Why is Pidilite's stock trading at record high?

Strong performance logged by Pidilite in its June quarter has encouraged buying in the company's stock. The company, which has Fevicol as its flagship adhesives brand, has logged a strong performance in its consumer and bazaar segment. This segment, which includes adhesives, sealants, art material & stationery, automotive products, construction chemicals, fabric care, wood finishes and paints, logged 20% growth in the June quarter

After four quarters of poor earnings growth, the company had logged strong growth of 18.5% in operating profit in the quarter ended March. Pidilite's performance in the June quarter reinforced upon the investors that the company's improved performance was sustainable as it managed to post 23.2% growth in operating profit and operating margin of 19% - the highest in the last eight quarters.

But it's not all smooth sailing for the company. There are concerns like tepid growth in the industrial segment (that contributes around 20% of the company's consolidated revenues), under-performance of its overseas subsidiaries and uncertainty over its elastomer project where the company has already made a capital expenditure of over Rs 350 crore.

Despite these concerns, Pidilite offers a strong consumption theme to invest in the current market conditions. Due to its strong brand equity, the company has been able to pass on its input cost pressure on to the consumers through price increases. The company has still managed to log volume growth of 9% from the revenue growth of 18%. The company's stock has been on a secular rise since 2009 - rising 4.5 times during this period. At a market cap of over Rs 9,500 crore, it is valued at three times its consolidated revenues of the last four quarters. These are fair valuations for the branded products company.