1. ‘Add’ on Pidilite Industries with revised TP of Rs 775

‘Add’ on Pidilite Industries with revised TP of Rs 775

Pidilite delivered a modest and broadly in-line quarter on revenue/ EBITDA front; recurring PAT growth was dragged down by sharp jump in ETR.

By: | New Delhi | Published: May 24, 2017 4:58 AM
Pidilite delivered a modest and broadly in-line quarter on revenue/ EBITDA front; recurring PAT growth was dragged down by sharp jump in ETR. (FE)

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.

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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).

 

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