Pidilite Industry needs no introduction for an Indian consumer, who has grown up using Fevicol, Fevi-quick, Dr Fix-it. m Seal, and Fevistick. It is a branded consumer centric play of available at higher valuation range (the range, which we at valuepickr tends to ignore)
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âPidilite has strong brands like Fevicol, Dr.Fixit, Fevi Kwik, m-seal, hobby ideas, moto max, Fevi stik etc. Fevicol has become the household name in india and is the largest selling white adhesive brand in india. With established brand name in the field of adhesives and construction chemical, the prospect of the company appears promising in the future.â
âThe companyâs net sales and profit have grown at 10 year CAGR growth of 18% and 21% respectively. With Strong ROE of 26.9% and D/E ratio of 0.24, the fundamental of the company looks strong. Fevicryl Hobby Ideas, a leading hobby acrylic colours brand, added to its wide range of products by launching Sparkling Pear Colours. These colours give a unique sparkling shine to hand painted articles on fabric and non-fabric surfaces. Also Dr. Fixit Kwikflor Cementitious Flooring Solutions was launched specifically to level and renovate industrial floors that are exposed to heavy loads and frequent abrasions. Wudfill, a cynoacrylite adhesive, was launched for the first time in India for the woodworking segment. This product is used to fill holes and knots in wood.â
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Disclaimer:-
I am not having Pidilite in my portfolio. Planning to add some of it (along with other consumer centric company like Asian Paint, Berger Paint, Greenply, Page) in staggered manner in future.
This company is fundamentally strong and the profits have been increasing consistently in all 10 years. i have missed some goodup movein this stock because of wanting to buy this stock at 20 pe. i feel we are fine buying such good stock at comparitively expensive valuations.
This is the excellent business managed by well capable managers, this should be a good Compounder , i feel the move is just started on it, they r leveraging on Fevicol brand which they have build for years and fruits of this brand building exercise is just reaping.
I recently saw their Hobby Ideas store in InOrbit Mall, Vashi for first time. I was surprised to learn it belonged to Pidilite.Amazing range of products they have.It’s a heaven for arts/crafts products - not just for schoolkids but even the professional artists types.
Any idea on what’s revenue contribution of this divison? Even tho it’s almost year-end there was quite a rush in the store at 4pm mid-week. Nowadays, every 2-bit school worth its salt assigns crafts ‘projects’ year-round which shd be a good consistent demand. If they can sponsor any crafty/kids shows like M.A.D on POGO tv or something like that, it can give them extremely sticky pull. Ofcourse their mainstay Fevi*.* business is awesome as ever.
I’ve been waiting to buy this but it’s just so damn costly at PE ~31. Looking at chart looks like 225-235 shd be a good entry point if at all it comes down to this level.
Total Income up 12.1% to 1123.72 Cr from 1002.59 Cr.
EBIDTA up 21% to 228.77 Cr from 188.99 Cr.
Net Profit up 25.8% to 160.99 Cr from 128.02 Cr.
EBIDTA margin is 20.4% v/s 14.2% (MQ-13) and 18.9% (JQ-12)
NET Profit margin is 14.4% v/s 9.7% (MQ-13) and 12.8% (JQ-12)
Total Raw material costs as a %ge to Income is 54% v/s 52.2% (MQ-13) and 55.4% (JQ-12)
Employee costs to Income is 9.9% v/s 11.3% (MQ-13) and 9.7% (JQ-12)
Other expenses to Income is 15.8% v/s 22.4% (MQ-13) and 16.1% (JQ-12)
Financial costs to EBIT is 2.6% v/s 6% (MQ-13) and 6.4% (JQ-12)
Tax Rate 27% v/s 30.9% (MQ-13) and 28.1% (JQ-12)
SEGMENTS (With contribution to Sales in %): Consumer&Bazaar(83%): Sales up 14%, PBIT up 22.8%, margin 25.6% v/s 18.3% (MQ-13) and 23.8% (JQ-12) Industrial Prod(16%): Sales up 0.8%, PBIT DOWN 15.1%, margin 10.3% v/s 12.4% (MQ-13) and 12.2% (JQ-12) Others(0.6%): Gets into black with a profit of 0.27 cr v/s losses of more than 2 cr all previous periods.
EPS 3.14 v/s 2.46
Recorded TTM (sum of 4 quartr) diluted EPS: Rs. 8.85
At 12:50 pm on 14/08/2013, stock on BSE trading at Rs. 257/-
Not a stellar set of results for a Company trading at PE of 30. However, expansion in margins despite a weak economy highlights the pricing power of the Company.
