When Kareena Kapoor said, “Chipka le saiyyan Fevicol Se”, she was talking about sticking to this stock in your portfolio - Pidilite Industries, the Indian adhesive giant!
Pidilite: The Future is Bright
Pidilite is a leading player in the Indian adhesives and sealants market, and it is well-positioned to take advantage of the market's growth. The company has a strong portfolio of products, with a focus on innovation and sustainability, and it has a proven track record of success.
Pidilite markets the Fevicol range of adhesives. Its other brands are FeviKwik, Dr Fixit, Roff, Cyclo, Ranipal, Hobby Ideas, M-seal, and Acron.
Pidilite's revenues have grown at a CAGR of 15% (twice the industry average) over the last five years, and the company has consistently delivered strong financial results.
The stock has appreciated by a whopping 330% in the last three years (from Rs 815 in August 2017 to Rs 2,650 in November 2022).
Understanding Pidilite
Pidilite operates through two segments:
Consumer and Bazaar (80% of revenue) - adhesives (Fevicol, Fevi kwik), sealants (Dr Fixit, m-seal), construction and paint chemicals (Renaissance), and, art and craft material (Fevistik, Fevicryl).
Business to Business (20% of revenue) - industrial adhesives, industrial resins, construction chemicals, and pigments.
In India, it has over 6,000 SKUs of more than 800 products, made in 34 plants, and sold through nearly 5,000 distributors.
Other than this, it has also forayed into international markets across the world, which account for only 7% of total revenue, but faster than India, at 22% YoY in 1HFY23.
Bringer of Light
Drivers for continued growth for Pidilite include:
Steady demand - Consumer adhesives have a steady FMCG-like demand, which keeps demand afloat
Market Leader - Pidilite has a 70% market share in the adhesive business in India; the dominant position in the market helps it sail through cycles without being hurt
Strong brand and product - Pidilite has been of the most successful consumer brands, led by its success in branding and marketing. The strong brand resonance keeps its market leadership intact
New segments - The consumer adhesives business of Pidilite has been a cash cow, which the company has used to invest in newer products, the B2B business, and international markets. Although smaller in size, these are growing faster than the flagship business, boosting overall growth
Product innovation - Pidilite has successfully tapped into new markets and products, creating new opportunities in adhesive tapes, metal polish, fabric whiteners, distemper, emulsions, paints, and adhesives
Premiumisation - Pidilite aims to get a third of its growth come from new and premium products - these will also incrementally lead to better pricing and margins
Investment cycle - Over the last few years, Pidilite’s expansion into other products and geographies has taken investments in the form of R&D, marketing, distribution, etc. However, as they scale up, these investments are expected to start yielding higher profitability, leaving the potential for margin expansion
Softening raw material prices - Commodity prices had shot up at the beginning of 2022, but have started materially softening in the second half. While the company is currently facing the brunt of raw material inflation, weak currency, and high-priced inventory, these trends will start to reverse now, providing margin tailwinds
Conclusion
Pidilite has been, like all other FMCG companies, impacted by inflation from a demand and cost perspective. Its returns over the last year have been modest and in line with the Nifty 50.
However, impressively, it has been able to pass on a lot of the inflation pressure in the form of pricing. Additionally, increasing profitability in new businesses and cost-saving initiatives have helped cushion the situation to some extent.
That said, overall, Pidilite's position as a market leader, and focus on growth make it a potentially attractive investment opportunity. Investing in Pidilite offers the potential for strong returns and the opportunity to be a part of a successful and established company.
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