Hold Pidilite Industries; target of Rs 1045: ICICI Direct

ICICI Direct's research report on Pidilite Industries

Standalone sales grew 14.5% YoY led by sales volume & mix growth of ~13% YoY. Both consumer & bazaar (C&B) and industrial segments recorded strong volume, mix growth of ~13%, ~14% YoY, respectively, in Q4FY18 supported by sustained demand from rural India. On consolidated basis, sales growth at ~15% YoY (~20% excluding sales of cyclo division) was driven by strong performance of domestic, international subsidiaries. Overseas subsidiaries recorded sales growth of ~16% YoY (constant currency basis) backed by 46% increase in US revenues. Domestic subsidiary posted sales growth of ~52% YoY in Q4FY18 led by waterproofing business Gross margin decline of ~100 bps YoY was a result of higher input prices and unfavourable currency movements. According to the management, higher inflationary pressure would be mitigated by partial price hike on regular intervals. Further, one-time gains on account of write-back of prior year’s tax incidences and higher other income drove PAT higher at ~57% YoY in Q4FY18.

Outlook
Though we maintain our positive stance on the company’s future growth prospects, we believe the stock discounts all near term positives at the CMP. We believe there will be some consolidation in EBITDA margin owing to rising raw material cost and rising intensity of competition in the adhesive business. However, strong balance sheet (zero debt, RoCE, RoE of 33%, 23%, respectively), average dividend payout of 36% and an efficient deployment of cash for inorganic growth would be an added advantage for Pidilite Industries. We model revenue, earnings CAGR of ~16%, ~11%, respectively, in FY18-20E led by revenue CAGR of 17% from the C&B segment. We maintain our HOLD rating on the stock with a target price of Rs 1045/share.

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