Pidilite Industries Limited (PIDILITIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Pidilite Industries Limited Q1 FY '27 Earnings Conference Call hosted by Equirius Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pranav Mehta from Equirus Securities. Thank you, and over to you, sir.

Yes. Thank you, Falak. Good afternoon, everyone, and thank you for joining this call. From the management side, we have Mr. Sudhanshu Vats, Managing Director. Mr. Kavinder Singh, Joint Manager; Mr. Sandeep Batra, Executive Director, Finance and CFO; and Mr. Pawel Joshi, Senior VP, Domestic Accounts and Taxation. I'll now hand over the call to Sandeep for his opening remarks. Over to you, sir.

Thank you. Thank you, Pranav, and good afternoon, and a warm welcome to everybody on the call. I'll just keep my opening comments brief. The Board at its meeting yesterday approved the results for the first quarter of the current fiscal. And of course, after that, we had our AGM at which the proposed dividend of INR 11.50, was approved by the shareholders. Coming to the performance for the quarter. Standalone revenues grew by 22.2% with an underlying volume growth of 11.3%. In absolute terms, the revenue was INR 4,237 crores. As we had mentioned in the full year earnings call, we had taken price increases and which were taken across all categories to offset the increase in input costs. If you look at the underlying volume growth for the quarter, Consumer & Bazaar businesses, underlying volume growth was 12.2% and for B2B was 7.3%. The reason why the B2B underlying volume growth was lower, was largely because of lower exports. B2B exports, UVG for the quarter was minus 8.4%. And overall export for the company also degrew in the first quarter, largely because of geopolitical issues in some of our key markets. Gross margins at 52.5% were lower than last year, same period by 90 basis points. VAM consumption in the quarter was $1,370 as compared to last year, $924, and the fourth quarter was in the $800 range. However, total cost below gross margin increased slower than the revenue growth. The total cost increase was 14.5%. A large chunk of that was advertising and sales promotion and this operating leverage flowed into the EBITDA margins at 26.4%, improved by 80 basis points quarter-on-quarter, and profit after tax grew by 27.7%. This was a stand-alone performance. If I look at the performance of the subsidiaries, both the domestic as well as the overseas subsidiaries reported double-digit revenue growth. Domestic subsidiaries grew by 11.5%, and international subsidiaries grew by 12%. Again, the growth there was led by Consumer & Bazaar businesses in the domestic subsidiaries, which grew by 17% and the B2B part of domestic subsidiary had a modest growth of 3.5%. International subsidiaries, again, growth was reasonably broad-based with Bangladesh, Egypt and Kenya subsidiaries, recording much better than their past growth records. Consolidated revenues at INR 4,541 crores were up by [ 21.3% ]. EBITDA margin improved by 120 basis points over same period last year, and profit after tax grew by 30.3%. So that's all from an opening remarks point of view. Happy to open the floor for questions.

[Operator Instructions] First question is from the line of Abneesh Roy from Nuvama.

First question is on the exports. When the geopatical issues get resolved, so you expect a bunch of demand or pent-up demand or some part of this demand was made by other suppliers. If you could clarify on that.

Yes. So I think, Abneesh, thank you, first of all, and always good to hear from you. And I think -- and it's so good that you've been -- you're always at opening batsman, and thank you. Thank you once again for the results. We've delivered a strong set of results. So thank you very much. I think on exports, so as the situation normalizes, a lot of our export business will come back. It will come back. Now because most of our contracts are there. Now it is also possible that there is interim period some of the people may have made some alternate arrangements, and I don't want to get into specifics of it. But suffice to say to answer your question that as the geopolitical situation stabilizes, our exports will come back.

Sure. The largest paint company has put up the WAM facility. And you do compete with that company in many segments. From a relative positioning perspective in terms of cost and say, pricing and product pricing. Does this change anything meaningfully for you?

