DirectorsTo
The Members
Your Directors take pleasure in presenting the Forty Second Annual Report together withAudited Statements of Accounts for the year ended 31st March 2011.
Financial Results
| (Rupees in million) |
| 2010-11 | 2009-10 |
| Gross Turnover | 24883 | 20240 |
| Turnover, Net of Excise | 23538 | 19322 |
| Profit Before Tax | 3975 | 3289 |
| Current Year’s Tax | 942 | 423 |
| Profit After Current Year’s Tax | 3033 | 2866 |
| Deferred Tax | (6) | (25) |
| Profit After Current and Deferred Tax | 3039 | 2891 |
| Add: Prior Year Tax Provision written back | - | 44 |
| Profit After Tax | 3039 | 2935 |
| Profit Brought Forward | 1006 | 779 |
| Profit available for appropriation | 4045 | 3714 |
| Appropriations | | |
| Proposed Dividend on Equity Shares | 886 | 759 |
| Tax on Dividend | 143 | 126 |
| Transfer to Debenture Redemption Reserve | 42 | 323 |
| Transfer to General Reserve | 1900 | 1500 |
| Total | 2971 | 2708 |
| Balance Carried to Balance Sheet | 1074 | 1006 |
| 4045 | 3714 |
Financial Performance
The Operating Profit and Net Profit, for the year at Rs. 4945 million and Rs. 3039 million increased by 20% and 5% respectively. Income Tax for the current yearat Rs. 942 million is higher than Rs. 423 million in the last year, due tocompletion of the first five year tax holiday period for 3 manufacturing units located inHimachal Pradesh.
Due to the improvement in the economic conditions in India, as evidenced by the strongGDP growth, sales growth was higher than last few year’s trend. The economic revivalin the developed markets in the world also resulted in growth in exports, particularly inthe second half of the year.
However, there has been an increase in the input costs, largely in the last quarter,due to firming up of commodity prices and that has put pressure on margins particularly ofIndustrial Products.
The stable Indian Rupee and cost control measures taken by the Company have helped tomaintain the profitability at levels similar to that of the previous year.
The exchange rate of Indian Rupee was at Rs. 44.40 to a USD in March 2011 ascompared to Rs. 44.97 to a USD in March 2010. Accordingly there was a nominal creditof Rs. 1.99 million to carrying cost of depreciable assets and Rs. 8.05million was credited to the Foreign Exchange Monetary Item Translation Account. Out of thesaid Foreign Currency Monetary Item Translation Account, Rs. 1.07 Million has beenamortised in the current year.
‡ After deferred tax of Rs. 34 million and prior year’s tax provisionwritten back of Rs. 2 million
* After deferred tax of Rs. 140 million and prior year’s tax provisionwritten back of Rs. 4 million
** After deferred tax of Rs. 18 million and prior year’s tax provisionwritten back of Rs. nil.
*** After deferred tax reversal of Rs. 25 million and prior year’s taxprovision written back of Rs. 44 million.
# After deferred tax reversal of Rs. 6 million and before exceptional item of Rs. 250 million.
$ Excludes exceptional item of Rs. 250 million
Dividend
The Directors recommend a dividend of Rs. 1.75 per equity share of Rs. 1each out of the current year’s profit, on 506.1 million equity shares of Rs. 1each (previous year @ Rs. 1.50 per equity share including Rs. 0.50 per equityshare as "Golden Jubilee Special Dividend"), amounting to Rs. 886 million(previous year Rs. 759.2 million). In accordance with the terms of issue of ForeignCurrency Convertible Bonds (FCCBs), shares alloted on conversion of FCCBs will also beentitled to Dividend, where request for conversion is received before the book closure forpayment of dividend for the financial year 2010-11. The dividend for the current year willbe free of tax in the hands of shareholders. The dividend payout amount has grown at aCAGR of 23.68 % during the last 5 years.
Term Finance
The Company had borrowed USD 17 million through an ECB Term loan amounting to Rs. 796.2 million, repayable in 3 annual installments. During the year the Company hasrepaid the 2nd of the 3 annual installments amounting to USD 5.67 million equivalent toRs. 241.18 million.
Capital Expenditure
The overall expenditure during the year was Rs. 1235.68 million. Out of thisapproximately Rs. 711.72 million was spent on fixed assets for various manufacturingunits, offices, laboratories and warehouses and on information technology. The expenditureon the Synthetic Elastomer Project was approximately Rs. 458.59 million.
Investment in Subsidiaries
During the year, Investment of Rs. 131.73 million was made in overseassubsidiaries.
Synthetic Elastomer Project
The Company has started the construction of the Synthetic Elastomer Plant. Civil workat site has commenced and Company is targeting completion in the first half of the nextfinancial year. The total amount spent on this project is Rs. 3106.61 million.
