Accumulate Pidilite Industries; target of Rs 1184 Prabhudas Lilladher

Prabhudas Lilladher's research report on Pidilite Industries

We cut FY20 and FY21 EPS by 3.0% and 2.3% following cautiously optimistic outlook on demand following just 4% volume growth (average 16.0% in last 6 quarters) in C&B products due to pressure in construction chemicals, although low VAM prices (USD950/ton v/s USD1100/ton in 4Q) and stable USD/INR will aid margins. PIDI is well placed to capitalize on the growth opportunity in adhesives, sealants and waterproofing given strong brand like Fevicol and Dr. Fixit under its belt. International subsidiaries in SAARC, SE Asia and ME are doing well with 17% sales and 40% EBIDTA growth in FY19, although USA and Brazil remain a drag. Long term outlook remains positive as emerging businesses like Nina, Percept (waterproofing services), ICA (wood coatings) and CIPY JV's (floor coatings) have reported 15.5% increase in sales to Rs4.9bn and 39.2% increase in EBIDTA to Rs549mn.

Outlook

We estimate 19.1% PAT CAGR over FY19-21 on 14.4% increase in sales and 180bps margin expansion given benign input cost environment. We value the stock at 43xFY21 EPS and arrive at SOTP based target price of Rs1184 (Rs1163 earlier). Retain Accumulate.