COMPANY UPDATE

PIDILITE INDUSTRIES
Robust portfolio: Solid moat against competition

India Equity Research| Consumer Goods

COMPANYNAME
Our recent interaction with Pidilite’s (PIDI) top management reaffirms
EDELWEISS 4D RATINGS
our confidence in its ability to gain market share and create future
Absolute Rating BUY
growth drivers. The company expects the core portfolio (two-thirds) to
COMPANYNAME
grow 1–2x GDP, growth portfolio at 2–4x GDP, and pioneer portfolio to Rating Relative to Sector
Risk Rating Relative to Sector
Performer
Medium
touch INR1bn in three years (implying 13–15% growth). Waterproofing
Sector Relative to Market Underweight
segment has huge opportunity landscape (paint-to-waterproofing ratio at
1:15 vis-à-vis 1:6 globally). We value other market leaders such as HUL
and Britannia at 55x FY20E EPS each. Given strong demand recovery, MARKET DATA (R: PIDI.BO, B: PIDI IN)
PIDI’s market leadership and NPDs we are raising the target multiple to CMP : INR 1,169
50x (45x earlier) that yields a revised TP of INR1,334 (INR,1200 earlier). Target Price : INR 1,334
We will however closely watch the VAM price trajectory. Maintain ‘BUY’. 52-week range (INR) : 1,195 / 749
Share in issue (mn) : 507.8
M cap (INR bn/USD mn) : 593 / 8,370
Huge entry barriers in distribution
Avg. Daily Vol.BSE/NSE(‘000) : 654.2
In spite of signs of intensifying competition (with Varun Dhawan promoting Astral’s
Resinova), PIDI management remains confident of maintaining its turf comfortably
SHARE HOLDING PATTERN (%)
aided by brand equity and strong distribution reach – Fevikwik sells at 4mn outlets.
Current Q4FY18 Q3FY18
PIDI also has the second-deepest distribution reach (40,000 outlets out of the 60,000
Promoters * 69.8 69.8 69.6
universe) after Asian Paints. Adhesives are likely to sustain a strong run with new
MF's, FI's & BK’s 9.2 9.2 8.5
applications (globally, EVs need huge amount of adhesives; latest aeroplane wings too
FII's 10.4 10.4 11.0
do not use nut-bolts but adhesives!). Management’s focus on volume growth over
Others 10.7 10.7 11.0
margin expansion will further erect a big barrier for new entrants. Recent floods in
* Promoters pledged shares : NIL
Kerala provide an opportunity to PIDI to push its waterproofing range of products. (% of share in issue)

Sealing gaps in portfolio PRICE PERFORMANCE (%)

PIDI is smoothly filling gaps in its portfolio through either acquisition/JV or license EW FMCG
Stock Nifty
Index
agreement. India has been the fastest growing geography for WD40 since its acquistion
by PIDI. PIDI also acquired CIPY, the largest player in floor coatings (target markets: car 1 month 4.5 5.7 6.4
parking decks, doctor clinics, food factories, etc); it has a JV with Jowat, a leading 3 months 2.1 6.3 8.1
manufacturer of hot adhesives (used in factory-made furniture). 12 months 35.7 13.2 20.0

Outlook and valuations: Strong bond; maintain ‘BUY’

Demand revival, entry in new markets/adjacent categories and anticipated demand
shift from unorganised to organised players are likely to drive PIDI’s revenue and
earnings. We ascribe 50x FY20E EPS to arrive at a target price of INR1,334. At CMP, the
stock is trading at 43.8x FY20E EPS. We maintain ‘BUY/SP’.
Financials (INRmn)
Year to March FY17 FY18 FY19E FY20E Abneesh Roy
Revenues (INR mn) 56,168 60,784 69,431 80,247 +91 22 6620 3141
EBITDA (INR mn) 12,598 13,412 15,369 18,527 abneesh.roy@edelweissfin.com

Adjusted Profit (INR mn) 8,632 9,661 11,011 13,545 Alok Shah
Diluted EPS (INR) 16.8 19.0 21.7 26.7 +91 22 6620 3040
alok.shah@edelweissfin.com
Diluted P/E (x) 69.4 61.4 53.9 43.8
EV/EBITDA (x) 46.6 43.5 37.8 31.0
ROAE (%) 27.4 26.3 26.8 27.7 September 3, 2018
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Consumer Goods

