Motilal Oswal's research report on Pidilite Industries
In 2QFY24, PIDI’s performance was in line with our estimates. Volume growth was resilient at 8.2% despite monsoon-related disruptions. Consumer and bazaar (C&B) segment revenue grew 3%, while B2B segment revenue declined 1% due to price adjustments and lower demand from export markets and export-oriented industries. Prices of its key RM, vinyl acetate monomer (VAM), continued to decline materially to ~USD1,000/t from USD2,500/t in 2QFY23. Consequently, GP margin expanded sequentially and yearly. However, the company’s A&P spending doubled YoY during the quarter. PIDI has set up a lending business to provide small retail loans to its domain ecosystem. In the next two years, PIDI plans to invest up to INR1b in the new business through a balanced mix of equity and debt in staggered tranches. The management indicated that rural growth remained higher than urban growth. Although a sharp reduction in raw material costs could lead to healthy earnings growth over FY23-FY25, expensive valuations compel us to reiterate our Neutral rating on the stock.
Outlook
However, we believe the current valuation limits the upside potential. We reiterate our Neutral rating on the stock with a TP of INR2,400 (premised on 55x FY25 EPS).
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