Pidilite Industries Limited Final

Mana Manage geri rial al Econo Economi mics cs

PIDILITE INDUSTRIES LIMITED Since its inception in 1959, Pidilite Industries Limited has has been been a pion pionee eerr in cons consum umer er and sp spec ecial ialti ties es chemicals in India. Over two-third of the company’s sale sales s com come from from prod produc ucts ts and and segm segmen ents ts it has has pion pionee eere red d in Indi India. a. Thei Theirr produ product ct range range incl include udes s Adhe Ad hesiv sives es and Seal Sealan ants ts,, Const Construc ructi tion on and Pain Paintt Chem Chemic ical als, s,

Auto Au tomo moti tive ve

Chem Chemic icals als,,

Art

Mate Materia rials, ls,

Indus Industr trial ial

Adhe Ad hesiv sives es,,

Industrial and Textile Resins and Organic Pigments and Preparations. Most of the produc products ts have been been devel develope oped d throug through h strong strong in-hou in-house se R&D. R&D. Pidilit Pidilite e Indu Industr strie ies s is the the marke markett leade leaderr in adhe adhesi sive ves s and seal sealan ants ts,, const construc ructi tion on chemicals, hobby colours and polymer emulsions in India. Pidilite ranks 131st amongst the top 500 listed companies in India. Their brand name Fevicol has become synonymous with adhesives to millions in India and is ranked amongst the most trusted brands in India. Pidilite is also growi growing ng its its Inte Interna rnati tion onal al pres presen ence ce thro through ugh acqu acquis isit itio ions ns and sett settin ing g up manufa manufactu cturing ring facilit facilities ies and sales sales office offices s in import important ant region regions s around around the world. The The Comp Compan any y has has 13 Over Overse seas as su subs bsid idiar iarie ies s (4 dire direct ct and and 9 step step-d -dow own) n) includ including ing those those having having signific significant ant manufa manufact cturin uring g and sellin selling g operati operations ons in USA, Brazil, Thailand, Dubai, Egypt and Bangladesh.

Values & Vision: 1. Be a busin busines ess s leade leaderr by promo promoti ting ng inno innovat vatio ion n and and achie achievi ving ng Glob Global al Standards. 2. Delight customers by offering quality products and services 3. Insta Install ll a 'Can 'Can Do' Do' atti attitu tude de,, nurt nurture ure team team sp spiri irit, t, learn learn cont contin inuo uousl usly y and achieve a high level of employee satisfaction.

Prof Prof.. Johnson

Mana Manage geri rial al Econo Economi mics cs

4. Adopt ethical, safe and environment-friendly practices.

Prof Prof.. Johnson

Managerial Economics

MAJOR BRANDS Fevicol is synonymous with adhesives in India. Excellent quality, extensive product range, close relations with customers and award winning advertisement have made Fevicol one of the most trusted brands in India and the largest selling adhesives brand in Asia. Pidilite wholly owned subsidiary of Pidilite, acquired Cyclo brand in June 2006. The product range includes maintenance, performance and appearance products for DIY (Do-it-Yourself) and professional car care segment. Pidilite wholly owned subsidiary of Pidilite, acquired Sargent Art brand in June2006. The products range includes crayons, tempera colours acrylic colours, markers, modelling clay and many other products.

Pidilite offers a range of hobby & craft products under the Hobby Ideas brand name. The products are complemented with book, videos and training workshops to make hobby fun and easy for hobby enthusiasts.

Pidilite offers a wide range of constructions chemicals under the Dr. Fixit brand name. Dr. Fixit is market leader in retail market of construction chemicals and the products are available in all leading cement, hardware, and tile and paint shops. Pidilite acquired Roff brand in 2004. Roff is a pioneer in construction chemicals in India and is well known for modern tile fixing solutions.

M-Seal is India's leading sealant brand. Pidilite offers a range of sealants for sealing, joining & repairing applications for both consumer & craftsmen market under M-Seal brand name. M-Seal is also gaining acceptance in international market.

