Broker's call: Pidilite Industries (Hold)

| Updated on November 23, 2019

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.

Published on November 23, 2019

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like