Pidilite's sales rose 21.5% but its operating profit barely moved

Pidilite Industries' standalone business, the maker of Fevicol adhesives and Dr. Fixit waterproofing, sold 21.5% more in the September 2026 quarter than a year earlier and earned almost exactly the same operating profit, just ₹4 crore more. Its operating margin, operating profit as a share of sales, fell to 20.3% from 24.6% a year ago. Demand did not cause the fall. The company's cost of making its products rose faster than the prices it charged for them, and how quickly that gap closes now decides the rest of the year.

The company tracks its costs through one raw material. Vinyl acetate monomer, or VAM, is a petrochemical whose price follows crude oil only with a lag and also depends on demand in China and Europe, management said. Pidilite reports what the VAM it actually used cost: $883 a tonne a year ago and, management said, $1,630 last quarter, up again from the quarter before. Higher selling prices covered that increase in rupees. Management said the whole cost increase had been passed on in absolute terms, but that a business with a gross margin of about half its sales has to raise prices by twice the cost increase to keep the same percentage margin. Pidilite did the first and not the second. Management added that extra volume spread fixed costs, so its own EBITDA margin, which excludes depreciation and amortisation, fell less than gross margin and ended at the lower end of the company's range.

The fall was larger than the inventory effect management had flagged. On 5 August 2026 it said part of the first quarter's 26.4% margin came from using up cheaper inventory, a benefit it said would reverse in the second quarter, and that depending on how VAM moved it might give some price back to customers as a rebate. The margin fell 6.1 points. Part of that was the rebate. Management said VAM cooled as quickly as it had risen when the quarter began, so Pidilite cut prices, because its local rivals, which carry little inventory, price off the current cost of the material. By about the middle of the quarter VAM was climbing again, after those cuts had been made.

Sales volume held up through all of this. The standalone business sold 10.7% more by volume, management said, so roughly half of its sales growth was more product and the rest was price and mix. Pre-tax profit still rose, and other income, earned outside the operating business, supplied almost all of the increase, calculated from the filed results.

For the second half of the year management is relying on price. It is adding increases of 3% to 5% from October in products where inflation has been steepest, on top of a larger first round earlier in the year. It put the current spot price of VAM at about $1,200 a tonne, below what it consumed last quarter, and said it was confident of an EBITDA margin inside its corridor for the half, ideally toward the higher end. The weak point is the one the quarter already exposed: VAM reversed direction once within three months, and prices set for one level of cost had to be revised when it moved.

The corridor itself, 20% to 24%, is the same one management gave on 8 May 2026, and the quarter just reported sat inside it, so a second half inside the band would add little information. The higher end is the part of the guidance that can be checked. The next quarterly result will be the first to show whether the October price round and a cheaper spot VAM have reopened the gap between price and cost.