Prof. Johnson


Prof. Johnson


FINANCIAL OVERVIEW (DOMESTIC-2009-10) The profitability of the Company significantly improved in the current year(2009-2010) due to lower material costs, strengthening of Indian Rupee, lower duties and control on costs. Sales growth picked up in the second half of the year, due to improvement in economic conditions. The Operating Profit and Net Profit, for the year at Rs 4132 million and Rs 2891 million increased by 60% and 97% respectively. Income Tax for the current year at Rs 423 million is higher than Rs 150 million (including Rs 28 million for Fringe Benefit Tax) in the previous year. In the last year’s report, the Company had highlighted the impact of the economic slowdown in India and abroad and its impact on the overall economic growth rate and on particular segments in which the Company operates. The difficult economic conditions continued in the first six months of current year and improvement in growth rates was witnessed in the second half of the year. However, there was substantial reduction in the input costs due to softening of prices

of

commodity

chemicals and this together with the strengthening of the

Indian Rupee, lower

duties

and

measures

cost

taken

control by

the

Company have helped in improving performance.

the

year’s

Prof. Johnson


Prof. Johnson


Prof. Johnson

FINANCIAL OVERVIEW (FOREIGN -2009-10)



The Brazilian subsidiary reported impressive results with 28% growth in sales. This, together with lower material costs and control on costs helped the Company post cash profits for the year.



Operations in USA significantly reduced costs and improved margins. While overall sales remained flat, losses reduced by 38%.



The operations in Thailand posted cash profits on the back of 26% growth in sales.



During the year, Pidilite Industries Egypt, SAE and Pidilite Specialty Chemicals Bangladesh Pvt Ltd commenced manufacturing operations in Egypt and Bangladesh, respectively.



PIL Trading Egypt (LLC), a subsidiary of the Company’s step down subsidiary (namely Pidilite Industries Egypt SAE), was incorporated during the year for the purpose of carrying on trading activities in Egypt, North Africa and COMESA countries.



The subsidiary in Bangladesh recorded profits in its first year of operations on the back of robust sales and good margins.



Performance of the subsidiary in Dubai was impacted by poor trading conditions, resulting in losses.



In February 2010, Chemson Asia Pte Ltd merged with Pidilite Innovation Centre Pte. Ltd. (both wholly owned subsidiaries of PIPL).


There was significant improvement in the performance of the overseas subsidiaries with substantial reduction in losses due to measures taken to improve sales and reduce costs.

Prof. Johnson


SOURCES OF FUNDS

VALUE ADDITION The

Company’s

net

worth

(Equity Capital + Reserves) has grown from Rs 4118 million in 2005-06 to Rs 9386 million at the end of 2009-10, giving a Compounded

Annual

Growth

Rate (CAGR) of 22.87%. As the definition goes, Reserves is the amount appropriated out of earned surplus (retained earnings) for future planned or unforeseen expenditure. The company can use these reserves for the purpose of issue of BONUS SHARES, Mergers and Acquisitions, expansion and diversification, etc. Sudden

Prof. Johnson


currency or interest rate changes can also be handled, as Pidilite has a good amount of reserves locked up. Also the net sales, and hence the profits, of the company has been going high, year after year. As a result, the retained earnings with the company have accelerated too. They can use the reserves for fulfilling their expansion and takeover plans, which will need huge sums of money. Expansion plans of the company range from opening up 50 additional “Dr.Fixit Service Centre”’ to meet the evolving needs of contractors, builders and end-consumers with regard to providing services such as waterproof treatment, ceramic tile fixing, sealing gaps, etc, to opening up subsidiaries in many foreign countries, taking over their international investing

competitors,

in

Research

&

Development which has been, over the years, responsible to help Pidilite launch products that are now market leaders in their own fields. The

share

company

prices

also

of

have

the been

soaring during the last five years

and

will

go

on

increasing, considering their profits, market leadership in their area of expertise, excess reserves, timely dividend payments, expansion plans, corporate social responsibility, significant contribution to energy conservation, etc.

