Tucked away in a small lane in the Mumbai suburb of Andheri, the Pidilite office is simple and transports you back to the early 90s. Large sofa sets and leisurely shutting elevators visibly conceal the power of a Rs.6,062 crore company and the success of its key brands such as Fevicol, Fevistik and M-Seal. That said, the sprawling campus does have a few new buildings, a swimming pool and a large cafeteria. The contemporary structures signify that at Pidilite, the past and the present exist in harmony.
At the helm of the company – and its transition – is Madhukar Parekh, the 70-year-old executive chairman of Pidilite that was founded in 1954 by his late father, Balvant Parekh. It has been ten years since Parekh embarked on a professionalisation drive at Pidilite bringing in outsiders to prepare the company for its next phase. This strategy resulted in Parekh stepping down in 2015 as managing director, to make way for Bharat Puri, an India Inc veteran with over 30 years of experience across companies such as Asian Paints and Cadbury. With a professional at the helm, will Pidilite better its growth as a family-run enterprise?
Pidilite started off by manufacturing synthetic glue and pigments for the textile industry. As a pioneer in both these product categories, Pidilite never wanted to be a me-too company. “That meant we were always on the lookout for opportunities and we placed a lot of emphasis on R&D,” Parekh says. He has been working at Pidilite ever since he returned with a master’s degree in chemical engineering from the University of Wisconsin-Madison (1971).
Although their focus was on innovation, the understated company needed to create a brand for itself. It started off with direct marketing campaigns for Fevicol, targeting carpenters –who were unaware of the brand – with initiatives like Fevicraft, a bimonthly magazine for carpenters. “These were pioneering ideas for the time and even FMCG companies did not have anything on the lines of Fevicraft, which gave furniture designs to carpentry contractors,” says Parekh. In the 1970s the ad agency, O&M was roped in to help with the branding process. They were responsible for creating the now-iconic logo (two elephants) and introducing the famous tagline Dum laga ke haisha. “Instinctively, we understood that Fevicol had the potential to become a big brand,” he adds. In 1985, when import liberalisation negatively impacted the speciality business, its decision to back Fevicol was proven right. “It was clear that products with strong brands would serve us well and we moved in that direction,” he says. The seeds for a large company were sown.
As the business grew impressively, (by mid-1990s they were approximately Rs.200 crore), Pidilite’s two businesses – consumer and bazaar (C&B) and industrial chemicals – were separated. The star of the C&B business was, needless to say, Fevicol: the brand had surged way ahead in terms of product quality backed by smart and witty advertising. With the acquisition of M-Seal and Mr Fixit (later rechristened Dr Fixit) in 2000, Parekh renewed his growth quest. “We were looking at ways to constantly improve and were never satisfied with where we were. There was a deep realisation that had set in on the need to improve on areas such as products, services and customer care,” he recalls.
To continue expanding, Pidilite needed to focus not just on the brand, but also on the people running the company. For a family-run business, it was early in recognising the need for senior professionals. For the first two decades, family members and early colleagues of founder Balvant Parekh ran the company. But decision-making was still in the hands of the promoter family – until a little over a decade ago, when Madhukar took the decision to cede power to outsiders.
Ranjan Kapur, country manager at WPP and an independent director on the Pidilite board since 2000, recalls a three-day off-site at the Renaissance, Mumbai in 2007, when Parekh first brought up the issue of “the family stepping back”. Parekh said, “The role of the family would now be different from what it was earlier, where its members were all over the organisation. The family stepping back would now mean they would focus mainly only on the vision and direction of the company.” Most of the board members present at the off-site were taken by surprise by Parekh’s announcement.
The 75-year-old Kapur recalls, “There was no obvious reason for this decision since the company was in a very comfortable position. Parekh knows every bit of his business to the last detail, so not being hands-on was a big deal for him.” It would be an even bigger deal for someone else to step into his shoes. But Parekh was steadfast about getting outside professionals at senior levels. “We needed to build management bandwidth in line with our ambition, so we had to get talent from outside the family,” Parekh says of that decision. The board took cognisance and assented unanimously, while declaring that the core values of the company – transparency, ethical standards and innovation – should not be lost. “We suggested a blend of the old and new, which would ensure that the culture and values of the past would be preserved,” says Kapur.
