EDUCATION

JaykaranMehta|MBA6|2022-24

AyushiSharma|MBA5|2022-24

Overview

The Indian IT services industry has existed since the very beginning of the postindependence period As you can see, businesses like Infosys and Tata Consultancy Services were founded in 1968 and 1981, respectively. However, at that time, there wasn't much contribution The Indian economy then began to open up in 1991, allowing for the entry of international businesses. Additionally, it gave Indian IT service providers access to a global clientele Indians quickly rose to the top of the list of preferred locations for outsourcing IT labor.

The Indian IT sector is a major contributor to the country’s economy, with a large number of multinational and domestic companies operating in the space. Some of the key strengths of the industry include a large pool of highly skilled and English-speaking professionals, a strong education system, and a relatively low cost of labor.

By the early 90s, US-based companies began outsourcing and since then, the Indian IT industry gained pace and earned a distinct place for itself. Today, the Indian IT industry accounts for nearly 35% of the total industry revenue The IT-BPM industry contributes about 7.4% to India’s GDP., and by 2025 this number is expected to grow to 10%. As of FY22, it is the largest private sector employer employing over 5 million professionals, and contributes 51% to overall services exports. The industry witnessed revenue growth of 15 5% as it touched US$227 billion in FY22

The growth of the IT industry in India is unprecedented across the economies of the world All the sub-sectors of this industry (hardware products have relatively seen less progress) have made strides in revenue growth in the last two decades and fueled the growth of the Indian economy The rapid advancement within the IT industry and liberalization policies such as reducing trade barriers and eliminating import duties on technology products by the Government of India are instrumental in the growth of this industry Also, various other government initiatives like setting up Software Technology Parks (STP), Export Oriented Units (EOU), Special Economic Zones (SEZ), and foreign direct investment (FDI) have helped this industry in achieving a dominant position in the world IT industry.

PORTER'S 5 FORCES MODEL Industry Rivalry

The industry experiences high rivalry among existing competitors. The existence of small and mid-sized firms has caused increased competition and also increased innovation

There are only a few significant IT services organizations, and competition exists between them for business transactions, market share, and bottom line In some ways, the intense competition within the industry has aided in the expansion of the Indian IT services business by fostering innovation and encouraging companies to develop novel solutions

Threat of New Entrants

Threat of new entrants is low in the industry as setting up an IT company is fairly simple due to low capital requirements and less regulatory oversight. Although these firms operate in a very specialized industry, startup culture still exists These firms operate in fields including fintech, agritech, and deep neural networks. So in a manner, the big businesses have built a barrier to entry that makes it challenging for any newcomer to enter and take the project

Threat of Substitutes

There is a significant likelihood of substitution in the current economic climate when the economies of the globe are slowing down Other developed nations' economies, including the Philippines, are competing for international IT services contracts since they can do the task for less money than Indians can

You may also believe that the businesses that are awarding projects to the Indian IT services sector may perform a backward integration and establish their own IT solution business.

For instance, IBM, Accenture, and other organisations now brag about their IT solutions division despite once being predominantly consulting firms They both have offshore facilities to serve the entire planet Other countries have started expanding their IT sectors as the availability of cheap and English-speaking professionals increases across Asia

Bargaining Power of Suppliers

Vendors for the industry include third-party software vendors and hardware suppliers. Vendors have high bargaining power due to the unique nature of their software. Hardware suppliers have low bargaining power as IT companies place large orders and the switching costs are low.

