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Pidilite Industries Ltd.

BSE: 500331 Sector: Industrials
NSE: PIDILITIND ISIN Code: INE318A01026
BSE 00:00 | 24 Apr Pidilite Industries Ltd
NSE 05:30 | 01 Jan Pidilite Industries Ltd
OPEN 1530.00
PREVIOUS CLOSE 1539.85
VOLUME 35446
52-Week high 1709.85
52-Week low 1090.00
P/E 63.51
Mkt Cap.(Rs cr) 76,479
Buy Price 1505.20
Buy Qty 18.00
Sell Price 1508.00
Sell Qty 1.00
OPEN 1530.00
CLOSE 1539.85
VOLUME 35446
52-Week high 1709.85
52-Week low 1090.00
P/E 63.51
Mkt Cap.(Rs cr) 76,479
Buy Price 1505.20
Buy Qty 18.00
Sell Price 1508.00
Sell Qty 1.00

Pidilite Industries Ltd. (PIDILITIND) - Director Report


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Company director report

Financial Performance

On a comparable basis after reflecting accounting impact of GST the Net Sales grew by14.5% with sales volume and mix growth of 10.4%. The volume growth in Consumer and Bazaarproducts segment was 12.2% (previous year 12.1%). However due to competitive pressure andmarket conditions the Industrial Products segment volume grew only by 1.9% as comparedto 7.6% growth in the previous year.

Operating Profit for the year at र1489.74 crores increased by 4.2% . Further NetProfit at र979.44 crores increased by 2.5%. The slight decline in profit margin is dueto higher input cost.

The Indian Rupee was at र69.17 to a US$ as on 31st March 2019 as comparedto र65.17 to a US$ as on 31st March 2018.

To

The Members

Your Directors take pleasure in presenting the Fiftieth Annual Report together withAudited Financial Statements for the year ended 31st March 2019.

Financial Results (Standalone)

(र in crores )

2018-19 2017-18
Gross Turnover 6048.18 5445.67
Turnover Net of Excise 6048.18 5309.11
Operating profit 1489.74 1430.30
Finance Costs (7.14) (6.06)
Depreciation Amortisation and Impairment Expense (99.83) (91.48)
Net Foreign Exchange Loss (6.32) (1.48)
Profit Before Tax 1376.45 1331.28
Current Year's Tax (385.56) (356.89)
Profit After Current Year's Tax 990.89 974.39
Deferred Tax (11.45) (19.20)
Profit After Tax 979.44 955.19
Profit Brought Forward 2166.95 1504.72
Other Comprehensive Income included in retained earnings (net of tax) (2.98) 0.13
Profit available for appropriation 3143.41 2460.04
Appropriations
Dividend paid (304.69) * (243.52) #
Tax on Dividend (59.63) * (49.57) #
Total (364.32) * (293.09) #
Closing balance of Retained Earnings 2779.09 2166.95

* Pertaining to dividend for FY 2017-18.

# Pertaining to dividend for FY 2016-17.

Dividend

Your Directors recommend a dividend of र6.50 per equity share of र1/- each(previous year a dividend of र6.00 per equity share of र1/- each) out of the currentyear's profit on र50.80 crores equity capital amounting to र330.19 crores (previousyear र304.69 crores on equity capital of र50.78 crores).

The dividend payout amount has grown at a CAGR of 22.1% during the last 5 years.

The dividend payout is in accordance with the Dividend Distribution Policy which isgiven as an annexure and the same is also available on the website of the Company.

Transfer to Reserves

The Company does not propose to transfer amounts to the general reserve.

Term Finance

The Company has no outstanding term loans (previous year NIL).

Capital Expenditure

The total capital expenditure during the year was र186.23 crores spent on fixedassets for various manufacturing units offices laboratories warehouses and oninformation technology.

Fixed Deposits

The Company has not accepted any fixed deposits during the financial year 2018-19.

Subsidiaries

Investment in Subsidiaries

During the year investment of र61.04 crores (previous year र151.19 crores) wasmade in the subsidiaries. Of this र26.24 crores was invested in the overseassubsidiaries and र34.80 crores in the domestic subsidiaries.

