Pidilite Industries (PIDI IN)

Transcription

1 (PIDI IN) Rating: ACCUMULATE CMP: Rs1,154 TP: Rs1,175 August 29, 2018 Analyst Meet Update Change in Estimates Target Reco Change in Estimates Current Previous FY19E FY20E FY19E FY20E Rating ACCUMULATE ACCUMULATE Target Price 1,175 1,175 Sales (Rs. m) 60,782 70,232 60,782 70,232 % Chng. - - EBITDA (Rs. m) 14,705 17,081 14,705 17,081 % Chng. - - EPS (Rs.) % Chng. - - Key Financials FY17 FY18 FY19E FY20E Sales (Rs. m) 48,654 53,544 60,782 70,232 EBITDA (Rs. m) 12,249 12,923 14,705 17,081 Margin (%) PAT (Rs. m) 8,681 9,086 10,314 12,285 EPS (Rs.) Gr. (%) DPS (Rs.) Yield (%) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) PE (x) P/BV (x) Key Data PIDI.BO PIDI IN 52-W High / Low Rs.1,195 / Rs.749 Sensex / Nifty 38,897 / 11,739 Market Cap Rs.587bn/ $ 8,364m Shares Outstanding 508m 3M Avg. Daily Value Rs m Shareholding Pattern (%) Promoter s Foreign Domestic Institution 8.01 Public & Others Promoter Pledge (Rs bn) - Stock Performance (%) 1M 6M 12M Absolute Relative (1.7) Amnish Aggarwal amnishaggarwal@plindia.com Nishita Doshi nishitadoshi@plindia.com Creating long term growth drivers Quick Pointers: ICA, CIPY, Nina and Percept can provide delta to growth, Adhesives has seen innovations to cater to segments like PVC laminate, Factory furniture etc. PIDI has taken ~3% price increase given inflation in VAM, Solvents and rubber chemicals and packaging. Mr. Bharat Puri (CEO, Pidilite) gave cautiously optimistic outlook on demand post 4 consecutive quarters of double digit volume growth. PIDI is well placed to capitalize on the growth opportunity in adhesive and sealants given strong brand like Fevicol and extension of Fevicol to new applications in line with construction trends. Emerging businesses like Nina, Percept (waterproofing services), ICA (wood coatings), Dr. Fixit (waterproofing), Roff (tiling solutions) and CIPY JV s (floor coatings) will emerge as key growth drivers in coming years. Rising VAM, packaging and depreciating rupee is near term concern; however, ~3% price increase in select products will prevent any meaningful margin compression. Bangladesh and Sri Lanka are likely to be major growth drivers in IBD. We estimate 14.6% sales and 16.3% PAT CAGR over FY We value the stock at 43xSept20 EPS and arrive at SOTP based target price of Rs1175. Retain Accumulate. Cautiously optimistic on demand: Demand conditions are good on a low base of Demonetization and GST, sustained recovery will be clear by 4QFY19 GST gains still to accrue: GST has provided some market share gains, however no major shift from unorganized sector has materialized. Supply chain rationalization and full benefit of GST will accrue over next couple of years. Waterproofing has huge potential: Construction chemicals are 20% of sales, bulk of it is mainly waterproofing. Demand potential is huge as market size of waterproofing to paints is 1:20 as against 1:6 globally. Sales force automation and Inventory management has improved: PIDI has increased wholesale network by taking the total to more than 1, Pidilite is 2 nd most available brand in paints channel. The company has made rapid strides in automation of sales force, dealer inventory management which has improved sales efficiency. New Initiatives on track: New initiatives like ICA Pidilite, CIPY, Nina and Percept are on track. Segments like Wood finishes, Polyutherne floor coatings, and waterproofing service are fast growing and have huge scope to scale up. PIDI has entered new generation adhesives like hot melt, Fevicol Pro Bond, Easy Spray and product with specialized applications. South Asia and Africa major drivers in IBD: Asia and Africa focus areas in IBD: International business is expanding in countries where India model can be replicated. Fevicol has leadership in Bangladesh and has set up a unit in Sri Lanka. Africa, Asia are focused areas, Europe are America are non-high priority markets. August 29,

