MOAT Analysis of Pidilite

CH. Udaysai Shanmukha

IIND MBA 20458

INTRODUCTION

Pidilite Industries Limited is an Indian adhesives manufacturing company based in Andheri

(East), Mumbai. It manufactures products across verticals such as art materials and
stationery; food and fabric care; Car products, adhesives, and sealants; and speciality
industrial products like adhesives, pigments; textile resins, leather chemicals, and
construction chemicals.
Pidilite markets the Fevicol range of adhesives. Its other brands are FeviKwik, Dr Fixit, Roff,
Cyclo, Ranipal, Hobby Ideas, M-seal, and Acron. It also markets and manufactures WD-40 in
India.
To facilitate better global networking, Pidilite Industries has established offices/subsidiaries
in several countries including Singapore, USA, Brazil, UAE, Saudi Arabia, Indonesia, Egypt,
Bangladesh, UK, Kenya, South Africa and Ghana. In India, it has subsidiaries namely Bhimad
Commercial Company and Madhumala Traders.
Pidilite also established a state–of–the–art research centre in Singapore that is now a member
of the Singapore Chemical Industry Council (SCIC).

Milestones
BUSINESS MODEL
They operate in two main categories: customers, industrial segments and others.

MOAT ANALYSIS

MOAT analysis is a simple concept: Companies with sustainable competitive advantages and
attractive valuations.
A company’s moat refers to its ability to maintain the competitive advantages expected to
help it fend off competition and maintain profitability.
Sources of MOAT refer to 5 things
1. Switching costs
2. Intangible Assets
3. Network effects
4. Cost advantage
5. Efficient Scale
Economic Moat: Pidilite Industries have a total of 23+ manufacturing plants in India and a
solid market presence of over 6 decades. The company has expanded into 18 international
and 9 domestic subsidiaries and has established 8 R&D centres. The company owns some
well-known brands like Fevicol, M-seal, Dr Fixit, WD 40 etc which has a strong awareness in
both consumer and industrial segments. The focus of the company is on-brand
premiumization and Innovation.
Some of their brands like M-seal have a 70% market share in the plumbing segment and Dr
Fixit has achieved 98% top of the mind awareness among consumers. Fevicol has also been
the most trusted adhesive brand for many decades. Overall, the company has a solid
economic moat with its innovative adhesive solutions and brand awareness. Its market
dominance is also near-monopolistic in Fevicol and M seal brands which contribute a major
portion of the revenue.

Switching Costs: There are high switching costs associated with using substitute products
Substitute products may be imported, with additional custom duties and costs attached –
which will increase the price of the product. The issue is however complicated by the high
number of players in the industry offering similar products or services, which reduces
switching costs for consumers.
Switching costs however may also vary according to the needs and wants of the consumers,
and the types and variants of the products that they prefer. Price competitiveness is especially
an important factor for determining the switching costs for the consumers, in addition to
product quality. Industry players focus on brand development and marketing
communications to appeal to consumers and generate trials. As a result, the overall
bargaining power in the industry is considered to be moderate

Intangible Assets: They consist of Goodwill, brand value, trademarks, and patents. Based on
the Consolidated Annual statement they have a high valuation of intangible assets.
Efficient Scale: Pidilite Industries’ top portfolio consists of
56.4% — Adhesives and sealants
19.6% — Construction and paint chemicals
8.4% — Art and craft materials

COMPETITIVE ADVANTAGE
Here are a few key competitive advantages of Pidilite Industries that helps it to remain
profitable for the long-term:

• Strong brand value.

• Effective advertising and marketing (Fevicol ads have become a viral hit among the
masses)
• Market leaders in adhesives, sealants, polymer emulsions, hobby colours and
construction chemicals in India.
• Loyal customers- (Fevicol has become synonymous with adhesives)
• Strong R&D centre to cater for growth and innovations.
FINANCIALS & VALUATION

As of FY19, they have 5,914 crores of assets and the major contributor is the property and plant,
investments and trade receivables. As of FY19, they have 913 crores in property and plants. Total
Investment is 1522 crores and receivables stand at 1,056 crores.

Their total liabilities are only 1,559 crores. This is very less when compared to the asset side because
the company doesn’t have any significant amount of borrowing. The only major liability contributor
is trade payable which stands at 580 crores. A trade payable is an amount billed to a company by its
suppliers for goods delivered.
 • The debt-to-equity ratio of the company was at 0.54 in 2010 and now the company’s debt to
equity ratio is just 0.03 which tells us that the company is mostly financed by equity capital
• Pidilite Industries is virtually a debt-free company
• The current ratio of the company is 2.55 which shows that the current assets are sufficient
enough to meet the short-term obligations of the company

FUTURE GROWTH PROSPECTS

The COVID-19 outbreak hurt sales across the countries. Exports also saw a significant decline.
The demand for industrial adhesives will recover only after manufacturing companies start
operating at their full capacity.
As of now, the company does not appear to be concerned about the impact of Coronavirus
on China-based manufacturing of VAM (Vinyl Acetate Monomer) but is monitoring the
situation closely. The disrupted supply chain can be an issue in the coming years for the
company.
Pidilite will also benefit from the fall in the crude oil price as it constitutes a major portion of
raw material costs. The actual impact will only be seen after the factories start operating.
The company is taking initiatives to achieve 15-16% value growth in the coming years. The
expected demand scenario to improve from FY 2021 onwards in India. This may get delayed
due to the COVID-19 lockdown.
Pidilite acquired a stake of $30 million in HomeLane due to evolving market dynamics and
innovation. The company has an interest in interior design space and wants to be part of the
changing landscape due to technology.
Tile adhesives are doing good with the category sales growing at a fast rate. The product is
witnessing higher market acceptance with consumers increasingly switching from cement to
tile adhesives.
The company shows promising growth opportunities once the temporary disruption due to
COVID-19 clears.
CONCLUSION
From the above analysis, we can conclude that Pidilite Industries is a financially and
fundamentally strong company with a good ‘moat’ around it.
However, there are a few other aspects that we also need to check before making any
investment decision like the company’s management, shareholding pattern, mutual funds
holdings, future outlooks etc
Pidilite is the market leader in its industry and has maintained its position for years. It attracts
a wide range of people through its advertisements and marketing strategies. It also focuses
on R&D and innovation which is also one of the reasons for it being a market leader.
However, in this fast-changing digital world, Pidilite also has up its game in terms of digital
marketing. Just like how it has remained competitive in the business world, it has the potential
to become one of the best in the digital advertising space as well.