Statistics Proves that From Adhesive to Tile Market, Pidilite Industries is an Outstanding Indian Company

Latest results

(in Cr.)
Sep-11
Jun-11
FY10-11
Revenue
710.28
769.9
2,380.64
Net Profit
81.53
107.71
303.87
EPS
1.61
2.13
6
Cash EPS
1.84
2.35
6.88
OPM %
18.05
20.55
19.69
NPM %
11.48
13.99
12.76

Share Price Movement

 
 
 
Weekly H/L
165.75
160
Monthly H/L
170.75
154
52 Weeks H/L
183.1
123.05
 
( 19 Jul 11 )
( 10 Feb 11 )
Delivery / Var+ELM %
64.94
12.5
Ex Date
 
 

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Fevicol, the powerful brand


Q2 not good

Pidilite Industries has not produced good results for the quarter ended 30.09.11 as compared to the quarter ended 30.06.11. Revenue dropped from Rs.769.90 crore to Rs.710.28 crore. Revenue for the whole year 2010-11 was at Rs.2380.64 crore. Net profit dropped from Rs.107.71 crore to Rs.81.53 crore. Net profit for the whole year 2010-11 was at Rs.303.87 crore. Operating profit margin dropped from 20.55% to 18.05%. Net profit margin dropped from 13.99% to 11.48%. The company is functioning in the speciality chemicals area. The shares of Pidilite Industries are traded in the Indian stock markets at Rs.161.25 now (Bombay Stock Exchange 17.11.11). The highest price recorded by the shares of the company in the last one year is at Rs.181.10 (19.07.11) and the lowest price is at Rs.123.05 (10.02.11).

Fevicol, the powerful brand of the company

The company has less competition in its field of activity. It enjoys a pricing power which it has used only once in the last five years i.e. in July this year when it increased the price of its products by 5%. Pidilite Industries owns a powerful brand name Fevicol in adhesives market. Fevicol is the largest selling adhesive in Asia. The company wants to expand its operations abroad. It wanted to bring 10% of its revenue from overseas markets to start with. It has already achieved this ambition. Now the target should be raised to 25% of the revenue from overseas operations. It is toying with an idea of setting up a manufacturing facility in Saudi Arabia. The company has production facilities in Dubai, Bangladesh and Egypt at present. For its overseas operations, the company depends on inorganic growth. It has not elaborated on this point further. After the granting of Most Favoured Nation status to India by Pakistan, Pidilite Industries is toying with an idea of setting up facilities in Pakistan also. In 2010-11, the company posted a 24% growth in its turnover to Rs.2400 crore.

Maintains margins in the midst of increasing commodity prices

The company is operating in both industrial and consumer segments. It is consolidating its operations in sectors like modular furniture, mechanised joinery, automobile care, flooring and waterproofing. Apart from the powerful brand Fevicol, Pidilite Industries also possesses equally powerful brands like Cyclo, Dr Fixit, Roff, Hobby Ideas and M-Seal. The company’s growth is driven by repair and maintenance activities, construction boom and work on furniture. Pidilite Industries enjoys a 70% market share in the organised adhesives industry in India. Even in villages, the company’s brand Fevicol has spread. The company’s other brands mentioned above are also market leaders in their respective segments. The company has the acumen to spot out opportunities and come out with a new product with a new brand name at the right time. The company is also good in maintaining its margins in tact inspite of the increasing commodity prices.

Family-run business to professional entity

The company is transforming itself from a family-run business to a quasi professional enterprise. At the senior management level, the company has hired many executives to infuse professionalism into the company’s operations. Pidilite Industries is also scouting for opportunities in South India as it is a growing and stable region. B.K. Parekh is the Chairman of the company. Pidilite Industries was formed in 1959. As the company has grown in stature in all aspects of business like building brands, sales turnover, profit, profitability, return to shareholders etc, the time has come for the company to shed its family-business status and to tone up its operations for the next stage of growth. The family still has the control of the company, but the day-to-day operations are run by the professionals with minimum interference from the family.

No B-School takers?

