Dividend Paying Stock: After Rallying 6%, Share Price Of Fevicol Maker Pidilite Industries Fall; Buy On Dips?

Pidilite Industries, the company that owns the brand Fevicol, dropped over 2% on Wednesday as investors booked in profits after the share price rallied over 6% in the previous session. Pidilite is among the high dividend-paying stocks in the specialty chemicals segment. In FY23 alone, the company paid a total dividend of 1100% amounting to Rs 11 per share. The stock will be in focus ahead of its Q2 earnings.

On BSE, the stock ended at Rs 2,406.30 apiece, down by Rs 51.95 or 2.11% after market hours of Wednesday. The company's market cap stood at Rs 1,22,380.08 crore.

The large-cap stock had ended at Rs 2,458.25 apiece, up by 6.23% on Tuesday. The reason for this upside was after analysts at Goldman Sachs upgraded their ratings on Pidilite shares.

Goldman's analysts in their report indicated that the earnings downgrade cycle for Pidilite Industries is now behind. They believe new growth levers are emerging for India's largest manufacturer of adhesives. Hence, these analysts upgraded their earnings estimates for Pidilite by 4/8 per cent for FY25/26 due to higher revenues estimated from new growth products and improved operating profit margins owing to lower input costs.

Further, the brokerage also expects Pidilite to record a strong rebound in its operating profit margins, rising to 23.1% by the end of FY26 from 16.1% in FY23.

Accordingly, Goldman's analysts have upgraded their recommendation to 'Buy' on Pidilite from the earlier 'Sell' suggestion to a target price of Rs 2,725 per share.

From the current price levels, Pidilite has a potential of over 13% upside ahead taking into consideration Goldman's TP. Thereby, the current drop in Pidilite shares indicates a 'buy on dips' scenario.

Pidilite will announce its financial results for the second quarter ended 30th September 2023, on November 8th.

For Q2FY24, Kotak Institutional Equities in its report on Pidilite said, "We expect 5.5% yoy standalone revenue growth led by 6% yoy growth in domestic C&B sales (versus 10.6% in 1Q) and 3% yoy growth in B2B (exports/export-oriented clients are impacted at present). We expect aggregate revenues of subsidiaries to grow by 1% yoy to factor in the ongoing headwinds in the international markets. Our estimates imply consolidated revenue growth of 5%."

Further, Kotak's note added, "We expect consolidated GM to expand 15 bps qoq (+820 bps yoy) led by a correction in VAM and crude derivative prices. VAM consumption cost further declined to about US$900/MT in the first few weeks of 2Q from US$1,150 in 1QFY24, following an 11%+ qoq fall in 1Q. Given the sharp recovery in GM, we expect PIDI's EBITDA margin to expand 515 bps yoy to 21.8% (within the company's guidance range of 20-24%) and after baking in higher media intensity (ATL spends on Araldite and Roff)."

Pidilite Industries is a leading manufacturer of adhesives and sealants, construction chemicals, craftsmen products, DIY (Do-It-Yourself) products and polymer emulsions in India. The product range includes paint chemicals, automotive chemicals, art materials and stationery, fabric care, maintenance chemicals, industrial adhesives, industrial resins and organic pigments & preparations. Most of the products have been developed through strong in-house R&D.

The company's brand name Fevicol has become synonymous with adhesives to millions in India and is ranked amongst the most trusted brands in the country. Some of the other major brands are M-Seal, Fevikwik, Fevistik, Roff, Dr Fixit, Araldite and Fevicryl.

From the current 52-week low of Rs 2,250.85 apiece, Pidilite shares are trading higher by 7% on the BSE. The 5-year performance of the stock price makes Pidilite a multi-bagger as it has rallied by at least 143.5% to date. The stock was near Rs 988.40 levels on November 2, 2018.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.