Digital initiatives and solid supply chain should stem growth of Pidil... Digital initiatives and solid supply chain should stem growth of Pidilite Industries Limited Read more

Summary

Pidilite Industries Limited remains confident of medium to long-term prospects of home improvement sector, and it continues to focus on delivering profitable volume-led growth. Resurgence of construction activities should act as a principal growth enabler.

About Pidilite Industries Limited

Pidilite Industries Limited is a consumer centric company, with commitment to quality and innovation. From adhesives, sealants, waterproofing solutions and construction chemicals to arts & crafts, industrial resins, polymers and more, it has a diverse product portfolio. Its brands are trusted household and industrial names, and the company is a market leader in adhesives. JVs and subsidiaries of Pidilite Industries ensure that it continues to remain a leading player in most categories in over 100 countries. The company understands importance of having global perspectives in today’s shrinking world and because of this, it has enhanced its international presence through several ventures across globe.

Growth Enablers of Pidilite Industries 

• Strong FY22 Results Exhibit Confidence: FY22 saw strong growth in sales due to its volume growth across categories and geographies. Growth was seen across segments like C&B and B2B segments, with both segments reporting volume growth of more than 20% each. 4Q22 saw price-led growth, while volumes were muted on account of pandemic and persistent inflation impacting consumer demand.

• Acquisition of 100% Stake: On November 3, 2020, Pidilite made an acquisition of 100% stake in Huntsman Advanced Materials Solutions Private Limited. HAMSPL has now been renamed to Pidilite Adhesives Private Limited. This company sells adhesives, sealants and other products under well-known brands like Araldite, Araldite Karpenter and Araseal in Indian sub-continent region. Araldite is a market leader in epoxy adhesives and should add to strong portfolio of Pidilite’s adhesive and sealant brands. PAPL has nation-wide distribution network and strong presence in retail trade.
• Resurgence in Economic Activity Should Support Growth: Economic activity is impacted by a number of factors, like social distancing, subdued demand and labour shortage. Resurgence in economic activity has now begun, which should help revive demand conditions. Overall, there is still uncertainty about downside risks to domestic growth as continued slowdown in construction industry and economic growth can impact sales growth.  Major international subsidiaries are located in Bangladesh, Sri Lanka, USA, Brazil, Thailand, Egypt and Dubai. Several initiatives are being taken in Bangladesh and Sri Lanka to increase sales and market share. US subsidiary plans to maintain focus on retail and e-commerce.
• Performance of Domestic and Overseas Subsidiaries: Pidilite Industries has 20 overseas subsidiaries and one JV. Subsidiaries in Asia saw continued growth momentum. Americas saw a decline on a higher previous year base. In previous year, sales were higher due to pent-up demand and benefits passed by Government to consumers during Covid. Middle East and Africa saw modest growth in sales.

• Targeting Rural Areas: The company has been increasing its reach in rural areas, having population of less than 50K. Alternate trade channels is another area from where Pidilite Industries has seen some demand. These channels include e-commerce, modern trade and Pidilite ki duniya and all of these channels have augmented its 3Q growth. The company should see its revenues and margins getting benefitted from resurgence in construction activities as economic activities are getting back on track. Increasing rural penetration should act as another growth enabler. Construction activities are likely to seek support from “housing for all” and “smart city mission”. 100% FDI has been permitted under automatic route across several infrastructure sectors. According to DPIIT, FDIs in construction development sector and construction activities were USD25.78 billion and USD17.22 billion, respectively, between April 2000 and September 2020. Significant investment in infrastructure was seen as overall PE/VC investment reached an all-time high of USD14.5 billion in 2019. Largest deal was made by Abu Dhabi investment authority, public sector pension investment board and national investment and infrastructure fund as they have done investment worth USD 1.1 billion in GVK Airport Holdings Ltd.
• Outlook on Market Conditions: Pidilite Industries Limited exhibited that strong retail consumer demand was visible, which should continue given a fall in COVID-19 cases. Recovery in urban (Metros and Tier 2 cities) due to revival in economy has lent some support to rural demand. Market conditions have improved and this improvement should continue as there has been a resurgence in industrial and manufacturing activities and real estate and construction activities have been resumed. Growth is likely to be continued for general trade as alternate trade channels are on rise.
• Factors Likely to Support Stock Price: Phenomenal growth in stock price should stem from favourable market dynamics, revival in economic activities and improvement in demand conditions. Earlier, economic recovery has supported this significant rise in share price. Strong retail demand, dealer expansion and revival in industrial and manufacturing activities and real estate should be able to stem rise in share price. 

Multi-bagger Returns Over Past Decade

Selecting a stock having potential to generate multi-bagger returns is a tedious task. Once it is done, goal of wealth creation can easily be met. Obviously, there are several factors one should consider when one is hunting for a stock capable of delivering multi-bagger returns. Few measures people use include revenue growth, profit growth, variety of products, quality of management, efficiency in managing capital, etc. Some people give preference to size of addressable market and ways the company is planning to capture or increase its market share and in how much time.

From list of stocks delivered multi-bagger returns, one stock has turned many heads. Its Pidilite Industries Limited. Over past decade, the company has grown its core numbers. Pidilite Industries has compounded its sales and other income at ~11% from FY10-11 to FY19-20. It has compounded its operating profit at ~14.2% and PAT at ~15.4%. These reasonable and sound growth rates achieved by Pidilite Industries exhibits that it has capitalized on market opportunities. Given its market size, the company should be able to satisfy its stakeholders and continue this growth. Over past decade, the company’s stock has delivered a return of ~1856%. Simply put, an investor who would have invested INR1,00,000 in this company’s stock on January 4, 2010 would have got ~INR19,56,005.79 on December 30, 2020. It goes without saying that these exceptional returns promote investments in equity over other asset classes.

A View on Valuations

Pidilite Industries Limited is having a total market capitalisation of ~INR1,01,61,193.70 lakhs and free float market capitalisation of ~INR30,48,891.81 lakhs. The company’s stock saw a significant increase after easing of lockdown restrictions. When market conditions were favourable and supportive, Pidilite Industries has capitalised on that opportunity. Indian economy gives large opportunity to the company to market differentiated products. Stock currently trades at ~80.14x of FY22 EPS.

Inflationary trend can continue in near term, which should be mitigated by calibrated pricing actions and focused cost management actions. Focus of the company is on digital initiatives, innovation and building solid supply chain.