PIDILITE INDUSTRIES:
Concall Summary dated 6th Nov 2020
Revenue: ₹1,880.3 cr (▲4.1%) Net Profit: ₹356.4 cr (▲9.7%)
FINANCIAL PERFORMANCE
- The revenue from operations was ₹1,880.3 crore in Q2 FY21 as against ₹1,806.6 crore in Q2 FY20, an increase of 4.1% YoY.
- The net profit grew by 9.7% YoY to ₹356.4 crore in Q2 FY21 from ₹325.0 crore.
- Export revenue was ₹695 crore during the year.
- EBITDA (before non-operating income) was ₹514 crore, which grew by 39.3% YoY.
OPERATING PERFORMANCE
- The company’s plants are running at a capacity utilisation of 90%.
- The material cost as a percentage to net sales was lower by 226 bps YoY. Its major raw material vinyl acetate monomer (VAM) had reached ~$900/tonne. During Q2, the prices were $765/tonne and the spot prices has now increased to $900. The company expects the prices to increase further due to availability constraint.
- The net sales grew by 3.4% YoY. The international subsidiaries had a double digit growth while the domestic business witnessed challenges due to pandemic and signs of revival is observed for the latter part of the quarter.
- The company’s sales had been largely impacted in the real estate segment whereas the small semi-urban markets (artisan, construction and non-wood business) are picking-up well. Its products were utilised towards construction business for Jammu and Kashmir tunnels.
- It is planning to emphasize on advertisement and commercial spends to drive sales and volumes for the coming months.
- It more than doubled its online penetration in a year, revenue being generated from customer and bazaar segment.
- The company witnesses no competition from paint brands in water-proofing segment, as the company has a strong brand market share in this segment.
- The overall market is growing at 1-1.5 times of GDP (excluding Covid phase).
BUSINESS PERFORMANCE
- The overseas subsidiaries sales during the quarter was as follows: ₹87 crore from Asia, ₹119.1 crore from America, ₹65 crore from Middle East & Africa. The revenue from overall subsidiaries was ₹575 crore.
- The domestic subsidiaries sales comprises of: Nina Percept Private Limited which de-grew by 35.5%, ICA Pidilite Private Limited grew by 1.1%, Cipy Polyurthane Private Limited declined by 24.2% and other subsidiaries grew by 59.9%.
- Its product portfolio comprising of adhesives and sealants, construction and paint chemicals and art and craft materials has 79.9% sales from C&B products. The industrial adhesives, industrial resins and constructions, and pigments & preparations has 18.7% sale from B2B products and rest 1.4% from other segments.
HAMSPL ACQUISITION
- The company has completed the acquisition of 100% stake in Huntsman Advanced Materials Solutions Private Limited (HAMSPL) for ₹2,100 crore on November 3, 2020. Huntsman sells adhesives and sealants under brands such as Araldite, Araldite Karpenter and Araseal.
- The acquired business (HAMSPL) is a profitable business with strong leadership and distribution channels. It has miniscule amount of fixed assets, as the assets are through tolling arrangements and are done on the basis of cost conversion route.
- The acquisition was funded through the liquidation of the company’s treasury business.
- The transaction value was 90% upfront payment and the balance 10% in 18 months, on deferred consideration through mutual consent between both the companies based on the condition of certain revenue achievement in the coming 6 months due to uncertainty in markets.
- Pidilite Industries has a current plan of reflecting the acquired business as investment proceeds in its financial statement and run it as an independent entity.
- The strategy of Pidilite would be to enhance its portfolio brand through this acquisition and increase its footprints through distribution channels and accelerate its revenue through it. There would be a cost and revenue synergy from the acquired business as the product category is already known by the parent company.
- The acquisition includes the trademark license for Middle East, Africa and ASEAN countries.
CAPITAL EXPENDITURE
- The company plans to operate at a capex of 4%-5% of revenue.
- There would be no differential spend on capex. It has 9 plants which are in work-in-progress phase and there would be no extra spending on capex towards these plants beyond that range.
Disc: Invested in Core PF.