Pidilite Industries Ltd Directors Report.

To

The Members

Your Directors take pleasure in presenting the Fifty-Second Annual Report together with Audited Financial Statements for the year ended 31st March 2021.

Financial Results (Standalone)

(Rs in crores )

2020-21 2019-20
Sales 6,186.67 6,290.43
Operating Profit 1,623.30 1,637.28
Finance Costs (16.99) (13.40)
Depreciation, Amortisation and Impairment Expense (147.10) (125.79)
Net Foreign Exchange Loss (2.13) (1.86)
Profit Before Exceptional Items and Tax 1,457.08 1,496.23
Exceptional Items (0.45) (59.28)
Profit Before Tax 1,456.63 1,436.95
Current Years Tax (375.05) (368.65)
Profit After Current Years Tax 1,081.58 1,068.30
Deferred Tax (0.12) 33.32
Profit After Tax 1,081.46 1,101.62
Profit Brought Forward 3,042.74 2,779.09
Other Comprehensive Income Included in Retained Earnings (Net of tax) (0.71) (11.20)
Profit Available for Appropriation 4,123.49 3,869.50
Appropriations
Dividend Paid - (330.18) #
Interim Dividend Paid - (355.61)
Tax on Dividend - (140.97)
Total - (826.76)
Closing Balance of Retained Earnings 4,123.49 3,042.74

# Pertaining to dividend for FY 2018-19

The dividend payout is in accordance with the Dividend Distribution Policy which is available on the website of the Company www.pidilite.com.

Financial Performance

Comments on Financial Performance are included in Management Discussion and Analysis section.

Dividend

Your Directors recommend a dividend of Rs 8.50 per equity share of Rs 1/- each (previous year interim dividend considered as final dividend of Rs 7/- per equity share of Rs 1/- each), out of the current years profit, on Rs 50.82 crores equity capital amounting to Rs 431.93 crores (previous year Rs 355.61 crores on equity capital of Rs 50.81 crores). The dividend payout amount has grown at a CAGR of 15.40% during the last 5 years.

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 Rs 336.69 crores (previous year Rs 369.03 crores) primarily spent on fixed assets for various manufacturing units, offices, laboratories, warehouses and on information technology.

Deposits

The Company has not accepted any deposits covered under Chapter V of the Companies Act, 2013 during the financial year 2020-21 (previous year NIL).

Subsidiaries

Investment in Subsidiaries

During the year, investment of Rs 2,333.82 crores (previous year Rs 146.18 crores) was made in subsidiaries. Of this, Rs 2,323.04 crores (including contingent consideration) was invested in domestic subsidiaries and Rs 10.78 crores in overseas subsidiaries.

The investments in domestic subsidiaries were in Madhumala Ventures Pvt Ltd (Rs 10.51 crores),

Nina Percept Pvt Ltd (Rs 4.82 crores), Pidilite Litokol Pvt Ltd (Rs 14.28 crores), Pidilite Grupo Puma Manufacturing Ltd (Rs 11.71 crores), Pidilite C-Techos Walling Ltd (Rs 0.60 crores) and in the newly acquired subsidiaries Tenax Pidilite India Pvt Ltd (formerly known as Tenax India Stone Products Pvt Ltd) (Rs 84.66 crores) and Pidilite Adhesives Pvt Ltd (formerly known as Huntsman Advanced Materials Solutions Pvt. Ltd.) (Rs 2,196.46 crores).

The investments in overseas subsidiaries were in Pidilite Middle East Ltd (Rs 10.33 Crores) and Pidilite Chemical PLC (Rs 0.45 crores).

