Industry Overview Adhesives and Sealants The global usage of adhesives and sealants represented a market of 20 million tonne

industry with global sales of 50 billion USD of which sealants account for 6.25 billion USD of total sales.The BRICS Brazil, Russia, India, China and South Africa account for 24% of global demand. The market is highly fragmented with major players such as Huntsman Corp, Henkel, Avery Dennison, H.B. Fuller, 3M, Bostik-Findley, National Starch, Sika and M-Kymmene accounting for sales of 1 billion USD annually. The size of the adhesive market in India is about 5000 tones a month. The market largely consists of unorganized players with Pidilite Industries accounting for 60% market share and the rest being distributed among various regional and local players. The major demand drivers are Plywood and Veneer Industry, Housing, Commercial Building and Organized retail as well as growth in sectors such as Healthcare, Footwear and Tiles and ceramics. The demand for adhesives and sealants is projected to grow at 4% - 4.5% annually while India and China are projected to grow twice that.

Demand for Adhesive in BRIC Countries

50000 40000 30000 20000 10000 0 Brazil Russia India China South Africa US Demand in M LB

The per

Country 2010 2025 2050

capita consumption of adhesives is still low in the BRIC countries but this is expected to grow while the demand in developed nations such as Germany and USA is expected to saturate.

Per capita consumption of adhesives (kg) in 2011

Per capita consumption in kg 10 8 6 4 2 0
In di a na an y a l Br az i Ru ss i Ch i G er m US

9.4

9.1

2.9 1 0.2 1.5

Country

Major Growth Drivers Plywood, Veneers and laminate The plywood, veneers and laminate industry is a major consumer of adhesive products in the country. The market for plywood and veneers is at 80bn INR while the laminate industry is at 30bn INR. This is projected to grow at 10 to 20 % annually. Rising levels of disposable income among urban Indians coupled with a rise in mortgage dispersion will result in a steady rise in demand for high end furniture. Households with annual earnings greater than INR 1mn is expected to grow from 0.8 mn in 2002 to 7.5 mn in 2020. This provides a big opportunity for the Plywood, veneers and laminate industry thereby resulting in a growth opportunity for the adhesive industry. Packaging The size of the packaging industry in India is about 14.7 bn USD projected to grow at a rate of 11% per annum. The per capita packaging consumption in India is about 15 USD compared to the world average of 100 USD. The industry is expected to grow at twice the rate of GDP providing a big opportunity for adhesives. Real Estate Housing, Commercial Building and Organized Retail The demand for housing remain robust in India with an estimated 420 bn USD being spent by Indians in the next 4 years. The advent of low cost housing and 100% FDI being brought into the real estate sector will in a huge demand for adhesives. India is one of the premier outsourcing destinations for MNCs and developed nations. 80% of the demand for office space is driven by the IT/ITES sectors. The sector is

growing by 20% YoY and the total demand for commercial building is expected to reach over 500 million square feet by the next decade. Retailing accounts for 15% of Indias GDP and has an estimated value of about 450 bn USD. It is one of the 5 fastest growing retail markets in the world. Mall space has grown from 1 million square feet in 2002 to 200 million square feet in 2010. Organized Retail will account for 5 % of total retail sales. This provides a huge opportunity for adhesives and sealants. Company Overview Pidilite Industries Limited was founded in 1959 producing synthetic white resin as an alternative to animal glue which was the only adhesive available to carpenters at the time. The company is the market leader in the adhesive and sealant segment commanding a 60% market share. The company also has a considerable market share in the construction chemicals, arts and stationery as well as the industrial adhesive segment. Pidilite Industries Limited has two main revenue channels: 1) Consumer and Bazaar Products Segment 2) Industrial Products The Consumer and Bazaar segment accounts for roughly 79% of total FY12 revenues. The Industrial Products accounts for the rest 21% The Consumer and Bazaar products segment can be broadly divided into 1) Adhesive and Sealants 2) Construction and Paint Chemicals 3) Arts Material and Stationery. The sales of this segment have grown by 17.6% CAGR for the past 5 years while the PBIT has grown by 13%. CAGR for 5 years The Adhesive & Sealant segment is the flagship segment of Pidilite bringing in 51 % of total revenue.

Porters Analysis (Consumer and Bazaar Products segment) Industry Rivalry - Low Pidilite is the industry leader with 70% market share in the Adhesive and Sealant segment also being the leader in the construction chemical segment although closely followed by competitors in this segment. Bargaining Power of Buyers Low Pidilite being the only major player in this segment enjoys tremendous pricing power and has the ability to pass on price increases without losing market share.

Bargaining power of Suppliers None The raw materials are VAM and crude oil whose prices are fixed by global prices.

Threat of New Entrants Low Pidilite has an established brand with deep distributor links making it difficult for any new competition to set up shop.

Threat of Substitute products Low There arent many products in the market except for Fevicol with a 70% market share.