march 20, 2013 pidilite industries...

March 20, 2013

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Glue it to your portfolio…

Pidilite Industries (Pidilite), is a dominant play in India’s growing adhesive and industrial chemical market with a market share of ~70% in its leading brand categories in the organised segment. The company’s two major segments, consumer & bazaar (C&B) and speciality industrial chemical have grown at a CAGR of 18% and 12% (standalone), respectively, in FY07-12. The growth was largely driven by Pidilite’s deep penetration into the domestic market and regular product innovations to leverage its flagship brand ‘Fevicol’ for launching new products. The company operates through a 4000+ dealer network with over 10 lakh retail reach across India. With the strong distribution network, high brand recall value, light balance sheet and virtually no competition, we believe the consolidated topline and PAT will grow at a CAGR of ~17% and ~22%, respectively, in FY12-15E. We are initiating coverage on the stock with a HOLD rating.

Strong brand, deep product penetration to drive revenue

Few brands enjoy the status of being synonymous with the category of products they represent like Fevicol. The company’s wide penetration in rural India with strong brand image provides Pidilite an edge over its competitors (mostly unorganised). A strong brand and sizeable advertisement expenses (~3-4% of sales) have created an entry hurdle for organised players as well as other cheap imported products from China. We believe the business would continue to be driven by growth in construction activities, furniture demand and rising trend of interior decoration with improved standard of living (rising middle class population). Elastomer project and overseas subsidiaries: a hangover Pidilite has incurred a capex of ~| 360 crore for the Elastomer project in Dahej Gujarat. However, the project is stalled currently and the company is undertaking a detailed techno-commercial review of the feasibility of the project. Besides, Pidilite’s overseas subsidiaries are still making losses despite growth in sales (three year’s CAGR of 11%) mainly due to overseas competition, geopolitical issues and slowdown in global economy. Strong brand and dominant play justify premium valuations At the current price, the stock is trading at 27.7x FY14E earnings and 23x FY15E earnings. The stock has traded in the range of 15x-30x on price to earning. With the increasing free cash flow on the back of reducing interest payments and improvement in return ratios, we expect the stock to trade at discount to average multiple (i.e. 28x) of FMCG index. We have valued the stock at 25x (at 10% discount to average multiple of FMCG index) its FY15E earnings with a target price of | 288 and HOLD rating. Exhibit 1: Key financials Year-end March FY11 FY12 FY13E FY14E FY15ENet Sales (| crore) 2643.9 3109.7 3655.1 4280.7 5032.2EBITDA (| crore) 468.7 483.7 577.0 689.1 817.0Net Profit (| crore) 309.3 324.3 401.1 486.5 583.9EPS (|) 6.1 6.4 7.9 9.6 11.5P/E (x) 43.4 41.5 33.5 27.7 23.0Price/Book Value (x) 12.4 10.2 8.5 7.1 6.2EV/EBITDA (x) 29.1 27.5 23.2 19.3 16.2RoCE (%) 30.2 29.3 30.5 31.3 32.9RoE (%) 28.5 24.5 25.4 25.8 26.8

Source: Company, ICICIdirect.com Research

Pidilite Industries (PIDIND)| 265

Rating Matrix Rating : Hold

Target : | 288

Target Period : 12-15 months

Potential Upside : 9%

YoY Growth (%)

% Growth FY12 FY13E FY14E FY15ENet Sales 17.6 17.5 17.1 17.6EBITDA 3.2 19.3 19.4 18.6Net Profit 4.8 23.7 21.3 20.0 Current & target multiple

FY12 FY13E FY14E FY15EEPS (|) 6.4 7.9 9.6 11.5PE (x) 41.5 33.5 27.7 23.0Target PE (x) 45.0 36.4 30.0 25.0EV/EBITDA (x) 27.5 23.2 19.3 16.2P/BV(x) 10.2 8.5 7.1 6.2RoCE (%) 29.3 30.5 31.3 32.9RoNW (%) 24.5 25.4 25.8 26.8

Stock Data Market capitalisation | 13452.7 croreDebt (FY12) | 355.4 croreCash and Cash Equivalent | 272.5 croreEnterprise Value | 13535.7 crore52 week H/L | 274/154Equity Capital | 51.3 croreFace Value | 1MF Holdings (%) 5.3FII Holdings (%) 13.2

Comparative return matrix (%) Return (%) 1M 3M 6M 12MPidilite Ind 3.7 25.6 30.4 68.63M India -9.8 -13.5 -16.2 -9.3Asian Paints 8.0 10.9 26.0 59.6 Price movement

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Analyst’s name

Sanjay Manyal [email protected] Hitesh Taunk [email protected]


Company background Incorporated in 1969 and promoted by BK Parekh, Pidilite Industries Ltd (Pidilite) is the market leader in adhesives and sealants, construction chemicals, hobby colours and polymer emulsions in India. Pidilite largely operates in two segments, namely consumer & bazaar products (~79% standalone revenue contribution) and industrial chemicals (~21% standalone revenue contribution). Pidilite’s product range includes adhesives and sealants (Fevicol and M-seal), construction and paint chemicals (Dr Fixit), automotive chemicals, art materials (hobby ideas), industrial adhesives, industrial & textile resins and organic pigments & preparations. Among all product lines, Fevicol and M-seal are known as market leaders (with ~70% market share) in the adhesive and sealants segments. Over the years, the company has done multiple overseas acquisitions to expand its reach and product lines. Pidilite has 14 overseas subsidiaries (four direct and 10 step-down subsidiaries) including those with significant manufacturing and selling operations in the US, Brazil, Thailand, Singapore, Dubai, Egypt and Bangladesh. The total investment in overseas subsidiaries as on FY12 stands at | 278 crore. Currently, the company exports its product to ~80 countries and export revenues has grown at ~17% CAGR in the last three years. Pidilite witnessed standalone revenue CAGR of 16.7% during FY09-12. This was mainly driven by revenue growth at a CAGR of ~20% and 16% in the consumer & bazaar and industrial chemical segments, respectively, during the same period. Consumer & bazaar segment growth was mainly driven by adhesive and sealants (CAGR of 18%), construction and paint chemicals (CAGR of 24%) and art materials (CAGR of 28%). Industrial chemical segment growth was led by organic pigments & preparations (CAGR of 14%), industrial adhesives (CAGR 18%) and industrial resins (CAGR of 9%).