2 Adj. PAT up 12.8% on 18% volume growth though EBITDA Margins decline 50bps Y/e March Q1FY19 Q1FY18 YoY gr. (%) Q4FY18 FY19E FY18 YoY gr. (%) Net Revenue 16,083 13, ,736 60,782 53, Gross Profit 8,115 6, ,739 31,571 28, Margin (%) Other Expenditure 4,539 3, ,187 16,865 15, EBITDA 3,576 3, ,552 14,705 12, Margin (%) Depreciation Interest Other Income (11.1) 471 1,395 1, PBT 3,642 3, ,778 15,057 13, Tax 1,193 1, ,743 4, Tax rate (%) Adj. PAT 2,448 2, ,917 10,314 9, Extraordinary Items (0) 5 NA (25) 0 (1) NA Reported PAT 2,449 2, ,942 10,314 9, C&B volumes and mix up 20% Volume Gr. Realisation Gr QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 USD/MT VAM prices up 44% YoY and up 4% QoQ Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul Sep-16 Nov-16 Jan-17 Mar May-17 Jul Sep-17 Nov-17 Jan-18 Mar-18 May-18 C&B EBIT increased 20.6%, margins decline 60bps, Industrial products EBIT up 3.3%, margins decline 130bps Segmental * 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 Consumer and Bazaar Sales (Rs m) 12,528 10,916 10,237 8,780 10,997 11,486 11,337 10,050 13,531 Growth (%) (2.0) (5.1) (12.2) EBIT (Rs m) 3,908 2,998 2,927 2,610 3,221 3,934 3,630 2,680 3,885 EBIT Growth % (17.6) EBIT margin % Industrial Products Sales (Rs m) 2,480 2,388 2,181 2,110 2,003 2,266 2,200 2,440 2,233 Growth (%) (3.6) (15.9) (19.2) (5.1) EBIT (Rs m) EBIT Growth % (10.1) (12.7) (18.8) (28.1) EBIT margin % August 29,

3 Sales - (Rs mn) Sales Growth (YoY) EBITDA (Rs mn) EBITDA margin % EBITDA growth (YoY) NINA and Percept water proofing sustain growth momentum FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 FY18 Q1FY19 NINA Percept ICA-Pidilite CIPY BESI and Hybrid Others Total NINA 4.9% 30.5% 1.5% 21.6% 28.0% 21.8% 29.8% Percept 49.3% 35.2% 16.2% 24.8% 34.3% 27.5% 35.5% ICA-Pidilite 80.4% -1.2% -26.8% 1.7% 41.6% BESI and Hybrid -21.1% Others -34.4% 39.8% Total 70.9% 29.7% 2.3% 4.8% 74.4% 12.3% 75.0% NINA Percept ICA-Pidilite CIPY BESI and Hybrid 7 7 Others Total NINA 7.4% 10.8% 7.1% 14.3% 14.9% 12.5% 12.5% Percept 11.0% 8.5% 13.9% 7.9% 18.6% 12.8% 15.2% ICA-Pidilite 10.2% 1.1% 12.9% -4.1% -10.5% 13.6% 4.6% CIPY 8.2% 8.2% 10.4% BESI and Hybrid 15.6% Others 10.8% 11.7% 11.0% 6.9% Total 7.8% 10.6% 8.7% 9.5% 12.0% 10.1% NINA -34.7% 26.3% 118.2% 120.0% 211.1% 106.3% 50.0% Percept 140.0% 27.2% 240.0% -9.1% 59.1% 47.9% 142.7% ICA-Pidilite -85.6% -25.9% % % -86.4% 466.7% Others -39.2% -11.1% Total 37.9% -13.2% 13.5% 44.7% 98.5% 51.5% 126.8% August 29,

