Pidilite ready to tackle the competition, but valuation remains a sticking point

livemint.com:

₹2,994 on Tuesday. Despite concerns of competition from paint companies and unorganised manufacturers, some favourable factors could help Pidilite retain its edge and keep investors glued to the stock. However, sky-high valuations could be a sticking point.

The ongoing upcycle in residential real estate sales should benefit the company’s core adhesives portfolio. The impact on earnings comes with a couple of years lag, but Pidilite is already pushing the pedal on capex to capitalise on this. “Pidilite’s cumulative capex (as per its cash flow statement) over FY20-23 stands at ₹1,700 crore, more than 2X that of the FY16-19 period," according to Kotak Institutional Equities.

Pidilite has planned several greenfield and brownfield expansions for its next phase of growth. Of these, 15 were completed as of February. Investments in manufacturing facilities, including those for joint ventures Litokol, Tenax and GrupoPuma, indicate a pickup in demand for these products, said the Kotak report, dated 18 March.

Pidilite aims at steady-state underlying volume growth of 1-1.5x of GDP, led by rising construction activity, government capex and deeper distribution among other supporting factors. Growth and pioneering segments (waterproofing and tile adhesives and other emerging products) are expected to see better traction and a rising share in the product mix, aiding margin prospects. Pidilite’s overall volume growth in the December quarter (Q3FY24) was 10.4% year-on-year, with the consumer & bazaar and B2B segments clocking double-digit growth.