So Abneesh, our understanding is that I think it's best, of course, answered by the company that has put up the capacity. But first of all, fundamentally, there are two business models, and both business models are good business model. So you could have something captive and perhaps to operate in the entire value chain or you could have -- basically, you have your brand and your product and you focus on your brand and product quality and servicing the customer. And from the procurement point of view, you operate through basically what is in the market and you basically rise the crest and trucks of the raw material. So I think the point is we are in the latter camp. I think as you are aware, I don't think it should change anything materially. And in our assessment, multiple times over on ours when we've done it ourselves. And also when we have looked at and talked to a few of the experts in this space, who know this very well, and some of the large companies across the globe. I think the competitive advantage case for India from availability of base raw material. From the point of view of the scale needed to get that kind of a that kind of cost leverage and advantage doesn't seem to come through in all our conversations. I just wanted to share that. Having said that, I think they've chosen to do this outstanding is also it may or may not be directly for [indiscernible] It may be for other things as well. So I think that's the piece which is, so therefore, they have multiple businesses. I think the point I'm making is that that's an independent decision. It's a different business model. As far as our business model is concerned, our way of doing things is concerned, and we sort of revisited this. We've had decade conversation with some of our large partners and vendor suppliers. And we are confident of running this well as well as we've done in the past and should not have any impact.

Sure. My next question is on the two innovations you have put in the presentation. So what is the expectation from this most technologically advanced adhesive? Is this too niche-sensitive, anti-bending property for what use case it is? And similarly for the professional MCWashable, are these very disruptive products? Or these are just some good niche product? Or are these big potential long term from a revenue perspective?

No, Abneesh, that's a very good question, and I'm glad you asked it upfront. I think both these innovations, which we put up this time around. Our fundamental innovations, they are technologically advanced products in that space. And within our business, they're not fringe innovation, they're core innovations. Let me just give you a quick testing and maybe take one example, but it's true for both. But let me take the example of Fevicol expert. So you see when you do good working in your house, particularly when you do Elmira doors, cupboards doors. Depending on the laminate you've used on one side and the laminate you've used on the inner side or sometimes no laminate on the inner side because that's a practice in India. The laminate used on the front side is of a different quality and different things and the laminate used at the -- which is on the reverse of the door, you open the door, either there is no laminate or it's of a different quality. Based on this, what one common complaint we used to hear what is called bending of the door. So I'm saying -- so -- and therefore, I just got going to take a minute to explain that how much core or central it is. I think this technology -- one of the biggest advantages of the technology is also anti-bending. So therefore, once you're able to use this product, you are assured of the doors not bending doors closing properly, basically not sort of. So that is a common problem phase. And therefore, you are addressing a relatively prevalent or relatively quite prevalent kind of a problem with the product. And I think the other one is very similar. It's basically multiplying its core on, as we call it the MCL advance it's lower on BOC, it's very long smell, easy to watch off. It's also a multi -- you can use it on different types of plastic pipes and all that. So both are very fundamental innovations. They would -- I would call them core innovations and with strong potential.

Sure. Last question. So essentially, WAM went up sharply has come down also very sharply. So you could tell us current price and the crude has also fallen. So is your double-digit price hike which you have taken at the company level, is that now too much? Or are you getting now more trade discounts and basically paid margins? And how are the local or the other players responding because it's a competitive market. And definitely, your -- we price hike is unprecedented. And then we've seen the RM fall also very sharply.

So maybe I'll ask Sandeep to also tell you exact numbers, but I can give you order of [indiscernible]. Basically, this is fluctuating quite a lot. So therefore, to tell something at this point in time, I'm saying it did go up in sharply. You're absolutely right, from about $800, $900 to maybe all the way close to $2,000 and then stand down quite a lot, but then maybe going up a little. So the dynamic is a little bit more -- it's far more dynamic than maybe we've seen in the past, maybe we've seen it once or twice. But even there, the owing is, I think, quite unique. And as you know, is a little bit decoupled from directly crude as well. So I think there are multiple other factors which are sort of driving some of these things. And -- so what we've done -- and to your point, what we do is we take the feedback of the market. Fortunately, as a company, we are very close to our customer. And therefore, we understand what is happening, what is the -- what are their pain points and so on and so forth. So as you're right, in your conceptual thinking that depending on the movement of this, we could end up giving some rebates. So it's possible that for the period, I'm saying we would be giving a rebate and that's absolutely correct. And it's possible that in a period we would sort of withdraw that and so on and so forth. So -- and if you remember correctly, while the quantum you are right, this time, we were more proactive more than the quantum. We are proactive. And I think that's really helped, and you can see that in the numbers as well. But my point is that we were -- and we spoke about it in the last call, in our full year and quarter 4 FY '26 call. We covered for the increase in raw materials. We did not cover fully for the margins. In a manner of speaking, we have taken some of the heat and we had sort of -- we have basically passed on a lot of that hit, but we have absorbed a little bit of it as well. So the point is that between the we are broadly okay. We will play with a little bit of rebate. As far as position is concerned, we keep a close eye on competition anywhere in the country and we will continue to do that. And in this particular example, especially in this example, Abneesh, and in this category, competition tends to follow almost to the key. So I saw when we've sort of taken up the prices, almost everyone has taken up the prices. When we are taking a remain almost taking a rebate. Sometimes you could actually -- if you ask the letter, the latter head of the letter, you will see they are almost identical. So to that extent, I think that anecdotally to tell you I think what we keep it are having said all of this, we kina very, very close work. And more importantly, at Pidilite, we have always believed in a way and philosophy where we will make sure that the value to our customers is right. And therefore -- and we are doing what is right in their interest as much as it is in ours. So I think as long as we follow that philosophy, I think we are in a good space in my judgment.

