28 July 2015
1QFY16 Results Update | Sector:
Consumer
Pidilite Industries
BSE SENSEX
27,459
Bloomberg
In-line PAT; All time high operating margins
Equity Shares (m)
512.6
PIDI’s 1QFY16 results
were in line with estimates despite miss on topline growth.
M.Cap. (INR b) / (USD b) 277.7/4.4
Standalone sales were up 7.6% to INR13.1b (est. INR13.5b), with ~5% volume
52-Week Range (INR)
growth in Consumer Bazaar segment. EBITDA was up 41% YoY to INR 3.3b (8%
638 / 352
1, 6, 12 Rel. Per (%)
ahead of INR3b estimate), with highest-ever EBITDA margins of 25.1% (est.
-2/1/43
22.5%)—aided by a sharp 540bp expansion of gross margin to 49.3% (highest in
Avg Val (INR m)/Vol ‘000 208/398
five years) and low base. Adj. PAT was up 29.8% YoY to INR 2.2b (est. INR 2.2b), in
Free float (%)
30.3
line with estimates due to lower other income and higher tax rates.
Financials & Valuation (INR Million)
Gross margin expanded a sharp 540bp YoY
to 49.3% (est. 47.9%), led by benign
input cost and carryover of earlier price hikes. Lower other expense (down 80bp
Y/E MAR 2015 2016E 2017E
YoY) propelled EBITDA margin to 25.1% (up 590bp)—the highest-ever quarterly
Net Sales
43.7
49.5
57.8
level. In earlier calls, the management guided that it is not contemplating any
EBITDA
7.6
10.4
12.0
price cuts. Thus, we expect the profitability outlook to remain healthy. However,
Adj PAT
5.2
6.9
8.1
we believe demand recovery looks delayed.
Adj.EPS
10.2
13.5
15.7
Segmental performance highlights:
Consumer Bazaar division posted 7.4%
(INR)
Growth
9.9
32.3
16.6
revenue and 35.5% EBIT growth, with underlying EBIT margin expanding 620bp to
(%)
BV/Share
48.4
57.2
67.4
29.9%. Industrial segment delivered flat revenues but EBIT more than doubled,
( )
RoE (%)
23.1
25.5
25.2
with underling EBIT margin expanding 790bp to 15.3%.
RoCE (%)
28.2
33.1
32.7
Consolidated
sales, EBITDA and adj. PAT posted 9.3%, 43% and 31% growth,
P/E (x)
53.2
40.2
34.5
respectively. Gross and EBITDA margins expanded 510bp and 550bp, respectively.
P/BV (X)
11.2
9.5
8.0
Imputed subsidiary posted 25% revenue growth; EBITDA doubled to INR158m.
Valuation and view:
We cut our estimates marginally to bake in lower-than-
estimated revenue growth. We model 24% EPS CAGR over FY15-17E, driven by
Estimate change
expected urban demand recovery, benign RM environment and lower base
TP change
(during previous episode of RM deflation, PIDI delivered a 50% EPS CAGR over
FY09-11). We are building in 300bp gross margin expansion over FY15-17E.
Rating change
However, we believe valuations at 40.2x FY16E and 34.5x FY17E EPS are rich.
Maintain NEUTRAL with a revised target price of INR550 (33x June FY17E EPS—a
10% premium to 3-year avg. P/E, given the expected strong EPS CAGR). Spike in
input costs/currency depreciation is a key risk.
