pidilite industries | company analysis
Post on 12-Apr-2017
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Akshatha NeerajeArjun ParekhPooja RawatRohan BharajRonak SharmaVibhu Gauba
Adhesives Construction Chemicals
Global Scenario
North America and Europe expected to see a growth of only 3% whereas Emerging Economies in in Asia like India and China are expected to show growth of 6% and 8%
Increasing construction
activities
Growing automobile
sector
Rapid industrialisati-
on
Application of adhesives in Aerospace
Medical Electronics industries
Global Scenario
2015 2016 2017 2018 2019 20200
2000
4000
6000
8000
10000
12000
14000
Volume(Kilo Tonnes)
Volume(Kilo Tonnes)
Strict regulatory compliance
Fluctuation in prices of key raw
materials
Dominated by large companies
CHALLENGES
Worldwide market expected to grow at 5.8% till 2020 to 13000 KT
Indian Imports and Exports Limited to Asia
Adhesive Industry
• Growth driven by packaging, construction and automotive sectors• Increase in disposable income levels, rising GDP and booming retail
markets propel growth in flexible packaging industry• Rapid urbanization coupled with growing infrastructure and real estate
construction projects fuel the demand for adhesives
Adhesives market in India is anticipated to reach 379 thousand metric tons by 2020 at a CAGR of 9-10%.
Adhesive Industry
Reactive
Water basedHot melt
Solvent based
Volume share by technology type (2015)
40%
14%
30%
16%
Pidilite
Henkel
Sika
Others
market share by company (2015)
6%
24%
62%
8%
Indian Adhesive Market
• PVAc Adhesives
•Cyanoacrylate Adhesives
• Epoxy Adhesives
• Silicone Sealants
Key Applications Areas of Adhesives
Packaging is the largest end-use application for adhesives and still holds a huge scope; use of adhesives in automobile and construction industries is expected to increase in the near future.
Industry Application
Paper Board and Packaging Packaging is the largest market for adhesives. Most packaging materials used nowadays are different materials laminated together and adhesives are used for this purpose, thus giving packaging a commercially alluring appearance
Building and Construction Adhesives are used in a variety of applications in building and construction including flooring underlayment, flat and drywall lamination, sandwich construction, profile wrapping, prefinished panels, edge bonding, tilling, carpet layment, etc.
Furniture In the furniture-making industry, polyvinyl acetate dispersion adhesives are widely used. Others such as melamine-formaldehyde resins, polyurethane (PUR) adhesives, hot melts, etc. are also used in various bonding and laminating applications.
Automotive Adhesives are used in bonding metal sheets in vehicle bodywork construction, car carpets, bonding panes of glass into car bodywork, sound damping, bonding and lamination interior, etc.
Electronics In this segment, adhesives find application mostly in cable filling/jelly compounds, cable insulation compounds, electronic circuits, etc. In some cases, adhesives are preferred over solder joints, as they are lead-free and less vulnerable to heat.
Lifestyle This segment includes applications in textiles and apparel laminates, mattresses, fabric combining, footwear and leather goods, etc.
Consumer/DIY This segment includes applications in decorative films, hobby supplies, school crafts, and stationery products.
Others Road construction, plastic processing, medical applications, aircraft and aerospace, etc.
Mega Trends in Adhesives
Urbanization
Bricks and
Clicks
Economic Trends
New Business Models
Social Trends
Health Wellness
& Well Being
MegaTrends
Green Products
Last Mile Connectivity
Convenience Packaging Quick Cure
Technological Advancement
Strong Bonding
Properties
Key Developments in Adhesives Addressing the Trends
Company
• Pioneer in consumer and speciality chemicals in India
• Over 2/3rd of sales from products and segments pioneered in India
• Consolidated Revenue of Rs 53,695 million in FY 15-16
• Well established R&D set-up – Most products developed through in-house R&D
• Wide geographic presence – Domestic & International
Indian Adhesive Market
PVAc Adhesives Market
Market Split – By Companies
The furniture industry, which accounts for
41.0% of PVAc consumption, is highly unorganised, resulting in ~75% of sales to the
segment occurring through retail
channels.
Cyanoacrylate Adhesives
Market Split – By Companies
Pidilite’s Fevikwik is synonymous with cyanoacrylates in
India, indicative of its brand recall with consumers and
tradesmen alike.
Business Segments
FINANCIALS
Source: Pidilite Annual Report 2015-16
2011-12 2012-13 2013-14 2014-15 2015-16 -
5,000
10,000
15,000
20,000
25,000
10,340
12,698
16,002
19,009
22,190
Growth in Reserves & SurplusRs
in M
illio
n
Financial Ratios – Pidilite Industries Ltd.
Source: money.livemint.com
Cash to Cash Cycle = 42+40-33 = 49 Days | Hence, money rolled 7 times in a year
This means that the investors are ready to pay ₹5.92 for every ₹1 sale
made by Pidilite
Financial Ratios – Atul Ltd.
Source: money.livemint.com
Cash to Cash Cycle = 58+56-49 = 65 Days | Hence, money rolled 5 times in a year
This means that the investors are ready to pay ₹1.73 for every ₹1 sale made by
Atul Ltd.
