Pidilite

FINANCIAL STATEMENT ANALYSIS

PROJECT REPORT
ON
“MOTHERSON SUMI SYSTEMS LTD”

Submitted By- Submitted to-

Shreya Karpe Prof. SB Subramaniam
Roll no- 20194452
Core - 2

1|Page
Pidilite

NAME OF THE COMPANY Pidilite

TYPE OF INDUSTRY Speciality Chemicals
SECTOR Chemical
NATURE OF THE PRODUCTS AND Adhesive, Constructions and
SERVICES Chemicals
NEAREST COMPETITORS Berger paints, Asian paints
YEAR OF ESTABLISHMENT 1959
HEADQUARTERS Andheri, Mumbai, India
KEY MANGERIAL PERSONS • M B Parekh (Executive
Chairman)
• N K Parekh (Vice Chairman)
• Bharat Puri (Managing
Director)
• A B Parekh (Whole Time
Director)
• A N Parekh (Whole Time
Director)
• Sabyaschi Patnaik (Whole Time
Director)
• B S Mehta (Director)
• Sanjeev Aga (Director)
• Uday Khanna (Director)
• Meera Shankar (Director)
• Vinod Dasari (Director)
• Piyush Pandey (Director)

Objective - objective of educating consumers about the new usages of Fevikwik

and Art & Craft products, they increased the use of digital videos, in the form
of pre-roll You tube ads

NEW PRODUCT LAUNCH

2|Page
Pidilite

Steelgrip+ is a self-adhesive PVC electrical insulation tape with bounce-back,

better adhesion, stronger grip, ISI certified and fire-retardant properties
Fevicreate Kits were launched to help foster creativity at home through
crafting and bring to life wonderful concepts such as a dream-catcher, bird-
house and fridge magnets, etc.
Fevicreate.com was launched to become a one-stop resource for all mothers
and teachers searching for craft projects. The website includes projects across
various academic subjects and is fully customisable by age of the child, level of
difficulty and time at hand to complete the project.

PERFORMANCE BY INDUSTRY SEGMENT

BUSINESS SEGMENT/PRODUCT CATEGORY %

5% 4% Adhesives & Sealants

6%
Construction & Paint Chemicals
8%
Art & Craft Materials Etc

57% Pigments & preparations

20% Industrial Resins etc
Industrial adhesives

Consumer & Bazaar Products –

Branded Consumer & Bazaar Products Segment contributed 84.4% of the sales
of the company and grew by 15.6%
Adhesives & sealants category which includes sealants and tapes. This category
contributed 56.4% of the sales of the company and grew by 17.3%
Construction and paint chemicals contributed 19.6% of the sales of the
company and grew by 15.7%

3|Page
Pidilite

Art& Craft material etc contributed 8.4% of the sales of the company and grew
6.3%
Industrial Products-
Industrial products contributed 14.8% of the sales of the company and grew by
9.2%
Industrial adhesives include adhesives used in packaging, footwear, cigarette
and automotive industry. This category contributed 4.3% of the sales of the
company and grew by 12.1%
Industrial Resins etc contributed 4.9% of the sales of the company and grew by
7.2%
Pigments and preparations contributed 5.6% of the sales of the company and
grew by 7.7%
Competituive analysis

SHAREHOLDING PATTERN

Shareholding Pattern as on 31st March 2019

Promoters

7%
12% Indian Public & Bodies Corporate

11%
FII's & FPI's

70%
UTI, Mutual Funds, Banks
,Insurance Companies & Alternate
Investment Funds

4|Page
Pidilite

WHETHER IT IS A GOING CONCERN

• The net worth of the company has shown 17.47% positive growth over
previous year.
• The director has prepared the annual accounts on a going concern basis
• Since last three years there is no short-term borrowings of the company
• As the company have come up with new innovative product launch like
Steelgrip+, Fevicreate kits etc therefore it is said to be a long-term key for
stability.
• Standalone financial statements are maintained as per India Accounting
Standard specified under section 133 of the act which is in accordance with
Companies (Indian Accounting Standards) Rules 2015.
• During the year 2019 the company have recorded highest growth from
revenue from operations and it has shown an increasing trend every year
• Value of assets are more than liabilities it means that company have enough
assets which can help companies in meeting their obligations.
• Cash flow from operating activities are positive and growing
• Current ratio of the company is greater than one. So, we can say that there
is a liquidity.
Workings of relevant indicators
Ratio 2019 2018 2017 2016 2015
Current ratio 3.0 3.0 3.4 2.5 2.2
Debt ratio 0.28 0.30 0.26 0.31 0.32
quick ratio 2.3 2.3 2.7 1.8 1.4

