29 October 2015
2QFY16 Results Update | Sector:
Consumer
Pidilite Industries
BSE SENSEX
26,838
Bloomberg
Multi-year low sales growth; sharp EBITDA margin expansion
Equity Shares (m)
512.6
Mixed bag:
PIDI’s 2QFY16 results were a mixed bag, with revenue below
expectation and PAT above expectation. Overall volumes grew by 1%. Standalone
M.Cap. (INR b) / (USD b) 290.4/4.7
sales grew 2.6% (lowest in 30 quarters) to INR11.7b (est. INR12.5b), with 3-4%
52-Week Range (INR)
638 / 396
volume growth in Consumer Bazaar segment. EBITDA grew 38.5% to INR2.8b (est.
1, 6, 12 Rel. Per (%)
-2/1/39
INR2.6b) and adjusted PAT was up 33.9% at INR1.83b (est. INR1.75b).
12M Avg Val (INR M)
235
Free float (%)
30.3
Sharp margin expansion:
Gross margin expanded 790bp YoY to 51.5% (est. 48%;
highest in 30 quarters), led by benign input cost (VAM prices down 26% YoY) and
carryover of earlier price hikes. Higher other expenses (up 120bp) and staff costs
Financials & Valuation (INR Million)
(up 40bp) curtailed EBITDA margin expansion at 620bp YoY to 24.1% (est. 20.8%).
Y/E MAR 2015 2016E 2017E
In earlier conference calls, the management has alluded that it will not initiate
Net Sales
44.1
47.1
53.1
price cuts. Demand recovery, however, appears delayed, in our view.
EBITDA
7.7
10.2
11.6
Segmental highlights:
Consumer Bazaar division posted 5.2% revenue growth,
Adj PAT
5.2
6.4
7.4
with underlying EBIT margin expansion of 680bp YoY to 28.7%. Industrial segment
Adj.EPS
10.1
12.5
14.4
revenues declined by 9% while EBIT margin expanded 600bp YoY to 17.5%.
(INR)
Gr. (%)
9.3
23.8
14.9
Consol. performance highlights:
Sales grew 5.2%, EBITDA grew 46%, and adjusted
BV/Sh.(INR) 45.8
60.3
69.2
PAT grew 41%. Gross margin and EBITDA margin expanded 780bp and 640bp resp.
RoE (%)
23.7
23.6
22.3
Imputed subsidiary posted 30% revenue growth, with adjusted PAT of INR110m.
RoCE (%)
29.3
32.3
30.1
1HFY16 results:
Sales, EBITDA and PAT grew 5.2%, 39.7% and 31.7%.
P/E (x)
56.2
45.4
39.5
Conference call highlights:
(a)
International:
Organic constant currency growth of
P/BV (X)
12.4
9.4
8.2
13% in 1HFY16; South and South East Asia have done better; Middle East and
South America have not done well, (b)
Margins:
To remain strong for 1-2 quarters,
Estimate change
(c)
VAM prices:
USD900-925/ton; corrected even QoQ; now below USD900/ton,
(d)
Tax rate:
30% for FY16; should go up further in FY17.
TP change
Valuation and view:
We cut our earnings estimates by 1-2% to bake in lower sales
Rating change
growth, better than expected margins and higher tax rate guidance. 2QFY16
performance highlights PIDI’s inherent strong pricing power. However valuations
at 45.4x FY16E and 39.5x FY17E EPS remain rich, in our view. Maintain NEUTRAL,
with an unchanged target price of INR550 (35x Sept’FY17E EPS, average 3-year
P/E). Spike in input costs is a key downside risk.
S&P CNX
8,112
PIDI IN
CMP: INR569
TP: INR550 (-3%)
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 %
1,705
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
12.3
2,157
-1.6
288
17.7
56.9
2,185
0.7
335
9.4
108.4
2,116
-9.1
370
14.6
38.6
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
9,612
5.2
2,756
108.5
38.0
28.7
2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16
13.4
15.3
17.5
Source: Company, MOSL
Exhibit 2: Multi year low sales growth
Sales growth (%)
Exhibit 3: ..but multi-year high gross margins
Gross Margins (%)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 4: Employee expenses were up 40bp YoY..
