Pidilite Industries Fundamental Analysis: A Strong Bond

Brands provide instant recognition, not just that, they become a symbol of trust. Companies put lot of time effort, and resources in building a brand. Brands not only enjoy recognition, it also helps in maintaining long term relationship between customers and companies. One of the companies that has successfully built brands and has gained dominant position is Pidilite Industries. Pidilite Industries is a market leader in adhesive segment and owns many successful brands like Fevicol, M-Seal, Dr Fixit etc.

What makes Pidilite Industries Successful?

Company’s strength lies in making innovative adhesive products for various needs of its consumers. For example, when company found a huge demand for a glue that could stick to metals and beads, company’s research team came up with an innovative product called fevicryl, which is a no stitch fabric glue. Such a product was not available in the market earlier and has no competitor so far, giving Pidilite a monopoly over the niche.

Company’s focus on product innovation based on its sharp market research and understanding of customer needs is the reason of Company’s dominant success. Pidilite’s focus on advertising has made Fevicol one of the most known Indian brands.

Market Share, Products, and Revenue:

Pidilite Industries is the market leader in adhesives segment with 63% market share. Company owns many famous brands such as:

Fevicol: a flagship brand for the company. Fevicol has many variants used for different purposes. While fevicol is used in making wood furnitures, art pieces and crafts, other variants of Fevicol such as fevicol marine is used for making waterproof furnitures, pasting veneers etc.

Fevicol MR is used for art craft and works on paper, cardboards. Fevicol Hi-Per is an anti-bubble, waterproof adhesive, used for pasting veneers etc. Fevicol SR505 is a rubber based adhesive used for flooring, upholstery, pasting of seat covers.

Dr. Fixit: Dr. Fixit is a waterproofing solution used in domestic and commercial buildings. The products is usually mixed in cement or concrete and is applied to the surface where waterproofing is needed.

M-Seal: M-Seal is a rubber based sealant used to fix leaky pipes and faucets. M-Seal also has a variant which works even under water.

Fevi kwik: Fevikwik is a high strength glue used for domestic purpose.

Som other brands by Pidilite Industries are as follows:

Fevistick, Steelgrip, Fevicryl, Bondtite.

Segment-wise Revenue breakup:

Pidilite generates more than 50% of its revenue from Adhesive segments, Construction paints and chemicals contribute 20% to the company’s revenue, Art material contributes almost 12% to the company’s topline, while Industrial resins, organic pigments contribute 6% each to the topline of the company.

Basic EPS:  

Basic EPS is a measure of how much profit a company is making on per share basis. In other words, it’s a measure of how much money each share of the company will receive if all the profits earned during the year is distributed to its shareholders.      

Company’s Basic EPS has seen a growth of 10.79% in the past 5 years. In 2013, Basic EPS of Pidilite was 9.04 while in 2017 it was 15.09.

Cash EPS:

Cash EPS is a measure that looks at how much cash flow the company has generated during the financial year. Cash EPS shows how much cash the business is generating in a year. Cash EPS not only includes Cash received by the business for the products sold or services provided, it also includes any upfront payments, such as cash advance received by the business.

Company’s cash EPS grew from 10.03 in 2013 to 16.85 in 2017. A growth of 10.93% CAGR in the last 5 years.

Revenue From Operation/Share:

Revenue from operations is a measure of how much revenue a company is generating from its core business. Revenue from operations does not include income from non operating activities such as sales of assets, sale of subsidiaries, income from investments made etc. Revenue from operations/share measures how much revenue a company is generating from its core business on per share basis.

Pidilite’s revenue from operations per share grew from 64.99 in 2013 to 94.9 per share in 2017, a CAGR growth of 7.87% per annum. As it is visible from the above given data, Pidilite’s profitability has seen a faster growth than its revenue, which means company has successfully improved its profit margins over the years.

Net Profit Margins:

Net Profit margin is the key ratio which is used to compare profitability of two or more companies working in the same sector. Net profit margin is a measure of how much percentage of total sales remains with the company as profit after all the expenses are paid.

Company’s profit margins are growing gradually, in 2013 Pidilite’s Net Profit Margin was 13.82% while in 2017 Company’s Net Profit Margin was 15.5%

ROCE:

ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.

Pidilite’s ROCE has been stable for the past 5 years within a range of 20% to 25%. Company’s ROCE was 25.66% in 2013, while in 2017 Pidilite’s ROCE was 22.04%

Debt/Equity:

Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds).

Pidilite Industries is a zero debt company.

Dividend Payout Ratio percentage of Net Profit:

The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during the year. In other words, this ratio shows the portion of profits the company decides to keep to fund operations and the portion of profits that is given to its shareholders.

Pidilite is sharing bigger part of its net profits with its shareholders. In 2013, company was distributing 28.92% of its net profit as dividends, while in 2017, Pidilite distributed 39.8% of tis net profit as dividend.

Dividend/Share:

Dividend per share is the amount of dividends a shareholder receives on per share basis. Dividend per share includes all the interim dividends paid during the financial year as well as the final dividend paid at the end of the financial year. Dividend per share is calculated by dividing total dividends paid during the year from total number of shares outstanding.

Pidilite’s dividend per share has recently seen a good growth, while company was paying Rs. 2.6 per share as dividend to its shareholders, in 2017, company paid a dividend of Rs. 4.75 per share.

Future Expansion Plans:

Company is focusing on increasing market share by spending on sales and marketing.

Company is also working on expanding its distribution network to all the towns and cities with population of 10,000 and above. Currently, 60% of the towns with population above 10,000 are part of distribution network of Pidilite.

Company believes, because of low crude oil prices, business outlook will improve which will lead to improved margins and strong return ratios.

What makes Pidilite Industries a great investment:

Strong brand value, company enjoys almost monopolistic position in the market.

Fevicol, Fevikwik and M-Seal have domestic market share of 70%.

Company has zero debt, which means company is able to finance its operations and expansion using its internal resources.

Company is improving its profit margins, and is paying regular dividends.

Since company’s major raw material is derived from crude oil, lower price of crude oil helps company procure raw material at a lower price, thus improving profit margins.