Pidilite Industries Limited (PIL)s

Acquisition of
Ninas Waterproofing Business

Prepared by:
Group 1 EOS Section A
Rajnish Kumar, PGP/18/102
Rajshri Modi, PGP/18/103
Pritam Gharte, PGP/18/138
Rupesh Kamble, PGP/18/141
Yash Raj Singh, PGP/18/176
Introduction
Pidilite Industries Limited (PIL)

Founded in 1959, Largest adhesive manufacturer in India

Product in question: Dr Fixit (Waterproofing kit)

The waterproofing kits are used to waterproof structures by builders.

Requires expertise in application

PIL established Dr Fixit Insitute in 2006 to train applicators for its

products
Contract Analysis
Key Elements of existing contracts
Contract between builder and applicator
(NCS)
Guarantee by NCS
Comes with third party (manufacturer)
guarantee from Pidilite
Pre-determined rates and cost escalation
clauses based on drawings of the builders
architects
Contract is on project-to-project basis
 Builder NCS contract analysis
Object of
Possible Clause Alternatives
Clause
A. Strategic 2. Centralized
Coordination 1. Routine Authority
3. Decentralized -
B. Organizational 2. Centralized
Coordination 1. Routine Authority
3. Decentralized -
C. Operational 1. Routine 2. Centralized
Coordination Authority
3. Decentralized -
D. Credible
Commitment
1. No CC 2. Unilateral
Hostage
3. Bilateral
Hostage -
1. Self
2. Non- 4.
E. Supervision 3. Contractor
Mechanism Enforcement Specialized
Supervisor
Supervisor
Specialised
Supervisor

1. Marginal
F. Remuneration 2. Fixed 4. Intensity
System
Productivity
Sharing 3. Flat rate of use

G. Contract
Duration 1. Spot Contract 2. Short term 3. Long term
Builder-NCS Contract Description
A1- fixed ex ante
B1 fixed ex ante
C1 fixed ex ante
D1 No credible commitment
E1 self enforcement
F3 flat rate
G1 spot contract for a given project

Due to clause D1 No credible commitment from both parties,

problems began to arise as to which party will be held responsible in
case of any problems in the construction.There is no mechanism to
measure or differentiate whether a problem arises due to the product
or the process
Builders Issues with the contract
Complexity of enforcement of the
contract few years later when problems
are encountered
Near impossible to identify the causal
element for the problem
Builder insists on a joint contract
between PIL, NCS and himself
OR for PIL to take the whole
responsibility
 Decision Point for Pidilite Make or Buy?
Char
ecter
Factors affecting
Factors istics vsMake/B
Affecting Make Description in PIL-NCS
Buy Decision
Make or Buy
of uy case
Decision
Cont
ract
1. Difficulties specifying or
measuring performance.
Inefficiencies in the 2. Asymmetric Information.
Yes Make
contract
Due to contract clause D1 and
E1

Leakage of Private
NA NA Not applicable
Information

NWSP can exploit

Transaction Cost High Make incomplete contracts to seek
Decision Point for Pidilite Make or Buy?
(Cont.)

Factors affecting Make or Make Description in PIL-NCS

Ch
Buy Decision /Buy case

Firm can exploit economies of

No Buy
scale and the learning curve

Bureaucracy Effect:
Not applicable in case of PIL-
Agency and Influence cost NA NA
Nina
(within firm)

High
NCS has learnt to apply the PIL
Co-ordination of Production w.r.t.
Make/ product through Dr Fixit
Flows between firm and acco
Buy Institute, long standing
supplier unta
relationship
bility
 Decision Tree for Pidilite
Based on the analysis in the tables mentioned before, decision tree below
shows that Pidilite should go for vertical integration
Whether to Ally or Acquire?
Once PIL decides to go for Make decision, the
next decision point is whether it should go for in-
house development of the application expertise
or acquire the business from NCS. Key factors:
Dr Fixit Institute - NCS has developed its
expertise of applying PILs products through this
institute
Cost of development of in-house team from
scratch vs. acquisition of NCS business
Same question as Disneys CG dept vs Pixar
For NCS, value of the business lies in association
with PIL
 Dyer, Kale & Singh framework analysis
Extent of Degree of
Type of Nature of Level of
Strategy Redundant Market
Synergies Resources Competition
Resources Uncertainty

Non-equity
Modular Low Low Low Low
alliances
Equity alliances Sequential High Medium High Medium
Acquisitions Reciprocal Low/Medium High Low/Medium High
Explanation Products Contribution of Acquisition for High growth Concentrated
manufactured by product and INR 23.3 lakhs potential but industry with few
PIL is applied by application skill is with further dependent on major players but
NCS 50-50 to a investment to the overall low entry
considerable extent tune of INR 100 economic barriers and high
crores situation growth potential
(FICCI (FICCI report)
report)
Degree of
relative
importance in
the framework High High Very low Low NA
 Make or Buy Continuum
Before After
Acquisition Acquisition
Make or Buy Continuum
Arms-length Strategic Parent/Subsidi Perform
Long-term
market Alliances and ary activity
contracts
transactions JVs relationship internally
Less integrated More Integrated

On April 16, 2015 Pidilite Industries acquired 70% equity stake in

NINA Waterproofing system (New entity created out of NCSs
waterproofing business.
Initial Investment of about Rs 23.33 lakhs (services business) and
additional investments up to Rs100 crores.
References
https://www.indiaratings.co.in/showDetails
.jsp;jsessionid=996EA88C9D29ED4A8C1
2DA7F24196F53?fileName=/upload/secto
rs/pressReleases/ratingsRelated/2015/5/27
/indra27Nina.htm
FICCI Report
Corporate update from PIL on acquisition