One follow-up here, and I end here, do you want to change the lower end of the guidance because in most quarters, either you are at the top end or you are even between the top end, structure, is there any change to the margin profile. And so the 20% lower end of the margin may not have any relevance now because 4, 5 quarters have happened.

Abneesh, while if you look at our last few quarters' performance, what do you say is valid, but if you look at a slightly longer period, particularly the time when we saw a very steep increase in input costs, our margins had indeed fall into the high teens. And of course, they recovered -- and the world that we are living in with all these risks and uncertainties, we would still prefer to keep a corridor, which gives us enough operating flexibility. So no need to change it at this stage.

The next question is from the line of Jay Doshi from Kotak Securities.

I've got two questions. So first one is stand-alone Consumer & Bazaar, UVG was around 15% last quarter. I think this calendar year started off on a very strong note and last earnings call, until then you were fairly confident that the momentum at that point of time, you indicated that the momentum has continued into [indiscernible]. So moderation to about 11-odd percent -- 12% from 15%. I'm just referring to CMB right now. Has -- did you see any moderation in June that anything to call out here? Or -- and second is, should this be considered as more as a normal UVG band for rest of the year? Or are you expecting some acceleration going ahead?

So Jay, I think [indiscernible] questions. So thank you, first of all, Jay, and thank you for the compliment as well to all of Pidilite and to the team, I think, and from your side. I think the way I interpret this data, let me also share the data with you. And I think we talked about it. So I think if you look at our C&B business, and I'm trying to give you now a 3-year CAGR, 2 year, last year and this quarter. So if you look at from my point of view, our 3-year CAGR is, let's say, 9 something. Our [indiscernible] is about 10-something, last year or 10-point something higher than our last year full year actually in C&B again, is around 11-something. And against that, we are now in quarter 1 at 12.5%. So therefore, just the quarter 4, I think it's one data point. And if you remember, even in our last call, we had said that treated at our last year's [indiscernible] as 11.1% of the number, if I remember right, [ 11. ]1 for the year, and I think that's a step up on our biggest year, which was 9-point something. So therefore, it is a step up. We recognize that. We would like to continue that step up. So I think in that context, we see this as a normal trend. There's nothing no month or any such thing. And I think we should be looking at similar listings, especially in this year there because you should see that this UVG unlike volume growth is coming off the price which is there. So I think to be able to deliver UVG this with plan. Broadly, this time player. And as we see, as the year progresses, nobody can say anything at the moment here. But the final making is that in this context, assuming this is the context and the sum price, which is there through the year, I think this is a good number. This is a quantitative aspect of it. I think from the point of view of market and you you know all of us keep traveling all the time and myself. We are all in the market post and even more so now, I can tell you very, very categorically that demand is holding quite well. So I think there is no -- we are not seeing any any kind of concern on demand at the moment at all. The trend is holding well. And then the changes -- in our segment, the trend is positive and in the right direction.

One more question. One of the South India-based regional cement companies is planning to foray into [indiscernible] with very ambitious targets. So what are your thoughts? Are you seeing any sort of change in the competitive intensity on the ground and any thoughts here?

Yes. So let me quickly give you one headline I thought but I'll pass it on to Kavinder to talk about this in some detail for you. I think, first of all, I think as this business -- as this segment is growing, there will be competition. And I think competition could come from submit manufacturers. They could sometimes come from tile manufacturers themselves thinking we do tile we would also do [indiscernible]. And of course, there has been an existing competition from some of the larger plans. So I think the competitive intensity could vary and could change. But I think we are quite well equipped with our brand. But I think that's a headline thought. Let me just share -- let me just ask Kavinder to give you a bit more context and color there.