The investments in overseas subsidiaries were in Pidilite Middle East Ltd (र 5.31crores) and Pidilite International Pte Ltd (र 4.17 crores) for onward investments intheir step down subsidiaries and Pulvitec do Brasil Industria e Comercio de Colas eAdesivos Ltda (र 9.35 crores) and in newly incorporated subsidiary Pidilite Ventures LLC(र 7.41 crores).

The investments in domestic subsidiaries were in ICA Pidilite Pvt. Ltd. (र26.64crores) and Cipy Polyurethanes Pvt. Ltd. ( र8.16 crores).

During the year

a. Percept Waterproofing Services Limited (Percept) (80% subsidiary of the Company) wasmerged with Nina Waterproofing Systems Private Limited (Nina) (70% subsidiary of theCompany) pursuant to the Hon'ble National Company Law Tribunal Mumbai Bench Order dated11th January 2019 w.e.f. the appointed date i.e. 1st April 2017 andconsequently Percept stands dissolved without winding up.

Further post the said merger w.e.f. 27th March 2019 Nina's name waschanged to AEKAM Construction Specialties Private Limited (AEKAM) and w.e.f. 15thApril 2019 AEKAM is known as Nina Percept Private Limited. Accordingly the Company'sinvestment in Percept is merged with Nina Percept Private Limited and the Company nowholds 71.53% stake in the merged entity.

b. The Company incorporated a wholly owned subsidiairy in USA Pidilite Ventures LLCwhich shall be engaging mainly in the investments in early stage operating companies inUSA.

c. Pidilite Lanka (Private) Limited (Pidilite Lanka)

(a step down subsidiary of the Company in Sri Lanka) has entered into an agreement withNina Waterproofing Systems Private Limited now known as Nina Percept Private Limited(Nina) and Nina Lanka Construction Technologies (Pvt) Ltd (Nina Lanka) (a wholly ownedsubsidiary of Nina in Sri Lanka and also a step down subsidiary of the Company) to acquireup to 40% of the share capital in Nina Lanka. As on 31st March 2019 PidiliteLanka has acquired 25.2% stake in Nina Lanka.

d. Pidilite International Pte. Ltd. a wholly owned subsidiary of the Company inSingapore alongwith Crown Classics Limited a company in Kenya has promoted a jointventure company in Kenya namely Pidilite east Africa Limited (Peal) to carry on businessof construction chemicals and waterproofing material. PEAL by virtue of control is astep-down subsidiary of the Company.

Performance of Major Domestic and Overseas Subsidiaries

(रin)

Name of Subsidiary Sales 18-19 Sales 17-18 % Growth EBITDA 18-19 ebitda 17-18 % Growth
Nina Percept Pvt Ltd 305.04 239.18 27.5% 34.58 29.99 15.3%
ICA Pidilite Pvt Ltd 168.33 102.76 63.8% 1.69 1.43 18.0%
CIPY Poly Urethanes Pvt Ltd (Acquired on 8th February 2018) 155.43 26.72* na 21.12 2.18* na
Pidilite Speciality Chemicals Bangladesh Pvt Ltd 98.47 85.26 15.5% 17.02 15.84 7.4%
Pidilite USA Inc 103.55 113.71 (8.9%) 1.38 7.54 (81.6%)
Pulvitec do Brasil Industria e Comercio de Colas e Adesivos Ltda 86.77 85.67 1.3% 0.34 0.66 (47.8%)
Pidilite Industries Egypt SAE includes PIL Trading (Egypt) Company 29.44 28.13 4.7% (1.74) (1.52) (14.4%)
Pidilite Bamco Ltd includes Bamco Supply and Services Ltd (Thailand) 60.08 55.79 7.7% 3.79 4.82 (21.3%)
Pidilite MEA Chemicals LLC (UAE) 99.40 89.63 10.9% (7.45) (10.00) 25.4%
Pidilite Lanka (Pvt) Ltd 36.83 31.28 17.7% (0.63) 1.02 (162.0%)

Previous year figures wherever applicable are made comparable after reflecting impactof GST for the full year.

