SECTION 2 Company Overview and Analysis

a) COMPANY OVERVIEW

Pidilite was founded in 1959, by Shri Balvantbhai Parekh with one brand Fevicol. Pidilite has expanded from adhesives to sealants, construction and paint chemicals, automotive chemicals, art materials, industrial adhesives, industrial and textile resins and organic pigments and preparations.

The following are the key growth milestones of Pidilite.

1963 The first modern manufacturing plant for pigments and emulsions is set up in Kondivita village, Mumbai 1965 Fevicol makes its mark and is established as the carpenters preferred choice of synthetic adhesive that is reliable and durable 1983 With each passing year the company is growing from strength to strength resulting in a turnover of 10 crores. Expansion plans are underway 1990 The name Pidilite Industries Pvt. Ltd. is incorporated. Thus, the first step towards brand recognition is taken 2000 M-seal, leading brand of epoxy compounds acquired, thus laying the foundation for the Maintenance Division of the company 2001 Pidilite launches the Dr. Fixit range of Construction Chemicals, thus diversifying its product range. The extensive product range is used for waterproofing and repair for both new & old constructions. 2004 Pidilite acquired the Roff brand of Construction Chemicals. Roff is a pioneer in construction chemicals in India and is well known for modern tile fixing solutions like tile-on-tile and waterproof tile joints. 2004 The company grows a 1000 times in 45 years. The annual turnover touches a pivotal 1000 crores a proud year for the brand. 2005 To further international ventures and foreign acquisitions, Pidilite launches its first-ever international, wholly-owned subsidiary under the banner Pidilite International in Singapore. This is followed by acquiring Chemson Asia Pvt. Ltd, a Singapore-based brand that manufactured waterproof coating and emulsion paints. Pidilite takes over Jupiter Chemicals in Dubai. Furthering its international operations, the company incorporates two more subsidiaries in Brazil and Middle East. 2006 Pidilite USA Inc. acquires businesses and assets of Sargent Art Inc., makers of art materials which has been selling world-class art materials in USA for over 50 years. 2006 Pidilite acquires Tristar Colman brand and business, now known as Colstar. Tristar Fine Art, is a market leader in brushes for drawing and painting while Tristar Colman is a well-known brand of canvas and student art colours. 2002 Steelgrip, a leading brand of PVC insulation tape in India is acquired. Another segment added to the product portfolio of the brand. 2006 The company also acquires Cyclo Industries LLC, makers of Automotive Maintenance products. The product range includes maintenance, performance and appearance products for DIY (Do-it-Yourself) and professional car care segment. Cyclo products are sold in USA and over 50 other countries. 2006 Pidilite establishes its R&D centre in Singapore to attract international talent and expand product innovation strategies. 2007 Pidilite Brazil (Pidilite Do Brasil Desenvolvimento De Negocios Ltda) acquired Pulvitec, an Adhesives & Sealants company in Brazil 2009 Pidilite acquires Woodlok, retail wood working brand of Henkel 2012 - PIL entered into a Joint Venture Agreement with Hybrid Coatings for manufacture of construction chemicals. 2013-PIL acquired adhesive business of Suparshva Adhesives Ltd. 2014- PIL acquired the adhesive business of Blue Coat Private Ltd.

The Company takes several initiatives to increase awareness of its products and brands, increase consumption of its products and to strengthen relationship with customers, influencers and end-users. The Company publishes the very popular Fevicol Furniture Books. The Company publishes 3 editions each year covering designs for homes and offices. The furniture books have found good acceptance in households and among carpenters and interior decorators. The Company has till date published over 5 million copies of furniture books. The Company is now also publishing a CD-ROM version of the furniture book. Fevicol Champions Club, a platform initiated by the Company for carpenters and those associated with the furniture industry to come together, continued to expand with over 300 clubs in 114 towns having over 45,000 members. To recognise outstanding talent amongst interior design and architecture students, Pidilite Award of Excellence was given to the best student from each of over 200 architecture and interior design colleges across the country.Dr. Fixit Institute, set up to provide training on use of waterproofing and construction chemicals to applicators, consultants, contractors, builders, architects and civil engineering students conducted 20 training programmes during the year. The annual International Art & Craft Contest organised by the Company had over 4,000 schools and 1.7 million students participating from India and abroad.