Pidilite Industries has not recruited anybody from the Indian School of Management (IIMs) so far. This is because the company is a manufacturing company and the IIM students mostly do not prefer to enter a manufacturing company. But this point is not entirely true. Some of the Business School students may have aspirations to enter and shape up their careers in a manufacturing entity with good standing. At present Pidilite Industries has 4000 employees and 1200 sales people. The company is planning to provide tablets to its sales force in order to enhance their productivity and contribution.

50% market share

In the industry as a whole Pidilite Industries has a market share of 40% to 50% for its products as against a market share of 70% in the organised sector. This is because of the share of the pie by the unorganised sector in different regions of India. The company aims to generate one fifth of its turnover from new products. This encourages innovation. While talking about innovation, the company is encouraged by the changes that are happening in the tastes of the people. Homes are changing. Interior decoration space is also changing fast. More modular fittings decorate homes. Fabrications are changing from on-site to off-site and get mechanised. There is a distinct shift in urbanisation. More and more people are moving out of villages to urban areas to seek greener pastures. This makes it imperative for the company to innovate and come out with new products, new designs and new concepts to satisfy the changing tastes of the consumers. The company’s products enjoy a shelf life of only 12 months on an average. This is because of the changing tastes of the people. What was yesterday goes to pieces today and what is today will be no more tomorrow – so goes the saying in consumer market.

A wood polish that provides better colour to the furniture

The company is planning to launch at least ten new products every year. Some of the products that are in the pipeline or already launched are a treatment for termites, Fevicol Marine glue that works in water), thermal insulation in the roof, a wood polish that provides better colour to the furniture and green & energy efficient products. Pidilite Industries has 40 production facilities. This diversified geography in manufacturing helps the company to move its goods quickly to the markets to reach the customers’ hands.

Advertising contributed to brand building

Before the advent of Fevicol, adhesives were produced from animal fats. They needed to be boiled before using. During boiling, they emanated an intolerable foul smell. Fevicol changed all these and became a revolutionary product in India. The brand Fevicol has now become a household name in India. It has a strong brand recall as Colgate or Xerox. Fevicol alone contributes nearly half of the turnover of the company. The company owes the success of Fevicol to innovative marketing and the advertisement efforts of Ogilvy & Mather. Some of the innovative concepts in TV advertising of the company in the eighties ad nineties include the film actor Bob Christo wrestling with a chair in which Fevicol was applied, a hen struggling with its unbreakable eggs, a politician ‘glued’ to his Chair, a joint family that cannot be broken and a overcrowded bus strung with passengers inside everywhere. The advertisements were laced with humour and at the same time enjoyable. The advertisements attracted the people towards them and at the same time established subtly the fact that Fevicol was strong glue that can be used in almost every substance. Contrast this with an advertisement I saw recently in TV regarding a body spray. A man had applied the body spray in his body and a woman stranger on smelling it, jumped into his chest. I got a disgusting feeling on seeing this advertisement. It depicted that women are rather cheap characters, ready to jump into anybody’s folds once they smell a body spray. Nothing can be more absurd than this.

Foray into art and craft

The primary application of the white glue is in wood works. But its secondary applications include flooring, upholstery and footwear. Therefore the company has established a separate division for the manufacture and sale of Fevicol. In the past ten years, the company increased its turnover from Rs.575 crore to Rs.2500 crore. Its net profit during the same time increased from Rs.50 crore to Rs.300 crore. Market capitalisation of the company has crossed Rs.8000 crore and is heading for the coveted Rs.10000 crore mark. Pidilite Industries became the pioneer in organising a chain of India’s art, craft and hobby. The company established retail stores called Branded Hobby Ideas Retail Stores. These retail outlets offer all the products of Pidilite Industries and also many other products from all over the world. In addition, the stores display a wide array of craft, art and hobby products suited to different tastes.