* For the period from 08.02.2018 to 31.03.2018

Overseas subsidiaries figures are at constant currency. Figures given above do notinclude Sales and EBITDA of Cyclo division of Pidilite USA Inc. which was sold byPidilite USA Inc. in June 2017.

Nina Percept Pvt Ltd engaged in waterproofing services reported good sales and EBITDAgrowth in current year. During the year ICA Pidilite has acquired brands and technicalknowhow of certain wood finish products from the Company. Like for like sales growth afterexcluding these products is 26% over the last year. EBITDA was impacted by higher inputcost and foreign exchange losses. Going forward local manufacturing is expected to scaleup and this should result in improvement in margins. CIPY was acquired in February 2018hence its performance is not comparable with last year.

The subsidiary in Bangladesh reported good sales growth with healthy profitabilitythough the profit growth was impacted due to higher input cost.

Pidilite USA sales and EBITDA declined over previous financial year due to drop insales of pencils and markers catering to adult colouring books mainly because of change intrend.

Pulvitec do Brasil reported marginal sales growth for current year. EBITDA declined dueto competitive pressure in key products.

The subsidiaries in Egypt reported lower sales growth due to market conditions. Thesubsidiaries in Thailand reported modest sales growth. EBITDA in these subsidiariesdeclined due to lower sales growth and higher input costs. The subsidiary in UAE reportedreduction in EBITDA losses due to higher sales and control on expenses.

Pidilite Lanka continued to grow in current year however EBITDA remains under pressuredue to higher input cost and forex losses.

Consolidated Financial Statements

In accordance with the provisions of Companies Act 2013 (hereinafter referred to as"the Act") Regulation 33 of the Securities and Exchange Board of India (ListingObligations and Disclosure Requirements) Regulations 2015 (hereinafter referred to as"Listing Regulations") and applicable Accounting Standards the AuditedConsolidated Financial Statements of the Company for the financial year 2018-19 togetherwith the Auditors रReport form part of this Annual Report. A statement containing thesalient features of the Company's subsidiaries associate and joint venture company in theprescribed Form AOC- 1 are set out in Note No. 59 to the Consolidated FinancialStatements.

The Consolidated Financial Statements have been prepared on the basis of auditedfinancial statements of the Company its subsidiaries associate company and jointventure as approved by their respective Board of Directors except Pulvitec do BrazilIndustria e Comercio de Colas e Adesivos Ltda. which has been approved by the localadministrator and Plus Call Technical Services LLC Dubai for which the financialstatements have been approved by the management. There has been no transaction in PidiliteEast Africa Ltd. from the date of formation till 31st March 2019.

The accounts of the subsidiaries are also uploaded on the website of the Company www.pidilite.com.

Directors and Key Managerial Personnel

In terms of the Regulation 17(1A) of the Listing Regulations members have approved bypassing Special Resolution by means of Postal Ballot the continuation of tenure ofDirectorship of Shri B S Mehta as Non-Executive Independent Director and Shri N K Parekhas Nonexecutive Director upto the conclusion of ensuing 50th Annual GeneralMeeting (AGM).

The Board of Directors on the recommendation of Nomination & RemunerationCommittee has recommended to the members for re-appointment of Shri Bansi Mehta ShriUday Khanna and Smt. Meera Shankar as Independent Directors of the Company for a secondconsecutive term commencing from the conclusion of 50th AGM.

In accordance with the Act and the Articles of Association of the Company Shri N KParekh and Shri A N Parekh Directors of the Company retire by rotation and beingeligible offer themselves for re-appointment.

Smt Savithri Parekh resigned with effect from 10th October 2018 as theCompany Secretary and Compliance Officer (Key Managerial Personnel) of the Company. ShriP. Ganesh Chief Financial Officer of the Company has resigned from the services of theCompany effective 25th May 2019.

In terms of Section 203 of the Act and applicable provision of Listing Regulations theBoard of Directors has appointed Shri Puneet Bansal as the Company Secretary andCompliance Officer (Key Managerial Personnel) of the Company with effect from 20thFebruary 2019.