Parekh’s hunt for people started, and it wasn’t just about getting people to run the company. He was clear that the composition of the board needed to change as well. He explains the rationale: “It was important to have a board with expertise and capabilities, in order to make the incoming senior professionals comfortable. Professionals managers would not be happy reporting to a board that is seen as a family-rubber stamp.”
He started by reaching out to Bharat Puri, who was then with Cadbury as regional commercial director (Asia Pacific) in Singapore. A call from Parekh in late 2007 to say he would be in town resulted in a three-hour lunch at the Hilton. Puri’s perception of Pidilite was that it was a company, with strengths in three key areas – brands, entrepreneurial instinct and leadership. “The opportunity was to institutionalise and create an organisation, which would not be centred on just a few people. It was comforting to see a promoter wanting to build an institution,” reminiscences Puri. Several follow-up phone calls later, Puri came on the Pidilite board as an independent director.
Other prominent names from the corporate world such as Hindalco’s Debu Bhattacharya, Lafarge’s Uday Khanna, Ashok Leyland’s Vinod Dasari and Sanjeev Aga, who had recently quit as Idea Cellular’s boss came on board after Puri joined. “Having high calibre people on the board helps in getting genuine direction and advice,” Parekh says. In May 2008, within six months of Puri joining the board, his hands were full. “The transition in Pidilite was live and I was the quasi head of human resources on the board,” he recalls.
According to Puri, the kind of people Pidilite was looking at were “gentlemen with diligence and intelligence”– people who had dirtied their hands, had resilience and the ability to understand that Pidilite was a company in transition. Apart from this, Puri wanted professionals who could pay attention to detail, understood consumers and were team players. The companies that Pidilite recruited from included ITC, Castrol, Asian Paints, ICI, Madura Garments and Nokia. Over five to six years, 20-30 people were hired of which three-fourth of them continue to be part of the organisation at senior level positions even today.
According to Sanjeev Aga, an independent director, who got on to the company’s board as an independent director in 2011, the striking quality of the Pidilite promoter family is their mind set. “Irrespective of their shareholding, they do not think of themselves as owners and of the others as employees. This is an uncommon quality, and is the intangible bedrock upon which the company has shaped into a meritocracy,” he says.
To hire the right people, Parekh needed to clearly spell out Pidilite’s success — his work style, the company’s culture and ethos for the benefit of all stakeholders.“Things were always done instinctively (not looking at year-end targets, but focusing on strategy and execution). People now ask questions and I have to come up with clear and well-defined answers,” he says with a hint of a smile.
For Parekh personally, this meant embarking on a journey of self-discovery as he sought to institutionalise what had previously been purely instinctive. Rather than relying on traditional management terms to explain his methods, he decided to coin his own jargon. “We decided to make the meetings a little unconventional by having a free-flowing session, rather than straitjacketed PowerPoint presentations. I call this creative turbulence since business insights can come only from turbulence, which means people have to question and counter-question,” he explains.
Another popular phrase around the Pidilite campus is OTOS — on top of a situation. Parekh cites the example of Fevicol, Pidilite’s flagship brand, which operates in different product segments and across a number of geographies whose business and competition dynamics are totally different. Parekh explains, for instance in south India, a big market for rubber-based adhesives, the market may be craving for a better, improved product. “How can you do it if you cannot understand specifically what that improvement is? For that you have to sit with people in the market and understand the real need and only then can you have a fruitful discussion here at the headquarters,” he explains. Any executive falling short of making a valid case for their proposition is gently rebuked, “Please be more OTOS before discussing.”
To Puri’s mind, Pidilite is the “archetypal professional organisation where one constantly walks the razor’s edge. The process of decision-making is swift, but it calls for higher levels of preparation to be able to make and back decisions. You can surely have a point of view and be heard but only if you are well informed, and that will be constantly tested.” The framework includes OAAP – observation, analysis, action plan. “It refers to observing trends, analysing what is causing them and drawing up an action plan to take things forward.” This approach makes discussions (meetings) more insightful, and helps take decisions based on solid market intelligence. Parekh. “Mindsets have to be aligned with OTOS and OAAP. We don’t claim this is the only or best way to do things, just that it has worked remarkably well for Pidilite,” he adds.