Key takeaways from our meeting with MD, Mr Bharat Puri, and Mr. P
Ganesh, CFO
Overall demand and macro environment
 Have seen market share gains in some geographies. However, market share gains
emanating from GST related shift from unorganized has been limited.
 The informal sector/unorganized sector have found ways to beat the GST regulations. A
switch has happened from tax evaders to tax payers and not from unorganized to
organized. Unless invoice matching and credit-matching is automated, the complete
shift from unorganized is unlikely.
 Have created separate sales force which will only create demand.
 Construction chemicals segment currently includes mixes and mortars, which goes into
concrete. Including exterior paints, waterproofing makes up INR100bn market size. But
ex of exterior paints, it is INR20–30bn. The organized paint market is INR350bn market.
In developed markets, the paints-to-waterproofing ratio is 1:6 but it is ~1:15 in India.
Today, less than 10 of 100 houses in India use waterproofing. All in all, penetration is
less than 25%.
 New construction accounts for 40% of the waterproofing business whereas old
constitutes balance 60%. Globally, new construction makes up 70% of water proofing
business. Going forward, management expects this proportion to be 50:50 for India
market. Waterproofing in the informal sector is very small.

Strategy
 Core businesses – likely to grow 1–2x GDP; PIDI gets two-thirds of revenue from this
category.
 Growth businesses – likely to grow 2–4x of GDP.
 Pioneer businesses – growth drivers of tomorrow – these products/categories are being
incubated and a robust team is evaluating opportunities. Most of these categories
should be INR1bn each in three years.
 One-third of revenue growth comes from the growth and pioneer categories.
 CIPY is largest player is floor coatings – car parking decks is the lowest-hanging fruit.
Mumbai has 500–1,000 small clinics. All such clinics need CIPY floor coatings.
 JV with Jowat – leading manufacture of hot adhesives. Handed over India business to
PIDI. Factory-made furniture will be the future, which PIDI is now well placed to exploit.
 WD40 – Since WD40 was doing very good in India through PIDI, PIDI gave back the
discount to WD40 which it had earlier offered. India has been one of the fastest
growing market for WD40. With PIDI’s strong presence and reach, WD40 has been
successful. If Indonesia’s per capita is mapped to WD40, then growth rate may surprise
positively over the next three years.
 3M upped its guidance of adhesives segment globally – Electric vehicles have been
massively using adhesives.
 Brand Ranipal, which was an acquisition and thought to be a Pioneer business has not
done well.
 Dr Fixit growth has been substantial post-relaunch.
 PIDI is on the cusp of putting four new factories.

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 PIDI is moving from being a promoter-run to professionals-run business. The family is

the business’s strength. Leadership team now is one of the best in FMCG business,
which signifies the transition from one leader to shared leadership.

On adhesives
 Astral – which acquired Resinova – is not posing serious competition according to PIDI
management. By price and grammage, they are on a par with PIDI.
 New launches in adhesives segment are: Fevicol Hi-per, ProBond, (bonding laminates),
Marine coat (launched for back of laminates), Ezee Spray, etc.
 Aspiration is to clock one-third of revenue from innovative products.
 Products to be launched in 2019 and 2020 are likely to be tested in 2018.

On waterproofing
 Construction chemicals makes up around 20% of revenue and construction chemicals is
largely Dr Fixit.
 The company gives end-to-end guarantee for its water-proofing products in B2B, which
no foreign player does.
 In B2C – real estate recovery in big cities is yet to happen. Demand from smaller
towns/small residential houses is doing well.
 Company is focusing on educating consumers on waterproofing benefits. This category
can grow 2–3x GDP.

On imported furniture
 Against 1-2 years back when there was huge influx of imported furniture, the overall
volumes has come down. Now only high-end furniture is imported and not the
furniture for masses.

Price hikes and margins

 Brand equity will allow PIDI to command a 10–15% premium.
 EBITDA margins will remain in the band of 20–23%, Will prioritise volume growth over
EBITDA margin.
 Will pass through 75% input cost inflation to end consumers; will manage the rest by
cutting costs.
 Input cost has shot up partially owing to shut down of capacities. One-fourth of inputs
come from China.
 Weighted average price hike of 1.5–2% in two tranches taken in the past few months.
 Have been closely keeping tabs on efficiency gains. Targets for cost efficiency has been
upped for FY19. Further, company has initiatied Project Parivartan focusing on cost
efficiency.

On new products and innovation

 Building capabilities and processes, as well as priming the market for launches.
 Each category has a chief innovation officer.

On domestic subsidiaries
 In most of JVs, PIDI calls the shots.

