Pidilite industries is one of the leading companies involved in adhesives, sealants and construction chemicals business. It has several top brands like fevicol, Fixit, M-seal etc.
I had looked at this company in 2001 and had made a small investment based on the following points
- Good ROC of 20 % +
- Sustaniable competitive advantage due to strong brands, extensive distribution network and high market share/ mindshare
- Consistent revenue and profit growth for last 10 years
What stopped me from committing myself more was the tendency of the management to do strange, under-related commitment of capital to businesses like windmills !. In addition they had some IT disputes. All this made me uncomfortable.
A few weeks back I looked at their latest annual report and liked what I saw. A few notable point
- Capital allocation has been rational and has added to the core business. Management has acquired brands like Mr Fixit, M-seal etc and have grown these brands after acquiring them
- No funny diversifications into stuff like windmills !!
- An increasing dividend flow indicating a willingness to return excess capital back to shareholders
- Focus on EVA / Return on capital ( The management discussion talks about these points which kind of indicates the managements commitment to it)
- Impressive growth in the core business of adhesives, sealants, construction chemicals
- Growth of the business to international markets
All in all, I am ready to re-think on the capital allocation attitude of management, which I feel is fairly pro-shareholder and rational. But the price is a bit higher than what I would like. So I guess, I would wait and watch for the price to be in happy zone before I take a swing