For Pidilite, demand outlook to strengthen its bond with investors


There is some relief for investors in Pidilite Industries Ltd, which has been battling severe cost inflation for quite some time now. In the September quarter, the company has recorded robust sales growth. On a standalone basis, its revenue grew by 36% year-on-year (y-o-y) with underlying sales volume and mix growth of 25%. This was driven by 25% growth in sales volume and mix of key consumer & bazaar (C&B) and 20% growth in sales volume and mix of B2B, the management said.

The business witnessed much improved consumer demand environment due to accelerated vaccinations, reduced Covid infections and increased mobility. Growth was broad-based across segments as well as urban and rural geographies, the management said. C&B reported growth across all categories such as adhesives, construction chemicals and DIY portfolio. Domestic subsidiaries in C&B business returned to double-digit growth led by higher sales in premium products, the management said. Subsidiaries in B2B business have improved sequentially on account of recovery in real estate and construction related activities.

As far as Pidilite’s international subsidiaries are concerned, they saw modest revenue growth in Asia on the back of lockdown restrictions in many countries. The Americas region saw a decline on a higher previous year’s base. During the previous year, sales were higher on account of pent-up demand as well as benefits passed by the Governments to consumers during Covid, it added.

Going forward, the Pidilite management remains cautiously optimistic on continuing robust demand conditions.

Reacting to the earnings, shares of the company rose more than 4% intraday on the NSE on Thursday.

While an improving demand environment does provide comfort, the cost inflation battle is yet to be won. Investors should note that as much as 60% of the company’s raw material costs come from vinyl acetate monomer (VAM), a key raw material that is a derivative of crude oil, and Pidilite meets its VAM requirement largely via imports

The unprecedented increases and volatility in input costs have been a major challenge. In this environment, moderated price increases as well as a sharp focus on operational efficiencies have helped us navigate the uncertain environment, the management said. However, margin recovery especially in the B2B segment will take long due to unabated commodity inflation. It should be noted that margins of its international subsidiaries were also impacted on account of input cost inflation. Little wonder then that its consolidated gross margin contracted by 1,050 basis points y-o-y to 45.4% in the September quarter. One basis point is one-hundredth of a percentage point.

Meanwhile, the company’s management is taking calibrated pricing actions and continues to focus on costs and operational efficiencies to protect margins.

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