Pidilite Industries Ltd:Annual Report 2023-24 Analysis

Pidilite Industries Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Pidilite Industries Ltd. was founded in 1959 by Balvant Parekh.

Headquarters Location and Global Presence #

The company’s headquarters are located in Mumbai, India. Pidilite has a significant global presence, operating in various countries across Asia, Africa, the Middle East, and the Americas through subsidiaries and joint ventures.

Company Vision and Mission #

• Vision: To be a customer-centric, innovative, and sustainable organization, delivering superior value to all stakeholders.
• Mission: Pidilite aims to be the most preferred brand for adhesives, sealants, construction chemicals, and art material by continuously innovating and offering high-quality products and services.

Key Milestones in Their Growth Journey #

• 1959: Establishment of Pidilite Industries.
• 1973: Launch of Fevicol SH, the first synthetic resin adhesive in India.
• 1990s: Expansion into new product categories like construction chemicals and industrial adhesives.
• 2000s: Acquisitions of several companies to strengthen market position and expand product portfolio.
• 2010s: Focus on international expansion and innovation.

Stock Exchange Listing Details and Market Capitalization #

Pidilite Industries Ltd. is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Recent Financial Performance Highlights #

Pidilite consistently delivers strong financial performance. Recent financials can be found in their latest annual reports and quarterly results announcements.

Management Team and Leadership Structure #

The company has a well-defined leadership structure with a board of directors and a team of experienced executives. Key positions include the Managing Director and CEO, Chief Financial Officer, and heads of various business units.

Notable Awards or Recognitions #

Pidilite has received several awards and recognitions for its performance in areas such as innovation, sustainability, and corporate governance.

Their Products #

Complete Product Portfolio with Categories #

Pidilite’s product portfolio is diverse, covering various categories:

• Adhesives & Sealants: Fevicol, M-Seal, Fevikwik, Dr. Fixit
• Construction Chemicals: Dr. Fixit range
• Industrial Adhesives: Pidilite Industries - Industrial Products
• Art & Craft Materials: Fevicryl, Camel

Flagship or Signature Product Lines #

• Fevicol: A household name in India for adhesives.
• Dr. Fixit: Leading brand in waterproofing solutions.

Key Technological Innovations or Patents #

Pidilite holds patents related to adhesive formulations, waterproofing solutions, and other specialized chemical products.

Manufacturing Facilities and Production Capacity #

Pidilite operates multiple manufacturing facilities across India and other countries, with significant production capacity to meet domestic and international demand.

Quality Certifications and Standards #

Pidilite adheres to international quality standards such as ISO certifications for its manufacturing processes and products.

Unique Selling Propositions or Technological Advantages #

Pidilite differentiates itself through its strong brand reputation, wide distribution network, and innovative product development.

Recent Product Launches or R&D Initiatives #

Pidilite invests in R&D and launches new products periodically to cater to changing customer needs and market trends.

Primary Customers #

Target Industries and Sectors #

Pidilite’s products cater to a wide range of industries and sectors:

• Construction
• Woodworking & Furniture
• Automotive
• Packaging
• Arts & Crafts
• Retail Consumers

Geographic Markets (Domestic vs. International) #

Pidilite has a strong presence in the Indian domestic market and is expanding its international footprint.

Major Client Segments (Agricultural, Industrial, Residential, etc.) #

• Residential: Homeowners, DIY enthusiasts
• Industrial: Manufacturing companies, construction firms
• Commercial: Offices, retail stores

Distribution Network and Sales Channels #

Pidilite has an extensive distribution network comprising dealers, distributors, retailers, and direct sales channels.

Major Competitors #

Direct Competitors in India and Globally #

• India: Astral Adhesives, Araldite (Huntsman Corporation)
• Globally: Henkel, 3M

How They Differentiate from Competitors #

Pidilite differentiates through:

• Strong brand equity.
• Extensive distribution network.
• Focus on innovation and customer service.
• Wide product portfolio catering to diverse needs.

Industry Challenges and Opportunities #

• Challenges: Raw material price volatility, competition from unorganized players, and changing consumer preferences.
• Opportunities: Growing construction sector, increasing demand for DIY products, and expanding into new markets.

Market Positioning Strategy #

Pidilite’s market positioning strategy revolves around offering high-quality products, building strong brand recognition, and providing excellent customer service.

