RESULT UPDATE
PIDILITE INDUSTRIES Glued into recovery
India Equity Research| Consumer Goods
COMPANYNAME Pidilite Industries’ (PIDI) Q1FY21 consolidated revenue, EBITDA and PAT EDELWEISS 4D RATINGS dip of 56.5%, 85.0% and 94.6% YoY was better than our estimates. Covid- Absolute Rating BUY 19-induced lockdown led to standalone sales dipping 56.6% YoY (volume Rating Relative to Sector Performer and mix plunged 58.3%). The company had a near complete closure in Risk Rating Relative to Sector Medium April, with recovery from May (~50% outlets open) and June (~80%). The Sector Relative to Market Underweight recovery sustained in July with swifter demand recovery in Consumer &
Bazaar (C&B) business, especially in rural areas and semi-urban towns. Q1FY21 was fifth consecutive quarter of gross margin expansion (208bps MARKET DATA (R: PIDI.BO, B: PIDI IN) YoY). However, lack of operating leverage led to abnormally low EBITDA CMP : INR 1,378 margin of 7.6%. As normalcy returns, we believe PIDI’s operational ability Target Price : INR 1,585 52-week range (INR) : 1,710 / 1,186 and market leadership will help it regain volumes. Maintain ‘BUY’. Share in issue (mn) : 508.1
M cap (INR bn/USD mn) : 677 / 5,661 Volumes plunge; gross margin expansion continues Avg. Daily Vol.BSE/NSE(‘000) : 693.1 Key highlights: i) Volumes of standalone C&B business declined 58.6% YoY on a base of
6%. From geographical perspective, metros have been the most impacted. West and SHARE HOLDING PATTERN (%) North (50% revenue contribution) were more impacted than South and East. ii) Sales of Current Q4FY20 Q3FY20 NINA-Percept and CIPY plunged 88.2% and 78.1% YoY, respectively, because of the Promoters * 70.2 69.9 70.0 lockdown, which accentuated the slowdown in real estate, auto & engineering. MF's, FI's & BK’s 8.1 8.0 8.3 iii) International business dipped 35.9% with SAARC region worst affected; recovery FII's 11.2 11.5 11.2 seen in June and July. v) VAM prices continued to remain soft (consumption price for Others 10.5 10.6 10.5 Q1FY21 at USD825/tonne against USD965/tonne a year ago); current price at * Promoters pledged shares : NIL USD650-700/tonne, indicating sustenance of margin expansion trajectory. (% of share in issue)
Q1FY21 conference call: Key takeaways PRICE PERFORMANCE (%) EW Consumer Emerging India business (rural and smaller towns), which contributes 30% to Stock Nifty Goods Index revenues, is growing in double digits. Retail construction chemicals also growing in double digits. PIDI is focusing on DIY in adhesives and sealant space, which is doing 1 month (0.9) 3.7 3.2 well. Market recovery is faster than expected, especially in areas where lockdowns 3 months 0.4 21.4 16.4 have eased. Recovery in Nina-Percept and Cipy will be elongated. 12 months 3.4 3.3 7.1
Outlook and valuation: Structurally strong; maintain ‘BUY’
Demand revival once normalcy returns, entry in new markets/adjacent categories and anticipated demand shift from unorganised to organised players are likely to boost Abneesh Roy PIDI’s revenue and earnings. We maintain ‘BUY/SP’ with TP of INR1,585. At CMP, the +91 22 6620 3141 [email protected] stock is trading at 53.3x FY22E EPS.
