See margin expansion in H2FY15: Pidilite Industries

Pidilite Industries Limited the owner of famous brand Fevicol is pioneer in consumer and specialities chemicals in India. Its second quarter consolidated net profit rose 17 percent at Rs 138.9 crore against Rs 118.5 crore in the same quarter last year.Sandeep Batra, CFO, Pidilite Industries in an interview to CNBC-TV18 spoke about the numbers and way forward for the company.Although the margins in Q2 were impacted by unprecedented rise in prices of key input vinyl acetate monomer (VAM), going forward there is a strong case for expansion in margins in the second half of FY15, said Batra. The company had initiated two price hikes to compensate for the sharp rise in VAM costs which were not adequately reflected in Q2 results. However, they are sure to reflect Q3 onwards, said Batra.He said the standalone business growth was led by growth in consumer and bazaar segment.Pidilite Industries is the market leader in adhesives and sealants, construction chemicals, hobby colours and polymer emulsions in India.  It owns the famous brand Fevicol.

Below is the transcript of Sandeep Batra’s interview with Ekta Batra and Reema Tendulkar on CNBC-TV18.Ekta: Wanted to touch upon a couple of your segment performances this time around. It seems as though your consumer and bazaar products have led the revenues this time. Can you just take us through what the volumes look like, what realisation and maybe prices look like in terms of movement?A: The results that the board announced yesterday show that the standalone business grew by 14.6 percent in topline where the growth was led by 15.9 percent growth in the consumer and bazaar products of which the underlying volume growth would be close to 10 percent and the remaining would be made up through price as well as mix improvement action. Reema: The volume growth in consumer and bazaar products was 10 percent, right? A: Yes, that is correct. Reema: Can we talk a little bit more about your margins because in the previous quarter also your margins were under pressure that disappointed the street and even in this quarter we have seen your margins decline on a year-on-year (YoY) basis as well as on a quarter-on-quarter (QoQ) basis. What is the outlook on margins going ahead, do you expect them to sustain around that 16.5 percent mark or will the pressure continue? A: The main reason why our margins got impacted was because of an unprecedented increase in the prices of vinyl acetate monomer (VAM) which started maybe towards the end of Q4 of last year and then continued to increase. However, to offset that we have taken two price increases, one in the first quarter and another one in the middle of the second quarter. The results for Q2 do not fully reflect the benefit of the price increase taken so far which will be fully manifest in Q3 and thereafter. Also, the overall inflationary trend has been quite benign. Oil prices have fallen significantly and also the increase in rates of vinyl have stopped. So, vinyl prices have peaked and maybe are marginally coming off from the highs that they had reached. So, this combination certainly we should not see significant input cost inflation in the coming month. As the prices of VAM ease we would see certainly some flow through of that in the bottomline. Reema: So, Q3 and Q4 margins should be better than what you clocked-in in Q2? A: If some unprecedented event doesn’t happen then certainly the worst of inflation would be behind us.

Ekta: While industrial products is not the main business or the bulk of revenues that come in for the company give us a sense in terms of when do you expect it to pick up and was this quarter satisfactory growth for you at 8 percent? A: The industrial product segment has two drivers; one is the domestic demand which is largely a factor of how industrial growth in India picks up. We know the industrial growth situation in India has remained challenged. We don’t see any major turnaround happening very immediately but as and when the industrial activity in India picks up this segment will see the result, the benefit of that up tick. The second driver is export where again in the last quarter export growth has been below our expectations. However, that again is a matter of timing when you get your shipments through. If you look at an overall one year basis, I think the domestic demand is the main concern for us there and as and when that improves we would see improvement in our topline there. Ekta: I have a brokerage report with me which is from the previous quarter. They are estimating sales of over Rs 5000 crore for FY15, is that an assumption which you think you can stick by, what would your guidance in terms of revenues be or a quarterly run rate if you can share with us? A: As a company we don’t comment on any guidance or any outlook for the future. I will not be able to comment on the brokerages computation. Reema: Can you give us some details about the acquisition of Blue Coat Limited as well as the approach towards capital allocation in the future? A: The only information regarding the acquisition that we have put in public domain has been the consideration that we paid for it. Other pieces of information I am not at liberty to share. As regards our approach on capital allocation it will remain largely strategic. So, we have some of these bolt-on acquisitions that we would continue to do in product or in markets which are integrated with the core product portfolio of the company; that is about it.