Vision

To Be The Most Innovative Research and Technical Competence Center for Sustaining Innovation-Driven Growth.

Mission Invite, invest, and embrace talented people and scientists for great challenges ahead Support, serve, and satisfy all valuable customers with our innovative products and excellent technical competency Innovate with our customers to provide total product satisfactions and business growths

BUSINESS SEGMENTS

Pidilite operates in both Consumer and Industrial Segments and is an innovation leader in adhesives, sealants, construction chemicals and art material.

1. Consumer and bazaar products (77% of sales):

Consumer and bazaar products represent Pidilite's branded business. It has three verticals,adhesives and sealants (49% of sales), construction chemicals (18% of sales) and art material (10% of sales). The SBU has been a major growth driver, driving margin expansion due to the brands' category expansion and pricing power.

Pidilite launched products in these categories and, in many cases, created a new category. Through marketing innovation and focus on the consumer connect Pidilite created brands such as Fevicol, M-Seal, Dr Fixit, Fevistick and Hobby Ideas stores in segments that globally, are commoditized. This enabled Pidilite to command premium pricing and increase margins.

Adhesives and sealants contribute 49%, construction chemicals contribute 18% and art material and others contribute 10% to Pidilite's sales.

Pidilite's products cater to requirements for adhesives and sealants in homes, offices and schools. They can be used in woodwork, upholstery, flooring and plumbing and electrical applications. Pidilite's Fevicol has 70% market share in the INR10b adhesive market.

The construction industry is becoming more organized, which is increasing the use of construction aids like sealants in high rises, coatings in commercial buildings andwaterproofing for roofs and terraces. Pidilite is promoting the use of the products inassociation with craftsmen to increase consumer awareness and acceptance. Thiswill boost sustained demand for the aids.

Industrial chemicals (22% of sales):

Industrial resin contributes 8% to sales,industrial adhesives contribute 8% and organic pigments account for 6% of sales.The industrial and specialty chemicals division accounts for ~22% of Pidilite's sales.

Segmental sales constitute industrial resins (8% of sales), industrial adhesives (8%) and organic pigments and preparations (6%). The business provides key inputs to industries such as packaging, bookbinding, labeling, cigarettes, lamination, leather, paints and textiles.

Although the base application of some products is similar to branded consumer and "bazaar" products, the B2B nature of sales makes it a commoditized segment with little pricing power.

The "Others" segment includes vinyl acetate monomer (VAM), a key input for adhesives.

Pidilite Business Segments at a glance

KEY FINANCIAL INDICATORS

b) and c) DETAILED ANALYSIS

SWOT

Strength1. The advertising and marketing of Pidilite has been very strong, especially the Fevicol ads have become a viral hit among the masses.2. The name Fevicol has become synonymous with adhesives and has almost become a generic for anything that sticks. This also has helped other brands of Pidilite such as Fevistik, Fevikwik, etc. in their sales.3. Fevicol and M-seal alone account for more than 50% of the total revenue of Pidilite, which eases the pressure on the sales of other brands and businesses.4. Brand recall and value are extremely strong for Pidilite and have become the star attraction for many television commercials.5. Fevicol ads have also won accolades and awards at major advertising award festivals and shows.6. Strong R&D center to cater to the growing need for innovative products and services.

Weakness1.Acquisition of the Cyclo brand of car care products is a weak factor as India exhibits a very fragmented market for the same with very little customer loyalty.2. Revenue generation is over dependent on Fevicol and M-seal which results in reduced investments on other brands and businesses.

Opportunity1.Pidilite organizes many creative competitions for students and young scholars, such as the 'International Creative Contest' where approx. 800,000 students from 3000 schools participate.It also helps in promoting the brand very well.2. The chemical industry in the world in growing very strongly and focus on emerging economies in other parts of the world such as Brazil, South Africa, China, Singapore, Thailand and East Africa is a great opportunity to establish stronghold in the international market.