Future Outlook #

Expansion Plans or Growth Strategy #

Pidilite is focused on expanding its presence in both domestic and international markets. The company is exploring opportunities for organic growth, acquisitions, and strategic partnerships.

Upcoming Products or Innovations #

Pidilite continues to invest in R&D to develop new and innovative products.

Sustainability Initiatives or ESG Commitments #

Pidilite is increasingly focusing on sustainability and ESG (Environmental, Social, and Governance) initiatives.

Industry Trends Affecting Their Business #

Key industry trends influencing Pidilite’s business include:

• Growing emphasis on sustainable and eco-friendly products.
• Digitalization of sales and marketing channels.
• Increasing demand for high-performance and specialized adhesives and sealants.

Long-Term Vision and Strategic Goals #

Pidilite’s long-term vision is to be a leading global player in the adhesives, sealants, and construction chemicals market.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics (Standalone) #

• Net Sales: Increased by 5.4% in FY 2023-24, following a 19.1% growth in FY 2022-23 and 25% in FY 2021-22, demonstrating consistent growth.
• EBITDA (excluding non-operating income): Grew by 37.4% in FY 2023-24, a significant rebound compared to the 4.7% increase seen in FY 2022-23, indicating enhanced operational efficiency and cost management.
• Profit After Tax (PAT): Grew by 43.1% for FY 2023-24, a significant increase compared to 5.5% growth in FY 2022-23, a result of both revenue growth and margin improvements.
• Book Value Per Share: Increased consistently over the three years, from 124.8 in FY 2021-22 to 163.9 in FY 2023-24, reflecting growth in shareholder equity.
• Return on Average Net Worth: Improved to 23.2% in FY 2023-24, up from 18.7% in FY 2022-23 and 20% in FY 2021-22, indicating better utilization of equity.
• Return on Average Capital Employed: Increased to 30.00% in FY 2023-24, compared to 23.7% in FY 2022-23 and 25.8% in FY 2021-22, showing more efficient use of capital.
• Net Current Assets: Increased significantly from ‘1,321 crores in FY 2021-22 to ‘2,607 crores in FY 2023-24, suggesting strengthened liquidity and working capital management.

Business Segment Performance (Standalone) #

• Consumer & Bazaar (C&B):

  • Contributed 82.5% of total sales in FY 2023-24.
  • Sales grew by 11.7%, indicating strong market demand.
  • Adhesives & Sealants category within C&B contributed 55.5% of total sales and grew by 9.4%.
  • Construction and Paint Chemicals contributed 21.0% of sales, with a growth of 19.5%.
  • Art & Craft Materials contributed 6.0% of sales, showing a growth of 8.2%.

• Business to Business (B2B):

  • Contributed 17.0% of total sales in FY 2023-24.
  • Sales grew by 3.5%.
  • Industrial Adhesives declined by 1.7%.
  • Industrial Resins, Construction Chemicals (Projects), etc., grew by 17.3%.
  • Pigments and Preparations declined by 14.2%.

• Domestic Subsidiaries: Showed strong sales growth of 15.8% and EBITDA growth of 32.3%.

• Overseas Subsidiaries: Reported a decline in sales of 7.4% but EBITDA grew by 14.9% on a constant currency basis.

Major Strategic Initiatives and Their Progress #

• Innovation and New Product Launches: Continuous focus on launching new products and leveraging marketing, especially through influencers and digital/social media.
• Sustainability Initiatives: Implementation of waste heat recovery, replacement of conventional motors and cooling tower fans, and condensate recovery, are all aimed at environmental and financial benefits.
• Farmer Producer Organization (FPO) Support: Increased membership and turnover, resulting in a 41% growth in Agriculture input business.
• Water Resource Management: Collaborated with the Government of Gujarat on check dams and farm ponds, conserving 175 million litres of water in FY 2023-24.
• Education Initiatives: Collaboration with government schools and educational trusts to enhance learning and skill development, such as the implementation of Art and Craft syllabus in over 170 government schools.
• Skill Development: Collaboration with the Directorate of Employment and Training, Government of Gujarat, to enhance skill development in ITIs across multiple states.
• Healthcare Support: Continued support to Hanumant Hospital, treating over 101,800 patients and performing over 15,200 surgeries.