Acquisitions helped the company

Parekh family holds around 70% stake in Pidilite Industries. Even in the marketing, Fevicol made an innovation. Hitherto, all the white glue manufacturers marketed their products through hardware shops and timber stores. But Pidilite Industries marketed Fevicol directly to the carpenters. This won an increasing appreciation for the company and Fevicol grew to great heights. The company’s focus on R&D became the main driving force for the company to come out with innovative products. Pidilite Industries also grew by acquisitions. It acquired the Ranipal brand of optical whitener and also acquired M-Seal. In construction industry, the company’s construction chemical Dr Fixit is made an extensive use for waterproofing and repair. This can be made use of in both old and new construction. Pidilite Industries acquired Steelgrip, a leading PVC insulation tape. Pidilite Industries also acquired Roff brand of construction chemicals. Roff is used in fixing solutions like waterproof tile joints and tile-on-tile.

Even after 48 hours of boiling, the bond is in tact

Fifty years after establishment of the company in Andheri in Mumbai in 1959, Pidilite Industries today is the market leader in several segments like sealants, adhesives, craftsmen products, construction chemicals, polymer emulsions and do-it-yourself products. There are many products that were pioneered by the company. These include fabric colours with built-in-medium, violet pigments, tempera colours and rapid setting epoxy adhesives. So strong is the company’s product Fevicol Marine that is used to glue furniture exposed to water that even if a plywood coated with Fevicol Marine is boiled for 48 hours, the bond is still intact. The cost of vinyl acetate monomer, the main raw material for the company in making Fevicol, increased from $1000 per tonne in December 2010 to $1400 per tonne and then settled to $1300 per tonne. This caused some difficulty for the company. Why not the company explore manufacturing this raw material in one of its production centres? That will reduce its dependence on the raw material and save it from price fluctuations also. In addition, it will be a move towards backward integration and add value to the product.

Fevicol is sold in 45 countries

In the adhesives and sealant segment, Pidilite Industries has 22 brands and 53 products. The company possesses a large distribution network with 50000 dealers and 400000 retailers. The company’s manufacturing bases are located in Vapi cluster in Gujarat, Mahad belt in Maharashtra and in Baddi & Kalaamb in Himachal Pradesh. Pidilite Industries has established offices in all major Indian cities. Pidilite Industries has offices or subsidiaries in 15 nations. Fevicol is marketed and sold in 45 countries. The company’s only competitor is Araldite manufactured by Huntsman Advanced Materials of USA. Araldite has production facility in Chennai.

Innovative waterproofing solutions for building walls and terraces

One of the problems buildings face is seepage of water after rain. It requires waterproofing material to protect the outer walls and the terrace of the building from damage by water. Pidilite Industries’ Dr Fixit Raincoat serves this purpose. It is composed of an acrylic emulsion polymer. It can be used as a protective and waterproofing coating on the outer walls of the building. Dr Fixit Newcoat is a heavy duty terrace waterproofing substance. It consists of specially made resilient and highly elastic acrylic polymers. It is a liquid applied waterproofing membrane for all types of terraces in buildings. The company’s Rangeela Tempera Colours is also a new innovation launched for the first time in India. They are ready-to-use washable colours that are reasonably priced, washable, non-toxic and easy to use. Fevicol AC Duct King brand of adhesive is used for airconditioning ducting. If you want a long lasting solution for terrace waterproofing, you can use the company’s Dr Fixit Solyseal. For developing all these products, the company has a strong R&D team. Madhukar, the Managing Director of Pidilite Industries bestows top importance to the R&D activity in the company.

Buy the shares for medium and long term holding for decent returns

Pidilite Industries receives more than Rs.300 crore revenue from its overseas subsidiaries. The company has invested Rs.250 crore in these subsidiaries upto March 2011. The shares of Pidilite Industries can be purchased at the current market price of Rs.161.25 for medium and long term holding for the following reasons:

  • The company is a well managed company with a good track record
  • The company has been in existence for more than 50 years
  • The company possesses powerful brands like Fevicol and Dr Fixit which are popular even in villages in India
  • The company has overseas subsidiaries and offices
  • The company’s main product Fevicol is sold in 45 countries across the globe
  • The company is a profit making and dividend paying company
  • The company has a strong R&D team that makes it possible for the company to come out with innovative products
  • The company adopts innovative technology and marketing to sell its products
  • The company is able to withstand competition from the only American company that has posed as its challenger

The company has transformed itself from a family-run business to a professionally managed company though the Parekh family retains control with a 70% stake

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