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Consumer Goods
On international subsidiaries
 First time in the history, ICA has formed a JV (with Pidilite); PIDI spent 18 months to
ensure they do the spadework before launching the products.
 PIDI is currently the market leader in Bangladesh (was number 5 player earlier) – it is
building second factory in Bangladesh. PIDI now has an 80% market share in the
country.
 New factory in Sri Lanka just got operational.
 In Nepal, PIDI is the market leader.
 International – Will enter those countries wherein PIDI can replicate the India success
model. For eg, PIDI is looking to enter Ethopia.
 Dr Fixit is also being sold in global markets.
 Company will look at strategic exit options in Brazil and America.
 Elastomer project – Financial impact has been eradicated.
 The company’s Arts business globally is INR1bn.

Media spends
 Media is getting fragmented. Will continue to focus on all relevant channels.

Distribution
 Overall PIDI’s products are sold through 13 different channels – hardware, FMCG,
electrical stores, etc with most distributed product being Fevikwik at 4mn outlets. Art
and craft material is sold via stationery shops. In small towns and rural India, there’s
huge scope for expansion. But the company also needs to educate users; hence, the
company has developed the emerging India concept.
 New programs were run to onboard new wholesalers in smaller towns. PIDI divides
geographies into Platinum, Gold and Silver. They signify the potential and how much
more penetration is possible.
 Total wholesalers – 300,000 (after the recent addition of 12,000).
 Second-most penetrated company in paint shops after Asian Paints. Available at 40,000
dealers out of the 60,000 outlets universe.
 Every sales personnel has a handheld device now, digital speedometer, etc; all
distributors are on replenishment – no dumping, etc. All user marketing is done via app.
 Ajit (an ex-Mckinsey hand) is heading the digital platform. In terms of digital and data
analytics, PIDI is neck to neck with FMCG companies.
 Cost of online selling is divided equally between the company and e-commerce portals.
Online is not a high-margin business currently.
 Working capital cycle is similar to Asian Paints.
 Warehouse optimization/reduction over the next three years.

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Table 1: Trends at a glance

Source: Company, Edelweiss research

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Consumer Goods

Q1FY19 result concall | Key takeaways

Overall demand
 Sales volume and mix growth of 17.9% YoY. This was driven by 20.2% YoY growth in
sales volume & mix of Consumer & Bazaar products and 7.3% YoY spurt in sales volume
& mix of Industrial Products.
 Overall demand scenario is gradually improving. Pidilite has gained market share in
some products. Trend appears to be favouring consistent growth.
 Average Q1FY19 VAM price was USD1,200 and average VAM price currently is
USD1,325.
 Some price hikes effected in Q1 and some post the quarter end as well. Blended price
increase has been in the ~3-5% YoY range.
 Average ad spends were 4.1% YoY; full year average ad spends estimated in the ~3.5-
4.0% range.
 Share of imported products is not substantial within Pidilite’s product basket.
 Market share gains in adhesives and sealants; this could have been due to some shift
from the unorganised segment.
 Post GST sub-optimal depots in some geographies have been shut.

C&B business
 Though accurate market size is unavailable, management pegs Pidilite’s share in C&B at
~50-60%.
 Water proofing can be a huge segment since penetration is very low.

Industrial business
 Construction chemical business has done quite well.
 Market share would be lower here in light of strong competition.

Domestic subsidiaries
 Nina and Percept, domestic waterproofing subsidiaries, reported strong sales and
EBIDTA growth for the quarter ended June 2018. They have developed new customer
segments and product categories. Nina and Percept are not looking at small buildings
or individual houses since there is huge operating opportunity in larger projects.
 Supply situation in ICA Pidilite is back to normal and DRI matter is issue. Soon
manufacturing will be started and that should aid EBITDA margin improvement. Factory
should start in the next quarter. Pidilite’s wood finish business has been moved to ICA
Pidilite.

International business
 Pidilite USA’s sales fell due to dip in demand for products for the adult coloring
segment. EBITDA for the quarter was impacted by lower sales and change in
product/customer mix. Continues to work with strong customers such as Walmart,
Amazon, Hobby, etc.
 Pulvitec do Brasil’s sales grew 12.0% YoY due to increase in sale of key products and
launch of new products. Will continue to strengthen business and reduce losses. Post
this, the company will look to sell this subsidiary.

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 Pidilite Industries Egypt reported sales growth of 5.8% over the same quarter last year.
EBITDA declined due to higher raw material cost and pricing pressure.
 Pidilite Bamco and Bamco Supply and Services, subsidiaries in Thailand, reported sales
growth of 7.7% YoY driven by higher project and retail sales.
 Pidilite Lanka continued to grow strongly, with sales jumping 33.2% YoY. However,
EBITDA declined on account of higher raw material cost and investments in SG&A to
support future sales growth.