Threats1. The manufacturing cost of Pidilites products is largely dependent on crude oil and petroleum prices which are fluctuating by the minute.2. Competitors are equally hard pressed on delivering innovative products and services.

VRIO frameworkThe VRIO framework can be stated as the value, rarity, imitability, and organization as a whole. VRIO framework is extremely important for the internal analysis of Pidilite organization.

Resource/capabilityValuableRareImitableExploited by organisationMultiple marketsCore competenceStrength/Weakness

Financial

1) CashYNNNYNNeutral

2)Equity HoldersYNNNNNStrength

3)Bond HoldersYNNNNNWeakness

4)Financing(GMAC)YYYNYNStrength

Human

1) LeadershipYYYYYYStrength

Organisation

1)Supplier RelationsYNNYYNWeakness

2)Dealer RelationsYNNYYNWeakness

3)Union workforceYNYNYNWeakness

4)Employee benefitsYNYNNNWeakness

5)Environmental StrategyYNNYYNStrength

Technological

1)Information TechnologyYNNYYNStrength

2) LogisticsYNNYYNStrength

Intangible

1) Brand nameYYYNYNWeakness

2)Corporate ValuesYNNYYNStrength

3)PatentsYNYNNNStrength

Physical

1) MarketingYNNYYNStrength

2)Product R&DyNYYYYStrength

3)EngineeringYNYYYYStrength

4)Manufacturing PlantsYNNNYNWeakness

5)Product ReliabilityYNNNYNWeakness

6)Brand PortfolioYYYNYNWeakness

7)Domestic market shareYNYNNNStrength

8)International Market shareYNNYNNStrength

9)Large scale operationsYYYYYYStrength

10)Strategic AlliancesYNYNYNStrength

11)Customer ServiceYNNYYNStrength

1. Value The value of Pidilite is that there are a number of advantages, like the strong marketing strategy that ensures high brad recall of its biggest brands like Fevicol,Fevikwik and M-seal1. RarityThe constant innovations in the product and the packaging to ensure relevance in the market. Pidilite has been the first mover in many categories which is one of the many reasons that make it the market leader in many categories. This strong a hold on the market share is a rarity in the current competitive world.1. ImitabilityThe name Fevicol has become synonymous with adhesives and has almost become a generic for anything that sticks. This also has helped other brands of Pidilite such as Fevistik, Fevikwik, etc. in their sales. This Generocide is highly unimitable.1. OrganizationPidilite has maintained a strong leadership in the market it caters to. All the strategic decisions regarding sales and marketing have displayed the desired results. Recently, there has been changes in the top positions and that queartr has shown a net growth in profits which indicates that the organisation itself is at a good place with its competitive advantage being made good use of.

VALUE CHAIN ANALYSISValue chain described the sequence activities within an organization that design, produce, sell, deliver and support its products or service (Ireland, Hoskisson and Hitt, 2011). Therefore to be effective, value chain analysis needs to recognize and understand the relationship between primary and support activities.(2) Product safety(3) Raw Materials(4) Production(5) Logistics(6) Use: fostering sustainable consumption(7) Usage: Industrial business, and(8) Packages &disposal.The support activities are procurement, human resources, infrastructure and general support. Primary activities and support activities are linked to each other. Pidilite has to see that the activities not just a cost, but also a step that has to add some increment value to the finishedproduct or service. With the sorting activities in the value chain, in order to reduce operating costs to do the pattern of out sourcing. However, out sourcing can only be done in areas that do not create value or areas at a substantial disadvantage compared to competitors. Therefore the selective strategy has to be done as competitive advantage arises from the activities in a company`s value chain. In order to perform different from competitor, Pidilite has to meet different needs and/orsame needs at lower cost as its value. Thus it has advantage to sustainable higher process and/orlower costs to compete on strategy

PRIMARY ACTIVITIES1.Inbound Logistics Working with suppliers and business partners around the world to maintain the supply chain. Purchasing raw materials and equipment.

