Pidilite’s 4Q EBITDA and earnings were 10-12% below estimates due to a sharp deceleration in volume growth. While growth outlook has moderated, easing VAM prices (a key RM) partly cushion earnings. We cut FY2020-21E earnings by 5-6%, roll over to March 2020E and maintain fair value at Rs 1,025. We like PIDI for its dominant positioning in a high- growth segment, and track record of expanding product portfolio and developing end- markets.
However, the stock is a tad expensive on absolute and relative basis. REDUCE.
PIDI’s 4Q earnings were 10-12% below our and the Street’s estimates due to sharp deceleration in volume growth (India CBP volume/mix growth down to 4% in 4Q from 15% in 9MFY19), partly offset by better-than-estimated recovery in gross margin (+300 bps q-o-q).
Consolidated revenues grew 10% yoy (KIE 18%) to `1,640 crore, EBITDA grew 2% yoy (KIE 14%) to `280 crore and recurring PAT declined 2% y-o-y (KIE +10%) to `190 crore.
Standalone revenues grew 8% yoy (KIE 16%) driven by (1) 9% revenue growth in the core CBP segment led by 4% volume/mix growth, and (2) 7% revenue growth in the industrial products segment led by 1% decline in volume/mix.
Subsidiary performance — revenues grew 23% y-o-y to `260 crore, aided by (1) 25% growth in domestic subsidiaries. ICA-Pidilite delivered strong growth, CIPY’s yoy growth was largely led by full quarter consolidation and waterproofing subsidiaries (NINA Percept) reported flattish revenues on a high base, (2) 8% c/c growth in international subsidiaries. FY2019— consolidated revenues up 17% (like-for-like), EBITDA up 2% as EBITDA margin declined 280 bps led by 320 bps decline in GM, and recurring PAT was down 4% yoy; EPS stood at `17.5/share.
At standalone-level, volume/mix growth of 10% was led by 12% volume/mix growth in CBP segment and 2% volume/mix growth in Industrial products.
PIDI’s GM expanded 305 bps q-o-q to 50.3% (-180 bps y-o-y), led by easing RM prices and price increase taken in 2Q-3QFY19.