Pidilite Industries share, an Indian based large-cap company with a market capitalization of Rs. 79795.79 Cr. The company is the market leader in synthetic adhesive production.
The products or brands are not FMCG, but it is highly used in day to day life. Their products have a huge impact on our livelihoods in carpeting, plumbing works.
Recently, the company has acquired Huntsman Advanced Materials solution Pvt Ltd a USA company’s subsidiary for Rs. 2100 Cr holding 100% stakes. This acquisition is to viable an even stronger presence in the adhesive business.
The company has generated a revenue of Rs. 7446.93 Cr in FY2019-20 with a growth of 3.3% compared to the previous year. In the last few years, the company hasn’t shown any negative growth.
Hope everyone would be interested to know in more detail about the company. Come, let us have a detailed analysis.
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HISTORY OF PIDILITE INDUSTRIES SHARE:
- In the year 1959, the company was incorporated by the late Balvant Parekh. It was at that time when the exposure to synthetic adhesive was low.
- It was his vision of creating a chain of products that will bind the breakages. In the last 5 decades of business, they remain to be the largest producer of adhesive, specialty chemical products.
- The first brand was “Fevicol” which was launched in the year 1959. It is very hard to find anyone in India above the age of 10, without the knowledge of Fevicol. That’s how the companies have built their brand in unmet needs areas.
- In the year 1992, Madhukar B. Parekh took charge as chairman of the company.
- By 1993, they were listed in BSE (Bombay Stock Exchange) as a public company by IPO. The share price on 1st Jan 1999 was Rs. 6.26 per share.
- In the year 1997, Fevicol achieved the top 15 brands of India. During 2000, they acquired an innovative company “M-Seal”. Prior to which in 1999, they also acquired “Ranipal”, a leading brand of optical whitener.
- The company launched Mr. Fixit, constructive chemicals in the year 2001. Later they acquired “Steelgrip”, leading PVC installation tap in 2002.
- In 2015, the family-controlled business was transitioned as a professionally managed company by appointing Mr. Bharat Puri as Managing director.
- They have focused to built all the products in a variety of unmet needs areas. So, they are a company with total assets of Rs. 6535.7 Cr.
BUSINESS OVERVIEW – PIDILITE INDUSTRIES SHARE:
- As we have gone through the power-packed history of the company, we can shift our focus to the current business modality.
- The company has various super hit brands like Fevicol, FeviKwik, Dr. Fixit, M-Seal, Fevistik, Fevicryl, Fevicol MR, Hobby Ideas, ROFF, Flexquik, etc.
- The company has initiated and led 60 years of multimedia campaign to create brand awareness with a unique selling point.
- The company has launched more new products in the FY2019-20. They are
- Fevicol Marine.
- Roff Powerflex.
- FeviCryl Premium fabric Glue
- Chemifix Kids Glue.
- M Seal PV Seal Solvents.
- Fevicol Elephant.
- Fevicol Micro protect.
- Their revenue is strongly dominated by Adhesives and Sealants. The revenue splits are as follows,
- Adhesives & Sealants – 52.6%
- Construction & Paint Chemicals – 19.2%
- Art & Craft Materials, etc – 8.1%
- Industrial Adhesives – 6.1%
- Pigment Preparation – 6.2%
- Industrial Resins & Construction Chemicals – 6.4%
- Others – 1.4%
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KEY STRATEGIES TO LOOK FORWARD:
The company strategies are by “Building bonds” between,
- Staying Connected Always.
- Helping Hands for Reassurance.
- Digitally upskilling partners.
- Building bonds from a distance.
- Focusing on New launches
- Acquisition of smallcap companies to leverage the adhesive market leadership.
AWARDS IN FY2019-20:
- India Business Leader Awards by CNBC-TV18.
- EFFIES 2020 award for the Marketing Campaign of FeviKwik “Phenko Nahi Jodo”.
- Drivers of Digital and Sammie’s award for FeviCryl.
INDUSTRY OVERVIEW – ADHESIVE & SEALANTS:
- The industry is set to grow at a CAGR of 7% from 2021-2025.
- The current Industry has focused on increasing Acrylic Water Borne Adhesives. This holds almost 45% of total product volume.
- It is widely used as a supportive product in the construction and building Industry. The construction sector is one the largest sector in India and tends to grow at a decent rate with “Pradhan Mantri Awas Yojana“
- At present time, due to COVID-19 lockdowns and pandemic, the Adhesive and Sealants industry has seen a small plunge. This will recover in the coming FY2021-22.
- The government is taking various steps to restructure foreign investors to develop healthcare, education, housing, transport, and water infrastructure sectors.
- The Investment amount which is projected to build the infrastructure in 100 smart cities and 500 small cities is about 2.3 Trillion INR.
- Many opportunities are in this industry in upcoming years to go, as they are used as a supporting tool for many sectors growth like,
- Joint Cement.
- Resilient Flooring.
- Wall Covering
- Drywall Lamination.
- Joints in Exterior Walls
- Repair of Large Cracks
- Fixed Windows frames.
