Focus on vendor, contractor ties: Pidilite
Fevicol maker Pidilite Industries is seeking to strengthen its partnerships with vendors and contractors before it forays into the non-banking financing business with the acquisition of an existing company, said Bharat Puri, managing director and chief executive officer, Pidilite.
According to press statement released late on Wednesday, Pidilite will be acquiring Pargro Investments Pvt. Ltd, which is owned by its promoter group. It will enter a share purchase agreement to acquire the NBFC through a wholly-owned subsidiary on or before 31 March. The acquisition will be done at a fair value of up to ₹10 crore, the company said.
Pidilite’s decision to establish an NBFC aims to strategically safeguard its network of vendors and carpenters, seen by investors as a valuable asset. The firm, having nurtured the network over several years, addresses their financial requirements, preventing potential exploitation by fintech players or competitors.
Pidilite is likely to invest ₹100 crore in tranches in Pargro, “through an optimum mix of equity and debt over the next two years”, Pidilite said. Currently, the NBFC is not involved in lending operations and was debt-free on 31 October.
“The reason for one of our successes is our deep connect with the user and dealer universe, carpenter contractors, plumbing contractors, masons, etc. We have a lot of demand from this ecosystem, pushing back and saying that we need short-term capital. There is nobody who knows them better than we do. We have information on their buying record, creditworthiness, KYC with credit record,” said Puri, making it clear that the company has no plan to go big initially.
The transaction will be completed after the execution of the sale and purchase agreement(SPA) and necessary documents and upon obtaining the necessary Reserve Bank of India (RBI) approvals, the company said in the statement.
Pidilite will kick off the pilot phase of its NBFC business in south India targeting its vendor network in smaller cities initially. A new team will be established to oversee the lending business. The NBFC will focus on lending small-value retail loans to its vendors and contractors.
“We are expecting small knee-jerk negative reactions on the stock for the near term as most investors are not happy with an NBFC foray by a consumer company. This should be seen as a buying opportunity from a medium- to long-term perspective. The good part is it is being done at a book value of ₹10 crore based on the value of investments, not debt on the company,” Abneesh Roy, executive director, Nuvama Institutional Equities, said.
Pidilite Industries reported a 35% jump in its second-quarter profit on the back of lower costs.
The largest adhesive maker in India reported ₹450 crore consolidated net profit in the quarter ended 30 September. Its expenses fell by nearly 4%, while revenues were up 2.2%.
Puri said the company will look at pioneering new areas in the home improvement space, along with inorganic opportunities. In May, the company forayed into the paints business following growing demand from its dealers.
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Updated: 10 Nov 2023, 01:21 AM IST