Buy Pidilite Industries; target Rs 193: Motilal Oswal

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Buy Pidilite Industries; target Rs 193: Motilal Oswal

Motilal Oswal is bullish on Pidilite Industries (PIDI) and has recommended buy rating on the stock with a target of Rs 193 in its July 27, 2011 research report.

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Motilal Oswal is bullish on Pidilite Industries (PIDI) and has recommended buy rating on the stock with a target of Rs 193 in its July 27, 2011 research report.

"Pidilite Industries (PIDI) posted 17% YoY volume growth (in 1QFY12) in consumer and bazaar products (CBP) and 8-9% volume growth in industrial chemicals (IP). However a slowdown in GDP and industrial activity can reduce growth in the IP segment. Gross margins were down 350bp due to a 20% YoY increase in VAM (Vinyl Acetate Monomer) prices, but prices have cooled to USD1,300/ton from a high of USD1,400/ton (prices were about USD1,000/ ton in December 2010). PIDI increased prices by 5-6% of its flagship adhesive brand Fevicol towards the end of June (after a 1-1.5% increase in May 2011). The benefits of the price increase will be reflected in the coming quarters. New launches like Fevicol Marine, Newcoat and waterproofing products have been well received in the market. International subsidiaries reported 1QFY12 EBIT of INR35m, up from INR20m a year earlier. North America reported a 50% increase in EBIT. Losses in Egypt and NAE declined and margins in South America declined due to input cost pressure."

"We believe PIDI has strong pricing power in consumer products, and margins will rebound in the coming quarters, as the impact of the price increase takes effect. We are reducing FY12 gross margin estimates from 46.4% to 46% and EBITDA margins from 19.7% to 19.1%. We are reducing FY12 EPS estimates by 3% and FY13 EPS estimates by 1% to factor in higher input costs. We believe PIDI is a compelling play on the expected growth opportunity in home interiors and construction. The stock trades at 23.5x FY12E EPS of INR7.4 and 19.3x FY13E EPS of INR9.1. Maintain Buy with an SOTP-based target price of INR193, an 11% upside," says Motilal Oswal research report.

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