Financials (INR mn) Tushar Sundrani +91 22 6620 3004 Year to March Q1FY21 Q1FY20 % change Q4FY20 % change FY20 FY21E FY22E [email protected] Net sales 8,778 20,168 (56.5) 15,447 (43.2) 72,945 66,048 78,988 EBITDA 664 4,437 (85.0) 3,009 (77.9) 15,760 14,195 18,111 Alok Shah +91 22 6620 3040 Adjusted Profit 159 2,944 (94.6) 1,895 (91.6) 11,773 10,145 13,147 [email protected] Adj Dil. EPS (INR) 0.3 5.8 (94.6) 3.7 (91.6) 23.2 20.0 25.9
Dil. P/E (x) 59.5 69.0 53.3
EV/EBITDA (x) 43.8 48.0 37.3 ROAE (%) 26.1 20.3 22.9 August 7, 2020 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL
Consumer Goods
Table 1: Trends at a glance Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Overall volume growth (% YoY) 17.9 10.0 11.0 NA 6.0 1.0 3.0 (4.2) (58.3) Domestic C&B volume growth (% YoY) 20.2 11.0 13.0 4.0 6.0 (1.0) 2.0 (3.1) (58.6) Industrial volume growth (% YoY) 7.3 5.0 (2.0) NA 12.0 13.0 13.0 (4.5) (53.7) Consolidated Sales growth (% YoY) 20.6 14.9 19.8 10.3 10.0 2.8 4.2 (5.8) (56.5) Gross margin (%) 50.5 49.4 47.2 50.3 51.4 53.4 53.8 55.4 53.5 EBITDA margin (%) 20.8 20.8 18.2 17.0 22.0 20.4 24.0 19.5 7.6 CBP sales growth (% YoY) 11.3 15.2 22.1 11.1 9.3 1.6 3.6 (6.1) (55.4) Industrial Products sales growth (% YoY) 3.7 12.1 6.0 7.2 13.9 14.3 9.7 (3.0) (59.0) CBP EBIT margin (%) 25.3 24.1 22.4 22.1 26.6 25.3 28.6 24.8 18.6 Industrial Products EBIT margin (%) 14.7 16.6 11.8 14.8 15.4 18.1 16.5 16.6 (11.7) Standalone Sales growth (% YoY) 19.2 11.3 15.6 8.2 10.6 3.5 4.6 (4.4) (56.6) Gross margin (%) 50.5 49.6 47.7 51.3 51.6 53.7 54.0 55.9 54.5 EBITDA margin (%) 22.2 22.8 20.5 19.0 23.5 22.3 25.8 21.6 12.4 CBP sales growth (% YoY) 9.6 11.0 17.3 8.7 10.0 2.2 3.9 (4.8) (57.2) Industrial Products sales growth (% YoY) 3.7 12.1 6.0 7.2 13.9 14.3 9.7 (3.7) (52.7) CBP EBIT margin (%) 30.8 29.4 26.9 26.5 30.0 29.6 32.7 28.5 23.8 Industrial Products EBIT margin (%) 14.7 16.6 11.8 14.8 15.4 18.1 16.5 22.4 3.7 Subsidiaries information Sales growth (% YoY) - Nina Percept 31.0 58.5 37.8 (1.9) (17.1) (24.7) (4.5) (2.9) (88.2) - ICA - Pidilite 41.6 32.6 125.8 81.5 43.9 3.6 8.0 (9.0) (78.1) EBITDA margin (%) - Nina Percept (%) 13.1 5.4 5.1 13.2 9.9 (2.9) 10.2 (2.4) (204.0) - ICA - Pidilite (%) 4.6 (0.7) 2.5 (3.9) 10.1 15.5 16.5 10.2 (48.7) International business - International growth rate (%) 5.8 4.9 3.3 8.5 11.0 13.9 9.8 3.6 (35.9) - International EBITDA margin (%) - 1.9 2.3 1.2 6.1 4.9 5.8 (0.1) (0.1) Source: Company, Edelweiss research
Q1FY21 conference call: Key takeaways Covid-19 impact and demand outlook Standalone net sales declined by 56.6% YoY, with underlying sales volume and mix decline of 58.3% YoY. This was driven by a 58.6% YoY drop in sales volume and mix of Consumer & Bazaar and 53.7% YoY Dip in sales volume & mix of Business to Business (B2B).
Q1 performance was significantly impacted by continued lockdowns due to the pandemic.
On an overall basis, the company had a near complete closure in April-20 with recovery from May-20 onwards (broadly 50% of outlets being open) and June (saw broadly 80% of outlets open).
The recovery continued in July.
From a geographical perspective, the metros have been most impacted. The Western and Northern regions are more impacted than South and East. Consumer and Bazaar businesses have seen a swifter demand recovery, especially in rural areas and semi- urban towns.
The company is seeing a stronger recovery in construction chemicals and DIY products. The B2B segment is seeing a slower recovery.
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As a result of periodic restrictions, the company’s plants are operating at a capacity utilization of 75% to 80% and operating efficiencies of the company’s warehouses was impacted on and off.
The company remains focused on profitable volume growth.
July had better sales performance than June driven by the C&B segment.
Market recovery has been faster than expected, especially in areas where the lockdown has eased.
Consumers are concerned about letting contractors in their houses; hence Pidilite is educating contractors on the health and hygiene aspect to equip them better convince consumers that it safe to let contractors in. The company is also educating end-users through its various channels. It is seeing some success through this initiative.
April sales were nearly zero and the month-on-month recovery momentum has risen since, which sustained in July. The July growth has accelerated over June.
