PIDI management has reiterated its confidence in the core adhesives/ sealants business, highlighted opportunity size and progress in the growth categories (waterproofing, WD-40, etc) and emphasised an innovation pipeline that can potentially spring positive surprises.
PIDI management has reiterated its confidence in the core adhesives/ sealants business, highlighted opportunity size and progress in the growth categories (waterproofing, WD-40, etc) and emphasised an innovation pipeline that can potentially spring positive surprises. Management commentary on near-term demand and sustainable margin band remains unchanged. We continue to like the story but the stock is fully priced; await better entry point.
Three-pronged growth strategy; well-placed on all fronts
PIDI management classifies its business into three categories: Core comprising Fevicol, Fevikwik, m-seal, etc that accounts for 2/3rd of the sales. PIDI expects this portfolio to grow at 1-2X GDP growth. Market share gains continue, largely on account of PIDI’s strategy and execution.
Growth category comprising waterproofing, WD-40, etc growing at 2-4X GDP growth. PIDI is a leader in the under-penetrated waterproofing segment and it is well-positioned to benefit as this category evolves. Overall, PIDI’s growth categories are likely to grow at a rapid pace.
Pioneers (future growth businesses) such as tiling adhesives. PIDI expects each of its pioneer category products to scale up to `1 bn over the next three years.
Overall, we believe the company is well-placed on all the three fronts and it should deliver healthy growth subject to overall demand holding well.
Status quo on near-term commentary
PIDI management’s commentary on the near-term outlook was in line with that indicated on Q1FY19 earnings call— demand environment is encouraging. That said, it categorically stated that it would have better visibility on the underlying demand starting September/October, 2018 as the base effect wanes. On profitability, PIDI expects a judicious price hike and efficiencies to partly offset RM headwinds. Sustainable medium-term target margin band is 20-24%.
We like the story; stock is fully priced
We like PIDI for its (i) dominant and nearly-unchallenged positioning in adhesives, (ii) impressive track record of product portfolio expansion and end market development and (iii) solid long-term opportunity in view of nascent market for several of its products. The stock is fully priced though and we prefer a better entry point. Reduce with our DCF-based fair value target price of Rs 1,080 (unchanged).