Pidilite sees GST-driven market share gains in Q1, but positives fully priced in
While Pidilite offers strong volume-led growth visibility, investors in the stock should brace for near-term volatility in margins
Mumbai: Adhesives and sealants maker Pidilite Industries Ltd gained market share in the June quarter, courtesy the goods and services tax (GST)-led shift from the unorganized to the organized sector. In a post-earnings conference call, the company’s management said the demand environment is gradually improving. It aims to achieve 14-15% volume growth in the consumer and bazaar (C&B) segment, a key contributor to revenue, in this fiscal year.
Though the accurate market size is unavailable, the management pegged Pidilite’s share in the C&B business at around 50-60%. In the June quarter, it achieved 20% year-on-year volume growth in the C&B segment and 7% y-o-y growth in industrial business.
Apart from Titan Industries Ltd, Pidilite is the only company that is witnessing a GST-driven demand shift, analysts said.
According to the management, the company’s primary focus is to deliver solid volume growth and it would not be too concerned about the impact of input cost inflation on margins as long as it is in the 21-26% band.
Further, the company would not cut advertisement spends or other investments necessary to grow business for the sake of margin improvement.
While Pidilite offers strong volume-led growth visibility, investors in the stock should brace for near-term volatility in margins.
The average price of vinyl acetate monomer was $1,200 per tonne in the June quarter and it has now inched up further to $1,325. This, coupled with a weak rupee and inflation in other crude-linked raw materials, are headwinds to the company’s margins. The management indicated that it may increase prices further if required.
Though the company has taken nearly 3-5% price hikes in the months of June and July, they may not be enough to offset margin compression.
As for the stock’s performance, on a year-to-date basis, the Pidilite Industries stock has posted 23% returns, outperforming the Nifty500 during the same span.
On the valuation front, the stock trades at a rich one-year forward price-to-earnings of 45 times.
Given the short-term margin pressure and the stock’s rally, analysts see limited upside.
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