Wednesday, December 30, 2009

>Pidilite Industries Ltd. (HDFC SECURITIES)

Company Background & Business Profile
Incorporated in 1959, Pidilite Industries Ltd. (PIL) is a pioneer and market leader in the field of consumer and specialty chemicals in India. PIL has a wide range of products, which find application in construction, plastics, textiles, paper, leather, paints & engineering industries. The product range includes Adhesives and Sealants, Construction & Paint Chemicals, Automotive Chemicals, Art Materials, Industrial Adhesives, Industrial and Textile Resins and Organic Pigments and Preparations. Most of the products have been developed through strong in-house R&D.

PIL has a number of established brands and a large distribution network of dealers, sales representatives, offices & retail outlets spread throughout the country. The company's brand, Fevicol is one of the most trusted brands in India and the largest selling adhesives brand in Asia. The other major trusted brands include Dr. Fixit & Roff (construction chemicals brands), MSeal (sealant brand), Cyclo (automotive chemicals brand), Sargent Arts (art materials brand) & Hobby Ideas (hobby & craft products)

PIL’s manufacturing facilities in India are located in Gujarat, Maharashtra, Himachal Pradesh and the Union Territory of Daman. In addition, the group also has manufacturing plants overseas in the US, Brazil, Thailand, Singapore, and Dubai. PIL has also been active in international acquisitions & incorporated subsidiaries in Singapore, USA, Thailand, UAE and Brazil.

Geographically, PIL operates in two divisions - India & Other countries. India contributes 90% to the total sales (in FY09), while other countries contribute the remaining 10%. Exports account for 9.5% of the total turnover in the Indian company. The company exports its products to Middle East, Africa, South East Asia and SAARC.

PIL has 13 overseas subsidiaries (4 direct & 9 step-down) viz; Pidilite USA Inc., Pidilite do Brasil, Pidilite International Pte Ltd, Pidilite Middle East Ltd, Pulvitec do Brasil Industria Commercio de Colas, Jupiter Chemicals (L.L.C.), Pidilite Indonesia, Pidilite Speciality Chemicals Bangladesh Pvt Ltd, Pidilite Innovation Centre Pte Ltd, Pidilite Industries Egypt - SAE, Chemson Asia Pte Ltd, Pidilite Bamco Ltd (Thailand), Pidilite Bamco Supply Services Ltd (Thailand) & Pidilite South East Asia Ltd. (Thailand). PIL also has 4 Indian subsidiaries viz; Bhimad Commercial Co Pvt Ltd, Madhumala Traders Pvt Ltd, Pagel Concrete Technologies Ltd & Fevicol company Ltd. Out of all these subsidiaries only four are major ones viz; Pidilite USA Inc., Pulvitec do Brasil Industria Commercio de Colas, Jupiter Chemicals (L.L.C.) & Pidilite Bamco Ltd. These together contribute almost 94% to the total revenue of all subsidiaries (in FY09). PIL has significant manufacturing and selling operations in USA & Brazil. The Brazil & US subsidiaries together contributed 80% to the total subsidiaries turnover in FY09 & 85.6% in H1FY10.

Most of the above subsidiaries are wholly owned by PIL, except for Pagel Concrete (India) & Pidilite Bamco (Thailand), which are 75% subsidiaries & Bamco Supply Services (Thailand), which is 49% subsidiary of PIL.

Business Segments
PIL operates under three major business segments viz branded consumer and bazaar/ craftsmen products, speciality chemical business & others.

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 in FY09). The segment broadly constitutes Adhesives & Sealants, Construction & Paint Chemicals and Art Material. Adhesives & Sealants constitute around 50% of the total sales (in FY09) and largely include sales of Fevicol and other sealants like M-Seal. Construction & Paint Chemical sub segments account for 17% of total sales (in FY09), while art material sub segment constitutes around 6% of total sales for FY’09.

B] Industrial Specialty: PIL is operating in this segment since its incorporation and the first product manufactured under this segment was pigment emulsions. This segment accounts for 21% of total sales (in FY09). The segment constitutes Industrial Adhesives, Industrial Resins & Organic Pigments & Preparations, which largely cater to various industries such as textiles, chemicals, FMCG, rubber, automobiles etc. Industrial Adhesives contribute 7%, while Industrial Resins & Organic pigments and preparations contribute 8% & 6% respectively to the total sales.

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, finishing and impregnation materials, coatings. Besides captive consumption, PIL also sells VAM in the market, which constituted 6% to the total sales (in FY09). However, recently the company has shut down its VAM plant, since it became cheaper to import VAM rather than manufacturing, as VAM prices came off much steeper than the raw material (ethylene) cost, and the industry as a whole was carrying the high cost VAM inventory.

To read the full report: PIL