The company doesn’t have a large pipeline of stock in the market. Its stock level is at pre-covid-19 level or lower; hence there is some confidence this demand is sustainable. The company will understand better though after a few months pass by.
Emerging India business, which is the company’s rural and smaller towns businesses, is growing in double digits. It is broad-based growth. Retail construction chemicals is also growing in double digits.
The company wants to be on top of developments in the marketplace through investments in emerging companies, and will continue to do that. Covid-19 doesn’t change that longer-term structure.
Pent-up demand in the construction chemicals space due to monsoon. The construction chemicals and waterproofing markets are growing; hence, the company is benefiting from it and competition in such cases is good for growing the market.
Even in metros, wherever the lockdown has eased, the demand for construction chemicals is picking up.
The company is focused on DIY adhesives and sealants.
The company believes in being agile in all its segments, including adhesives.
Construction chemical is a vast category with very different end users. Paint companies have an advantage where end-user is a painter; however, the company is better placed in terms of other uses.
In FY20, 30% of business in C&B was emerging India business. This year it has performed better; so the share should go up.
New construction jobs higher in small towns and rural areas than metros and larger towns.
The company was seeing stronger recovery in south; however, lockdowns in some regions weakened the recovery, so there is some impact of recurring lockdowns. However the pan-India trend is one of recovery.
The company’s model is different from paint companies, so cost items can’t be compared. Pidilite is however looking at organisational cost. The company is using
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digital to engage with channel and end users so there might be changes in the structure over the long term.
The company continues to invest in supply chain, leading to continuous improvement.
SKU rationalisation is a continuous process and non-performing SKUs are weeded out. However, it is important not to rush through such decisions.
In terms of white spaces in its portfolio, the company is filling them on a regular basis, e.g. two JVs and one acquisition in the last year.
For Jowat, it is a B2B opportunity and the company doesn’t see a big B2C market for that brand.
The company’s entire portfolio has premium pricing and positioning.
The company started out with Fevicol, however it has diversified into different products with varying chemistries.
Domestic subsidiaries Performances of subsidiaries were heavily impacted on account of the nation-wide lockdown for most part of the quarter due to covid-19.
Nina Percept and Cipy Polyurethane have exposure to the real estate and auto sectors; hence, challenges existed even prior to the pandemic.
The company is working on getting its basics right so as to be ready when demand recovers, and the recovery will be elongated.
Nina Percept is focused on the large construction waterproofing segment. Retail construction products are different and require different approaches.
International business While performance of international subsidiaries has been impacted due to the pandemic, more so in the SAARC region than the rest of the world, we have seen a recovery in June and July.
IB saw growth in June and July.
Raw material and margins VAM current prices between USD650-700. Price at this level is not sustainable in a post- pandemic world.
VAM consumption price for Q1FY21 at USD825 versus USD965 in Q1FY20.
The company expects raw material to be benign and the benefit of softer raw material prices to show in H2FY21, considering inventory positions.
Q4FY20 to Q1FY21 VAM gain negated by negative currency impact; hence, the RM cost is higher in rupee terms sequentially. An adverse mix also contributed to this.
Q4FY20 lower VAM prices were also down due to some volume discounts, which are absent in Q1FY21.
Increased contribution of emerging India portfolio doesn’t negatively impact gross margins.
All discretionary costs are being looked company-wide.
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The company has tried to cut costs in proportion to sales, except staff and some admin costs. Other expenditure will go up as sales improve.
Some part of cost cutting make stick especially some part of travel cost.
Inventory buying will depend on demand and the company’s inventory position. The company might enter into some contracts to buy VAM later at the current lower levels.
Others Capex in a normal year is 4.5% of revenue. This year would be slightly higher considering subdued revenues and investments for the future.
The company needs to invest in JVs as the company goes into adjacencies.
Outlook and valuation: Structurally strong; maintain ‘BUY’ We like PIDI as it is a high-quality company with a niche consumption play imbued with strong brand equity in under-penetrated and high-growth categories. The company’s dominant position, vast reach (~3.2mn outlets) and strong connect with middlemen as well as consumers act as strong entry barriers. Domestic demand was boosted by GST implementation, and management continues to be confident of growing top line led by rebalancing of the trade channel, deepening penetration and product innovation. Over the long term, the company is confident of clocking double-digit volume growth.
Although Q1FY21 demand was impacted owing to lockdown, we expect recovery over the next few quarters led by rural as well as urban areas. This will be further aided by the government’s initiatives such as Housing For All, among others.