Risk Landscape Changes #

• Geopolitical Risks: The rise in geopolitical tensions and their potential impact on global demand and inflation are acknowledged as areas to watch, which could impact performance of overseas subsidiaries.
• Input Price Volatility: Input prices appear to have bottomed out, with mild increases in raw material costs observed, potentially impacting demand in the near term.
• Economic Slowdown: Slower growth of the Indian economy and elevated interest rates could impact the construction industry and consequently, the Company’s performance.
• Regulatory Risk: The regulatory changes in Plastic Waste Management requires action to include recycle plastics in packaging.

ESG Initiatives and Metrics #

• Environmental Performance:

  • Increased use of sustainable fuel (biomass), saving ’ 28.35 crores and reducing CO2 emissions per MT of production.
  • Generated 50.4 Lakh KWH of wind energy, saving ’ 3.27 crores.
  • Saved 29.7 Lakh KWH of electricity from solar installations, saving ’ 2.52 crores.
  • Conserved 175 million litres of water in Gujarat through various initiatives.
  • Planted 5 lakh trees, cumulatively reaching 13 lakh trees planted.

• Social Initiatives:

  • Supported 20,000 farmers with good agricultural practices.
  • Formed 304 new Self Help Groups (SHG) with over 3,200 additional women members, promoting financial freedom.
  • Conducted over 271 training sessions for more than 2,500 women, resulting in various mini-businesses.
  • Supported the Directorate of Employment and Training for skill development, impacting thousands of trainees across states.

• Governance:

  • Maintained a Board composition compliant with Listing Regulations and the Companies Act, 2013.
  • Established a Vigil Mechanism and Whistle Blower Policy and an anti-sexual harassment Policy.

Management Outlook #

• Domestic Demand: The domestic demand environment, particularly in construction, is viewed positively due to increased government spending.
• Profitability: The company aims to deliver profitable volume growth by focusing on demand generation initiatives.
• Subsidiaries: Existing subsidiaries are expected to maintain strong sales and profit growth.
• Global Operations: Management acknowledges a subdued business environment in some international markets due to geo-political tensions and economic uncertainties.
• Overall: Management outlook is cautiously optimistic, the company has restored EBITDA margin to acceptable level, it expects continued investment behind brand and capability building.

Detailed Analysis #

Financial Position Analysis: Pidilite Industries Limited #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

Significant Changes in Major Line Items (>10% YoY) - FY24 vs FY23 #

• Property, Plant and Equipment: Increased by 30.5% ( 515.61 crores) due to additions in Buildings, Plant and Equipments and Capital work-in-progress.
• Capital Work-In-Progress: Decreased by 63.34% ( 257.85 crores) as a result of assets being completed and capitalized.
• Right of Use Assets: Increase by 12.2% due to lease modifications and new leases.
• Investments (Current): Increased significantly by 252.0% due to higher investments in mutual funds.
• Trade Receivables: Increased by 9.1%
• Cash and Cash Equivalents: Increased by 66% ( 204.98 crores) reflecting improved cash flow generation.
• Other Equity: Increased by 16.7% due to profit for the year and share based payment transactions.
• Lease Liabilities (Current & Non Current increased by 13.21%
• Other Financial Liabilities (Current): Increased by 20.4% due to increased liabilities for expenses.
• Provisions (Current): Increased substantially, mainly due to provisions relating to other liabilities.

Working Capital Trends #

The working capital changes can be inferred from movements in Inventories, Trade Receivables, and Trade Payables:

• Inventories: Decreased from 1,817.08 crores to 1,414.90 crores, indicating efficient inventory management.
• Trade Receivables: Increased slightly reflecting sales growth, but the Company maintains a good handle on receivables collection.
• Trade Payables: Increased, possibly indicating better negotiation with suppliers or extended payment terms.

Asset Quality Metrics #

• Allowance for Doubtful Debts and Advances: A relevant metric is the provision for expected credit losses as a percentage of gross trade receivables. The exact impact is difficult to ascertain, as the allowances are provided together with doubtful advances.

Debt Structure and Maturity Profile #

• Borrowings (Current): 131.15 crores as on March 31, 2024, down from 163.26 crores in the previous year, comprised of working capital demand loans and bank overdrafts. The loans are secured by working capital facilities from banks.
• Lease Liabilities: A significant portion of liabilities, with both current and non-current components. The Group did not have any outstanding borrowings at the end of the reporting period.

Off-Balance Sheet Items #

• Contingent Liabilities: Include claims against the Group not acknowledged as debts (Income Tax, Excise Duty, Service Tax, Sales Tax demands) and guarantees issued by banks on behalf of the Company. These increased to 253.86 crores from 207.01 crores.
• Guarantees: Includes corporate guarantees given to banks on behalf of subsidiaries, which have a significant impact, potentially increasing the Group’s risk exposure.
• Commitments: Include estimated amounts of unexecuted contracts for capital expenditure.

