The stock price of Pidilite Industries, the market leader in adhesives and sealants in the country, has moved up 43% since July this year. And if
the company’s performance in the latest September quarter is any indicator, the stock has the potential to surge further.

The Fevicol maker witnessed a 6.5% rise in revenues and its net profit nearly quadrupled in the second quarter. While savings on raw material costs and substantially lower forex loss this year contributed to most of the rise in net profit, the performance in its key segment of consumer & bazaar products has been very encouraging.

The consumer and bazaar products segment, which contributes three-fourths to the company’s revenues, has seen a y-o-y growth of 13% in revenues and 70% in profit before interest and tax (PBIT).

This performance is an improvement from that seen in the preceding quarter ended June 2009. The company’s overseas subsidiaries have also witnessed a double-digit growth in revenues and have reduced losses.

The company had taken measures to contain costs and improve margins across all subsidiaries. These steps seem to be bearing fruit as the subsidiaries have witnessed drop in their selling, general and administrative expenses.

With recovery in the global economic conditions, the company’s exports have also revived. Pidilite registered a modest increase of 5% in exports of consumer and bazaar products in the September quarter.

The company, however, needs to be watchful about the rise in raw material prices. With crude oil prices climbing up again, the company instead of saving on raw materials costs may have to pay more in the forthcoming quarters.
At its current price, the stock is valued at twice its net sales.

These valuations are befitting a typical mid-sized FMCG company. Pidilite’s stock is currently trading at a P/E multiple of 17.5 and the stock does have scope of improving further on its valuations.