Ladies and gentlemen, good day, and welcome to Kansai Nerolac Q2 FY 2024 earnings conference call, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation conclude. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that the conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi. Thank you, and over to you, sir.
Yeah, thanks, Akshay. On behalf of ICICI Securities, we welcome you all to Q2 FY 2024 results conference call of Kansai Nerolac Paints. We have with us senior management, represented by Mr. Anuj Jain, Managing Director, Mr. Prashant Pai, Director, Finance, and Mr. Jason Gonsalves, Director, Corporate Planning, IT, and Materials. I congratulate the management for posting good set of numbers in spite of tough macro conditions and steep competitive pressures. Now I hand over the call to the management for initial comments, and then we will open the floor for question and answer session. Thanks, and over to you, sir.
Thank you, Aniruddha. Good morning, everyone. Greetings to all of you. Thank you for your continued support and interest in our company. Also, thanks for joining this call of Kansai Nerolac for Q 2, Financial Year 2023-2024. You must have seen the results for the quarter. The top line is up by 1.7%, and EBITDA is up by 36.8%, PAT up by 53.4%. If you look at the first half of the year, the top line is up by 4.2%, EBITDA by 33.3%, and PAT after exceptional item was up by 229.7%.
During the quarter, Q2 specifically, if we look at it, the demand has been subdued for decorative, mainly because of erratic monsoons, and generally, we have seen that whenever Diwali is in the month of November, there's a shift of demand towards the Q3 . So demand during the quarter has been subdued. In industrial, the demand has been decent. In industrial, automotive and liquid performance coating has registered good growth. Decorative growth is marginally negative. Excluding putty, it is around flat. Volume growth is also similar. In automotive, KMP growth has been better than the market growth. Raw material prices remained stable despite volatility in crude and Forex during the Q2 , and this, along with continued cost reduction effort, has helped the bottom line. Partly, the bottom line was also helped with the change of mix, favorable mix.
In decorative, the growth drivers, which we have been driving in our company, so one, in fact, you know, the some of the products which we introduced over the last one year, and, those products has helped in increasing the mix of the premium items. So there has been a positive change in the mix, and, this also helped maintaining the average selling price, despite, you know, that there has been a demand of the lower-end products also, but this helped us in maintaining the average selling price in the quarter. We continued, the launches of, some of the more unique products. So during the quarter, we introduced Beauty Little Master Sheen. This product we started and launched across India. This is a very unique product, having excellent sheen.
Generally, the high sheen is available in a very, very premium range. This is a breakthrough product that in a very basic category. A voluminous market, we have been able to bring this kind of feature. So you can call it as a part of the economy range, this product, but with a very good feature of the premium. So that's the product that we introduced, and we got a very good response from the market. We extended Impression Kashmir. We had introduced in some other variants, but we introduced the high sheen variant. So there are certain markets, certain states, where in fact the preference of the consumer is towards a very high sheen, so we introduced that. And also, we have introduced the matte.
So therefore, now with, you know, these variants, Impression Kashmir has high sheen, sheen, matte, so these kind of variants are available, and it's a very pure product, so, we are getting a good response to this product. We also extended some range in, this waterproofing construction chemical. So again, one unique product, which is Crystal Seal, we have launched, in, you know, this period. The other initiative in, decorative, which is around the influencer program and services, which we have been updating you in last few quarters. So our next-generation painting services and our program for architect interior designer, which we started scaling up, is gaining continuous momentum, and we are seeing traction quarter-on-quarter basis. And that scale-up process has already started, and we are going to scale it up further.
The services has been expanded to more than 150+ cities in terms of active lead generations now, where we are generating the, digital leads, and we are having the control on that particular business. Service team and structure, as we expanding the services, the service team and structure also accordingly, we are expanding. New businesses, overall, the new businesses have shown strong growth. And, now, in fact, with our range, the gap that we had in the pro- you know, this, range of new businesses, that is no more there. You know, so we, we are doing little better than the market. In terms of project also, we have registered a good growth. So, we have been expanding our team now almost more than 75 towns, which have a good potential of projects.
