PL Stock Report: Pidilite Industries (PIDI IN) - Q1FY24 Result Update - Volume growth a priority, VAM prices bottomed out - HOLD

Pidilite Industries (PIDI IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs2,545 | TP: Rs2,610

Q1FY24 Result Update - Volume growth a priority, VAM prices bottomed out

Quick Pointers:

§ VAM prices at USD850-900/ton, 1Q24 usage at USD1150/ton (USD1300/ton in 4Q23), Margins to range between 20-24% in FY24

§ Demand outlook steady in domestic markets, exports to pick up in 3-6 months

We adjust our FY24/25 EPS estimates by 2.6%/-4.6% given 1) stable VAM prices of USD 850-900/ton enabling 770/660bps of gross/EBITDA margin expansion over FY23-25, 2) double-digit growth in rural India and 3) tactical price corrections to maintain 10-15% price premium vs peers will keep incremental margin expansion under check. Long term demand trends remain favorable with 1) pick up in real estate, infra, repair & renovation activity 2) sustained traction in innovations with rising base of pioneer and growth segments from current 33% to 50% over next 3 years and 3) gains from deeper distribution reach in rural India and small towns. We estimate 34% EPS CAGR over FY23-25 and assign DCF based target price of Rs2610 (Rs2664 earlier). We expect moderate returns in near term given PE of 53.4xJun25 EPS. Maintain Hold.

GM expands by 732bps YoY/223bps QoQ; C&B volumes up 9% YoY: Consolidated Revenues grew by 5.6% YoY to Rs32.8bn. Gross margins expanded by 732bps YoY/223bps QoQ to 49%. EBITDA grew by 33.5% YoY to Rs7.1bn; Margins expanded by 451bps YoY/451bps QoQ to 21.6%. PBT grew by 37.3% YoY to Rs 6.5bn. Adj. PAT grew by 34% YoY to Rs4.7bn. Standalone – Sales increased 6.2% to Rs29.6bn, GM improved by 809bps YoY/243bps QoQ to 48.9%. EBITDA grew by 37.8% to Rs6.7bn; Margins expanded by 519bps YoY/435bps QoQ to 22.7%. PBT grew by 42.2% to Rs6.3bn. Adj. PAT grew by 40.2% to Rs4.7bn. Volumes in Consumer and Bazaar grew by 9% YoY. Consumer and Bazaar Sales grew by 9.2% YoY to Rs26.6bn; EBIT grew by 32% YoY to 7078.2mn. Industrial Products declined by 6.1% YoY to Rs6.8bn; EBIT grew by 22% YoY to 916.5mn.

Concall Takeaways: 1) Demand trends remain strong with double digit volume growth across rural (1.5x urban growth) & urban markets 2) Industrial seeing sluggish demand in export/export oriented biz’s like wood, furniture, textiles & leather 3) International markets like Nepal, Sri Lanka and Bangladesh are expected to improve in the next 3 months 4) Investment in infra will take 3-6 months before any demand improvement 5) Pioneer categories such as tile adhesives & joinery biz have acquired scale and have become growth categories 6) GM’s may show near term uptick, but VAM prices are near bottom and should expand over the course of year 7) To reinvest GM gains to support ad spends and grow rural & semi urban markets 8) Expect VAM prices to return back to USD1000/ton over the next 6 months 9) Opened 8k+ ‘Pidilite Ki Duniya’ shops (vs 500 - 3 years back) in villages with 5-10k population 10) Opened 7 manufacturing facilities over the last 6 months with 4 facilities for new categories such as epoxy grouts, tile adhesives, marble & stone glues 11) Digital sales now contribute 25% of total sales

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