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FINANCIAL PERFORMANCE – PIDILITE INDUSTRIES SHARE:
The above image is a clear idea of the financial performance of Revenue, EBITDA, PAT, EPS, Book Value, etc.
- Revenue has grown at a CAGR of 8.78% in the last 5 years. This is higher than the industry average of 5.11%.
- EBITDA has grown at a CAGR of 15.58% in the last 5 years.
- Net Profit has grown at a CAGR of 16.85% in the last 5 years.
- Over the last 5 years, the market share has grown from 9.87% to 11.7%
- Book Value has grown at a CAGR of 14.19% in the last 4 years
A 61 years old company which has shown a 16.85% profit growth over the last 5 years is commendable. Also, year on year, they tend to launch new products. This proves the company has strong financial performance and cash flow.
Let us have a look at how the share price has grown in the last 5 years.
Share price on 30th October 2015 – Rs. 540.20 per share.
Share Price on 30th October 2020 – Rs. 1571.45 per share
So, the share price has grown at a CAGR of 23.81% in the last 5 years.
As an investor, you have to check the coordination between profit growth and share price growth over the last 5 years.
FUNDAMENTAL ANALYSIS – PIDILITE INDUSTRIES SHARE:
Number of Shares – 50.81 Cr shares
Market Capital – Rs. 79795.79 Cr
The foremost in fundamental analysis is to calculate all the valuation ratios.
- Book Value – Rs. 87.69 per share
- Price to Book Value (P/B) – 17.91
- Earnings per share (TTM) – Rs. 16.74 per Share.
- Price to Earnings (P/E) – 93.81 times (Highly Overvalued)
- Industry Average P/E – 22.9
- Dividend Yield – 0.45%
- Debt to Equity Ratio – 0.04
- Current Ratio (Assets/Liabilities) – 2.33 ( More than the Threshold, yet decreasing Y-o-Y)
- Interest Coverage Ratio – 44.65%
- Net Profit Margin – 14.99%
- Average Net Profit – 13.92%
- Return on Equity – 25.05%
- Average Return on Equity – 24.35%
- Free Cash Flow – Rs. 835.62 Cr
- EV/EBIDTA – 48.38 (Highly Overvalued)
- Promoters – 70.19%
- FII – 10.9%
- Insurance company – 3.9%
- Mutual Funds – 4.33%
- Other DII – 1.93%
- Retail Investors – 8.75%
EXCESS CASH PER SHARE:
Total Liquid Assets:
- Fixed Assets:
- Investments – Rs. 441.16 Cr
- Other Financial Assets – Rs. 42.85 Cr
- Current Assets:
- Investments – Rs. 719.73 Cr
- Cash and Cash Equivalent – Rs. 692.23 Cr
- Bank Balance – Rs. 11.02 Cr
- Other Financial Assets – Rs. 103.18 Cr
Total Liquid Assets – Rs. 2010.17 Cr
Total Liabilities – Rs. 1864.44 Cr
Excess Liquid Cash – Rs. 145.73 Cr
Excess Liquid Cash Per Share – Rs. 2.86 per share.
BENEFITS FOR LONG TERM INVESTOR:
The long term investor will be getting benefits by growth in share price, bonus, and split.
Let us calculate the bonus and split the company offered to its shareholders in the past.
On 1st Jan 1999, the share price was at Rs. 6.26 per share.
If you have invested Rs. 10000 in 1999 in Pidilite shares, you would get 1597.44 Shares
BONUS AND SPLIT BENEFITS:
- Jan 2000 – Bonus 1:1 (For every share you hold, will be credited with a share) – Total Number of shares will be 3194.88 Shares
- Sep 2005 – Split of FV 1 from FV (Face Value) 10 – Total Number of shares will be 31948.8 Shares
- Jan 2010 – Bonus 1:1 (For every share you hold, will be credited with a share) – Total Number of shares will be 63897.76 Shares
So, the total Shares you would currently have without any further investments and holding for 21 years will be 63897.76 shares.
The current market price is Rs. 1570.4 per share.
So, the total wealth by Pidilite shares is Rs. 10,03,45,047 (Rs. 10.03Cr)
The share price has grown almost 10034 times with a CAGR of 55.08% in the last 21 years.
This is another example of how long term investment will be beneficial in building wealth.
INTRINSIC VALUE CALCULATION:
The 5 years EPS growth is 17.04%
EPS (TTM) – Rs. 16.74 per share
Considering the same 5 years CAGR to consecutive years and margin of safety of 10%,
The intrinsic value should be less than Rs. 370 per share
The current market price is traded at 3.2 times higher than the intrinsic value.
INSIGHTS TO INVESTORS:
- As an intelligent investor, you should always check the perfect valuation before buying a stock. It is not meant to buy all the stock, rather buy the stocks at the perfect value and hold it for the long term.
- Understanding the fundamental, industry projection is to calculate the expected growth. Once, you calculate the expected growth, calculate the valuation of the stock.
- Fundamentally, a strong and growing company. But, the share price is traded 3.2 times higher than the intrinsic value.
- High P/E and EV/EBITDA. Kindly avoid this huge price.
- Wait for the perfect opportunity and accumulate the stock.