Pidilite Industries nears record high on heavy volumes, stock advances 4%

Shares of Pidilite Industries jumped 4 per cent to Rs 1,699 on the BSE in the early morning deals on Friday on the back of heavy volumes in an otherwise subdued market.

The stock of the specialty chemicals' firm was trading close to its all-time high level of Rs 1,710 touched on March 11, 2020. In comparison, the S&P BSE Sensex was down 0.24 per cent at 46,779 points at 10:47 am. Trading volumes on Pidilite counter jumped an over seven-fold as a combined 1.7 million equity shares had changed hands on the BSE and NSE till the time of writing of this report.

Pidilite is the market leader in adhesives and sealants construction chemicals hobby colours and polymer emulsions in India. Its brand name Fevicol has become synonymous with adhesives to millions in India and is ranked amongst the most trusted brands in India.

In the past three months, Pidilite has underperformed the market by gaining 16 per cent, as compared to a 20-per cent gain in the S&P BSE Sensex. Moreover, the stock advanced 22 per cent, as against a 37-per cent rally in the benchmark index in the past six months.

Pidilite is a high-quality company with a niche consumption play imbued with strong brand equity in under-penetrated and high-growth categories. The company's dominant positions, vast reach (~3.2mn outlets) and strong connect with middlemen as well as consumers act as strong entry barriers, sugggest analysts.

The company has been regular in terms of acquisitions. However, its latest buy of Huntsman Advanced Materials Solutions (HAMSPL) assumes significance given the sharpening focus of paint players on adhesive/sealants.

Analysts at Edelweiss Securities believe Pidilite has huge potential to scale up HAMSPL given its superior distribution (direct as well as indirect). "We expect Pidilite to expand the Araldite brand into new products and straddle price points within the same category. This acquisition will help it maintain lead over paint players in adhesives/sealants," the brokerage firm said in company update.

Demand revival, entry in adjacent categories and demand shift from unorganised to organised players are likely to boost Pidilite's revenue. The HAMSPL acquisition should further bolster revenue, it said with 'buy' rating on the stock and target price of Rs 1,860 per share.