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Geojit Financial Services
Pidilite Industries (Hold)
CMP: ₹1,297.35
Target: ₹1,387
Pidilite is a leading manufacturer of adhesives in India.
Pidilite Industries’ Q2FY20 sales was up 2.8 per cent y-o-y to ₹1,807 crore even as overall sales volume and mix merely grew by about 1 per cent. Gross margin improved by about 400 bps as cost of sales declined by 5.3 per cent y-o-y due to drop in VAM prices in Q2FY20. However, EBITDA declined marginally to ₹368 crore (margin: 20.4 per cent, down by 40 bps y-o-y) due to increase in advertising spend arising out of two major campaigns, Fevicol sofa campaign and a new Fewikwick campaign, launched in Q2FY20. Reduction of corporate tax helped the company in reassessing deferred tax liability and led to reversal of ₹65crore So, the PAT jumped 40.0 per cent y-o-y to ₹324 crore company has accounted for impairment of synthetic elastomer project and reported ₹22 crore loss as exceptional item, thereby leading to an Adj. PAT of ₹346 crore, increase of 49.6 per cent y-o-y.
Valuation: We expect margins to improve in the near-term due to reduction in cost of sales owing to benign raw material prices. The pressure on top-line could continue in the coming quarters due to overall decline in economy. Hence, we maintain ‘hold’ rating with a revised target price of ₹1,387 based on 49x FY21E adjusted EPS.
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