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