Exhibit 2: Business segments

Pidilite Industries Standalone Revenue FY12:

| 2877 crore

Consumer & bazaarStandalone revenue FY12:

| 2227 crore

Industrial productsStandalone revenue FY12:

| 635 crore

OthersStandalone revenue FY12:

| 14 crore

Adhesives & sealants(Revenue contribution 51%)

Construction/paint chemicals (Revenue contribution 20%)

Art materials & others (Revenue contribution 8%)

Industrial resins (Revenue contribution 7%)

Industrial adhesives (Revenue contribution 8%)

Organic pigments & preparations (Revenue contribution 6%)

Vinyl Acetate Monomer (VAM)


Shareholding pattern (Q3FY13)

Shareholding Pattern Holdings (%)Promoters 70.1Institutional investors 18.5Others 11.4

Institutional holding trend (%)

12.4 12.4 12.9 13.1 13.2

6.3 5.8 4.9 5.0 5.3

02468

101214

Q3FY

12

Q4FY

12

Q1FY

13

Q2FY

13

Q3FY

13

(%)

FII DII


Exhibit 3: Company milestone

Entered fevicryl acrylic colours; transforms fabric and multi-surface painting market, launch of IPO, acquisition of optical whitener brand "Ranipal"

Acquisition of construction chemical brand "Roff", acquisition of Singapore’s Chemson Asia Pte Ltd (75% stake), a waterproofing products and exterior paints

Set up manufacturing plant; established brand Fevicol

Acquistion of M-Seal, Introduction of Dr Fixit range,acquisition of Steelgrip

Acquisition of Holdtite, issue of FCCB worth US$40 mn

1959-1969 2000-2002

Acquisition of: 1.Tristar Colman2.Sargent Arts Inc3.Cyclo

Acquisition of Brazil based company Pulvitec mainly into business of adhesives, sealants and construction chemicals, acquisition of plant, machinery, technology, patent & trademark of an international specialty chemical Company in Gujarat

20091970-1999 2003-2005 2006 2007 2008

Acquisition of retail wood working brand of Henkel, i.e. Woodlok


Exhibit 4: Major acquisition to expand the global footprint

Year Brands Target Company/Product Application Country1999 Ranipal Indian Dyestuff Industries (A Mafatlal group) Fabric whitener India2000 M-Seal, Mr Fixit Mahindra & Mahindra Sealant India2000 Steelgrip Bhor Industries Insulation tape India2004 Roff Nitin L Jobanputra and Companies India Construction chemical India2005 Probuild UCC Construction chemical Middle East2005 NA Chemson Asia Pvt Water proofing coating Singapore2005 NA Jupitar Chemicals LLC Adhesives & industrial chemicals Middle East2006 NA Bamco Ltd, Water proofing, sealants Thailand2006 Tristar Colman Tristar Colman Fine arts India2006 Sargent Sargent Art Art material USA2006 Cyclo Cyclo Automobile segment USA2007 Pagel PAGEL Concrete Technologies Cementitious grouts and allied India2007 Pulvitec Pulvitec do Brasil Industria Adhesives, sealants and construction chemicals Brazil2008 Holdtite Hardcastle & Waud Manufacturing Co Ltd Sealant & adhesives India2009 Woodlok Henkel Wood working material -


Exhibit 5: Major Product Categories

Major Product Categories Brand % sales ApplicationAdhesive & sealant Fevicol Upholstery, flooring, footwear and wood working

M-Seal Plumbing, flooringFevikwik Wood, leather, metal, plastics and ceramics

Construction chemical Dr Fixit Flooring, coatingRoff Waterproofing, sealing, flooring, plastering

Art material & others Hobby Ideas Hobby and craft productsRanipal Fabric whitenerMotomax Auto-careCyclo Automotive chemicals

Speciality industrial chemicals NA 20% Packaging, cigarettes, stock labels, sticker, footwear

51%

20%

8%


Rectangle


Investment Rationale Growth driven by consumer & bazaar segment The consumer & bazaar segment contributes ~79% of Pidilite’s standalone revenue. This segment has grown at 18% CAGR over the last five years mainly driven by adhesive and sealants segments, which contribute ~65% in the company’s consumer & bazaar segment revenue and recorded ~16% CAGR during the same period. Among other sub segments, construction & paint chemicals and art material contributes ~25% and ~10% in the topline, respectively. Consumer & bazaar segment sales growth is largely driven by the company’s pricing power in the branded product category (Fevicol, M-Seal, Dr Fixit), which resulted in margin expansion. The strong brand promotion (~4% of sales) over the years coupled with other strategic move like direct marketing and quality products at different price point for retail, enabled Pidilite to command a premium price and margin expansion. We believe since the segment growth is largely driven by construction, repair and maintenance works (Fevicol, M-seal, Dr Fixit are promoted in such a way), we believe, sales growth in the consumer and bazaar will be 19% CAGR in FY12-FY15E on the back of increase in penetration in smaller towns (population below 50,000).

Exhibit 6: Net sales of consumer & bazaar products to grow at 19% CAGR in FY12-15

9751222 1289

14821813

2227

2700

3195

3754

0

500

1000

1500

2000

2500

3000

3500

4000

FY07

FY08

FY09

FY10

FY11

FY12

FY13

E

FY14

E

FY15

E

(| c

rore

) 18% CAGR

19% CAGR


Exhibit 7: Consumer & bazaar segment revenue contribution (FY12)

Art Materials & Others10%

Construction /Paint

Chemicals25%

Adhesive & Sealants

65%


Exhibit 8: Consumer & bazaar segment EBIT & EBIT margin trend

178 24

5

255

385 45

1 509

0

100

200

300

400

500

600

FY07 FY08 FY09 FY10 FY11 FY12

(| c

rore

)

0

5

10

15

20

25

30

(%)

EBIT EBIT Margin


We expect consumer & bazaar segment sales to grow at

a CAGR of 19% FY12-15E on the back of strong growth in

adhesive and sealant and art material and other segment

Rectangle


Adhesive & sealants to grow at ~16% CAGR Pidilite’s adhesive & sealants products such as Fevicol, M-seal and Fevikwik cater to the home decorations, plumbing and wood working industry. The company’s flagship brands Fevicol and M-Seal each have ~70% market share in the adhesive and sealants product categories, respectively. Pidilite’s adhesive and sealants contribute ~51% to the topline and grew at ~16% CAGR over the last five years on the back of the following:

