Buy Pidilite Industries; target of Rs 1335: ICICI Direct
ICICI Direct’s research report on Pidilite Industries
Pidilite’s Q4FY19 consolidated performance was largely hit by lower-than-expected volume growth of 2.5% YoY in the standalone business. On the segment front, volume growth in the consumer & bazaar (C&B) and industrial segment remained low at 4% and -1% YoY, respectively, owing to lower offtake by dealers. Further, the consolidated EBITDA margin was impacted by high input cost like raw material cost (up ~180 bps YoY) and employee cost (up 160 bps YoY). Lower EBITDA margin and exceptional item of Rs 11 crore (diminution in value of investments made by subsidiaries) hit the bottomline. We believe the benefit of price hikes and benign raw material prices (spot price of VAM hovering at US$ 950/tonne, lower than Q4FY19 consumption price of ~US$ 1100/tonne) will flow in. This is expected to result in EBITDA margin expansion by ~200 bps in FY19-21E.
We believe benign VAM & stable rupee would help recoup operating margins to ~22% in FY21E. Along with a strong balance sheet, these healthy return ratios and efficient deployment of cash for inorganic expansion give us comfort despite relatively rich valuation multiples. We maintain our BUY recommendation.
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