Pidilite Industries rallies over 6% after Goldman Sachs upgrades stock

In the past one week, the stock of this adhesive manufacturer has gained 4 percent as against 1 percent decline in the Sensex benchmark

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Shares of Pidilite Industries surged 6.3 percent to the day’s high of Rs 2,450 on October 31 after global brokerage firm Goldman Sachs upgraded the stock to ‘buy’ from ‘sell’ earlier, sharing a target price of Rs 2,725 per share. The S&P BSE Sensex was down 194 points or 0.3 percent to 63,918 levels, as of 11:50am.

In the past one week, the stock of this adhesive manufacturer has gained 4 percent as against 1 percent decline in the Sensex.

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Highlighting the rationale behind the ratings upgrade, analysts at Goldman Sachs said: “The earnings downgrade cycle for Pidilite Industries is now behind. New growth levers are emerging for India’s largest manufacturer of adhesives. We increase Pidilite Industries’ earnings estimates by 4/8 percent for FY25/26 on account of higher revenues estimated from new growth products and improved operating profit margins due to lower input costs.”

The brokerage firm also expects a strong rebound in the company’s operating profit margin – rising to 23.1 percent in FY26 from 16.1 percent in FY23.

However, they warned that a slowdown in home construction or inflated commodity costs could hamper company’s margin trajectory.

Also read: Hold Pidilite Industries; target of Rs 2675: Sharekhan

What should you expect in Q2?

The company will announce its July-September quarter earnings for fiscal year 2023-24 (Q2FY24) on November 8.

Analysts at Kotak Institutional Equities estimate Pidilite Industries’ net sales to rise by 5 percent on-year to Rs 3,160 crore in Q2FY24 led by growth in domestic consumer and bazaar (C&B) sales and B2B. The company’s profit-after-tax (PAT), on the other hand, is likely to increase by 39 percent on-year to Rs 464 crore in Q2FY24 as compared to Rs 332 crore in Q2FY23.

Pidilite Industries Q2FY24 Ebitda margins, analysts added, may expand by 515 basis points (bps) on-year to 21.8 percent (within company’s guidance range of 20-24 percent) owing to correction in vinyl acetate monomer (VAM) prices – a key component used to produce adhesives and lower crude-derivatives costs.

Also read: Headwinds ahead? Unpacking FMCG firms’ Q2 results

FIIs increase stake

In the September-ended quarter, promoters decreased their holdings in Pidilite Industries to 69.8 percent from 69.9 percent in June-ended quarter.

Mutual Funds, too, trimmed their stake to 3.5 percent in September 2023 from 3.8 percent in June 2023. However, foreign institutional investors (FIIs) increased their stake to 11.4 percent in September from 11.3 percent in the previous quarter.

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