Expect Pidilite to see revival in volume growth in FY17: Amit Khurana

In a chat with ET Now, Amit Khurana, Co-Head Equities & HoR, Dolat Capital, shares the rationale behind his preference for Pidilite.
ET Now: Tell us why do you like Pidilite?

Amit Khurana: Pidilite has been a bit of an in and out pick for us.

But we like it now? I think the deflation in raw materials is something which is a very critical component. The softness in raw materials is a direct play on the expansion in operating margins. We must say that the volume growth has been a little poor and that will probably remain a little muted for the next couple of quarters. But the fact that the company will be able to expand its margins and hold on to the market share, make us remain positive on Pidilite.

ET Now: But the company's volume growth is not that impressive.

Amit Khurana: That is exactly what I said. That has been a little disappointing. But I would probably give it another quarter or two. Our broad theme for 2016 is that discretionary spending will ultimately play out. We have seen pockets of that happening in 2015 but that is not really amalgamated into the whole market-wide earnings story. You have seen categories of discretionary spend come out. Four wheelers is a classic case that has played out well. We believe that there will be other categories which will get benefited and, thus, Pidilite will stand better ground in 2016 versus 2015.

ET Now: One more counter question on Pidilite. Commodity prices have come down, margin expansion has already happened and those things may not be triggers for FY17. So if FY16 numbers have been slightly sluggish, despite a commodity drop tailwind, what happens to FY17 when that big mega tailwind is not going to be there?

Amit Khurana: Yes and therefore the volume part comes into play.

ET Now: So you are betting on volume recovery?

Amit Khurana: Absolutely. That is what I said. The company got benefits of fall in raw material prices and therefore they it wa sable to expand its margins, in spite of a muted volume growth. Our construct is that FY17 will have better volume growth and they will, therefore, be able to register earnings growth in line with what we are seeing in the current trend.