1. The domestic furniture manufacturing industry has grown at ~24% CAGR over the last four years. It is further expected to grow at 13-15% over the next five years

2. Increasing use of laminates in the furniture and interior decorative industry

3. Increase in urban housing @4% CAGR from 52 million in 2001 to 78 million by the end of 2011. Increase in rural housing @2% CAGR from 135 million in 2001 to 166 million by the end of 2011 (Crisil estimates)

Exhibit 9: Growth in revenue of adhesive & sealants segments 69

7 868

881 943 11

53

1433

2230

2000

1690

0

500

1000

1500

2000

2500

FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E

(| c

rore

) 15.5% CAGR

15.9% CAGR


We believe Pidilite’s adhesive & sealants segment will grow at ~16% CAGR in the next three years on the back of improving living standards with significant amount of allocation towards housing decoration (interior designing) on part of the middle class population in India (see exhibit 14). On the other hand, increasing use of adhesive and sealants in the maintenance and repair works remained the crucial driver for these segments. Besides, the company’s strategy to introduce products at every price point with attractive packaging (like bottle, angular tip tube and cone packing) helps the company to improve its volume among retail buyers based on his usage requirement.

Brand % sales Application

FevicolUpholstery, flooring, footwear and wood working

M-Seal Plumbing, flooring

Fevikwik Wood, leather, metal, plastics and ceramics

51%


Construction & paint chemicals

Pidilite’s construction and chemicals is the second largest contributor (~20% in the standalone revenue) to the topline and recorded CAGR of ~23% over the last five years. The company manufactures and markets a wide range of construction chemical products under two brands, Dr. Fixit - largely used as waterproofing and repair solutions - and Roff - used as the complete range of tile fixing solution. Both products cover different aspects of construction like waterproofing, building repairs, tile fixing, admixtures, sealants, flooring and grouts. Pidilite entered the sealants & chemical segment with the acquisition of the Mr. Fixit brand in 2000 and Roff brand in 2004. The growth in the construction/paint segment is highly driven by construction activities (housing, retail and office spaces).

Exhibit 10: Growth in revenue of construction/paint chemical segment

204 25

2 299 34

4 447 56

6

729

863

1059

0

200

400

600

800

1000

1200


(| c

rore

)

22.6% CAGR

~23.3% CAGR


We believe the construction & paint chemical business segment of Pidilite is highly dependent on repair and maintenance works at construction segments. Further, we believe there is a high correlation between Pidilite’s construction & paint chemical segment and tiles industry, where the sales pattern has been similar over the years. However, the sales of the tiles industry and construction chemical industry are highly correlated with the construction & housing industry. Therefore, we believe construction of new houses or conversion of semi pucca to pucca houses would be key growth drivers for the growth of Pidilite’s construction/paint segment.

Exhibit 11: Construction/paint chemical growth rate link with tiles industry growth rate (in %)

05

10152025303540

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

E

2014

E

2015

E

(%)

Tiles sales Construction/Paint sales

Source: Bloomberg, Capitaline, ICICIdirect.com Research

Exhibit 12: Rural and urban housing shortage (in mn units) and conversion to pucca from semi-pucca houses to drive future growth

77.4 78.2 80.6 81.6

20.8 22.8 24.7 25.4

0

20

40

60

80

100

2001E 2006E 2011E 2016P

(mn

units

)

Rural Urban

Source: Crisil, ICICIdirect.com Research

Brand % sales ApplicationDr Fixit Flooring, coatingRoff Waterproofing, sealing, flooring, plastering

20%

Rectangle


Art material & others Pidilite’s art material segment has registered ~25% CAGR standalone topline growth over the last five years supported by increasing use of craft and handloom for interior decoration, automotive care products and art material in the education sector. Pidilite manufactures and markets a wide range of art material products in the art stationary (Fevicryl), fabric care (Ranipal) and car care products (Motomax and Cyclo) segments. The art material segment of the company contributes ~8% to its topline and faces stiff competition from other branded players (like Camlin and Faber Castell) and local manufacturers.

Exhibit 13: Growth in revenue of art material & other segment

74 100

108

194 21

0 225

465

333

282

0

50

100

150

200

250

300

350

400

450

500


(| c

rore

) 24.8% CAGR

27.4% CAGR


We believe Pidilite’s art material and other segments will exhibit topline growth at ~27.4% CAGR to | 465 crore mainly driven by the following:

1. Increasing use of art material (for painting, drawing) in modern schools at the primary level. These products are also used for bonding or sticking paper, cardboard, thermocol, fabrics

2. Increasing use of handicraft to decorate homes. This product is mainly used by traditional craftsmen to create artefacts including Pattachitra, Tusser Paintings, terra cotta, leather paintings, zari gota, pot paintings and papier-mâché

3. rising use of fabric whiteners 4. rising usage of auto-care products for maintenance and removal of

scratches Exhibit 14: Growth in private final consumption expenditure into furniture, furnishing & household equipment etc (domestic market)

543

1125 12

65

1540

1688

300

600

900

1200

1500

1800

2004

-05

2008

-09

2009

-10^

2010

-11@

2011

-12*

(| b

n)

~17.5% CAGR

Source: Mospi, ICICIdirect.com Research *first revised estimate, @ second revised estimate, ^third revised estimate

Brand % sales ApplicationHobby Ideas hobby and craft productsRanipal Fabric whitenerMotomax Auto-careCyclo Automotive Chemicals

8%

Key features of adhesives and sealants for art and craft

activities:

• Synthetic white adhesive

• Ready to use

• Strong bonding

• Simple and convenient to use

• Convenient pack sizes to meet different quantity

requirements


Specialty industrial chemicals The specialty industrial segment contributes ~21% of Pidilite’s standalone revenue. This segment has grown at 13% CAGR during FY07-12 mainly driven by growth in demand from packaging, cigarettes, stickers, labelling, footwear, etc. The specialty industrial segment has major three sub-segments: industrial adhesive, industrial resins and organic pigments & preparations. The company’s specialty industrial chemical export revenue (contributes ~5% to topline) recorded ~20% CAGR over the last five years. Since this segment caters to various industries (for example: textiles, leather, footwear, ink, packaging, etc.) we have compared the sales growth with IIP growth figures, which largely mirror historical growth trends.

Exhibit 15: Segment largely following IIP growth

6

24

16

27

1

24

9913

35

8

3

16

0

5

10

15

20

25

30

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

(%)

Topline growth IIP Growth

Source: Mospi, ICICIdirect.com Research

Exhibit 16: Growth in revenue of Specialty industrial chemicals segment

347.