4 Sales recover across regions except US Subsidiaries Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Sales (Rs. m) 1,545 1,203 1,321 1, North America South America Middle East & Africa SAARC South East Asia Sales growth (YoY) (-28.7) (19.1) (15.9) North America (56.5) (59.5) (58.4) South America (16.0) 16.2 (5.7) (8.2) 12.5 Middle East & Africa SAARC (12.9) South & South East Asia 4.5 (20.8) EBITDA (Rs m) North America South America (4.0) (5.0) Middle East & Africa (25.0) (31.0) (29.0) (22.0) (25.0) SAARC South East Asia EBITDA (margin %) North America South America (2.2) Middle East & Africa (-9.7) (11.2) (9.9) (7.8) (2.4) SAARC (8.5) South & South East Asia August 29,

5 Financials Income Statement (Rs m) Y/e Mar FY17 FY18 FY19E FY20E Net Revenues 48,654 53,544 60,782 70,232 YoY gr. (%) Cost of Goods Sold 22,621 25,379 29,212 33,898 Gross Profit 26,032 28,164 31,571 36,334 Margin (%) Employee Cost 5,075 5,709 6,350 7,269 Other Expenses 3,784 4,139 4,636 5,247 EBITDA 12,249 12,923 14,705 17,081 YoY gr. (%) Margin (%) Depreciation and Amortization ,084 Balance Sheet Abstract (Rs m) Y/e Mar FY17 FY18 FY19E FY20E Non-Current Assets Gross Block 16,433 17,353 19,578 21,803 Tangibles 14,091 14,812 16,812 18,812 Intangibles 2,342 2,542 2,767 2,992 Acc: Dep / Amortization 7,898 8,814 9,785 10,869 Tangibles 7,405 8,246 9,137 10,134 Intangibles Net fixed assets 8,535 8,540 9,793 10,935 Tangibles 6,687 6,566 7,675 8,678 Intangibles 1,848 1,974 2,118 2,257 EBIT 11,346 12,007 13,734 15,998 Margin (%) Net Interest Other Income 1,101 1,365 1,395 2,153 Capital Work In Progress 1,266 1,641 1,841 2,041 Goodwill Non-Current Investments 4,569 7,287 6,365 6,396 Net Deferred tax assets (836) (1,029) (912) (983) Other Non-Current Assets 1,068 1,552 1,368 1,580 Profit Before Tax 12,391 13,311 15,057 18,067 Margin (%) Total Tax 3,709 4,226 4,743 5,781 Effective tax rate (%) Profit after tax 8,681 9,086 10,314 12,285 Minority interest Share Profit from Associate Adjusted PAT 8,681 9,086 10,314 12,285 YoY gr. (%) Margin (%) Extra Ord. Income / (Exp) (943) Reported PAT 7,738 9,550 10,314 12,285 YoY gr. (%) Margin (%) Other Comprehensive Income (20) Total Comprehensive Income 7,718 9,552 10,314 12,285 Equity Shares O/s (m) EPS (Rs) Source: Company Data, PL Research Current Assets Investments 13,532 10,720 24,243 30,671 Inventories 5,563 6,309 6,963 7,894 Trade receivables 6,077 6,896 5,329 6,157 Cash & Bank Balance Other Current Assets 747 1, Total Assets 42,956 46,278 58,457 68,448 Equity Equity Share Capital Other Equity 33,481 35,130 46,749 55,061 Total Networth 33,993 35,638 47,256 55,569 Non-Current Liabilities Long Term borrowings Provisions Other non current liabilities Current Liabilities ST Debt / Current of LT Debt Trade payables 3,285 4,282 4,802 5,572 Other current liabilities 4,575 4,604 5,167 5,956 Total Equity & Liabilities 42,956 46,278 58,457 68,448 Source: Company Data, PL Research August 29,

