Accumulate Pidilite Industries; target Rs 282: P Lilladher

Prabhudas Lilladher's report on Pidilite Industries

Pidilite Industries, consumer and Bazaar segment (78 percent of sales) demand scenario remains like 1QFY14 (volume growth 7-8 percent), even in Industrial products (22 percent of sales) while domestic demand remains under pressure, exports (25 percent of industrial products) are benefitting from Rupee depreciation.

PIDI has increased Fevicol prices by 3 percent in September; construction chemicals have seen 4-5 percent increase in July-August. Input costs have increased due to INR depreciation even as USD rates of VAM (Vinyl Acetate Monomer) are flat. Although PIDI has carry over input cost inventory from 1Q, small impact on margins can't be ruled out.

PIDI has launched lower priced variants in water proofing segment to match the products of Asian Paints and Berger Paints. PIDI has retained "Falcofix" as a fighter brand (acquisition of 'Suprashav') to compete at the lower end of the market; PIDI is positive on growth prospects of this brand.

South & South Asia continues to perform well, while Middle East & Africa are affected due to political turmoil in Egypt. New CEO has been appointed for American region; Sargent Art business continues to perform well and is growing steadily.

"Demand conditions remains soft across both Adhesives and construction chemicals. PIDI has taken 3-5 percent price increase across key brands like "Fevicol" and "Dr Fixit", however some impact on margins can't be ruled out in the transition period. Finalisation of any strategic partner/sale of stranded Synthetic elastomer project would be a positive trigger, in our view. We estimate 15.5 percent PAT growth in FY14 and 19.5 percent PAT CAGR over FY13-15. PIDI trades at 20xFY15 EPS of Rs12.6. Retain 'Accumulate' (target price of Rs 282, 11 percent upside)," says Prabhudas Lilladher research report.

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