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Home / Market / Mark-to-market /  Consumer products segment bails out Pidilite

Pidilite Industries Ltd’s June quarter results show the impact of the wheezing economy, but strong growth in the consumer and bazaar products segment offset the poor performance of the industrial segment. Unsurprisingly, the stock gained around 1.5% on Wednesday after the results were announced.

Consolidated net sales grew 12% to 1,118 crore in the June quarter, slower than the 17% growth in the March quarter and lower than analysts’ estimates. The consumer and bazaar products segment, which contributes around 83% to the total revenue, grew at a slightly slower rate of 14%, but that was much better than the flat growth seen in the industrial segment.

Demand for industrial adhesives has taken a hit due to a sharp slowdown in investment activity. Volume growth was slower at 7-8% in the June quarter, compared with 11.4-12% growth in the March quarter because of lower demand for construction and adhesive chemicals.

Operating profit margin grew 150 basis points (bps) to 20.4% because vinyl acetate monomer prices in dollar terms have remained steady. One basis point is a one-hundredth of a percentage point. Raw material costs as a percentage of net sales declined 140 bps to 54.2%.

The company did not raise prices despite the depreciating rupee. The previous price hike of 5% was announced last year.

“It will be difficult to sustain margins at these levels because prices of imported raw material have gone up due to the weak rupee," chief financial officer Sandeep Batra said in a conference call.

“Unless we improve our product mix or increase prices, it will be challenging to see a drastic improvement in the sales growth," he added.

Overall net profit growth slowed 26% to 161 crore in the June quarter, with profits for the consumer and bazaar products segment growing at 23%, while profit growth in the industrial products segment dropped 15%.

The Pidilite stock has outperformed its peers and is up 18% year to date. The stock is trading at 26 times price-to-earnings multiple for the year to March. As long as the company is able to sustain revenue growth in the consumer segment, the stock may do well, said analysts. Any announcement on the 265 crore Dahej elastomer project, which has been on hold for a long time, will be a positive trigger. The company is looking for a strategic partner for the project.

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