Good long-term performance of acquisitions and sustainability of healthy growth in core business outweigh risks from Asian Paints in the water proofing and adhesives space. Besides, as the adhesives space is already dotted with many MNCs and regional players, Asian Paints’ entry is not likely to materially alter the competitive scenario for PIDI, in our view. Demand shift from unorganised to organised segment is slowly panning out with lowering of effective tax rates. However, we will closely monitor raw material price movement, which is beneficial currently.
We maintain ‘BUY/SP’ with TP of INR1,585. At CMP, the stock is trading at 53.3x FY22E EPS.
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Chart 1: One-year forward P/E 1,800
1,500 70x 65x 60x 1,200 55x 50x
(INR) 45x 900
600
300
Feb-17 Feb-18 Feb-19 Feb-20
Aug-17 Aug-18 Aug-19 Aug-20 Aug-16 Source: Edelweiss research Chart 2: CBP EBIT margin 36.0
30.0
24.0 (%) 18.0
12.0
6.0
Q3FY18 Q1FY21 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20
Chart 3: Industrial products margin 20.0
13.0
6.0 (%) (1.0)
(8.0)
(15.0)
Q2FY19 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
Source: Company
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Chart 4: CBP sales growth 30.0
10.0
(10.0) (%) (30.0)
(50.0)
(70.0)
Q2FY20 Q3FY20 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q4FY20 Q1FY21
Chart 5: Industrial products sales 30.0
10.0
(10.0) (%) (30.0)
(50.0)
(70.0)
Q3FY19 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q1FY17
Table 2: Consolidated segmental revenue (INR mn) Year to March - Revenues Q1FY21 Q1FY20 YoY growth Q4FY20 QoQ growth Consumer & Bazaar Products 7,020 15,743 (55.4) 11,244 (37.6) Industrial Products 1,882 4,592 (59.0) 4,411 (57.3) Others 18 233 (92.2) 151 (88.0) Segment results (Profit/(Loss) before tax and interest) Consumer & Bazaar Products 1,305 4,423 (70.5) 2,787 (53.2) Industrial Products (220) 653 NA 732.4 NA Others (35) (12) NM (11) NM Segment margins Margin (%) Consumer & Bazaar Products 18.6 28.1 (950) 24.8 (620) Industrial Products (11.7) 14.2 (2,594) 16.6 (2,831) Others (193.4) (5.2) NM (7.1) NM Source: Company
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Table 3: Standalone segmental revenue (INR mn) Year to March - Revenues Q1FY21 Q1FY20 YoY growth Q4FY20 QoQ growth Consumer & Bazaar Products 6,145 14,349 (57.2) 9,939 (38.2) Industrial Products 1,683 3,563 (52.7) 3,332 (49.5) Others 18 233 (92.2) 151 (88.0) Segment results (Profit/(Loss) before tax and interest) Consumer & Bazaar Products 1,464 4,378 (66.6) 2,832 (48.3) Industrial Products 62 566 (89.1) 746 (91.8) Others (35) (12) NM (11) NM Segment margins Margin (%) Consumer & Bazaar Products 23.8 30.5 (668) 28.5 (466) Industrial Products 3.7 15.9 (1,223) 22.4 (1,873) Others (193.4) (5.2) NM (7.1) NM Source: Company
Table 4: Standalone performance Standalone (INR mn) Q1FY21 Q1FY20 % Change YoY Q4FY20 % Change QoQ Net Sales 7,724 17,789 (56.6) 13,186 (41.4) Other Op. Income - - NA - NA Total sales 7,724 17,789 (56.6) 13,186 (41.4) Expenses Cost of goods sold 3,514 8,616 (59.2) 5,813 (39.5) Employee cost 1,717 1,987 (13.6) 1,643 4.5 Other Expenditure 1,539 3,006 (48.8) 2,878 (46.5) Total 6,770 13,609 (50.3) 10,334 (34.5) EBITDA 954 4,180 (77.2) 2,852 (66.5) Depreciation 348 281 24.0 357 (2.5) EBIT 606 3,899 (84.5) 2,495 (75.7) Other inc 197 390 (49.6) 165 18.9 Finance cost 34 27 23.6 37 (9.5) PBT before extraordinary item 769 4,262 (81.9) 2,623 (70.7) Exceptional item - - NM 370 NM PBT before extraordinary item 769 4,262 (81.9) 2,253 (65.9) Tax 202 1,387 (85.4) 657 (69.2) Reported PAT 567 2,876 (80.3) 1,596 (64.5) Adjusted PAT 567 2,876 (80.3) 1,966 (71.2) Equity Shares (FV- INR1) 508 508 508 EPS 1.1 5.7 (80.3) 3.9 (71.2)
As % of net sales COGS 45.5 48.4 (294) 44.1 141 Employee 22.2 11.2 1,106 12.5 977 Other expenditure 19.9 16.9 302 21.8 (190) EBITDA 12.4 23.5 (1,114) 21.6 (927) PAT 7.3 16.2 (882) 12.1 (476) Tax Rate 26.3 32.5 (626) 29.2 (289) Source: Company
