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Pidilite Industries Con-call Highlights

Pidilite Industries Con-call Highlights

Published on 22 May 2021 .Views 246 .Comments 2
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  • The quarter witness growth across all businesses and geography.
  • Consolidated net sales stood at Rs. 2,230 crores for Q4FY21 which grew by 43.5%. If the newly acquired Huntsman subsidiary (PAPL) is excluded, the growth stood at 38.2%.
  • The growth can majorly attributed to 50% growth in Consumer and Bazaar segment and a 20% growth in B2B segment.
  • FY21 net sales stood at Rs. 7,251 crores which were on same levels last year.
  • Due to significant inflation in input costs, gross margins were impacted in Q4FY21. Material costs compared to percentage net sales are higher by 440 basis points as compared to the similar period last year where it stood at 390 basis points.
  • EBITDA before non-operating income stood at Rs. 460 crores by registering a growth of 52% as when compared to Q4FY20. For FY21, it was at Rs. 1,683 crores by increasing 7% YoY. Excluding the subsidiary, EBITDA grew 41% in Q4FY21 when compared to Q4FY20 and grew 3% for FY21 when compared to FY20.
  • In standalone performances, net sales stood at Rs. 1,851 crores in Q4FY21 by growing 42% YoY. Underlying volume and mix grew by 40% in same period.
  • Sales in Consumer Bazaar segment grew by 45% and B2B grew by 26%.
  • The company had a strong growth in all major categories like adhesive, construction chemicals and DIY segment which was driven by continued demand momentum in rural and urban areas.
  • B2B segment grew in volume and value by 26% due to gradual and consistent pickup in economic activities.
  • Net sales in standalone for FY21 stood at Rs. 6,187 crores, declining by 2% YoY.
  • Vinyl acetate monomer rates have increased from $930 to $2000, which is a key raw material for the company. Input costs have also increased significantly.
  • The causes for this disruption are capacity disruption at manufacturing sites and pick up in global recovery with strong domestic demand.
  • Consumption cost in Q4FY21 for VAM stood close to $1200 when compared to $925 in Q4FY20 and $875 per tonne in previous quarter.
  • Material cost increase by 388 bps YoY and 317 bps QoQ as compared to percentage sales.
  • EBITDA before non-operating income stood at Rs. 408 crores for Q4FY21, growing 43% YoY. For FY21, EBITDA was at Rs. 1,550 crores and grew by 4% YoY.
  • PBT before exceptional items stood at Rs. 376 crores, a growth of 43% YoY. PBT for FY21 was at Rs. 1,457 crores, declining by 3% YoY.


Subsidiary Performance

  • C&B segment in domestic subsidiaries have shown healthy growth. B2B segment subsidiaries are showing signs of recovery. Timing of the recovery is uncertain due to inflationary trend in input costs and impact on construction activity due to lockdowns in many parts of the country.
  • Huntsman Advanced Materials Solution Pvt Ltd, a newly acquired subsidiary now known Pidilite Adhesives Pvt Ltd has shown monthly improvement in sales. Due to this business is growing over double digits during Q4FY21.
  • Business and financial integration has been smooth. The company expects better realization in margins after raw material cycle is settled and momentum in growth is expected to continue after that.
  • Demand outlook remains uncertain  as the second wave poses challenges.
  • Even though the company is taking efforts in pricing and costs, it expects margins to continue remain under pressure in upcoming quarters.


VAM price rise

  • Vinyl acetate monomer is the number 1 raw material for the company and is critical to its success.
  • $2000 is unprecedented for VAM. The company has taken price increase in last week of March are is going to take price rise again in May. Company will cover 75% of inflation.
  • Company assumes that prices of VAM will come down to Rs. 1200-1500 atleast in 6 months period.
  • The company believes that price inflation is not due to demand but due to supply constraints because of factors like US storms, closures in US, Europe buying Asia, increased demand and plant closure in Asia.
  • Company believes that the situation in H2FY21 will moderate. But during the H1FY21, the raw material prices will have impact on operations of the company and due to this the company had to take price hike.
  • Substantial volatility in VAM prices, but it is only in one direction. The company believes the prices will start moderating in June.
  • Company has maintained margins in the range between 20%-24%, when the company has great run like last year, the margins may go up to 25%,26% or 27%.
  • This range also allows the company to focus on volume and volume growth rather than only pure value.
  • If VAM stays in the same price, the company has to take price rise and this will also be an opportunity to be focused on cost efficiencies.


Smaller player losing market share

  • Yes. As the situation is unprecedented, domestic market shoots up. Companies like Pidilite have large inventories. Takes time for company to work through lower-priced inventory.
  • It is harder for smaller and regional players and supplies were constraint itself for some period of time.
  • The company believes it would have gained market share in last 4 months.


Underperforming segments

  • Nina Percept is waterproofing high-end contracting arms which had suffered high impact due to country wide lockdown. It was 6-7 months by the time the labour came back. The business started picking up in Q4FY21 but the second wave disrupted the gained momentum.
  • The business is profitable one on a structural basis from the past experience.
  • As govt is putting in infrastructure projects, the order book of the company has become healthy in past 5 months.
  • Due to lockdown and rising raw material costs, Nina is getting affected. Business will come back to normal shape in 6-9 months.
  • As overall picture in the Middle East and Africa company has grown this year. Africa has grown substantially because it includes exports from India.
  • The Middle East and Africa continue to do well because there is no lockdown happening in either of the region.



