Fevicol, MSeal, and Dr Fixit make over ₹3,000 crore a year in revenue — but that’s not enough for Pidilite to recover from COVID crisis

  • The stock of Pidilite is up 9% in the last 3 months.
  • Brokerages have cut earnings estimates and target price sharply.
  • The management is cautious. Unless real estate recovers, the demand for Pidilite’s products will be in doldrums.
The 61-year old Pidilite’s brand Fevicol is ubiquitous for adhesives in India. A 70% market share in the segment is dominance worthy of envy. Add Dr Fixit, M-Seal, prominent brands in waterproofing, to the equation and the two segments together make for more than half of the company’s ₹6,000 crore revenue.

These products are widely used by carpenters, painters, plumbers, mechanics, households, students, offices etc. The fact that the COVID-19 crisis has forced potential home buyers to save the money and renovate homes instead, should be good news for the company. But it isn’t quite panning out that way.

BI India
Recently, broking firm Motilal Oswal cut the earnings estimate for Pidilite by as much as 41.5% for the financial year ending March 2021. “Waterproofing is facing headwinds due to slowdown in real estate,” the report said. Peer brokerages like Kotak Institutional Equities and Emkay agree.

BrokerageCut in FY21 earnings estimateTarget price
Prabhudas Lilladher0.40%₹1,317
Motilal Oswal-41.50%₹1,345

The dent in profit could be worse if not for cheap crude oil

Prices of Pidilite’s key input, vinyl acetate monomer used for making glue and other adhesive material, was trading 20% lower in the spot market from the last quarter at $670/t, according to a Credit Suisse report. Vinyl acetate monomer is a derivative of crude oil, and the company imports a large amount of VAM to meet its requirements.

This has been a useful cushion as the coronavirus lockdown brought sales to a grinding halt in April and May.

However, the management is siding more in favour of caution than hope. “These low levels of prices are not going to benefit Pidilite for long-time, but in the short term, there will be gains which will accrue to them,” the company told analysts.

Although the coronavirus lockdown period was just for one week in the relevant period, Fevicol-maker Pidilite saw its sales growth decline by 5.8% and profit decline by 23% on-year basis as a declining economy took a toll on consumer demand as well as construction and related activities.

“Reading June sales and extrapolating it could be misleading, as there is pent-up demand which may be coming through. This is especially true for categories like waterproofing where remedial work is happening just before the monsoon season begins,” the company reportedly told analysts.

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