Hold Pidilite Industries; target of Rs 2500: Prabhudas Lilladher

Prabhudas Lilladher's research report on Pidilite Industries

However, worst seems over given 1) sustained growth in Tier1/2/3 cities and hopes of revival in Tier4/5 in 4Q23 and 2) 58% correction in VAM prices from peak and likelihood of 4Q exit margins entering guidance band of 20-24%. Long term trends remain favorable with 1) pick up in real estate, repair & renovation activity 2) plans to launch 1-2 innovations every quarter for next 12-18 months 3) targeted increase in ratio of Pioneer and Growth categories from current 33% to 50% over next 3 years and 4) gains from increased distribution reach in rural India and small towns. We estimate 26.8% EPS CAGR over FY22-25. PIDI trades at 48.7xFY25 EPS which leaves limited room for re-rating despite encouraging long term outlook. Retain Hold.

Outlook

We cut FY23/FY24/FY25 EPS estimates by 8.6/9.8/9.4% and DCF based target price to Rs2500 (Rs2679 earlier) tepid sales growth and margin recovery in 3Q23.

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