Q4 FY 2022 Review

Pidilite Industries Limited reported net revenue of ₹2,507.10 crores for the quarter ended March 31, 2022, compared to ₹2,235.52 crores for March 31, 2021. EBIT and Profit After Tax were ₹350 crores and ₹254.35 crores for the quarter ended March 31, 2022, as compared to ₹429.93 crores and ₹307.44 crores, during the corresponding quarter of the previous year.

Pidilite Industries Limited - Investment Summary

Pidilite Industries Limited - Overview

• Pidilite Industries is India’s leading manufacturer of adhesives, construction chemicals, specialty chemicals, consumer, and maintenance products.

• The company has a portfolio of over 1,000 products developed through strong-in-house R&D.

• It has 6,000 distributors and 6,00,000 dealers/retailers across India.

• It has manufacturing facilities in India, Bangladesh, Thailand, Singapore, Dubai, Brazil, U.S., and Egypt.

• It has State-of-art R&D centers in India and Singapore.

Pidilite Industries Limited - Quarterly Summary

Business

• Pidilite Industries Limited was incorporated on 28th July 1969.

• Pidilite was the first company in India that started the production of violet pigment in the year 1973.

• The company got listed on BSE in the year 1993.

• Fevicol, the company’s premier brand, ranked among the top 15 Indian brands by the FE Bandwagon in 1997.

• The company ranked among the best 100 brands in the year 2014.

• Some of the company’s major brands include Fevicol, Fevicol MR, Dr. Fixit, Fevikwik, M-Seal, Fevistik, Hobby Idea’s, and Fevicryl.

• The company operates under two business segments:

  • Branded Consumer & Bazaar:

    • Products such as adhesives, sealants, art & craft materials, and construction and paint chemicals are covered under Branded Consumer & Bazaar.

    • These products are widely used by carpenters, painters, plumbers, mechanics, households, students, offices, and many more.

  • Business to Business:

    • Business to Business segment covers products such as industrial adhesives, industrial resins, construction chemicals, organic pigments, pigments preparation, and many more.

    • It caters to various industries like packages, joineries, textiles, paints, printing inks, paper, leather, etc.

• Out of the total revenue, 79% of revenue have generated from Branded Consumer & Bazaar and 21% from Business to Business in FY 2022, compared to 80% and 20% in FY 2020.

  

• Out of total revenue, 85% of revenue is received from India and 15% from outside India in FY 2022, compared to 83% and 17% in FY 2021.

  

Pidilite Industries Limited - Ratio Analysis

Pidilite Industries Limited - Financial Overview

Profit and Loss Statement (₹ in crores)

Pidilite Industries Limited - Cash Flow Statement (₹ in crores)

Pidilite Industries Limited - Balance Sheet (₹ in crores)

Pidilite Industries Limited - Industry Overview

• Construction Industry

  • The construction industry in India consists of the real estate as well as the urban development segment.

  • The real estate segment covers residential, office, retail, hotels, and leisure parks among others.

  • While the urban development segment broadly consists of sub-segments such as water supply, sanitation, urban transport, schools, and healthcare.

  • FDI in the construction development sector (township, housing, built-up infrastructure, and development sector) and construction (infrastructure) activities stood at $27.97 billion and $26.20 billion, respectively, between April 2000 and March 2022.

  • The construction industry in India is expected to reach $1.4 trillion by 2025.

  • The construction industry market in India works across 250 sub-sectors with linkages across sectors.

• Specialty Chemical Sector

  • India’s high-value specialty chemical segment caters to agrochemicals, dye, food, and fragrance applications.

  • The specialty chemical segment will out-space Chinese companies and double its global market share from 3% in FY 2021 to 6% in FY 2026.

  • Demand for specialty chemicals is triggered by the rise in exports due to the shift in global supply chains driven by China and demand recovery in domestic segments.

  • China is losing its competitive edge due to increasing environmental costs and reduced government shops.

Concall Overview (Q4FY2022)

• Demand in Q4FY2022 was subdued due to a few challenges such as omicron, supply chain challenges, and shop closure.

• The management expects demand pick-up in the FY2023 led by a good monsoon, revival in the real estate industry, and higher government cape.

• The company has taken 5%-15% price hikes so far and is closely watching the industry trends to take further price hikes, which will help to mitigate higher input costs.

• The company added 10 new facilities in the last 2 years and 12 facilities are under construction. The CAPEX is planned to be 3%-5% of sales annually. Innovation is expected in both the growth and core categories, and the company plans to launch one new product in each category in the next 12-18 months.

Pidilite Industries Limited - Technical Analysis

• Stock is trading above EMA 200 and MA 200 indicators, with a strong support level of ₹2,300 and a resistance level at ₹2,550.

• One can accumulate this share at the current price.

Recommendation Rationale

• In FY 2022, Pidilite Industries Limited’s revenue increased by 36.04% to ₹9,920.96 crores, compared to the previous year at ₹7,292.71. Profit After Tax increased by 7.16% to ₹1,206.76 crores compared to the last year at ₹1,126.13 crores.

• The company is the largest player in the consumer adhesive and sealant industry.

• Pidilite has a 70% market share in the adhesive business in India.

• Having a well-established brand and the ability to customize the product portfolio provide the company with a competitive edge over an unorganized player.

• The company has a healthy financial risk profile.

• The company is net-debt free.

• The company’s overseas subsidiaries have also given modest performance in FY 2022.

• The company has seen higher than industry growth due to its strong brand equity, focus on innovation, and increase in distributor reach.

• The company’s operating performance will remain strong due to business expansion plans, experience management, strong financial position, and brand image.

Valuation

• The company’s revenue has increased at a CAGR of 12% from FY 2018-2022.

• The company has sustained healthy revenue growth and profit margins on a consolidated basis over the years with a consistent focus on quality, a diversified distribution network, and an innovative marketing style.

• The company’s ROE and ROCE are 20% and 24%.

• The company could face challenges like volatility in prices of raw materials and increased prices of crude oil.

• We have taken data for the last five years (2018-2022) and forecasted revenue for FY 2023-2027. Revenue growth is assumed to be 13%.

Estimated Income Statement (₹ in crores)

• We initiate coverage on Pidilite Industries Limited with a “BUY” and a 2-years Target Price of 3,266.

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