During the year

a. The Company acquired 100% share capital of Huntsman Advanced Materials Solutions Pvt. Ltd. for cash consideration of Rs 2,196.46 crores. The acquisiton process was completed on

3rd November 2020. The name of the said subsidiary has been changed to Pidilite Adhesives Pvt. Ltd. with effect from 13th January 2021.

b. The Company acquired the balance 30% stake in its subsidiary namely Cipy Poly Urethanes Pvt. Ltd. (CIPY), by purchasing 28,249 equity shares from certain other shareholders of CIPY, for a cash consideration of Rs 60.49 crores (excluding certain contingent payment). The acquisition process was completed on 22nd April 2021. Consequent to this, CIPY became a wholly owned subsidiary of the Company.

c. The Company has completed the acquisition of the business of wholly owned entity

M/s. Nitin Enterprise, (a partnership firm having two partners, both of which are wholly owned subsidiaries of the Company).

Performance of Major Domestic and Overseas Subsidiaries

Name of Subsidiary Sales Sales % Growth EBITDA EBITDA % Growth
2020-21 2019-20 2020-21 2019-20
Nina Percept Pvt Ltd 176.63 267.76 (34.0%) (26.93) 11.50 (333.9%)
ICA Pidilite Pvt Ltd 178.21 185.83 (4.1%) 25.19 24.13 4.5%
CIPY Poly Urethanes Pvt Ltd 89.68 121.38 (26.1%) 1.63 15.38 (89.4%)
Pidilite Adhesives Pvt Ltd* 168.32 - - 60.32 - -
Pidilite Speciality Chemicals Bangladesh Pvt Ltd 111.10 124.50 (10.8%) 17.09 19.19 (11.0%)
Pidilite Lanka (Pvt) Ltd 45.43 41.34 9.9% 6.95 2.90 139.7%
Pidilite USA Inc 140.70 119.14 18.1% 18.53 (0.45) 4,262.8%
Pulvitec do Brasil Industria e Comercio de Colas e Adesivos Ltda 103.84 70.14 48.0% 23.29 1.58 1,378.7%
Pidilite Industries Egypt SAE includes PIL Trading (Egypt) Company 36.73 37.93 (3.2%) (1.00) (0.08) (1,133.9%)
Pidilite Bamco Ltd includes Bamco Supply and Services Ltd (Thailand) 65.41 63.37 3.2% 9.18 5.38 70.8%
Pidilite MEA Chemicals LLC (UAE) 109.81 114.69 (4.3%) (3.12) (4.33) 28.0%

Overseas subsidiaries figures are at constant currency.

* Figures are for the period from 4 th November 2020 to 31st March 2021

Performance of domestic subsidiaries was impacted due to nationwide lock-down in the country. Performance improved during second half of the year with good sales achievement by ICA Pidilite and Pidilite Adhesives.

Performance of subsidiaries in Bangladesh, Middle East and Egypt was impacted due to lockdowns.

Pidilite Lanka continues to perform well despite challenging business environment and posted a significant increase in EBITDA margin owing to lower material costs and local manufacturing.

Pidilite USA sales and profit grew well due to higher demand of hobby & craft products during the pandemic and increased focus on e-commerce.

Pidilite Brazil reported good sales and profit growth due to operational improvements and higher economic growth due to fiscal stimulus.

The subsidiaries in Thailand reported marginal sales growth driven by project business. EBITDA improved due to softer input costs and controlled spends.

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 (Listing Obligations and Disclosure Requirements)

Regulations, 2015 (hereinafter referred to as ‘Listing Regulations) and applicable Accounting Standards, the Audited Consolidated Financial Statements of the Company for the financial year 2020-21, together with the Auditors Report, forms part of this Annual Report. A statement containing the salient features of the Companys subsidiaries, associate and joint venture company in the prescribed Form AOC- 1, are set out in Note No. 59 to the Consolidated Financial Statements.

The Consolidated Financial Statements have been prepared on the basis of audited financial statements of the Company, its subsidiaries, associate Companies and joint venture, as approved by their respective Board of Directors except Pulvitec Do Brazil Industria e Comercio de Colas e Adesivos Ltda which has been approved by the local administrator and Plus Call Technical Services LLC, Dubai for which the financial statements has been approved by the management. The requisite applications have been filed with Ministry of Corporate Affairs for striking off the names of Pidilite C-Techos Pvt. Ltd. and Pidilite Grupo Puma Pvt. Ltd., in absence of any business, since their incorporation.