Prof. Johnson


The company’s goodwill is increasing, by every passing year. MONTH

SHARE PRICE(Rs) HIGH

SHARE PRICE(Rs) LOW

April, , 2009

101.00

83.70

May, 2009

132.60

89.50

June, 2009

141.00

109.25

July, 2009

158.85

101.30

August, 2009

157.40

131.00

September, 2009

157.45

142.20

October, 2009

175.00

144.20

November, 2009

209.40

155.65

December, 2009

201.50

183.00

January, 2010

228.70

191.50

February, 2010

210.80

186.20

March, 2010

245.00

106.30

The share capital on the other hand has not increased significantly as the owners need not pool in more funds, owing to the reserves which act as general reserves, special reserves, cash subsidy reserves as well as capital redemption reserves. The market capitalization of the Company on 31st March 2010 was Rs 57876 million

Prof. Johnson


DEBT EQUITY REASONS

FOR

INCREASE

IN

DEBT IN 2007-2008 The company raised funds through FCCBs in December 2007, so as to acquire a Brazilian

Company

“Pulvitec

do Brazil

Industria e comercio de colas e adesivos Limitada” and M/S Hardcastle & Waud Manufacturing

Co. LTD. They also had a

Synthetic Elastomer Project in hand for which they required Plant & Machinery, Technology, Patents and Trademarks, etc. The finance for this project was also made available through FCCBs.

FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB) In December 2007, the Company raised US $ 40 million through zero coupon Foreign Currency Convertible Bonds. The Bonds have a yield to maturity of 6.75% per annum (calculated on a semiannual Basis), and are redeemable in 2012 i.e after 5 years and 1 day from closing date. The Bonds are convertible into equity shares of the Company at any time after 9 January, 2008 until 23 November, 2012 at a price of Rs. 256.035 per share which represents a premium of 30% to the closing price of the equity shares of Pidilite Industries Limited on the Bombay Stock Exchange Limited (“BSE”) as of 2nd November, 2007. The Bonds have been issued at par and will be redeemed, if not converted into shares, at 139.37% of par on maturity. The Bonds are listed on the Singapore Exchange Securities Trading Limited and the shares to be issued upon conversion of the Bonds will be listed on the NSE and BSE.

Prof. Johnson


ACQUISITION IN BRAZIL Pidilite Industries Ltd’s wholly owned subsidiary (WOS) in Brazil acquired in June 2007 entire share capital of “Pulvitec do Brazil Industria e comercio de colas e adesivos Limitada” engaged in the business of adhesives, sealants and construction chemicals. This Company and its manufacturing plant are located in Sau Paulo, Brazil and the business has annual sales of approximately Rs.75 crores. This acquisition will help Pidilite enter high potential Latin American market of adhesives and sealants.

M/S. HARDCASTLE & WAUD MANUFACTURING CO. LTD. Pidilite Industries Ltd. acquired assets and business of branded sealants and adhesives from M/S. Hardcastle & Waud Manufacturing Co. Ltd., and associates. The acquired assets include brands like Holdtite, Rustolene and Leakgaurd, which have healthy market share in their respective segments. The total annual sale of this business is Rs.15 crores.

SYNTHETIC ELASTOMER PROJECT The Company entered into an agreement in June 2007 for acquisition of plant, machinery, technology, patent & trademark of an international speciality chemical company. The plant will manufacture synthetic elastomers. The plant was located in Champaigner, France and was owned by Polymeri Europa Elastomers, France.The company is in process of dismantling and shipping the plant. The plant will be set up in a Special Economic Zone (SEZ) in Dahej in the State of Gujarat in India. The plant is expected to commence commercial production March 2010 and will have an initial capacity of 25,000 tons per annum. The capacity can be increased to 35,000 tons per annum by debottlenecking. The total capital investment in the plant excluding debottlenecking is estimated to be Rs. 5.3 Billion. The Company is likely to incur total capital expenditure of Rs. 4.5 billion on this project over a period of next 18 months. The plant will have a capacity of 25,000 tons per annum. The product has significant demand in international market and over 80% of production will be sold in overseas market. The company is also considering putting up Caustic Chlorine plant at an additional investment of Rs. 0.9 Billion at the same location. Both Caustic and

Prof. Johnson


Chlorine are important inputs for the manufacture of Polychloroprene. Polychloroprene Rubber is a specialty synthetic rubber featuring superior mechanical strength load bearing capacity, adhesion to metal and weather, oil and chemical resistant as compared to other synthetic rubbers. Over 80% of the production is expected to be sold in overseas markets.