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Table 5: International business performance (INR mn) Year to March (INR mn) Q1FY21 Q1FY20 YoY growth Revenues Asia 303 591 (48.7) Middle East & Africa 267 383 (30.3) Americas 383 512 (25.2) Total 953 1,486 (35.9) EBITDA Asia 15 67 (77.6) Middle East & Africa (31) (13) NA Americas 15 39 (61.5) Total (1) 93 NA Margin (%) Asia 5.0 11.3 (639) Middle East & Africa (11.6) (3.4) (822) Americas 3.9 7.6 (370) Total (0.1) 6.3 (636) Source: Company
Table 6: Domestic subsidiaries’ performance (INR mn) Year to March (INR mn) Q1FY21 Q1FY20 YoY growth Revenues Nina Percept 75 634 (88.2) ICA - Pidilite 117 534 (78.1) Cipy Polyurethane 76 318 (76.1) Others 27 168 (83.9) Total 295 1,654 (82.2) EBITDA Nina Percept (153) 63 NA ICA - Pidilite (57) 54 NA Cipy Polyurethane (61) 36 NA Others (37) 23 NA Total (308) 176 NA Margin (%) Nina Percept (204.0) 9.9 NM ICA - Pidilite (48.7) 10.1 NM Cipy Polyurethane (80.3) 11.3 NM Others (137.0) 13.7 NM Total (104.4) 10.6 NM Source: Company
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Financial snapshot (INR mn) Year to March Q1FY21 Q1FY20 % change Q4FY20 % change FY20 FY21E FY22E Net revenues 8,778 20,168 (56.5) 15,447 (43.2) 72,945 66,048 78,988 Staff costs 2,157 2,436 (11.5) 2,131 1.2 9,272 8,916 9,636 Cost of goods sold 4,085 9,805 (58.3) 6,895 (40.8) 34,025 30,387 36,549 Gross profit 4,694 10,363 (54.7) 8,552 (45.1) 38,920 35,661 42,439 Other expenses 1,873 3,490 (46.3) 3,412 (45.1) 13,887 12,549 14,692 EBITDA 664 4,437 (85.0) 3,009 (77.9) 15,760 14,195 18,111 Depreciation 461 377 22.2 501 (8.0) 1,699 1,914 2,066 EBIT 203 4,060 (95.0) 2,508 (91.9) 14,061 12,281 16,045 Interest 91 73 23.6 98 (7.4) 336 415 449 Other income 200 399 (49.8) 140 43.3 1,494 1,659 1,932 Add: Prior period items - - - 1 1 1 Add: Exceptional items (330) (100.0) (552) Profit before tax 312 4,385 (92.9) 2,550 (87.8) 15,219 13,525 17,527 Provision for taxes 158 1,444 (89.0) 656 (75.9) 3,477 3,408 4,417 Minority interest Associate profit share 5 3 62.1 1 370.0 30 27 35 Reported net profit 159 2,944 (94.6) 1,565 (89.9) 11,222 10,145 13,147 Adjusted Profit 159 2,944 (94.6) 1,895 (91.6) 11,773 10,145 13,147 Diluted shares (mn) 508 508 508 508 508 508 Adjusted Diluted EPS 0.3 5.8 (94.6) 3.7 (91.6) 23.2 20.0 25.9
As % of net revenues COGS 46.5 48.6 44.6 46.6 46.0 46.3 Employee cost 24.6 12.1 13.8 12.7 13.5 12.2 Other expenditure 21.3 17.3 22.1 19.0 19.0 18.6 EBITDA 7.6 22.0 19.5 21.6 21.5 22.9 EBIT 2.3 20.1 16.2 19.3 18.6 20.3 PBT 3.6 21.7 16.5 20.9 20.5 22.2 Reported net profit 1.8 14.6 12.3 16.1 15.4 16.6 Tax rate 50.7 32.9 25.7 22.8 25.2 25.2
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Company Description PIDI is the pioneer in consumer and specialties chemicals in India, with diverse product range that includes adhesives and sealants, construction and paint chemicals, automotive chemicals, art materials, industrial adhesives, industrial and textile resins and organic pigments and preparations. Most of its products have been developed through strong inhouse R&D. The company is the market leader in adhesives and sealants, construction chemicals, hobby colours and polymer emulsions in India. Brand Fevicol has become synonymous with adhesives to Indian consumers and is ranked amongst the most trusted brands in the country. Pidilite is also growing its international presence through acquisitions and setting up manufacturing facilities and sales offices in important regions around the world. Consumer & bazaar products account for ~85% of the company’s revenue. It includes various segments like adhesives and sealants, construction chemicals, art materials and stationery and others like fabric care, automotive and decorative segments. Industrial specialty accounts for ~15% of the company’s revenue. This segment has lower margins vis- à-vis consumer and bazaar segment.