2.Operations Manufacturing in all 4 business units R&D for product innovations and continuous improvements in packaging. The products that are designed to satisfy the needs and expectations of customers are developed by dedicated Research & Development (R & D) professionals and tested with end users before launching. Pidilite spends fairly large resources on R & D of its products and processes. Pidilites team of scientists at its six R & D laboratories has developed the entire range of the Companys products The quality of products is assured and supported by well-defined, structured and focused quality assurance system that is continuously audited and upgraded in line with in-house Quality Policy.

Sales and Distribution management. The channel is as given below.

4. Marketing and Sales 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 WSSSales Promotions

5. Service After Sales services such as returnsBUSINESS STRATEGY

Pidilite has always used a focused strategy for each of its business segments.The common underlying factors for each of its strategies are brand power, continuous innovation and new launches. Pidilite, a play on growth opportunities in the consumer and industrial segments, created brands like Fevicol in a commoditized adhesive market. It is consolidating in emerging segments like mechanized joinery,modular furniture, flooring, automobile care and waterproofing. Pidilite's elastomers project, slated for completion at the end of FY12,offers earnings upside.

A play on both consumer and industrial segmentsPidilite is a play on the growth opportunity in the consumer and industrial segments.

The expected demand in the consumer segment (77% of sales) to grow, led by(1) lifestyle changes, (2) new housing and repairs and (3) higher literacy (demand for art material).

Pidilite expects the industrial chemicals segment (22% of sales) to grow at higher than GDP rates, led by growth in the packaging, lamination, footwear, textiles and paint segments. Pidilite's brands (Fevicol, M-Seal, Hobby Ideas and Dr Fixit ), distribution and consumer connect will help it to capitalize on the opportunity.

Pidilite has strong growth links to economic activity, rising affordability, lifestyle changes,focus on interiors, education and construction. The industrial segment offers inputs toconsumer industries like packaging, labeling, paints and footwear, which have direct linkswith consumer sentiment and buying power.

Pidilte has leveraged on the following : an improving standard of living with increasing sales of home furniture like cupboardsand modular kitchens; increasing use of laminates in woodwork due to higher durability and a better finish;(an 8*4 foot sheet of laminate requires 250gm of adhesive); increased use of upholstery and moveable furniture in homes and offices; increasing use of vinyl, laminated and wooden flooring, which must be fixed withadhesive; increasing use of insulation tapes and epoxy adhesive in plumbing, a direct play onnew housing and commercial buildings.

The rising growth of adhesives and sealants are a function of improving standards of livingand new residential and commercial construction, which we believe, will be sustained.Pidilite has evolved in the adhesives and sealants category with the launch of variants andproduct applications. We believe rising consumer awareness of innovations like FevicolMarine (water resistant), Fevicol Speedex (faster drying), Fevicol SR (heat resistant),Fevicol Foamfix (upholstery) and M-Seal Wet Set will accelerate growth

Before 2001, Pidilite's focus was on wood finishes, binders and construction aids, when itlaunched Dr Fixit. In 2004 Pidilite acquired Roff, which offers waterproofing, tiling solutions,flooring, concrete treatment and plastering products. Over the years, Dr Fixit has emergedas a strong umbrella brand for construction chemicals and aids in waterproofing, repairs,sealants and functional coatings. We believe the construction chemicals SBU has hugegrowth potential because:

India is in the midst of an infrastructure push to sustain its GDP growth. Infrastructure spends on roads, bridges, airports, ports and storage is estimated to increase from USD35b in the Tenth Five Year Plan to USD78b in the Eleventh Plan. This will boost demand for construction chemicals. A changing lifestyle and rising use of tiles as a flooring option will boost demand for tile solutions like Fevimate and Roff. As more people use high-end tiles, craftsmen will increase the use of Fevimate and Roff tile-fixing solutions. The construction industry is becoming more organized, which is increasing the use of construction aids like sealants in high rises, coatings in commercial buildings and waterproofing for roofs and terraces. Pidilite is promoting the use of the products in association with craftsmen to increase consumer awareness and acceptance. This will boost sustained demand for the aids. the housing and commercial repair segment is expected to grow strongly due to a bountiful monsoon and rising rural income. This will increase demand for repair.

