HDFC Securities has upgraded Pidilite Industries to 'Buy' with target price of Rs 650 in its report.

Pidilite's anticipated pick-up in demand seems further delayed as volumes grew merely 8% YoY. We are not worried, and are enthused by an upcoming margin expansion coupled with macro tailwinds. This will lead to higher revenue growth and even better EPS CAGR over FY15-FY17E.

Commenting on the investment rationale, the stock broker said, ''3QFY15 revenues grew 12.5% to Rs 12 billion. A&P spends were postponed to 4Q; EBITDA margin expanded 120 bps (16.1%) despite the 94 bps adverse COGS impact. Driven by a lower tax rate, APAT grew 20.5% YoY to Rs 1.25 billion.

Almost 60% of Pidilite's portfolio will benefit as urban housing construction, home improvement and industrial production pick up. Meanwhile, lower crude and VAM prices will be margin accretive in FY16E. Price hikes taken in white glue and stable INR are further positives. Upgrade to BUY with a TP of Rs 650.''

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