Pidilite Industries Limited (PIDILITE) ACCUMULATE
Destimoney Research
19 September 2013
ACCUMULATE TARGET : `270 CMP : `250
Pidilite Industries – Revising to ACCUMULATE Key Data
(` ` Mn Standalone)
Bloomberg Code
PIDI IN
NSE Code
PIDILITIND
BSE Code
500331
Sector
Chemicals
Industry
FMCG
Face value (` per share)
1
Book value (` per share)
33.8
Dividend yield
1.0%
52 Wk.(H/L)(`)
302.85/188.60
Market Cap. (` mn)
128,160
FY12
FY13
FY14E
FY15E
28,163
33,317
39,065
45,448
4,864
6,131
7,500
8,869
16.4%
17.3%
18.2%
18.5%
6.6
9.0
10.6
12.5
37.9
27.8
23.6
20.0
4.2
3.5
3.0
2.6
24.2
19.2
15.7
13.3
CY10
CY11
CY12
YTD
Absolute
55.9%
-5.2%
51.2%
14.9%
Relative
37.9%
19.4%
23.5%
11.3%
Net Sales EBITDA EBITDA Margin EPS (` per share) P/E (x) EV/Sales EV/EBITDA Price Performance
Shareholding pattern
Relative stock performance (Sep’12=100) 152
Jun-13
Mar-13
Dec-12
Sep-12
Promoters
70.1%
70.1%
70.1%
70.6%
FII
13.9%
13.6%
13.2%
13.1%
116
DII
5.3%
5.6%
5.3%
5.0%
98
Bodies Corporate
1.2%
1.3%
1.9%
1.9%
Others
9.5%
9.4%
9.5%
9.4%
100.0%
100.0%
100.0%
100.0%
Source: Company, Destimoney Research, Bloomberg
2
Nifty
Pidilite
Sep-13
Aug-13
Aug-13
Jul-13
Jun-13
May-13
May-13
Apr-13
Mar-13
Mar-13
Feb-13
Jan-13
Jan-13
Dec-12
Nov-12
Nov-12
Oct-12
80 Sep-12
Total
134
Pidilite Industries – Strong brands shield from tough economic environment We had initiated coverage on Pidilite Industries Limited based on its leadership position in the Adhesive and Sealant Space. The company reported an 11.2% YoY rise in its Q1FY14 top-line to `10.1bn, largely driven by higher volume. Consumer and bazaar products segment reported 13.2% YoY growth, while the performance of industrial products segment was muted during the quarter due to weak domestic sales. The company’s gross margins improved on yearly basis. on the back of relatively lower material costs. Part of this savings were invested in promotional activities resulting in higher other expenses. Overall EBIDTA margin witnessed improvement of 117 bps on yearly at 22.1%. The performance of all overseas subsidiaries, excluding Brazil, was broadly satisfactory in Q1FY14, as sales grew ~14% YoY on a constant currency basis. Additionally, the company indicated that its Brazilian operations are expected to turn cash positive by the end of FY14 which would further augment the overall performance. The company acquired adhesive business of Pune-based, Suparshva Adhesives Limited (SAL), in a slump sale agreement which would further strengthen its presence at the lower end of the market. SAL sells products under the “Falcofix” brand. The company had invested ~`3.6bn Elastomer project which is still not operational. Earlier it was planning to start pilot production or get JV partner in the same. In the conference call, the management has indicated that there would not be further investment in the project till it brings a strategic partner for the same. In near term, sharp rupee depreciation is likely to put pressure on margins as the company may not be able to pass on the rise in costs to consumer in current scenario. Therefore, we revise our recommendation to ACCUMULATE with a target price of `270 per share.
3
Robust financial performance in Q1FY14 Particulars ( ` Mn) Total Income from Operations (net) a) Net sales / Income from Operations b) Other Operating Income Expenses a) Cost of materials consumed b) Purchases of stock-in-trade c) Changes in inventories of finished goods, WIP and stock-in-trade d) Employee benefits expense e) Other expenses EBITDA Depreciation and amortisation expense EBIT Other Income Finance Costs Exceptional items Foreign Exchange Difference Expense/(Income) PBT Tax Expense PAT
Q1FY14
Q4FY13
Q1FY13
QoQ
YoY
10,148 10,099 49 7,909 4,522 549 396 909 1,532 2,240 153 2,087 90 36 -77 2,217 595 1,623
7,608 7,554 54 6,360 4,288 370 -695 756 1,641 1,248 139 1,109 235 36 -54 18 1,343 352 992
9,125 9,077 48 7,218 4,704 396 -63 788 1,392 1,907 124 1,783 139 91 0 -1 1,832 498 1,334
33.4% 33.7%
11.2% 11.3%
24.3%
9.6%
20.3% -6.7% 79.5%
15.4% 10.0% 17.5%
-
-
63.6%
21.7%
Source: Company
During Q1FY14, the company’s top-line was boosted by robust performance from its Consumer & Bazaar Products segment. Other expenses were higher on YOY basis due to more spent on promotional activities. On an annual basis, finance costs for the period were substantially lower due to the repayment of FCCBs in December 2012. As a result, PAT climbed 21.7% YoY to `1.6 bn in Q1FY14.