S&P CNX
8,337
PIDI IN
CMP: INR542
TP: INR550 (+1%)
Neutral
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Manish Poddar
(Manish.Poddar@MotilalOswal.com); +91 22 3027 8029 /
Vishal Punmiya
(Vishal.Punmiya@motilaloswal.com)
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Pidilite Industries
Key Quarterly Charts
Exhibit 1: Segmental Performance (Standalone)
Segmental
Consumer and Bazaar
Sales (INRm)
Sales Growth (%)
EBIT (INRm)
% Contribution
EBIT Growth %
EBIT margin %
Industrial Products
Sales (INR m)
Sales Growth (%)
EBIT (INRm)
% Contribution
EBIT Growth %
EBIT margin %
1,849
11.8
226
10.3
-3.0
12.2
1,705
3.6
166
10.1
-21.9
9.8
1,657
15.0
183
10.5
13.8
11.0
1,872
13.6
232
14.8
18.8
12.4
1,863
0.8
192
7.3
-15.1
10.3
2,162
26.8
247
11.4
48.4
11.4
1,939
17.0
181
10.6
-1.2
9.3
2,193
17.2
184
13.3
-21.0
8.4
2,169
16.4
161
6.3
-16.0
7.4
2,327
7.7
267
11.9
8.2
11.5
2,039
5.2
251
11.8
38.8
2,157
-1.6
288
17.7
56.9
2,185
0.7
335
9.4
108.4
7,437
21.2
1,999
90.9
30.3
26.9
6,645
19.0
1,495
91.1
17.3
22.5
6,794
23.9
1,588
90.9
25.2
23.4
5,867
17.6
1,363
86.9
41.2
23.2
8,417
13.2
2,415
92.6
20.8
28.7
7,883
18.6
1,931
88.9
29.2
24.5
7,822
15.1
1,559
91.6
-1.8
19.9
6,988
19.1
1,228
88.9
-10.0
17.6
10,169
20.8
2,413
95.0
-0.1
23.7
9,135
15.9
1,997
88.7
3.4
21.9
8,803
12.5
1,893
89.5
21.4
21.5
7,668
9.7
1,373
84.4
11.8
17.9
10,921
7.4
3,270
91.7
35.5
29.9
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16
12.3
13.4
15.3
Source: Company, MOSL
Exhibit 2: PIDI posted 7.6% S/L sales growth during 1QFY16
Sales growth (%)
21.5
20.0
16.1
21.6
20.7
19.3
18.8
16.7
16.0
15.2
14.6
19.5 12.1
15.6
11.2
6.7 7.6
Exhibit 3: S/L Gross margin expanded 540bp YoY
Gross Margins (%)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 4: Employee expenses were up 40bp...
Employees Cost (%)
10.2
9.6
9.0
8.9
8.9
8.5
9.2
8.9
10.1
Exhibit 5: …while other expenses declined 80bp
Other Expenditure (%)
22.0
23.2
20.4
20.3
19.5
17.5
17.0
16.1
15.8
16.5
10.1
9.1
8.6
9.4
8.6
8.8
8.9
9.9
16.1
16.1 16.3
18.1
15.3 18.6
15.3
Source: Company, MOSL
Source: Company, MOSL
28 July 2014
2

Pidilite Industries
Exhibit 6: S/L EBITDA margins expanded sharp 590bp YoY
EBIDTA Margins (%)
Exhibit 7: S/L PAT grew 29.8% YoY
PAT Growth (%)
Source: Company, MOSL
Source: Company, MOSL
Valuation & View
We cut our estimates marginally to bake in lower than estimated revenue
growth. We model for 24% EPS CAGR over FY15-17E, driven by expected urban
demand recovery, benign RM environment and lower base (7% EPS CAGR over
FY13-15). In the previous episode of RM cost deflation, Pidilite’s earnings
expanded at 50% CAGR during FY09-11.
Pidilite will be one of the biggest beneficiaries of RM correction, in our view. We
note during FY09-10 crude correction cycle PIDI’s gross margins expanded
690bp YoY though it was also partially aided by excise cuts. We are building in
300bps gross margin expansion over FY15-17E.
At the CMP, the stock trades at 40.2x FY16 and 34.5x FY17 EPS are rich and
discount the positives adequately in our view. Maintain NEUTRAL with revised
target price of INR 550 (33x June’FY17 EPS, 10% premium to 3 year avg. P/E
given expected strong EPS CAGR). Spike in input costs/currency depreciation is a
key risk.
Exhibit 8: Cut estimates marginally to incorporate lower sales growth and higher operating
margin
New
Net Sales
EBITDA
Adjusted PAT
FY16E
49,486
10,382
6,907
FY17E
57,834
11,963
8,050
FY16E
50,436
10,228
6,960
Old
FY17E
59,073
11,818
8,121
Change (%)
FY16E
FY17E
-1.9
-2.1
1.5
1.2
-0.8
-0.9
Source: Company, MOSL
Exhibit 9: PIDI P/E (x): Sharp re-rating in last 12 months
53.0
41.0
29.0
17.0
5.0
7.3
38.1
22.1
PE (x)
Peak(x)
Avg(x)
44.3
Min(x)
Exhibit 10:
PIDI
P/E premium vs. Sensex
200
150
100
50
0
-50
-100
35.5
Pidilite Inds. PE Relative to Sensex PE (%)
LPA (%)
127.4
Source: Company, MOSL
28 July 2014
Source: Company, MOSL
3

Pidilite Industries
Exhibit 11: Valuation Matrix of coverage universe
Company
Consumer
Asian Paints
Britannia
Colgate
Dabur*
Emami*
Godrej Consumer
GSK Consumer
Hind. Unilever
ITC
Jyothy Labs
Marico*
Nestle
Pidilite Inds.