So we have a team in place, we have footprints there, and we have registered a good growth in projects also. In terms of network, the expansion in the network was in the double-digit growth. And also, as a part of our initiative, we enhanced visibility through media and digitally also we have been very, very active. We also participated in the high decibel events like Asia Cup and World Cup. And there, in fact, we have been advertising, communicating the range of new products, the Paint Plus, you know, that which we have introduced over a period of last year. Coming to industrial business, in automotive, our approach, as we have been saying earlier, continuous focus on technologically superior products, launching sustainable technologies to reduce VOC, Volatile Organic Compounds, and to reduce carbon emission.
Passenger vehicle segment continued the steady growth trend, got carried forward from Q1 , and we expect SUV and new model to continue to drive demand. Two-wheelers may see a better demand going forward, but as of now, it was kind of the production growth of the industry, which has been flattish. Three-wheeler is fine. Commercial vehicles continue the positive momentum, and tractor has been under little stress. We are getting the traction from the new six segments where we entered, which is a Seam Sealer, Underbody Coats and alloy wheels. So the business and the traction has started coming. In auto refinish, which is after paint market, in fact our focus is in terms of adding the A-class body shops, and that is helping us again, driving the salience of premium products in the auto refinish.
We also introduced during the quarter the next generation waterborne paints for body shops. That is what we introduced just about towards the end of Q2 . In performance coating division, which is a non-auto industrial category, again, one of the focus areas we have taken was to come out of some business which are at the low end, not so profitable, and therefore increasing the salience from the premium business. There also we are gradually seeing increase in the salience of the premium category. We have been working to get approvals, you know, because this business is long-term sustainable growth is dependent on the approvals. So in that pursuit, we have received the WRAS approval for Fusion Bonded Epoxy Powder. So that is for performance coating division.
So the other updates to you, you know, related to capacity during the quarter, the capacity utilization was 65%. And our expansion project at Vizag and Jaipur, they are on track. In Tamil Nadu, Hosur, the expansion has been completed as per the plan. Some other initiative in the company, we have been trying, we have been driving, you know, the innovation program, and last year we started innovation program, and this time, you know, that we have created a innovation process, and we are going for a good participation from the employees, collecting ideas.
So that program is taking a shape, and we are receiving a lot of good ideas, and that is giving us a, you know, that is building a good pipeline for implementing the good ideas to bring efficiency, optimization in our systems. We have been once again certified as a Great Place to Work, so we received a certificate, Great Place to Work Certified organization during the quarter. So these are some brief updates, related to quarter, where I just mentioned about the top line, bottom line, the status, the progress on the initiatives, what we have taken. And I now welcome all of you for the questions.
Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi, sir. Thanks for this opportunity. Sir, I just had two questions. First, you know, with second half, you have indicated benefit of festive period, as well as our Paint Plus initiatives are, you know, taking shape. Would it be fair to argue that the margin trajectory would be similar to what we saw in the first half, which is at around 14.7% at the EBITDA level? And what would be the risks, if at all, you think you could disagree? Thank you.
Avi, I think the prices so far have been stable in the Q2 . But going forward, you know, maybe because of this volatility in crude and Forex, there may be a possibility of some upward, you know, the trend in the raw material prices. To that extent, there may be some impact. But the positive factor for the Q3 or the coming quarter will be a better higher growth. So I think one has to balance between these two.
So, sir, so should we expect, I mean, would it be fair to expect this current trajectory to continue? Because last time, we were kind of more towards the 14% for the full year, but, you know, the performance has surprised us positively. So would it be fair to kind of extrapolate this, or you think, you would like to suggest that we should still stick to our coding?
So, Avi, as Anuj mentioned, you see, crude prices have started showing an upward trend, right?
Yeah, yeah.
