Recommendation from Diversified Chemicals Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

HP ADHESIVES: CREATING PROFITABLE BONDS

HERE IS WHY
✓ Domain expertise in sealants and adhesives
✓ Increasing demand for products
✓ Steady rise in profits

Adhesives are essential in various industries for a wide range of purposes, including bonding surfaces, sealing sinks, tubs and showers, and protecting against water and chloride. The adhesives and sealants market is projected to grow steadily with the prospect of reaching USD 3.8 billion by 2028, with a compound annual growth rate (CAGR) of 7.54 per cent. An increase in construction industry activity is boosting the need for adhesive products like concrete bonding agents, tile adhesives, joint fillers and block adhesives.

The rise in green building projects and emphasis on quality are also accelerating the adoption of construction adhesives and sealants. Owing to this, our lowprice scrip recommendation for this issue is HP Adhesives. Founded in 1987, HP Adhesives is a company that specialises in producing and distributing a variety of adhesives and sealants for various applications. These products are primarily used by plumbers, carpenters, masons, trades people and DIY enthusiasts.

HP Adhesives, a company with depots across India, offers a range of products including solvent cement, silicone sealants, ball valves, Teflon tapes, and masking tapes. The company's distribution and delivery are efficient due to the growing demand for new housing and modern construction practices in India. Increasing disposable incomes and government initiatives like Smart Cities Mission and Pradhan Mantri Aawas Yojna are driving demand for affordable housing and infrastructure development, requiring specialty adhesives for construction and maintenance in the retail sector.

Infrastructure development requires high-quality adhesives across various applications, and HP Adhesives is well-suited to meet this demand. The shift towards PVC and CPVC pipes for plumbing and irrigation due to their cost-effectiveness creates a high-growth market for solvent cement – the core strength of HP Adhesives. The Indian automotive market’s rapid growth fuels demand for contact adhesives and specific silicone sealants, and the booming furniture and furnishing industry presents a significant opportunity for HP Adhesives’ PVA and contact adhesives.

In Q4FY24, on a standalone basis, the revenue of company increased by 2.56 per cent YoY to ₹59.35 crore as compared to ₹57.86 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 8.39 per cent. The PBIDT excluding other income increased by 26.08 per cent to ₹8.86 crore YoY as compared to ₹7.03 crore from the previous year’s same quarter, while sequentially increasing by 13.96 per cent.

The net profit stood at ₹5.61 crore compared to ₹3.87 crore, a YoY increase of 44.77 per cent, while sequentially increasing by 7.74 per cent from ₹5.2 crore. Currently, the shares of HP Adhesives are trading at a PE of 43.8 times, which is lower than its three-year median PE of 63.3 times whereas the industry PE stands at 41.4 times. The company has a debt-to-equity ratio of 0.02 times and a three-year average return on equity of 10.2 per cent along with return on capital employed (ROCE) of 13.6 per cent. Considering the aforementioned factors, we recommend BUY.