Fevicol maker Pidilite Industries expects outlook to improve with margins normalising: ICICI Securities recommends this

Fevicol maker Pidilite Industries believes that the outlook of the company is likely to improve with easing inflation and commodity prices, Zee Business report said quoting Bharat Puri, Managing Director of the adhesives manufacturing company.

According to the report, the company expects that the margins are likely to improve in the coming quarters amid softening crude oil prices, which is one of the key raw materials for the firm. It expects margins may normalise by the fourth quarter of this fiscal year or by the start of the next year.

The report said that Pidilite Industries passed only about 75%, and not the entire, input cost pressure to consumers, because of which the margins crunched when the inflation was at its peak during the July-September quarter of FY23.

The company is also of the view that it may slash the prices of its products, if the crude oil rates decline further, giving more relief to consumers. The Brent Crude Oil Futures have dipped more than 33 per cent in the last six months from US $120 per barrel to US $80 per barrel levels.

With respect to demand, Pidilite Industries MD also believes that due to a fall in rural demand, the overall demand may be affected in the next six months. On the contrary, the company also mentioned that the demand for real estate has predominantly surged after Covid, as per the report.

The improvement and demand in the housing sector post-Covid have aided the company, Pidilite Industries MD said, adding that the FMCG (Fast Moving Consumer Goods) sector will grow one and a half times with 6 per cent GDP (Gross Domestic Product) growth in the current fiscal.

The toll on exports is seen, as Puri pointed out that exports may have an impact on the global slowdown and raw materials will likely be more expensive on a strong dollar.

Pidilite Industries has a strong franchise with both consumers and intermediaries, high brand recall and extensive distribution reach, Arun Baid, Research Analyst, ICICI Securities said in its report on the company.

The analyst is expected to witness revenue/EBIDTA CAGR of 17%/24% over FY22-FY24E driven by demand uptick and an innovative product portfolio with robust return ratios. The brokerage maintains a HOLD rating with a lower target price of Rs 2,655 per share.

Shares of Pidilite Industries grew around 1 per cent to Rs 2,756 per share on the NSE as compared to 0.3 per cent rise in the Nifty index. The stock in the last one year has gained around 25 per cent and nearly 30 per cent in the last six months, while 5 per cent in a month.