Pidilite Industries
BSE SENSEX
38,279
S&P CNX
11,552
20 August 2018
Annual Report Update | Sector: Consumer
CMP: INR1,146
TP: INR 1,325(+16%)
GST and rational pricing spurring growth
Buy
Wider incentive system, improved asset turns key highlights from annual
report
We delved into Pidilite Industries’ (PIDI) FY18 annual report. Key highlights:
Management explicitly mentioned in its annual report that the Goods & Services
Tax (GST) regime is stabilizing. With the new tax structure now becoming the order
of the day, organized names like PIDI stand to benefit from a longer-term
perspective.
The two acquisitions/ tie-ups during the year – Jowat and CIPY – hold immense
long-term promise.
PIDI invested INR1.5b in its subsidiaries in FY18. Of this, it infused INR339m in
overseas subsidiaries, INR210m in domestic subsidiaries and INR963m for the
acquisition of a 70% equity stake in CIPY Poly Urethanes.
Notably, PIDI continued performing extremely well on the conversion cycle (down 2
days in FY18 to 35 days) and fixed asset turns (net fixed asset turnover was at 5.2x
in FY18, up from 4.9x in FY17) fronts.
Stock options were made more widespread, taking the idea of ‘skin in the game’
further ahead. Even at the promoter level, PIDI has among the highest promoter
shareholding (increased marginally in FY18) in the consumer space.
Strong volumes-led sales growth is also likely to drive healthy operating leverage,
partly offsetting the impact of higher VAM costs. Nevertheless, the pricing
discipline that enables faster conversion from ~30% unorganized trade in adhesives
will have near-term margin implications. EPS growth in FY19, thus, is likely to be in
single-digits before likely reviving FY20 onward. Apart from Titan (TTAN), PIDI is the
only player to have already witnessed and likely to continue witnessing even more
gains over the next few years as a result of the shift from unorganized to organized
trade. Given the tremendous structural opportunity that is likely to lead to elevated
earnings growth beyond FY19, we continue maintaining our Buy rating with a target
price of INR1,325 (50x September’20 EPS, ~20% premium to three-year average).
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
PIDI IN
508
581.8 / 8.3
1194 / 749
6/15/18
614
30.2
Financials Snapshot (INR b)
Y/E Mar
2018 2019E 2020E
Net Sales
60.8
69.1
80.5
EBITDA
13.4
14.9
17.4
PAT
9.6
10.0
11.9
EPS (INR)
18.9
19.7
23.5
Gr. (%)
13.2
4.0
19.3
BV/Sh (INR)
70.4
80.0
85.9
RoE (%)
27.3
26.2
28.3
RoCE (%)
25.1
24.0
26.1
P/E (x)
60.5
58.2
48.7
EV/EBITDA (x)
42.4
37.7
32.0
Shareholding pattern (%)
As On
Jun-18 Mar-18 Jun-17
Promoter
69.8
69.8
69.6
DII
FII
Others
8.1
11.8
9.2
10.4
7.4
11.8
11.2
Management commentary on FY19 outlook
10.3
10.7
FII Includes depository receipts
Stock Performance (1-year)
Pidilite Inds.
Sensex - Rebased
1,210
1,040
870
700
The GST regime is stabilizing, which should have a positive influence on the
company’s business in the long run.
The prices of raw material and packing material have increased further. PIDI is
ready to take the necessary steps to mitigate the impact of this increase. The
company’s major subsidiaries in India are taking initiatives to improve the
market shares in their respective businesses.
The company’s major international subsidiaries are in the US, Brazil, Thailand,
Egypt, Dubai and Bangladesh. The business environment in some of these
countries is not very conducive. However, management is taking steps to
channel energy into these subsidiaries.
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
Krishnan Sambamoorthy – Research Analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Vishal Punmiya – Research Analyst
(Vishal.Punmiya@MotilalOswal.com); +91 22 6129 1547
 Motilal Oswal Financial Services
Pidilite Industries
Tie-ups/acquisitions done over past year show immense promise
A) Tie-up with Jowat, Germany primarily for readymade furniture in India
PIDI and Jowat SE have entered into a technical collaboration aimed at providing
a comprehensive range of thermoplastic hot melt adhesives for catering to the
requirements of joineries and industrial consumers.
The company will also handle the sales and distribution of the entire range of
Jowat adhesives in India and some other neighboring countries, including Nepal,
Sri Lanka and Bangladesh. Jowat SE is well known for its high-end adhesives,
which are used by modular and other wooden furniture manufacturers and
industrial customers in packaging.