  • The company acquired Huntsman in Nov 20. The pay-out was made from internal investments with a sum of Rs. 1200 crores.
  • The EBITDA margin of Huntsman is higher than the company’s standalone business.
  • The two raw materials, VAM and epoxy resin have seen a sharp rise in prices in chemical sectors.
  • Epoxy resin prices will impact this prices in next 3-6 months. The company has taken price increase but no in the proportion of the raw material prices increase. Structurally, this business is profitable business.
  • Company will probably be at a higher aggregate margin than Pidilite in a steady state.
  • The business will see some moderate margins due to Epoxy resin price increase in next 3-6 months.
  • Epoxy prices have gone form Rs. 160-200 a kg to Rs. 400. The prices have double and hence the company has taken some price hike in that business.
  • The business size on time of acquisition was close to Rs. 400 crores. Annualized number for Q4FY21 is 20%, hence the business has got to a good start. Other epoxy brands have done well in Q4FY21.
  • The company might have gained some market share but it has only 5 months since acquisition. As full integration happens with Pidilite, company would expect better market share gain in the future.



  • Currently 70% of the country is closed down. Construction activity is very low. The recovery is directly proportional to the reduction of pandemic. Difficult to say whether it will bounce back quickly.
  • Some amount of sales are happening but they are less than 20% of the portfolio.


Project Activity

  • In April, whenever the business was not locked down, it was continuing at a good rate. Closing down started with parts of Maharashtra and then Gujarat and Madhya Pradesh which was proportional to pandemic.
  • Few projects which are going on are declared as essential services. Hence, projects are impacted but some construction is going on but not at the earlier pace.
  • The projects will have some activity, whereas in retail market, close to 75% of the country is closed.
  • The small players will suffer but have reason to exit, but will be difficult more due to raw materials situation and pandemic will affect liquidity.
  • In short period company will gain market share because, supply chain is more resilient and adapted and hence has more sources of supply. And consumers turn to trusted brand when there is adversity.


Second Lockdown

  • In first lockdown, rural and small-town India was not impacted pretty much through the whole pandemic. This time these regions are impacted.
  • The last lockdown was a full lockdown with everything closed. Hence, due to that B2B tended to suffer more. Right now, B2B is suffering less than the retail.
  • The previous pandemic was worldwide and hence the world was closed, in second wave, India is worst affected unfortunately. In April and May, the export sales are going as per plan, neighbours like Nepal are impacted. Middle East and Africa are not impacted.
  • The company believes, retail will be impacted, B2B will be better and exports will also be better.
  • By the nature of water proofing, in a city like Mumbai, right now pre-monsoon work is allowed. So, the urgent works in repairing and renovation work is allowed, where as retail shops or renovations are closed.


Price Increase

  • 10 year back the operating margins of the company were 10% lower, so the need for aggressive pricing is different now.
  • The company were above the margin rates of 20%-24% which it indicated for Q2FY21 and Q3FY21.
  • So the company saw a need to moderate margin or the competition will affect the business.
  • The company believes they had a compression in margin which it intended to do anyway as their margins were high. It also believes that trend in raw material prices are transient as it is not based on demand factors. The rise in raw material prices are all related to disruptions in supply.
  • Hence the company believes to take impact in margin for 2-3 quarters rather than increase the prices, affect the demand on long term basis and also disturb the market.


Pioneer products

  • Company was building 3 factories for pioneer products across Litokol, Tenax and Grupo Puma, these got delayed 6 months.
  • The plan got pushed forward by a year. But in the past 9 months sales, the pioneer categories have grown much faster than the core category.
  • The waterproofing category is a growth category irrespective of competition. Company continues to be strong leaders and grow strongly in market.
  • Company is finding traction and success in tile adhesives which is a pioneer category.


Working capital – Receivable and Inventory Days

  • Debtor days have come sharply down over the last 1 year. Overdues at all time low. In the last 2-3 years, debtor days at the end of the Mar were lowest.
  • The inventory beyond a certain period of time, undesirable inventory has come down in last 1 year.



  • Last year, waterproofing was the first business to make a comeback. The company suggests that if consumers spend more time at home, they will address their home first.
  • So depending on the lockdown period, company suspects it will see repeat of the same.
  • The proportion of water proofing to paint, it is amongst lowest in India as compared to Brazil, Thailand and China. Hence penetration of waterproofing in India is low.
  • In best cases, 4 out of 10 new homes built in India do the waterproofing work. There is growth for the segment in the future.
  • Company believes that certain amount of competition will help the segment, as more people are present, there will be more awareness and then it will become essential part of the construction activity.
  • Unorganized segment is not large in waterproofing. Waterproofing is actually competing against non-consumption as the customer does not know. So customers do no or very basic waterproofing.
  • In 4 segments which are organized real estate, individual new home, repair and renovation and institutional, the paint companies play large part in only 2 of these 4 segments.


Paint companies entering waterproofing

  • The company believes it is not losing market share to paint companies.
  • The company is maintaining its share in a fast-growing market.
  • The paint companies have been in this segment since 5 years, so this isn’t something new.
  • At an overall level, company does not see margins being impacted.
  • This is not a price competition, as customers want to protect their home, they need a trusted brand which does job rather than focussing on price.
  • It is about brand, service and product superiority which the company offers.



  • The company has aggressively expanded in rural and small-town India. Company added about 700 new sub-stockists in rural India. It also added 60,000 new outlets.
  • The company is covering 7k new villages. Reason the company has grown faster than the market is due to they have accessed much larger part of the market.


Closing comments

  • Company has done COVID insurance for carpenter community, for their mason’s community.
  • Company focuses on agility, resilience by ensuring safety and security of network. Company also has invested to make its supply chain agile.
  • In last 1 year, company has completed 7 brownfield projects, 1 greenfield project in Vizag.
  • Currently company has 10 new greenfield projects in progress and 10 new factories for upcoming different product ranges.
  • CAPEX remains at Rs. 300 crores to 350 crores a year.
  • Company has 3 lakh dealers on the company’s Genie App.
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