Revenue Breakdown by Segment/Geography #

Consumer & Bazaar (C&B) #

• Contributed 82.5% of total standalone sales, growing by 11.7% year-over-year (YoY).

Business to Business (B2B) #

• Contributed 17.0% of total standalone sales, growing by 3.5% YoY.

Adhesives & Sealants #

• 55.5% with YoY of 9.4%

Construction and Paint Chemicals #

• 21.0% with YOY of 19.5%

Art & Craft Materials #

• 6.0% with a YOY growth of 8.2%

Industrial Adhesives #

• 5.1% of sales, with decline of 1.7%

Industrial Resins, Construction Chemicals (Projects) #

• 8.4%, with a YoY Growth of 17.3%

Pigments and Preparations #

• 3.4% with a decline of 14.2%

Others #

• Includes sale of raw materials.

Geographical Revenue (Consolidated) #

• India reported as Rs. 10,342.47 Cr and Outside India as Rs. 824.50 Cr.

Domestic Subsidiaries (Consolidated) #

• Consumer & Bazaar: sales grew by 20.70%. Business to Business segment saw 9.70% sales growth.

International Subsidiaries (Consolidated) #

• (excluding Pidilite USA and Pulvitec Brazil): reported a sales growth of 7.8%, with Asia growing by 1.9%, and Middle East & Africa by 15.1%.

Overseas Subsidiaries #

• at constant currency, there as decline of 7.4%

Cost Structure Analysis #

Cost of Materials Consumed #

• Increased to 4,520.20 crores from 5,345.97.

Purchases of Stock-in-Trade #

• Decreased from 858.96 cr to 837.67 cr.

Employee Benefits Expense #

• Increased to 1,254.32 crores from 1,044.83 crores.

Other Expenses #

• Increased to 1,947.45 crores from 1,553.15 crores.

Finance Cost #

• Increased from 28.53 cr to 29.46 cr.

Depreciation, Amortization and Impairment Expenses #

• Increased from 221.97 cr to 289.11 cr.

Margin Analysis #

Operating Profit Margin #

• Increased to 24.4% from 18.4%.

Net Profit Margin #

• Increased to 21.56% from 15.8%.

EBITDA #

• EBITDA (excluding non-operating income) grew by 37.4%.
• EBITDA margins for International Subsidiaries (excluding Pidilite USA and Pulvitec Brazil) improved from 10.8% to 14.8%.

Non-Recurring Items #

Exceptional Items #

• A gain of 7.15 crores was reported.

EPS Analysis #

Basic EPS #

• Increased to 35.39 from 24.73.

Diluted EPS #

• Increased to 35.35 from 24.72.

Cash Management #

Cash Flow and Liquidity Analysis #

Operating Cash Flow (OCF) #

• Increased to 2,724.03 crores in FY 2023-24 from 1,557.57 crores in FY 2022-23, driven by improved profitability and working capital management.
• Movement in working capital were major contriutor in increased cash flow from operating activites.

Investing Cash Flow (ICF) #

• Net outflow increased to (1769.29) crores in FY 2023-24 from (898.95) crores in FY 2022-23, primarily due to higher payments of aquisition of property, plant and equipment, and investment in subsidaries.

Financing Cash Flow (FCF) #

• Outflow decreased to (742.45) crores in FY 2023-24 from (656.43) crores in FY 2022-23, mainly due to lower Dividend payment as well as lower repayment of current borrowings.

Working Capital Management Efficiency #

• Debtors Turnover Ratio: Decreased to 8.20 in FY 2023-24 from 8.38 in FY 2022-23, indicating a slight decrease in efficiency.
• Inventory Turnover Ratio: Decreased to 3.84 in FY 2023-24 from 4.09 in FY 2022-23, showing a reduction in inventory management efficiency.
• Net Working Captial days improved by 10%.

Capex Analysis #

• Capital expenditure (including CWIP) totaled 499.21 crores in FY 2023-24.

Dividend and Share Buyback Trends #

Dividend #

• Total dividend payout of 813.77 crores was proposed for FY 2023-24, a significant increase from 559.30 crores in FY 2022-23.
• Dividend payout has grown at CAGR of 22.99% over the past 5 years.

