Pidilite recorded revenue CAGR of 18% during FY10-14 driven by the consumer & bazaar segment, which recorded 19% CAGR. We believe Pidilite will record sales CAGR of 19% in FY14-17E, supported by a revival in industrial product segment. The EBITDA margin declined ~50 bps YoY in FY14 (~250 bps YoY in Q1FY15) due to adverse VAM price movement on demand-supply mismatch and lag impact of currency depreciation.

We believe subsequent price hikes would help in easing margin pressure, going forward, while EBITDA margin will improve 50 bps in FY14-17E • Pidilite has acquired the adhesive business of Blue Coat Pvt Ltd on a slump sale basis for a cash consideration of | 263.6 crore. Acquisition of Blue Coat would help the company to provide synergies in the industrial product business Market leader in adhesive segment Pidilite Industries (Pidilite) is a dominant play in India’s growing adhesive and industrial chemical market with a market share of ~70% in its leading brand categories in the organised segment. The company’s two major segments, consumer & bazaar (C&B) and speciality industrial chemical have grown at a CAGR of ~20% and ~15% (standalone), respectively, in FY10-14.

The consumer & bazaar segment contributes ~79% of Pidilite’s standalone revenue. This segment has grown mainly driven by the adhesive and sealants segments, which contributes ~50% to the company’s consumer & bazaar segment revenue (FY14). We believe since the segment growth is largely driven by construction, repair and maintenance, sales growth in the consumer and bazaar will be at 18.5% CAGR in FY14-17E on the back of an increase in penetration in smaller towns (population below 50,000). Revival in industrial activities to drive industrial chemical demand The specialty industrial segment contributes ~21% of Pidilite’s standalone revenue. This segment has grown at 20% CAGR during FY10- 14 mainly driven by growth in demand from packaging, cigarettes, stickers, labelling, footwear, etc.

The specialty industrial segment has three major sub-segments: industrial adhesive, industrial resins and organic pigments & preparations. We have modelled industrial segment revenues will grow at a CAGR of ~19% for FY14-17E led by strong growth in industrial adhesives & resins. Strong brand: More of consumer pull model Pidilite Industries is one of the well known adhesive companies in India for the quality and reach to end users. Fevicol, the legacy brand of the company, is a generic name in the adhesive category in India. In spite of the strong brand, the company has kept its marketing and selling expenses at ~4% of sales to gain market share.

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We roll over our valuation on FY17E considering the revival in the Indian economy on cards and Pidilite being a strong brand in the adhesive segment is well positioned to capitalise the growth momentum. We believe efficient deployment of cash for inorganic growth would be an added advantage. We estimate revenues, earnings CAGR of ~19%, 20%, respectively, in FY14-17E on the back of demand from tier II, –tier III cities. We believe a recovery in margin coupled with strong return ratios would justify the company’s re-rating possibilities. We upgrade our rating to BUY with a revised target price to | 462/share valuing at 30x FY17E.

Pidilite Industries (Pidilite) is a dominant play in India’s growing adhesive and industrial chemical market with a market share of ~70% in its leading brand categories in the organised segment. The company’s two major segments, consumer & bazaar (C&B) and speciality industrial chemical have grown at a CAGR of ~18% and ~15% (standalone), respectively, in FY09-14. The consumer & bazaar segment contributes ~79% of Pidilite’s standalone revenue. This segment has grown mainly driven by adhesive and sealants segments, which contribute ~50% to the company’s consumer & bazaar segment revenue (FY14). Among other sub segments, construction & paint chemicals and art material contributes ~19% and ~12%, respectively, to the topline.

 Consumer & bazaar segment sales growth is largely driven by the company’s pricing power in the branded product category (Fevicol, M-Seal, Dr Fixit), which resulted in margin expansion. We believe since the segment growth is largely driven by construction, repair and maintenance works (Fevicol, M-seal, Dr Fixit are promoted in such a way), sales growth in the consumer and bazaar will take place at ~19% CAGR in FY14-17E on the back of an increase in penetration in smaller towns (population below 50,000). The specialty industrial segment contributes ~21% of Pidilite’s standalone revenue. This segment has grown at ~20% CAGR during FY10-14 mainly driven by growth in demand from packaging, cigarettes, stickers, labelling, footwear, etc.

The specialty industrial segment has major three sub-segments: industrial adhesive, industrial resins and organic pigments & preparations. The company’s specialty industrial chemical export revenue (contributes ~8% to topline) recorded ~21% CAGR over the last five years. This segment caters to various industries (for example, textiles, leather, footwear, ink, packaging, etc). We have modelled industrial segment revenues will grow at a CAGR of ~19% for FY14-17E led by strong growth in industrial adhesives & resins. The specialty industrial segment contributes ~21% of Pidilite’s standalone revenue. This segment has grown at ~20% CAGR during FY10-14 mainly driven by growth in demand from packaging, cigarettes, stickers, labelling, footwear, etc.