Margin
 There is not much seasonality in quarterly gross margin trends. Some compression in
gross margin in coming quarters is estimated.
 Other expenses have been high due to higher A&P spends.
 A&P spends will not be cut in order to maintain EBITDA margin band.
 Overall margin in C&B business is higher than Industrial products business.

Outlook and valuations: Bright; 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 (>3mn outlets) and strong connect with middlemen &
consumers act as strong entry barriers. Domestic demand has revived post GST
implementation and management is confident of growing its top line going ahead 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 with ~15%
revenue spurt.

Overall demand has started reviving, reflected in growth rates over the past four quarters—
C&B volumes jumped >10%. This is amply backed by urban recovery (high exposure) and
pick up in discretionary spending following revival in GDP growth. This will be further aided
by the government’s initiatives such as Housing For All, likely sops in the run-up to elections,
among others.

Good performance of acquisitions (Bluecoat, Nina, etc) and sustainability of healthy

growth in core business outweigh risks from Asian Paints in the water proofing and
adhesives space. Also, as the adhesives space already has presence of many MNC and
regional players, Asian Paints’ entry is not likely to materially alter the competitive scenario
for PIDI. We also envisage the company to be one of the key beneficiaries of GST—rate for
adhesives (~55% of sales) has been set at 18% versus current effective indirect tax rate of
~23%. Also, demand shift from unorganised to organised segment is also anticipated with
GST implementation, which will also aid volumes. However, we will closely monitor raw
material price movement. In the current environment, risk emerges from sharp jump in VAM
prices, resulting in short-term gross margin compression.

We value other market leaders such as HUL and Britannia at 55x FY20E EPS each. Given
strong demand recovery, PIDI’s market leadership and NPDs, we are raising the target
multiple to 50x (45x earlier) that yields a revised TP of INR1,334 (INR,1200 earlier). Maintain
‘BUY/SP’.

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8
(%) (%) (INR)
250
750

500
1,000
1,250

12.0
18.0
24.0
30.0
36.0

6.0

10.0
15.0
20.0
25.0

0.0
5.0
Jul-13
Q4FY14 Q1FY15

Q1FY15 Q2FY15 Jan-14

Q2FY15 Q3FY15
Chart 2: CBP EBIT margin

Jul-14
Q3FY15 Q4FY15
Chart 1: One-year forward P/E

Q4FY15 Q1FY16 Jan-15

Chart 3: Industrial products margin

Q1FY16 Q2FY16
Q2FY16 Jul-15
Q3FY16
Q3FY16 Q4FY16
Jan-16
Q4FY16
Q1FY17
Q1FY17 Jul-16
Q2FY17
Q2FY17
Q3FY17
Q3FY17 Jan-17
Q4FY17
Q4FY17
Q1FY18 Jul-17
Q1FY18
Q2FY18
Q2FY18 Jan-18
Q3FY18

Edelweiss Securities Limited

Q3FY18
Q4FY18 Jul-18
Q4FY18
15x
35x

25x
30x
40x

20x

Q1FY19 Q1FY19

Source: Company, Edelweiss research

Source: Company, Edelweiss research
9
(%) (%)
1.0
7.0
13.0
19.0
25.0

0.0
10.0
20.0
30.0
(5.0)

(20.0)
(10.0)
Q1FY14 Q1FY14
Q2FY14 Q2FY14
Q3FY14 Q3FY14
Q4FY14 Q4FY14
Chart 4: CBP—Sales growth

Q1FY15 Q1FY15
Q2FY15 Q2FY15
Chart 5: Industrial products sales

Q3FY15 Q3FY15
Q4FY15 Q4FY15
Q1FY16 Q1FY16
Q2FY16 Q2FY16
Q3FY16 Q3FY16
Q4FY16 Q4FY16
Q1FY17 Q1FY17
Q2FY17 Q2FY17
Q3FY17 Q3FY17
Q4FY17 Q4FY17
Q1FY18 Q1FY18
Q2FY18 Q2FY18

