Pidilite Industries Ltd., a leading adhesives manufacturer in India renowned for its adhesive brands like Fevicol and Dr. Fixit, in its Q3 earnings call discussed about softening in both urban and rural markets, with rural areas still showing stronger growth. The B2B sector grew by 21.7%, bolstered by projects, adhesives, and pigments, with optimism for continued momentum. Despite stable input costs in Q4, potential challenges from rupee depreciation and crude prices were highlighted, maintaining an EBITDA margin target of 20-24%. Regional demand discrepancies were noted, particularly in Gujarat and Kerala, while the company adopts a cautious approach to inorganic growth. Additionally, the management covered Vinyl Acetate Monomer (VAM) rates, distribution expansion, ad spend strategy, and potential in electronics manufacturing.
Pidilite Industries reported contrasting Q3 results with net profit growing 9% year-on-year, missing analyst expectations, while revenue grew 8%. Performance varied across segments, with B2B showing exceptional growth at 21% while consumer and bazaar volumes grew at 7%. Despite favorable input costs improving gross margins by 100 basis points, increased advertising spending led to EBITDA margins declining from 25.1% to 24.3%. The company continued to invest in brand development, manufacturing facilities, and distribution network expansion, although its international subsidiaries showed modest growth due to global economic challenges. Looking ahead, Pidilite remains cautiously optimistic about improved demand conditions, supported by favorable monsoon outcomes and increased construction activities.
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Financial/Operational Metrics:
- Revenue from Operations: INR3,369 crore, up 8% YoY.
- Profit After Tax: INR557 crore, up 9% YoY.
- Basic EPS: INR10.86, up 8% YoY.
- Employee Benefits Expense: INR434 crore, up 16.4% YoY.
- EBITDA Margin: 24.3%.
Outlook:
- Geographic Expansion: Ongoing investments in distribution network expansion.
- Facility Upgrades: Continued focus on upgrading and building new facilities.
Analyst Crossfire:
- Macro Environment & Urban-Rural Growth, Input Costs (Percy Panthaki – IIFL Securities): There is a softness in both urban and rural demand, but rural demand has continued to perform well for the company. Urban consumption is strained, yet the company’s balanced portfolio across core, growth, and Pioneer categories drives growth in both segments. Input costs are expected to remain benign for the next two months, but the company watches for impacts from the depreciating rupee and crude prices. (Bharat Puri – Managing Director).
- Real-Estate Cycle Impact & B2B Business Growth Drivers (Jay Doshi – Kotak Bank, Arnab Mitra – Goldman Sachs): The benefits from the real-estate construction cycle are expected with a 2-3 year lag, with confidence that FY ’26 could see improvements, though there’s moderation in demand due to local geographic factors. Growth in the B2B segment is driven by projects, adhesives in sectors like advanced packaging, and pigments with some export intensity. The company sees continued growth momentum, particularly in projects and adhesives (Bharat Puri – Managing Director, Sudhanshu Vats – MD Designate).
- Demand Outlook and Market Share, Structural Issues with State Government Spending (Abneesh Roy – Nuvama): The company is cautiously optimistic about demand, expecting some improvement post-budget. In B2B, market shares vary across segments, but they generally rank as top two or three players. Concerns about state governments’ fiscal health could impact consumer spending, as political parties might prioritize rebates over other expenditures, potentially affecting demand (Bharat Puri – Managing Director).
- VAM Consumption Rate & Post-Budget Demand Pickup (Rajesh Kadra – Informist, Avi Mehta – Macquarie): For the third quarter, the VAM consumption rate was $884 per ton, expected to remain in the same range for the fourth quarter with minor fluctuations. The anticipation of a demand pickup post-budget is linked to a macro economic improvement rather than historical trends tied to budget announcements (Bharat Puri – Managing Director).
- Advertising Spend & Lending and Paints Business (Avi Mehta – Macquarie): Despite the shift towards growth and Pioneer categories, the company expects to maintain ad spend within a 3% to 5% range of sales for the next three years, acknowledging variances by category. Both lending and paints businesses are in pilot stages with no immediate updates; a comprehensive review will be conducted at the year-end to assess further steps (Bharat Puri – Managing Director).
- Competitive Landscape and Market Expansion, Online vs. Offline Sales (Sheela Rathi – Morgan Stanley): In many categories, especially in rural and semi-urban areas, the company competes more with non-consumption rather than direct competitors, focusing on expanding the market rather than just market share. E-commerce contributes between 7% and 10% to sales in consumer product businesses, with the majority of the business still offline due to the nature of the products and consumers (Bharat Puri – Managing Director).
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