Radico Khaitan
United Spirits
Retail
Jubilant Foodworks
Shopper's Stop
Titan Company
Reco
Price
(INR)
835
2,973
2,050
294
1,215
1,201
6,237
905
311
315
418
6,186
542
88
3,697
1,816
400
341
P/E (x)
Mkt Cap EPS Growth YoY (%)
(USD M) FY15 FY16E FY17E FY15 FY16E FY17E
12,524
5,553
4,358
8,077
4,311
6,391
4,101
30,608
38,704
893
4,218
9,325
4,342
182
8,401
1,857
514
4,730
15.8 31.4
45.1 37.8
13.9 18.3
15.7 23.2
21.7 25.1
19.6 38.9
-13.5 23.2
6.4
15.3
9.8
11.3
-7.5 108.0
18.1 21.2
6.8 -11.0
9.9
32.3
-10.4 8.6
Loss -165.6
4.5
8.1
11.1
64.3
60.5
10.8
23.4
18.1
21.5
16.0
22.0
21.6
20.5
19.1
13.4
-9.6
24.4
25.3
16.6
21.8
82.2
42.5
44.6
22.8
56.3 42.8
62.1 45.1
49.9 42.2
48.5 39.4
56.3 45.0
46.3 33.4
44.9 36.5
51.7 44.9
25.7 23.1
72.2 34.7
47.0 38.8
47.5 53.3
53.2 40.2
15.4 14.2
-78.4 119.5
96.2
81.7
36.8
58.5
50.9
33.2
34.7
38.2
34.7
33.9
36.9
27.4
30.3
37.7
20.3
38.4
31.2
42.6
34.5
11.6
65.6
41.1
35.2
27.0
EV/EBITDA (x)
FY15 FY16E FY17E
38.3
44.9
33.4
39.0
49.8
32.8
33.2
37.2
17.3
40.8
30.9
28.3
35.2
11.3
74.9
45.1
18.0
27.9
28.9
31.0
27.4
31.4
38.7
24.6
26.0
31.1
15.5
27.5
25.1
30.6
25.5
9.5
55.8
28.7
14.5
25.1
23.2
25.8
21.9
26.8
31.4
20.7
21.3
26.2
13.6
22.9
20.0
25.0
21.7
8.0
38.3
20.8
11.7
20.1
ROE (%) Div. (%)
FY15
32.4
56.4
88.0
35.5
45.3
20.4
29.6
108.1
34.8
16.6
33.5
48.2
23.1
8.6
-21.7
18.8
5.4
27.2
FY15
0.9
0.5
1.5
0.8
0.6
0.6
0.9
1.7
2.4
1.3
0.6
1.0
0.6
1.0
0.0
0.1
0.2
0.8
Buy
Buy
Neutral
Neutral
Buy
Neutral
Neutral
Neutral
Neutral
Buy
Neutral
Neutral
Neutral
Buy
Buy
Buy
Neutral
Neutral
Note: For Nestle FY15 means CY14
Source: Company, MOSL
28 July 2014
4

Pidilite Industries
Story in Charts
Exhibit 12: Revenues CAGR of 15% over FY15-17E
Revenues (INR mn)
21.8
18.3 19.1
14.5
9.6
Revenue growth (%)
16.9
12.6
13.1
Exhibit 13: Volume grew 5% in 1QFY16
14.3
Volume growth (%)
12.8
11.4
8.9
5.0
15.9
FY09
FY10
FY11
FY12
FY13
FY14
FY15 FY16E FY17E
Source: Company, MOSL
FY12
FY13
FY14
FY15
1QFY16
Source: Company, MOSL
Exhibit 14: Gross margins to expand by 300bp over FY15-17E,
led by benign input cost..
