Achiievers recommend an adhesives and sealants scrip for target of 770

Achiievers Equities | Jan. 12, 2017, midnight


Pidilite Industries Ltd: Company Overview

 

Incorporated in 1959, Pidilite Industries enjoys dominant position in adhesives and sealants, construction chemicals, hobby colours and polymer emulsions in the domestic market. The company’s iconic brand Fevicol is currently the largest selling adhesives brand in Asia.

 

It operates broadly in two major segments viz; Branded Consumer & Bazaar Products and Industrial Products. Branded Consumer and Bazaar Products segment is engaged in manufacturing of adhesives, sealants, art materials, construction and paint d1emicals. It alone contributes 84% to the company’s overall revenue. Industrial products segment includes products such as industrial adhesives, synthetic resins, organic pigments and pigment preparations. It accounts for 16% of the company's total revenue.


Investment Rationale:


Pidilite enjoys a dominant position in the adhesive and sealants business in India with market share of ”70%. The company has a strong legacy of reputed brands in the adhesives and sealants category in India viz; Fevicol and M-Seal.


Other prominent brands include Dr. Fixit and Fevikwik. Besides, Pidilite has a well-entrenched distribution network of more than 400,000 dealers/retailers and 4,000 industrial customers. To further enhance its distribution reach, the company is increasing its penetration into the tier 2/3 cities and rural areas.


Pidilite has strong relations with the intermediaries like contractors, carpenters, plumbers painters ensuring customer stickiness. Thus, its unparalled distribution reach and strong brand equity provides Pidilite a competitive edge over peers.


Valuation:


With  strong  brand  recall,  superior  pricing  power  and distribution  reach,  we  believe  Pidilite  is  a  strong  play  on  recovery  in discretionary spending. We expect revenue and PAT to grow at a CAGR of 12% and 17% respectively over FY16-FY18E. We recommend BUYrating on the stock with a target price of Rs 770 (FY18E P/E of 38x).


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