I have not seen any carpentry work in my life being completed withoud using Fevicol. This shows the kind of economic moat the Company enjoys and hence the valuations.
With brands such as Fevicol, Fevikwik, Dr. Fixit, M-Seal, FeviStik andhobbyidea among others, the moat will only widen with time.
The Company has about 4000 dealers and access to more than 10 lac retail outlets - an achievement which should be difficult for any other Company to replicate in the sector.
Even after discounting a run-up in stocks during 2007-08, the Compay has grew 4 foldfrom the high prices of 2007-08.
At the current price, the Company is trading at a PE of 28.5x.
Though it cannot be termed as a screaming buy, these are good times to initiate a position.
Disc: 8% of the portfolio invested in Pidilite. Would like to add more on dips
The conference call was addressed by Mr. Sandeep Batra, Director Finance
12% increase in net sales was led by 14% increase in Consumer and bazaar segment revenue and 1% increase in Industrial products segment
Consumer and bazaar segment PBIT rose 23% in Q1FY'14 compared to Q1FY'13 while Industrial segment PBIT decreased 15%.
EBITDA Margin of the company rose 80 bps to 21.2% in Q1FY'14 compared to Q1FY'13 while PAT margins rose 160 bps to 14.3%
PBIT margins rose 160 bps to 23% in Q1FY'14 led by 180 bps improvement in Consumer and Bazaar segment PBIT margins to 25.6% mainly due to lower material costs and 190 bps fall in Industrial product segment PBIT margin to 10.3% largely due to increase in input costs which could not be passed on with commensurate price increase.
Margins is expected to have an impact of rupee depreciation for next 2-3 quarters
Sales of overseas subsidiary increased 19% which included translation gain of 4.8%. In constant currency terms sales growth was 14%
Decent increase in sales of overseas subsidiary was led by operations in South America where sales grew 33%. South America sales had de grew in Q1FY'13. Profitability has increased in South America operations. Material cost as a percentage to net sales has fallen 400 bps.
North America sales grew by 6%. Margins have improved due to periodical increase in price and better price mix. As a result EBITDA grew by 47% on constant currency for North America operations
Middle East sales de-grew 12% mostly due to political disturbances in Egypt and subdued performance in UAE. Middle East operation reported a loss of 9 million at EBITDA level compared to near break even in Q1FY'13
South East Asia reported a strong 20% revenue growth mostly led by operations in Bangladesh. EBITDA during the quarter rose 26% led by revenue growth and better product mix.
VAM prices remained steady during the quarter at around USD 950-1000 per tonne
The company gave no update on Elastomer project
The company has planned a capex of Rs 150-175 crore in FY'14
I have written on this blog earlier and mentioned a good reference to the article by Professor Sanjay Bakshi, who needs no introduction for value investors. In that article he speaks about three companies. Asian Paints, Nestle and Pidilite.
On Pidilite his comments are thus:
"The fellow who paid nine times earnings for this stock in March 2002 did very well over the next five years as the market cap soared from $92 millions to $656 millions. Then it trebled over the next five years to $1.8 billions. So the guy (or gal) who bought it an expensive looking P/E of 26 in March 2007 did quite well too.Its current market cap now stands at $2.4 billions, making this a 26 bagger in about a decade.
Source: Outlook Business- Warren Buffett Special Edition.
My personal experience with this stock has been amazing. I was lucky to buy it around Rs.135 and enjoyed the ride upto Rs.235 where I sold it. Made a small return back recently. Will buy into it, as the markets are going to give a big opportunity to patient investors. BUY FEAR SELL CONFIDENCE. Investors behave irrationally in times of fear and that is when the value investors buy.
Tony
Ps. Please read the whole magazine on Warren Buffett. I have read it and re reading it all over again. Filled withPearls of Wisdom.
After a patient wait I entered at ~245-250, but news about yesterday’s IT raid for tax evasion has me a bit spooked. Combine that with their website being hacked, that too yesterday. Coincidence much?
Though stock hasn’t fallen much since yesterday - but surprisingly the co hasn’t released any info on the exchanges yet. I’m writing to IR, will post back any replies I get.
Anyone with more news?
Tony, Hemant: Setting aside the IT raid, your technical views on this?
The stock is currently in the O column and in the SELL signal. It is also trading below its Bullish Support Line and hence the Trend is weak. The next support is at 215.190. 185-175.
On the candle stick chart one can see that the stock is trading below its 50 day and 200 day EMA. Hence it is weak. All the short term trend and momentum indicators are weak. RSI is 14 and oversold, CCI -152 and Momentum at -41.