4
Consumer & Bazaar Products segment continued to perform better
` Bn
Segment-wise Sales
Segment-wise PBIT Margins
1.1
33%
0.8
25%
0.6
16%
0.3
8%
0.0
0%
Q1FY13 Q2FY13 Consumer & Bazar Products
Q3FY13 Q4FY13 Q1FY14 Industrial Products (including Others)
28.7%
26.9%
12.2%
22.5%
23.4%
9.8%
11.0%
Q1FY13 Q2FY13 Q3FY13 Consumer & Bazar Products
23.2%
12.4%
10.3%
Q4FY13 Q1FY14 Industrial Products
Source: Company
During Q1FY14, the Consumer & Bazaar Products segment posted a 13.2% YoY rise in revenues to `8.4 bn
on the back of high single digit volume growth, with the Art Materials sub-segment remaining shielded during the period. However, the Industrial Products segment showed muted growth of 0.8% YoY during the period, following
weak demand. The benign performance can be partly attributed to the early onset of monsoon and LBT strikes that took place in Maharashtra in May-2013. On an annual basis, PBIT margin in the Consumer & Bazaar Products segment improved 182 bps, largely due
to lower material cost. However, PBIT margin in the Industrial Products segment declined by 193 bps, due to higher ex- Venyl Acetate Monomer (VAM) raw material (i.e. other monomers) costs and as the company lacks pricing flexibility in this division. 5
Margin profile remained protected in challenging environment EBITDA & EBITDA Margins 22.1%
20.9% 17.9%
18.1%
` Mn
1,860
24%
1,800
18%
1,350
16.0%
1,240
12%
20%
14.8%
14.6%
16.4%
` Mn
2,480
PAT & PAT Margins
13.0%
12.7%
15%
900
10%
620
6%
450
5%
0
0%
0
0%
Q1FY13
Q2FY13
EBITDA (LHS)
Q3FY13
Q4FY13
Q1FY14
EBITDA Margin (RHS)
Q1FY13 Q2FY13 PAT (LHS)
Q3FY13
Q4FY13 Q1FY14 PAT Margin (RHS)
Source: Company
During the quarter, the company’s EBITDA margin climbed 117 bps YoY to 22.1%, as it benefited from a
reduction in material costs and an increase in sales. A significant drop in finance cost due to repayment of FCCBs has led to a 137 bps YoY increase in PAT
margin to 16.0%. However, a sharp rupee depreciation could impact margins going forward, as VAM prices, one of the key raw
material for the company is currently being imported.
6
Satisfactory overseas performance provides long term visibility Performance of overseas subsidiaries Revenue ` mn
Constant YOY currency %Chg growth
Q1FY14
Q1FY13
North America
499.6
438.5
13.9%
South America
359.7
277.4
77.1
Middle East & Africa South & South East Asia Total
EBIDTA Q1FY14
Q1FY13
6.7%
35.2
22.2
29.7%
32.7%
-16.3
-44.1
85.9
-10.2%
-11.9%
-8.9
-0.3
189.6
144.4
31.3%
20.4%
40.0
29.0
1126.0
946.2
19.0%
14.2%
50.0
6.8
Source: Company
During Q1FY14, overseas subsidiaries reported a ~19.0% growth in sales, while on constant currency terms, sales grew ~14.0%. The South American business has swung to profit in Q1FY14 on account of robust sales growth coupled with improvement in gross margin. However, Brazilian operations remained subdued due to sluggish economy and pressure on its currency. In North America, sales climbed ~6% mainly due to decent performance from its Cyclo (6.7%) and Sargent Art businesses (5.9%). EBITDA margin also improved due to selective price increases along with better products mix. Sales in South & South East Asia witnessed ~20.4% sales growth in constant currency, on the back of robust performance in Bangladesh. However, sales in Egypt and Dubai were under pressure due to political turmoil in the Middle East.