Pidilite Industries is one of the well known adhesive companies in India for the quality and reach to end users. Fevicol, the legacy brand of the company, is a generic name in the adhesive category in India. Currently, the flagship brands of the company like Fevicol and M-Seal have market share of ~70% each in the domestic market. Pidilite’s relentless focus on building a strong consumer brand through various ad campaigns differentiates it from its peers. This has helped the company to extend its presence into more consumer centric segments such as automotive and art materials to build a strong relationship with the end user. The company has introduced a direct marketing strategy to reach and educate carpenters about the use of a quality product in their work. Alongside, Pidilite’s simple and creative TV ad campaigns (like “Fevicol ka mazboot jod hai tutega nahi”) attracted many viewers and, thus, reached the masses. In spite of the strong brand, the company has kept its marketing and selling expenses at ~5% of sales to gain market share.

On a consolidated basis, we have modelled revenue and earnings CAGR of ~19% and ~20%, respectively. We expect the domestic business to continue to witness strong volumes growth supported by sustained demand from tier II & tier III cities and its foreign subsidiaries to breakeven by FY16E. Standalone revenue and earnings are expected to grow at a CAGR of 18.8% and 16.8%, respectively. This can be largely attributed to the C&B and industrial division, which is expected to grow at a CAGR of ~19% each in FY14-17E.

During FY14, the EBITDA margin dipped ~50 bps YoY largely on account of ~40% increase in VAM prices in H2F14. Simultaneously, the lag impact of rupee depreciation was also an overhang. We believe VAM prices would continue to remain at elevated levels in H1FY15 due to the shutdown of plants in Europe and the US. However, the company has guided at taking a price hike at regular intervals to mitigate the cost pressure. We have modelled a consolidated EBITDA margin to improve from 15.8% in FY14 to 16.3% in FY17E.

With the improvement in EBITDA margin and low interest outgo (due to redemption of outstanding FCCB of US$20.5 million) of the standalone business, we believe the consolidated net profit will grow at a CAGR of ~20% in FY14-17E.

We believe the company has witnessed sustainable revenue and earnings growth at a CAGR of 16.5% and 32.1%, respectively, in FY09-14 on the back of product demand from the field of art and craft along with interior decoration trends in domestic households. We believe the margin will improve, going forward, supported by benign raw material prices with a favourable currency movement. The company’s ability to pass on the rise in input cost would help margins to remain intact for FY14-16E. Further, Pidilite’s recent redemption of outstanding FCCB (US$20.5 million) would translate into interest cost saving, which will help to drive its bottomline. We expect revenues and earnings to grow at a CAGR of 19% and 20%, respectively, in FY14-17E. In addition, cash deployment in inorganic growth would further aid in margin growth. We believe the stock is a strong re-rating candidate considering the consistent performance in terms of revenue growth and return ratios. We roll over our earning multiple on FY17E and value the stock at 30x FY17E earnings. We upgrade our rating to BUY with a revised target price of Rs 462/share.

We are undertaking an analysis on Premier Explosives Limited (PEL) which happens to be one company which si going to be benefitted to a great extent with the Indianisation of Defence production and with Narendra Modi at the helm of the affairs one is going to see some big movement in the stock which is languishing around 80 levels as of May 2014. Check other Indian stocks likely to benefit with Narendra Modi govt here.

To set the ball rolling and to let the cat out of the bag is Premier Explosives Limited which is one of the major companies manufacturing the entire range of explosives and accessories for the civil requirement. Starting as a Small Scale unit in 1980, it was founded by A.N.Gupta, a Gold Medallist in Mining Engineering. Its current turnover is about Rs. 600 million per year. The export earnings of the company are about Rs. 200 million per year.

PEL is the first manufacturer in India to deploy totally indigenous technology. PEL today has the widest range of products and technologies in the manufacture of Explosives & Accessories. These include Emulsion and Slurry explosives, LD cartridge explosives, Bulk Explosives, Small-dia non-permitted explosives, Permitted explosives, Cast Boosters, Pillow-packs for secondary blasting; Detonating Fuse of various core-loads, Plain detonators, Instantaneous Electric Detonators, Electric Delay Detonators, Permitted Detonators, Cord Relays and Amardet NoN Electirc Shock-tube Detonators.

PEL has constantly innovated and upgraded its products and technology to offer “state-of-the-art” products to its valued customers both in India and abroad. Commitment to quality, Safety, Health & Environment are the way of life at PEL.

PEL’s R &D facility is recognized by the Centre for Scientific and Industrial Research (CSIR), Government of India, as an established research centre. It is also recognized as a research base for Ph.D. work by the Osmania University, Andhra Pradesh.

The wide distribution network comprising of magazines Consignment Agents, Dealers and Handling Agents, located across the country, ensure ready stock and prompt delivery to customers even in remote locations.

