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Your Directors take pleasure in presenting the Forty Sixth Annual Report for the year ended 31st March, 2015.
The Operating Profit for the year at Rs. 8058 million increased by 11.8% and Net Profit at Rs. 5018 million increased by 7.1%. Income tax for the current year at Rs. 1561 million is lower by 2.4%.
Due to the slow down in the overall economic environment and in particular in the second half of the year, sales of the Company's products were affected.
Sales of Consumer and Bazaar Products grew by 15%, lower than the growth rates recorded in the last 5 years.
Sales of Industrial Products grew at a much slower rate of 6.6% due to weak domestic environment and slowdown in exports.
Margins were adversely impacted by steep increase in input costs particularly in the first half of the year. Selective price increases were taken in a phased manner. Input prices also came down in the second half of the year and this along with the pricing action helped improve margins in the second half.
The Indian Rupee was at Rs. 62.62 to a US $ as on 31st March, 2015 as compared to Rs. 60.05 to a US $ as on 31st March, 2014.
The Directors recommend a dividend of Rs. 2.90 per equity share of Rs. 1 each, out of the current year's profit, on 512.66 million equity shares of Rs. 1 each (previous year @ Rs. 2.70 per equity share) amounting to Rs. 1487 million (previous year Rs. 1384 million). Dividend for the current year will be free of tax in the hands of shareholders. The dividend payout amount has grown at a CAGR of 14.8% during the last 5 years.
The Company has no outstanding term loans.
The total expenditure during the year was Rs. 3747 million, spent on fixed assets for various manufacturing units, offices, laboratories, warehouses and on information technology. This also includes the acquisition cost for the adhesive business of Bluecoat Private Ltd.
Synthetic Elastomer Project
As mentioned in the last year's report, the Company was in discussion with several interested parties with a view to finding a strategic partner for the project. While discussions have continued in the last year, they have not reached a conclusive stage. The total investment in the project stands at Rs. 3657.03 million.
The manufacturing facility at Guwahati to produce Fevikwik and M–seal, was commissioned and commercial despatches commenced from April, 2014.
Equity Dividend Payout & % of Net Profit (excluding exceptional items)
Integration process of the business acquired from Bluecoat Private Ltd. was completed during the year. Capacity expansions were undertaken in Kalaamb Unit 2 for select Fevicol products.
Operations at two units located at Panvel and Taloja were discontinued during the year and capacity augmented in other existing units.
The Company has not accepted any fixed deposits during the year 2014–15.
Investment in Subsidiaries
During the year, investment of Rs. 384.7 million was made in subsidiaries. Of these Rs. 382.4 million was invested in overseas subsidiaries and Rs. 2.3 million was invested in a domestic subsidiary.
The investments in overseas subsidiaries were mainly in Pulvitec do Brazil Industria e Comercio de colas e adesivos Ltda. (Rs. 179 million), Pidilite Middle East Ltd. (Rs. 189.9 million) for onward investments in Jupiter Chemicals (LLC) and Pidilite Chemical PLC (Rs. 12.1 million).
During the financial year, the Company acquired 70% shareholding in Nina Waterproofing Systems Private Ltd. (Nina), making Nina a domestic subsidiary of the Company. Subsequently, in April, 2015, Nina acquired the water proofing business of Nina Concrete Systems Private Ltd. on a slump sale basis. Nina is engaged in the business of supply and installation of waterproofing systems.
Performance of Domestic Subsidiaries
Percept Waterproofing Services Ltd which commenced operations in February, 2014 reported sales ofRs. 200 million and Profit after Tax ofRs. 7.7 million.
Hybrid Coatings reported sales ofRs. 88.6 million and a Profit after Tax ofRs. 10.3 million. Sales have improved in the second half as the Company's products gained greater acceptance with customers.
Performance of Overseas Subsidiaries
Total revenue grew by 15.1% in constant currency terms. However, due to an unfavourable translation impact, the reported growth is 14.2%.
The subsidiary in US reported sales growth of 11.2% at constant currency. The growth in business was driven by strong growth of Sargent Art business in retail segment. As a part of business strategy, the subsidiary invested in getting more products approved, improve visibility and build up supply chain for supporting increased business in retail segment. The subsidiary in US reported 8% growth in profit before tax.
The subsidiary in Brazil reported sales growth of 3.1% at constant currency. This was partly due to slow growth in Brazilian economy. During the year, the company undertook various cost reduction and efficiency improvement initiatives. This resulted in 38% reduction in losses at EBITDA level over last year.
The subsidiary in Bangladesh reported net sales growth of 21.2% at constant currency. Higher sales coupled with pricing actions resulted in 21.3% growth in EBITDA.