Policy on Directors रremuneration

The Policy on Directors रremuneration is given as an annexure and is also availableon the website of the Company www.pidilite.com. The remuneration paid to theDirectors is as per the terms laid out in the said policy.

Directors' Responsibility Statement

Your Directors confirm that:

• in the preparation of the annual accounts the applicable accounting standardshave been followed along with proper explanation relating to material departures;

• the directors have selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the

Company at the end of the financial year ended 31st March 2019 and of theprofit of the Company for that period;

• the directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act 2013for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities;

• the directors have prepared the annual accounts on a going concern basis;

• the Board has laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and are operatingeffectively; and

• the directors have devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems are adequate and operatingeffectively.

Annual evaluation by the Board of its own performance its Committees and individualDirectors

The Board has put in place a mechanism for evaluation of its own performance itsCommittees and individual Directors. The evaluation of the Board Committees Directorsand Chairman of the Board was conducted based on the evaluation parameters such as Boardcomposition and structure effectiveness of the Board participation at meetings domainknowledge awareness and observance of governance etc. For further details please referto Corporate Governance section of this Annual Report.

Familiarisation Programme

The Company has put in place an induction and familiarisation programme for all itsDirectors including the Independent Directors.

The familiarisation programme for Independent Directors in terms of provisions ofRegulation 46(2)(i) of Listing Regulations is uploaded on the website of the Company.

Number of meetings of Board of Directors

Eight meetings of the Board of Directors of the Company were held during the year. Forfurther details please refer to Corporate Governance section of this Annual Report.

Statement of Declaration on Independence given by Independent Directors

All the Independent Directors of the Company have given declarations that they meet thecriteria of independence as laid down under section 149(6) of the Act and Regulation16(1)(b) of Listing Regulations.

Corporate Governance

The Company is committed to good corporate governance practices. The Report onCorporate Governance as stipulated under Listing Regulations forms an integral part ofthis Annual Report. The requiste certificate from M/s M. M. Sheth & Co. PractisingCompany Secretaries is attached to the Report on Corporate Governance.

Management Discussion and Analysis Report

Management Discussion and Analysis Report for the year under review as stipulatedunder Listing Regulations is presented in a section forming part of this Annual Report.For sake of brevity the items covered in Board's Report are not repeated in the ManagementDiscussion and Analysis Report.

Committees of the Board

The following statutory Committees constituted by the Board function according to theirrespective roles and defined scope:

• Audit Committee

• Nomination and Remuneration Committee

• Corporate Social Responsibility Committee

• Stakeholders Relationship Committee

• Risk Management Committee

Details of composition terms of reference and number of meetings held for respectiveCommittees are given in the Report on Corporate Governance which forms a part of thisAnnual Report. Further during the year under review all recommendations made by theAudit Committee have been accepted by the Board.

Corporate Social Responsibility Committee

The report as per Section 135 of the Act read with Companies (Corporate SocialResponsibility Policy)

Rules 2014 is attached as annexure 1. The details of CSR Initiatives forms partof Social & Community Service Initiatives.

Vigil mechanism / whistle Blower Policy

The Company has established a Vigil Mechanism and Whistle Blower Policy for itsDirectors and employees.

The said Policy has been communicated to the Directors and employees of the Company andalso posted on the website of the Company. For further details please refer to theCorporate Governance section of this Annual Report.

Policy relating to Prevention of Sexual Harassment

The Company has formulated a Prevention of Sexual Harassment Policy and has formed anInternal Complaints Committee. For further details please refer to the CorporateGovernance section of this Annual Report.

Statutory auditors

In accordance with the provisions of Act M/s Deloitte Haskins & Sells LLPChartered Accountants (Firm Registration No 117366W/W-100018) have been appointed as theStatutory Auditors of the Company for a period of 5 years i.e. upto the conclusion of 54thAGM to be held for the adoption of accounts for the year ending 31st March2023.

There is no qualification or adverse remark in Auditors रReport. There is no incidentof fraud requiring reporting by the Auditors under Section 143(12) of the Act.

Cost auditor and Cost audit Report

M/s. V J Talati & Co. Cost Accountants were appointed as the Cost Auditor for thefinancial year 2018-19 to conduct the audit of the cost records of the Company.

