Pidilite Industries rallies over 6% after Goldman Sachs upgrades stock
On October 31, Pidilite Industries experienced a notable surge of 6.3 percent, with its shares peaking at Rs 2,450. This considerable uptick was prompted by an upgrade in the stock’s rating from ‘sell’ to ‘buy’ by global brokerage firm Goldman Sachs. Notably, Goldman Sachs also set a target price of Rs 2,725 per share, indicating a positive outlook for the company’s performance.
Contrary to Pidilite Industries’ notable surge, the S&P BSE Sensex, a key stock market index in India, declined by 194 points or 0.3 percent to 63,918 levels as of 11:50 am on the same day. Despite the broader market’s downturn, Pidilite Industries’ stock exhibited resilience and demonstrated notable gains.
Over the past week, the company’s shares have recorded a 4 percent increase, outperforming the Sensex, which experienced a 1 percent decline during the same period. This positive market response suggests growing investor confidence in Pidilite Industries, potentially fueled by the optimistic prospects outlined in Goldman Sachs’ upgraded rating.
The recent ratings upgrade of Pidilite Industries by Goldman Sachs was motivated by a comprehensive analysis of the company’s performance and growth prospects. According to analysts at Goldman Sachs, Pidilite Industries has successfully surpassed the earnings downgrade cycle, indicating an upward trajectory for the company. They also identified new growth levers that are expected to bolster the prospects of India’s leading adhesive manufacturer.
In light of these developments, Goldman Sachs revised Pidilite Industries’ earnings estimates, anticipating a 4/8 percent increase for the fiscal year 2025/2026. This upward adjustment is primarily attributed to the projected surge in revenues from the company’s newly identified growth products. Additionally, the analysts forecast improved operating profit margins, citing the anticipated benefits of reduced input costs.
Goldman Sachs predicts a robust recovery in Pidilite Industries’ operating profit margin, with expectations that it will escalate to 23.1 percent in the fiscal year 2026, compared to 16.1 percent in the fiscal year 2023. This positive forecast reflects the firm’s confidence in Pidilite Industries’ ability to capitalize on its new growth strategies and optimize its operational efficiency.
The recent upgrade in the ratings of Pidilite Industries by Goldman Sachs was underpinned by a clear understanding of the company’s trajectory and the factors driving its growth. Analysts at Goldman Sachs emphasized that Pidilite Industries has successfully moved beyond the period of earnings downgrades. Furthermore, they pointed out the emergence of new growth opportunities for the leading adhesive manufacturer in India.
Goldman Sachs revised their earnings estimates for Pidilite Industries, projecting a 4/8 percent increase for the fiscal year 2025/2026. This upward revision was attributed to the expected rise in revenues from the company’s new growth products. Additionally, they anticipated an enhancement in the operating profit margins, primarily driven by the anticipated reduction in input costs.
However, the brokerage firm cautioned that certain factors, such as a slowdown in home construction or elevated commodity costs, could potentially disrupt the trajectory of the company’s margins. Despite the positive outlook, Goldman Sachs highlighted the need for vigilance regarding these external factors, emphasizing the importance of closely monitoring market dynamics and industry trends.
The upcoming announcement of Pidilite Industries’ July-September quarter earnings for the fiscal year 2023-24 (Q2FY24) on November 8 is anticipated to reveal positive results, according to analysts at Kotak Institutional Equities.
Their estimates suggest a potential 5 percent year-on-year rise in the company’s net sales, projected to reach Rs 3,160 crore in Q2FY24. This growth is expected to be primarily driven by an increase in domestic consumer and bazaar (C&B) sales, along with progress in business-to-business (B2B) segments.
Furthermore, the analysts anticipate a significant boost in the company’s profit-after-tax (PAT), predicting a 39 percent year-on-year increase to Rs 464 crore in Q2FY24, compared to Rs 332 crore in the same period last year.
Additionally, the estimated expansion of Pidilite Industries’ Q2FY24 EBITDA margins by 515 basis points (bps) to 21.8 percent (within the company’s guidance range of 20-24 percent) is expected. This anticipated growth is attributed to the correction in prices of vinyl acetate monomer (VAM), a crucial component in adhesive production, as well as the decrease in costs of crude derivatives. These factors are likely to contribute to improved operational efficiencies and bolster the company’s financial performance.