Manufacturing Plants
Health, Safety and Environment activities continued during the year bringing greaterfocus on safety and environment at all manufacturing units.
Continuous improvement plans in the manufacturing units resulted in 400 plus Kaizensleading to productivity and process improvement.
Manufacturing capacity of insulation tapes, Fevikwik and Fevicol were enhanced.
Technology and automation projects initiated and completed on various lines likeFevigum, Fevicol, M-seal, insulation tapes, Fevikwik and various industrial products.
Foreign Currency Convertible Bonds (FCCB)
Of the USD 40 million raised through issue of zero coupon Foreign Currency ConvertibleBonds in 2007-2008, bonds aggregating USD 37.2 million were outstanding as on March 2011.The bond holders are entitled to convert their holdings into Equity shares anytime on orafter 16th January 2008 upto 1st December 2012.
Fixed Deposits
Your Company has not accepted any fixed deposits during the year 2010-11.
Subsidiaries - Overseas Subsidiaries
During the year, Pidilite Industries Trading (Shanghai) Company Limited wasincorporated in China as a wholly owned subsidiary of Pidilite International Pte. Ltd.,Singapore (which is a wholly owned subsidiary of the Company).
The business in USA reported a 11.4% growth in sales. This growth together withimprovement in operating margins helped the subsidiary to post cash profits as compared tocash losses last year.
While the subsidiary in Brazil, reported a 10.5% growth in sales, due to increase ininput costs, the unit incurred losses from operations.
The operations in Bangladesh continued to gain strength with increased marketpenetration. The unit reported a profit after tax in its first full year of operations.
Though the operations in Thailand reported higher cash profits than in the previousyear, sales growth was lower than expected. Post tax losses were at levels similar to lastyear. Performance of the subsidiary in Dubai was impacted by adverse conditions in themarkets serviced by the subsidiary.
Operations and performance of the subsidiaries in Egypt were disturbed due to politicaldevelopments in the country and neighboring areas.
Due to the reasons mentioned above the overseas operations made a nominal cash loss.The net loss before tax was higher than the previous year.
Total revenue from overseas subsidiaries for the year stood at Rs. 3021 million,up by 11.4% over the previous year.
The total investment in overseas subsidiaries as on 31st March 2011 stands at Rs. 2578 million A statement pursuant to Section 212 of the Companies Act, 1956,relating to subsidiaries in India and abroad, is attached hereto.
Consolidated Accounts
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 Accounts ofthe Company and its subsidiaries are annexed to this Annual Report. Additionally, astatement giving prescribed particulars of information, in aggregate for each subsidiary,is attached.
In terms of the General Circular No. 2/2011 dated 08.02.2011, issued by the Governmentof India, Ministry of Corporate Affairs, the Annual Reports of the Subsidiary Companiesare not annexed to this Report. Members desiring to have a copy of audited Annual Accountsand the related detailed information of the above subsidiaries may write to the CompanySecretary at the Registered Office of the Company and they will be provided with the sameupon such a request. Annual Accounts of these subsidiary Companies will also be kept forinspection of the Members at the Registered Office of the Company as well as at theRegistered Office of the subsidiary companies.
Directors
In accordance with the Articles of Association of the Company, Shri B K Parekh, Shri SK Parekh, Shri A N Parekh and Shri Bharat Puri, Directors of the Company, retire byrotation and being eligible, offer themselves for re-appointment.
Directors’ Responsibility Statement
Your Directors confirm that:
• in the preparation of the Annual Accounts, the applicable accounting standardshave been followed;
• 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 thefinancial year ended 31st March 2011 and of the profit of the Company for the year endedon that date;
• the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act, 1956for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities; and
• The Directors have prepared the Annual Accounts on a going concern basis.
Corporate Governance
Reports on Corporate Governance and Management Discussion and Analysis, in accordancewith Clause 49 of the Listing Agreements with Stock Exchanges, along with a certificatefrom M/s. M M Sheth & Co, Practising Company Secretaries, are given separately in thisAnnual Report.
Auditors
Members are requested to re-appoint M/s. Haribhakti & Co, Chartered Accountants, asAuditors of the Company and also for its branches/C & F depots/depots, for the currentfinancial year and to fix their remuneration.
Cost Auditor
The Company has received the approval of the Central Government for the appointment ofM/s. V J Talati & Co. as Cost Auditor to conduct cost audit for the financial year2011–12.
Conservation of Energy, Technology Absorption, etc.
The particulars under Section 217(1) (e) of the Companies Act, 1956, read with theCompanies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988,are attached to this Report as Annexure I.
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 Speciality Industrial Chemicals.
Products such as Adhesives, Sealants, Art Materials, Construction and Paint Chemicalsare covered under branded Consumer & Bazaar Products segment. These products arewidely used by carpenters, painters, plumbers, mechanics, households, students, offices,etc.