The products are also used by the automotive, textile and other segments for a
wide variety of applications.
B) Acquisition of CIPY Polyurathanes (floor painting in India)
PIDI, along with Fevicol Company (wholly owned subsidiary of the company),
jointly acquired a 70% equity stake in CIPY Poly Urethanes.
CIPY, incorporated on 29
th
November 1994, is engaged in the manufacture and
sale of floor coatings using polyurethanes, epoxies, polyurea and polyaspartic
polymers. This acquisition will help PIDI to participate in growth of the resin
flooring and floor coatings market.
CIPY had reported sales of INR267m and EBITDA of INR22m from the date of
acquisition until 31
st
March 2018.
CIPY Polyurathanes is now a subsidiary of the company.
Firming up the product portfolio with new launches
PIDI launched three new products in FY18 as part of its effort to continually expand
its product basket.
Fevicryl Fabric Colours
with new brand graphics and in bottled shape for
multiple fabric surfaces like apparel, home décor and accessories; available in 31
shades – these colors help retain the natural texture of fabric
M-Seal Super Phataphat,
a softer, easy-to-mix and easy-to-apply putty, offering
a smoother finish
Fevicryl 3D Neon Liners,
an easy-to-use, convenient pen format liner, available
in four neon shades for creative outlining and DIY art
Exhibit 1: New launches during the year
Source: Company, MOSL
20 August 2018
2
 Motilal Oswal Financial Services
Pidilite Industries
Fresh investment in subsidiaries
PIDI invested INR1.5b in its subsidiaries in FY18. Of this, it infused INR339m in
overseas subsidiaries, INR210m in domestic subsidiaries and INR963m for the
acquisition of a 70% equity stake in CIPY Poly Urethanes (excluding fair valuation
of derivative option to buy the balance 30% equity stake).
Domestic subsidiary investment
– ICA Pidilite Pvt. Ltd, the wood coatings
business (INR205m), and Fevicol Company Ltd, a wholly owned subsidiary
(INR6m)
International subsidiary investment
– Pidilite Middle East Ltd (INR165m) and
Pidilite International Pte Ltd (INR159m) for onward investment in their step-
down subsidiaries, and Pidilite Chemical PLC (INR15m)
Other developments during the year
Seeking to amalgamate waterproofing businesses:
A petition has been filed
with the National Company Law Tribunal, Mumbai division (NCLT) for
amalgamation of the company’s two waterproofing businesses – Percept
Waterproofing Services Limited (Percept) and Nina Waterproofing Systems
Private Limited (Nina). PIDI holds 80% equity capital in Percept and 70% equity
capital in Nina; it shall hold 71.5% equity capital post-merger in Nina. The said
petition is pending for approval by the NCLT
.
BSST – no longer a step-down subsidiary:
Building System Solution Trading
Limited Liability Company (BSST), incorporated in Qatar, has ceased to be a step-
down subsidiary of the company with effect from 5
th
March 2018.
Sale of Cyclo division –
Pidilite USA Inc., a wholly owned subsidiary of the
company, sold the Cyclo division, which was engaged in the business of
automobile grooming, performance and maintenance products and other such
products. Some of the trademarks used by the Cyclo division that were owned
by Pidilite International Pte Ltd. Singapore (a wholly owned subsidiary of the
Company) were also assigned.
Growth in key segments in FY18
Branded Consumer & Bazaar products continued enjoying the highest salience,
contributing 84% of PIDI’s total turnover. This segment consists of adhesives &
sealants, construction and paint chemicals and arts & craft materials. It grew by
12.1% YoY in FY18.
Industrial Products contributed 15% of PIDI’s total turnover. The Industrial
Products segment consists of industrial adhesives, industrial resins and pigment
and preparations. This segment grew by 7.6% YoY in FY18.
The others segment, which comprises manufacture and sale of speciality
acetates, contributed the balance 1% of turnover.
20 August 2018
3
 Motilal Oswal Financial Services
Pidilite Industries
Exhibit 2: Growth in key business segments
Segment (standalone)
Branded Consumer & Bazaar products
Adhesives & Sealants
Construction and paint chemicals
Arts & Craft Materials
Industrial products
Industrial Adhesives
Industrial Resins
Pigment and Preparations
Revenue (INR m) Revenue Contribution (%) Growth YoY (%)
46,124
30,200
10,982
4,942
8,236
2,196
2,745
3,295
84.0
55.0
20.0
9.0
15.0
4.0
5.0
6.0
12.1
13.9
14.6
3.6
7.6
9.3
2.5
10.6
Source: Company, MOSL
EVA remains healthy
PIDI shared its EVA calculations for the past five years. EVA remains healthy as a
proportion of capital employed. However, cost of capital increased in FY18.