0

401.

9

410.

8

467.

0 580.

9

635.

5

950.

6

806.

2

678.

0

0

200

400

600

800

1000

FY07

FY08

FY09

FY10

FY11

FY12

FY13

E

FY14

E

FY15

E

(| c

rore

)

CAGR 13%

CAGR 14%


We believe the growth rate of the business unit will remain at historical levels mainly due to:

Exhibit 17: Growth of specialty chemical business linked to growth of major industries listed below

Industry opportunity

Textiles industry

Industry driver

70 78 99.7

220

0100200300

2009

2010

2011

2020

E

(US$

bn)

CAGR ~11%1.Textiles export has recorded ~12% CAGR in last 5 years2. Rising domestic income level and middle class population added demand growth for the sector3.100% FDI in sector

4

7

02468

2012 2015E

(US$

bn)

CAGR ~15%1.Increasing disposable income domestic population2. Rising young age population with growing fashion consciousness 3. Increasing number of working women

Finished leather Industry

673

628 84

1

1023

0

500

1000

1500

FY09 FY10 FY11 FY12

(US$

mn)

CAGR ~15% 1. Increasing disposable income for domestic population2. Rising young age population with growing fashion consciousness 3. Increasing no of working women

77

121

182

0

50

100

150

200

2007

2010

2012

(| b

n)

CAGR ~19%

Indian Paint Industry

1.Increase in repainting demand2. Rise in disposable income led to increase in use of premiumisation (shift from Emulsions to Enamel to Distemper) 3. New house construction in India

Industry opportunity Industry driver

Industry opportunity Industry driver Industry opportunity Industry driver

Footwear industry

Source: :DGCI& S, PWC, Capitaline, IBEF, ICICIdirect.com Research

Sub-segment% topline contribution Application

Industrial resins 7Catering to packaging, cigarettes, stock labels, stickers, footwear

Industrial adhesives 8

Specialty polymers and co-polymers for industries like paints, non-wovenand flocked fabrics and leather

Organic pigments & preparations

6Textile segment, ink & plastics


Tepid performance of international subsidiaries

Pidilite has 14 overseas subsidiaries (four direct and 10 step-down subsidiaries) operating across various geographies in the world. The strategy behind these acquisitions was to create synergistic opportunities in terms of geographic diversification and cross-selling opportunities of its successful and quality products In order to achieve sustained growth in the international business, the company is expanding its distribution network in various countries and also deploying additional manpower.

The company’s overseas subsidiaries, including those with significant manufacturing and sales operations in the US, Brazil, Thailand, Singapore, Dubai, Egypt and Bangladesh, contribute ~11% to consolidated sales. However, most subsidiaries are loss making mainly due to small scale of operation, geopolitical issues, cost pressure and strong competition. The company has taken major initiative to curtail overseas losses by shutting down unviable subsidiaries and changing the management in the non-performing geographies. We believe the overseas business will remain sluggish due to the economic slowdown in the near future.

Exhibit 18: Performance of overseas subsidiary (| crore)Overseas Subsidiary Country FY07 FY08 FY09 FY10 FY11 FY12 FY07 FY08 FY09 FY10 FY11 FY12Pidilite International Pte Ltd Singapore 0.0 0.8 0.6 0.8 1.2 1.5 -0.2 -0.1 -0.2 -6.6 -0.3 -2.3Pidilite USA Inc US 70.9 85.7 125.1 111.4 122.0 136.4 -3.6 -9.7 -9.0 -4.7 1.4 2.5Pidilite Middle East Ltd Middle East 0.1 0.0 0.3 0.0 0.0 0.0 -0.1 -0.1 0.3 0.0 -24.2 -3.0Pulvitec do Brasil Brazil 0.3 68.0 80.2 114.1 131.6 128.2 -0.8 -2.9 -20.0 -0.8 -8.8 -21.7Jupiter Chemicals (LLC) Middle East 5.4 9.4 19.4 18.8 10.6 15.4 -1.3 -2.4 -5.4 -6.3 -8.7 -4.4PT Pidilite Indonesia Indonesia 0.9 2.6 1.6 3.0 0.4 0.3 -0.7 -0.6 -1.2 0.3 -0.1 -0.2Pidilite Speciality Chemicals Bangladesh Pvt Ltd Bangladesh NA 1.1 NA 4.0 11.9 14.6 NA 0.0 NA 0.0 0.5 0.6Pidilite Innovation Centre Ptd Ltd Singapore 7.8 9.5 10.4 2.5 5.4 7.9 -0.9 0.0 -0.3 -0.5 -0.9 -0.5Pidilite Industries Egypt- SAE Africa NA 0.0 NA 1.6 6.0 12.4 NA -0.1 -0.2 -2.7 -2.0 -2.3Pidilite Bamco Ltd Thailand 12.2 14.2 15.4 17.0 18.5 22.6 0.6 -0.6 -2.7 -0.4 -0.6 -0.1Pidilite South East Asia Thailand NA NA 1.4 0.0 0.0 0.1 NA NA 0.0 -0.6 0.0 0.0Bamco Supply Services Ltd Thailand NA NA 0.5 1.5 2.3 4.2 NA NA 0.1 0.1 0.1 0.6PIL trading Egypt (LLC) Africa NA NA NA 2.8 6.9 4.8 NA NA NA -0.2 -2.1 -1.5Pidilite Industries Trading (Shanghai) Co Ltd China NA NA NA NA 0.3 1.5 NA NA NA NA -0.1 -1.5

Topline Profit/Loss


Exhibit 19: Company’s aggressive acquisition strategy to grow inorganically

Year Brands Target Company/Product Application Country1999 Ranipal Indian Dyestuff Industries (A Mafatlal group) Fabric whitener India2000 M-Seal, Mr Fixit Mahindra & Mahindra Sealant India2000 Steelgrip Bhor Industries Insulation tape India2004 Roff Nitin L Jobanputra and Companies India Construction Chemical India2005 Probuild UCC Construction Chemical Middle East2005 NA Chemson Asia Pvt Water proofing coating Singapore2005 NA Jupitar Chemicals LLC Adhesives & Industrial chemicals Middle East2006 NA Bamco Ltd, Water proofing, Sealants Thailand2006 Tristar Colman Tristar Colman Fine arts India2006 Sargent Sargent Art Art material USA2006 Cyclo Cyclo Automobile segment USA2007 Pagel PAGEL Concrete Technologies cementitious grouts and allied India2007 Pulvitec Pulvitec do Brasil Industria adhesives, sealants and construction chemicals Brazil2008 Holdtite Hardcastle & Waud Manufacturing Co Ltd Sealant & adhesives India2009 Woodlok Henkel Wood working material


Rectangle


Synthetic elastomer project: no final decision

What is synthetic elastomer (polycholoroprene rubber)?