To make a statement whether it will be the same or, you know, there will be a slight up, you know, margin up and down. But we believe that by and large, the margin should be fine in the Q3 .
Also, we just keep in mind that, you know, because our margins also depend on the mix changes, you know, because there's no mix changes. So depending on how much sale is increasing in industrial and decorative, so to that extent, some flexibility is always there in that regard.
Got it, sir. Got it. No, very clear, sir. And sir, just a bookkeeping question. Could you kind of give us a sense on where, how was the ad spend intensity in this quarter?
We have increased. We have been going a little aggressive, and as I said, that we have enhanced our visibility, whether it is traditional media or digital media. You know, this services, where the initiative is all about, you know, the lead generation from the, you know, digital spending. So ad spend has gone up in the quarter, too.
Okay, sir. That, that's all from my side, sir. I'll come back in the queue for questions. Thank you, sir.
Thank you.
The next question is from the line of Pramod Dangi from Unifi Investment Management. Please go ahead.
Yeah, thanks. And, you know, congratulations for, you know, recovering the margin. So you have given a very good commentary on the directional update on the restructuring, which you had taken few quarters back. If you can quantify few of the numbers, you know, that would be very, very helpful, such that out of the growth of 1% or the 5% last quarter, how much driven by the volume growth and how much driven by any price change, whether it's negative or positive? In case of like, you just said that the ad spend actually went up in Q2 , and I remember that Mr. Anuj Jain had said few quarters back that our ad spend was very low, and we would like to increase it.
So if you can quantify, it went, you know, more than from 3.5%, it went to 4%, 4.5%, 5%. But I think that, that quantification will, you know, help, you know, give you a directional commentary.
Okay. So this, in terms of decorative, if you are talking about value growth and volume growth, the growth are similar. So that's why I said that, you know, because there is a change in the mix of the premium, and therefore, we are able to maintain the average selling price. So growth in value and volume is similar. Ad expenditure, Prashant, would you like to talk about what is the change in the ad expenditure?
It's about more than 50%-20%. We have increased the ad expenditure in this quarter. More than 20%, around 20%.
Okay, great. So the 1% top line growth?
The ad spend is actually 20%.
Okay, good. And, you know, if you can just give the contribution from the new product, like, I think March end, our Paint Plus category was giving around 10%, you know, contribution to the revenue. Any significant change over there, how we are moving in that direction? As we are, you know, introducing new and new product. And similarly, for the industrial product, all the new categories which you have mentioned, what kind of the contributions which you are seeing now, you know, mid-single digit, and how they are moving?
So in terms of new products, the overall, the new products, the contribution is about 10% of the total range. And within the new products, so there are Paint Plus, which are unique products. So there also our sales is gradually, you know, going up. Even in industrial, the contribution of the new product is higher single digit, it's another 10% only. Overall, for the company, you can say the contribution of the new product is around 10%.
Okay, great. Thanks. Again, lastly, on the, you know, on the project or the contractor business, we have a, you know, team in place, a few quarters back. So what kind of presence which we are seeing now? Is it better than what we expected?
Sorry, your voice is not clear. Can you r epeat the earlier question.
No, I'm saying that, on the project or the contractor business, we have placed a new team, three quarters back. So what kind of experience we are having now? Is it better than what we have expected earlier? Is it going- b ecause there's a lot of competition as of today, so how we are building up on that side?
So in fact, you know, the, if you remember, we have been talking quarter-on-quarter. So we have been gradually expanding our team. And when we expanded the team to further towns, we got a good response. Therefore, we have further expanded, and as I said, now we have crossed more than 75 towns. Now, our growth in projects, so in the earlier years, our growth, because project growth, the market growth is always higher than the retail growth, and we have been lagging in that particular growth. Now, we have caught up, and we are in line with the market. Our sales remain low, because if you compare with the market, our sales, our project sale to the total sale is lower. But in terms of growth, growth, we have caught up.