Exhibit 3: Economic value added analysis
Y/E
Item
Risk free return on long term GOI securities
Cost of equity
Cost of debt (post tax)
Effective weighted average cost of capital
Economic value added (INR m)
Average debt
Average equity (shareholders’ funds)
Average capital employed (debt + equity)
PAT ( as per P&L a/c)
Interest ( as per P&L a/c, net of taxes)
NOPAT
Weighted average cost of capital
Economic value added
EVA as % of average capital employed
340
18,860
19,200
4,750
60
4,810
2,342
2,468
12.9%
70
21,940
22,010
5,190
60
5,250
2,685
2,565
11.7%
30
25,000
25,030
7,740
40
7,780
3,204
4,576
18.3%
10
30,250
30,260
8,680
40
8,720
2,784
5,936
19.6%
0
34,820
34,820
9,550
40
9,590
3,969
5,621
16.1%
8.0%
12.4%
0.0%
12.2%
7.8%
12.2%
0.0%
12.2%
7.5%
12.9%
0.0%
12.8%
6.5%
9.2%
0.0%
9.2%
7.2%
11.4%
0.0%
11.4%
FY14
FY15
FY16
FY17
FY18
Source: Company, MOSL
Performance of key subsidiaries
The waterproofing subsidiaries – Nina and Percept – continued performing well,
both on the sales and profitability front.
ICA Pidilite sales grew but operating profit dipped sharply.
Pidilite USA had an extremely poor year.
20 August 2018
4
 Motilal Oswal Financial Services
Pidilite Industries
Exhibit 4: Key subsidiary performance (INR m)
Name of subsidiary
Nina Waterproofing Systems Pvt Ltd
Percept Waterproofing Services Ltd
ICA Pidilite Pvt Ltd
CIPY Poly Urethanes Pvt Ltd
Pidilite USA Inc
Pulvitec do Brasil Industria e Comercio de Colas e Adesivos Ltda
Pidilite Speciality Chemicals Bangladesh Pvt Ltd
Pidilite Industries Egypt SAE includes PIL Trading (Egypt) Company
Pidilite Bamco Ltd includes Bamco Supply and Services Ltd
Pidilite MEA Chemicals LLC
Pidilite Lanka (Pvt) Ltd
Sales
(FY18)
1,836
556
1,028
267
1,085
936
851
263
513
840
318
Sales
(FY17)
1,507
436
949
-
1,438
972
756
214
467
723
263
Growth (%)
21.8
27.4
8.2
-
(24.6)
(3.7)
12.5
23.1
10.0
16.2
21.2
EBITDA
(FY18)
230
71
14
22
71
7
152
-14
44
-93
10
EBITDA
(FY17)
112
48
103
-
-20
52
135
-33
49
-180
18
Growth (%)
105.5
48.9
(86.1)
-
(452.5)
(86.2)
12.6
(57.8)
(8.8)
(48.5)
(42.8)
Source: Company, MOSL
R&D and forex
R&D expenditure increased 52.9% from INR365m in FY17 to INR559m in FY18;
capital and recurring expenditure rose 75.1% YoY and 51% YoY, respectively. As
a percentage of turnover, R&D expenditure increased 27bp YoY to 0.9% in FY18.
Foreign exchange earned grew 4.9% YoY to INR4.5b. However, as a percentage
of turnover, it declined ~25bp to 7.7% in FY18 from 8% in FY17. Foreign
exchange used increased 18.6% to INR6.7b in FY18; as a percentage of turnover,
it was up ~110bp to 13% in FY18 from 11.0% in FY17.
Exhibit 5: Expenditure on R&D
Y/E (INR m)
Capital
Recurring
Total
As a % of turnover
FY17
29
337
365
0.7
FY18
51
508
559
0.9
Change (%)
75.1
51.0
52.9
26.8
Source: Company, MOSL
Exhibit 6: Foreign exchange earned and used
Y/E (INR m)
Foreign exchange earned
% of sales
Foreign exchange used
% of sales
FY17
4,490
8.0
6,670
11.9
FY18
4,710
7.7
7,910
13.0
Change (%)
4.9
(24.5)
18.6
113.8
Source: Company, MOSL
Some balance sheet highlights
PIDI has had a remarkable and consistent track record in the cash conversion
cycle since FY11, with net cash conversion cycle days in the mid-30s across all
these year.