Polycholoroprene rubber is a speciality synthetic rubber featuring superior mechanical strength, load-bearing capacity, adhesion to metal and resistant to weather, oil & chemicals as compared to other synthetic rubbers. Due to this, polycholoroprene rubber is the preferred synthetic rubber for many applications in automotive, industrial components, building products and adhesives.

What was the plan?

The company acquired plant and machinery, patents, trademark and technology of a synthetic elastomer (polycholoroprene rubber) plant in June 2007 from Polymeri Europa Elastomers, France. The plant was shipped to the Dahej SEZ in Gujarat to produce elastomer. The plant was expected to commence commercial production in March 2010 (with initial production of 25,000 tonnes/annum, which would increase to 35,000 tonnes/annum in future). The company also planned to set up a caustic chlorine plant at an additional investment of | 90 crore at the same location. Both caustic and chlorine are important inputs for the manufacture of polycholoroprene. Pidilite had planned to export its production to Europe and North America.

Why did plan not materialise?

Pidilite’s synthetic elastomer project is under review due to the global economic slowdown and sharp dip in demand of synthetic rubber (due to the slowdown in the auto industry and other industrial activities). Internationally, the elastomer price is in the range of US$4500/tonne to US$6000/tonne and is currently not at a lower level. Currently, the company is undertaking a detailed techno-commercial review of the project and is expected to announce the feasibility of the project in the near future.

Financial implications….

Pidilite has incurred a total capex of ~ | 360 crore as on date for the development of the project. Since the project is under consideration and a decision has not been taken yet about the continuance of the project, we have not considered revenue from this business in our revenue assumptions. We believe if the company discontinues the project there would be a one-time implication in the earnings of the company. However, this would not impact the long term growth of the company as the growth of the domestic business is expected to remain strong.


Strong brand: More of a consumer pull model Pidilite Industries is one of the well known adhesive companies in India for the quality and reach to end users. Fevicol, the legacy brand of the company, is a generic name in the adhesive category in India. Currently, the flagship brands of the company like Fevicol and M-seal have market shares of ~70% each in the domestic market. Pidilite’s relentless focus on building a strong consumer brand through various ad campaigns makes it different from its peers. This has helped the company to extend its presence into more consumer centric segments such as automotive and art materials. In India, despite the various applications of the products, majority sales are driven by carpenters who use Fevicol for making and repairing furniture. In order to build a strong relationship with the end user, the company has introduced direct marketing strategy to reach and educate carpenters about the use of a quality product in their work. Alongside, Pidilite’s simple and creative TV ad campaigns (like “Fevicol ka mazboot jod hai tutega nahi”) attracted many viewers and thus reached the masses.

Exhibit 20: Marketing expenses as percentage of sales

5.14.5

3.33.9

9.5 9.5

8.1 8.2 8.6 8.4

3.1 3.2

4.7 4.2

3.6

3.9

3.94.0

0123456789

10


(%)

Pidilite Industries Asian Paints Kansai Nerlac


Connecting with end users: carpenters The primary application of white glue (Fevicol) is woodworking, with secondary applications in upholstery, flooring, and footwear. However, initially the product was mainly used for the furniture making industry. Since the furniture industry is highly fragmented (~85% unorganised market), the company has decided to enter the retail market with the product. Pidilite has started approaching carpenters directly. This direct marketing initiative was one of the most successful strategies employed by the company and helped the brand to gain a strong foothold in the white glue market. Over the years, Pidilite has taken various initiatives to build strong relationships with them. Fevicol introduced Fevicol Furniture Booklets, which showcased furniture designs with illustrations and measurements. Also, Fevicol Champion’s Club (FCC) was another initiative introduced by the company as a platform for carpenters to increase their social contacts and be part of a social network.

Over the years, Pidilite has been able to create a strong

brand name, which has become synonymous with

adhesive in India

Pidilite has consistently invested in brand building

through advertising campaigns (~4% of sales over the

last three years)


Defines path for adhesive sales through TV advertisement One of the main reasons for Pidilite’s (Fevicol) popularity is the creative marketing strategy, including successful advertising campaigns. This creative advertising of adhesives has also helped keep the brand alive in this ‘uninteresting’ category. Some of the famous ads of the brand are ‘Dam laga ke haisha’ ad in 1989, the hen eating out of a Fevicol can laying unbreakable eggs (1998), a man’s shadow refusing to follow him as it gets stuck to a Fevicol logo (2000) and an overloaded bus in a desert with people not falling off due to the Fevicol signage.

Exhibit 21: Pidilite well accepted media adds


Leveraging brand Fevicol to promote other products

Pidilite has taken various marketing approaches to promote its flagship brand Fevicol over the last 60 years. This led the brand to enjoy a high level of trust among its target audience. Later Pidilite Industries decided to leverage the Fevicol brand’s success and popularity by launching other adhesive brands like Fevistick, Fevikwik and Fevitite, a version suitable for the retail market (being used in schools, offices and households). The company also rolled out a spate of uniquely packaged Fevicol products, available for school students as well as professional and educational institutions. The introduction of various packaging formats helped transition the brand from the image of an industrial product to an all-purpose glue.

Exhibit 22: Company’s different promotional activities

Initiatives Target Community

Fevicol Furniture BookPublishing magazines for 300,000 carpenters every quarter. Showcase furniture designs with illustrations, measurements enlightened carpenters on new styles and trends in furniture market

Fevicol Champion's ClubA platform for carpenters to increase their social contacts and be part of a social network (~45000 members)

Courses for Housewives On the effective use of art material is another such initiative

Dr Fixit Institute A knowledge initiative centre to help Indian construction experts interact with international experts in the field of waterproofing and building repairs

Fevicol science project challenge 2011To promote its hobby idea (Fevicryl) products, company initiated inter-school contest reached over 330 schools across India and over 55,000 students



Urbanisation and dealer network

We believe Pidilite’s speciality industrial chemical segment will benefit from growing urbanisation (grew from 28.3% in 2008 to 31.3% in 2011) in the country, leading to incremental demand for houses (new and conversion to pucca) and office space. Further, increasing literacy in the field of art and craft along with interior decoration trends in houses, schools and offices, would be main growth drivers for the company’s consumer and bazaar segment. The company has also opened a chain of art and craft stores under the name of Hobby Ideas to promote art related skills in the country.

