Q3FY24 Review: Pidilite Industries: Weak top-line growth; beat on margins

25 Jan 2024 , 12:51 PM

Pidilite Q3FY24 sales grew by 5.4% YoY led by 10.4% underlying volume growth (UVG), however were 5.1% below IIFLe. Consumer and bazaar and B2B segment clocked sales growth of 4.9% and 6.2% YoY respectively. Softening VAM prices lead to ~1100 bps YoY expansion in Gross margins at 52.9%, ~290 bps above IIFLe. Management highlighted that part of the moderation in input prices were passed on by way of pricing adjustments and part were re-invested towards brand building. Analysts of IIFL Capital Services upgrade their FY24-26 estimates by ~2-4% factoring better margins. However amidst moderate growth outlook and challenging valuations, analysts of IIFL Capital Services maintain REDUCE with TP of Rs2600. 

Below estimates: 

Sales grew by 5.4% YoY led by 10.4% underlying volume growth. The growth was broad based across segments. Ebitda came in 1.7% below estimates primarily due to revenue miss however it was partly set off by ~290 bps beat in gross margin. Gross margin came in at 52.9% vs 41.8% YoY (50% IIFLe). The VAM prices during the quarter remained around USD 900/ton vs USD 2,000/ton YoY Employee and other expenses came in 4%/1% above analysts of IIFL Capital Services estimates. 

Strong volume growth:

Q3FY24 sales growth was aided by 10.4% robust UVG. The C&B and B2B business both reported double digit UVG. The growth in rural and semi urban market continued to grow higher than urban and the company continued to increase distribution touch points across India. The volume value gap of ~5.5% during Q3 was largely price cuts driven. B2B generally has higher cuts than B2C and within B2B Fevicol would have highest price cuts. Management mentioned that they are not finding discretionary demand to be dull, rather decent. 

FY24/25/26 EPS upgrade by 2%/4%/3%: 

Analysts of IIFL Capital Services upgrade their FY24- 26 EPS by ~2-4% on account better margins. Management highlighted that the growth would be volume driven and mentioned that they would maintain margins in the target band of 20-24%. Analysts of IIFL Capital Services have built in Ebitda margin of 23.5% in FY25/26. Maintain REDUCE, TP of Rs.2,600.