BUSINESS SEGMENTS Pidilite Industries Limited (PIL) operates under three major business segments:

A] Branded consumer and bazaar/craftsmen products: This segment is a major contributor to PIL’s revenue, which accounts for 73% to its total turnover (standalone). The segment broadly constitutes Adhesives & Sealants, Construction & Paint Chemicals and Art Material.

B] Industrial Specialty: This segment accounts for 21% of total sales. The segment

constitutes

Industrial Adhesives,

Industrial Resins &

Organic

Pigments & Preparations, which largely cater to various industries such as textiles, chemicals, FMCG, rubber, automobiles etc.

C] Others: Others segment constitutes VAM (Vinyl Acetate Monomer) manufacturing unit, which was demerged into PIL w.e.f 1st April 2007. VAM is a key raw material used by PIL (accounts for 20% of the total raw material costs) for a wide range of adhesive products. VAM-based polymers are commonly used in the production of plastics, films, laminating adhesives, elastomers, inks, water-based emulsion paints, adhesives, acrylic fibers, glue, cosmetics and personal care products, floor tiling, safety glass, building construction, coatings. Recently the company has shut down its VAM plant, since it became cheaper to import VAM rather than manufacturing.

Prof. Johnson


The company has built a strong image of durability and quality for its products. Almost all the products enjoy a near monopoly in their segments and have a very large market share (approximately 60%) . PIL has an extensive distribution network of dealers, sales representatives, offices & retail outlets spread throughout the country. The initial strategy of was to make carpenters realise that only 1-2 % of cost of furniture goes for adhesive. They approached carpenters directly and this direct marketing was one of the most successful strategies employed. It also has a wide range of products which find applications in number of areas. Range of Products

Applications

Adhesive and Sealants, Construction & Construction, plastic, textiles, paper, leather, Paints, Automative chemicals, Art materials, paints & engg. Industries. Industrial adhesive, Industrial and textile resins

“Fevicol” is the largest selling adhesive brand in India. Dr.Fixit is the leading brand in construction segment. Strong brand image, client relationship, research and development and extensive distribution network are the key drivers of company’s sales.

Prof. Johnson


RESEARCH & DEVELOPMENT (R&D) SPECIFIC AREAS IN WHICH R&D IS CARRIED OUT BY THE COMPANY: R&D activities are carried out for development of new products, improvement of existing products in the category of Synthetic Resins, Adhesives, Sealants, Pigments and Pigment Dispersions, Intermediates, Surfactants, Art Materials, Coatings,

Fabric

Care

Products,

Construction

Chemicals,

Maintenance

Chemicals, Emulsion Polymers, Vinyl Acetate Monomer etc.

BENEFITS DERIVED AS A RESULT OF THE ABOVE R&D: Increase in sales due to product improvements and introduction of new products; reduction in cost due to formulation optimization, process improvements and cycle time reduction.

FUTURE PLAN OF ACTION: Future R&D efforts will continue along present lines.

Capital Recurring TOTAL

Year ended 31st March 2010 5.35 87.60 92.95

Year ended 31 st March 2009 5.23 77.81 83.04

Prof. Johnson


NET SALES During 2005-06, PIL invested over $4 mn for establishing and expanding its subsidiaries

abroad.

PIL

acquired

Chemson Asia Pte Ltd, a Singaporebased

company

engaged

in

the

business of manufacturing waterproof coating and emulsion paints, thereby adding to its existing, and rapidlygrowing construction chemicals and paints range. The company also took over two other construction chemical companies viz Jupiter Chemicals, a Dubai based company & Pidilite Bamco (Thailand) to get entry in their markets and to acquire technology with potential in India. Also acquired the Fine Art brand of canvas & student art colours. This move helped PIL to strengthen its position in the art materials market and helped it in boosting its sales in the school & artist segments. PIL acquired Sargent Art, an education art materials company (USA) & Cyclo, a car-care products manufacturer to get entry in high potential USA market. PIL acquired assets and business of brands like Holdtite, Rustolene and Leakgaurd, which have a very healthy market share in their respective segments.