Employees Cost (%)
Exhibit 5: ..while other expenses were up 120bp YoY
Other Expenditure (%)
Source: Company, MOSL
Source: Company, MOSL
29 October 2015
2

Pidilite Industries
Exhibit 6: S/L EBITDA margins expanded sharp 620bp YoY
EBIDTA Margins (%)
Exhibit 7: S/L PAT grew 33.9% YoY, 5% ahead of estimates
PAT Growth (%)
Source: Company, MOSL
Source: Company, MOSL
Conference call highlights
Volume growth in total domestic business is 1%. For Consumer bazaar segment
volume growth is 3-4%.
Pidi is phasing out certain lower margin products.
Sales in smaller towns growing at faster rate vs. urban.
No significant change in market shares.
Nina Waterproofing:
Sales of INR 700mn in April’Sep15 (acquired in April’15).
Strategy is to first consolidate and then expand geographically.
3-4 units will go out of excise exemption in next 3 years.
Value added premium products introduced in Wooden Adhesives (Fevicol
Hyper), Fevicol Heatex (with heat resistant properties).
Expect margins to remain strong for next 1-2 quarters.
Within Industrials – products which are dependent on export oriented
businesses have not done well.
Believe it has strong brand name and product proposition – thus able to
maintain a certain amount of price premium.
International:
Organic constant currency growth rate in 1HFY16: 13%. South and
South East Asia have done better. Middle East and South America have not done
well.
Overseas:
Bangladesh, Thailand, USA performed better. Brazil continues to
withstand tough macros (currency depreciation) however losses reduced due to
cost reduction initiatives. Middle East also incurred losses.
VAM prices:
Current prices are USD 900-925/ton. Prices have corrected QoQ.
Capex of INR 1.7bn for FY16.
Adspends lower in 1H YoY due to phasing differences. For 2QFY16 – adspends
were 3% of sales. It will be in the range of 3.5-4% in 2HFY16.
Gross margin expansion in 2Q16 was also driven by mix improvement.
Tax rate: 30% for FY16. Should go up further in FY17.
29 October 2015
3

Pidilite Industries
Valuation & View
We cut our earnings estimates by 1-2% to bake in lower sales growth, better
than expected margins and revised higher tax rate guidance. 2Q16 performance
highlights the inherent strong pricing power of Pidilite, in our view.
We build in 23% and 21% EBITDA and PAT CAGR for Pidilite over FY15-17E.
Valuations at 45.4x FY16E and 39.5x FY17E EPS remain rich, in our view.
Maintain NEUTRAL with an unchanged target price of INR 550 (35x June’FY17
EPS). Spike in input costs/currency depreciation is a key downside risk. Spike in
input costs/currency depreciation is a key risk.
New
FY16E
47,140
10,214
6,431
Old
FY17E
53,141
11,563
7,392
FY16E
48951
9921
6483
FY17E
55969
11452
7580
% Change
FY16E
FY17E
-3.7%
-5.1%
3.0%
1.0%
-0.8%
-2.5%
Source: Company, MOSL
Exhibit 8: Cut estimates marginally for FY16 and FY17
Net Sales
EBITDA
Adjusted PAT
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
23.0
PE (x)
Peak(x)
Avg(x)
47.5
Min(x)
Exhibit 10:
PIDI
P/E premium vs. Sensex
200
150
41.1
100
