The Decrease In Prices Of The Key Input Vinyl Acetate Monomer (VAM) Is Leading To A Rebound In Margins For Pidilite Industries Ltd

Pidilite Margins Recover, Still Few Challenges Remain

In spite of Pidilite's (a prominent adhesives manufacturer) positive outlook for margin, the company's Q4 results remain dull in other important areas. However, the company witnessed a significant recovery as the prices for VAM (vinyl acetate monomer), a key raw material, dipped. Hence, Q4 FY23 hit a notable net margin of  46. 8 percent for the company. This price drop gave some ease to the manufacturer of Fevicol, which was crushing under the high input costs as well as sour investors' sentiments.

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Prices of VAM sharply fell compared to Q2FY23 as spot VAM prices are trading at USD 930/million tonne, lower by 62% compared to its peak. But, there is hope for a recovery in margins from Q1FY24, considering the FY23-25 profits per share CAGR of 37%.

However, taking all factors into consideration, the Q4 results (FY23) of the company were unsatisfactory in terms of revenue which was INR 2689.3 crores failing to hit the consensus estimations. As a consequence, the company stocks fell on the National Stock Exchange by 1.3 per cent.

Despite this miss, it's main consumers, and bazaar business reported a 7 percent YoY growth in volume in FY2023 Q4, whilst the B2B vertical battled with lower exports. Still, the aforesaid factors did not affect the improvement in demand outlook for rural and semi-urban areas.

According to the article by Procurement Resource, Pidilite's FY2023 Q4 earnings failed to impress on a revenue basis, generating INR 2689.3 crores which did not meet the consensus estimations. However, the company's outlook stayed positive in light of the recent price drop for VAM (vinyl acetate monomer), a key raw material that relaxed input costs and investor worries.

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Taking the current scenario into account, the management is uncertain about the short-term outlook and wallows in the looming fears of rising competition in the under-penetrated waterproofing segment.