Competitive Category Arts and Hobby Products

Despite its discretionary nature, we believe art and hobby products might grow faster andshift to organized players, driven by following factors: rising literacy and a higher number of school-going children; a sharper focus on art, drawing, coloring and projects in modern and private schools;and a rising number of private schools, which will boost demand for art and hobby material; rising importance of art in urban classes, especially the youth and middle-aged people; we expect the number of amateur artists to increase, leading to higher demand for art and hobby products. organized players like Pidilite and Camlin being instrumental in launching productscatering to specific needs (silk, fabric, glass colors), which attract new users to thesesegments. Pidilite started Hobby Ideas stores, which showcase its art and hobbymaterial under one roof and increase consumer pull.

Pidilite launched in India Cyclo car care products, which cover aspects of car care suchas engine and glass cleaning and injector cleaning material. Pidilite acquired Cyclo in2006. However the Indian market is nascent and will develop over a few years.In the art material segment, Pidilite faces competition from organized and unorganizedplayers. Pricing power in art material is limited, more so at the low-end of water colorsand crayons, which even compete with cheap Chinese imports

1. INNOVATIONS AN INTEGRAL PART OF PIDILITES STRATEGY

Pidilite is highly innovative in terms of new launches, advertising, marketing and retailing. It transformed Fevicol into an iconic adhesive brand in the commodity segment through product innovation and clutter breaking advertising. Pidilite's marketing innovations include making carpenters its brand ambassadors and it ventured into the retailing art material through Hobby Ideasstores, which aim at brand building in a high potential segment. Innovation across functional areas enabled Pidilite to forge strong trust with the consumer.

Excellent track record of new launches/variantsPidilite has an excellent track record of new launches and innovations. It launched newproduct variants to address consumer needs. It launched brands like Dr Fixit, Roff andHobby Ideas during the past decade and acquired several brands such as Roff, SargentArt, Cyclo, M-Seal and Steelgrip.

Fevicol has several value-added variants that address specific needs of upholstery,marine, home and schools. The innovations resulted in new adhesives, aimed at varioussegments. It has now launched adhesives, aimed at modular furniture and mechanizedfurniture-making, as it expects the segments to gain prominence.

The art materials division launched brands like Fevistick, Feviquik, Hobby Ideas,Fevicryl Silk, Glue Drops, Acron Kids' Art and Fine Arts.

Pidilite launched Dr Fixit construction chemicals in 2001. The brand has been extendedto requirements across waterproofing, repair material, tile fixing and coatings. DrFixit has emerged as a INR2b brand over the past nine years. The brand extensionsinclude Crack X, Gap Fill, Newcoat, Raincoat, Rooftcoat, Roofseal, Torch Shieldand Dampguard.

M-Seal variants include M-Seal Plumber, Wet Set and application-based variants forexport. M-Seal has sales of nearly INR1b.

In 2004, Pidilite acquired Roff, a pioneer in waterproofing, tile fixing solutions andwaterproofing of joints.

Pidilite USA acquired Sargent Art brand in the US in 2006. The brand has been sellingproducts like crayons, tempera colors, acrylic colors and modeling clay, over the past50 years.

In 2006, Pidilite acquired Cyclo brand, which has sales in 50 countries for maintenance,performance and appearance of products in the DIY (do-it-yourself) segment. Someof the products were launched in India.

Pidilite acquired Woodblock adhesive from Henkel in FY10. This will enable Pidiliteto expand its offerings.