There is a team of highly experienced and qualified sales and Technical Service engineers to provide full support on applications, safety and handling of explosives and accessories to customers. This is backed by a team of export mining/blasting engineers at the Technical Services group located at headquarters.

Apart from providing regular support services to customers, PEL also undertakes complete drilling & blasting contracts in collaboration with associates having resources of drilling and excavation equipment & manpower.

Product range of the company includes:

• Plain Detonators
• Instant Electric Detonators
• Copper Electric Detonators
• Copper Delay Detonators
• Short Delay Detonators
• Ling Delay Detonators
• Cord Delay Detonators
• Ultra Safe Green Detonators
• Seismic Electric Detonators
• Non Electric Detonators
• Detonating Cord - Premier Cord is a reliable, flexible, waterproof fuse with high tensile strength and abrasion resistance. It is an ideal means of transmitting detonation to an explosive charge
• Manufacturers of the entire range of Explosives and Accessories in India.

Milestones

• Incorporation of Company 14th Feb. -1980
• Start of Explosives Production  -1980
• Start of Detonating Fuse Production -1984
• Start of Detonators Production -1990
• Start of Bulk Explosives Production -1991
• Recognition of R&D centre by Department of Science & Technology, Government of India -1993
• Start of Mushrooms production -1997
• ISO Certification -2001
• Mr. A.N.Gupta  appointed as Chairman, Explosives Dev. Council, Min. of Commerce, Govt. of India -2002
• CE Certification for Detonating Cord -2003
• Start of Premier Research Development Centre -2004
• Start of Special Products Division -2006
• CE Certification for Detonators -2007
• Hive off of Mushroom division -2007
• Operation & Maintenance Contract with SHAR -2007
• Start of backward integration unit as a subsidiary Company “Premier Wire Products Limited” for manufacture of G.I. Wire. Company started commercial production on 13.02.2009
• Achievements/ recognition:
• Best R & D effort Award for the year 2006 from All India Manufacturers Association (Andhra Pradesh State Board)  2007
• Highest rating in the ranking of India’s Top 500 Manufacturing Small and Mid sized company rating  2007
• “Industry Appreciation” Award by NSTL, Vizag.  2007
• “Best Greenery Development” award from Andhra Pradesh Pollution Control Board (PEL-PDK)  2006
• “Certificate of Appreciation” by Rotary Club of Secunderabad to Mr.A.N.Gupta for Drinking Water Project & organizing Medical Camps at remove villages  2006
• “Best Technology Development” in R&D Award for the year 2004-05 by Federation of Andhra Pradesh Chambers of Commerce & Industry (FAPCCI), A.P. 2006
• “Best Greenery Development” award from Andhra Pradesh Pollution Control Board (PEL-PDK)  2004
• Certificate of Export Recognition by Chemicals & Allied Products Export Promotion Council 2004
• Mr.A.N.Gupta CMD elected President of Explosives Manufactures Association of India.  2003
• “Best Industrial Relations” award received from Labour Department, Govt. of A.P. (PEL-GDK) 2003
• Mr.A.N.Gupta CMD appointed as Chairman of Explosives Development Council by Ministry of Commerce & Industry, Govt. Of India.  Feb. 2002.
• Best Export performance award by VSEZ Vishakapatnam Special Economic Zone (VSEZ) 2001-2002
• “Best Industrial Relations” award received from Labour Department, Govt. of A.P. (PEL-GDK)  1989

It appears that Modi magic is doing the wonders as their campaign had even caught with the children "Aab acche din aane wale hai" and we could see children rhyming it like a song. Thus it is very important that a story need to get struck with the people to create a wave effect and this time Modi has beeen able to achieve the same by his charismatic style sidelining the 'Bhishma Pitamaha' of BJP i.e. Advani.

Finally as predicted by us earlier way before Modi rally started back in Feb 2014 that Nifty going to touch 7000 mark and same has happened today and now we can say that markets have priced Bharatiya Janata Party winning 230 seats in the ongoing elections.



We estimate that Nifty can gain upto 5-10 percent over one month in Indian shares provided BJP gets 230 mark, while a number above 240 seats would spark 15-20 percent gains in the stock market.

By contrast, should BJP and allies clinch less than 200 seats, and thus we see a correction to the tune of 15-20 percent over the next month.

BJP and its allies would need 273 seats to clinch a majority, although analysts say a number near it would comfort markets and raise the prospect of a more stable coalition.

A stable govt would give rise to a momentum in cyclical sectors such as financials, industrials and infrastructure and thus one can keep an eye on Larsen & Toubro Ltd , Axis Bank Ltd , State Bank of India, Adani Port and Special Economic Zone Ltd and IRB Infrastructure Developers Ltd.

However as a word of caution is that the first sign to exit from the market is, if it breaks the level of 6850 and another significant support break of 6650 is a sure sign to exit from the market and book the profit.

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