Edelweiss Securities Limited

Q3FY18 Q3FY18
Q4FY18 Q4FY18
Pidilite Industries

Q1FY19 Q1FY19
Source: Company, Edelweiss research
Source: Company, Edelweiss research
 Consumer Goods
Table 2: Consolidated segmental revenues (INR mn)
Year to March - Revenues Q1FY19 Q1FY18 YoY growth Q4FY18 QoQ growth
Consumer & Bazaar Products 15,941 14,318 11.3 12,276 29.9
Industrial Products 2,576 2,485 3.7 2,727 (5.5)
Others 162 161 1.0 126 29.0
Segment results (Profit/(Loss) before tax and interest)
Consumer & Bazaar Products 4,030 3,341 20.6 2,821 42.9
Industrial Products 379 367 3.3 469 (19.2)
Others (33) (3) NM (1) NM
Segment margins
Margin (%)
Consumer & Bazaar Products 25.3 23.3 194 23.0 230
Industrial Products 14.7 14.8 (5) 17.2 (249)
Others (20.3) (1.9) NM (1.1) NM
Source: Company, Edelweiss research

Table 3: Standalone segmental revenues (INR mn)

Year to March - Revenues Q1FY19 Q1FY18 YoY growth Q4FY18 QoQ growth
Consumer & Bazaar Products 13,683 12,489 9.6 10,159 34.7
Industrial Products 2,576 2,485 3.7 2,727 (5.5)
Others 162 161 1.0 126 29.0
Segment results (Profit/(Loss) before tax and interest)
Consumer & Bazaar Products 4,219 3,221 31.0 2,683 57.2
Industrial Products 379 367 3.3 469 (19.2)
Others (33) (3) NM (14) NM
Segment margins
Margin (%)
Consumer & Bazaar Products 30.8 25.8 504 26.4 442
Industrial Products 14.7 14.8 (5) 17.2 (249)
Others (20.3) (1.9) NM (11.4) NM
Source: Company, Edelweiss research

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Table 4: Standalone performance

Standalone (INR mn) Q1FY19 Q1FY18 % Change YoY Q4FY18 % Change QoQ
Net Sales 16,083 13,498 19.2 12,736 26.3
Expenses
Cost of goods sold 7,968 6,597 20.8 5,997 32.9
Employee cost 1,661 1,445 15.0 1,398 18.8
Other Expenditure 2,878 2,394 20.2 2,790 3.2
Total 12,507 10,435 19.9 10,185 22.8
EBITDA 3,576 3,062 16.8 2,552 40.1
Depreciation 229 228 0.4 228 0.4
EBIT 3,347 2,834 18.1 2,324 44.0
Other inc 645 354 82.0 471 37.0
Finance cost 20 15 37.7 16 23.3
PBT before extraordinary item 3,972 3,174 25.1 2,778 43.0
Exceptional item - - NM - NM
PBT before extraordinary item 3,972 3,174 25.1 2,778 43.0
Tax 1,302 1,003 29.8 396 228.6
Reported PAT 2,669 2,171 23.0 2,382 12.1
Adjusted PAT 2,669 2,171 23.0 2,382 12.1
Equity Shares (FV- INR1) 508 513 508
EPS 5.26 4.23 24.2 4.69 12.1

As % of net sales
COGS 49.5 48.9 67 47.1 245
Employee 10.3 10.7 (38) 11.0 (65)
Other expenditure 17.9 17.7 16 21.9 (401)
EBITDA 22.2 22.7 (45) 20.0 220
PAT 16.6 16.1 51 18.7 (210)
Tax Rate 32.8 31.6 119 14.3 1,852
Source: Company, Edelweiss research

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Table 5: International business performance (INR mn)
Year to March (INR mn) Q1FY19 Q1FY18 YoY growth
Revenues
North America 270 331 (18.4)
South America 207 184 12.5
Middle East & Africa 295 258 14.3
South & South East Asia 126 117 7.7
SAARC 359 298 20.5
Total 1,257 1,188 5.8
EBITDA
North America 15 30 (50.0)
South America (5) (4) 25.0
Middle East & Africa (25) (25) -
South & South East Asia 8 5 60.0
SAARC 7 127 (94.5)
Total - 133 NA
Margin (%)
North America 5.6 9.1 (351)
South America (2.4) (2.2) (24)
Middle East & Africa (8.5) (9.7) NM
South & South East Asia 6.3 4.3 208
SAARC 1.9 42.6 (4,067)
Total - 11.2 (1,120)
Source: Company, Edelweiss research

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Table 6: Domestic subsidiaries’ performance (INR mn)

