Demand still weak; can sustain 19-20% margin in FY17: Pidilite

All international markets of Pidilite have been doing well except Brazil, where EBITDA break-even has been achieved last year, he said.

Below is the verbatim transcript of Apurva Parekh's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: It was a very strong quarter gone by for the company with the margins almost at 20 percent now versus 12 percent same time last year, but tell us going ahead you may not have as much of benefit of crude that you had in the last couple of quarters. Do you think that the margins will still be sustainable around this 19-20 percent level?A: Yes, we believe that the margin can sustain at around 19-20 percent level which was in the Q4, but if you look at our margin for the full year they were quite high due to benign oil prices, such high margin may not continue.Latha: Okay, so 20 percent doable, 23 percent not possible, is that your point?A: What I mean it may not be sustainable because they were record high and they were helped by very low crude prices, so such high margin may not be sustainable. It can happen, but may not happen.Latha: Your Q4 revenues tend to be lower than your other quarter revenues. Is this a seasonal thing because last Q1 you did Rs 1,400 crore, Q2 you did Rs 1,300 crore odd. Is Q4 usually a lower quarter for you?A: Yes, it’s usually the lower quarter because of some channel inventory correction and some seasonality.Latha: I was wondering whether this is due to any price discount that you gave. What is the revenue run rate for the full year and what can we expect in FY17-18?A: We do not like to give any outlook on revenue growth, but if you see for the last full year our standalone sales grew by about 8 percent, so we are focussed to accelerate our top line growth.Latha: So usually 10 percent is your revenue run rate?A: Normally if you look at historically our top line has been growing at about 15 percent as compared to the last year the standalone growth was about 8 percent, consolidated was about 11 percent. We would like to accelerate our top line growth to our historical level.Latha: Why the drop then?A: Last year there were various conditions; last year there was a challenging demand scenario and if you see for us and also lot of peer companies the top line growth was affected, so in line with that our top line growth was also affected. We believe it’s largely due to a challenging demand scenario.Sonia: How was the demand environment currently, has it improved compare to what we have seen in the last quarter and what are the products that could lead you to this 15 percent growth for the next year?A: There has been no significant change from the end of the year as far as demand scenario goes. As far as 15 percent goes, that is not the outlook for the next year, what I have said is that we would like to improve out top line growth to achieve 15 percent on a more consistent basis. As far as growth goes, almost all our core products and categories are growing well and have a lot of potential to grow.Sonia: But how is the demand environment, you said there is no significant change in the demand outlook. Has it been muted, where are you seeing the pressure pockets and how long would you expect that to continue?A: No, what I mean is it still very early in the year so there is no change in our position from what was there at the end of the year, because we are just in the second month of the year, so it is very difficult to say how the year will go by or how the demand scenario would be. We would not like to really say anything based on one month or two month kind of position.As far as pressure pocket goes overall, there has been some slowdown in construction, there has been some slowdown in demand across various segments and sectors, that is what resulted in lower growth last year, but we are making our effort to grow all our categories, all our core categories.Latha: You took a write off on your Brazilian subsidiary. Should we expect anything from this front, you have subsidiary in Bangladesh, Thailand and USA which I believe are doing well, if you should be prepared for anything from the international segment?A: As far as international segment as you just said our subsidiary in Bangladesh is doing very well, Thailand is doing well, US is doing well. As far as Brazil as everybody knows Brazil economy is going through a very challenging time, but despite this due to various efforts on margin improvement, expense reduction we have significantly reduced our losses in Brazil over last couple of years and in the last quarter we had breakeven at earnings before interest, taxes, depreciation, and amortization (EBITDA) level, so while Brazil goes through a very challenging situation, we are focussed on improving our margin and having a tight control on expenses, so that we try to breakeven or make some profit on a consistent basis.Sonia: The space has become very competitive now. Asian Paints has also entered into the adhesive business with Loctite. How are you dealing with this competition and have you reduced your pricing or cut prices in order to sort of combat competition?A: There has always been competition from number of companies in adhesive space companies like Henkel, 3M, and Huntsman big multinational and large and medium Indian companies have been in adhesive space for many years. As far as Asian Paints goes their launch is very recent, so I don’t have any specific comment as far as Asian Paints goes. As far as price reduction we have not done any price reduction specifically to combat competition.