• Current ratio of company is more than one so this indicates that company
don’t have any debt due in a year or less are greater than its asset.
• Debt ratio of the company is less than one i.e it means the company is solvent
in that case don’t have any significant issue. Lower debt ratio is considered
as good because many investors look for the company as low debt ratio
suggests greater creditworthiness
• While looking at the quick ratio of the company we can say that as the quick
ratio of the company is greater than 1 it means that the company has enough
quick assets to pay for its current liabilities

DOES THE COMPANY FOLLOW ACCRUAL BASIS ACCOUNTING AND

CASH BASIS ACCOUNTING?
5|Page
Pidilite

Company follows accrual basis accounting because it gives more realistic idea of
income and expenses
Following are the statements on the basis of which we could establish that
company use accrual basis-
• Royalty Revenue is recognised on an accrual basis. As per the relevant
agreement in case of sales provided that it is probable that the economics
benefits associated with royalty shall flow to company and the amount of
royalty can be measured reliably.
• Profit and loss before extraordinary items and tax for the period is adjusted
for the effects of transactions of non-cash nature
• In case of sale of goods revenue is recognised when control of the products
that is being sold has been transferred to a customer irrespective of whether
it is realised or is realizable and has been earned after deduction of variable
components such as discount, rebate, incentives, promotional couponing
and schemes and when there are no longer any unfulfilled obligations
towards the customers
• While estimating the amount of variable components based on certain
information available either they use expected value method or most likely
method whichever is appropriate and records a corresponding liability in
other payables though the actual amount may be different from such
estimates
• Company have trade receivables as well as trade payables component in
balance sheet which is clear cut tells us that company follows accrual basis
Note - Revenue recognition is assessed as per the principles of Ind AS 115

KEY HIGHLIGHTS OF MD/ CHAIRMAN AND BOARD OF DIRECTOR

REPORT

6|Page
Pidilite

Past Results
• The prices of key raw material which had increased significantly during
the first half of the year under review it started decline in later part of the
fiscal
• Continued slowdown in construction industry and slowdown in economic
growth in past few months had impacted the sales growth
• After reflecting accounting impact of GST, the net sales grew by 14.5%
with sales volume and mix growth of 10.4%
• The volume growth in Consumer and Bazaar products segment was 12.2%
• However, due to competitive pressure and market conditions the
Industrial Products segment volume grew only by 1.9% as compared to
7.6% growth in previous year
• Operating Profit for the year at 1489.74 crores increased by 4.2%
• Further net profit at 979.44 crores increased by 2.5%
• There is a slight decline in profit margin that is due to higher input cost

Future Outlook

NATURE OF AUDITOR’S REPORT

7|Page
Pidilite

The Report is Unqualified as the report provide true and fair view also the
auditor doesn’t provide any kind of disagreement over the matter. Therefore,
the report is said to be unqualified
The auditor’s report says that it does not contain any qualification, reservation
or adverse remarks. It is being also told that the notes on the financial statement
referred to in the auditor’s report are self-explanatory and do not call for any
further comments
Points of Qualification
Financial statement is prepared in conformity with the Indian Accounting
Standards prescribed under section 133 of the act which read with the
companies (Indian Accounting Standards) Rules, 2015.
Audit of standalone financial statements is conducted in accordance with the
Standards on Auditing specified under section 143(10) of the Act (SAs)
Hence standalone financial statements as a whole are free from material
misstatement, whether due to fraud or error.

ANALYZING THE INCOME STATEMENT

8|Page
Pidilite

Objective of analysing income statement- objective is to know the net income,

profitability, expenses.

Distribution of Revenue 2019-2019

Material cost Operating cost

Employee cost Interest
Depreciation Foreign exchange fluctuation expense
Current tax Deferred tax
Dividend Retained earnings

• During the year 2019 other income have recorded highest growth compared
to previous 5 years due to the following
o Inclusion of income from interest on Tax free bonds and Income tax
refund
o There is also generation of income from dividend on long term
investments in subsidiaries which is around 14.75 crores
o Other non-operating income through profit on sale or transfer of
intangible assets i.e. 33.41 crores
• During the year 2019 Employee benefit expenses have recorded a growth of
16.24%
As there is increase in salary and wage of approximately 16% in 2019 over
2018
Increase of 5.31 cores towards share-based payments to employee

FINANCE COST
o Finance cost is showing an increasing trend
o During 2019 there was 60% increase in bank cash credit account

9|Page
Pidilite

o During the year 2016 there was decline in finance cost as company had
reduced its borrowing during that period and hence, they had to pay
less interest expense on their borrowings