6 Cash Flow (Rs m) Y/e Mar FY17 FY18 FY19E FY20E Key Financial Metrics Year Y/e Mar FY17 FY18 FY19E FY20E PBT 11,447 13,776 15,057 18,067 Per Share(Rs) Add. Depreciation ,084 EPS Add. Interest CEPS Less Financial Other Income 1,101 1,365 1,395 2,153 BVPS Add. Other (20) FCF (1.7) 21.6 (4.6) 8.2 Op. profit before WC changes 12,387 14,754 16,101 19,234 DPS Net Changes-WC (8,652) 1,742 (11,274) (6,849) Return Ratio(%) Direct tax (3,709) (4,226) (4,743) (5,781) RoCE Net cash from Op. activities 25 12, ,604 ROIC Capital expenditures (881) (1,296) (2,425) (2,425) RoE Interest / Dividend Income Balance Sheet Others 937 (2,735) Net Debt : Equity (x) (0.4) (0.3) (0.5) (0.6) Net Cash from Invt. activities 55 (4,031) (1,461) (2,425) Net Working Capital (Days) Issue of share cap. / premium 78 (4,976) 4,971 - Valuation(x) Debt changes (11) PER Dividend paid (309) (2,931) (3,667) (3,973) P/B Interest paid (57) (61) (72) (84) P/CEPS Others EV/EBITDA Net cash from Fin. activities (299) (7,968) 1,232 (4,056) EV/Sales Net change in cash (218) 271 (146) 123 Dividend Yield (%) Free Cash Flow (856) 10,974 (2,341) 4,179 Source: Company Data, PL Research Source: Company Data, PL Research Quarterly Financials (Rs m) Y/e Mar Q2FY18 Q3FY18 Q4FY18 Q1FY19 Net Revenue 13,702 13,758 12,736 16,083 YoY gr. (%) Raw Material Expenses 6,366 6,442 5,997 7,968 Gross Profit 7,335 7,316 6,739 8,115 Margin (%) EBITDA 3,862 3,580 2,552 3,576 YoY gr. (%) 26.1 (7.3) (28.7) 40.1 Margin (%) Depreciation / Depletion EBIT 3,640 3,353 2,324 3,347 Margin (%) Net Interest Other Income Profit before Tax 3,854 3,529 2,778 3,642 Margin (%) Total Tax 1,136 1, ,193 Effective tax rate (%) Profit after Tax 2,718 2,390 1,917 2,448 Minority interest Share Profit from Associates Adjusted PAT 2,718 2,390 1,917 2,448 YoY gr. (%) Margin (%) Extra Ord. Income / (Exp) Reported PAT 2,718 2,390 2,382 2,669 YoY gr. (%) Margin (%) Other Comprehensive Income - (14) 25 - Total Comprehensive Income 2,718 2,376 2,407 2,670 Avg. Shares O/s (m) EPS (Rs) Source: Company Data, PL Research August 29,

7 Price Chart Recommendation History (Rs) Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 No. Date Rating TP (Rs.) Share Price (Rs.) 1 09-Oct-17 Accumulate Nov-17 Accumulate Jan-18 Accumulate Jan-18 Accumulate Apr-18 Accumulate 943 1, May-18 Accumulate 1,175 1, Jul-18 Accumulate 1,175 1, Aug-18 Accumulate 1,175 1,101 Analyst Coverage Universe Sr. No. CompanyName Rating TP (Rs) Share Price (Rs) 1 Asian Paints Hold 1,431 1,468 2 Avenue Supermarts Reduce 1,285 1,595 3 Britannia Industries Accumulate 6,568 6,301 4 Colgate Palmolive Reduce 1,084 1,085 5 Dabur India Hold Emami Accumulate Future Retail BUY GlaxoSmithKline Consumer Healthcare Hold 7,382 6,662 9 Hindustan Unilever Hold 1,703 1, ITC BUY Jubilant FoodWorks Accumulate 1,570 1, Kansai Nerolac Paints Accumulate Marico Hold Nestle India Hold 10,996 11, Pidilite Industries Accumulate 1,175 1, Titan Company BUY 1, Tribhovandas Bhimji Zaveri Accumulate PL s Recommendation Nomenclature (Absolute Performance) Buy : > 15% Accumulate : 5% to 15% Hold : +5% to -5% Reduce : -5% to -15% Sell : < -15% Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly August 29,

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