Increase of 2 days YoY in inventory and 3 days YoY in debtors was offset by a rise
of 5 days YoY in creditors. The increase in debtor and inventory days can be
ascribed to depressed sales because of the passing on of GST benefits across
categories in two phases during the year.
20 August 2018
5
 Motilal Oswal Financial Services
Pidilite Industries
Exhibit 7: Cash conversion cycle calculated using closing balances was down to 35 days in FY18 from 37 days in FY17
On closing balances (on sales)
Inventory days
Debtor days
Creditor days
Cash conversion cycle
FY09
51
52
51
52
FY10
49
49
61
37
FY11
56
47
63
40
FY12
52
46
63
35
FY13
51
42
57
37
FY14
51
44
55
40
FY15
48
44
52
40
FY16
43
48
56
34
FY17
47
50
60
37
FY18
48
56
69
35
Source: Company, MOSL
Exhibit 8: Cash conversion cycle calculated using average balances remained at 35 days in FY18
On average basis (on sales)
Inventory days
Debtor days
Creditor days
Cash conversion cycle
FY09
52
50
48
55
FY10
47
48
53
42
FY11
48
44
57
36
FY12
50
43
58
35
FY13
48
40
55
33
FY14
47
40
52
36
FY15
46
42
50
38
FY16
FY17
FY18
43
44
46
44
48
51
52
57
62
35
35
35
Source: Company, MOSL
Exhibit 9: Average raw material days increased by 2 days
YoY to 17 days in FY18
Average Raw materials days
23
18
18
18
15
14
14
14
15
17
Exhibit 10: Average WIP days was constant at 4 days in FY18
Average WIP days
4
4
4
4
4
4
3
3
3
3
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: Company, MOSL
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: Company, MOSL
Exhibit 11: Average WIP days remained constant at 25 days
in FY18
Average Finished goods days
29
29
30
28
25
25
25
Exhibit 12: Thus, average inventory days were up 2 days to
46 days in FY18 on account of an increase in RM days
Average inventory days
52
47
48
27
28
27
50
48
47
46
43
44
46
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: Company, MOSL
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: Company, MOSL
Gross fixed asset turns have also been consistent over the past few years. A
marginal dip was observed in FY17 and FY18 (possibly because of GST and Ind-
AS accounting issues). Net fixed asset actually improved in FY18 at 5.2x in FY18,
up from 4.9x in FY17. Gross fixed asset turns are expected to improve going
forward as volumes have been on a strong upward trajectory for the four
quarters since 2QFY18, of which only two quarters were reflected in the FY18
calculations above.
6
20 August 2018
 Motilal Oswal Financial Services
Pidilite Industries
Exhibit 13: Net fixed asset turnover was at 5.2x in FY18, up
from 4.9x in FY17
Net fixed asset turnover (x)
5.1
6.0
6.1
5.1
5.3
5.2
Exhibit 14: Gross fixed asset turnover remained at 2.8x in
FY18
Gross fixed asset turnover (x)
2.7
3.0
3.0
2.7
3.0
2.8
2.8
3.7
4.1
4.7
4.9
2.2
2.3
2.5
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: Company, MOSL
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: Company, MOSL
Other assets have increased in FY18. Other assets relative to the balance sheet
size remain low, though.
Exhibit 15: Breakup of other assets
Particulars (INR m)
Other current and non-current assets
Capital advances
Prepaid expenses
Balances with government authorities
Export benefit receivable
Advance to vendors
Total other current and non-current assets
As a % of capital employed
Other financial assets
Security deposits
Retention money receivable
Uncertified revenue from works contract
Other financial assets
Total financial assets
As a % of capital employed
FY17
61
582
681
145
210
1,679
4.4
190
248
297
98
833
2.2
FY18
134
552
1,407
127
328
2,548
6.4
207
325
375
137
1,043
2.6
Change (%)
118.2
(5.2)
106.7
(12.2)
56.4
51.8
8.8
30.9
26.2
39.7
25.2
Source: Company, MOSL
Remuneration of key management personnel
CEO’s remuneration increased ~70% YoY in FY18, but is reasonable for an
organization of PIDI’s size.
