Pidilite Q4 Result: Basking in GST glory, but input cost inflation a spoilsport

Experiencing double digit growth in volumes for straight 3 quarters leading to attractive outlook for Pidilite


Pidilite

For the third straight quarter, Pidilite saw volumes in the consumer and bazaar segment—a key contributor to revenue—report double-digit growth. Volumes in the industrial business too grew in double digits during the March quarter.

As per the management,

  • there has been a gradual improvement in demand conditions and the trend is expected to continue, and
  • organized players like Pidilite are expected to gain market share on account of GST (specifically due to e-way bill)

While the company is optimistic about demand, there are headwinds in the form of higher raw material prices. Cost of vinyl acetate monomer (VAM) which accounts for 40% of total raw material cost has moved up from $975 per tonne in December 2017 to $1,300 per tonne at present.

Why is this important

  • According to Motilal Oswal Securities Ltd, Pidilite Industries offers investors the second biggest opportunity after Titan Industries Ltd on the so-called “unorganized to organized conversion” story. And this is something that is already showing promising signs—over the past couple of quarters, volumes have grown in double digits, with a potential for pickup in momentum going forward.
  • Pidilite Industries enjoys a dominant position in the adhesives market and doesn’t have a direct competitor which makes the company well poised to derive GST-led benefits.
  • Although raw material costs are rising, the company is mitigating the impact by undertaking price hikes.
pidilite chart
Pidilite stock performance – 1 year 

How will the stock be impacted

With improving demand situation and bigger opportunity pie on account of GST, Pidilite (CMP : Rs. 1159, Market Capitalisation: Rs. 59,283 Crores, FY2020 PE: 44.4) is expected to embark on a high growth trajectory.

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