50
0
-50
-100
39.0
Pidilite Inds. PE Relative to Sensex PE (%)
LPA (%)
154.5
Source: Company, MOSL
Source: Company, MOSL
EV/EBITDA (x)
FY15 FY16E FY17E
38.0
48.2
31.6
36.1
43.0
34.8
29.5
32.8
19.6
37.4
29.5
28.8
37.0
12.4
64.5
37.6
17.8
26.9
31.1
30.4
27.5
30.3
32.5
29.1
25.7
29.5
17.3
30.3
23.7
35.3
27.3
10.5
55.1
29.4
15.6
28.4
25.9
24.7
24.0
25.9
26.1
24.0
21.6
26.8
15.6
25.6
19.4
30.5
23.7
8.7
34.4
19.3
12.8
23.3
ROE (%) Div. (%)
FY15
32.4
56.4
81.6
35.5
44.9
21.4
29.7
108.1
33.7
16.8
36.0
48.2
23.7
8.6
-21.7
17.2
5.3
26.6
FY15
0.9
0.5
1.3
0.8
0.7
0.6
0.8
1.9
1.8
1.3
0.6
1.0
0.0
0.8
0.0
0.2
0.2
0.8
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)
830
3,186
974
273
1,050
1,295
5,997
802
350
311
393
6,282
569
103
3,146
1,484
391
350
P/E (x)
Mkt Cap EPS Growth YoY (%)
(USD M) FY15 FY16E FY17E FY15 FY16E FY17E
12,200
5,833
4,061
7,338
3,652
6,752
3,866
26,582
42,972
863
3,881
9,284
4,471
208
7,009
1,488
492
4,769
15.8 22.4
45.1 49.8
13.9
9.5
15.7 18.1
20.7 24.0
22.0 27.1
-13.5 21.0
6.4
7.9
8.5
13.9
48.7 18.7
18.1 20.8
6.8 -20.8
9.3
23.8
-10.4 13.2
Loss -152.6
-6.2
7.9
11.1
30.0
40.2
-4.4
18.7 55.9 45.7
20.3 66.5 44.4
14.7 47.4 43.3
15.8 44.9 38.0
26.9 49.1 39.6
23.8 48.5 38.2
16.1 43.2 35.7
8.8
45.8 42.5
10.2 29.2 25.6
-5.2 44.3 37.3
20.7 44.2 36.5
19.2 48.2 60.9
14.9 56.2 45.4
33.9 18.0 15.9
115.5 -66.7 126.9
62.6
43.0
20.7
87.6
80.0
37.8
67.4
57.1
39.5
38.5
36.9
37.8
32.8
31.2
30.8
30.8
39.0
23.2
39.4
30.3
51.1
39.5
11.9
58.9
41.4
39.9
32.7
Neutral
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
29 October 2015
4

Pidilite Industries
Story in Charts
Exhibit 12: Revenues CAGR of 10% over FY15-17E
Revenues (INR mn)
21.8
18.3
14.5
9.6
19.1
15.9
13.4
7.0
12.7
Revenue growth (%)
Exhibit 13: Volume grew 3% in 2QFY16
14.3
Volume growth (%)
12.8
11.4
8.9
5.0
3.0
FY09
FY10
FY11
FY12
FY13
FY14
FY15 FY16E FY17E
FY12
FY13
FY14
FY15
1QFY16
2QFY16
Source: Company, MOSL
Source: Company, MOSL
Exhibit 14: Gross margins to expand by 500bp over FY15-
17E, led by benign input cost..
Gross Margin (%)
49.0
42.1
50.5
47.6
44.3
45.7
44.9
44.9
49.9
Exhibit 15: .. resulting in EBITDA margins expansion of
430bp
EBITDA Margin (%)
21.7
20.1
17.3
13.5
18.8
17.5
17.4
21.8
20.4
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 19.3% CAGR over FY15-FY17E
PAT (INR mn)
100.5
PAT growth (%)
Exhibit 17: Return Ratios (x)
RoE
35.1
31.7
27.6
29.3
25.2
21.3
23.7
23.6
22.3
31.1
9.3
12.1
-22.0
FY09 FY10
FY11
5.5
FY12
FY13
4.5
FY14
23.8
14.9
FY15 FY16E FY17E
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Source: Company, MOSL
Source: Company, MOSL
29 October 2015
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
11,327
47.6
6546
4,780
20.0
20.1
444
268
157
4,225
28.5
17.8
936
22.2
3,289
12.1
13.8
250
3,039
FY12
28,163
18.3
15674
12,489
44.3
7626
4,863
1.7
17.3
479
245
428
4,566
8.1
16.2
1,096
24.0
3,470
5.5
12.3
126
3,344
FY13
33,539
19.1
18206
15,333
45.7
9021
6,312
29.8
18.8
532
80
436
6,136
34.4
18.3
1,588
25.9
4,548
31.1
13.6
-59
4,608
FY14
38,856
15.9
21401
17,456
44.9
10653
6,803