Practices like OTOS, OAAP and creative turbulence, Puri explains, form the core of Pidilite’s DNA and essential for any progressive organisation. “These practices give us the edge required to win in the marketplace. This is also what gives us the fodder for innovation,” says Sanjay Bahadur, group CEO (Construction Chemicals Division), who joined the company in 2003. “In all our week-end workshops at Khandala, Mr Parekh would talk about the spirit of innovation and how this core value of Pidilite had to be preserved.”
Seven years after he joined the board, Puri took over as Pidilite’s first professional, non-family managing director in April 2015. Pidilite 1.0 was all about the founder, Balvant Parekh, while 2.0 was Madhukar Parekh’s stint. Now, it was time for version 3.0 and Parekh’s message to Puri was clear: he would have to create an organisation that was “future ready”. Puri says, “I recall Mr Parekh saying that together we should create a high performance, innovative Indian MNC that would be a pleasure to work for. It was clear that this was not about a 10x or 20x growth projection. If we do the right things, numbers will follow.”
He is clear about what needs to be done – and what to avoid. “The biggest mistake I can make is to try and be Mr Parekh 2.0,” says Puri. During Parekh’s time, decision-making largely rested with him and people had to get things cleared. Given its current size, that may not be the best way. “With the new structure, I want six to eight people who can make their own decisions without approaching me everytime,” he explains.
Pidilite’s strength has always been in pioneering categories and it will be no different in the future. According to company director, Apurva Parekh, Pidilite’s strategy has always been to avoid markets with a large number of players or with high level of commoditisation. “The trick is to enter a market at an early stage; that is what we have done well with Fevicol or construction chemicals,” he explains. According to Parekh, both its products back then, be it pigment dispersion or white glue, had competition only from a handful of German and Japanese multinationals. “Therefore, the thinking even then was to always do something different. That meant identifying opportunities and then going all out to make a difference.”
Though core brands such as Fevicol, Fevistik, M-Seal and Fevikwik remain growth drivers, Apurva believes there is scope for widening the portfolio. “We will step up even more on innovation and focus on new segments such as wood finishes, which will aid growth,” he predicts.
This relentless focus on product innovation has seen Pidilite grow from Rs.1,247 crore in FY07 to Rs.6,062 crore in FY17. Net profit has moved from Rs.111 crore to Rs.858 crore during the same period. Other key parameters such as return on capital employed (RoCE) and return on equity (RoE) have also improved. Puri explains their future expectation,“Two-thirds of our business will come from the core brands, while the other one-third will come from innovation and newer segments.”
Puri chooses to call Pidilite’s strategy one that addresses unserved and underserved consumer segments. “We do not fill these gaps, with a product but a brand. While we have a diverse set of brands, the story is the same for all categories,” he says. Puri expects significant growth in the waterproofing segment, which the company has been in for a decade now. “There is an opportunity in affordable housing, which will call for waterproofing and furniture needs,” he adds. Nimit Shah, analyst, ICICI Securities, agrees on the potential in waterproofing, pointing out that the market is largely unorganised, with only 25% coming from the organised players.
Meanwhile, the core business continues to grow steadily, despite competition. “Pidilite’s core strengths are a strong brand recall, a well-entrenched distribution and great connect with intermediary and end-users, all of which it will continue to capitalise on in the time to come,” Shah says.
Having successfully created a robust foundation for the next innings, Madhukar Parekh continues as executive chairman and four of the 12 board members are family, including brother, Ajay, his uncle Narendra, and cousin Apurva. Parekh’s two daughters and his brother’s daughters have stayed away from any formal association with Pidilite.
As the patriarch, Parekh speaks of having set the parameters on the family’s role. “They are welcome to play a role and will have to ensure the non-family members are given space and freedom. The family will need to encourage and support professionals and be responsible with respect to allocation of capital, direction and preservation of values,” he explains. Puri is quick to clarify that there is no question of “us against them” but the focus is on continued prosperity of Pidilite. He maintains that the family is a huge asset with vast knowledge of the business apart from the commitment they bring to it. “I have worked very closely with them for ten years and been through this transition as well. I view it as a shift from a professional family to a family of professionals,” he smiles.