Investment Theme PIDI’s presence in niche, under-penetrated and high growth categories with limited competition makes it a good play on Indian consumer goods spends. The niche presence yields high gross margins, high barriers to entry, strong brand equity, mass acceptance and superior growth opportunities. The company has near monopoly in adhesives and sealants with Fevicol and M-seal enjoying ~70% market share each in the adhesive and sealants product categories, respectively. PIDI commands a premium over competitors riding strong brand resulting a higher entry barrier. The company operates in categories where presence of large multi nationals is limited, which enables it to outpace small regional players (who lack financial strength, economies of scale and have poor distribution network and weak brand image) with aggressive ads and product extensions.
Key Risks Economic slowdown and competition getting stiffer in some segments.
Rupee depreciation has a bearing on margins as input prices are dollar linked.
Synthetic Elastomer project a drag.
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Financial Statements Key Assumptions Income statement (INR mn) Year to March FY19 FY20 FY21E FY22E Year to March FY19 FY20 FY21E FY22E Macro Net revenue 70,784 72,945 66,048 78,988 GDP(Y-o-Y %) 6.8 4.8 (4.0) 7.0 Materials costs 35,877 34,025 30,387 36,549 Inflation (Avg) 3.4 4.3 3.5 4.0 Gross profit 34,908 38,920 35,661 42,439 Repo rate (exit rate) 6.3 4.4 3.0 4.0 Employee costs 8,367 9,272 8,916 9,636 USD/INR (Avg) 70.0 70.7 75.0 73.0 Ad. & sales costs 2,127 2,188 1,651 2,370 Company Other Expenses 10,746 11,699 10,898 12,322 Int rate on debt (%) 22.3 24.0 23.0 23.0 EBITDA 13,668 15,760 14,195 18,111 Consumer & Bazaar 11.5 3.9 (9.0) 21.0 Depreciation 1,327 1,699 1,914 2,066 Sales growth assumptions EBIT 12,341 14,061 12,281 16,045 Cost assumptions Less: Interest Expense 261 336 415 449 Staff costs (% of rev) 11.8 12.7 13.5 12.2 Add: Other income 1,466.4 1,494.3 1,658.89 1,931.87 COGS as % of sales 50.7 46.6 46.0 46.3 Profit Before Tax 13,546 15,219 13,525 17,527 A&P as % of sales 3.0 3.0 2.5 3.0 Less: Provision for Tax 4,133 3,477 3,408 4,417 Financial assumptions Add: Exceptional items (180) (552) - - Capex (INR mn) 1,906 4,172 2,907 3,000 Associate profit share 36 30 27 35 Debtor days 50 53 50 50 Reported Profit 9,269 11,221 10,144 13,146 Inventory days 88 100 95 95 Exceptional Items (180) (552) - - Payable days 57 64 63 61 Adjusted Profit 9,449 11,772 10,144 13,146 Cash conversion cycle 82 88 82 84 Shares o /s (mn) 508 508 508 508 Dep. (% gross block) 5.4 6.2 6.2 6.1 Adjusted Basic EPS 18.6 23.2 20.0 25.9 Dividend payout 35.6 31.5 30.0 30.0 Diluted shares o/s (mn) 508 508 508 508 Yield on cash 10.9 10.5 12.0 10.2 Adjusted Diluted EPS 18.6 23.2 20.0 25.9 Adjusted Cash EPS 21.2 26.5 23.7 29.9 Dividend per share (DPS) 6.5 7.0 6.0 7.8 Dividend Payout Ratio(%) 42.7 37.8 36.0 36.0
Common size metrics Year to March FY19 FY20 FY21E FY22E Materials costs 50.7 46.6 46.0 46.3 Staff costs 11.8 12.7 13.5 12.2 Ad. & sales costs 3.0 3.0 2.5 3.0 Other expenses 15.2 16.0 16.5 15.6 Depreciation 1.9 2.3 2.9 2.6 EBITDA margins 19.3 21.6 21.5 22.9 EBIT margins 17.4 19.3 18.6 20.3 Net Profit margins 13.3 16.1 15.4 16.6
Growth ratios (%) Year to March FY19 FY20 FY21E FY22E Revenues 16.5 3.1 (9.5) 19.6 EBITDA 1.9 15.3 (9.9) 27.6 PBT - 12.3 (11.1) 29.6 Adjusted Profit (2.2) 24.6 (13.8) 29.6 EPS (2.2) 24.6 (13.8) 29.6
12 Edelweiss Securities Limited Pidilite Industries
