Shares of Pidilite Industries witnessed a significant upswing, rising 6.3% to reach a high of Rs 2,450 on October 31, following an upgrade by global brokerage firm Goldman Sachs from ‘sell’ to ‘buy.’ Goldman Sachs also assigned a target price of Rs 2,725 per share. This surge in Pidilite Industries’ stock occurred against the backdrop of a 0.3% decline in the S&P BSE Sensex to 63,918 levels, as of 11:50 am.
The stock had been on an upward trajectory in the past week, gaining 4%, compared to a 1% decline in the Sensex.
Goldman Sachs outlined the reasons behind the upgrade, stating that the earnings downgrade cycle for Pidilite Industries has concluded, with new growth opportunities emerging for India’s largest adhesive manufacturer. The firm revised Pidilite Industries’ earnings estimates upward by 4% for FY25 and 8% for FY26, citing expected higher revenues from new growth products and improved operating profit margins due to lower input costs.
The brokerage also anticipates a robust recovery in the company’s operating profit margin, projecting an increase to 23.1% in FY26, up from 16.1% in FY23. However, it cautioned that a slowdown in home construction or elevated commodity costs could impede the company’s margin trajectory.
Q2 Expectations:
Pidilite Industries is set to announce its Q2FY24 earnings on November 8, 2023. Kotak Institutional Equities analysts predict a 5% year-on-year increase in the company’s net sales for Q2FY24, reaching Rs 3,160 crore. This growth is expected to be driven by an increase in domestic consumer and bazaar (C&B) sales as well as B2B sales. The company’s profit after tax (PAT) is also anticipated to rise by 39% year-on-year, reaching Rs 464 crore in Q2FY24, compared to Rs 332 crore in Q2FY23.
Additionally, Ebitda margins for Pidilite Industries in Q2FY24 are expected to expand by 515 basis points year-on-year, reaching 21.8% (within the company’s guidance range of 20-24%). This expansion is attributed to corrections in the prices of vinyl acetate monomer (VAM), a key component used in adhesive production, as well as lower costs for crude derivatives.
Foreign Investors Show Interest:
During the September-ended quarter, promoters reduced their holdings in Pidilite Industries from 69.9% to 69.8% compared to the previous quarter. Mutual funds also reduced their stake from 3.8% to 3.5% in the same period. In contrast, foreign institutional investors (FIIs) increased their stake in the company from 11.3% to 11.4% between the June and September quarters.
