Pidilite Industries, a well-known brand name in the adhesive market has crossed a 1 trillion rupees benchmark in market capitalization on May 20. After hitting such a target, the company’s share surged nearly 11% and stock traded at the value of 1969.20 rupees on the Bombay Stock Exchange. So far today, the stock value has reached its all-time high of Rs. 1,974. The company that started in 1969 became the market leader in adhesive and sealants, construction chemicals, color, and polymer emulsions market in the country, and has reported much higher earnings than the expectation in the March quarter, with an increase in revenue by 44.0% year-on-year and 53.0% increase in its total earnings.
If we exclude Huntsman acquisition by the company, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) and profit after tax increased by 41% and 49% respectively, while total revenue grew by 38%. Consumer and bazaar sales soared up by 53.9% due to an increase in volume and mix growth. The demand from the rural and semi-urban regions remained sustainable which helped the company to register robust growth across the different verticals. As per the company statement, Vinyl Acetate Monomer (VAM) prices are expected to reach height after June. So, gross margin may experience certain pressure in the first quarter of the financial year 2022. Pidilite has already started to increase the price for its product in the open market to smoothly tackle the inflation in its adhesive portfolio. The price hike of 4 to 6 percent is in the plan, which is in line with the expected inflation.
The company is well aware of the expected hike in prices of core raw material and it is trying to stay well placed, to partially put the inflationary burden on the shoulders of consumers and gain some market share, especially in the restricted market share during the lockdown scenario which has already disrupted the entire supply chain system. After the recovery from the pandemic situation, the company wants to hold on to its leading position in the adhesive market, which means it will have to play strategically and keep an eye on the government’s decision regarding the ease in lockdown restrictions.
Given its strong and robust balance sheet, financial planning, and almost unmatchable supply chain system in the Indian market, the annual margin guidance of 22 to 25% for gross profit remains intact, despite the disruption that the company has been facing for the last few months. In early January, Dolat Capital market recommended a positive rating on Pidilite Industries, with a price band of 1800 to 1900 rupees in its research report. In the report, the broker firm stated that the adhesive industry in the country has high growth potential and Pidilite being the market leader deserves much higher valuation in the future. The views and investment tips expressed by broking house turned out to be true in less than 4 months, when the company actually entered the price band of 1800 to 1900. As of today, the share value of the company is expected to grow further from its market cap which is currently at 1.01 trillion rupees due to its sustainable and robust growth plans and previous results.
