Rising raw material costs may weigh on Pidilite's near-term margins

Strong revenue growth and lower fixed-cost inflation aided the June quarter, but higher VAM prices are expected to push operating margins towards the guided 20-24 per cent range

Adhesives and construction chemicals major Pidilite Industries reported a strong first-quarter (April-June/Q1) performance in 2026-27 (FY27). The company’s consolidated revenue growth was led by the consumer and bazaar (C&B) segment, followed by the business-to-business (B2B) segment. Operating performance was also strong, aided by lower costs, even as gross margins came in below estimates. The export business, however, saw a decline due to the ongoing conflict in West Asia. Given management’s confidence in revenue growth and long-term margins, most brokerages remain positive on the company. At the current price of ₹1,669, the stock, which has gained about 23 per cent, is trading at 48x its 2027-28 (FY28) earnings estimates.

 

Consolidated revenue grew 21.3 per cent year-on-year (Y-o-Y), aided by a 10 per cent blended price hike implemented in April. Among the segments, C&B, which houses a raft of brands such as Fevicol, Dr. Fixit, Araldite, Fevistik, and M-Seal, grew 22.4 per cent Y-o-Y, while the B2B business posted a rise of 13.8 per cent. The C&B segment accounts for over 80 per cent of revenues.

 

While overall standalone volume growth was 11 per cent, volumes in the C&B segment grew 12 per cent, while B2B volumes were impacted by disruptions in West Asia. Exports declined 8.4 per cent, limiting B2B volume growth to 7 per cent. Healthy momentum in core brands such as Fevicol, Roff, and Dr. Fixit continued to drive growth.

 

Pidilite’s volume growth trajectory, according to Motilal Oswal Research, remains encouraging, especially amid a challenging demand environment. Operating margins, according to analysts at the brokerage led by Naveen Trivedi, could contract in the near term owing to cost inflation. Given its market leadership, Pidilite is better placed to navigate such an inflationary scenario, they added. The brokerage has a ‘neutral’ rating on the stock with a target price of ₹1,700.

 

The company indicated that the demand scenario was healthy in Q1 and that the trend had continued into the second quarter (July-September/Q2) so far. Analysts Arun Baid and Nikunj Shah of ICICI Securities believe the company will continue to report healthy growth, supported by its comprehensive portfolio, innovative products, and wide distribution reach. They expect Pidilite to grow its revenues at an annual rate of 13.6 per cent from 2025-26 (FY26) through FY28. The brokerage has an ‘add’ rating on the stock with a price target of ₹1,837.

 

While revenue growth was strong, gross profitability was impacted by rising costs. Higher raw material costs hit gross margins by 66 basis points (bps) Y-o-Y and 313 bps sequentially. The weakness in gross margins was due to the West Asia conflict, which led to a rise in vinyl acetate monomer (Vam) prices. Vam, a key raw material used in adhesives and other polymer-based products, rose to $1,370 per tonne from $924 per tonne in Q1FY26. The company took calibrated price hikes of between 2 per cent and 12 per cent across products in Q1 to mitigate cost pressures.

 

Operating profit margin, however, came in at 26.2 per cent, up 116 bps Y-o-Y and 299 bps quarter-on-quarter. The gains at the operating level were driven by pricing, the carryover of low-cost inventory, and lower fixed-cost inflation.

 

As higher-cost raw material inventory is consumed, Equirus Securities expects near-term margins to moderate towards management’s guided range of 20-24 per cent. Analysts Pranav Mehta and Jinesh Kothari raised their FY27 and FY28 operating profit estimates by 5 per cent and 3 per cent, respectively, given the stronger-than-expected Q1 margins. Pidilite, according to them, remains a steady compounder, with its core franchise sustaining healthy growth and new categories such as Roff and Dr. Fixit scaling through deeper penetration and wider adoption. The brokerage is positive on the company, with a target price of ₹1,885.