Pidilite’s margins improve, but there are other challenges

This has come as a breather for the fevicol maker, which had been grappling with higher input costs, taking a toll on investor sentiment.

Amanish Agarwal, Head of Research, Prabhudas Lilladher Pvt Ltd, in his First-Cut Earnings Analysis note said, “VAM prices have declined sharply since Q2 FY2023 and VAM prices are trading at $930/MT , which is a 62% decline from the peak.” “We expect margins to bounce back from Q1FY24 and currently factor 37% CAGR to FY23-25 ​​earnings per share.” CAGR is short for compound annual growth rate.

Despite an encouraging margin outlook, Pidilite’s Q4 results were weak in other key areas. For instance, the company’s revenue stood at Rs 2,689.3 crore, which missed consensus estimates.

In response, Pidilite shares fell 1.3% on the National Stock Exchange during early trading on Tuesday. “The decrease in sales reflects a slowdown in the discretionary consumer segment,” Nuwama Research said in a note.

Pidilite’s flagship consumer and marketplace business posted 7% YoY volume growth in Q4, while the B2B vertical faced headwinds due to lower exports. Nevertheless, demand from rural and semi-urban areas improved during the quarter.

The stock’s rich valuation, at nearly 50 times FY20 earnings estimates, makes the company’s performance underwhelming.

Management expects the near-term environment to remain uncertain. Also, analysts are concerned about increasing competition in the under-penetrated waterproofing segment with the entry of Asian Paints Ltd.

What’s more, Pidilite has recently forayed into Interior Paints with the launch of new brand Haisha Paints. According to analysts, the company’s product is priced at a slight discount to its peers, but the quality of the product remains to be seen. Furthermore, while Pidilite enjoys a strong brand recall value, with competition heating up in the paint sector, making a meaningful mark can be challenging.