Balance sheet (INR mn) Cash flow metrics As on 31st March FY19 FY20 FY21E FY22E Year to March FY19 FY20 FY21E FY22E Share capital 508 508 508 508 Operating cash flow 8,448 13,354 14,476 13,075 Reserves & Surplus 40,973 44,048 50,540 58,954 Financing cash flow (3,606) (3,966) (3,889) (4,996) Shareholders' funds 41,481 44,556 51,048 59,462 Investing cash flow (5,131) (557) (2,957) (3,150) Minority Interest 2,072 2,157 2,157 2,157 Net cash Flow (289) 8,831 7,630 4,929 Long term borrowings 85 251 644 697 Capex (1,906) (4,172) (2,907) (3,000) Short term borrowings 1,025 1,440 1,197 1,294 Dividend paid (3,962) (4,241) (3,652) (4,732) Total Borrowings 1,111 1,691 1,841 1,991
Long Term Liabilities 1,299 1,423 1,423 1,423 Profitability and efficiency ratios Def. Tax Liability (net) 1,094 693 693 693 Year to March FY19 FY20 FY21E FY22E Sources of funds 47,056 50,520 57,162 65,725 ROAE (%) 23.3 26.1 20.3 22.9 Gross Block 25,368 29,368 32,368 35,368 ROACE (%) 33.1 33.4 27.0 30.3 Net Block 9,133 11,420 11,215 12,150 Inventory Days 88 100 95 95 Capital work in progress 2,421 2,593 2,500 2,500 Debtors Days 50 53 50 50 Intangible Assets 5,343 6,648 6,648 6,648 Payable Days 57 64 63 61 Total Fixed Assets 16,897 20,660 20,363 21,297 Cash Conversion Cycle 82 88 82 84 Non current investments 3,963 4,665 4,715 4,865 Current Ratio 3.2 2.7 3.3 3.5 Cash and Equivalents 13,418 14,230 23,650 29,079 Gross Debt/EBITDA 0.1 0.1 0.1 0.1 Inventories 9,345 9,295 7,909 9,513 Gross Debt/Equity - - - - Sundry Debtors 10,560 10,885 9,275 11,085 Adjusted Debt/Equity - - - - Loans & Advances 152 215 215 215 Interest Coverage Ratio 47.3 41.8 29.6 35.7 Other Current Assets 4,703 5,278 5,278 5,278
Current Assets (ex cash) 24,759 25,672 22,676 26,090 Operating ratios Trade payable 5,806 6,210 5,245 6,108 Year to March FY19 FY20 FY21E FY22E Other Current Liab 6,175 8,497 8,997 9,497 Total Asset Turnover 1.6 1.5 1.2 1.3 Total Current Liab 11,982 14,707 14,242 15,605 Fixed Asset Turnover 5.1 4.5 3.7 4.3 Net Curr Assets-ex cash 12,778 10,965 8,434 10,485 Equity Turnover 1.7 1.6 1.3 1.4 Uses of funds 47,056 50,520 57,162 65,725
BVPS (INR) 81.6 87.7 100.5 117.0 Valuation parameters Year to March FY19 FY20 FY21E FY22E
Free cash flow (INR mn) Adj. Diluted EPS (INR) 18.6 23.2 20.0 25.9 Year to March FY19 FY20 FY21E FY22E Y-o-Y growth (%) (2.2) 24.6 (13.8) 29.6 Reported Profit 9,269 11,221 10,144 13,146 Adjusted Cash EPS (INR) 21.2 26.5 23.7 29.9 Add : Non cash charge 1,291 2,005 2,301 2,480 Diluted P/E (x) 74.1 59.5 69.0 53.3 Add: Depreciation 1,327 1,699 1,914 2,066 P/B (x) 16.9 15.7 13.7 11.8 Interest (Net of Tax) 181 259 310 336 EV / Sales (x) 9.7 9.5 10.3 8.6 Others (218) 46 77 78 EV / EBITDA (x) 50.5 43.8 48.0 37.3 Less: Changes in WC (2,112) 129 2,031 (2,550) Dividend Yield (%) 0.5 0.5 0.4 0.6
Operating cash flow 8,448 13,354 14,476 13,075 Less: Capex 1,906 4,172 2,907 3,000 Free Cash Flow 6,542 9,182 11,570 10,075
Peer comparison valuation Diluted P/E (X) EV / EBITDA (X) ROAE (%) Name FY21E FY22E FY21E FY22E FY21E FY22E Pidilite Industries 69.0 53.3 48.0 37.3 20.3 22.9 Asian Paints 62.6 51.9 39.7 32.9 23.2 24.9 Berger Paints 69.9 57.7 43.4 36.8 24.8 25.9 Hindustan Unilever 65.4 56.5 45.8 40.0 33.8 23.1 Median 66.0 54.2 44.6 36.4 24.0 24.0 AVERAGE 66.1 54.4 43.8 36.4 25.5 24.2 Source: Edelweiss research
13 Edelweiss Securities Limited Consumer Goods
