Buy Pidilite Industries - InvestorZclub Research Report
Ye FEVICOL ka mazboot jod hai tootega nahin. Yes we are talking about the company which own India's must trusted adhesive brand "FEVICOL". Pidilite Industries is a leading manufacturer of speciality chemicals in India. It produces adhesives, sealants, construction and paint chemicals, automotive chemicals, art materials, industrial adhesives, industrial and textile resins, and organic pigments and preparations. The company’s major brands include Fevicol, Fevikwik, and Dr. Fixit. It currently exports to more than 80 countries and has 14 overseas subsidiaries. Moreover, it has significant manufacturing and sales operations in USA, Brazil, Thailand, Singapore, Bangladesh, Egypt and Dubai.
The company has developed a large suite of products to cater to different sub-segments. For instance, it has different adhesives for product categories such as furniture, paper, marine products and crockery. Each adhesive has different characteristics and targets different categories of customers. Pidilite has developed a strong and diversified distribution network for its wide-ranging product suite. It sells its products through stationery, hardware, kirana, medical and furniture stores. It also sells some of its products directly to end consumers. Operating through such varied distribution channels has helped it augment its sales.
The company has notched up strong return numbers. Over the last five years it has registered a compounded annual growth rate (CAGR) of 23.62 per cent in total income and 29.07 per cent in profit after tax. Moreover, the five-year average of its profitability ratios such as return on capital employed and return on net worth is 25.34 per cent and 27.83 per cent respectively.
The company also has a low debt-equity ratio, currently at 0.31 times (FY11).
Its operating profit margin decreased by 0.2 percentage points in FY11 compared to FY10 while net profit margin down by 0.7 percentage points over the same period.
At Rs 166 the stock is trading at a PE multiple ratio of 27.12. This is higher than its five-year median P/E of 21.96. The company has registered a five-year CAGR in earnings per share (EPS) of 29.25 per cent which translates into a price-earnings to growth (PEG) ratio of 0.92 times.With 30% growth in EPS every year the PE of the stock will look much more reasonable three years down the line and it is expected that the stock will continue to enjoy superior valuation even after three years because of it's dominant position in the business. Hence Investors with at least 3 years horizon can invest in the stock for at least 50-60% return from current levels.