Investors who stuck with this stock saw Rs 10k turn to Rs 1.2 lakh in 10 years

Although a steep rise in input costs and impact of the second wave of the Covid-19 pandemic have now emerged as key challenges for Fevicol-maker Pidilite Industries, the company is know to have delivered humongous returns to investors in the long run. Shares of the company have soared nearly 1,100% to Rs 1,891.10 on May 17 from Rs 173.36 in May 2011.

This means that if you would have invested Rs 10,000 into the stock exactly 10 years ago, it would have grown to around Rs 1,20,000 today. The adhesive major has posted consistent growth in net profits and sales during this period.

The consolidated net profit of the company increased by 14% annually to Rs 1,122.15 crore in FY21 from Rs 308 crore in FY2011, sales grew by 11% annually to Rs 7,293 crore during the same period. Analysts on Dalal Street hold mixed views on the company post-March quarter results.

Q4 results

The company last week posted a consolidated net profit of Rs 307.44 crore for the fourth quarter ended March 2021. The leading manufacturer of adhesives, sealants and construction chemicals had posted a profit of Rs 156.51 crore in the January-March period a year ago. Pidilite Industries Ltd’s (PIL’s) Q4FY2021 results were not comparable on YoY basis due to the consolidation of the recently acquired Huntsman Advanced Material Solutions (HAMSPL).

Consolidated revenue from operations stood at Rs 2,235.52 crore during the quarter under review as against Rs 1,544.68 crore in the year-ago period.

“This quarter witnessed robust broad-based growth across all businesses and geographies. Despite significant challenges in FY 21, we have displayed adaptability and resilience while building capacity and capability,” Pidilite Industries Managing Director Bharat Puri said, adding gross margins continue to be impacted due to unprecedented inflation in input costs.

“Despite pricing and cost actions, we expect margins to remain under pressure in the coming quarters,” he said. Pidilite’s gross margin contracted by 460 basis points YoY 50.8% in Q4. The price of key input chemical vinyl acetate monomer (VAM), climbed from $925 a tonne in Q4FY20 to $1,200 a tonne in Q4FY21. The commodity price is now hovering at around $2,000 a tonne.

Should you invest?

Brokerage Sharekhan has a ‘Buy’ rating on Pidilite Industries with a price target of Rs 2075. It added that the company hiked prices in March-end and is planning to undertake a second round of price hikes in May, which will cover 75% of the inflation.

The management believes the steep increase in VAM prices is due to supply constraints and higher demand and are expected to correct once these issues are resolved globally.

Axis Capital, however, downgraded Pidilite Industries to ‘Reduce’ from ‘Add’ with a price target of Rs 1,750.

“Management is consciously looking to absorb partial impact given high volatility in raw material prices and near-term demand uncertainty. We cut our FY22 EPS estimate by around 14%,” it said.