With the tax raid happening, it is better to wait till such times as clarity emerges. This is a blotch on the management which was highly regarded by investors.
Pidilite Industries Pidilite Ltd. is a pioneer in the Indian adhesives space with extremely strong brands across categories Fevicol, Fevikwik, Mseal, Fevistick, Dr. Fixit and Roff to name a few. Brands from Pidilite’s stable enjoy age old recall among Indian consumers and command dominant (>70 percent) market shares in their respective categories. Branding led consumer facing business of the company forms 81 percent of standalone revenues and 90 percent of profits with the balance being contributed by B2B industrial business. Pidilite has an impressive long term track record, with volumes growing on an average by 2x India’s real GDP amid stable long term margins. We estimate revenue CAGR of 16 percent and PAT CAGR of 18 percent over FY13-15E. Secular long term growth, healthy return ratios (>35 percent ROCE), robust operating & free cash flow generation, net cash balance sheet, healthy dividend payout and attractive valuations at 22.7x FY15E (19 percent discount to FMCG median) are reasons why we like the stock. We recommend a âBUY’, valuing the company at 28x FY15E earnings arriving at a price target of INR 340.
Consumer and Bazaar Products division sales increased 15% to Rs 886.07 crore in Q3FY’14 compared to Q3FY’13 representing 82% of total revenues of the company. PBIT decreased 2% at Rs 155.21 crore, which was 92% of total PBIT mainly due to higher advertising and sales and promotion expenses and one time charge of Rs 6.37 crore related to voluntary retirement scheme
Volume growth in the Consumer & Bazaar segment has slowed down from 15% YoY in H1FY’14 to 11% in Q3FY’14 as underlying demand conditions remain challenging,
Industrial Products division contributed 18% of the company’s total revenues in Q3FY’14 which rose 17% to Rs 193.86 crore mainly due to higher exports supported by a favourable currency… The PBIT reported 1% decrease to Rs 18.06 crore due to higher input costs
Advertising and promotion expenses were significantly higher in the quarter at around 6.5% of overall sales compared to normal 4% mainly to support the existing brand. However, this is just for one quarter and the company expects it to be around 4% for an annualized basis.
The company has fully paid outstanding non-convertible debentures amounting to Rs 60 crore last quarter and is now virtually debt-free.
Interest expenses, however, would be present as the company also includes security deposits from distributors under this head amounting to Rs 30 crore on which the company pays 7% interest.
International subsidiaries have reported sales growth of 14.3% YoY in constant currency terms (10.9% in INR terms).
Sales of car-care chemicals in US grew by 4% YoY in Q3FY’14 while art materials sales remained flat with 9MFY14 sales growth of 3% and 5.5% respectively. Margins, however, have expanded 500 bps in car-care and 200 bps in the art material segment due to price hikes taken by the company. EBITDA grew 17.8% for the nine-month period.
Middle East Sales grew 22.2% YoY during the quarter with lower losses despite difficult market conditions in Egypt.
South and South-East Asia region reported sales growth of 27.1% YoY. However sales were impacted due to political disturbances in Bangladesh resulting in markets being closed for a month. For 9MFY14, sales and EBITDA were up 29% and 1.5% respectively. The issues in Bangladesh were limited to Q3FY’14 and the company expects growth to revive in these markets once the political situation gets better.
South American business sales continue to improve, rising 20.5% YoY in the quarter. Material costs came down 400 bps YoY due to pricing action taken in the quarter, resulting in significant reduction in operating losses to Rs 2.6 million in Q3FY14 from Rs 35 million in Q3FY13. For 9MFY’14 sales grew by 22.7% while losses for the period were down by 80%.
VAM prices have remained at around Rs 950-1,000 levels, with no significant change in either direction.
I am very much convinced with the quality pidilite’s business. It also has a moat and it is
evident from high roe and roic. However I am trying to assess the fair value of this stock and decide whether one can buy at this point. I have tried to apply the dcf model to this business and have arrived at a figure, however I would want others who closely follow this business to give their inputs and add their points as well. Below are my assumptions
FCF = 2973 million(avg of fcf from fy11-fy13)
growth rate = 8%(cagr of fcf between fy11-fy13)
discount rate = 15%
terminal growth rate = 2%
By applying this I get a value of 670 rs. I also have calculated the eva and roiic, which is being discussed in value driver thread. In addition I have applied the buffett retention test that Prof Bakshi shared in his relaxo lecture. I will post my results in the value driver thread. However I want want people following this business closely to share how they would arrive at a fair value for pidilite.