Year to March (INR mn) Q1FY19 Q1FY18 YoY growth
Revenues
NINA 601 463 29.8
Percept 164 121 35.5
ICA - Pidilite 371 262 41.6
Besi & Hybrid 45 57 (21.1)
Cipy Polyurethane 374 - NA
Others 116 82 41.5
Total 1,671 985 69.6
EBITDA
NINA 75 50 50.0
Percept 25 10 150.0
ICA - Pidilite 17 3 NM
Besi & Hybrid 7 7 0.0
Cipy Polyurethane 39 - NA
Others 8 9 (11.1)
Total 171 79 116.5
Margin (%)
NINA 12.5 10.8 168
Percept 15.2 8.3 698
ICA - Pidilite 4.6 1.1 344
Besi & Hybrid 15.6 12.3 327
Cipy Polyurethane 10.4 NA NA
Others 6.9 11.0 (408)
Total 10.2 8.0 221

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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 FY17 FY18 FY19E FY20E Year to March FY17 FY18 FY19E FY20E
Macro Net revenue 56,168 60,784 69,431 80,247
GDP(Y-o-Y %) 7.1 6.5 7.1 7.6 Materials costs 26,396 28,877 33,233 38,087
Inflation (Avg) 4.5 3.6 4.5 5.0 Gross profit 29,772 31,908 36,198 42,160
Repo rate (exit rate) 6.3 6.0 6.3 6.5 Employee costs 6,453 7,124 7,915 8,988
USD/INR (Avg) 67.1 64.5 68.0 69.0 Ad. & sales costs 1,935 1,935 1,875 2,086
Company Other Expenses 8,787 9,436 11,040 12,559
Int rate on debt (%) 15.7 14.0 10.0 8.0 EBITDA 12,598 13,412 15,369 18,527
Consumer & Bazaar 6.6 3.6 18.3 15.0 Depreciation 1,151 1,199 1,256 1,313
Adhesive & Sealant 9.6 7.5 14.0 15.0 EBIT 11,447 12,213 14,113 17,215
Construction Chemicals 4.7 7.5 14.0 15.0 Less: Interest Expense 139 155 119 100
Art Materials and Others (4.9) 7.5 14.0 15.0 Add: Other income 1,122.5 1,484.1 1,660.95 2,144.57
Industrial Chemical (6.0) 3.6 14.6 12.7 Profit Before Tax 12,430 13,542 15,655 19,259
Industrial Adhesive (4.9) 6.0 12.0 13.0 Less: Provision for Tax 3,851 3,927 4,697 5,778
Industrial Resin (2.2) 6.0 12.0 13.0 Less: Minority Interest (18) 2 2 2
Organic pigments (10.6) 6.0 12.0 12.0 Associate profit share 35 48 54 66
International business 19.6 (4.7) 43.6 21.2 Reported Profit 8,632 9,661 11,011 13,545
Sales growth assumptions Adjusted Profit 8,632 9,661 11,011 13,545
Cost assumptions Shares o /s (mn) 513 508 508 508
Staff costs (% of rev) 11.5 11.7 11.4 11.2 Adjusted Basic EPS 16.8 19.0 21.7 26.7
COGS as % of sales 47.0 47.5 47.9 47.5 Diluted shares o/s (mn) 513 508 508 508
A&P as % of sales 3.4 3.2 2.7 2.6 Adjusted Diluted EPS 16.8 19.0 21.7 26.7
Financial assumptions Adjusted Cash EPS 19.1 21.4 24.2 29.3
Tax rate (%) 31.0 29.0 30.0 30.0 Dividend per share (DPS) 4.7 6.2 6.5 8.0
Capex (INR mn) 2,392 3,800 3,223 3,000 Dividend Payout Ratio(%) 34.0 39.0 36.0 36.0
Debtor days 47 50 50 47 Tax rate (%) 31.0 29.0 30.0 30.0
Inventory days 93 96 93 90
Payable days 53 59 58 55 Common size metrics
Cash conversion cycle 87 87 85 82 Year to March FY17 FY18 FY19E FY20E
Dep. (% gross block) 5.6 5.2 4.8 4.5 Materials costs 47.0 47.5 47.9 47.5
Dividend payout 28.2 32.5 30.0 30.0 Staff costs 11.5 11.7 11.4 11.2
Yield on cash 7.5 15.0 12.0 15.0 Ad. & sales costs 3.4 3.2 2.7 2.6
Other expenses 15.6 15.5 15.9 15.7
Depreciation 2.0 2.0 1.8 1.6
EBITDA margins 22.4 22.1 22.1 23.1
EBIT margins 20.4 20.1 20.3 21.5
Net Profit margins 15.3 15.9 15.9 16.9

Growth ratios (%)