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

Directors and Key Managerial Personnel

The Board of Directors, on the recommendation of Nomination and Remuneration Committee, has recommended to the Members the re-appointment of Shri Vinod Dasari as an Independent Director of the Company for a second consecutive term, commencing from the conclusion of 52nd AGM upto 31st August, 2025.

Shri Rajeev Vasudeva was appointed as an Additional Director (Independent) of the Company by the Board on the recommendation of Nomination and Remuneration Committee with effect from 10th September, 2020. Members approval is sought for his appointment as an Independent Director of the Company for a period of 5 consecutive years i.e upto 9th September 2025.

In accordance with the Act and the Articles of Association of the Company, Shri A N Parekh and Shri Debabrata Gupta, Directors of the Company, retire by rotation and being eligible, offers themselves for re-appointment.

Policy on Directors Remuneration

The policy on Directors remuneration is available on the website of the Company, www.pidilite.com. The remuneration paid to the Directors 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 standards have been followed along with proper explanation relating to material departures;

• they 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 2021 and of the profit of the Company for that period;

• they 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;

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

• they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and

• they 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 has put in place a mechanism for evaluation of its own performance and performance of its Committees and individual Directors. The evaluation of the Board, Committees, Directors and Chairman of the Board was conducted based on the evaluation parameters, such as Board composition and structure, effectiveness of the Board, participation at meetings, domain knowledge, awareness and observance of governance, etc. For further details, please refer to the Report on Corporate Governance, which forms a part of this Annual Report.

Familiarisation Programme

The 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 Regulation 46(2)(i) of the Listing Regulations is uploaded on the website of the Company.

Number of Meetings of Board of Directors

Seven meetings of the Board of Directors of the Company were held during the financial year 2020-21. For further details, please refer to the Report on Corporate Governance, which forms a part of this Annual Report.

Statement of Declaration on Independence given by Independent Directors

All the Independent Directors of the Company have given declarations that:

a. they meet the criteria of independence as laid down under the Act and the Listing Regulations; and

b. they have registered their names in the Independent Directors Databank.

Corporate Governance

The Company is committed to good corporate governance practices. The Report on Corporate Governance, as stipulated under Listing Regulations, forms an integral part of this Annual Report. The requisite certificate from M/s M. M. Sheth & Co., Practising Company Secretaries, is attached to the Report on Corporate Governance, which forms a part of this Annual Report.

Management Discussion and Analysis Report

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

Committees of the Board

The following are the statutory Committees constituted by the Board and they function according to their respective 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 respective Committees are given in the Report on Corporate Governance, which forms a part of this Annual Report. Further, during the year under review, all recommendations made by the Audit Committee have been accepted by the Board.

Corporate Social Responsibility (CSR) Report and Policy

The CSR Report as per Section 135 of the Act read with Companies (Corporate Social Responsibility Policy) Rules, 2014 and amendments thereto, is attached as Annexure 1 to this Report. The details of CSR Initiatives forms part of Social & Community Service Initiatives section of this Annual Report.

CSR Policy can be accessed on website of the Company www.pidilite.com.

Vigil Mechanism / Whistle Blower Policy

The Company has established a Vigil Mechanism and Whistle Blower Policy for its Directors and

employees.The said policy has been communicated to the Directors and employees of the Company and is also posted on the website of the Company.

For further details, please refer to the Report on Corporate Governance, which forms a part of this Annual Report.

Policy relating to Prevention of Sexual Harassment

The Company has formulated a Prevention of Sexual Harassment Policy and has formed Internal Complaints Committees, as per statutory requirements. For further details, please refer to the Report on Corporate Governance, which forms a part of this Annual Report.

