Why have the profits of Pidilite fallen so sharply despite higher sales in the Dec-21 quarter?

FMCG companies across the board have suffered pressure on margins and Pidilite was no exception. Pidilite is a prominent player in adhesives and sealants apart from construction chemicals. Pidilite is best identified with the Fevicol brand which is a household name in India. Top line was robust in Q3 like most of the other FMCG players but the pressure was seen in the bottom line. Here is a quick summary.

For the Dec-21 quarter, the revenues of Pidilite Industries were up 34% yoy at Rs.2,851 crore on a consolidated basis. Revenues were also up a healthy 8.5% on a sequential basis. During Dec-21 quarter, Pidilite saw double digit volume growth across key verticals like adhesives, sealants and construction chemicals. This was supported by a sharp bounce in construction activity during the quarter as is evident from the retail housing numbers.

Pricing was also a big advantage for Pidilite in the quarter. It reported staggered upward pricing action to offset higher material costs; partially if not totally. However, due to competition, that could only cover part of the cost spike. Urban geographies outpaced the growth in rural geographies. One could see evidence of higher sales in the Consumer & Bazaar (C&B) segment as well as the B2B segments.

Operating profits were lower -17.4% at Rs.489 crore in Q3. The company reported overall earnings before interest, taxes, depreciation and amortization or EBITDA of Rs.550 crore, which is a drop of 14% on yoy basis. EBITDA margins were still robust at 19.3% in the quarter, which is at par with the higher end of the FMCG group. It would have been much better had it not been for the raw material pressure.

ON the subject of raw material cost pressures, there was a 53% spike in the raw material costs on the back of input inflation yoy which impacted operating profit performance. As a result, Operating margins contracted from 25.72% to 17.14% in the Dec-21 quarter. Operating margins were also lower on a sequential basis compared to the Q2 period as the supply chain constraints heightened in the current quarter.

Net Profits were lower -18.86% at Rs.358 crore due to the impact of higher operating costs in the quarter. The higher material costs and a spike in other expenses were visible and could only be only partially offset by inventory efficiency gains. As a result, the PAT margins contracted from 19.22% in the Dec-20 quarter to 12.58% in the Dec-21 quarter. PAT margins were also lower on a sequential basis due to momentum of prices being negative.