Exhibit 23: Plant and office locations of Pidilite


Exhibit 24: India’s growing urbanisation rate

28.328.6

28.929.2

29.629.9

30.330.6

30.931.3

27

28

29

30

31

32

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: World Bank, ICICIdirect.com Research

Exhibit 25: Adhesive and sealants consumption per capita in kg (2011)

9.4 9.1

6.4

2.9

1.51

0.20

2

4

6

8

10

Germany US Japan Russia China Brazil India

Source: Henkel (2011), ICICIdirect.com Research

The company’s manufacturing units and dealer network is

spread across India, which also helps Pidilite to reach into

rural market in India. The company has ~4,000 dealers

who serve over 10 lakh direct retailers in every region in

India

Rectangle


Key Financials Domestic business growth remains intact On a consolidated basis, we estimate 17% topline growth (lower than five years CAGR) in FY12-15E on the back of a robust domestic performance as standalone revenue is expected to grow at a CAGR of 18.4% for the same period. We expect standalone revenue growth to be mainly driven by the consumer & bazaar segment (revenue growth at 19% CAGR in FY12-15E). We have built in ~16%, ~23% and ~27% CAGR (almost same as last 5 year CAGR) for the adhesive and sealants, construction & paint chemical and art material segment growth. We have built in ~15% CAGR in the domestic specialty industrial chemical segment considering revival in industrial product demand going forward. Further, on the overseas business front, we have built in revenue CAGR of ~8% for FY12-15E, due to the sluggish economic environment in the US and competition in Brazil (both contribute ~70% in total overseas subsidiary revenue).

Exhibit 26: Consolidate net sales expected to grow at 17% CAGR in FY12-15E

1248

.2

1708

.2

1986

.3

2194

.1

2643

.9

3109

.7

5032

.2

4280

.7

3655

.1

0

1000

2000

3000

4000

5000

6000


(| c

rore

)

CAGR 20%

CAGR 17%


Exhibit 27: Standalone consumer & bazaar segment expected to grow at ~19% CAGR in FY12-15E

(| crore) FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E CAGR FY07-12 CAGR FY12-15E

Adhesive & Sealants 696.7 868.2 880.6 942.9 1153.3 1433.4 1689.9 1999.6 2229.9 15.5 15.9

Construction /Paint Chemicals 203.8 252.0 299.4 343.9 447.2 565.5 729.0 862.6 1059.2 22.6 23.3

Art Materials & Others 74.2 100.1 107.8 193.6 209.7 224.7 281.6 333.3 464.6 24.8 27.4

Consumer and Bazaar Products 975.0 1222.4 1289.4 1482.4 1813.5 2226.9 2700.5 3195.4 3753.6 18.0 19.0


Exhibit 28: Standalone specialty industrial segment expected to grow at ~15% CAGR in FY12-15E

(| crore) FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E CAGR FY07-12 CAGR FY12-15E

Organic Pigments & Preparations 79.3 105.5 109.2 158.4 164.8 162.4 178.9 215.6 260.2 15.4 17.0

Industrial Adhesives 107.1 122.6 126.8 158.4 185.0 210.0 231.9 274.5 339.1 14.4 17.3

Industrial Resins 129.0 138.6 144.2 119.2 183.6 189.2 175.6 207.8 255.5 8.0 10.5

Industrial Segments 315.4 366.7 380.2 436.1 533.4 561.6 586.5 697.9 854.8 12.2 15.0


On a consolidated basis, we expect net sales to grow at a

CAGR of ~17% in FY12-15E on the back of ~19% CAGR

in the consumer & bazaar segment (standalone), 15%

CAGR in the industrial chemical segment (standalone)

during the same period

Rectangle


Strong brand and ability to pass-on cost hike to drive EBITDA margin

We expect the consolidated EBITDA margin of Pidilite to improve ~60 bps from 15.5% in FY12 to ~16.1% in FY15E considering the company’s ability to pass on the rise in most of the input cost due to strong brand name. Historically, there is a strong correlation between raw material (VAM and HDPE) cost and EBITDA margin. Raw material, vinyl acetate monomer (VAM) contributes ~10% to the total raw material cost. VAM price and HDPE price (used for packing material) has increased ~6% and ~4.5% YoY, respectively, during Q3FY13. We believe prices of both crude derivatives would remain almost at the same level in near future. In addition, employee cost, selling expenses & other expenses are expected to increase in the near future due to employee additions in the overseas market and increase in advertisement expenses to promote the brand. On a standalone basis, we have modelled in 17% and 17.3% EBITDA margin for FY14E and FY15E, respectively.

Exhibit 29: EBITDA margin to improve ~60 bps in FY12-15E

166.

2

265.

5

219.

1

398.

7

468.

7

483.

7

817.

0

689.

1

577.

0

0100200300400500600700800900


(| c

rore

)

02468101214161820

(%)

EBITDA EBITDA Margin


Exhibit 30: Brent crude price and EBITDA margin movement

65

81 87

70

87

114

0

20

40

60

80

100

120

140


(US$

/bar

rel)

02468101214161820

(%)

Crude Price Margin

Source: Bloomberg, ICICIdirect.com Research (annual average crude price)

We expect the consolidated EBITDA margin of Pidlite to

improve for FY14E and FY15E (~60 bps expansion over

FY12) considering the flattish price of crude derivatives


Net profit likely to grow at CAGR of ~22% in FY12-15E With the strong EBITDA margin and low interest outgo (due to redemption of outstanding FCCB of US$20.5 million) of the standalone business, we believe the consolidated net profit will grow at a CAGR of ~22% in FY12-15E. The consolidated interest outgo is expected to reduce ~24% coupled with ~65% rise in other income (due to interest income) by the end of FY15E. However, the gains will be partially offset by consolidated tax outgo, which is expected to double by the end of FY15E from the current level due to end of tax holidays on some of its manufacturing capacities.

Exhibit 31: Net profit to grow at CAGR of ~22% in FY12-15E

172.

2

277.

0

309.