M/s V J Talati & Co. Cost Accountants have been reappointed as the Cost Auditorfor the financial year 2019-20. In terms of the provisions of Section 148(3) of the Actread with the Companies (Audit and Auditors)

Rules 2014 as amended the remuneration payable to the Cost Auditors has to beratified by the Members of the Company. Accordingly at the ensuing AGM the Board seeksratification of the remuneration payable to the Cost Auditors for the financial year2019-20.

Secretarial auditor and Secretarial audit Report

Pursuant to the provisions of Section 204 of the Act and the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 the Company has appointed M/s M. M.Sheth & Co. Practising Company Secretaries to undertake the Secretarial Audit of theCompany. The Report of the Secretarial Auditor is attached as annexure 2. There isno qualification or adverse remark in their Report.

Conservation of Energy Technology absorption and Foreign Exchange Earnings and outgo

The particulars under Section 134 of the Act read with the Companies (Accounts) Rules2014 are attached to this Report as annexure 3.

Risk management

In compliance with Regulation 21 of Listing Regulations a Risk Management Committeehas been constituted by the Board. The Risk Management Committee also known as RiskManagement Oversight Committee is entrusted with roles and powers which includes (a)Review and approval of risk management plan (b) Review progress on the risk managementplan (c) Propose methodology on risk classification and measurement.

The Company has laid out a risk management plan for identification and mitigation ofrisks. The Company has also constituted a Management Risk Committee which is chaired by anExecutive Director and has various Functional Heads of the Company as members of theCommittee. The other Business/Function heads are invited as and when required. TheManagement Risk Committee identifies the key risks for the Company develop and implementthe risk mitigation plan reviews and monitors the risks and corresponding mitigationplans on a regular basis and prioritize the risks if required depending upon the effecton the business/reputation.

The other details are provided in the Corporate Governance Report section of thisAnnual Report.

Contracts and Arrangements with Related Parties

All contracts/arrangements entered by the Company during the financial year withrelated parties (as defined in the Act and Listing Regulations) were in the ordinarycourse of business and on an arm's length basis. During the year the Company did notenter into any contract/ arrangement/ transaction with related parties which could beconsidered as material.

The Policy on materiality of related party transactions and dealing with related partytransactions as approved by the Board is available on the website: www.pidilite.com. Disclosureof related party transactions with the promoter(s)/promoter(s) group which individuallyhold 10% or more shareholding of the Company as per Indian Accounting Standards are setout in Note No. 43 of the Standalone Financial Statements of the Company.

Particulars of Loans Guarantees or Investments

Details of loans guarantees or investments covered under the provisions of Section 186of the Act are given in the notes to the Financial Statements.

Employees Stock option Scheme

The employees Stock Option Scheme (Scheme) is in line with SEBI (Share Based employeeBenefits) Regulations 2014 (SBEB Regulations). The certificate of Auditors regardingimplementation of the Scheme would be placed at the ensuing AGM for inspection by Members.

The applicable disclosure as stipulated under the SBEB Regulations as on 31stMarch 2019 with regard to Scheme is provided in annexure 4 to this Report.

Extract of Annual Return

Extract of Annual Return of the Company is attached as annexure 5 to thisReport. It is also available on the website: www.pidilite.com.

Business Responsibility Report

A Business Responsibility Report as per Regulation 34 of the Listing Regulationsdetailing the various initiatives taken by the Company on the environmental social andgovernance front forms an integral part of this Report.

Industry Structure and Development

There is no material change in the industry structure as was reported last year.

The Company operates under two major business segments i.e. Branded Consumer &Bazaar Products and Industrial Products.

Products such as Adhesives Sealants Art & Craft Materials and OthersConstruction and Paint Chemicals are covered under Branded Consumer & Bazaar productssegment. These products are widely used by carpenters painters plumbers mechanicshouseholds students offices etc. Sale of these products to joineries and projects arealso covered under this segment.

Industrial Products segment covers products such as industrial adhesives syntheticresins organic pigments pigment preparations surfactants etc. and caters to variousindustries like packaging textiles paints printing inks paper leather etc.