Speciality Industrial Chemicals segment covers products such as Industrial Adhesives,Synthetic Resins, Organic Pigments, Pigment Preparations, Surfactants, etc. and caters tovarious industries 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 size companies that are active regionally.There is growing presence of multinationals in many of the segments in which the Companyoperates. The share of imports is less than 10 % of domestic volumes in most of theproduct segments.
The "Other" segment largely covers manufacture and sale of VAM. As mentionedearlier, due to global demand supply situation it was viable to import VAM rather thanmanufacture in-house and accordingly the plant remained shut last year. Going forward, inthe near future, import of VAM is likely to remain more viable. The Company is exploringalternate products which can be manufactured in the same plant.
Current Year Outlook
During the current year, due to the inflationary pressures, the Reserve Bank of Indiahas been steadily increasing interest rates. This is expected to adversely impact overalleconomic growth and therefore could impact the demand for the Company’s products,thereby impacting the sales growth.
Due to the steep increase in commodity prices, input costs have gone up sharply. Thoughthe Company does pass on these increases by way of price increases, this could impactmargins as there is a lag between the cost increase and the price increase.
The Company’s major subsidiaries are in USA, Brazil, UAE, Thailand, Egypt andBangladesh. While all the units are expected to show improved performance, the business inBrazil is vulnerable to high inflation and slow down in growth rate. The operations inEgypt and U.A.E. could be impacted by the local political situation.
Outlook on Opportunities, Threats, Risks and Concerns
Stable economic growth in India will provide an opportunity to the Company to grow itsbusiness and introduce differentiated products for meeting customer expectations. Theimproving global economy will facilitate growth of export oriented products.
Increasing interest rates could slow down economic demand thereby impactingCompany’s sales in the current year. In addition input costs increases are likely toput pressure on margins in the short term.
Though the Company has strengthened its management structure in the overseassubsidiaries, due to the political uncertainties in some countries and the small size ofthe overseas operations, the performance in these units could be impacted by local events.
Internal Control Systems and their adequacy
The Company has adequate internal control procedures commensurate with its size andnature of business.
The Company has appointed Internal Auditors who audit the adequacy and effectiveness ofinternal controls laid down by the management and suggest improvements.
For overseas subsidiaries, this is being done by their Statutory Auditors.
The Audit Committee of the Board of Directors periodically reviews the audit plans,internal audit reports, and adequacy of internal controls and risks management.
Human Resources
The Company continues to place significant importance on its Human Resources and enjoyscordial relations at all levels.
A New Performance & Potential Management System, branded as ‘PILglobin’has been launched. This process is likely to provide a steady stream of talent across theCompany with clear career plans to occupy key jobs.
Further, to improve the operational efficiency, the Company has also initiatedautomation of all its HR processes.
The total number of employees as on 31st March 2011 was 4130.
A statement of particulars pursuant to Section 217(2A) of the Companies Act, 1956 readwith the Companies (Particulars of Employees) Rules, 1975, forms part of this Report asAnnexure II. As per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956,the Report, together with Accounts, is being sent to the Shareholders of the Company,excluding the statement of particulars of employees under Section 217(2A) of the Act.Members desiring to have a copy of the same may write to the
Company Secretary at the Registered Office of the Company and they will be providedwith the same upon such a request.
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 for the shareholders, dealers,distributors, consumers, banks and other financial institutions for their continuedsupport.
| FOR AND ON BEHALF OF THE BOARD |
| Mumbai | B K PAREKH |
| Date: 19th May 2011 | CHAIRMAN |
Annexure I to the Directors’ Report
Statement containing particulars pursuant to the Companies (Disclosure of particularsin the Report of the Board of Directors) Rules, 1988 forming part of the report of theDirectors.
A] CONSERVATION OF ENERGY
a) Energy Conservation Measures taken
1 Review of process equipment design and re-validation to reduce energy consumption.
2. Alignment of batch processes to optimize utilities.
3. Modification of furnaces for alternative (cheaper) fuel while ensuring flexibilityfor multi-fuel operation.
4. Batch process cycle time reduction and increase in batch size to reduce overallenergy consumption.
b) Additional Investments and Proposals, if any, being implemented for reduction ofConsumption of Energy
1. Induction of Solar Heaters and Photo-Voltaic Cells to reduce consumption of Coal,Fuel Oil and/or Electricity in Plants and Offices.
2. Fresh Energy Audits at high energy consuming plants to explore energy savingopportunities.
c) Impact of measures of (a) and (b) above for reduction of energy consumption andconsequent impact on the cost of production of goods.
