Why 2023 was Unique for Pidilite

Do you remember the iconic 'Fevicol ka majboot jodh' ads on television?

Who doesn't?

My favourite is the one where fortunes changed within seconds of applying Fevikwik on a fishing rod!

For decades, these ads have made Pidilite's iconic brands synonymous with permanent bondage.

Fevicol accounts for less than 5% of the overall cost of the furniture. But is critical in terms of sustaining the edifice. Thus, the emphasis among users is on quality rather than cost savings.

Back in the 1960s, Pidilite's founder Balvant Parekh spotted an opportunity to make synthetic glue. This was to replace the vegetable and animal-derived alternatives that carpenters were using at the time. Thus, was born Fevicol.

The innovation, however, didn't stop at the product level. It spilled over into marketing as well. As white glue was virtually unknown to carpenters, Parekh devised a plan to raise awareness.

In the early 1970s, Pidilite launched a quarterly magazine Fevicol Design Ideas for carpenters showcasing furniture designs they could copy for their customers. This cemented Pidilite's bond with its key customers - carpenters, contractors, and labourers.

Today, several thousand copies of the magazine are printed annually; it is available digitally as well.

Pidilite's market dominance with brands like Fevicol, M Seal, Dr Fixit etc has been due to its near-monopolistic status in these niche categories with over 70% market share.

The secret behind the success is the focus on the unorganised market by identifying the role of carpenters as major influencers.

Pidilite helped carpenters up-skill themselves through their association with its products.

It followed a similar approach when it launched its waterproofing solution, Dr Fixit, by setting up the Dr Fixit Institute of Waterproofing and training close to 1 lakh applicators annually.

Thus, the company invests in building extensive grassroots contact with the end-users to promote usage of its products.

Its products (across consumer and industrial categories) have a diversified demand from segments such as furniture and finishing, plumbing, automobiles, schools, office, and housing.

This has helped Pidilite gain a sizeable and sticky share in what was traditionally an unbranded space.

It has also enabled the company pass on the price increases to the consumers for decades.

After having spent five decades establishing a monopoly in white glue (Fevicol), Pidilite started acquiring and building other adhesive and sealant brands.

This was not just to expand its product portfolio but also to extend its channel presence and intermediary influence.

Pidilite's key acquisitions over past two decades included:

1. Ranipal in 1999
2. M-Seal and Dr. Fixit in 2000
3. Steelgrip in 2002 and
4. Roff in 2005

Capital deployed towards acquiring these firms was less than 20% of the total operating cash flows generated by Pidilite over this period.

Pidilite focussed on frequently acquiring smaller domestic competitors than investing large sums in risky big-ticket acquisitions.

Most of these acquisitions have become monopolies in their respective categories. They delivered return on capital employed far higher than the cost of capital for Pidilite.

Thanks to this phase of expansion, Pidilite has one of the most diversified distribution networks.

Its products reach the customer through multiple channels, including convenience stores (kiranas), hardware stores, paint shops, modern retail outlets, e-commerce, paanwalas, as well as stationery shops.

Given such wide and multiple moats, I do not see Pidilite disappointing shareholders over the long run. In the interim though, it faces cost pressures, competition, and the pressure to diversify its revenue streams.

For instance, Pidilite has proposed offering small value loans to its dealers, furniture contractors, plumbing contractors, masons etc through a newly incorporated NBFC.

On the face of it, this may seem like a case of diworsification than diversification as Pidilite has no prior expertise in the lending business.

However, offering advances to distribution partners is a norm across businesses.

Hence as long as Pidilite restricts the lending to its ecosystem, I do not see this as a risk.

Does the Stock Price Reflect the Fortunes of this Consistent Monopoly?

2023 was one of the unique years when it comes to Pidilite's stock price performance.

The recent concerns about the fall in the company's operating margins, pricing pressure and foray into unrelated business have taken a toll.

Although the correction in the P/E multiple seems marginal, 2023 was one of the few years when the stock's performance was abysmal.

Even when compared to Pidilite's annual stock price performance over past 16 years, the past two years (2022 and 2023) seem utterly disappointing.

Some investors may see this as a reason to avert the stock.

However, to me, a company with deep rooted contacts with customers and vendors, is best poised to resurrect from temporary crisis.

Therefore, I believe Pidilite is certainly a stock for a 2024 watchlist.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Agora Research Private Limited (Research Analyst)