Okay, got it. And lastly, one feedback. You know, I tried to use your Nerolac service in Mumbai. I just repainted my house two months back, but the call back I got after one week. By that time, my color was over, so I don't know how to take it. But in Mumbai, and I know Mumbai is a weak market for us.
I take it as a feedback, and apologies for that. But I tell you what happens is that, you know, because these are new concepts, and when we introduce the new concept, you know, because what happens is that, in fact, we have started receiving very good responses, the number of leads. So sometime what happens is, it takes a little time to establish your complete structure, because every month, you know, that we see that how the leads are going up, you know, that what is the infrastructure or team, you know, is there in the market.
Because when we put the team, say, example, in a city like Mumbai, now you don't have the control whether you are getting the more leads from South Mumbai or North Mumbai, you know, so those type of things and those learnings we take, and continuously, in fact, you know, that there have been learning. Obviously, initially when we started, there have been challenges, but now we are able to, you know, take care of a lot of challenges, because our idea is that we should be able to respond, you know, properly.
So obviously, we are not 100% right out there, but I think as of now, our satisfaction level or, you know, what we want to do has reached around 90%. Obviously, we have to cross the journey of the last 10% also, where this kind of problem what we had faced should not happen.
Sure. Thanks. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Amit Arora from Ind Growth Capital. Please go ahead.
Yes, thank you for the opportunity. Sir, reflecting on your last slide, which is on the risks and outlook. So I wanted your thoughts on, do you consider increasing competitive intensity in the Indian market also a sort of a risk to you, and any impact-
Sir, can you please-
Yes.
Use the handset? You're on mute.
Yes.
Please-
Yeah, okay.
Use the handset.
Yeah, sure. So, thank you for the opportunity. I was reflecting on the last slide of the presentation on risks and outlook. So, I would be grateful for your thoughts on if you consider increasing competitive intensity in the Indian market, also some sort of a risk to you. And have you seen any impact on employee retention, the vendor ecosystem, distributor ecosystem, et cetera? Thank you.
Actually, you know, we have been talking about it, so obviously it's a fact that a new competition is there. A lot of new competition has already come in. Some company will come towards the end of year. But I think, what is important is to know that the existing players are like for us also, you know, there is an established brand, there is an established network, there is a good relationship with the network. Some of the initiatives what we started in terms of influencer management, so all that ecosystem is, you know, set. Now, it all depends at what approach the, new competition is going to take. But, you know, in our view, it's not an overnight game. You know, companies may come in.
There is an advantage also, because in the market like, decorative paint market like India, where the size of, Big Four of the organized sector is around INR 50,000 every year, we expect a growth of around 10%. So, you know, partly, the, the new players can get absorbed from the growth also. And the rest, it depends on what kind of approach it takes, you know, because it's a quality market, so you want to fight on a price, the long-term sustainable growth is, you know, becomes difficult. So I think what is important is to focus in terms of our initiative, building network, building relationship with the dealers, influencers, creating other growth drivers, you know, which we have been doing, and then let's see that how it shapes up.
As of now, I can only comment that new players, good for the market because you see more innovation, you see more communication. To that extent, more formalization happen, maybe the penetration goes up. So these are some positive factors also.
Got it. Thank you for your very detailed and candid thoughts, sir, and all the best to the entire team. Thank you.
Thank you.
Thank you. The next question is from the line of Atharva Bhutada from Purnartha. Please go ahead.
Hello, sir. Thank you for the opportunity. So I just wanted to understand, will we be able to grow-
Speak loudly.
Hello?
Can you speak loudly?
Yeah. So, I just wanted to understand that in FY 2024, will we be able to grow double-digit now because of sort of low quarter in the industry? And in Q2, Q3 , do you think that we will be able to beat the industry?