3

324.

3

111.

9

111.

9

583.

9

401.

1 486.

5

0

100

200

300

400

500

600

700


(| c

rore

)

CAGR ~24%

CAGR 21.6%


Return ratios

The company has maintained its consolidated return ratios i.e. RoCE, RoE at 28% (last three year average) with working capital to sales ratio at ~11%. Return ratios have been impacted by the Elastomer project and overseas subsidiaries. The company has a track record of ~25-30% dividend payout and low debt on its balance sheet. We believe the return ratios will remain firm on the back of strong earnings growth supported by strong EBITDA margin and lower debt on the book after redemption of FCCB.

Exhibit 32: Strong return ratio on back of sustained earning growth

21.3

12.3

24.8

31.828.5

32.931.330.529.3

19.1

30.226.825.825.424.5

27.8

16.1

23.3

0

5

10

15

20

25

30

35


(%)

RoCE ROE


Net profit is expected to grow at a healthy pace of 23%

CAGR on the back of robust operating margins and lower

interest outgo on the back of FCCB redemption

The company has maintained its return ratios i.e. RoCE,

RoE at, 28% (last three year’s average), mainly due to

moderate dividend payout and a lighter balance sheet


Exhibit 33: Strong free cash flow

157.

0

390.

1 448.

0

258.

8 355.

3

-195

.7

71.4

-20.

7

-300

-200

-100

0

100

200

300

400

500

FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E

(| c

rore

)

Negative free cash flow due to acquisition of elastomer plant

Cash outgo due to redemption of FCCB worth US$ 28.6 million


Exhibit 34: Increase in dividend payout, going forward

0

5

10

15

20

25

30

35

40

45

FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E

(%)


The company would generate additional free cash flow of

| 685 crore in FY13-FY15E despite cash outgo of ~| 150

crore for FCCB redemption (Which was part of current

liabilities as maturity was due within 12 months)

Rising free cash flow coupled with no near term major

capex would translate into higher dividend payout in future


Risk & concerns Elastomer project Pidilite has incurred capex of | 360 crore for the development of the Elastomer project in Gujarat. Since the project is under consideration and a decision has not yet been taken about the continuance of the project, there is still uncertainty over the commissioning of the project.

Raw material risk Pidilite’s main raw materials are VAM and HDPE, which are crude oil derivatives. Any significant increase in crude prices will adversely affect cost of raw materials and erode margins.

Risk associated with overseas subsidiaries Pidilite has made considerable investment (~| 277 crore as on FY12) in its overseas subsidiaries in order to strengthen the business. However, the major subsidiaries are still making losses due to geopolitical/economic uncertainties, competitive and inflationary pressure. Considering this, we believe the bottomline of the overseas subsidiaries will remain under pressure in the near term.

Continuous economic slowdown may hurt export The company earns ~10% of revenue from exporting its speciality industry chemicals overseas. Exports of speciality industrial chemicals were affected by the weak global economic situation and grew only 8.2% as compared to the previous five year’s growth of 19.8%.

Increasing use of readymade metal furniture Over the last few years, more and more customers have been buying readymade furniture. A part of this readymade furniture is made in workshops/factories located in India and part of this is imported from abroad. Increasing use of readymade furniture is likely to adversely impact, over a period of time, growth rates for premium wood working and furniture making adhesives.


Valuation Pidilite, a dominant play in the adhesive and sealants industry, with ~70% market share in the leading brand categories is well placed to take advantage of India’s strong consumption story. The stock commands rich valuation multiples, which is justified by its dominant position in the industry with a strong distribution network of ~4000 dealers across India and no major competition. In addition, Pidilite’s strategy to directly reach end users (like carpenters and arranging various events at school level) through various schemes has created strong barriers for a new entrant in the consumer and bazaar segment.

We believe the company has witnessed sustainable revenues and earnings growth at a CAGR of 20% and 24%, respectively, in the last five years on the back of product demand from the field of art and craft along with interior decoration trends in domestic households. We believe the cost of raw material will remain at the same level. The company’s ability to pass on the rise in input cost would help margins to remain intact for FY12-15E. Further, Pidilite’s recent redemption of outstanding FCCB (US$20.5 million) would translate into interest cost saving, which will help to drive its bottomline. We expect the company’s revenues and earnings to grow at a CAGR of 17% and 22%, respectively, in FY12-15E.

With no direct competitors, we have compared Pidilite with Asian Paints (leader in the domestic paint industry) replicating a similar business model. At the current price, the stock is trading at 27.7x FY14E earnings and 23x FY15E earnings. The stock has traded in the range of 15x-30x on price to earning. With the increasing free cash flow on the back of reducing interest payments and improvement in return ratios, we expect the stock to trade at discount to average multiple (i.e. 28x) of FMCG index. We have valued the stock at 25x (at 10% discount to average multiple of FMCG index) its FY15E earnings with a target price of | 288 and HOLD rating.

Exhibit 35: One-year forward P/E (x)

0

50

100

150

200

250

300

350

Apr-0

5

Apr-0

6

Apr-0

7

Apr-0

8

Apr-0

9

Apr-1

0

Apr-1

1

Apr-1

2

Price 10x 15x 20x 25x 30x

Source: Company, capitaline, ICICIdirect.com Research

Exhibit 36: One year forward P/E (x) comparison with FMCG index

0

10

20

30

40

50

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

FMCG Index PE(x) P. Max(x)

P. Min(x) P. Average(x)

Source: Bloomberg, ICICIdirect.com Research

Rectangle


Exhibit 37: Income statement (Consolidated)

(| Crore)(Year-end March) FY11 FY12 FY13E FY14E FY15ENet Sales 2643.9 3109.7 3655.1 4280.7 5032.2Other Operating Income 13.3 16.8 19.9 23.5 27.9Total Operating Income 2657.2 3126.6 3675.0 4304.2 5060.1ExpenditureRaw Material Expenses 1308.6 1601.7 1867.4 2193.9 2593.6(Increase)/Decrease in stock in trade & WIP -63.1 -34.6 0.0 0.0 0.0Employee Expenses 287.0 326.2 369.9 417.7 487.7Marketing Expenses 111.0 120.5 140.8 163.4 190.8Purchase of traded goods 159.2 173.3 195.0 224.7 260.9Other Expenses 385.8 455.9 525.0 615.5 710.1Total Operating Expenditure 2188.5 2642.9 3098.0 3615.2 4243.2EBITDA 468.7 483.7 577.0 689.1 817.0Other Income 30.0 43.5 51.4 60.7 71.8Interest 36.3 30.7 10.3 7.9 5.5PBDT 462.3 496.4 618.1 741.9 883.3Depreciation 59.4 63.7 69.7 76.5 84.6PBT before Exceptional Items 403.0 432.7 548.4 665.4 798.8Less: Exceptional Items 0.7 0.0 0.0 0.0 0.0PBT 402.3 432.7 548.4 665.4 798.8Total Tax 94.6 110.1 148.1 179.7 215.7PAT before MI 307.7 322.6 400.3 485.8 583.1Minority Interest 0.0 0.3 0.1 0.1 0.1PAT 309.3 324.3 401.1 486.5 583.9


