Buy Pidilite Industries; target of Rs 3427: Prabhudas Lilladher

Prabhudas Lilladher's research report on Pidilite Industries

PIDI continues ~double-digit UVG led by 9.8% UVG in 1Q, along with 150bps EBITDA margin expansion given lower operating expenses & flat GM. PIDI continues to focus on volume-led profitable growth led by its strategy of developing pioneer categories and entering newer segments. B2B continued its growth momentum driven by Industrial & Project verticals whereas B2C improved sequentially. IBD has witnessed an uptick in sales while MENA margins remain stable. PIDI is open to exploring tie ups and entry in segments like adhesives or specialty chemicals for EV/Semiconductor or electronic manufacturing, however it is a long-haul business. PIDI is well placed to sustain growth led by innovations, tie-ups to bring technologically advanced products and 2-4x growth in pioneer and growth categories (45% sales). Near term margin outlook seems stable, although margins leave a little scope of expansion from current levels.

Outlook

We estimate 11.3% EPS CAGR over FY25-27 and assign DCF based target price of Rs3427 (Rs3428 earlier). PIDI is operating at peak of the cycle margins, consequently, returns could be measured unless growth surprises meaningfully. Retain BUY.

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