Motilal Oswal has given Neutral recommendation for Pidilite Industries with a target price of Rs. 2150 in its research report issued on Aug 12, 2021
Motilal Oswal’s research report on Pidilite Industries
PIDI reported a strong beat v/s our estimate in its 1QFY22 result, with sales down only 4% over 1QFY20 levels, despite the lockdowns caused by the second COVID wave. Demand rebound was strong in Jun’21 and continued to sustain in Jul’21 as well. While gross margin was adversely impacted in 1QFY22 due to sharply higher VAM costs (up 2x YoY), leading to a 440bp YoY contraction in gross margin, there has been some reduction in VAM costs since Apr’21. The management expects gross margin to improve in 2HFY22. While a strong beat on our 1QFY22 expectations and continued good commentary have led to a 10.3%/7.3% increase in our FY22E/FY23E EPS forecast, valuations are rich at 69.7x FY23E EPS. We maintain our Neutral rating.
While the structural investment case remains intact, valuations are expensive at 69.7x FY23E EPS. We maintain our Neutral stance with a TP of INR2,150 per share (60x Sep’23E EPS).