Pidilite Industries is glued to growth

Fevicol-maker Pidilite Industries Ltd has held up relatively well amid the recent market downturn. While Nifty Next 50 has dropped 9% so far in 2025, Pidilite’s stock has slipped 6%, cushioned by its ability to sustain healthy volume growth in a challenging demand environment.

At its recent analyst meeting, Pidilite reiterated its goal of achieving double-digit volume growth in the medium term and an Ebitda margin of 20%-24%. For the nine months ending December 2024 (9MFY25), volume growth stood at 9.2%, while the Ebitda (earnings before interest, tax, depreciation, and amortization) margin was just shy of the upper-end 24% mark, keeping the company on track to meet its goal for FY25. The company’s margin is already elevated this year, supported by lower input costs.

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At the meeting, Pidilite discussed its product strategy across three key categories: core, growth, and pioneer. Core categories, including well-established brands like Fevicol and Fevi Kwik, enjoy high market maturity and strong market share. The growth portfolio, which includes brands like Dr. Fixit and Roff, consists of emerging categories with significant potential. The pioneer segment features newer products such as Dr. Cipy, Jowat, and Haisha, which offer market creation opportunities. 

The company's management expects core categories to grow at 1-2x India’s real GDP growth rate helped by premiumization, innovation and brand leadership. Growth categories are rising faster and can clock 2-4x GDP growth aided by Pidilite’s focus on driving penetration, international expansion and inorganic growth.

About a decade ago, core categories contributed 80% of Pidilite’s sales, but that figure has now fallen to 52% as the growth and pioneer segments have gained ground. The company intends to keep the core business contribution steady at 50%.  

Analysts at IIFL Securities believe Pidilite’s strong product portfolio will help navigate demand challenges and provide clear visibility for growth in the medium term.

From a long-term perspective, growth drivers remain intact, fuelled by the expansion of infrastructure and real estate, domestic manufacturing, and emerging industries such as electronics, green energy, and mobility.  Jefferies India analysts estimate a 13% Ebitda CAGR and a 16% profit after tax CAGR over FY24-27, driven by volume growth in construction and furnishing, new product launches, and premiumization.

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The bright growth outlook may well help sustain the stock’s premium valuations. “Factoring broader market correction and overall demand softness, especially in urban (B2C is about 80% of Pidilite’s sales mix), we slightly cut Jefferies target price-to-earnings by about 5% to 57x, although it stays at a slight premium to its historical 10-year trading average,” wrote Jefferies India analysts in a report dated 18 March.

“We believe Pidilite's premium multiple can be sustained, aided by strong moats such as market leadership, brand recall, premium portfolio mix, pan- India footprint and healthy balance sheet,” they added.

Sharp near-term upsides, however, may be limited hereon as demand remains subdued amid concerns over a soft global economy, geopolitical tensions, and a delayed rural recovery. In the December-quarter earnings call, the management had highlighted demand strain in both urban and rural markets, with a lacklustre festival season failing to provide a meaningful boost. 

Against this backdrop, investors are closely monitoring prices of vinyl acetate monomer (VAM), a key raw material for Pidilite, which could influence profit margin.

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A bright spot has been the business-to-business (B2B) segment, which has performed well, reporting 20% volume growth in 9MFY25 compared to 7% in the consumer & bazaar (C&B) business. Pidilite’s operations are divided into two main segments: C&B, which accounts for about 80% of sales, and B2B, which makes up most of the remainder.