The stock of Fevicol-maker Pidilite Industries Ltd is 7% away from its 52-week high of ₹1,574.95 seen in September.
Pidilite’s decent December quarter (Q3FY26) result and upbeat management commentary bridged the gap to some extent, with the stock up around 3% in the last two trading sessions. The domestic business did the heavy-lifting in Q3. The consumer and bazaar (C&B) and business-to-business (B2B) together delivered around 11% underlying volume growth (UVG).
Between the two, the C&B segment took the lead, with volume growth of 9.7% aided by premiumization. “Pidilite has consistently delivered volume growth of about 7-10% for the past five quarters in the C&B segment, and this trend is likely to continue,” said the ICICI Securities report on 5 February.
B2B volume growth was lower at 7.4%. While domestic B2B delivered UVG of 15.6%, B2B exports volumes plunged nearly 29%. The management said the pigments segment, which has direct exposure to the US, along with allied B2B segments such as footwear, leather, and textiles, faced pressure through Q3, though the worst of the impact is largely behind. Pidilite aims to bring B2B business back to at least mid-teen growth.
Positive outlook
Overall, Pidilite anticipates healthy demand for its products, aided by favourable monsoons and increased infrastructure/urbanization spending in the Union budget, but remains watchful of geopolitical risks. It expects to sustain double-digit volume growth driven by pioneer category development and entry into new segments.
Fevicol, Fevikwik, Fevistick, M-Seal are the products that belong to the core category. Waterproofing solutions fall under the growth category. New businesses such as wood finish products, epoxy adhesives, among others, are the pioneer category.
“Pidilite is well positioned to sustain growth, driven by continuous innovations, strategic tie-ups to introduce technologically advanced products, and 2-4x growth in pioneer and growth categories (45% of sales),” said the PL Capital report on 4 February.
Pidilite said price changes will be tactical and aims to sustain a nearly 100-150 basis points (bps) price-volume gap over time. One basis point is one hundredth of a percentage point.
Gross margin expanded by 220bps year-on-year to an all-time high of 56.5% on benign raw material prices. The consumption cost of key input material vinyl acetate monomer (VAM) dipped to around $830 per tonne in Q3FY26 from $884 per tonne a year ago. VAM is now less than 10% of the overall raw material basket, and volatility in prices won’t have much impact on gross margin, the management said.
Adjusted for one-time impact from the change in labour codes, Ebitda margin expanded on-year to 25.5%. It guides for margins to be at the upper-end of 20-24%. However, steep margin expansion from here on looks unlikely as Pidilite continues to invest in new categories and brand building. Ebitda stands for earnings before interest, taxes, depreciation, and amortization.
On the paints business, the management said, Haisha Paints continues to scale gradually with expansion beyond southern markets into eastern India. Here, the management continues to refine its business model and right-to-win strategy before pursuing aggressive nationwide expansion.
Concerns around discretionary spending, slower residential realty sales, and a changing competitive scenario in the paints industry have hurt investors’ sentiment despite Pidilite’s strong brand recall value and distribution strength. In the past year, the stock has been up a mere 2%, lagging the Nifty50. Plus, an expensive valuation limits upside. At FY27 estimated price-to-earnings, it trades at a rich multiple of 55x, showed Bloomberg data.
