Price (INR)
285
Upside
(%)
-2.1
Reco.
Neutral
Stock performance (1 year)
Shareholding pattern (%)
Mar-13
Promoter
Domestic Inst
Foreign
Others
70.1
5.6
13.6
10.7
Dec-12
70.1
5.3
13.2
11.4
Mar-12
70.8
5.8
12.4
11.0
29 May 2013
4

Pidilite Industries
Financials and Valuation
29 May 2013
5

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Pidilite Industries
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