20 August 2018
7
 Motilal Oswal Financial Services
Pidilite Industries
Exhibit 16: Remuneration of key management personnel
Remuneration (INR m)
MB Parkeh Bharat Puri AB
AN
Sabyasachi Total
(Executive (Managing Parkeh Parkeh Patnaik
chairman) Director) (Whole (Whole (Whole
Time
Time
Time
Director) Director) Director)
27
10
-
-
-
-
-
2
39
2.9
0.1
0.3
0.4
84
1
-
78
-
29
-
-
12
203
68.5
0.3
1.5
2.2
13
3
-
-
-
40
-
-
1
58
10.6
0.1
0.4
0.6
11
3
-
-
-
35
-
-
1
49
9.9
0.1
0.4
0.5
22
0
-
1
-
-
-
-
1
24
11.8
0.0
0.2
0.3
156
17
-
79
-
104
-
-
17
373
0.6
2.8
4.1
Gross salary
(a) Salary as per provisions contained in Section 17(1) of the Income-tax Act, 1961
(b) Value of perquisites u/s 17(2) of the Income-tax Act, 1961
(c) Profits in lieu of salary under Section 17(3) of the Income-tax Act, 1961
Stock option*
Sweat Equity
Commission**
as a % of profit
others
Others
Total
Increase YoY (%)
as a % of Sales
as a % of EBITDA
as a % of profit
*Represents options which have vested and exercised
**Commission for the financial year FY17 paid in FY18
Source: Company, MOSL
Exhibit 17: Increase in remuneration of directors in FY18
Name of Director
Shri M B Parekh
Shri N K Parekh
Shri Bharat Puri
Shri A B Parekh
Shri A N Parekh
Shri B S Mehta
Shri Ranjan Kapur *
Shri Sanjeev Aga
Shri Uday Khanna
Smt. Meera Shankar
Shri Sabyaschi Patnaik
Shri Vinod Kumar Dasari
Designation
Executive Chairman
Vice Chairman
Managing Director
Whole Time Director
Whole Time Director
Director
Director
Director
Director
Director
Whole Time Director
Director
Ratio of remuneration of Director
to the Median remuneration
80.3
4.6
419.1
118.9
100.1
4.2
4.1
3.7
3.8
3.5
50.2
3.3
% increase in FY18
2.9%
12.7%
68.5%
10.6%
9.9%
10.4%
5.3%
3.1%
5.1%
1.8%
11.8%
NA
Source: Company, MOSL
Other details on employees
Median remuneration increased 10.6% YoY to INR0.5m in FY18.
Exhibit 18: Increase in number of employees
Number of permanent employees ('000')
5.4
5.4
Growth (%)
2.6
1.5
4.7
FY14
4.9
FY15
5.0
FY16
5.2
FY17
5.4
FY18
Source: Company, MOSL
20 August 2018
8
 Motilal Oswal Financial Services
Pidilite Industries
New directors and management personnel
Appointment of Independent director:
Mr Piyush Pandey (Executive Chairman
and Creative Director of Ogilvy India who has a long-standing association with
the company having helped devise many of its ad campaigns) was appointed as
Additional Director of PIDI with effect from 11
th
April 2018. Member’s approval
is sought for the appointment of Mr Pandey as an Independent Director for a
period of five years.
Appointment of CFO:
In terms of Section 203 of the Companies Act, 2013, the
Board has appointed Mr P Ganesh as Chief Financial Officer (Key Managerial
Personnel) of PIDI with effect from 20
th
November 2017. Mr Ganesh replaces Mr
Pradeep Jain, who resigned as CFO with effect from 24
th
March 2017.
Shareholding of promoters
Promoter shareholding increased 0.2% in FY18. The stake of promoters was at
69.6% in FY17, which increased to 69. 8% in FY18. PIDI has among the highest
promoter shareholding compared to other consumer peers, indicating higher
skin in the game.
Exhibit 19: Promoter stake in Pidilite is amongst the highest in our consumer universe
Company
Emami
GlaxoSmith C H L
P & G Hygiene
Pidilite Inds.
Dabur India
Hind. Unilever
Jyothy Lab.
Godrej Consumer
Nestle India
Marico
United Breweries
United Spirits
Asian Paints
Colgate-Palm.
Britannia Inds.
Page Industries
Future Consumer
ITC
Promoter shareholding (%)
72.7
72.5
70.6
69.8
67.9
67.2
66.9
63.3
62.8
59.7
57.7
56.8
52.8
51.0
50.7
49.0
44.5
0.0
Source: Company, MOSL
ESOPs granted
What also contributes to higher skin in the game is the increasing and more
widespread number of stock options being granted in FY18.