Statutory Auditors

In accordance with the provisions of the Act,

M/s Deloitte Haskins & Sells LLP, Chartered Accountants (Firm Registration No 117366W/ W-100018) have been appointed as the Statutory Auditors of the Company, for a period of five years i.e. upto the conclusion of 54th AGM to be held for the adoption of accounts for the year ending 31st March 2023. Auditors have confirmed that they are not disqualified from continuing as Auditors of the Company.

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

Cost Auditor

The Company has maintained cost records as specified by Central Government u/s 148(1) of the Act. M/s. V J Talati & Co., Cost Accountants, were appointed as the Cost Auditor for the financial year 2020-21 to conduct the audit of the cost records of the Company and they have been reappointed as the Cost Auditor for the financial year 2021-22. In terms of the provisions of Section 148(3) of the Act, read with the Companies (Audit and Auditors) Rules, 2014, as amended, the remuneration payable to the Cost Auditor has to be ratified by the Members of the Company. Accordingly, at the ensuing AGM, the Board seeks ratification of the remuneration payable to the Cost Auditor for the financial year 2021-22.

Secretarial Auditor and Secretarial Audit Report

Pursuant to the provisions of Section 204 of the Act 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 for the financial year 2020-21. The Report of the Secretarial Auditor is attached as Annexure 2 to this Report. There is no 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) Rules, 2014 are attached as Annexure 3 to this Report.

Risk Management

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

The Company has laid out a risk management plan for identification and mitigation of risks. The Company has also constituted a Management Risk Committee which is chaired by the Managing Director and has Senior Leadership of the Company as its members. The Management Risk Committee identifies the key risks for the Company, develops and implements the risk mitigation plan, reviews and monitors the risks and corresponding mitigation plans on a regular basis and prioritises the risks, if required, depending upon the effect on the business/ reputation.

The other details in this regard are provided in the Report on Corporate Governance, which forms a part of this Annual Report.

Contracts and Arrangements with Related Parties

All contracts/arrangements entered into by the Company during the financial year under review with related parties (as defined in the Act and Listing Regulations) were in the ordinary course of business and on an arms length basis. During the year, the Company did not enter into any contract/ arrangement/transaction with related parties which could be considered as material in accordance with the Policy of the Company on Materiality of Related Party Transactions (RPT Policy) or which is required to be reported in Form No. AOC-2 in terms of Section 134(3)(h) read with Section 188 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014.

The RPT Policy, as approved by the Board, is available on the Companys website: www.pidilite.com.

Disclosure of related party transactions with the promoter(s)/promoter(s) group which individually hold 10% or more shareholding of the Company, as per the Indian Accounting Standards, are set out in Note No. 44 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 186 of 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 Employee Benefits) Regulations, 2014 (SBEB Regulations).

The certificate of Auditors regarding implementation of the Scheme is available for inspection of Members in electronic mode.

The applicable disclosure, as stipulated under the SBEB Regulations, as on 31st March 2021 with regard to Scheme, is provided in Annexure 4 to this Report.

Extract of Annual Return

Extract of Annual Return of the Company is available on the website of the Company viz. www.pidilite.com.

Business Responsibility Report

A Business Responsibility Report as per Regulation 34 of the Listing Regulations, detailing the various initiatives taken by the Company on the environmental, social and governance front, forms an integral part of this Report.

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 approves the annual internal audit plan and periodically reviews the progress of audits as per approved audit plans along with critical internal audit findings presented by internal auditors, status of implementation of 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 or Tribunals 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 Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is attached as Annexure 5 to this Report.

Details of employee remuneration as required under provisions of Section 197 of the Act, and Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 (including any modifications, thereof) shall be made available to any shareholder, on request.

General

The Company has neither issued equity shares with differential rights nor any sweat equity shares.

There have been no material changes and commitments affecting the financial position of the 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 Company Secretaries 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 by the 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

Mumbai M B Parekh
Date : 12th May 2021 Executive Chairman