2 . BRANDING STRATEGY

Clutter-cutting advertising gives Pidilite products strong brand recall

Pidilite is one of India's most innovative advertisers, having built a brand like Fevicol in acategory that is globally considered a commodity. Some of Pidilite's advertised brands areFevicol, M-Seal, Fevistick, Fevicryl and Feviquik. The key differentiating factor of itsadvertising has been its unconventional, subtle themes, simply displayed.Pidilite's Fevicol campaign focuses on "Fevicol aise jode lagaiye, ache se acha na todpaye". Feviquik has been positioned as an adhesive that sticks fast ("chutkiyon meinchipkaye").

Pidilite's ad spends (three-year average of 4.4% of consumer business sales) have beensteady. Some other FMCG companies with such ad spends are Nestle and ITC, partiallybecause of an ad ban on infant nutrition for Nestle and cigarettes for ITC. This makesPidilite a unique case among consumer companies, which shows the impact of its adcampaigns and brand equity.

Pidilite has one of the lowest ad spends in the FMCG industry and the trend islikely to continue

Pidilite defines the way adhesives sell in IndiaFevicol has emerged as a symbol of marketing excellence in India. It has appeared inIndia's 100 Most Trusted Brands for years (ranked 41st in overall category and first in thehousehold care category in 2010). In 1959, the campaign focused on the ease of use (vis-vis a natural adhesive that must be melted before use) and created a new category.Pidilite followed the FMCG approach in selling adhesive and creating touch points thatbuild trust for the consumer

Fevicol created strong bonding with carpenters and the trade, the most importantlinks in the marketing chain as consumers normally pay little attention to adhesive usedin furniture. Fevicol's success story would be incomplete without highlighting Pidilite'srelationship building initiatives so as to keep the engagement fruitful for customers.Addressing professionals, Pidilite introduced Fevicol Furniture Book (showcasing thelatest furniture designs) and Fevicol Champions Club (a platform for carpenters tobuild their social network). Pidilite's community initiatives like dental check-ups andblood donation camps made it relevant in other walks of life, as well. Finally, Fevicol'shumorous advertising,, over the years, has been instrumental in creating excitementaround the brand and giving its users a sense of pride.

Brand Fevicol, has created enormous trust among carpenters and consumers. As thecost of Fevicol accounts for only 2-3% of total furniture cost, neither carpenter norconsumer would want to risk using a cheaper product due to the significance of adhesivesin woodwork. Carpenters get most of their clients on a referral basis and hence wouldnot like to experiment with a new brand. This has enabled Pidilite to command 10-25% pricing premium over its competitors.

Pricing power is strong as it is sold along with laminates/plywood. Trade margins aretypically low as retailers sell it below MRP and compensate from the sale of laminate/plywood.

Pidilite used Fevicol as an umbrella brand with the launch of adhesives and sealantslike Fevistick, Fevikwik, and small packs for home and office use. These have helpedto maintain a connect with consumers as the frequency of furniture purchase is oncein 5-10 years while brands like Feviquick and Fevistick are used frequently. Pidilite is taking the tradition forward with regard to its new sealants, Dr Fixitwaterproofing compounds and Roff tile fixing solutions. Pidilite introduces the productsto builders and craftsmen and trains them in uses of the product, resulting in risingproduct awareness and repeat purchases. Dr Fixit is a INR2b brand since its launchin 2001.

3. RETAILING INNOVATION TO INCREASE FRANCHISE OF ART MATERIALPidilite opened India's first chain of hobby and craft retail stores under the Hobby Ideasstores brand, which offers over 2,500 products from different countries. The products,such as molding craft products, DIY kits and puzzles, are complemented with books,videos, finished articles, projects and workshops.

Pidilite has 17 Hobby Ideas stores, in Mumbai, Ahmedabad, Nagpur, Pune, Kolkata, Noidaand Surat. Ten of the stores are shop-in-shops at Staples, Shoppers Stop, Starmark andCrossword Bookstores. The stores aim to popularize the art and craft habit among childrenand strengthen the consumer connect. Standalone stores organize birthday parties andchildren's workshops on art work such as lantern making, ceramic pot making, candlemaking and contests. They also offer children memberships of groups such as Kids Cluband Creative Art Club. The concept can go a long way in increasing the awareness of theproducts and their use.