Pidilite Industries Ltd. Limited (Pidilite) is a consumer and specialties chemicals company. Its product range includes adhesives and sealants, construction and paint chemicals, automotive chemicals, art materials, industrial adhesives, industrial and textile resins, and organic pigments. It has several market leading brands that include Fevicol, cyclo, Sargent Art, hobby ideas, Dr. Fixit, ROFF, and m-seal. Two thirds of company’s revenue comes from India’s internal market. Historically, the company has developed most of its product thought a very strong in-house development program. However, in recent years, it has embarked expanding this reach by overseas acquisition and setting up overseas manufacturing units.
Trend Analysis
The whole reason for any business to exist is to generate sales revenue and make more profits. At a minimum, the parameters listed below should have continuously increasing trends. All the data below is based on last 8 years 2000 to 2008.
- Revenue: Increasing trend with average growth of 18% (SDev. 7%).
- Earnings per share: Increasing trend with average growth of 20% (SDev. 18%). This shows very high year-over-year variability.
- Net cash flow from operations: Overall, the net cash flow from operations has an increasing trend. For most part, the net cash flow has been very close to the reported net profit. However, since 2007, it is less than reported net profits. Not a good observation.
- Profit/Loss from operations: Looking at standalone profits only, the corporation is showing consistently increasing profits from its operations. Good observation.
- Reported net profit: Increasing trend. Good observation
- Gross margins: A slow downward trend on gross margins. 2008 gross margins lower than historical average of 16.5% (narrow stdev. of 1.36%). Still not an alarmingly low level. Neutral observation.
- Operating margins: Operating margins in-line with historical average. Neutral observation.
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The Tale of Two Companies
This is about Satyam Saga. Most of the articles and comments I have read in business media focus on tangibles like revenue, profits, number of customers, etc. So in today’s post I am discussing my view of Satyam Saga. My focus is more on the intangible issues that are hidden and may not visible to common investor.
I would like begin with commending the authorities who made this transition smooth, swift, and without much ado. The use of word authorities here is a proxy for industry association, company law board, ministry officials, and other unknown institutions. I believe if this situation had prolonged and quick decisions were not made, Satyam would have went for a toss, and it would have had a negative impact on Indian outsourcing business. The short term implications would have been far reaching somewhat similar to Lehman Brothers.
One company is Tech Mahindra (TM). The other one is not Satyam. My personal viewpoint about Satyam is that it does not have wide moat in the supply chain. It operates on a business model which uses labor arbitrage as its USP. It is relatively easy and manageable for customers to shift the vendor and still not have any significant impact on their operations. I do not have any intention to offend Satyam folks. However, one has to be pragmatic and take into account how their customer base (i.e. international companies across the developed world) views them as a company. It is viewed as Wal-Mart of software outsourcing industry. The second company I would like to include here is Larsen and Toubro (LnT). Continue reading rest of this article…