20 August 2018
9
 Motilal Oswal Financial Services
Pidilite Industries
Exhibit 20: ESOPs granted to senior managerial personnel in FY18
Name of employee
Senior managerial personnel
Shri Sabyaschi Patnaik
Shri Amol Devidas
Shri Ramnarayan
Shri Sanjay Bahadur
Shri Prabhakar Jain
Shri Rajesh Balakrishnan
Shri Vivek Subramaniam
Shri Sanjay Panigrahi
Shri Vivek Sharma
Shri Manish Modi
Shri Atul Bhatia
Shri Nilesh Mazumdar
Shri Chandramouli
Shri Rahul Kumar
Shri Nitin Chaudhry
Smt. Savithri Parekh
Shri Pankaj Bhargava
Shri Ajith Vasudevan
Shri Rajesh Joshi
Other key managerial personnel
Bharat Puri
Designation
Whole Time Director
President - Commercial
President - Technology
Group CEO - CC
CEO - International Business Division
CEO - Industrial Products
CEO - FEVICOL DIVISION
President – Rurban and Special Projects
Chief – Marketing Officer
President - BRG
President - R & D
CEO - Constrution Chemicals (Retail)
CEO - Special Project
President - HR
Chief Executive Officer
Sr. Vice President
Chief Information Officer
Sr. Vice President
Chief Executive Officer (subsidiary Company)
Total
Managing Director
Number of options granted in FY18
3,000
2,000
1,600
3,600
3,900
2,500
3,300
1,900
2,800
2,600
2,900
1,400
600
2,000
2,300
1,500
1,600
900
1,900
42,300
100,000
Source: Company, MOSL
CSR requirements fully met
At INR208m in FY18, the total amount of prescribed CSR expenditure was 2% of
average net profit of the last three financial years (FY15, FY16 and FY17). The
company spent this entire amount in CSR activities.
Exhibit 21: Expenditure on CSR
Year
2014-15
2015-16
2016-17
Average net profit
Prescribed CSR expenditure for FY18 (2% of average net profit)
Total amount actually spent on CSR activities
Amount unspent
Net profit (INR m)
6,841
10,393
13,887
10,374
207.5
207.5
Nil
Source: Company, MOSL
Sustainability- water resources management
PIDI continued supporting water management activities (check dams, farm
ponds etc.) with the Department of Narmada, Water Resources, Water Supply
and Kalpsar Department of Government of Gujarat via the PPP mode.
The work for eight check dams and four ponds deepening was completed in
FY18. 38 check dams and 166 farm ponds have been completed till date with the
assistance of PIDI.
20 August 2018
10
 Motilal Oswal Financial Services
Pidilite Industries
Steps taken or impact on conservation of energy
Green fuel
Large boilers and thermic fluid heaters were migrated to green fuel (biomass).
Moreover, all new projects based on feasibility are designed to use green or
renewable fuels. During the year, the company saved INR111m via the use of
green fuels.
In FY18, PIDI implemented solar PV projects with total capacity of 1.1 MW
across eight manufacturing locations with annual cost-saving potential of
INR13m. Solar projects helped PIDI save INR5m in FY18.
To further increase the use of renewable power, PIDI has planned to implement
solar on ground projects with capacity of 1.8 MW. This is expected to drive
annual savings of INR20m and also raise the company’s renewable power
consumption from current 6.3m KWHr to 9.8 m KWHr.
Strong volumes-led sales growth is also likely to drive healthy operating
leverage, partly offsetting the impact of higher VAM costs. Nevertheless, the
pricing discipline that enables faster conversion from ~30% unorganized trade in
adhesives will have near-term margin implications. EPS growth in FY19, thus, is
likely to be in single-digits before likely reviving FY20 onward.
Apart from Titan (TTAN), PIDI is the only player to have already witnessed and
likely to continue witnessing even more gains over the next few years as a result
of the shift from unorganized to organized trade.
Given the tremendous structural opportunity that is likely to lead to elevated
earnings growth beyond FY19, we continue maintaining our
Buy
rating with a
target price of INR1,325 (50x September’20 EPS, ~20% premium to three-year
average).