Exhibit 38: Balance sheet (Consolidated)

(| Crore)(Year-end March) FY11 FY12 FY13E FY14E FY15EEquity Capital 50.6 50.8 51.3 51.3 51.3Reserve and Surplus 1033.3 1274.5 1528.1 1837.6 2126.5Total Shareholders funds 1084.0 1325.3 1579.4 1888.9 2177.7Total Debt 270.2 105.6 85.6 65.6 45.6Deferred Tax Liability 42.0 46.8 46.8 46.8 46.8Minority Interest 0.2 0.5 0.7 0.8 0.9Total Liabilities 1396.2 1478.1 1712.3 2002.0 2271.0

AssetsTotal Gross Block 1059.9 1178.8 1278.8 1428.8 1578.8Less Total Accumulated Depreciation 495.8 561.4 631.1 707.6 792.2Net Block 564.1 617.4 647.7 721.2 786.7Total Fixed Assets 907.7 1011.2 1041.5 1115.1 1180.5Other Investments 190.0 125.1 175.1 275.1 375.1Inventory 409.2 454.1 535.7 633.3 744.5Debtors 346.0 395.2 460.6 539.5 634.2Loans and Advances 82.1 100.3 117.8 138.0 162.2Other Current Assets 4.1 10.5 12.4 14.5 17.0Cash 102.7 272.5 166.6 220.5 255.3Total Current Assets 944.1 1232.6 1293.2 1545.8 1813.3Total Current Liabilities 645.6 890.8 797.4 933.9 1097.9Net Current Assets 298.5 341.8 495.7 611.9 715.4Total Assets 1396.2 1478.1 1712.3 2002.0 2271.0


We estimate consolidated sales CAGR of ~17% in FY12-

15E on the back of ~19% CAGR in the consumer &

bazaar segment (standalone), 15% CAGR in the industrial

chemical segment (standalone) during the same period

On a consolidated basis, the EBITDA of the company is

expected to grow at a CAGR of 19% during FY12-15E to

| 817 crore in FY15E from ~| 484 crore during FY12

With reduction in interest cost coupled with lower tax

rate, we expect the consolidated net profit to grow at a

CAGR of 21.6% in FY12-15E


Exhibit 39: Cash flow statement (Consolidated)

(| Crore)(Year-end March) FY11 FY12 FY13E FY14E FY15EProfit after Tax 309.3 324.3 401.1 486.5 583.9Depreciation 59.4 63.7 69.7 76.5 84.6Cash Flow before working capital changes 405.0 418.8 481.1 570.9 673.9

Net Increase in Current Assets -143.0 -118.7 -166.5 -198.7 -232.7Net Increase in Current Liabilities 178.0 245.2 -93.3 136.5 164.0Net cash flow from operating activities 440.0 545.3 221.3 508.7 605.2

(Purchase)/Sale of Fixed Assets -128.1 -167.2 -100.0 -150.0 -150.0Net Cash flow from Investing Activities -49.9 -97.3 -149.9 -249.9 -249.9

Inc / (Dec) in Equity Capital 0.0 0.2 0.5 0.0 0.0Inc / (Dec) in Loan Funds 7.4 -164.5 -20.0 -20.0 -20.0Inc / (Dec) in Loan Funds -205.9 0.0 0.0 0.0 0.0Total Outflow on account of dividend -102.9 -112.2 -147.5 -177.0 -295.0Net Cash flow from Financing Activities -332.2 -278.2 -177.3 -204.9 -320.5

Net Cash flow 58.0 169.8 -105.9 53.9 34.9Cash and Cash Equivalent at the beginning 44.7 102.7 272.5 166.6 220.5Cash 102.7 272.5 166.6 220.5 255.3


Exhibit 40: Ratio analysis

(Year-end March) FY11 FY12 FY13E FY14E FY15EPer Share DataEPS 6.1 6.4 7.9 9.6 11.5Cash EPS 7.3 7.6 9.3 11.1 13.2BV 21.4 26.1 31.1 37.2 42.9Operating profit per share 9.2 9.5 11.4 13.6 16.1

Operating RatiosEBITDA Margin 17.6 15.5 15.7 16.0 16.1 PAT Margin 11.6 10.4 10.9 11.3 11.5

Return RatiosRoE 28.5 24.5 25.4 25.8 26.8RoCE 30.2 29.3 30.5 31.3 32.9RoIC 31.6 34.8 32.8 34.4 36.3

Valuation RatiosEV / EBITDA 29.1 27.5 23.2 19.3 16.2P/E 43.5 41.5 33.5 27.7 23.0EV / Net Sales 5.2 4.3 3.7 3.1 2.6Sales / Equity 2.4 2.3 2.3 2.3 2.3Market Cap / Sales 5.1 4.3 3.7 3.1 2.7Price to Book Value 12.4 10.2 8.5 7.1 6.2

Turnover RatiosAsset turnover 1.9 2.2 2.3 2.3 2.4Debtors Turnover Ratio 7.6 7.9 7.9 7.9 7.9Creditors Turnover Ratio 11.8 11.9 11.8 11.8 11.8

Solvency RatiosDebt / Equity 0.2 0.1 0.1 0.0 0.0Current Ratio 1.5 1.4 1.6 1.7 1.7Quick Ratio 0.8 0.9 0.9 1.0 1.0


The company is expected to generate free cash flow of

~| 685 crore on the back of strong topline growth (17%

CAGR FY12-15E) and low capex and net cash status

Pidilite has maintained its return ratios i.e. RoCE, RoE at

28% (last three year’s average), mainly due to strong

cash flow and net cash status


RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: > 10%/ 15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]

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march 20, 2013 pidilite industries...

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