Accumulate Pidilite Industries; target of Rs 1290: Dolat Capital

Dolat Capital's research report on Pidilite Industries

Pidilite reported a 19.8% YoY revenue jump, with domestic volume rising 11%. This was driven mainly by a 13% increase in C&B volume, offset by a 2% volume de-growth in the industrial business. Given an unfavorable base (+22%), a double digit growth in volume was satisfactory. However, significant gross margin erosion of 620bps to 47.2% (lowest in 15 quarters) due to high input costs and Rupee depreciation was sharper than expected. Going ahead, we believe that volume growth is likely to remain robust, despite aggressive competition, as the company has a strong brand portfolio and better reach. Further, moderation in input costs (VAM prices sub USD1000/ton vs USD1300/ton earlier), easing of currency impact, and increase in realization (+5%) will improve margins. We thus believe operating margins would normalize in the ensuing quarters.

Outlook

We revise our EPS estimates downwards to ` 18.6 and ` 22.9 for FY19E and FY20E, and introduced FY21 EPS at `26.9. Valuing the stock at 48x FY21E EPS (in line with APL) to arrive at a TP of ` 1,290. Maintain ACCUMULATE.