Year to March FY17 FY18 FY19E FY20E
Revenues 4.8 8.2 14.2 15.6
EBITDA 7.4 6.5 14.6 20.5
PBT 9.3 8.9 15.6 23.0
Adjusted Profit 6.9 11.9 14.0 23.0
EPS 6.9 13.1 14.0 23.0

15 Edelweiss Securities Limited

 Consumer Goods

Balance sheet (INR mn) Cash flow metrics

As on 31st March FY17 FY18 FY19E FY20E Year to March FY17 FY18 FY19E FY20E
Share capital 513 508 508 508 Operating cash flow 7,938 9,974 11,394 13,558
Reserves & Surplus 34,196 35,233 42,279 50,948 Financing cash flow 407 (3,630) (4,079) (4,810)
Shareholders' funds 34,709 35,740 42,787 51,456 Investing cash flow (8,790) (1,829) (3,223) (3,000)
Minority Interest 1,273 1,750 1,752 1,754 Net cash Flow (446) 4,515 4,093 5,748
Long term borrowings 49 71 411 446 Capex (2,392) (3,800) (3,223) (3,000)
Short term borrowings 927 1,154 764 829 Dividend paid (2,931) (3,768) (3,964) (4,876)
Total Borrowings 975 1,226 1,175 1,275
Long Term Liabilities 572 1,294 1,294 1,294 Profitability and efficiency ratios
Def. Tax Liability (net) 877 1,048 1,048 1,048 Year to March FY17 FY18 FY19E FY20E
Sources of funds 38,407 41,058 48,056 56,828 ROAE (%) 27.4 26.3 26.8 27.7
Gross Block 21,667 24,667 27,667 30,667 ROACE (%) 38.9 36.2 37.4 38.6
Net Block 7,891 8,089 10,902 12,589 Inventory Days 93 96 93 90
Capital work in progress 1,477 2,277 2,500 2,500 Debtors Days 47 50 50 47
Intangible Assets 4,861 5,396 5,396 5,396 Payable Days 53 59 58 55
Total Fixed Assets 14,230 15,763 18,798 20,485 Cash Conversion Cycle 87 87 85 82
Non current investments 533 1,310 1,310 1,310 Current Ratio 3.5 3.2 3.6 4.1
Cash and Equivalents 14,898 12,785 15,809 21,557 Gross Debt/EBITDA 0.1 0.1 0.1 0.1
Inventories 7,209 8,043 8,468 9,391 Gross Debt/Equity - - - -
Sundry Debtors 7,685 9,381 9,739 10,609 Adjusted Debt/Equity - - - -
Loans & Advances 215 178 178 178 Interest Coverage Ratio 82.2 78.6 118.8 172.1
Other Current Assets 2,936 4,526 4,526 4,526
Current Assets (ex cash) 18,044 22,128 22,910 24,704 Operating ratios
Trade payable 3,903 5,438 5,281 5,739 Year to March FY17 FY18 FY19E FY20E
Other Current Liab 5,394 5,490 5,490 5,490 Total Asset Turnover 1.7 1.5 1.6 1.5
Total Current Liab 9,298 10,928 10,771 11,229 Fixed Asset Turnover 4.7 4.6 4.7 4.7
Net Curr Assets-ex cash 8,747 11,200 12,139 13,475 Equity Turnover 1.8 1.7 1.7 1.6
Uses of funds 38,407 41,058 48,056 56,828
BVPS (INR) 67.7 70.4 84.3 101.3 Valuation parameters
Year to March FY17 FY18 FY19E FY20E
Free cash flow (INR mn) Adj. Diluted EPS (INR) 16.8 19.0 21.7 26.7
Year to March FY17 FY18 FY19E FY20E Y-o-Y growth (%) 6.9 13.1 14.0 23.0
Reported Profit 8,632 9,661 11,011 13,545 Adjusted Cash EPS (INR) 19.1 21.4 24.2 29.3
Add : Non cash charge 746 1,308 1,323 1,348 Diluted P/E (x) 69.4 61.4 53.9 43.8
Add: Depreciation 1,151 1,199 1,256 1,313 P/B (x) 17.3 16.6 13.9 11.5
Interest (Net of Tax) 96 110 83 70 EV / Sales (x) 10.4 9.6 8.4 7.2
Others (502) (1) (16) (34) EV / EBITDA (x) 46.6 43.5 37.8 31.0
Less: Changes in WC (1,441) (996) (939) (1,336) Dividend Yield (%) 0.4 0.5 0.6 0.7
Operating cash flow 7,938 9,974 11,394 13,558
Less: Capex 2,392 3,800 3,223 3,000
Free Cash Flow 5,546 6,173 8,172 10,558

