Prabhudas Lilladher has reiterated a BUY recommendation on Pidilite Industries, underscoring sustained volume-led growth, resilient margins, and a steady medium-term earnings outlook despite rich valuations. The brokerage has raised its target price to Rs1,734 from Rs1,714, following a solid Q3FY26 performance and marginal upward revisions to earnings estimates. Pidilite Industries delivered a robust Q3FY26, marked by double-digit revenue growth, sharp margin expansion, and strong volume traction across core consumer categories. Urban and rural demand continued to surprise on the upside, while benign raw material prices supported profitability despite higher advertising spends. With management reaffirming 10–12% volume growth guidance and EBITDA margins at the upper end of the 20–24% band, the company remains well positioned for steady compounding. While valuations remain elevated, recent stock correction and earnings visibility offer scope for mid-teen returns over the next 12–15 months.

Brokerage Call and Valuation Framework

Prabhudas Lilladher retains BUY with a DCF-based target of Rs1,734.
The revised valuation reflects stable growth assumptions, improved near-term earnings visibility, and confidence in Pidilite’s category leadership. The stock currently trades at approximately 48.5x FY28E earnings, a premium justified by strong brand equity, pricing power, and consistent return ratios.

Q3FY26: Revenue Momentum Meets Margin Expansion

Consolidated revenues rose 10.1% YoY to Rs37.1 billion.
The topline beat was driven by healthy demand in consumer-facing segments and a gradual recovery in domestic project-led businesses. Gross margins expanded by 218 basis points YoY to 56.5%, aided by softer raw material prices, particularly vinyl acetate monomer (VAM).

EBITDA grew 18.6% YoY to Rs9.5 billion.
Operating leverage and disciplined cost management lifted EBITDA margins by 182 basis points YoY to 25.5%, despite elevated brand-building and advertising spends.

Earnings Strength Flows Through the P&L

Profitability metrics strengthened across levels.

PBT increased 19.4% YoY to Rs9.0 billion

Adjusted PAT rose 20% YoY to Rs6.7 billion

This performance reinforces the company’s ability to balance growth investments with shareholder returns, even in a competitive operating environment.

Consumer & Bazaar: The Core Growth Engine

Consumer and Bazaar (C&B) sales grew 11.3% YoY.
Volume-led growth of 9.7% reflected strong demand in repair, renovation, and new construction, particularly in small towns and rural markets. EBIT from this segment expanded 16% YoY, with margins remaining healthy despite aggressive brand investments.

Pioneer and growth categories now account for ~45% of sales.
Management expects 2–4x growth in these segments over the medium term, driven by innovation, new product launches, and strategic category creation.

B2B Segment: Domestic Strength, Export Headwinds

B2B revenues rose a modest 2.7% YoY.
While domestic volumes grew at a mid-teen pace, export volumes declined sharply due to geopolitical uncertainty and muted overseas demand. EBIT in the segment declined 10% YoY, reflecting operating deleverage.

Management commentary suggests export pressures are bottoming out.
Recent trade developments and stabilizing global conditions are expected to support a gradual recovery in international B2B volumes.

International Business Delivers Steady Gains

International (IBD) revenues grew 9.7% YoY.

Asia reported 12.1% YoY sales growth, with EBITDA up 30.7%

Middle East & Africa saw 7.3% YoY growth, with margin expansion to 9.4%

This diversification continues to de-risk the overall revenue profile while adding incremental growth levers.

Margins: Stability Over Expansion

EBITDA margin guidance maintained at 20–24%.
While benign raw material prices support near-term margins, management does not expect structural expansion due to continued investments in brand building, innovation, and new category development.

VAM exposure now accounts for less than 10% of the raw material basket.
This reduces earnings volatility and provides greater margin resilience against commodity price swings.

Management Commentary: Demand Signals Remain Encouraging

Key takeaways from the earnings concall include:

Strong traction in small towns and rural markets

No visible slowdown across construction-related segments

Project-led B2B business maintaining momentum

Tactical pricing actions of 100–250 basis points where feasible

Waterproofing and retail segments gaining traction via new launches

Earnings Outlook and Financial Trajectory

PL estimates a 10% EPS CAGR over FY26–FY28.
Revenue is expected to grow from Rs146.9 billion in FY26E to Rs180.7 billion by FY28E, while adjusted PAT is projected to rise to nearly Rs30.0 billion.

Return ratios remain best-in-class, with RoE sustaining above 23% and RoCE near 28–30%, reinforcing the quality of earnings.

Stock Levels, Upside, and Investor Strategy

Current Market Price (CMP): Rs1,460
Target Price: Rs1,734

The implied upside of ~19% supports PL’s BUY stance. While valuations remain rich, the stock’s recent ~15% correction from peak levels, combined with steady growth visibility, makes it attractive for investors seeking consistent compounding rather than cyclical upside.

Final Word: Quality Compounding at a Premium

Pidilite Industries continues to justify its premium valuation through dependable growth, resilient margins, and disciplined capital allocation. With volume momentum intact, category leadership unchallenged, and international businesses scaling steadily, the company remains a high-quality play on India’s construction and home improvement cycle. For long-term investors, periods of consolidation offer opportunities to accumulate a franchise built for durable earnings growth.