Exhibit 15: … resulting in EBITDA margins expansion of 320bp
49.0
47.6
45.7
44.3
42.1
44.9
45.0
13.5
Gross Margin (%)
49.1
EBITDA Margin (%)
48.0
20.4
20.1
17.3
18.8
21.0
17.4
20.7
17.5
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Source: Company, MOSL
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Source: Company, MOSL
Exhibit 16: PAT to post 24.2% CAGR over FY15-FY17E
PAT (INR mn)
100.5
PAT growth (%)
Exhibit 17: Return Ratios (x)
35.1
31.7
27.6
RoE
29.3
25.2
23.1
25.5
25.2
31.1
9.9
12.1
-22.0
FY09
FY10
FY11
5.5
FY12
FY13
4.5
FY14
32.3
16.6
21.3
FY15 FY16E FY17E
Source: Company, MOSL
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Source: Company, MOSL
28 July 2014
5

Pidilite Industries
Financials and valuations
Income Statement
Y/E March
Net Sales
Change (%)
Raw Materials
Gross Profit
Margin (%)
Operating Expenses
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Other Income
Profit before Taxes
Change (%)
Margin (%)
Tax
Tax Rate (%)
Adj PAT
Change (%)
Margin (%)
Exceptional/Prior Period inc
Reported PAT
FY11
23,799
21.8
12472
11327
47.6
6546
4,780
20.0
20.1
444
268
157
4,225
28.5
17.8
936
22.2
3289
12.1
13.8
250
3,039
FY12
28,163
18.3
15674
12489
44.3
7626
4,863
1.7
17.3
479
245
428
4,566
8.1
16.2
1,096
24.0
3470
5.5
12.3
126
3,344
FY13
33,539
19.1
18206
15333
45.7
9021
6,312
29.8
18.8
532
80
436
6,136
34.4
18.3
1,588
25.9
4548
31.1
13.6
-59
4,608
FY14
38,859
15.9
21401
17458
44.9
10653
6,805
7.8
17.5
686
97
353
6,375
3.9
16.4
1,624
25.5
4751
4.5
12.2
65
4,686
FY15
43,748
12.6
24049
19699
45.0
12069
7,631
12.1
17.4
1,077
95
428
6,886
8.0
15.7
1,667
24.2
5219
9.9
11.9
201
5,019
FY16E
49,486
13.1
25173
24313
49.1
13931
10,382
36.1
21.0
1,212
103
330
9,397
36.5
19.0
2,490
26.5
6907
32.3
14.0
0
6,907
(INR Million)
FY17E
57,834
16.9
30051
27783
48.0
15820
11,963
15.2
20.7
1,312
109
410
10,952
16.6
18.9
2,902
26.5
8050
16.6
13.9
0
8,050
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deferred Liability
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Investments
Current
Non-current
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Account Payables
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
FY11
506
10,889
11,395
2,867
410
14,672
8,720
4,310
4,410
3,331
4,656
2,300
2,356
7,596
3,544
2,866
273
913
5,321
4,137
1,184
2,275
14,672
FY12
508
13,209
13,717
2,629
454
16,800
9,723
4,764
4,959
3,713
3,328
909
2,419
11,005
3,963
3,261
2,577
1,204
6,206
4,925
1,281
4,799
16,799
FY13
513
16,812
17,324
600
484
18,408
10,607
5,270
5,337
4,087
5,469
2,846
2,623
10,892
4,512
3,668
1,368
1,345
7,378
5,199
2,179
3,514
18,408
FY14
513
19,883
20,395
77
508
20,980
12,055
5,942
6,113
4,311
5,738
2,491
3,247
12,730
5,082
4,536
1,452
1,660
7,912
5,871
2,041
4,818
20,980
FY15
513
24,309
24,822
77
534
25,432
13,255
6,955
6,301
3,906
7,478
3,902
3,576
16,674
7,302
5,477
1,933
1,962
8,925
6,660
2,265
7,748
25,432
(INR Million)
FY16E
513
28,806
29,318
90
559
29,968
15,255
8,166
7,089
3,906
9,968
6,242
3,726
19,393
8,098
5,938
3,215
2,142
10,387
7,141
3,247
9,006
29,968
FY17E
513
34,065
34,578
100
585
35,262
16,755
9,479
7,276
3,906
14,046
10,170
3,876
22,435
9,463
6,782
3,853
2,336
12,401
8,567
3,834
10,034
35,262
28 July 2014
6

