This will expand Pidilite’s portfolio, which comprises brands such as Fevicol, Fevistik, and Fevikwik. Fevicol
and M-Seal dominate the adhesives and sealants market in the country, with a domestic share of 70 per cent each.
The Huntsman deal weakens the potential threat from Asian Paints
and Astral Poly Technik, which have diversified into construction chemicals.
Analysts at Motilal Oswal Research believe the new entrants could have used the acquired assets as their umbrella brand and expanded their portfolio.
The Huntsman investment is one of the five the company struck this year. Among the other inorganic forays, the company bought 2 per cent stake in online furniture retailer Pepperfry
for Rs 70 crore and acquired 70 per cent stake in Tenax India, which manufactures adhesives, coatings, surface treatment chemicals, and abrasives for Rs 80 crore.
Given the deal size and cash on books, which is around Rs 1,900 crore, the company may have to take some debt. This could help improve the return ratios, given the low yields from the current investments.
In the near term, the Street will focus on trends in demand recovery and margin movement. After a 57 per cent dip in sales in the April-June quarter, the company is expected to post a slight increase in sales in the July-September quarter. The recovery is led by the rural segment and maintenance-driven products. Gross profit margins are also expected to see some improvement on the back of soft input costs.
While there are multiple positives for Pidilite from the acquisitions and growth prospects, valuations at 62x its 2021-22 earnings capture these gains. Investors
can look at the stock on dips.