7
Pidilite should face margin pressure in near term; however long term growth prospects look intact on the back of strong brand portfolio Standalone Performance Estimates 20%
45,000
15%
` Mn
60,000
30,000
10%
15,000
5%
0
0% FY12 Revenue (LHS)
FY13
FY14E
FY15E
EBIDTA Margin(RHS)
FY16E Net Margin (RHS)
Given the sharp depreciation of rupee in last few months, the company is likely to witness sudden rise in its raw material cost. In current slowdown scenario, we believe that the company to take moderate price hikes, which may not cover the costs fully.
The company plans to spend ~ `1.25bn to `1.75bn on its capacities during FY14.
We remain positive on the company’s growth prospects in adhesive and sealant market due to its strong brands and expect the company to grow at a CAGR of 16.4% over the next three.
8
Currently we are not considering overseas performance for valuation purpose and valuing the businesses at book value. Overall performance is expected to gain traction once there is a pick up in activity in most its overseas subsidiaries and the recent acquisition in India.
Valuation and recommendation
134 116 98
Sep-13
Aug-13
Aug-13
Jul-13
Jun-13
May-13
May-13
Apr-13
Mar-13
Mar-13
Feb-13
Jan-13
Jan-13
Dec-12
Nifty
Pidilite
FY12
FY13
FY14E
FY15E
6.6
9.0
10.6
12.5
37.9
27.8
23.6
20.0
9.3
7.4
6.1
5.0
ROE
24.4%
26.6%
25.8%
25.1%
ROCE
29.1%
31.4%
32.2%
31.6%
24.2
19.2
15.7
13.3
Parameters EPS (` per share) P/E (x) P/B
EV/EBIDTA
9
Nov-12
80 Nov-12
We revise our rating on Pidilite Industries Limited to ACCUMULATE with a target price of `270 per share.
152
Oct-12
At CMP of `250 per share, the stock is currently trading at 23.6 times its FY14 and 20.0 times of its FY15 earnings.
Relative stock performance (Sep’12=100)
Sep-12
Considering the market leadership position in its products and ability to sustain growth in its consumers and bazaar products segment, we remain positive on the company.
Standalone Financials Income Statement ` Mn
Balance Sheet
FY12
FY13
FY14E
FY15E
` Mn
Net Sales
28,163
33,317
39,065
45,448
Liabilities
Operating expense
23,299
27,185
31,565
36,579
Share Capital
4,864
6,131
7,500
8,869
479
532
588
653
4,385
5,599
6,912
8,216
Interest
245
122
108
Other Income
428
659
EBT
4,441
Tax PAT
EBIDTA Depreciation EBIT
FY12
FY13
FY14E
FY15E
508
513
513
513
13,209
16,812
20,495
25,040
Deferred Tax Liability
454
484
484
484
Long term borrowings
923
-
-
-
108
Long term provision
101
143
143
143
486
502
Other Current Liabilities
7,810
7,433
8,476
9,861
6,196
7,290
8,611
Total Liabilities
23,006
25,384
30,110
36,040
1,096
1,588
1,869
2,207
Assets
3,345
4,608
5,422
6,404
Tangible Assets
4,717
5,120
6,089
6,493
242
217
160
103
Reserves & Surplus
Intangible Assests FY12
FY13
FY14E
FY15E
Capital WIP
3,713
4,087
4,087
4,087
EBIDTA Margin (%)
16.4%
17.3%
18.2%
18.5%
Total Fixed Assets
8,673
9,424
10,336
10,683
Net Margin (%)
11.2%
13.0%
13.1%
13.3%
Non-Current Investments
2,419
2,623
2,623
2,623
ROCE
29.1%
31.4%
32.2%
31.6%
Other LT Assets
250.88
242.28
242.28
242.28
RONW
24.4%
26.6%
25.8%
25.1%
Current Assets
11,663
13,095
16,908
22,492
Total Assets
23,006
25,384
30,110
36,040
Ratios
Source: Company, Destimoney Research
10
Key Risks The company has invested a huge amount of money in the Synthetic Elastomer plant in Dahej, Gujarat to manufacture Polychloroprene. The completion of this plant is surrounded with uncertainties due to continuous delays. Recent depreciation of the Rupee against the US Dollar can be a major cause of concern.
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