Pidilite Industries
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout %
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Debtor (Days)
Creditor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
FY11
6.5
10.3
22.5
1.8
26.9
FY12
6.8
10.5
27.0
1.9
27.8
FY13
8.9
13.4
33.8
2.6
29.3
FY14
9.3
14.6
39.8
2.7
29.1
FY15
10.2
17.0
48.4
3.2
30.9
FY16E
13.5
22.6
57.2
4.8
35.5
FY17E
15.7
25.9
67.4
5.7
36.0
83.4
52.5
11.4
56.9
24.1
0.3
79.3
51.5
9.6
55.9
20.1
0.4
61.1
40.6
8.1
43.0
16.0
0.5
58.5
37.1
7.0
39.8
13.6
0.5
53.2
31.9
6.1
35.2
11.2
0.6
40.2
24.0
5.3
25.5
9.5
0.9
34.5
20.9
4.5
21.7
8.0
1.0
31.7
30.2
27.6
27.9
29.3
32.8
25.2
31.1
23.1
28.2
25.5
33.1
25.2
32.7
44
79
3.6
42
77
2.9
40
70
3.8
43
67
3.6
46
67
3.1
44
67
3.1
43
68
3.3
0.3
0.2
0.0
0.0
0.0
0.0
0.0
Cash Flow Statement
Y/E March
PBT before Extra Ord
Add: Depreciation
Interest Paid
Less: Taxes Paid
Interest income
(Incr)/Decr in WC
CF from Operations
Extra ordinary items
CFO after extraordinary
Incr in FA
Free Cash Flow
Pur of Investments
CF from Invest.
Change in Networth
Incr in Debt
Dividend Paid
Interest Paid
Others
CF from Fin. Activity
Incr/Decr of Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
(INR Million)
FY11
4,225
444
268
936
157
-372
3,472
-250
3,222
-1,236
1,987
452
-784
-2,065
-1,347
1,029
-268
157
-2,493
-55
328
273
FY12
4,566
479
245
1,096
428
-219
3,548
-126
3,421
-1,411
2,010
1,328
-83
-2,100
-239
1,122
-245
428
-1,034
2,304
273
2,578
FY13
6,136
532
80
1,588
436
76
4,800
59
4,859
-1,284
3,575
-2,141
-3,425
-2,530
-2,029
1,559
-80
437
-2,642
-1,209
2,577
1,369
FY14
6,375
686
97
1,624
353
-1,221
3,961
-65
3,896
-1,686
2,210
-268
-1,954
-3,210
-523
1,619
-97
353
-1,858
84
1,368
1,452
FY15
6,886
1,077
95
1,667
428
-2,449
3,515
-201
3,314
-859
2,454
-1,740
-2,599
-2,504
0
1,937
-95
428
-233
481
1,452
1,933
FY16E
9,397
1,212
103
2,490
330
25
7,916
0
7,916
-2,000
5,916
-2,490
-4,490
-5,251
13
2,867
-103
330
-2,144
1,282
1,933
3,215
FY17E
10,952
1,312
109
2,902
410
-390
8,671
0
8,671
-1,500
7,171
-4,078
-5,578
-6,160
10
3,395
-109
410
-2,454
639
3,215
3,853
28 July 2014
7

Pidilite Industries
Corporate profile: Pidilite Industries
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.
Exhibit 18: Sensex rebased
Exhibit 19: Shareholding pattern (%)
Jun-15
Promoter
DII
FII
Others
69.7
14.0
5.8
10.5
Mar-15
69.7
4.3
15.4
10.6
Jun-14
70.1
3.5
15.7
10.7
Exhibit 20: Top holders
Holder Name
Genesis Indian Investment Company Limited -General
Government Pension Fund Global
% Holding
7.7
1.1
Note: FII Includes depository receipts
Exhibit 21: Top management
Name
M B Parekh
N K Parekh
Designation
Chairman and Managing Director
Joint Managing Director
Exhibit 22: Directors
Name
N J Jhaveri*
Sanjeev Aga*
Bharat Puri*
Ranjan Kapur*
Bansi S Mehta*
Name
A B Parekh
A N Parekh
Uday Khanna
Meera Shankar
J L Shah
*Independent
Exhibit 23: Auditors
Name
BSR & Co LLP
Type
Statutory
Exhibit 24: MOSL forecast v/s consensus
EPS (INR)
FY16
FY17
MOSL
forecast
13.5
15.7
Consensus
forecast
13.7
17.0
Variation (%)
-1.5
-7.4
28 July 2014
8

Pidilite Industries
NOTES
28 July 2014
9

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PIDILITE INDUSTRIES LT
No
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