Bargaining Power of Customers

Customers have high bargaining power as they can switch among different companies at a very low cost. Although many companies choose multiple IT service providers for different aspects of their business

Major Players

Tcs

Headquartered in Mumbai and part of the Tata Group, Tata Consultancy Services (TCS) operates in 150 locations across 46 countries. It is the 2nd largest company by market capitalization in India. In FY22 its revenues grew by over 16% to Rs 191,754 crores

Infosys

Infosys was founded by 7 engineers in Pune in the year 1981 It is the second largest IT services company in India after TCS and generated revenues of Rs 121,641 crores in FY22 About 62% of its revenues come from North American Markets

Hcl

Founded in 1976 by Shiv Nadar, HCL is another big player in the Indian IT industry. The company provides a range of services, including software development, IT consulting, infrastructure management, and business process outsourcing. In FY22, it generated revenues amounting to Rs. 85,651 crores

Growth Drivers

The cumulative investment in a data center in India is expected to reach US$ 28 billion between 2019-25, at a CAGR of 5%, twice the pace of the global average as digital transformation accelerates across sectors in the last few years. In October 2022, PE/VC investments in technology sector stood at US$ 157 million across 12 deals The industry is also about to witness non-linear growth due to platforms, products and automation opportunities. Emerging verticals like healthcare, retail and utilities are also expected to drive growth Expansion across new geographies including BRIC nations, continental Europe, Canada and Japan will be key as well The rollout of fifth generation (5G) wireless technology by telecommunication companies is expected to bring at least US$ 10 billion global business to Indian IT firms

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Challenges

The sector heavily relies on the US & UK for business, as such any changes in the Economic and political environment of these countries can have a detrimental impact on the business of these firms

Forex risk is another challenge as most of these firms generate a majority of their revenues in foreign currencies, fluctuations in forex can cause changes in revenues and profits

The industry is facing a shortage of skilled professionals, leading to high turnover rates and difficulty in retaining talent. The industry is also facing competition from other countries including China, as they’re investing heavily in technology and developing their own IT sector.

Apart from that many mid and small sized IT firms are facing difficulty in scaling their operations to meet demands of large global clients

Pidilite

TapanShah|MBA8|2022-24

SamyakTripathi|MBA1|2022-24

Company Overview

Balvant Parekh founded Pidilite Industries Limited in the year 1959 The company is a well-known Mumbai-based manufacturer of adhesives. The business initially only sold one product and specialised in adhesives.

However, it has diversified over time and established a strong presence in other industries, including those of art supplies and stationery, food and fabric care, automotive products, and sealants, as well as speciality industrial goods like adhesives, pigments, textile resins, leather chemicals, and construction chemicals.

Fevicol and Fevi-Stik are well-known products made by Pidilite. FeviKwik, Dr. Fixit, Roff, Cyclo, Ranipal, Hobby Ideas, M-seal, and Acron are some of the additional brands it carries Crayons, oil pastels, markers, brushes, glass colours, acrylic colours, and more are produced and manufactured by the company under the category of art supplies and stationary

Pidilite offers solutions for waterproofing, repair materials, painting, flooring, sealants, and admixtures under the heading of construction chemicals. The company also produces items like starch, brightener, stain remover, and whitener, and it sells these items under the brand name Ranipal.

M B Parekh is the Executive Chairman, A B Parekh is the Executive Vice Chairman, N K Parekh is the Vice Chairman, and Bharat Puri is the Managing Director of the company

Shareholding Pattern

As of 31st December 2022, Pidilite Industries’ shareholding pattern comprised promoters holding 69.93%, unchanged from the previous quarters The FIIs reduced their holdings from 11.34% to 11.08% quarter-onquarter

Meanwhile, the DIIs have shown confidence in the growth story and have picked up the mantle They marginally increased their shareholding to 8.12% from 7.73% in the last

Source: Screener quarter. The government’s share remained at nil. Retail investors also reduced their stakes marginally as they decreased their stake from 10 98% to 10 85%

Pidilite Industries’ total expense fell from INR 2,632 95 crores to INR 2,574 92 crores which translate to a 2 20% drop in the expenditures when compared quarter on quarter. The firm registered a slight decrease in the EPS figures as well The basic Earning Per Share is now INR 6 54 compared to INR 6.96 following the end of the June 2022 quarter.

