Buy Pidilite Industries; target of Rs 186: Motilal Oswal

“Pidilite Industries (PIDI) is the largest branded adhesives player in India, with an iconic brand like Fevicol. Besides a strong presence in adhesives, it has expanded its presence in emerging segments like mechanized joinery, modular furniture, flooring, automotive care and waterproofing through brands like Dr Fixit and Roff.”

“Pidilite Industries (PIDI) posted better than expected results for 1QFY13. Adjusted PAT grew 23% to INR1.3b (our estimate: INR1.2b) on sales of INR9.1b (our estimate: INR9b). Though the tax rate increased 270bp, doubling of other income boosted PAT. Consumer & Bazaar sales were up 21.6%, led by strong momentum in volume growth and pricing. EBIT margin in this segment was up 125bp. Industrial Chemicals sales grew 11.5%, while margin declined 270bp. Continued robust growth in the Consumer & Bazaar segment, despite price hike in Fevicol indicates strong demand. Post a weak 3QFY12, the Industrial business has shown revival, indicating an improving exports scenario. Despite flat gross margin, EBITDA margin expanded 110bp. We believe that PIDI will gain from declining VAM (vinyl acetate monomer) prices, which have softened to USD980/ton. We remain positive on the volume growth scenario in Consumer & Bazaar products despite the management’s cautious outlook.”

“We maintain our revenue and earnings estimates. We expect 22% CAGR in earnings over FY12-14E. The stock trades at 19.9x FY13E and 16.2x FY14E EPS. Maintain Buy,” says Motilal Oswal research report.  

Institutional holding more than 40% in Indian cos   

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