Buy Pidilite Industries; target of Rs 205: Nirmal Bang

Nirmal Bang is bullish on Pidilite Industries and has recommended buy rating on the stock with a target of Rs 205 in its July 24, 2012 research report.

“Incorporated in the year 1969, Pidilite Industries is the market leader in adhesives and sealants, construction chemicals, hobby colours and polymer emulsions in India. The company’s operations can be divided into two segments: 1. Branded Consumer and Bazaar Products Segment (79 per cent of revenues, grew 22.8 per cent y-o-y in FY’12) and 2. Speciality Chemicals (21 per cent of revenues, grew 9.5 per cent in FY’12).”

“Pidilite Industries (Pidilite) has been continuously reporting excellent set of numbers backed by strong brands. Pidilite owns brands like Fevicol, M-Seal and Dr. Fixit and is a thematic play on the consumer story and housing construction in the country. The company has reported 18 per cent and 28 per cent y-o-y growth in net sales and PBT respectively for Q1FY’13. We expect this trend to continue going forward also on the back of:

1. Stabilising Vinyl Acetate Monomer (VAM) prices – VAM and its derivatives are a key raw material for Pidilite Industries. Prices of VAM move in-line with that of crude oil, price of which have corrected by more than 20 per cent from 52-week high levels.

2. Range-bound rupee movement – Q1FY’13 was a turbulent quarter as far as currency movement goes. We expect that the rupee has already seen its worst levels and is unlikely to touch the recent lows(against the dollar) in the near future. This should augur well for the company considering the fact that Pidilite imports its entire requirement of VAM.

3. Price hikes taken by the company – The company has taken price hikes across key segments to maintain its margins. The results of Q1FY’13 clearly signify the fact that on the back of strong brand recall value and leadership position in key segments, the company has been able to register decent volume growth inspite of the hike in prices.

“The company has been consistently maintaining a dividend pay-out ratio of ~30 per cent. Considering the robust business model backed by strong brands leading to sustainability of margins, clean Balance Sheet and high promoter holding (~70 per cent), we expect the share price to cross Rs.200 mark and have a target of Rs.205 for the scrip over the next nine months,” says Nirmal Bang research report.   

Institutional holding more than 40% in Indian cos

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