Financial Analysis

Source: Screener

The revenue from operations for Pidilite Industries Limited for the quarter that ended in September 2022 was INR 3,022.13 crores compared to INR 3,111 79 crores for the quarter that ended in June 2022, which amounted to a 2.88% decrease in revenues.

The company also reported a minor dip in net profit as well when compared on a quarter-on-quarter basis The profit after tax fell from INR 332.44 crores in June 2022 to INR 353.61 crores for the quarter that ended in September 2022, which translates to a decrease of 5 99%

Pidilite being a major player in the adhesives segment, the firm is focused on being the bellwether. The firm may achieve better stability moving forward with stability in the rates of crude oil and with wider consumer acceptance towards its diverse set of new products; the company will be hoping to do better moving forward

Key Drivers

Due to Pidilite Industries’ robust product lineup, emphasis on innovation, expansion of distribution, and effective marketing, it has seen greater growth than the industry Additionally, it has established a vast panIndian distribution network with more than 4700 distributors.

Consumer & Bazaar, the company's flagship division, keeps the company's growth momentum going. As a consequence, YoY revenue growth in the fiscal year 2023 is anticipated to be between 11 and 12%, helped in part by an increase in consumer demand and the resurgence of the real estate sector.

A solid net worth of Rs 5402 crore (adjusted for goodwill and trademark amortisation) as of March 31, 2022, and gearing of 0 05 times characterise the financial risk profile Debt protection indicators are excellent, with net cash accruals to total debt at 3.53 times and interest coverage of around 45 times.

In FY22, raw materials made up 62% of the cost of sales The company's operating margins in fiscal 2022 and the first quarter of 2023 were also impacted prices by rising costs for raw materials such as VAM, resins, and other goods, which can happen again also.

20.3%. They also have presence in segments like art and craft material, industrial adhesives, pigments and preparations, industrial resins and construction pigments, etc.

The company is huge in India, and at the same time, they are making its name internationally also. As they have operations in countries like Bangladesh, Dubai, Sri Lanka, the USA and Egypt etc

Outlook

Pidilite Industries is the pioneer in the adhesive industry in India. It is no. 1 in India with a market capitalisation of ₹ 124699 Cr. as of 19th Jan 2023.

Pidilite Industries have a really good hold on the market, with 79 6% of their business coming from the Consumer and Bazaar product segment, 19 7% of their business coming from B to B segment and the rest from others.

Pidilite Industries have decent diversification, but its majority of business comes from the adhesive and sealants segment, which is 53 4%, and this is followed by construction and paint chemicals, with

Competitor Analysis

As per the above table, we can see that Pidilite Industries is a market leader with sales worth 8340 17 Cr for FY 22 Godrej Industries follows it with sales worth 3339.6 Cr. The difference between them is about 5000 Cr

We can also see that in terms of net profit and net profit margin also, Pidilite Industries is at the top with a net profit worth of 1268 62 Cr and a net profit margin of 15.21%.

In terms of net profit margin, after Pidilite Industries comes Vishnu Chemicals with a net profit margin of 7 20%

Godrej industries which was just behind Pidilite industries in terms of revenue is really struggling with a negative net profit margin of -1.32%.

Nowadays, the demand for products like adhesives is not only limited to one or two industries; their demands have reached industries like the automobile and also the medical sector as the use of adhesives in stitches This will lead to a positive influence on its sales and profit

Source: Moneycontrol

Future Outlook

The future of the company is looking quite promising because of the following reasons

With an increase in demand for packaged food and an increase in demand for food delivery which requires packaging will have a positive impact on the adhesive industry. Being the market leader in this segment, this will positively affect Pidilite Industries’ revenue and profit

Currently, most of the world is experiencing a rapid rise in modernisation and urbanisation. This urbanisation is giving rise to the realty sector In the future, it might also experience a boom and will again positively impact the Pidilite Industries as there will be demand for their products