Share Buyback #

• The Company did not undertake a share buyback program. Proceeds from sale/ buyback of shares pertains to a subsidiary buyback its shares.

Debt Service Coverage #

• Debt-Equity ratio is not applicable as there is not outstanding term loans as on 31 March,2024.
• Debt Service Coverage Ratio cannot be fully calculated because of non availability of components of EBITDA.

Liquidity Position and Cash Conversion Cycle #

• Company’s liquidity position appears strong, with sufficient Cash and Cash Equivalents as well as bank balances.
• Current Ratio: Improved to 2.1 in FY 2023-24 from 1.9 in FY 2022-23.
• Cash Conversion Cycle: Specific metrics like Days Sales Outstanding (DSO), Days Inventory Outstanding (DIO), and Days Payable Outstanding (DPO) are required to calculate it, which is not directly available.

Pidilite Industries Limited: Financial Analysis (2021-2024) #

Profitability Ratios (Standalone) #

Return on Average Net Worth #

• FY 2023-24: 23.2%
• FY 2022-23: 18.7%
• FY 2021-22: 20.0%

Analysis: Shows an improving trend over the three years, with a significant increase in the most recent year.

Return on Average Capital Employed (ROCE) #

• FY 2023-24: 30.00%
• FY 2022-23: 23.7%
• FY 2021-22: 25.8%

Analysis: Illustrates the increasing return generated on both equity.

Operating Profit Margin (Excluding Exceptional Items) #

• FY 2023-24: 24.4%
• FY 2022-23: 18.4%
• FY 2021-22: 20.6%

Analysis: Operating profitability saw a dip last year, but in current year, this ratio is increasing.

Net Profit Margin (Excluding Exceptional Items) #

• FY 2023-24: 21.56%
• FY 2022-23: 15.8%
• FY 2021-22: 18%

Analysis: Similar to operating margin, net profit margin improved in the most recent year.

Liquidity Metrics (Standalone) #

Current Ratio #

• FY 2023-24: 2.1
• FY 2022-23: 1.9
• FY 2021-22: 1.7

Analysis: Indicates strong and improving short-term solvency, with current assets significantly exceeding current liabilities.

Efficiency Ratios (Standalone) #

Asset Turnover (Sales/Total Assets) #

• FY 2023-24: 1.3
• FY 2022-23: 1.4
• FY 2021-22: 1.3

Analysis: The asset utilization slightly went down.

Debtors Turnover (Sales/Debtors) #

• FY 2023-24: 8.20
• FY 2022-23: 8.4
• FY 2021-22: 8.0

Analysis: The ratios illustrate a stable trend.

Inventory Turnover (Cost of Goods Sold/Inventories) #

• FY 2023-24: 3.84
• FY 2022-23: 4.1
• FY 2021-22: 4.1

Analysis: Illustrates a small downward trend.

Leverage Metrics (Standalone) #

Debt Equity Ratio #

• FY 2023-24: 0.0
• FY 2022-23: 0.0
• FY 2021-22: 0.02

Analysis: The Company has no debt for the last two years, demonstrating no reliance on borrowed funds.

Interest Cover (Times) #

• FY 2023-24: PBIT and Interest Cover are 2,423 (in crores) and 85.09 respectively.
• FY 2022-23: PBIT and Interest Cover are 1,689 (in crores) and 59.21 respectively.
• FY 2021-22: PBIT and Interest Cover are 1,618 (in crores) and 60.14 respectively.

Analysis: Improved significantly due to absence of term loans.

Working Capital #

Net Current Assets #

• FY 2023-24: 2,607 (in crores)
• FY 2022-23: 1,688 (in crores)
• FY 2021-22: 1,321 (in crores)

Analysis: Working capital increased over the last three years.

Strategic Direction #

Long-Term Strategic Goals and Progress #

• Focused on profitable volume-led growth and recovery in overseas markets.
• Aiming for sustainable growth in agriculture and horticulture sectors.
• Optimizing resource consumption, reducing freshwater and energy usage, and increasing renewable energy use.
• Progress in community development, water resource management, and skill development initiatives.
• Expanding learning opportunities to the manufacturing and supply chain team.

Competitive Advantages and Market Positioning #

• Operates under Branded Consumer & Bazaar and Business to Business segments.
• Strong market position in adhesives and construction chemicals.
• Focused on reducing carbon footprint and providing sustainable solutions in construction.