Additional Data Directors Data M B Parekh Executive Chairman Bharat Puri Managing Director N K Parekh Vice Chairman Bansi S Mehta Independent Director Sanjeev Aga Independent Director Uday Chander Khanna Independent Director Meera Shankar Independent Director Vinod Kumar Dasari Independent Director A B Parekh Whole Time Director A N Parekh Whole Time Director Piyush Pandey Additional Director (Independent) Mr. Debabrata Gupta Whole Time Director
Auditors - Deloitte Haskins & Sells *as per last annual report
Top 10 holdings Perc. Holding Perc. Holding Genesis Indian Investment 5.0 Life Insurance Corp Of India 3.2 Axis Asset Management 3.3 Norges Bank 1.0 Vanguard Group 0.9 Blackrock 0.9 Uti Asset Management 0.5 Capital Group Cos 1.0 William Blair & Co 0.3 Dimensional Fund Advisors 0.3 *as per last available data
Bulk Deals Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Insider Trades Reporting Data Acquired / Seller B/S Qty Traded
No Data Available
*in last one year
14 Edelweiss Securities Limited RATING & INTERPRETATION
Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk Asian Paints BUY SO M Bajaj Consumer Care HOLD SP H Berger Paints BUY SP L Britannia Industries BUY SO L Colgate HOLD SP M Dabur BUY SO M Emami BUY SP H Future Consumer HOLD SP M GlaxoSmithKline Consumer Healthcare BUY SP M Godrej Consumer BUY SO H Hindustan Unilever BUY SO L ITC HOLD SU M Marico HOLD SP M Nestle Ltd BUY SO L Pidilite Industries BUY SP M United Spirits REDUCE SU H
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING
Ratings Criteria Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe within the sector
RELATIVE RISK RATING
Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings Criteria Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return
15 Edelweiss Securities Limited Consumer Goods
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400, Email: [email protected]
Aditya Narain
Head of Research [email protected]
Coverage group(s) of stocks by primary analyst(s): Consumer Goods Asian Paints, Bajaj Consumer Care, Berger Paints, Britannia Industries, Colgate, Dabur, Future Consumer, Godrej Consumer, Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, Pidilite Industries, GlaxoSmithKline Consumer Healthcare, United Spirits
Recent Research
Date Company Title Price (INR) Recos
07 -Aug-20 Emami Health and rural focus to bear 257 Buy fruit; Result Update 04-Aug-20 Godrej India, Indonesia shine; Africa 692 Buy Consumer turnaround awaited; Products Result Update 30-Jul-20 Dabur Healthcare, launches fight out 492 Buy covid-19; Result Update
Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period * 1stocks under review Hold appreciate up to 15% over a 12-month period > 50bn Between 10bn and 50 bn < 10bn 743 Reduce depreciate more than 5% over a 12-month period Market Cap (INR) 156 62 11 594
One year price chart 446 1,800
(INR) 297 1,680 149 1,560
(INR)
- 1,440
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- -
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-
-
-
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- 1,320
Jul
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Jun
Oct
Apr
Sep Feb
Dec
Aug Nov
Mar May
1,200
19
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19
20
19 20
20
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20 20
20
-
- -
-
-
-
-
- - -
- -
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16 Edelweiss Securities Limited
Pidilite Industries
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Consumer Goods
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Pidilite Industries
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