In FY08, Pidilite do Brasil, wholly-owned subsidiary of PIL in Brazil, acquired the entire share capital of Pulvitec do Brasil Industrie e Commercio de Colas e Adesivos Limitada, engaged in the business of adhesives, sealants and construction chemicals. This acquisition has helped Pidilite enter high potential Latin American market of adhesives and sealants.

Prof. Johnson


In FY09, operations of subsidiaries in UAE, Indonesia & South East Asia were curtailed vying the environmental conditions. Subsidiaries showed good revenues but disappointed on profitability front, reporting losses due to steep input costs. Brazilian subsidiary had been impacted due to slowdown in Brazil. The automotive chemical business and education art material company in USA got affected due to issues of US slowdown. In 2009, PIL established adhesives manufacturing facility in Bangladesh and Egypt to cater to growing volumes. In FY10, Brazilian subsidiary showed good improvement on Q1 & Q2 as compared to FY09. The subsidiary currently sells adhesive under local brands. Company plans to market the products under ‘Fevicol’ brand name which will help in boosting sales.

Conclusion and Recommendations: 1. PIL net sales have grown at CAGR 24.8% over FY06-FY10. 2. Major factors for growth are growing demand in economy and user industries. 3. Expected growth rate in following years less compared to previous years. One of the reasons is shut down of VAM plant. 4. Also, consumer & bazaar and industrial products performed well. Consumer & Bazaar will remain the main contributors. 5. Industry specialty segment expected to do well considering increase in

demand for industrial adhesives, industrial resins and organic pigments. 6. Also as and when VAM & Synthetic polymer operations resume, the sales growth would be much higher going forward. 7. Improvement being witnessed in PIL’s subsidiaries especially US and Brazil which contribute 85% of total subsidiaries turnover.

EXPECTED SALES:

Prof. Johnson


DIVIDEND PAYOUT The year 2009-10 is the Golden Jubilee year of the Company and recognizing its

significance,

the

Company

has

issued bonus equity shares in the ratio of 1:1 in March 2010. The Board has also recommended a Golden Jubilee Special Dividend of Re 0.50 per equity share on the enhanced share capital after bonus Issue. The Company has reached its present position with the support of its valued customers and all stakeholders. The Company places on record its deep appreciation for their support.

Term Finances

Prof. Johnson


The Company had borrowed US $ 17 million through an ECB Term loan amounting to Rs 796.2 million, repayable in 3 annual installments. During the year the Company has repaid the 1st of the 3 annual installments amounting to US $ 5.67 million equivalent to Rs 262.9 million. The Dividend paid for the year 2005-06 was Rs. 360 million including tax on dividend; this is approximately 39.7% of the earnings of the year. The dividend declared was Rs. 1.25 per share & the company has earned 2.5 times dividend cover in this year. The Dividend paid for the year 2006-07 was Rs. 443 million including tax on dividend; this is approximately 36.9% of the earnings of the year. The dividend declared was Rs. 1.50 per share & the company has earned 2.7 times dividend cover in this year. The Dividend paid for the year 2007-08 was Rs. 518 million including tax on dividend; this is approximately 27.5% of the earnings of the year. The dividend declared was Rs. 1.75 per share & the company has earned 3.6 times dividend cover in this year. The Dividend paid for the year 2008-09 was Rs. 518 million including tax on dividend; this is approximately 35.4% of the earnings of the year. The dividend declared was Rs. 1.75 per share which is the same as the previous year & the company has earned 2.8 times dividend cover in this year. The Dividend paid for the year 2009-10 was Rs. 885 million; this is on the enhanced capital base on account of bonus equity shares issued during the year, in the ratio of 1:1. The dividend payout is approximately 39.7% of the earnings of the year. The dividend declared was Rs. 1.50 per equity share including Golden Jubilee Special Dividend of Re 0.50 per share & the company has earned 3.3 times dividend cover in this year.

Prof. Johnson


Out of the current year’s profit, on 506.1 million equity shares of Re 1 each (enhanced on account of bonus equity shares issued during the year) (previous year @ Rs 1.75 per equity share on 253.1 million equity shares of Re 1 each), amounting to Rs 759.2 million (previous year Rs 442.9 million). The dividend for the current year will be free of tax in the hands of shareholders.