Thank you, Sudhanshu. I just sort of build a little more from where Sudhanshu left off. See, this category is facing intense competition and the South Indian manufacturer that you talked about, we are aware of that. So on the ground, if I were to say the we are maintaining our momentum. In fact, we are accelerating, number one. Number two, we are also very mindful of the [indiscernible] competition. Our biggest strength today which is sort of known also and I would reiterate is our wide plant network, which we are expanding. Number two, consistent quality. We are investing in our plants in a manner that the quality consistency proves. These products are susceptible to product inconsistency. And therefore, if you have not got the right technology, the right level of let's say, automation, you could get into the consistency problems. Third, extreme focus on cost management, both on the input side as well as, let's say, we use the concept of total delivered cost. So when I look at the metrics of cost, quality and timely availability through the plant network that we have built, we are building our own moat. And of course, [indiscernible] as a brand has seen significant investments on the ATL as well. Our team on the ground is constantly working both on the distribution side, which is the sales part and the business development team is continuously working with the contractors who are in this business. So our mode is always work very closely on the ground with the tie dealers who comprise a majority of the sales now of this particular category. Of course, there are other dealers also and also the contractors. So we will continue to focus on our playbook by being mindful of the new competition that is emerging. And our team is quite motivated to deal with this challenge of seeing increased competition. And our focus remains on our playbook and continuously adjusting depending on what we see in the market. By the way, since we are on the call, I will also highlight that one of the products that we have launched in about 2 quarters ago, and we have mentioned this already, our NewPro is seeing increased momentum and we are now going beyond one plant to four plants to ensure that this is available in wider geographies. This is a product that we have launched through our joint venture with our Spanish partners. And this is something that we can also share the good news that the premium end of the market, we effectively occupy extremely well, and that's another area that we are focused on in terms of premiumizing our range as well. So I hope, to some extent, this answers your question.

The next question is from the line of Arnab Mitra, Goldman Sachs.

My first question was on demand. So we've seen price increases from Pidilite as well as all other building material companies have you seen at all the price hikes have only happened by June, any impact of traditional asset demand on any of your categories? And a related question is in this quarter, there was some slow around shortage of construction material like tiles and things like that, does it have any impact on the growth during this quarter?

Yes, Arnab, thank you for the thank for your compliments. And I think Pidilite and the team fully deserve it. I think so I'll pass on to everyone. Thank you so much. I think on the -- let me take the second question first. I think the tiles per se as a sector has epically high market inventory, if I could call it, particularly premium tiles where most tiles adhesives gets used. So therefore, the impact on the industry, which we saw at the beginning of the last quarter from the point of view of availability of gas and others, did not immediately impact the market, definitely not the higher end market. There could be for [indiscernible] cases here and there, but not meaningfully in any which way. So that's the first part. I think on the second part of your question, just remind me the question again, of the first part...

Price capacity of demand ...

Yes. So I tell you 2, 3 things, and I will discuss this internally quite a lot. I think first, it was to give you a little bit of context to all everyone here. I think unlike fast-moving consumer goods, where there is a direct comparison of a product price from month to month because by definition, they use that kind of sequence. We aim allowance immediately. In our kind of categories, largely Bazaar particularly, people plan their project and say that this is -- they have an outlay for the project and then they work within that outlay. So they have a -- let's say, you plan your project and then your budget for your project. So I think while the prices have gone up, we've seen -- and if the product is already on that people normally don't stop it. So that's continued that if you could start a new, then you can sort of -- sometimes think through it or recalibrated. So to answer your question, I don't see -- we are seeing any impact on demand at the moment. And also, most of the pricing, I think, has gone into the market by June. I think that was the question you had. So most of the pricing has gone in, in June, we've not seen any substantial impact. And therefore, our hypothesis that people plan a project outlay in a very different way. They interact with our products from a pricing point of view, at a frequency of once in 2 years, once in 3 years, sometimes once in 5 years, depending on what you are doing, kind of projects you are doing and all that. So it's a little -- so for us -- and if you were to look at weighted average increase on some of our categories and brands, I think that's not substantial because price had gone then it came down a little bit. So I think so, therefore, from that point of view, I don't think we've seen anything on that count, and that is good news for us and maybe on similar industries in my judgment.

