Pidilite’s 2QFY17 earnings print was a tad below estimates on revenue/EBITDA front; however, volume growth was healthy in high single digit and RM tailwinds continue to aid GM expansion. We rate Pidilite as a long-term attractive 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; recent correction provides a good entry point – upgrade to add (from reduce) with revised TP of R725 (from R690).
Net revenues grew 5% y-o-y to R12.1 billion (3% below estimates), EBITDA grew 9% y-o-y to R3.07 billion (5% below estimates) and recurring PAT grew 17% y-o-y to R2.26 billion (3% above estimates).
Core CBP business revenues grew 4% y-o-y (6% in gross terms) – 3% below estimates; volume growth in core CBP business stood at 7.8% y-o-y indicating a price deflation of 2% at gross level (ex-excise). Industrial business posted 4% yoy growth (5% growth in gross terms).
Consolidated net operating revenues came in at R14.1 billion (+8% y-o-y; KIE: R14.5 billion), EBITDA of R3.24 billion (+7% yoy; KIE: R3.36 billion) and recurring PAT of R2.3 billion (+13% y-o-y; KIE: R2.25 billion). Subsidiary business revenues grew 29% y-o-y to R1.98 billion (partly aided by ICA consolidation; organic growth in low double digits) and EBITDA margin fell sharply by 490 bps yoy to 7.6%; GMs in the subsidiary business contracted 200 bps yoy to 52.9% and other expenses shot up 47% y-o-y (up 430 bps y-o-y).