DEPRECIATION, AMORTIZATION & IMPAIRMENT EXPENSES

o During the year 2019 depreciation, amortization and impairment
expense have shown highest growth of 9.13%
o During 2019 there have been increase of 1.64 crores due to
amortization of other intangible assets
o Also, there is an impairment generated in the value of capital work in
progress which was not there in 2018
OTHER EXPENSES
o Other expense has shown an increase of 12.75% due to the
following
o Increase in net loss incurred on foreign currency translation and
transaction
o More of the amount is contributed towards donation
o Increase in rent, rates and taxes paid also there is increase in
consumption of stores and spare parts
Notes- summarized view of financials
o Net sales of the company grew by 13.9%
o On the comparable basis after reflecting impact of GST from sale of
base twelve months. Net sale grew by 14.5% with sales volume with
sales volume & mix growth of 10.4%
o EBIDTA improved marginally by 0.3% given the input cost led
contraction in gross margins by 2.9%
o Profit before exceptional item and tax increased by 3.4%
o Profit after tax increased by 2.5%
o Current tax includes 52.8 crores being excess provision of earlier
years not written back

NORMALIZATION OF PROFIT AND LOSS

As per the analysis done there is no such items which need to be adjusted to
normalize

10 | P a g e
Pidilite

BALANCESHEET
OBJECTIVE -
• To know the assets and liabilities
• To know the liquidity
• To know about trade debtors and trade creditors
To determine actual value of business at the time of sale or liquidation
PP&E
o In 2016 the company recorded highest growth in PP&E because of
increase in the value of plant and machinery, building
o Approximately 30% growth in the value of plant and machinery and 21%
in case of building
INVESTMENT
o During 2019 capital work in progress recorded growth of approximately
30%
o In 2018 investment in non-current asset have shown higher growth of
62.12% after a negative growth. this growth is due to increase in total
investment of equity from 427.14 to 612.93 crores and also increase in
total investment in mutual fund from 13.09 crore to 100.75 crores
TRADE RECEIVABLES
o There was increase in trade receivables during 2018 due to increase in
considerable doubtful by approx. 20% and also due to increase in secured
and unsecured trade receivables which are considered good whereas
movement in expected credit loss allowance was almost same
o In 2019 there was decline in trade receivables
Note – movement in expected credit loss allowance on trade receivables
calculated at lifetime expected credit loss
TRADE PAYABLES
During FY19 the trade payables increased 8.40% as year on year growth because
of outstanding dues of micro enterprises and outstanding dues of creditors was
incurred in last 2 years

11 | P a g e
Pidilite

OTHER FINANCIAL LIABILITIES CURRENT

There is increase in other current financial liabilities during FY19 this was due to-
o Increase in unclaimed dividend by 85%
o Increase in contingent consideration payable by 4.13 crores
o Increase in payables on purchase of assets
o 16% increase security deposit received
o Derivatives liabilities towards foreign exchange forward contracts rose
from 0.08 crores to 1.27 crores

The impact of increase in provision in terms of consolidated statement

In consolidated statement it showed 44% increase in YOY growth FY19 in
provisions- current because of the following-
o Gratuity increased from 0.58 crores to 4.79 crores
o 48.1 % increase in other retirement benefits
o Also, there was rise in provision of warranty expenses
In consolidated statement it showed 15% increase in YOY growth FY19 in
provisions- non-current because of the following-
o Gratuity increased from 2.20 crores to 3.70 crores
o 32 % increase in other retirement benefits
o There was no provision for warranty expenses
CASH AND CASH EQUIVALENT
o During the year 2017-18 there was a negative growth of -30.75% in cash
and cash equivalent because there was no Fixed deposit made with an
original maturity of 3 months or less whereas the balance with bank in
EEFC account also got lessened by 13.27 crore
o Higher amount of loan was given out by the company in the year 2017
and majority of the loan provided were unsecured but are considered
good
EQUITY
o There was increase in total equity because during the year 2019 company
have maintained a security premium reserve of 10 crore

12 | P a g e
Pidilite

NORMALIZATION OF BALANCESHEET
As per the analysis done there is no such items which need to be adjusted to
normalize

CONTINGENT LIABILITIES
Contingent liabilities not provided for claims against the company not
acknowledged as debts comprise:

A) Income tax demand against the company not 30.57 34.40

provided for and relating to issues of deduction
and allowances in respect of which the company
not provided for and relating issues of deduction
and allowances in respect of which the company
is in appeal

B) Excise duty and service tax claims disputed by the 12.18 12.22
company relating to issues of classifications
C) Sales tax (VAT, CST, Entry Tax and GST) claims 176.25 122.77
disputed by the company relating to issues of
declaration forms and classification
D) Other matters (relating to disputed Electricity 3.22 2.63
Duty, Gram Panchayat Tax, Open Access Charges
etc)

