Pricing, diversification, and demand cushion Pidilite as West Asia turmoil drives raw material volatility

Pidilite Industries is relying on a combination of diversified sourcing, disciplined pricing and steady demand to navigate an increasingly volatile operating environment marked by geopolitical tensions, fluctuating raw material prices and weather uncertainties.

The adhesives and construction chemicals maker, which reported a 21.3% rise in consolidated revenue to ₹4,541 crore in the June quarter, said its strategy of reducing dependence on single source suppliers, a lesson reinforced during the Covid pandemic, has strengthened its ability to deal with disruptions arising from the West Asia conflict and global supply chain bottlenecks. 

"We had zero single source supply scenario. We used to have quite a lot of reliance on many single source vendor partners. We now have diversified that from companies, from geographies and so forth," managing director Sudhanshu Vats told Fortune India during a media briefing. 

The company has also begun maintaining buffer stocks of packaging material feedstock for smaller supplier partners that could face shortages because of disruptions in LNG availability and industrial gas supplies.

"Some of our packing material suppliers tend to be smaller and they could struggle with the PM feedstock. So now as a company we carry a buffer of PM feedstock. They are a buffer for our packing material vendor partners as and when they need. They're not used in our own manufacturing setup," Vats explained. 

"Resilience is the most fundamental advantage. We can see in these times it becomes even better," he said, adding that the shift to multiple suppliers has not increased procurement costs because most chemical raw materials are produced at scale and quality continues to be maintained through stringent testing. 

The company's gross margins came under pressure during the quarter as raw material costs climbed following the West Asia crisis. Vats said inputs such as vinyl acetate monomer (VAM), butyl acrylate, styrene and toluene witnessed varying degrees of inflation driven by supply availability, logistics disruptions and domestic gas related issues. VAM prices, for instance, surged from around $850 to $900 per tonne to nearly $2,000 before easing to about $1,200. Shipping costs have also risen, although Pidilite is currently absorbing much of the increase. 

To offset the spike in costs, the company implemented staggered price increases across categories. Price hikes ranged from 2% to 12% in the Consumer and Bazaar business, while industrial products saw higher revisions. Pricing contributed roughly 10 percentage points to the company's 21.3% revenue growth, with underlying volume growth accounting for 11.3%. 

Vats said the company does not raise prices to expand margins but only to recover the absolute increase in raw material costs. "We always take price rises to pass on the delta rupee increase. We never take price rises to maintain margin," he said. If input costs continue to cool, part of the benefit will be passed on to the trade while retaining some gains, he added. 

While weather remains a key variable, Vats said it was too early to assess the full impact of the monsoon or possible El Niño related disruptions on rural consumption.

"We've seen demand very steady. We will watch this space and react as and when needed," he said, while reiterating the company's expectation of delivering double digit underlying volume growth in FY27 and margins towards the middle to upper end of its guided 20% to 24% range. 

Urban demand catches up, quick commerce fuels premium products

Pidilite said urban demand, which had lagged rural markets in recent quarters, recovered sharply during the June quarter, with both urban and rural markets now posting double digit growth.

"Urban has really picked up in the quarter that went by. Rural demand is also there. Both are seeing double digit strong demand," Vats said. 

The company also sees quick commerce, within e-commerce, emerging as a key driver of premiumisation. Unlike traditional kirana stores, quick commerce platforms allow consumers to discover and purchase higher priced variants such as Fevikwik Advanced and Easy Gel alongside the core product. "Our consumer products are doing very well on quick commerce. The business is growing really rapidly," Vats said. 

Beyond its core portfolio, Pidilite is also scaling newer businesses under its "Pioneer" category. Vats cited Rockstar, a specialised tile grouting brand, as an example of a business that has graduated from the Pioneer segment to the Growth portfolio after crossing ₹100 crore in revenue, signalling the company's strategy of creating new categories alongside strengthening its established brands.