Pidilite Q3FY23 results were below estimates. Sales grew by only 5%, due to a high base and demand strains in rural. Pidilite in Q3FY23 reported subdued sales growth of 5% YoY, missing our estimate by 5%. Volume in the Consumer & Bazaar (C&B) business grew only by 1% YoY. Ebitda margin of 16.5% contracted by 272bps YoY and was below IIFLe of 18.5%, owing to miss on gross margin. GM of 41.8% was down by 174bps YoY, due to consumption of high-priced inventory, despite moderation in VAM.
While rural is expected to recover due to good winter harvest, FY24 revenue growth is projected to moderate on price anniversarizing and high-single to low-double digit volume growth. The company expects rural to bounce back in Jan, owing to good winter harvest and government’s focus on investments. However, demand in T-1/2/3 towns recovered in Nov and Dec post weak Oct.
Analysts at IIFL Securities downgrade FY23/24/25 EPS by 8%/5%/5% on account of lower sales. On margins, we are more comfortable as VAM prices have moderated to USD1,200/ton vs consumption price of ~USD2,000/ton in Q3; most of the high priced inventory will be consumed by March. Competition is expected to increase and the company will prioritise volumes while maintaining margins in the target band of 20-24%.
Analysts of IIFL Securities maintain Reduce with target price of Rs 2250.
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