The upward revision in pricing at the end of December 2018 weighed on the volumes of consumer & bazaar portfolio. However, given the current slowdown in consumer demand, near-term volume growth seems challenging for Pidilite.
In fact, analysts at JPMorgan have reduced Pidilite’s earnings estimates by 2-3 per cent for FY20 and 2020-21, amid lower top line growth. Analysts, however, believe that the long-term growth potential of the company remains intact.
The dominant position in the adhesive market, strong distribution reach with over 3 million outlets, and expected market share shift away from the unorganised players due to lower goods and services tax should aid volumes. Also, if the company passes on benefits of lower input prices, it would push up volumes in the near term. Some also expect demand to improve as the election-related uncertainty is over and there is an expectation of a likely normal monsoon.
At the end of May 2019, prices of key raw materials — vinyl acetate monomer — were down 23 per cent year-on-year and 2 per cent sequentially. This, along with a stable rupee, is expected to improve operating margins. Analysts expect 150-200-basis point expansion in earnings before interest, tax, depreciation, and amortisation margin of Pidilite in FY20, from 19.3 per cent in FY19.
Overall, any sharp fall in the stock would be a good buying opportunity for long-term investors.