Exhibit 23: Consumer sector P/E (x)
Energy efficient equipment
Valuation and view
Exhibit 22: PIDI P/E (x)
65.0
50.0
35.0
20.0
5.0
7.8
28.7
17.9
P/E (x)
Min (x)
Avg (x)
+1SD
39.4
Max (x)
-1SD
54.3
50.4
45.0
37.0
29.0
21.0
13.0
P/E (x)
Min (x)
Avg (x)
+1SD
43.5
38.5
Max (x)
-1SD
43.5
31.4
24.4
17.1
Source: Company, MOSL
Source: Company, MOSL
20 August 2018
11
 Motilal Oswal Financial Services
Pidilite Industries
Story in Charts
Exhibit 24: Domestic Consumer Bazaar volumes grew 13% in
FY18 and is expected to grow at 11% for next two years
Domestic consumer bazaar volume growth (%)
14.3
12.8
13.0
11.0
8.9
8.0
5.6
4.8
32
FY12
FY13
FY14
FY15
FY16
FY17
FY18 FY19E FY20E
FY12
37
FY13
43
FY14
49
FY15
54
FY16
56
FY17
61
69
80
11.0
18.3
17.9
Exhibit 25: Consolidated revenue to grow at a CAGR of 15%
over FY18-20
Revenues (INR b)
15.9
13.0
9.9
8.2
Revenue growth (%)
16.4
13.7
11.4
FY18 FY19E FY20E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 26: Gross margin to contract 90bp over FY18-20
Gross Margin (%)
51.8
44.9
45.9
45.3
45.3
53.0
52.5
51.9
51.6
Exhibit 27: Expect EBITDA CAGR of 13.8% over FY18-20
EBITDA (INR b)
45.8
EBITDA growth (%)
24.1
7.9
5
6
FY13
10.1
7
FY14
14.2
8
FY15
12
FY16
13
7.4
13
6.5
10.8
15
16.8
17
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Source: Company, MOSL
FY12
FY17
FY18 FY19E FY20E
Source: Company, MOSL
Exhibit 28: EBITDA margin to contract 50bp over FY18-20
EBITDA Margin (%)
21.9
17.2
22.4
22.1
21.5
21.6
Exhibit 29: Expect adj. PAT CAGR of 11.4% over FY18-20
PAT (INR b)
56.6
PAT growth (%)
16.3
16.3
16.5
30.2
5
8.0
4
13.2
5
FY14
FY15
8
FY16
9
10
19.3
12.1
6.7
FY17
10
FY18
4.0
FY19E
12
FY20E
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Source: Company, MOSL
FY13
Source: Company, MOSL
20 August 2018
12
 Motilal Oswal Financial Services
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 (%)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deferred Liability
Minority Interest
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Goodwill
Others
Investments
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
FY14
43,166
15.9
23,613
19,553
45.3
12,504
7,048
10.1
16.3
812
163
115
6,188
6.8
14.3
1,653
26.7
4,536
8.0
10.5
FY15
48,783
13.0
26,686
22,097
45.3
14,048
8,049
14.2
16.5
1,178
156
113
6,828
10.3
14.0
1,694
24.8
5,134
13.2
10.5
FY16
53,612
9.9
25,847
27,765
51.8
16,030
11,735
45.8
21.9
1,005
133
778
11,376
66.6
21.2
3,335
29.3
8,040
56.6
15.0
FY17
56,168
4.8
26,396
29,772
53.0
17,174
12,598
7.4
22.4
1,151
139
1,123
12,430
9.3
22.1
3,851
31.0
8,579
6.7
15.3
FY18
60,784
8.2
28,877
31,908
52.5
18,495
13,412
6.5
22.1
1,199
155
1,484
13,542
8.9
22.3
3,927
29.0
9,615
12.1
15.8
FY19E
69,123
13.7
33,239
35,884
51.9
21,022
14,862
10.8
21.5
1,359
184
1,501
14,821
9.4
21.4
4,817
32.5
10,004
4.0
14.5
(INR Million)
FY20E
80,451
16.4
38,947
41,504
51.6
24,138
17,366
16.8
21.6
1,598
184
1,713
17,298
16.7
21.5
5,362
31.0
11,935
19.3
14.8
(INR Million)
FY20E
508
43,133
43,641
1,226
1,048
1,750
47,665
25,624
12,933
12,691
2,277
1,774
793
15,459
39,327
10,753
12,069
11,828
4,677
24,657
15,168
9,489
14,670
47,665
FY14
513
19,014
19,526
459
537
42
20,565
14,212
7,150
7,062
4,580
230
59
2,603
14,750
5,997
5,244
1,772
1,737
8,719
6,510
2,209
6,031
20,565
FY15
513
22,193
22,706
584
566
51
23,907
17,867
8,298
9,570
4,618
215
68
3,599
15,077
6,410
5,861
860
1,946
9,240
6,933
2,308
5,837
23,907
FY16
513
25,867
26,380
800
753
434
28,367
17,942
7,901
10,040
1,581
1,334
517
7,055
16,611
6,274
7,016
1,318
2,003
8,772
8,223
549
7,839
28,367
FY17
513
34,196
34,709
975
877
1,273
37,835
20,329
8,915
11,414
1,477
1,338
754
14,431
18,290
7,209
7,685
999
2,397
9,870
9,231
639
8,420
37,835
FY18
508
35,233
35,740
1,226
1,048
1,750
39,764
21,624
9,976
11,648
2,277
1,774
793
12,459
23,034
8,043
9,381
1,636
3,974
12,222
11,573
649
10,812
39,764
FY19E
508
40,110
40,617
1,226
1,048
1,750
44,641
23,624
11,335
12,289
2,277
1,774
793
13,959
32,995
9,613
10,367
8,635
4,379
19,447
12,989
6,458
13,548
44,641
20 August 2018
13
 Motilal Oswal Financial Services
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
RoIC
Working Capital Ratios
Debtor (Days)
Creditor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
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
FY14
8.8
10.4
38.1
2.7
30.3
FY15
10.0
12.3
44.3
2.9