Innovation Initiatives and R&D Effectiveness #

• Invests in R&D for new technologies and products to drive revenue and margin growth.
• Collaborates with experts and institutes to develop safe and sustainable products.
• New product launches address new application needs and improve revenue.
• Digitizing primary and secondary schools in collaboration with Navneet.

Mergers and Acquisitions (M&A) Strategy and Execution #

• Actively pursues acquisitions and investments to expand market presence.
• Acquired a balance stake in Nina Percept Pvt. Ltd., making it a wholly-owned subsidiary.
• Investment in early stage companies were undertaken.

Management’s Track Record in Execution #

• Demonstrated ability in achieving broad-based Underlying Volume Growth (UVG) across both C&B and B2B segments.
• Focus on maintaining and strengthening the performance of existing and domestic subsidiaries.

Capital Allocation Strategy #

• Aims to maximize shareholder return through optimal utilization of equity balance.
• Capital expenditure directed towards fixed assets for manufacturing units, offices, laboratories, warehouses, and IT.

Organizational Changes and Their Impact #

• Leadership changes: Shri N. K. Parekh stepping down, appointments of Shri Kavinder Singh, Shri Murali Sivaraman, Shri Rajeev Gupta Shri J S Deepak and Shri Sudhanshu Vats.
• Initiatives towards building an inclusive and diverse culture to develop talent.

Pidilite Industries Limited: ESG Analysis #

Environmental Metrics and Targets #

• Total energy savings of ₹36.23 crores in FY 2023-24 (cumulative savings of ₹93.83 crores over the past three years).
• Renewable energy (biomass) use saved ₹28.35 crores in FY 2023-24.
• CO2 emissions per MT of production reduced from 0.026 TCO2/MT to 0.015 TCO2/MT.
• Wind energy generation: 50.4 Lakh KWH (consumption: 38.2 Lakh KWH), saving ₹3.27 crores in FY 2023-24.
• Solar energy installations (17 installations, 2,717 KWp capacity) saved 29.7 Lakh KWH of electricity (₹2.52 crores). Plans for 9 more installations (3,473 KWp capacity).
• Water conservation initiatives conserved 175 million litres of water in Gujarat (FY 2023-24).
• Capital investment in energy conservation equipment: ₹6.9 crores.
• R&D focused on sustainable raw materials, achieving an 80 MT reduction in virgin plastic use.

Social Responsibility Programs #

• Supported 20,000 farmers with good agricultural practices (159% increase in cotton yield, 133% average increase in onion yield).
• Supported a Farmer Producer Organisation (FPO) with 1,593 farmer members (41% growth in agriculture input business).
• Provided agricultural equipment at nominal rates to over 480 farmers through a Custom Hiring Centre.
• Trained 13,081 farmers in sustainable agriculture through the Centre for Agriculture-Horticulture Development.
• Supported the formation and development of 304 new Self Help Groups (SHGs) for women (total of 1,052 SHGs with 11,100 women members).
• Conducted over 271 training sessions for more than 250 SHGs (over 2,500 women), resulting in various mini-businesses.
• SHG mini-businesses achieved sales turnover of ₹1.94 crores in FY 2023-24 (59% increase from FY 2022-23).
• Supported pre-primary education initiatives, increasing children’s attendance in 289 anganwadis from 35% to 75%.
• Signed an MoU with Sarva Shiksha Abhiyan to implement art and craft syllabus in 170 Government schools (coverage of over 40,000 students).
• Trained 11,282 trainees from 200 ITIs in Gujarat and Rajasthan, and 6,693 trainees from 161 ITIs in Maharashtra, in carpentry, plumbing, electrician, and construction technician courses.
• Supported Hanumant Hospital in Mahuva, treating 101,822 outpatients and 15,874 indoor patients, performing 15,255 surgeries.
• Established 23 Plastic Collection Centres (PCCs) in Mahuva, collecting 144.37 MT of waste and selling 51.7 MT to recyclers.
• BKPPDMDS group expanded its reach to 14 Parkinson’s support groups, impacting over 420 people with Parkinson’s and 740 caregivers.
• CPAA association assisted more than 320 cancer patients.

Governance Structure and Effectiveness #

• Board composition conforms with Regulation 17 of the Listing Regulations and the Companies Act, 2013.
• Independent Directors constitute over 50% of the Board.
• The Board held eight meetings during FY 2023-24.
• All Independent Directors have provided declarations confirming they meet independence criteria.
• The Board has a mechanism for evaluating its own performance, the performance of its Committees, and individual Directors.
• The Company has established a Vigil Mechanism and Whistle Blower Policy.
• No materially significant related party transactions with a potential conflict of interest.
• Structured process for identifying work-related hazards and assessing risks.