The dividend payout amount has grown at a CAGR of 24.7% during the last 5 years.

Prof. Johnson


CURRENT RATIO The current ratio is a ratio of current assets to current liabilities. It describes the liquidity position of the company. In the year 2005-06, the current assets are 3059 million and current liabilities are 1384 million which gives us a current ratio of 2.2 approximately. This ratio increases to 2.3 in the financial year

2006-07

due

to

increase

in

current assets. It should be noted that the

current

liabilities

have

also

increased but the current assets have grown by a larger margin. The current ratio for the year is 2.3 2007-08 saw a major increase in current assets which pushed the Current Ratio from 2.3 to 3.1, inspite of the small increase in current liabilities. The year 2008-09 witnessed a minor drop in current assets, but a drastic increase in current liabilities. Thus making the current ratio fall from 3.1 to 2.5 In the financial year ended March 2010, the annual report declared a drop in the current ratio from 2.5 to 1.5, this is due to the fall in current assets & the major rise in the current liabilities.

Prof. Johnson


As can be seen from above, the reduction in Debtors from the previous year, suggest a comparative fair retutn on investments and hence a less risk of bad dabts. Also the increase in loans given by the company from 868 million to 962 million, shows not only a positive CSR as well as responsible side of the company, but it also shows that the company will be earning a good and sizeable interest on loans.

Prof. Johnson


SCOPE OF THE COMPANY NEW PRODUCTS In the adhesives category the Company has started expanding its range of products by introducing new products for the joinery segment. These products are used in mechanized joinery and modular furniture units. During the year the Company acquired the retail wood working brand of Henkel, i.e. Woodlok. Products under this brand were relaunched in select markets in the second half of the year. The Company has started expanding its range of Dr. Fixit Flooring Solutions for use in industrial and commercial flooring. Superior grades of Tile Fixing Products were introduced under Roff brand during the year. The Company has introduced the SMARTCARE range of products for healthcare & hospitality segments. M Seal Super, a versatile epoxy putty meant for DIY applications which can be used in both wet and dry conditions, was introduced during the year. In the Arts & Stationary range several innovative products/modifications were introduced to serve consumers better. Fevistik Blue and Fevistik Purple are new introductions. Unlike regular white glue, these colored sticks, when applied, appear colored but the colour disappears after a few seconds enabling young children to see and control the application of glue. New products launched during 2009-10 in the Industrial Products segment range include Binders for water based links and overprint varnishes. A high performance binder was introduced for decorative texture paints. In the leather product range an important addition was made in the form of high performance up gradation

Prof. Johnson


CONCLUSION Pidilite Industries Limited on a stand-alone basis achieved 10% growth in net sales. However, excluding the sales from the “Others” segment, net sales growth was

15%.

before interest,

Earnings

depreciation, tax

and

foreign exchange loss increased

by

60%,

profit before tax (PBT) increased by 102% and profit after tax (PAT) increased by 97% on a stand-alone basis.

The Company’s sales have grown at a CAGR of 18% over the last five years. On a consolidated basis, Pidilite net sales grew by 10%, PBT increased by 144% and PAT increased by 144%. Overseas Subsidiaries reduced losses in the current year due to reduction in costsand improved economic conditions.

EARNING PER SHARE-

Prof. Johnson


Book value per share & earning per share for the years 2005-06 to 2008-09 have been restated for the 1:1 bonus issue made in 2009-10.

Prof. Johnson


RETURN ON CAPITAL EMPLOYED= PBIT / Avg. Capital Employed

DIVIDEND PAY OUT= Dividend/PAT

Prof. Johnson


KEY INITIATIVES TAKEN BY THE COMPANY TO MAITNAIN THEIR GOODWILL SALES AND MARKETING: Building network and product range for growth in semi urban and rural markets –economy range, small packs and new products. Back end operations strengthened through centralization Focus on value added services to WSS

SUPPLY CHAIN: Professionalizing CFA operations Close monitoring and control on working capital

HUMAN RESOURCES: Quality manpower recruited at senior levels to build long term capability Renewed focus on Learning and Development Non family professionals now occupying many key senior positions in the company and their number and role is likely to increase.

Prof. Johnson

Pidilite Industries Limited Final

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