As per the agreements, a maximum earn out value i.e. contingent consideration
of 45 crores was payable based upon achievement of defined milestone of net
sales and gross margins over a period of 3 years starting closure of financial year
2016-17. The balance contingent consideration payable as on 31st March 2019
is 7.81 crores
Comment – contingent liability can potentially reduce company’s asset and can
have a negative impact on company’s future net profitability and cash flow. It
can influence the decision of investor as they will avoid investing in such a
company as well as it will influence decision of creditors while lending capital to
the company. It can also have negative impact on the company’s ability to repay
the debt. It is necessary for the company to know the probability of
contingences.
13 | P a g e
Pidilite

IMPAIRMENT
o For the purposes of impairment testing, goodwill is allocated to each of
the Company’s cash-generating units (or groups of cash-generating units)
that is expected to benefit from the synergies of the combination.
o Freehold land is stated at cost and not depreciated. Buildings, plant and
machinery, vehicles, furniture and office equipment are stated at cost less
accumulated depreciation and accumulated impairment losses
o Properties in the course of construction for production, supply or
administrative purposes are carried at cost, less any recognised
impairment loss
o Intangible assets with indefinite useful lives that are acquired separately
are carried at cost less accumulated impairment losses
o At the end of each reporting period, the Company reviews the carrying
amounts of its tangible and intangible assets to determine whether there
is any indication that those assets have suffered an impairment loss.
o Properties in the course of construction for production, supply or
administrative purposes are carried at cost, less any recognised
impairment loss.

14 | P a g e
Pidilite

CASH FLOW STATEMENT

OBJECTIVE –
• To provide information regarding inflow and outflow of cash
• To identify any non-cash item
• To know the dividend paying capacity of the company

o Pidilite industries cash flow from operating activities during FY19 stood at
Rs 853.15 crores an improvement of 52.69% on YOY basis
o Cash flow from investing activities during FY19 stood at Rs -488.15 crores.
The cash flow from investing activity have shown a negative growth
compared to previous year i.e. 23.51 crores on YOY basis
o Cash flow financial activities during FY19 stood at Rs -370.6 crores it has
shown an improvement of but still it is negative growth of 5.6% on a YOY
basis
o Overall net increase/ decrease cash flows for the company during FY19
stood at Rs -5.6 crores

FORECASTING
We have forecasted the estimates for further 2 years based on the Past 5 years
actuals. Following is the forecast-
o It is estimated that the net income will increase in coming two years
o It is estimated that total non- current assets will increase by 52 crores in
FY20 and by 184 crores in FY21
o The total current assets supposed to be increased by 218 crores in FY20
and by 235 cores in FY21
o Total assets would increase by 271 cores in the FY20 and by 481 crores in
the FY21
o Increase in total equity by 212 crores FY20 and 327 crores in FY21
o Total current and non-current liabilities is also showing and increase in
the trend in coming years

15 | P a g e
Pidilite

RATIOS
2019 2018
Net profit after tax margin (percent) 16% 17%

The most important ratio is net profit margin percent. It tells us how much out
of every sale PIDILITIND gets to keep after everything else has been paid for. It
is highly variable from one industry sector to another. An ideal company has
consistent profit margins
2019 2018
ROE 23.40% 26.80%

From an investor’s perspective, ROE is the key ratio. The ROE tells common
shareholder how effectively their money is being employed. Ideal long-term
average ROE should be above 15%. Average 2-year ROE of pidilite industries ltd
– 23%
2019 2018
Current ratio (number of times) 3.02 3.00

Current ratio measures the company’s currents assets against its current
liabilities. Ideally the current ratio should be greater than 1.5. avoid investing in
companies whose current ratio is less than 1. There are exceptions to this rule,
some good companies can have less than 1 or even negative current ratio when
they receive money faster from their customers than they have to pay to their
vendors. The company's current ratio improved and stood at 3.0x during FY19,
from 3.0x during FY18. The current ratio measures the company's ability to pay
short-term and long-term obligations.

2019 2018
Debt to equity 0 0

Debt to equity ratio varies across industries but many companies have ratio
larger than 1 that is thay have more debt to equity. If the ratio is very high,
raising more cash through borrowing could be difficult. Capital intensive
industries such as auto manufacturing tend to have debt/equity ratio above 2,
16 | P a g e
Pidilite

while IT companies have a Debt to equity of under 0.5. pidilite industries is a

zero-debt company
Interest coverage ratio
The company’s interest coverage ratio deteriorated and stood at 52.5x during
FY19, from 88.4x during FY18. The interest coverage ratio of a company states
how easily a company can pay its interest expense on outstanding debt. A
higher dent ratio is preferable

ROA
2019 2018
ROA 18.30% 20.63%

The ROA of the company declined and down at 18.30% during FY19 from 20.63%
during FY18. The ROA measure how sufficiently the company uses its assets to
generate earnings

17 | P a g e