Pidilite Industries Says Growth Won’t Impact Margins

Pidilite Industries Ltd. said it will continue to focus on volume-driven growth and market share gains even as higher crude oil prices have pushed up raw material costs.

The growth, however, won’t come at the cost of margins, the company said in a conference call with analysts. It maintained its long-term operating margin guidance of 20-24 percent.

Highlights from the analyst meet, cited by Citi and JPMorgan notes:

• The company plans to launch new products and strengthen its position in the core adhesive segment.
• Expand its distribution network.
• Scale up the waterproofing portfolio.

The maker of Fevicol uses vinyl acetate monomer, a crude oil derivative, to make adhesives. Crude prices rose 15.5 percent so far this year to $77 a barrel.

The cushion of lower oil prices over the past three to four years, which helped Pidilite’s margins expand more than 500 basis points during the period, is behind, Citi said in a note. The sharp increase in crude prices poses a risk of margin compression, it said.

Both Citi and JPMorgan, however, said that strong brand equity and pricing power, along with cost cuts, will support Pidilite’s margins.

Here’s what analysts have to say on Pidilite Industries:

Citi

• Maintains ‘Neutral’ with a target price of Rs 1,216, a potential upside of 6 percent.
• The company to prioritise growth over margins.
• Expects margin in the range of 20-24 percent.
• Goods and services tax-related gains have been muted so far.
• Next six months will be crucial for gauging inherent demand.

JPMorgan

• Maintains ‘Neutral’ with a target price of Rs 1153.95, a potential upside 0.5 percent.
• Market share gains and portfolio expansion to drive double-digit volume growth.
• Underlying demand trends have been improving.
• Price hike and cost measures to mitigate raw material inflation challenge.

Shares of Pidilite Industries gained more than 27 percent so far this year compared to a 22 percent increase in the Nifty FMCG Index.