Peer comparison valuation

Market cap Diluted P/E (X) EV / EBITDA (X) ROAE (%)
Name (USD mn) FY19E FY20E FY19E FY20E FY19E FY20E
Pidilite Industries 8,370 53.9 43.8 37.8 31.0 26.8 27.7
Asian Paints 18,585 51.6 41.6 33.6 27.1 26.8 29.0
Berger Paints 4,588 54.7 42.4 32.9 26.5 25.1 27.8
Hindustan Unilever 54,402 61.3 51.9 43.0 36.9 80.6 83.2
Source: Edelweiss research

16 Edelweiss Securities Limited

 Pidilite Industries

Additional Data
Directors Data
Shri M B Parekh Executive Chairman Shri N K Parekh Vice Chairman
Shri A B Parekh Promoter/ Whole Time Director/ Executive Director Shri A N Parekh Promoter/ Whole Time Director/ Executive Director
Vinod Kumar Dasari Additional Director Bharat Puri Managing Director
Sabyaschi Patnaik Whole Time Director Bansi S Mehta Director
Ranjan Kapur Director Sanjeev Aga Director
Uday Khanna Director Meera Shankar Director

Auditors - Deloitte Haskins & Sells

*as per last annual report

Top 10 holdings
Perc. Holding Perc. Holding
Life Insurance Corp Of India 2.9 Axis Asset Management Co Ltd/India 2.3
Genesis Asset Managers Llp 2.1 Capital Group Cos Inc 1.1
Norges Bank 1.1 Vanguard Group 0.9
Blackrock Inc 0.7 Fmr Llc 0.4
Uti Asset Management Co Ltd 0.4 Wasatch Advisors Inc 0.4
*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
29 Jun 2018 Malay R Parekh Buy 241045.00
28 Jun 2018 Rashmikant H. Parekh Sell 3495149.00
28 Jun 2018 Malay R Parekh Buy 241045.00
28 Jun 2018 Harshada H Vakil Buy 775477.00
28 Jun 2018 Rashmikant H. Parekh Buy 78515.00
*in last one year

17 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 Corp HOLD SU H
Berger Paints BUY SO L Britannia Industries BUY SO L
Colgate HOLD SP M Dabur BUY SO M
Emami HOLD SP H Future Consumer BUY SP M
GlaxoSmithKline Consumer Healthcare HOLD SU M Godrej Consumer BUY SO H
Hindustan Unilever HOLD SP L ITC HOLD SP M
Marico BUY SP M Nestle Ltd HOLD SP L
Pidilite Industries BUY SP M United Spirits BUY SP 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

18 Edelweiss Securities Limited

 Pidilite Industries

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com

ADITYA
Digitally signed by ADITYA NARAIN
DN: c=IN, o=EDELWEISS SECURITIES LIMITED,
Aditya Narain ou=HEAD RESEARCH, cn=ADITYA NARAIN,
serialNumber=e0576796072ad1a3266c2799
0f20bf0213f69235fc3f1bcd0fa1c30092792c2
Head of Research
NARAIN
0, postalCode=400005,
2.5.4.20=3dc92af943d52d778c99d69c48a8e
0c89e548e5001b4f8141cf423fd58c07b02,
aditya.narain@edelweissfin.com st=Maharashtra
Date: 2018.09.03 10:56:47 +05'30'

Coverage group(s) of stocks by primary analyst(s): Consumer Goods

Asian Paints, Bajaj Corp, 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

27-Aug-18 Dabur Science of Ayurveda wins over 475 Buy

India Faith; Company Update
23-Aug-18 Nestle Innovations thriving; ad 10,886 Hold
spends need to perk up;
Company Update
13-Aug-18 Berger Volumes gain robust hue; 320 Buy
Paints prospects intact;
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
1,400
(INR)

297 1,200

149 1,000
(INR)

800
-
Apr-14

Sep-14
Feb-14

Mar-14

Jun-14

Dec-14
Jul-14

Aug-14

Oct-14

Nov-14
Oct-17 May-14
Jan-14

600

400
Dec-17

Aug-18
Apr-18
Nov-17

May-18
Sep-17

Feb-18
Jan-18

Mar-18

Jun-18

Jul-18

Pidilite Industries

19 Edelweiss Securities Limited

Consumer Goods

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 Pidilite Industries
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 Consumer Goods

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