Sustainability Investments and ROI #

• Capital expenditure on energy conservation equipment: ₹6.9 crores.
• Investment in R&D for FY 2023-24: ₹90.39 crores (4.6% in specific technologies to improve environmental and social impacts).
• Cost savings from sustainable fuel usage and renewable energy adoption: ₹36.23 crores in FY 2023-24.

Regulatory Compliance and Future Preparations #

• Compliant with applicable environmental laws and regulations in India.
• Implementing Extended Producer Responsibility (EPR) plans in line with the Plastic Waste Management (PWM) Rules, 2016.
• Taking actions to drive demand generation initiatives.
• Working towards enhancing environmental targets and addressing social and governance aspects, with a focus on climate-related risks.

Forward Outlook for Pidilite Industries Limited #

Management Guidance and Assumptions #

• Management anticipates continued profitable volume-led growth, driven by demand generation initiatives.
• Input prices show signs of bottoming out, with mild increases in raw material costs observed.
• Domestic demand, especially in construction, is expected to remain robust due to government infrastructure spending.
• Consumer & Bazaar (C&B): Focus remains on maintaining industry-leading growth.
• Business to Business (B2B): Focus on strengthening double-digit sales growth and improved EBITDA margins.
• International Subsidiaries: Variable performance is expected due to economic uncertainties and geopolitical issues.
• Fair Value Measurement: The Group uses Black-Scholes/Binomial Model for valuation, which includes inputs that are not based on observable market.

Market Growth Forecasts #

• The Indian economy provides a large opportunity.
• Existing subsidiaries have delivered strong growth in sales and profit, attributed to increased government spending on infrastructure, affordable housing, and rising per capita income.
• The home improvement segment provides opportunities in both new construction and renovation.

Planned Strategic Initiatives #

• Actions will be taken to maintain and strengthen the performance of existing domestic subsidiaries.
• Emphasis on differentiated products in the Indian market.
• Ongoing actions in overseas subsidiaries to address challenges and increase sales/market share.
• Actions are being taken to drive demand generation and maintain profitable volume growth.
• Continued and increased investments behind brands and capability building.
• Continue innovation journey by launching new products, marketing, and leveraging to boost brand recognition.
• Support 20,000 farmers in sustainable agricultural and horticultural practices.
• Water Management activities (check dams, ponds, etc.) in the PPP (Public-Private Partnership) model.

Capital Expenditure Plans #

• Total capital expenditure during FY 2023-24 was ₹ 499.21 crores, primarily for manufacturing units, offices, laboratories, warehouses, and IT. A significant portion was on fixed assets.

Efficiency Improvement Targets #

• Energy Conservation:
  • Optimization of Utility operations in HMA manufacturing.
  • Cooling tower fan interlock with sump temperature through PID controller.
  • Replacement of conventional cooling tower fan with aerofoil designed fans.
  • Optimization of air compressor usage.
  • Chilled water pumping system optimization.
  • Replacement of conventional Motor with Energy Efficient IE3/IE4 Class Motor.
  • Waste heat recovery from boiler flue gas.
  • Reduction of agitator RPM during batch transfer operation.
  • Energy saving by condensate recovery.
  • Installation of Variable frequency drives for pumps and fans.
  • Replacement of existing AC with energy efficient AC.
  • Replacement of conventional ceiling fans with high energy efficient BLDC fans.
  • Installation of motion sensors for lighting applications.
  • Day light savings in warehouses by providing transparent roof sheets.
• R&D: R&D efforts focused on improving processes to reduce overall cycle time at plants.
• Supply Chain: Learning opportunities for manufacturing and supply chain teams, with a keen emphasis on enhancing efficiency, safety, and quality.

Potential Challenges and Opportunities #

• Challenges:
  • Slower growth of the Indian economy and elevated interest rates could impact the construction industry.
  • Increased input prices, especially due to global geopolitical factors, could impact demand in the near term.
  • Overseas subsidiaries are vulnerable to political and economic uncertainties, currency challenges, and inflation.
• Opportunities:
  • Increased government spending on infrastructure and the impetus for affordable housing are positive.
  • Growing per capita income is a catalyst for growth.
  • Home improvement focus, including both new construction and renovation, presents growth potential.

