Earnings Outlook
Low input cost, volume growth to boost Pidilite's Jul-Sept
This story was originally published at 22:51 IST on 21 October 2024
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By Apoorva Choubey
MUMBAI – Pidilite Industries Ltd. will continue to reap the benefit of lower raw material costs in Jul-Sept and clock year-on-year improvement in profitability and bottom line for the fourth quarter in a row. The company has reported double-digit growth in net profit for the last five quarters, but revenue growth has been muted, in single digits.
For Jul-Sept, the consolidated net profit of the adhesives and sealants producer is seen jumping 18% on year to INR 5.3 billion, according to the average of estimates from six brokerages. The estimates for profit after tax range from INR 5.2 billion to INR 5.5 billion.
Pidilite's consolidated net sales are expected to rise 6% to INR 32.7 billion for the September quarter, the estimates showed. The lowest topline estimate was INR 31.96 billion while the highest was INR 33.03 billion.
The company, which sells synthetic chemical products like adhesives, sealants, and waterproofing compounds to retail consumers as well as businesses, will announce its results on Wednesday. Sequentially, its net profit is seen down 6%, while net sales may fall 4%.
The company's earnings for Jul-Sep will be underpinned by strong volumes. The underlying on-year volume growth in the domestic consumer and bazaar segment is seen at 8-11% during Jul-Sept, according to analysts. "Given a healthy monsoon and the ensuing festival season, we remain optimistic on market demand and our ability to deliver robust growth," Managing Director Bharat Puri had said at the time of detailing the Apr-Jun earnings.
The business-to-business division is also seen reporting similar volume growth of around 10%, driven by both domestic and export segments. The company has an aim of over 10% double-digit volume growth on an overall basis, provided there are no major unexpected jolts to business.
Nuvam Wealth Management expects double-digit volume growth in the business-to-business division in Jul-Sept. Over the longer term, the recent tie-up with a foreign company in electric vehicle adhesives will expand the portfolio and lead to healthy value growth for Pidilite, the brokerage said.
Another factor that will aid Pidilite's performance will be lower raw material prices, which the company has not fully passed on to customers yet. The fall in input costs is expected to drive Pidilite's consolidated operating margin higher by 110-190 basis points during the September quarter from 22.1% a year ago.
Prices of raw materials such as vinyl acetate monomer and crude oil derivatives have come down compared to a year ago, brokerages said. Spot prices of vinyl acetate monomer fell to around $800-$900 per tn during the September quarter, compared with the company's consumption cost of $1,135 per tn during Apr-Jun, Kotak Institutional Equities said in a report. This monomer accounts for nearly 30% of raw material costs for the company, while input costs make up 50% of total expenses.
The company has guided for earnings before interest, tax, depreciation and amortisation margin to be within the range of 20-24%. In Apr-Jun, it had managed to surpass the band with an EBITDA margin of 24.6%. Expenses towards brand-building, augmenting manufacturing facilities, and expanding the distribution network may limit the expansion in margins during Jul-Sept, said analysts.
The management's outlook on domestic and international demand will be a key monitorable for investors, according to analysts. On Monday, shares of the company closed 1% lower at 3,153.50 rupees on the National Stock Exchange.
Following are the Jul-Sept earnings estimates for Pidilite Industries based on reports from 6 brokerages:
| Brokerage | Net sales (INR million) | Net profit (INR million) | EBITDA (INR million) |
| ICICI Securities Ltd | 33,030.00 | 5,339.00 | 7,795.00 |
| Kotak Institutional Equities | 32,375.00 | 5,229.00 | 7,564.00 |
| Motilal Oswal Financial Services Ltd | 32,914.00 | 5,352.00 | 7,623.00 |
| Nuvama Wealth Management Ltd | 31,960.00 | 5,445.00 | 7,670.00 |
| Prabhudas Lilladher Pvt Ltd | 32,914.00 | 5,302.00 | 7,735.00 |
| Sharekhan Ltd | 32,910.00 | 5,200.00 | |
| Average | 32,683.83 | 5,311.17 | 7,677.40 |
End
US$1 = INR 84.07
Edited by Avishek Dutta
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