The subsidiary in Egypt reported sales growth of 22.1% at constant currency. Margins were under stress due to sharp devaluation (~15%) of local currency against the USD. The subsidiary reported marginal losses of Rs. 5 million at the EBITDA level.
Sales of the subsidiaries in Thailand grew by 10% at constant currency. Business was affected due to political disturbance / elections and slowdown in economy. Margins during the period improved by 200 bps driven by improved product mix. EBITDA grew by 8.5%.
The subsidiary in Dubai reported sales growth of 74.6% at constant currency on comparable basis. Effective November, 2014, the subsidiary expanded its business to include import and distribution of the parent company's products in the GCC and CIS countries. During the year, the subsidiary acquired a brand 'ROK' and hired a new management team. Losses at EBITDA level have reduced by 27% over last year.
The subsidiary in Singapore reported drop in sales by 20%. Losses were lower than last year by 10.3%.
Full year loss (PBT) incurred by overseas subsidiaries was Rs. 20.2 million as compared to loss of Rs. 180.1 million last year. Excluding extraordinary expenses, the overseas subsidiaries have made a profit of Rs. 4.4 million as compared to loss of Rs. 11.2 million last year.
During the year, Pidilite Chemical PLC was incorporated in Ethiopia, as a subsidiary of the Company. The Company has invested Rs. 12.1 million in Pidilite Chemical PLC (as on 31st March, 2015).
During the year the following companies became subsidiaries of the Company
1. Nina Waterproofing Systems Private Ltd.
2. Pidilite Chemical PLC
Consolidated Financial Statements
In accordance with the requirements of Accounting Standards AS 21 (read with AS 23), issued by the Institute of Chartered Accountants of India, the Consolidated Financial Statements of the Company and its subsidiaries and associate are annexed to this Annual Report. A statement containing the salient features of the Company's subsidiaries and associate company in the prescribed form is attached.
The consolidated financial statements have been prepared on the basis of audited financial statements of the Company, its subsidiaries and associate company, as approved by their respective Board of Directors except the newly incorporated subsidiary Pidilite Chemical PLC for which the financial statements have been approved by the management of the Company.
The consolidated financial statements of the Company for the financial year 2014–15 are prepared in compliance with applicable provisions of the Companies Act, 2013, Accounting Standards and Listing Agreement as prescribed by the Securities and Exchange Board of India (SEBI).
Directors and Key Managerial Personnel
There has been a change in designation of Shri M B Parekh who ceased to be the Managing Director of the Company with effect from 10th April, 2015 and has been designated as a Whole Time Director and as the Executive Chairman of the Company.
The Board has appointed Shri Bharat Puri as the Managing Director of the Company for a period of 5 years with effect from 10th April, 2015.
Shri N K Parekh has ceased to be the Joint Managing Director of the Company and has been appointed as the Non Executive Vice Chairman of the Company with effect from 1st April, 2015.
The term of Shri A N Parekh as a Whole Time Director will expire on 1st July, 2015. The Board of Directors at their meeting held on 19th May, 2015 have re–appointed him for a further period of 5 years.
Shri R Sreeram, Director (Factories Operations) of the Company resigned with effect from 7th November, 2014 on account of taking up an entrepreneurship role.
Shri J L Shah was appointed as Director (Factories Operations) with effect from 4th November, 2014. He resigned with effect from 19th May, 2015 as he was planning to re–start his consultancy activity.
Shri Yash Mahajan, Independent Director of the Company resigned with effect from 4th November, 2014 on account of personal reasons.
The Directors place on record their sincere appreciation of the valuable services rendered by Shri R Sreeram, Shri J L Shah and Shri Yash Mahajan during their tenure as Directors of the Company.
In terms of Section 203 of Companies Act, 2013, Shri Sandeep Batra is the Chief Financial Officer of the Company (who was already functioning as Chief Financial Officer designated as Director – Finance).
Shri Sabyaschi Patnaik has been appointed as an Additional Director by the Board of Directors with effect from 19th May, 2015. In terms of Section 161 of the Companies Act, 2013, he holds office upto the date of ensuing Annual General Meeting. Notice in writing with requisite deposit has been received from a member proposing his candidature for the office of Whole Time Director. The Board has also appointed him as Director – Operations, with effect from 19th May, 2015, subject to approval of members.
In accordance with the Articles of Association of the Company, Shri N K Parekh and Shri A N Parekh, Directors of the Company, retire by rotation and being eligible, offer themselves for re–appointment.
Shri Sanjeev Aga is Non–Executive Independent Director of the Company, liable to retire by rotation. In terms of Sections 149, 152 read with Schedule IV and other applicable provisions, if any, of the Companies Act, 2013, he is proposed to be re–appointed as a Director who will be an Independent Director for a term of 5 years from the date of this Annual General Meeting upto the conclusion of the Fifty First Annual General Meeting of the Company to be held in respect of financial year ending 31st March, 2020. The Company has received requisite notice in writing from a member, proposing Shri Sanjeev Aga for appointment as an Independent Director.
