A subdued Q4FY16, impacted partly by jeweler’s strike in March 2016, marked Pidilite’s Q4FY16 revenue, EBITDA and PAT growth at 18.9%, 78.1% and 89.2% y-o-y, respectively, was well ahead of estimates. The 7–quarter high sales growth was impressive, albeit on a low base (3.1% y-o-y volume growth in Q4FY15). Gross margin, at 55.3% (highest in at least 8 years), led by softer VAM during tough macro economic conditions is reflective of strong pricing power. Entry of Asian Paints into adhesives (Loctite) and increased aggression in waterproofing (Smartcare) need to be closely monitored. We remain positive in view of gradual demand recovery, new businesses and pick up in international growth. Maintain ‘buy’ with target price of `731.
Key highlights are 20.7% y-o-y growth it consumer and bazaar (C&B) business (highest in past 7 quarters; 13.6% y-o-y in Q3FY16) with 1,012bps y-o-y expansion in EBIT margin to 25.2%; sustained recovery in industrial business which grew 7.5% y-o-y with 20% EBIT margin (highest in 26 quarters); strong 35% constant currency growth in international business, led by US (grew 41% y-o-y driven by art materials) and SAARC (133% y-o-y growth led by Bangladesh and Sri Lanka); and 853bps/638bps y-o-y expansion in gross/EBITDA margins helped by soft raw materials prices. Volume growth surpassed value growth. Pidilite aspires to grow revenue in mid teens. Smaller towns are growing faster than bigger towns, though growth rate in small towns has slowed down.