In both the above business segments there are a few medium to large companies withnational presence and a large number of small companies which are active regionally.Multinational companies are also present in many of the product categories in which theCompany operates.

Current Year outlook

The prices of key raw materials which had increased significantly during the first halfof the year under review started declining in the later part of the fiscal. Barringunforseen circumstances this trend is likely to continue during the initial months of thecurrent year.

Continued slow down in construction industry and slow down in economic growth in recentmonths can impact sales growth for current year.

Major subsidiaries in India are taking initiatives to improve margins and achieveconsistent sales growth in their respective businesses.

The Company's major international subsidiaries are in USA Brazil Thailand EgyptDubai and Bangladesh.

The Company is in the process of commissioning a second plant in Bangladesh during theyear 2019.

The US subsidiary plans to increase its focus on retail and e-commerce. Variousinitiatives are being taken to improve sales and margin in Brazil. The businessenvironment in some of these countries remain subdued.

Outlook on opportunities Threats Risks and Concerns

The Indian economy provides a large opportunity to the Company to market itsdifferentiated products.

Slower growth of the Indian economy and stress in sectors such as construction couldimpact the performance of the Company.

Overseas subsidiaries by virtue of their relatively smaller size remain vulnerable tothe political and economic uncertainties of their respective countries.

Internal Financial Control Systems and their Adequacy

The Company has adequate internal financial control procedures commensurate with itssize and nature of business.

The Company has appointed Internal Auditors who periodically audit the adequacy andeffectiveness of the internal controls laid down by the management and suggestimprovements.

The Audit Committee of the Board of Directors approves the annual internal audit planand periodically reviews the progress of audits as per approved audit plans along withcritical internal audit findings presented by internal auditors status of implementationof audit recommendations if any and adequacy of internal controls.

Significant/Material orders passed by the Regulators

There are no significant/material orders passed by the Regulators or Courts orTribunals impacting the going concern status of the Company and its operations in future.

Particulars of Employees and related disclosures

Disclosure pertaining to remuneration as per Section 197(12) of the Act read with Rule5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 isattached as annexure 6 to this Report.

Details of employee remuneration as required under provisions of Section 197 of the Actand Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 (including any modifications thereof) are available at the Registered Office of theCompany during working hours and shall be made available to any shareholder on request.

Human Resources

The year under review saw substantial progress in people practices as the Companycontinued on its journey of excellence in people management policies and processes.

The Company's 'Happy and Healthy र(HAH) movement saw great participation with almost50% of the employees engaging in various activities.

The Company enhanced the people processes like Career Navigator Individual DevelopmentPlans and Career

Paths. Signature capability-building programs like Ignite (for Marketing Managers)Ascent (for Sales Managers) Capstone (for Middle Managers) and Edge (for Young Managers)strengthened the Learning & Development initiative and were well-received byparticipants and leaders.

Progressive HR policies such as work from home paternity leave saturdays offs etc.were introduced as part of the journey to become a great place to work. Many existingemployee benefit policies were revised to make them best in class.

The Company is committed to building a "listening organization" throughmultiple platforms. Workplace our in-house social network platform has played a key rolein promoting two-way communication with employees.

The new Human Resource Management System Workline introduced during the year hasstrengthened the online HR systems and provided employees with a better user experience.

The total number of employees as on 31st March 2019 was 5742.

General

The Company has not issued equity shares with differential rights as well as sweatequity shares.

There have been no material changes and commitments affecting the financial position ofthe Company between the end of financial year and the date of this Report.

The Company has complied with Secretarial Standards issued by the Institute of CompanySecretaries of India on Meetings of the Board of Directors and General Meetings.

Appreciation

Your Directors wish to place on record their appreciation of the contribution made byemployees at all levels to the continued growth and prosperity of your Company. YourDirectors also wish to place on record their appreciation to the shareholders dealersdistributors consumers banks and other financial institutions for their continuedsupport.

FOR AND ON BEHALF OF THE BOARD
Mumbai M B Parekh
Date : 14th May 2019 Executive Chairman