Shri Sanjeev Aga shall not be liable to retire by rotation. He has given the declaration of independence as per Section 149 (6) of the Companies Act, 2013.
The members' approval is being sought at the ensuing Annual General Meeting for the above appointments.
Directors' Responsibility Statement
Your Directors confirm that:
• in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;
• the directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year ended 31st March, 2015 and of the profit of the company for that period;
• the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
• the directors have prepared the annual accounts on a going concern basis; and
• the Board has laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively;
• the directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.
Annual Evaluation by the Board of its Own Performance, its Committees and individual Directors
The Board of Directors of the Company has initiated and put in place evaluation of its own performance, its committees and individual directors. The result of the evaluation is satisfactory and adequate and meets the requirement of the Company.
Your Company has put in place an induction and familiarisation programme for all its Directors including the Independent Directors.
The familiarisation programme for Independent Directors in terms of provisions of Clause 49 of the Listing Agreement is uploaded on the website of the Company and can be accessed through the following link: ttps://www.pidilite.com/
Number of Meetings of Board of Directors
Nine meetings of the Board of Directors of the Company were held during the year. For further details, please refer to Corporate Governance section of this Annual Report.
Statement of Declaration on Independence given by Independent Directors
Shri B S Mehta, Shri Ranjan Kapur, Shri Uday Khanna and Smt. Meera Shankar, Independent Directors of the Company have given declarations that they meet the criteria of independence as laid down under section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.
Shri Sanjeev Aga has also given a declaration that he meets the criteria of independence as laid down under section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.
Reports on Corporate Governance and Management Discussion and Analysis, in accordance with Clause 49 of the Listing Agreements with Stock Exchanges, along with a certificate from M/s M M Sheth & Co., Practising Company Secretaries, are given separately in this Annual Report.
In accordance with the provisions of Companies Act, 2013, at the Annual General Meeting held on 25th September, 2014, the shareholders had appointed M/s Deloitte Haskins & Sells, Chartered Accountants as Statutory Auditors of the Company, for a period of 4 years i.e. upto the conclusion of 49th Annual General Meeting to be held for the adoption of accounts for the financial year ending 31st March, 2018. M/s Deloitte Haskins & Sells, Chartered Accountants, have consented to be the Auditors of the Company, if their appointment is ratified by the members at the Annual General Meeting and have also confirmed that their appointment is as per the provisions of Section 141 of the Companies Act, 2013 and Rule 4 of Companies (Audit and Auditors) Rules, 2014.
Corporate Social Responsibility Committee
The Corporate Social Responsibility Committee (CSR Committee) comprises of directors namely Shri N K Parekh, Shri Sanjeev Aga and Shri A B Parekh as members.
The report as per Section 135 of the Companies Act, 2013 read with Companies (CSR Policy) Rules, 2014 is attached as Annexure 1.
The Audit Committee comprises of Directors namely Shri B S Mehta (Chairman), Shri N J Jhaveri, Shri Ranjan Kapur and Shri M B Parekh as other members. All the recommendations made by the Audit Committee were accepted by the Board.
Vigil Mechanism / Whistle Blower Policy
The Company has established a Vigil mechanism for Directors & employees and the same has been communicated to the Directors & employees of the Company and the same is also posted on the website of the Company.
Policy relating to Sexual Harassment
The Company has formulated a Sexual Harassment Policy and has formed an Internal Complaints Committee.
Cost Auditor and Cost Audit Report
Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Amendment Rules, 2014, cost audit records are maintained by the Company. As required under the Companies Act, 2013, a resolution seeking approval of the members in this regard is included in the Notice convening the Annual General Meeting.
Cost Audit Report for the year ended 31st March, 2015 will be submitted in due course.
The Company has filed the Cost Audit Report for the year ended March, 2014 with the Central Government.
Secretarial Auditor and Secretarial Audit Report
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed M/s M M Sheth & Co., Practising Company Secretaries to undertake the Secretarial Audit of the Company. The Report of the Secretarial Auditor is attached as Annexure 2.
Conservation of Energy, Technology, Absorption and Foreign Exchange Earnings and Outgo
The particulars under Section 134 of the Companies Act, 2013, read with the Companies (Accounts) Rules, 2014 are attached to this Report as Annexure 3.
During the year your Directors constituted a Risk Management Committee which has been entrusted with roles and powers which include a) Review and approval of risk management plan b) Review progress on the risk management plan c) Propose methodology on risk classification and measurement.
A Risk Management Policy was reviewed and approved by the Committee.
