RETAIN ‘reduce’ on Pidilite Industries with a revised target price of R510 (earlier R540) based on P/E of 32x March 2107e. We have cut our revenue estimates by 3-4% over FY16-18e on account of a softer demand environment and slower reported growth in international business.
Weaker operating leverage and pick-up in input costs drive a 10-13% cut in our EPS estimates over FY16-18e. While we continue to rate Pidilite as an attractive long-term play, the stock is trading at expensive valuations of 36x FY17e EPS, adequately discounting RM tailwind benefits. Weak results by discretionary companies, including paint majors and cautious commentary by management indicate a challenging FY16e.
Pidilite reported consolidated net operating revenues of R1,044 crore (+5% y-o-y; KIE: R1,106 crore), Ebitda of R129 crore (+30% y-o-y; KIE: R155 crore) and recurring PAT of R80.6 crore (+10% y-o-y; KIE: R103 crore ) — all significantly below estimates, led by weaker revenue growth (6% below our estimates).
Consolidated Ebitda margins expanded 235 bps y-o-y to 12.4%, led by a 380-bps expansion in GMs, aided by a benign RM environment, price hikes (carry-forward) and low base.
However, Ebitda margin expansion was below our estimates due to a 220-bps spike in other expenditure (negative operating leverage and higher A&SP on cricket world cup). Standalone revenues, Ebitda and recurring PAT grew 7%, 21% and 1%, respectively.
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