That's very helpful. My second and last question is actually a margin. So the very strong margin performance this quarter. I just wanted to understand if you had some benefit of low-cost inventory in this quarter of consumption averages and therefore, should we expect gross margins to move down from there as the full impact of the inpatient hits? Or would you say that given that broadly spot prices are you've had any similar costs in the last quarter as well. So just wanted to understand whether any like one-off benefits, which kind of goes away, and therefore, margin trend at that historical range.

Yes. No. So therefore, in this quarter, I think your observation is correct. I think three things happened in the quarter. Basically, this time around at Pidilite, we were very proactive in taking our pricing, pricing based on replacement margins, which is depending on what the price of that commodity or raw material was at that point in time, we were pricing it based on that. So that's replacement margin. So therefore, pricing was proactive. So pricing went in into most of the quarter, at least part of the quarter as the pricing would plan in sales matter. Then basically, there was in certain categories that varies from raw material to raw material product to product and all that. But there was some amount of carryover inventory as well. So that's the correct observation. And I think that's what consumed in the last quarter, that has to [indiscernible]. And lastly, because of prices going up last quarter almost and maybe 2 or 3 changes, not only are across the board, as you had only asked in your previous question. There was also some moderation in scheme. And the combination of all 3 gave us the advantage here in -- I think some of it will correct in the second quarter. But my view is that you should, first of all, look at first half when you look at it like the first half. But what gives us confidence at the end of quarter 1 is that with the proactive pricing that we have taken and with the way we are managing our business and with demand holding on, I'm saying all three conditions, I think we will see a year where we manage our margins quite well. It's all I can tell you. And I think, of course, our range is known to you, which is [ 20 to 24. ] And therefore, from this high, which you've seen in this quarter, could it moderate a little bit it could moderate a little bit, and it will perhaps moderate a little bit. But it will moderate a little bit. I think that's the point. But as we stay to the range, which we talked about and therefore, that is something I can tell you.

Arnab, if I may add, I think the right way to look at our margin is not on a quarter-to-quarter basis because the quarter will have many variables some will play out favorably. Some may not play out favorably. But the fact that, I think as Sudhanshu mentioned is that [ 100 ] is obviously the benefit that we got in the first quarter of consuming lower price inventory, that benefit will unravel in the second quarter because we have bought inventory at our materials at higher prices than what prevailed today. Some of it will come as the inventory gets consumed in the second quarter. But if you look at a normalized H1, I would not say there is any major concern on that.

The next question is from the line of Rahul Maheshwary from Ambit Investment Advisors Private Limited.

My two questions. First, among the core growth and pioneer categories, can you give directionally that how these 3 categories have grown? And also, will the categories, any few categories which are moving up the curve will be very helpful. This is on first. And second or also on the distribution, how the distribution expansion is taking place and what is the trajectory?

Rahul, thanks for the compliment and good question. I think as far as our core businesses are concerned, we are basically seeing steady growth on core. As you know, we sort of talk about 1 to 2x keeping. So I think we are seeing that in our core businesses. I think what we are beginning to note is, and I'm saying we talked about it in last quarter as well as this quarter, again, and Kavinder alluded to it in context of ROC. I think for our growth businesses, particularly Dr. Fixit, Roff, even our projects business, if you look at Pidilite Projects Group and other -- some of the other growth businesses, we are seeing accelerated momentum. I'm saying so that's good news. We are in the range of that 2x to 4x, but we have seen accelerated momentum in the underlying volume growth in some of our categories. And I think in the -- we've spoken about it many times now, but in the interest of once again explaining to people that when we talk to underlying volume growth, we are not talking about volume, total volume. That total volume growth tend to be much higher than the underlying volume growth. Most of the companies talk of volume growth, simple total volume growth. So I think, therefore, our momentum is strong. And I think that continues. So therefore, -- as far as core growth ratios are concerned, and we've talked about it, we are in that relatively sweet spot of about nearly 50-50, but I think that's the way it will sort of maintain as we go forward. And I think that's the piece which is good for us. So I think that's the -- I hope I've answered your question. Was there a follow-up question as well? I think I've covered both of them.

The follow-up question was that last time when we met you told non, the vendor is one of the most disruptive category and the product by end -- can you give some brief about how it's going? And are we up to the amount of INR 100 crores business?

Yes. So it's progressing well. Let me again ask Kavinder to talk to you a little bit about it and add more color to it.