Contracts and arrangements with Related Parties
All Contracts/arrangements entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm's length basis. During the year, the Company did not enter into any contract/ arrangement/transaction with related parties which could be considered material.
The Policy on materiality of related party transactions and dealing with related party transactions as approved by the Board may be accessed through the following link:
Your Directors draw attention of the members to Note no. 42 to the financial statement which sets out related party disclosures.
Particulars of Loans, Guarantees or Investments
Details of loans, guarantees and investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the Financial Statements.
Employees Stock Option Scheme
During the financial year 2013–2014, 49,000 options were granted in one tranche to the eligible employees of the Company in terms of Employees Stock Option Scheme – 2012 (ESOS– 2012). During the current financial year, 20,500 options were exercised by the employees. Accordingly, the Company made an allotment of 20,500 equity shares on 15th November, 2014.
The applicable disclosure as stipulated under the SEBI Guidelines as on 31st March, 2015 with regard to Employee Stock Option 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 this Report.
Particulars of Employees and related disclosures
Disclosure pertaining to remuneration as per Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 is attached as Annexure 6 to this Report.
Details of employee remuneration as required under provisions of Section 197 of the Companies Act, 2013 and Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are available at the Registered Office of the Company during working hours and shall be made available to any shareholder on request.
Industry Structure and Development
There is no material change in the industry structure as was reported in the 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 Material, Construction and Paint Chemicals are covered under branded Consumer & Bazaar Products segment.
These products are widely used by carpenters, painters, plumbers, mechanics, households, students, offices etc.
Industrial Products segment covers products such as industrial adhesives, synthetic resins, organic pigments, pigment preparations, surfactants etc and caters to various industries like packaging, textiles, paints, printing inks, paper, leather etc.
In both the above business segments, there are a few medium to large companies with national presence and a large number of small companies which are active regionally. There is a growing presence of multinationals in many of the product categories in which the Company operates. The share of imports is less than 10% of domestic volumes in most of the product categories.
The "Others" segment, largely comprises manufacture and sale of Speciality Acetates. As mentioned in last year's report, the VAM plant has been modified to make a range of Speciality Acetates as import of VAM continues to remain more viable as opposed to in–house manufacture.
The technology for these Speciality Acetates has been indigenously developed and these products are gaining acceptance with customers.
Current Year Outlook
Recent trends suggest a weak economic scenario in the current year. This will have an impact on the demand for the Company's products. It is expected that the economic scenario may improve only by the end of the year.
Prices of VAM, a key input for the Company's products, had sharply increased towards end of last year and peaked in July / August 2014. Prices in $ terms have since corrected and together with price increases, taken in last year, would have a positive impact on margins, in the short term.
The Company has 7 manufacturing units in Himachal Pradesh which enjoy exemption from excise duty and income tax. Three of these units will be completing their tax holiday period in 2015–16. While the excise benefit will cease on the 10th anniversary of the setting up of these units, no income tax exemption will be eligible on the profits from these three units for the financial year 2015–16.
The Company's major subsidiaries are in USA, Brazil, Thailand, Egypt, Dubai and Bangladesh.
The economic situation in Brazil is challenging with several key sectors like construction and real estate showing contraction. This is likely to have a negative effect on the performance of Brazilian subsidiary. Other overseas subsidiaries, in aggregate, are working towards an improved performance, subject to no significant adverse impact on current business environment
Outlook on Opportunities, Threats, Risks and Concerns
The Indian economy provides a large opportunity to the Company to market its differentiated products. Higher growth in select global economies could provide a boost to exports.
Slower growth of the Indian economy could impact the performance of the Company.
Overseas subsidiaries by virtue of their relatively smaller size remain vulnerable to the political and economic uncertainties of their respective countries.
Internal Control Systems and their Adequacy
The Company has adequate internal financial control procedures commensurate with its size and nature of business.
The Company has appointed Internal Auditors who periodically audit the adequacy and effectiveness of the internal controls laid down by the management and suggest improvements.
The Audit Committee of the Board of Directors periodically reviews the audit plans, internal audit reports, adequacy of internal controls and risks management plan.
Significant/Material orders passed by the Regulators
There are no significant/material orders passed by the Regulators or Courts or Tribunals impacting the going concern status of the Company and its operations in future.
The company continues to place significant importance on its Human Resources and enjoys cordial relations at all levels.
The 'Talent Management Process', initiated in the previous year has now been strengthened.
The total number of employees as on 31st March, 2015 was 4,904.
Your Directors wish to place on record their appreciation of the contribution made by employees at all levels to the continued growth and prosperity of your Company. Your Directors also wish to place on record their appreciation to the shareholders, dealers, distributors, consumers, banks and other financial institutions for their continued support.
FOR AND ON BEHALF OF THE BOARD
M B Parekh
Date : 19th May, 2015