Maintain ‘buy’ on Pidilite with revised TP of Rs 1,860

By: |
December 18, 2020 9:10 AM

We would draw parallels here with how HUL scaled up Indulekha -- post acquisition, Indulekha’s sales jumped 4-5x in a few years.

We expect PIDI to expand the Araldite brand into new products and straddle price points within the same category.

Pidilite (PIDI) has been regular in terms of acquisitions. However, its latest buy of Huntsman Advanced Materials Solutions (HAMSPL) assumes significance given the sharpening focus of paint players on
adhesive/sealants. We believe PIDI has huge potential to scale up HAMSPL given its superior distribution (direct as well as indirect).

We expect PIDI to expand the Araldite brand into new products and straddle price points within the same category. This acquisition will help it maintain lead over paint players in adhesives/sealants. The deal is accretive (HAMSPL was acquired at ~5x trailing EV/sales vs PIDI at ~11x) and will add ~6-7% to PIDI’s revenue. Maintain ‘buy’.

HAMSPL sells adhesives, sealants and other products under well-known brands such as Araldite, Araldite Karpenter and Araseal in the Indian sub-continent region. Though Araldite is the market leader in epoxy adhesives, PIDI’ direct distribution is significantly higher than the former’s. Also, Araldite has significant indirect reach, but overall PIDI has a bigger distribution network.

We would draw parallels here with how HUL scaled up Indulekha — post acquisition, Indulekha’s sales jumped 4-5x in a few years. In CY19, HAMSPL’s business revenue was approximately Rs 4 billion with gross & Ebitda margins and ROCE are in line with PIDI’s standalone business. Araldite is a strong brand and has potential for new launches. In ourview, PIDI could follow HUL’s strategy of having multiple brands in the same category.

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