Hold Pidilite Industries; target of Rs 2737: Prabhudas Lilladher

Prabhudas Lilladher's research report on Pidilite Industries

We are reducing FY23/FY24/FY25 EPS estimates by 7.2%/0.5%/3.4% which factors in softer margin recovery in 3Q and return to normalcy in 4Q. 3Q margins are expected to see elevated VAM/other input prices with higher priced inventory and impact of INR depreciation. Although current spot prices are in the range of $1200-1400/ton, margin benefit is expected to accrue mainly in 4Q23. Demand trends look favorable with pent up demand in real estate & improvement in repair & renovation. Long term prospects remain intact led by 1) aggressive innovation in core, growth & pioneer categories 2) emerging categories like tiles and marble grout adhesives as next growth drivers 3) market leadership in a low penetration waterproofing segment and 4) focus to increase distribution reach in rural India and small towns.

Outlook

We expect 31.5% EPS CAGR over FY22-25 and assign a DCF based TP of Rs2737 (2691 earlier). Aggressive entry of APNT in adhesives and potential loss of leadership in waterproofing to APNT is a key risk to our call. Retain ‘Hold’.