Pidilite delivered a modest and broadly in-line quarter on revenue/ EBITDA front; recurring PAT growth was dragged down by sharp jump in ETR. We continue to rate Pidilite as an attractive long-term play on the nascent, high-growth-potential specialty chemicals market in India and find it a relatively better play in building materials space versus Asian Paints. Raise estimates a tad and retain Add with a revised TP of Rs775 (from Rs730) as we roll-over to March 2019 (34X target PE).
Pidilite’s standalone gross revenues grew 6% y-o-y to Rs12.4 billion, net operating revenues grew 4% y-o-y to Rs11.3 billion (in line with our estimate; dragged down by 190 bps jump in excise rate), EBITDA grew by 12% y-o-y to Rs2.5 billion (5% ahead of estimate) and recurring PAT by 6% y-o-y to Rs1.65 billion (4% below estimate). EBITDA margin expanded 150 bps y-o-y to 22.4%, despite 80 bps contraction in GM, aided by sharp 280 bps cut in other expenses.
Recurring PAT growth was dragged down by sharp jump in ETR (adjustment of tax provision due to actual performance); reported PAT declined 45% y-o-y to Rs710 million due to Rs943 m impairment loss (in subsidiaries).
Consolidated net operating revenues grew by 5% y-o-y, EBITDA by 8% y-o-y but recurring PAT declined by 7% y-o-y (due to higher ETR). Subsidiary business revenues (computed as consolidated minus standalone) grew 9.3% y-o-y (aided by ICA consolidation, organic revenues declined marginally) to Rs1.63 billion and EBITDA margin tanked 520 bps y-o-y to 2.3% dragged down by weak performance of international business (12% decline in c/c revenues).
For FY2017, Pidilite registered gross revenues, net operating revenues, EBITDA and recurring PAT growth of 6%, 7%, 7% and 7% respectively; recurring EPS stood at Rs16.8/share. Gross revenues of core CBP business grew 7% y-o-y; volume growth inched up to modest 8% y-o-y.
Segmental margins in CBP business expanded 90 bps y-o-y to 26.1% driving 11% y-o-y growth in EBIT and industrial business margin contracted 260 bps y-o-y to 16.1% (at gross level). We have broadly retained our revenue/EBITDA estimates, but raised our EPS estimates by 3% in FY2018-19 to bake in higher other income (substantial 2X+ jump in net cash surplus to Rs13.9 bn in FY2017).