Reviews

In this edition, we have reviewed Pidilite Industries and Marico Limited. We suggest our reader-investors to HOLD in Pidilite Industries and Marico Limited.

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We had previously recommended Pidilite Industries in Volume No. 35, Issue No. 08, dated March 16-29, 2020, under the ‘Choice Scrip’ segment. The stock was then trading at Rs 1,702.65 and was recommended based on good growth prospects and higher profitability. Pidilite Industries is the largest players in the consumer adhesive and sealant industry. It is an iconic brand in the domestic adhesives segment. ‘Fevicol’ is the main brand and the other popular brands include ‘Fixit’, ‘M-Seal’, ‘Fevicryl’, ‘Fevikwik’, ‘Fevistik’, etc.

Looking at the quarterly trends, on a consolidated basis, the net sales for Q1FY21 decreased by 56.34 per cent to Rs 877.84 crore from Rs 2,016.62 crore reported for Q1FY20. The company reported an operating profit of Rs 86.37 crore for Q1FY21, thus declining by 82.14 per cent compared to the operating profit of Rs 483.59 crore posted for Q1FY20. Pidilite Industries gained net profit of Rs 15.35 crore in Q1FY21, which is a contraction by 94.78 per cent compared to the net profit of Rs 294.10 crore gained in Q1FY20. Looking at the annual trends, net sales for FY20 increased by 3.06 per cent to Rs 7,294.47 crore from Rs 7,077.96 crore reported for FY19. 

The company posted operating profit of Rs 1,725.45 crore for FY20, thus expanding by 13.9 per cent compared to the operating profit of Rs 1,514.85 crore posted for FY19. It gained net profit of Rs 1,119.02 crore in FY20, which is an expansion by 21 per cent compared to the net profit of Rs 924.79 crore gained in FY19. Though earnings growth for the coming quarters is expected to remain muted due to the slow pick-up in urban demand, the overall demand scenario seems to be improving. Going forward, even if B2C lags, a faster pick-up in the demand environment will lead to faster growth for Pidilite Industries. Hence, we recommend a HOLD.

We had previously recommended Marico Limited in Volume 34, Issue No. 17, dated July 22 – August 4, 2019, under the ‘Choice Scrip’ segment. The stock was then trading at Rs 368.15 and was recommended based on the company’s sturdy growth momentum across segments, better performance than peers and healthy product profile. Marico Limited manufactures consumer products and services in the beauty and wellness space. The company’s principal products include edible oils and valueadded hair oils. 

Looking at the quarterly trends, on a consolidated basis, the net sales for Q1FY21 decreased by 11.13 per cent to Rs 1,925 crore from Rs 2,166 crore reported for Q1FY20. The company reported an operating profit of Rs 486 crore for Q1FY21, thus declining by 0.61 per cent compared to the operating profit of Rs 489 crore posted for Q1FY20. Marico gained a net profit of Rs 390 crore in Q1FY21, which is an expansion by 23.81 per cent compared to the net profit of Rs 315 crore gained in Q1FY20. Looking at the annual trends, net sales for FY20 decreased by 0.26 per cent to Rs 7,315 crore from Rs 7,334 crore reported for FY19. The company posted an operating profit of Rs 1,593 crore for FY20, thus expanding by 11.48 per cent compared to the operating profit of Rs 1,429 crore posted for FY19.

Marico gained net profit of Rs 1,043 crore in FY20, which is a contraction by 7.86 per cent compared to the net profit of Rs 1,132 crore gained in FY19. Though FY21 is expected to be subdued year affected by disrupted Q1FY21, Marico is expected to see strong recovery in FY22 with double-digit growth in revenues and PAT. Some of the medium-term growth drivers for Marico include increase in market share from a shift to branded products in core categories, expanding into hygiene and foods category through relevant launches, expanding its reach in the rural market and scaling up of international business, especially in Bangladesh and MENA. Hence, we recommend a HOLD.

(Closing price as of September 22, 2020)