28.7
FY16
15.7
17.6
51.5
0.5
3.2
FY17
16.7
19.0
67.7
4.7
28.2
FY18
18.9
21.3
70.4
6.0
31.5
FY19E
19.7
22.4
80.0
10.0
50.8
FY20E
23.5
26.7
85.9
15.0
63.8
129.5
109.8
13.5
82.8
30.1
0.2
114.4
93.1
12.0
72.5
25.9
0.3
73.1
64.9
10.8
49.4
22.3
0.0
68.5
60.4
10.2
45.5
16.9
0.4
60.5
53.8
9.4
42.4
16.3
0.5
58.2
51.2
8.1
37.7
14.3
0.9
48.7
43.0
6.9
32.0
13.3
1.3
25.2
24.1
43.5
44
66
3.3
24.3
23.6
39.1
44
62
3.2
32.8
31.1
45.6
48
72
3.0
28.1
26.2
40.2
50
77
2.8
27.3
25.1
39.1
56
89
2.7
26.2
24.0
42.2
55
87
2.7
28.3
26.1
57.5
55
88
2.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(INR Million)
FY20E
17,298
1,598
184
5,362
1,713
2,071
14,075
0
14,075
-2,000
12,075
-1,500
-3,500
-8,965
0
0
-184
1,767
-7,382
3,193
8,635
11,828
FY14
6,188
812
163
1,653
115
-1,355
4,041
-65
3,976
-1,921
2,055
338
-1,583
-3,068
-653
1,619
-163
138
-2,127
266
1,506
1,772
FY15
6,828
1,178
156
1,694
113
-718
5,637
-49
5,588
-3,723
1,864
-996
-4,719
-3,707
125
1,789
-156
169
-1,780
-911
1,772
860
FY16
11,376
1,005
133
3,335
778
-1,544
6,855
0
6,855
1,562
8,417
-3,456
-1,894
-4,520
216
309
-133
-375
-4,503
458
860
1,318
FY17
12,430
1,151
139
3,851
1,123
-900
7,848
0
7,848
-2,422
5,426
-7,376
-9,797
-3,110
175
2,931
-139
1,775
1,632
-318
1,318
1,000
FY18
13,542
1,199
155
3,927
1,484
-1,755
7,730
0
7,730
-2,233
5,497
1,972
-261
-8,466
250
0
-155
1,538
-6,833
636
999
1,636
FY19E
14,821
1,359
184
4,817
1,501
4,263
14,309
0
14,309
-2,000
12,309
-1,500
-3,500
-5,180
0
0
-184
1,554
-3,810
6,999
1,636
8,635
20 August 2018
14
 Motilal Oswal Financial Services
Pidilite Industries
NOTES
20 August 2018
15
 Motilal Oswal Financial Services
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
Pidilite Industries
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.
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company at the end of the month immediately preceding the date of publication of the Research Report.
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a)
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b)
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c)
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buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by
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Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the
specific recommendations and views expressed by research analyst(s) in this report.
Disclosure of Interest Statement
Analyst ownership of the stock
Pidilite Industries
No
A graph of daily closing prices of securities is available at
www.nseindia.com, www.bseindia.com.
Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOSL or
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Singapore Person must immediately discontinue any use of this Report and inform MOCMSPL.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced
in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in
this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of
independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document
(including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including
those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy,
completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval.
MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform
investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this
into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and
the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or
published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such
distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all
jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall
be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
The person accessing this information specifically agrees
to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL
or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm
Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:
na@motilaloswal.com,
Contact No.:022-38281085.
Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser:
INA000007100.IRDA Corporate Agent-CA0541. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS
(Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers
Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products
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