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Pidilite plans entry to lending business; to acquire promoter group’s NBFC

Pidilite-plans-entry-to-lending-business

On November 8th, 2023, adhesive manufacturer Pidilite Industries released its quarterly earnings report and announced that the company intends to set up a new business, Lending Business. The New Business would provide credit primarily in the form of small-value retail loans to its domain ecosystem to support business growth.

To facilitate the credit, the company has identified an existing NBFC, Pargro Investments Private Limited (“Pargro”), which belongs to the company’s promoter group. As of October 31, 2023, Pargro does not have any lending operations presently and is debt-free. Pargro shall be acquired by the company through a wholly owned subsidiary under a Share Purchase Agreement (“SPA”) to be entered on or before March 31, 2024, subject to all statutory and regulatory compliance. The acquisition of Pargro will be done at a fair value of up to Rs 10 crore, which is equivalent to the liquid investments lying in Pargro’s books as of October 31, 2023, as per valuation done through an independent valuer and upon obtaining the necessary RBI approvals.

Over the next two years, the company expects to invest up to Rs. 100 crore in tranches through an optimum mix of equity and debt.

Talking of financials, the growth momentum of Q1 FY24 continued in Q2 FY24 with a robust underlying volume growth (“UVG”) of 8%. The growth was broad-based, with domestic consumers and bazaars delivering UVG of 8% and domestic B2B growing with UVG of 20%. Both the industrial and project verticals delivered healthy growth. The growth in rural markets continued to be higher than in urban markets.

Commenting on the results, MD of Pidilite Industries, Mr. Bharat Puri, said “Despite the challenging operating environment, the company delivered good volume growth along with a substantial improvement in profitability. The current quarters robust UVG was broad based across categories and geographies. Input prices remained stable resulting in good improvement of gross margins sequentially as well as over last year. The company remain optimistic in the near term with tailwinds coming from the extended festive season, increase in construction activity as well as the governments focus on capex.”

Consolidated revenue for the quarter grew by 2%, led by strong UVG across categories and geographies. The C&B segment grew by 3%, while B2B registered a 1% decline in revenue due to price adjustments and lower demand from export and export-oriented industries. Net sales at Rs 3,065 crore grew by 2% over the same quarter last year. Net sales for the half-year ended stood at Rs 6,329 crore and grew by 4% over the same period last year. EBITDA before non-operating income at Rs 680 Cr grew by 36% over the same quarter last year. EBITDA for the half-year ended stood at Rs 1,387 crore and grew by 35% over the same period last year.

Standalone Gross Margin% expanded both sequentially (by 228 bps) and year on year (by 1,095 bps). EBITDA margins at 23% improved by 604 bps over Q2 FY23 and 47 bps over Q1 FY24.

The company remained focused on building a resilient supply chain and invested in upgrading and setting up new manufacturing facilities. In the current quarter, they commissioned four new plants along with the additional four plants that were commissioned earlier this year.

EBITDA margins also improved both sequentially and year over year. International subsidiaries (excluding Pidilite USA Inc.) reported moderate sales growth despite uncertain global economic conditions, inflation, and currency devaluation challenges in some countries. EBITDA (excluding Pidilite USA Inc.) registered robust growth along with improvements in EBITDA margins both sequentially and year over year.

Profit after tax (PAT) at Rs 459 Cr grew by 36% over the same quarter last year. PAT for the half-year ended stood at Rs 932 crore and grew by 34% over the same period last year.

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