COMPETITON ANALYSIS
Can leverage the extensive distribution network
2nd largest adhesives brand in India
DOMESTIC PLAYERS
Built the largest adhesives plant in India in the city of Pune that will be
operational in the H1 2017
INTERNATIONAL PLAYERS
Since 2000
11 - Acquisitions in India
3 - International subsidiaries in Singapore, Brazil and Middle East
2 - Acquisitions in Singapore and Dubai
1 - JV with a US based Company
Growth opportunities
1. Infrastructure Construction sector contributes to more than 8% of India’s GDP and is the second largest employer and contributor to economic activities Government’s emphasis is on infrastructure and housing as urban development schemes and industrial corridor projects are being expedited.• Adhesive manufacturers must focus on delivering product value by meeting
expectation in terms of technical performance such as tensile strength of the joints, adhesion runtime, etc.
• Considering the low awareness, price-sensitive nature and commoditisation of adhesives market in construction industry, technical performance must also be backed up by economic feasibility such as cost of adhesive materials and labour required.
Growth opportunities
2. Packaging The Indian packaging industry is growing at an annual rate of about 7% and is expected to grow at the same rate in the next five years. Macroeconomic factors such as favourable demographics and increase in disposable income are also in favour of the growth of the packaging industry.• Companies must focus on offering products for a wide range of applications such as
sealing, labels, tapes, etc. • Products need to be designed based on different temperature needs and adherence to a variety of substrates.
Growth opportunities
3. Woodwork and furniture sectorIt has been the major growth driver for adhesives in
India. Indian furniture Industry is estimated at around Rs 710 bn (Source: Annual Report-2013 Greenplay Industries Ltd) and is estimated to grow at 25-30% CAGR over the next few years (Source: Ernst & Young).
Growth opportunities
• Water-based adhesives are projected to hold a share of around 42% of the country's adhesives market by the end of 2019.
• With upcoming infrastructural projects such as railway tracks, metro rails as well as new wind energy farms, the country is set to witness a strong growth in the adhesives industry over the next five years.
• Automotive adhesives are expected to witness growth as the demand for lightweight and composite joining adhesives from automobile manufacturers continue to increase.
New Emerging Applications Segment
Owing to major government initiatives such as Digital India, Make in India, and favorable FDI policies for electronics manufacturing, adhesives industry is expected to grow at a CAGR of 9-10% till 2020.
Demand for maintenance, repair, and overhaul (MRO) facilities is increasing in India due to growth in the aviation sector.
Demand for hot melt adhesives
Call to ActionInvest in R&D centers to develop high performance adhesive properties such as fast solidification, rapid bond formation and glue gunsFocus on high temperature adhesives such as epoxy, silicone which find application in electronics, aerospace, etc.Strategic tie-ups with MNCs for manufacturers targeting emerging applications.
Critical Success Factors for Growth
•High performance adhesives at affordable prices especially in the largely commoditized construction industry
•Wider temperature ranges and different substrate types for packaging industry
•Strategic tie-ups with MNCs and investment in R&D capabilities
•Hedging raw material costs that are dependent on movement in oil prices
Market-Attractiveness/Competitive-Position Matrix
Strategy
We suggest that Pidilite opt for a NICHE strategy, entering into the area of hot-melt adhesives as it is a fast growing category and Pidilite’s presence in the industrial adhesives and chemicals segment is not that strong.
• Expected to reach $9.64b by 2020 Growing at 6% CAGR
• Global market stood at around 1,500 kilo tons in 2014
• Focus on packaging• Widely used due to its
low cost and better performance.
• Its formulation that can withstand temperatures as low as -40 °C and humid environments
• Asia-Pacific is the largest market for hot melt adhesives
• Great distribution network
• Brand recall value is extremely high
Porter’s 5 Forces
Industry Rivalry: •Globally is hugh, but in India it is low•Competitors in the segment: Henkel AG, The 3M Company, Sika AG, Bostik smart adhesives, Huntsman Corporation
Bargaining power of Supplier: •Low
Bargaining power of buyer: •Low due to the absence of any local brands in India. Despite the industry growth, currently no foreign brands have entered the Indian Market yet, we can be the first mover advantage.
Threat of substitutes:•Low. Due to its cost effective nature it is used as a substitute infact to other adhesives.
Threat of new entrants:•Medium. Though local players can’t affect Pidilite brand and its products, the International players can still decide to enter the segment
Uses of Hot Melt Adhesives (HMA)• Carton sealing and labeling applications in the packaging industry
• Spine gluing in the bookbinding industry
• Profile-wrapping, product assembly and laminating applications in the woodworking industry
• Disposable diapers, bonding the non-woven material to the back sheet and the elastics.
• Electronic device manufacturers use an HMA to affix parts and wires, or to secure, insulate, and protect the device's components.
• HMA are regularly used to assemble and seal corrugated boxes and paperboard cartons.
Brownie points?... Yes Please!
•Is the leader an intelligent fanatic? Highlight example of ingredients Intelligence, Integrity and Energy!Fevicol Champions ClubFevicol bonded over 42000 woodworkers and contractors, in a unique pan-India community initiative – SHRAM DAAN DIVAS on December 20th and 21st December 2015. These woodworkers and contractors donated a day’s labour free of cost to repair and refurbish furniture at around 800 NGOs, beneficiary
schools, hospitals and institutions for underprivileged children. It is expected to have impacted and benefited the lives of over 60,000 children in more than 320 cities across the country.
•What are you doing that your competitors aren’t doing yet? How do they create strong entry barriers for competitors?
By talking to the carpenters directly. Creating Membership Clubs
•What’s not going to change in the next 10 years?The leadership position of Pidilite in the adhesives market
•What is their competitive advantage and how sustainable is it? If their competitor had unlimited resources, how quickly could they duplicate the company’s competitive advantage? How could you hurt this business?
Their brand is their competitive advantage
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