Recommendation From Chemicals Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
PIDILITE INDUSTRIES LIMITED : STICKING TO THE GROWTH ROUTE
HERE IS WHY
✓Huge growth potential
✓Focus on cost reduction
✓Good returns on capital employed
Pidilite Industries Limited is a leading manufacturer of adhesives and sealants, construction chemicals, craftsmen products, DIY products and polymer emulsions in India. Most of the products have been developed through strong in-house research and development. Its brand name ‘Fevicol’ has become synonymous with adhesives to millions in India and is ranked amongst the most trusted brands in the country. Some of its other major brands are M-Seal, Fevikwik, Fevistik, Roff, Dr. Fixit, Fevicryl, Motomax, Hobby Ideas and Araldite.
The company reported net sales of Rs 7,292.71 crore in FY21. It had reported net sales of Rs 7,294.47 crore in FY20, a decrease of 0.02 per cent. The company reported PBIDT of Rs 1,680.62 crore in FY21, an increase of 6.64 per cent. It had reported PBIDT of Rs 1,576.02 crore in FY20. The company reported PAT of Rs 1,122.15 crore in FY21, an increase of 0.28 per cent. It had reported PAT of Rs 1,119.02 crore in FY20. The company has reported cash from operating activities of Rs 1,392 crore in FY21 as against Rs 1,279 crore it reported in FY20. Its net sales were at Rs 2,235.52 crore in March 2021, up by 44.72 per cent from Rs 1,544.68 crore in March 2020.
Strong demand from urban regions along with consolidation of new business has helped drive revenue growth. Its PBIDT was Rs 460.79 crore in March 2021, up 53.15 per cent from Rs 300.88 crore in March 2020. Savings in employee cost and other expenses helped drive the company’s PBIDT margin on a year-onyear basis. Its quarterly net profit was at Rs 306.12 crore in March 2021 as against net profit of Rs 156.41 crore in March 2020, an increase of 95.72 per cent. Strong growth was witnessed across all major categories like adhesives, construction chemicals and DIY segments in Q4FY21 driven by continued demand momentum in both rural and urban geographies.
The company has added 700 new stockists, 60,000 new outlets and 7,000 new villages in FY21. The company has taken price hikes across product portfolios. In the adhesive segment the price hike was in the range of 4-6 per cent in May 2021. Pidilite Industries is well-placed to partially pass on inflationary pressure and gain market share, especially in the lockdown scenario of supply disruptions, given its strong market positioning. The company will be a frontrunner in sales recovery post ease in lockdown restrictions given its strong brand, robust balance-sheet position and nearly unmatchable supply chain network in the industry.
Hence, Pidilite Industries’ annual EBITDA margin guidance of 22-24 per cent remains intact despite such large disruptions. The company is also looking to expand its product portfolio in newer categories such as wood finishes and construction chemicals i.e. the water proofing segment. The company will continue with its capex plan of Rs 350 crore in FY22 despite short-term demand headwinds. This is a strategic move to gain market share in small towns and villages with population less than 50,000. The company has also witnessed strong demand traction from alternate trade channels such as e-commerce, modern trade and its franchise model for end-user connectivity. The total debt to equity ratio is 0.039. On the returns front, it has ROE and ROCE of 26 per cent and 33.74 per cent. By virtue of these factors, we recommend our reader-investors to BUY this stock.
