Pidilite Industries (Pidilite) Q3FY2022 performance was affected by a sharp decline in OPM affected by a significant increase in the VAM prices. Its consolidated revenues grew by 24% y-o-y to Rs. 2,850.7 crore driven 21% growth in the domestic C&B business and 35% growth in the B2B business. Gross margins decreased by 1,117 bps y-o-y, led by a sharp increase in the VAM prices. VAM consumption price stood at $2,200/tonne as compared to $1,000/tonne in Q3FY2021 thus dragging down OPM by 861 bps to 19.3% (lagging ours as well as the street’s expectation of 21-22% for the quarter). The company is confident of medium term growth outlook in view of strong demand from home improvement segment and improved demand from real estate and construction segments. Margins are expected to remain under pressure in the near term but will improve as input prices ease.
Pidilite’s management is confident improving growth prospects in the medium to long run led by higher demand from the home improvement segment and improving demand from real estate and construction activities. The company continued to gain market share in the construction chemical segment (especially in the waterproofing space) from unorganised players. The stock has corrected by 11% from its recent high and any further correction can be considered as a good entry point in the quality building material play. The stock is trading at 74.0x and 61.8x its FY2023E and FY2024E EPS. We maintain a Buy on the stock with an unchanged price target of Rs. 2,792.
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