7.8
17.5
686
97
355
6,375
3.9
16.4
1,624
25.5
4,751
4.5
12.2
65
4,686
FY15
44,056
13.4
24282
19,774
44.9
12093
7,681
12.9
17.4
1,077
95
353
6,861
7.6
15.6
1,667
24.3
5,195
9.3
11.8
176
5,019
(INR Million)
FY16E
47,140
7.0
23327
23,813
50.5
13599
10,214
33.0
21.7
1,233
107
313
9,187
33.9
19.5
2,756
30.0
6,431
23.8
13.6
0
6,431
FY17E
53,141
12.7
26615
26,526
49.9
14964
11,563
13.2
21.8
1,364
131
492
10,560
14.9
19.9
3,168
30.0
7,392
14.9
13.9
0
7,392
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
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
22,982
23,494
58
545
24,097
15,440
7,162
8,278
4,603
6,905
3,401
3,504
12,884
5,347
5,146
581
1,810
8,573
6,350
2,223
4,311
24,097
(INR Million)
FY16E
513
30,379
30,892
90
570
31,552
17,440
8,395
9,045
3,906
10,202
6,242
3,960
18,333
7,716
5,658
2,916
2,044
9,934
6,737
3,197
8,399
31,552
FY17E
513
34,980
35,493
100
596
36,189
18,940
9,759
9,181
3,906
14,280
10,170
4,110
20,353
8,698
6,234
3,214
2,208
11,531
7,772
3,759
8,823
36,189
29 October 2015
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
10.1
17.1
45.8
0.0
0.0
FY16E
12.5
22.3
60.3
4.8
38.1
FY17E
14.4
25.2
69.2
5.7
39.3
87.6
55.1
12.0
59.8
25.3
0.3
83.2
54.1
10.1
58.7
21.1
0.3
64.1
42.6
8.5
45.2
16.8
0.5
61.4
38.9
7.3
41.8
14.3
0.5
56.2
33.3
6.5
37.0
12.4
0.0
45.4
25.5
5.9
27.3
9.4
0.8
39.5
22.6
5.2
23.7
8.2
1.0
31.7
30.2
27.6
27.9
29.3
32.8
25.2
31.1
23.7
29.3
23.6
32.3
22.3
30.1
44
79
3.6
42
77
2.9
40
70
3.8
43
67
3.6
43
64
3.5
44
67
2.7
43
68
3.0
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
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
355
-1,221
3,958
-65
3,893
-1,686
2,207
-269
-1,954
-3,210
-523
1,619
-97
355
-1,856
83
1,368
1,451
FY15
6,861
1,077
95
1,667
353
-363
5,651
-176
5,475
-3,535
1,940
-1,167
-4,702
-1,883
-19
0
-95
353
-1,644
-871
1,452
581
FY16E
9,187
1,233
107
2,756
313
-1,754
5,704
0
5,704
-1,303
4,401
-3,297
-4,600
-1,875
32
2,867
-107
313
1,230
2,334
581
2,915
(INR Million)
FY17E
10,560
1,364
131
3,168
492
-125
8,270
0
8,270
-1,500
6,770
-4,078
-5,578
-6,160
10
3,395
-131
493
-2,393
299
2,916
3,215
29 October 2015
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 15: Sensex rebased
Shareholding pattern (%)
Jun-15
Promoter
DII
FII
Others
69.7
5.1
14.7
10.5
Mar-15
69.7
4.3
15.4
10.6
Jun-14
70.1
3.5
15.7
10.7
Top holders
Holder Name
Genesis Indian Investment Company Limited -General
Government Pension Fund Global
% Holding
7.6
1.1
Note: FII Includes depository receipts
Top management
Name
M B Parekh
N K Parekh
Designation
Chairman and Managing Director
Joint Managing Director
Directors
Name
N J Jhaveri*
Sanjeev Aga*
Bharat Puri*
Ranjan Kapur*
Bansi S Mehta*
J L Shah
A B Parekh
*Independent
Name
A N Parekh
Uday Khanna
Meera Shankar
Auditors
Name
BSR & Co LLP
Type
Statutory
MOSL forecast v/s consensus
EPS (INR)
FY16
FY17
MOSL
forecast
12.5
14.4
Consensus
forecast
13.5
16.1
Variation (%)
-7.3
-10.3
29 October 2015
8

CONSUMER GALLERY
COMPANIES
COMPANIES
SECTOR UPDATES

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