हिंदी – Pidilite Industries stock review

Hello investors , my name is Sagar and in this video , we’ll talk about Pidilite Industries we will talk about their business model , financials and valuation Let’s take a look at their history . Mr. Balwant Parekh started the company in 1959 with just one product , fevicol. So where did this name come from ? The name of glue was inspired by German word ‘Col’ meaning anything that bonds two things But now let’s understand how did Fevicol become famous. There are three main points. Let’s start with the first point. The glue used in 50’s and 60’s had to be melted before using it as it had a different composition. Unlike others , Fevicol didn’t need to be melted and it was fairly simple to use and this was their main advantage. The majority of furniture used that time was of wood and carpenters were one of the biggest consumers of glue. While other glue companies used to sell their products to retailers so that they can sell carpenters Pidilite Industries started selling Fevicol directly to carpenters and this helped them a lot As they were selling this directly to carpenters , they would get feedback on their product and what changes should they make to make it better they knew that the relationship between the carpenter and the company was very important and they took it seriously they helped them in vrious way. They always prepared camps so they can educate the families of carpenters to provide education but there is one more advantage left which is their advertisement strategy . They are funny and memorable. plus now they are present everywhere including Bollywood songs. This made Fevicol market leader . Now let’s take a look at their business model. They operate in two main segments : Consumer and Industrial segment and 1 % comes from Others. The first one is Consumer and Bazaar segment. 84 % of their revenue comes from this segment Consumer segment means products in small package for everyone while Bazaar segment includes products in big package like carpenters and mechanics As you can see in the image , this segment has been growing between 13 – 15 % CAGR but their margins are even better. As you can see in the image, the first blue line represents Consumer and Bazaar segment you can see that their margins are very high compared to their industrial segment So let’s understand the products in the Consumer segment . We can divide them into three groups. The first group is Adhesives and Sealants and 55 % of their revenue comes from this segment The most famous brand they have is Fevicol, which everyone already knows. They have many variations such as waterproof and for flooring The other brand they have is Fewi Kwik , which is for domestic use and M-Seal , rubber based sealant used to fix leaky pipes and faucets The second category is construction and paint chemicals ( 20 % of their revenue ). They have two main brands. The first is Dr Fix It. They offer waterproofing solution You might have seen ads of Amitabh Bachan explaining this product. You can see those ads on Youtube as well . The second main brand is Roff for tiling solutions . It helps stick the tiles to the surface. Lastly , arts and craft is their smallest segment contribution 9 % to their revenue. they have Fevicryl , which offers colors and accessories . The second main brand is Fevistik , which is India’s highest selling gluestick. Please keep in mind that the growth rate and margins are higher in their consumer segment. The second category is Industrial products , this contributes 15 % to their revenue . They cater various sectors such as packaging, textiles, paints, printing inks and paper. As you can see in the image , this segment has been growing between 8 – 9 % CAGR, which is lower than the consumer segment also keep in mind that the margins are lower in this segment Let’s take a look at their products . The first group is Industrial adhesives, which contributes 4 % to their revenue This adhesive is used to make packages , envelopes and cartons Industrial resins contribute 5 % to their revenue. It’s a basic component of products such as paints and dyes. Lastly, 6 % of their revenue comes from pigments and preparations. This is used to color paper and textiles. and 1 % of their revenue comes from Others , which includes products such as Specialty Acetate Let’s take a look at their financials. I will start with the balance sheet. they have 5914 crores of assets and a big part of that is in investments. They have 1151 crores in investments . Their total liabilities is 1559 crores but they don’t have any significant amount of borrowing . So , for example trade payables is more than 500 crores . A trade payable is an amount billed to a company by its suppliers for goods delivered but they don’t have any significant amount of borrowing Let’s take a look at the income statement They went from 6174 crores of revenue n 2017 to 7225 crores in 2019 their profits went from 859 crores in 2017 to 924 crores in 2019 margins went from 13 to 12 % in 2019 I will talk about their margins later Let’s talk about their valuation. I will start with the free cash flow . Free cash flows will help us understand how much did the company actually earn at the end of the year In this case , they reported 582 crores of free cash flow . Let me explain the decline in margins first . One of their biggest raw materials is Vinyl Acetate Monomer (VAM) The price of this raw material has been declining for a while and the management expects the margins to stabilize. but I would like to mention some points . A big part of their products are used in the construction and real estate industry and the real estate sector isn’t performing very well at the moment and the management has said that it might affect them a bit but they should perform well in the long term and they have many products which don’t depend on that sector and the management expects to scale that part of the business the second point is regarding their growth. We need to understand how the company plans to grow in the future. The company has been selling their product internationally for some years but it only contributes less than 15 % to their revenue but this means they have scope to grow internationally Secondly , some of their main products such as Fevicol , will grow at a slower rate eventually and the management knows this hence they have launched many products which can grow at a rapid rate such as their Roff ( offers tiling solution ) and waterproof brands if I check their balance sheet and free cash flows, the company seems expensive to me I do think they can grow between 10 – 15 % easily but I don’t think it will grow faster than that that’s why I find is very expensive and I won’t invest don’t forget to subscribe to see more videos

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