Pidilite Ind expects Jul-Sep input costs to be "highest", impact operating margin

12 Aug 2022

Pidilite Industries Ltd expects the operating margin in the September quarter to be flattish due to consumption of unutilised key raw materials from the June quarter when the prices were at their peak, the company told analysts in a conference call with analysts and investors on Thursday.
 
The adhesive-to-construction-chemicals company's managing director, Bharat Puri, also told Informist that the consumption of key raw material vinyl acetate monomer would likely be in the $2,300-2,500 per tn range in the September quarter as compared to $2,200-2,400 range recorded in the June quarter.
 
This represents a $100 per tn, or around 5%, increase in the vinyl acetate monomer cost in the September quarter and would restrict any expansion of the operating margin.
 
In the June quarter, Pidilite's operating margin, defined as the earnings before interest, tax, depreciation and amortisation margin, contracted to 17.1% from 17.8% a year ago. In Jan-Mar, the margin was 16%.
 
The profitability of the company during the quarter was hit due to a jump in raw material expenses. They rose 72% on year to 15.7 bln rupees, accounting for nearly 60% of the total expenses. But calibrated price hikes and 44% volume growth led to the consolidated EBITDA rising sharply by 52% on year to 5.3 bln rupees.
 
Puri told analysts in the call that he saw the near term as challenging because of two reasons.
 
The company saw the highest level of input costs in the June quarter and "a large part of those input costs will be consumed in the current quarter (Jul-Sep)," he said. Therefore, from an operating margin point of view the near term will be very challenging.

Puri said the raw material costs as a percentage of sales will likely be the highest in the September quarter. The operating margin will be impacted by this and on how the product mix works out, he said.

The second reason, according to Puri, was that the company was seeing a slowdown in growth in the rural and semi-urban areas due to a significant rise in the cost of building materials in the last one year.

“Until the effect of a good monsoon and money going into the hands of the rural and semi-urban consumers, which will happen in the second half of the current financial year, the near term will remain challenging,” he said.

In the June quarter Pidilite’s consolidated net sales were up 60% on year to 31 bln rupees while the net profit jumped 61% on year to 3.5 bln rupees.