Reviews
In this edition, we have reviewed Pidilite Industries and GAIL (India). We suggest our reader-investors to HOLD in Pidilite Industries and GAIL (India)
We had previously recommended Pidilite Industries in Volume No. 35, Issue No. 8, dated March 16-29, 2020, under the ‘Choice Scrip’ segment. The stock was then trading at Rs1,702.65 and was recommended based on good growth prospects and higher profitability. Pidilite Industries is the largest player in consumer adhesive and sealant industry. It is an iconic brand in the domestic adhesive segment. While Fevicol is its main brand, the other popular brands include Fixit, M-Seal, Fevicryl, Fevikwik, Fevistik, etc.
On the quarterly front, considering consolidated results, net sales for Q1FY21 fell by 56.34 per cent to Rs877.84 crore form Rs2,016.62 crore reported for Q1FY20. The company reported an operating profit of Rs86.37 crore for Q1FY21, thus contracting by 82.14 per cent as compared to operating profit of Rs483.59 crore posted for Q1FY20. Pidilite Industries gained net profit of Rs15.35 crore in Q1FY21, decreasing by 94.78 per cent compared to net profit of Rs294.10 crore gained in Q1FY20.
On the annual front, net sales for FY20 increased by 3.06 per cent to Rs7,294.47 crore from Rs7,077.96 crore reported for FY19. The company posted an operating profit of Rs1,725.45 crore for FY20, thus expanding by 13.9 per cent compared to operating profit of Rs1,514.85 crore posted for FY19. It gained net profit of Rs1,119.02 crore, rising by 21 per cent from the net profit of Rs924.79 crore gained in FY19.
The nationwide lockdown that was implemented to curb the spreading of the corona virus resulted in the company posting a muted performance for Q1FY21. However, with the opening of retail outlets across metro and other regions, faster recovery in volume growth is expected. Further, benign raw material costs will help in the expansion of Pidilite Industries’ gross margins. Since the company enjoys a strong brand image and healthy balance-sheet, it is assumed that it will witness faster growth and demand. Hence, our recommendation is to HOLD the scrip.
We had previously recommended GAIL (India) in Volume No. 35, Issue No. 6, dated February 17 to March 1, 2020, under the ‘Low Priced Scrip’ segment. The stock was then trading at Rs130.30 and was recommended based on the company’s dominant market position and the government’s focus on the industry. GAIL (India) is an integrated natural gas company with a presence in transmission, gas processing and downstream petrochemicals.
On a consolidated quarterly front, net sales contracted by 5.98 per cent to Rs17,938.08 crore in Q4FY20, from Rs19,078.39 crore in Q4FY19. The company reported an operating profit of Rs3,797.49 crore in Q4FY20, up by 47.75 per cent from Rs2,570.22 crore in Q4FY19. It gained a net profit of Rs4,157.16 crore in Q4FY20 which is a significant increase by 206.68 per cent when compared to the net profit of Rs1,355.52 crore in Q4FY19.
Looking at the annual trends, net sales decreased by 4.81 per cent to Rs72,567.70 crore in FY20 as compared to Rs76,234.17 crore in FY19. The company recorded an operating profit of Rs10,571.44 crore in FY20, decreasing by 2.85 per cent as compared to Rs10,881.83 crore in FY19. Net profit rose by 25.8 per cent to Rs7,268.04 crore in FY20 from Rs5,777.57 crore in FY19.
The gas cost leverage is expected to boost cyclical chemical earnings and valuations. Also, the company has been able to benefit from the increase in revenues of its subsidiary, GAIL Gas. GAIL (India) is likely to benefit from boost in transmission volumes from increased domestic gas production, upcoming LNG terminals and natural gas trading (NGT) along with increasing impetus on curbing air pollution. Hence, our recommendation is to HOLD the scrip.
(Closing price as of August 11, 2020)