On Friday, Citi reiterated a Sell rating on Pidilite Industries Ltd (PIDI:IN) stock, maintaining the price target at INR2,700.00. The analyst noted that Pidilite’s consolidated revenue growth of 5% year-over-year was below expectations.
Despite gross margin (GM) increasing by 304 basis points year-over-year to 54.4%, in line with estimates, due to lower raw material costs, the EBITDA margin’s year-over-year improvement of 167 basis points to 23.8% did not fully reflect the gross margin improvement. This was attributed to higher employee costs, which were somewhat mitigated by reduced operating expenses.
The company’s EBITDA and profit after tax (PAT) grew by 13% and 19% respectively. However, this growth fell short of Citi’s estimates by 7% and 9%, primarily due to revenue being lower than anticipated. The analyst pointed to the absence of demand recovery signs, stable raw material prices, and potential increases in advertising and marketing expenditures in the second half of the year as reasons to expect further moderation in PAT growth. Historical PAT growth has been observed to slow down over the past quarters, with a notable decrease from 68% in the third quarter of financial year 2024 to 19% in the second quarter of financial year 2025.
Citi has adjusted its earnings per share (EPS) estimates for Pidilite for the fiscal years 2025, 2026, and 2027, with a slight increase of 2% for FY25 but a decrease of 2% for the subsequent years. These revisions were made to reflect the results of the second quarter of FY25 and the management’s commentary. The price target is based on a 55x September 2026 earnings multiple, which has been rolled forward from the previous June 2026 estimate.
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