6.0 Lac kwh Electricity and 650 MT of Fuel Oil are expected to be saved annually byabove measures.
d) Total energy consumption and energy consumption per unit of production
As per Form A
FORM A
Disclosure of particulars with respect to Conservation of Energy
A. Power and Fuel consumption / Generation
| | Year ended 31st March 2011 | Year ended 31st March 2010 |
| 1. Electricity | | | |
| a. Purchased | | | |
| Units | ‘000 kwh | 2,03,55 | 1,76,63 |
| Total amount | in million | 113.63 | 96.42 |
| Rate / Unit (Average) | | 5.58 | 5.46 |
| b. Own Generation | | | |
| (i) Through Diesel Generator | | | |
| Units | ‘000 kwh | 5,73 | 2,75 |
| Units per litre of diesel oil | Kwh | 2.85 | 2.59 |
| Cost / Unit | / kwh | 13.25 | 13.49 |
| (ii) Windmill Generation | | | |
| Units | ‘000 kwh | 79,37 | 86,21 |
| 2. Coal | | | |
| Quantity | MT | 5,508 | 2,419 |
| Total Amount | in million | 29.61 | 10.52 |
| 3. Natural Gas | | | |
| Quantity | ‘000 SCM | 41,60 | 23,52 |
| Total Amount | in million | 78.15 | 38.19 |
| Average Rate | /SCM | 18.79 | 16.23 |
| 4. Fuel Oil | | | |
| Quantity | MT | 8,78 | 16,94 |
| Total Amount | in million | 29.66 | 41.14 |
| Average Rate | ‘000 /MT | 33.76 | 24.29 |
| 5. Brickquittes | | | |
| Quantity | MT | 1008 | 920 |
| Total Amount | in million | 43.50 | 36.92 |
| Average Rate | ‘000 /MT | 4.31 | 4.01 |
Note : Fuel oil consumption reduced by 48% as compared to the previous year mainly dueto shift to natural gas, resulting in higher consumption of natural gas.
B. Consumption per unit of production
It is not feasible to furnish information in respect of consumption per unit ofproduction.
B] TECHNOLOGY ABSORPTION
e) Efforts made in technology absorption:
(as per Form B)
FORM B
Disclosure of particulars with respect to Technology Absorption
RESEARCH & DEVELOPMENT (R&D)
1. Specific areas in which R&D is carried out by the Company
R&D activities are continued for development of new products, improvement ofexisting products in the category of Synthetic Resins, Adhesives, Sealants, Pigments andPigment Dispersions, Intermediates, Surfactants, Art Materials, Coatings, Fabric CareProducts, Construction Chemicals, Maintenance Chemicals, Emulsion Polymers etc. Productsspecific to the requirements of certain export market are also under development.
2. Benefits derived as a result of the above R&D
Increase in sales due to product improvements and introduction of new products;reduction in cost and pollutants load due to formulation optimization, processimprovements and cycle time reduction.
3. Future Plan of Action
Future R&D efforts will continue along present lines.
4. Expenditure on R & D
( Rs. in million)
| Year ended 31st March 2011 | Year ended 31st March 2010 |
| i) Capital | 4.54 | 5.34 |
| ii) Recurring | 105.96 | 91.64 |
| Total | 110.50 | 96.98 |
| iii) Total R&D Expenditure as a Percentage of total turnover | 0.44 | 0.48 |
5. Technology Absorption, Adaptation and Innovation
i) Technologies and Processes developed by the R&D Department are beingcontinuously absorbed and adopted on a commercial scale.
Based on the patented processes acquired from Polimeri Europa Elastomers France, S.A,the Company has developed few processes in the manufacture of Poly Chloroprene Rubber and7 applications for patents have been filed by the Company.
ii) Benefits derived as a result of the above efforts:
Improvement in products and processes
iii) Information regarding Technology imported during the last 5 years
No technology imported during the last 5 years.
C] FOREIGN EXCHANGE EARNINGS & OUTGO
f) Activities relating to exports, initiatives taken to increase exports, developmentof new export markets for products and services and export plans.
Export earnings during 2010-11 have shown an increase of 554 million over 2009-2010.
Exports of pigments grew during the year due to acceptance of our products with globalpaint & colourant manufacturers.
The Company increased its focus on promotional activities in Middle East & Africaand increased the availability of products through appointment of new distributors in theregion.
g) Total foreign exchange used and earned
(Rs. in million)
| Year ended 31st March 2011 | Year ended 31st March 2010 |
| Foreign exchange earned | 2,398 | 1,842 |
| Foreign exchanged used | 3,901 | 2,678 |
Disclosure of particulars in the report of Board of Directors Under Health, Safety& Environment for the year 2010-2011
Eighteen out of nineteen Pidilite locations are now certified for OHSAS 18001 –2007 and ISO 14001 – 2004 Systems.
The Company has also taken up estimation of Carbon Foot Print at one of the units toassess the impact of our operations on carbon emission and to control the sameeffectively.