Scenario Analysis and Sensitivity to Key Assumptions #

• Sensitivity to Raw Material Costs: Risk if price increases outpace the ability to adjust product pricing.
• Sensitivity to Discount Rate (for Impairment Testing): The discount rate is a key assumption in the impairment testing of goodwill and intangible assets.
• Sensitivity to Exchange Rates: Foreign Exchange sensitivities for forward contracts held for hedging purposes in context of USD and EUR, against functional currency INR, are given for 2 % upward and downward change in currency rates.
• Sensitivity to Key Assumptions in Financial Models: A one percentage point change in unobservable inputs does not have a significant impact on their value.
• Sensitivity to assumptions pertaining to long term employee benefits: Sensitivity analysis with regard to discount rate and salary increase rate.
• Sensitivity to assumptions pertaining to Impairment Test for Goodwill and Other Intangible Assets: Change in key assumptions will not lead to any significant impairment.

Segment-wise Financial Analysis of Pidilite Industries Limited (FY 2023-24) #

Auditor’s Opinion and Qualifications #

• The Auditors, B S R & Co. LLP, issued an unmodified opinion on the consolidated financial statements.
• The Auditors have relied on other auditors’ reports for 33 subsidiaries, and certain associates and joint ventures.
• The Auditors reported, based on testing, that accounting software used by the Parent company had log maintenance of edit logs, but they were not in a position to ascertain whether all changes were being logged, given that the system was managed at the database level by a third party.

Key Accounting Policies and Changes #

• The consolidated financial statements were prepared in accordance with Indian Accounting Standards (Ind AS).
• Revenue recognition is based on the transfer of control of products or services to customers.
• Inventories are valued at the lower of cost (weighted average) and net realizable value.
• Goodwill is tested annually for impairment.
• The Group uses the equity method to account for investments in associates and joint ventures.
• There were no new standards or amendments applicable to the Company during the reported Financial Year.

Internal Control Effectiveness #

• The Company maintains an internal financial control system. The Audit Committee reviews the progress and findings of internal audits, along with the implementation of recommendations.
• The auditors’ report states an opinion that the Company has adequate internal financial controls over financial reporting and that such controls were operating effectively.

Regulatory Compliance Status #

• The Company has complied with all applicable statutory provisions mentioned in the Secretarial Audit Report.
• The Company has also complied with the applicable clauses of the Secretarial Standards and Listing Agreements.
• The Company has generally complied with the provisions of the Companies Act, Securities Contracts Regulation Act, Depositories Act, and relevant SEBI regulations.
• No penalties were imposed by SEBI, Stock Exchanges, or other statutory authorities on capital market-related matters.

Legal Proceedings and Their Potential Impact #

• Contingent liabilities not provided for include disputed income tax, excise duty, service tax, sales tax (VAT, CST, Entry Tax, LBT, and GST) demands, and other matters.
• The Company has reviewed pending litigations and proceedings and has made provisions where required.
• There has been no instance of one-time settlement with any Bank or Financial Institution.

Related Party Transactions #

• All related party transactions were in the ordinary course of business and on an arm’s length basis.
• No material related party transactions, as per the Company’s RPT Policy, were entered during the year, which requires reporting.
• Disclosure of related party transactions as per Ind AS 24 is provided.
• Loans and advances to associates totaled 9.66 crores, with guarantees given to subsidiaries at 189.37 crores.

Analysis of Accounting Quality #

• The disclosure and accounting of the disposal of the Pulvitec do Brasil Industria e Commercio de Colas e Adesivos Ltda subsidiary includes the total loss on sale for transparency.
• Detailed segment-wise financials are provided, enhancing the transparency of performance across different business lines.
• Disclosure provided for fair value measurement and the use of the Black-Scholes/Binomial Model for stock option valuation.
• The Company maintains an ESOP plan, with related disclosures provided in line with SEBI regulations.
• Extensive related party transaction disclosures were provided.
• The company disclosed all of the amounts of remeasurement of Defined Benefit Plans, recognised directly in the retained earnings.

Regulatory Risk Assessment #

• The Company is subject to ongoing scrutiny from regulatory bodies, including SEBI and tax authorities. Compliance with regulations is generally maintained, with no penalties imposed during the last three years.
• The pending legal proceedings, particularly tax-related disputes, represent potential financial risks.
• The Company has disclosed the details of its auditor’s report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014.