So I can only say that, you know, Q3 , Q4 , the market growth will definitely be better. And therefore, the outlook for the coming quarters is better than the first two quarters. How much it will grow, the outlook looks to be, you know, that at least the coming quarter, the double digit looks possible, you know, as of now. And when you say beat the industry, you know, what happens is that there are different segments, like, as I said, paint putty, project, the new businesses. So if you look at segment by segment today, so, you know, whether it's a project or new businesses, somewhere we are equal to the market, somewhere we are little higher than the market. But some of these high growth sectors, our salience is lower.
So therefore, you know, sometime some gap you see, mainly because of the salience. For us, what is important is that if we are playing in that particular sector, whether, you know, that we are able to catch up with the market growth or able to do better. So that is how we do our calculation. But since our salience is low, sometime there is a difference, and therefore, our attempt also would be that how do we increase the growth in a particular segment, so that even the salience factor goes away.
But, that does not disturb us, because as long as every segment we are able to see, you know, other than the segment where we decide or choose that, you know, we don't want to play in a particular quarter, because if the quarter market growth is high, maybe sometime we want to participate in the volume or driver product. But if the market's growth is muted, so sometime, you know, that we go a little slow on that. So I think that's the answer which I can give to your question.
Okay. And, so, I mean, year-on-year basis for the second quarter, according to the rainfall data that IMD has provided, there is a 12% dip in average rainfall in the country. So, what has happened that the paint industry has suffered such a significant blow to the demand?
You're saying paint industry has suffered?
A significant blow to the demand.
So you can say that, you know, if you look at, in terms of urban and rural, the demand has been impacted in the rural sector. Now, as you're rightly saying, that, maybe, rains were- We can call it a near normal. So there may be a possibility and, you know, that there could be a better demand, at least in the coming quarter, because the monsoons have not been that bad. There is some deficit, but it is like geographically. Some geography, it is good, some geography it is not so good. So the geography, you know, that where it is absolutely normal or near normal, there we expect a better demand. And therefore, overall at the country level, if we compare it with the Q2 , the demand definitely would be better in the coming quarters.
So this is. Thank you.
Thank you.
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thanks for the opportunity. The first question is on the industrial side. So, if you can just more quantitative detail and as to how we have grown in auto and non-auto, and what is the outlook for the second half in the industrial side? Since based on the presentation, it seems that most of the engines are firing now. So two-wheeler segment was not participating in the growth. Now, with four-wheeler, two-wheelers, as well as some other non-auto industry doing well, what kind of growth outlook you would keep for the industry?
If you look at, you know, Q2 , the passenger vehicle production growth of the industry as per the SIAM report is about 6% production growth. So generally, the paint growth goes in line with the production growth of the auto manufacturers, and so 6%. And I think even in the coming quarters, probably they will be able to maintain this kind of growth. Two-wheeler in Q2 , again, as per the SIAM report, the production growth was flat and maybe slightly negative also. But in the coming quarters, because the two-wheeler growth is dependent on the uptake in the rural market.
So there are expectations as we talk to our customers, that there are expectations that at least in some geographies, you know, the companies are expecting to see a little better demand from the rural, and therefore the two-wheeler will get supported. In the other, non-auto, which is like general industrial performance coating, I think based on the infrastructure, the spending from the government, I think that sector is doing fine, and it will continue to do fine. In other coating, where probably there was some low demand, you know, mainly because of some few segments, there we have started seeing some kind of uptick, and therefore going forward, probably the growth could be better in those segments also.
Just, just to clarify, so with, as you mentioned that in last three or four quarters, that, company has gained shares in the auto, OEM business, and with higher share of premium cars, premium paints and, larger size cars, shouldn't the paint growth be, higher than the volume growth? And in that context, should we expect double-digit growth, industrial, plus auto combined going ahead?
So it depends, you know, I mean, within the passenger vehicle, you may be right, but this get offset, you know, with the two-wheeler. The two-wheeler numbers are also very large, and there the growth has been little lower. So only if you look at the passenger vehicles, that is possible. But in, when I look at the automotive, it is a combination of passenger vehicle, two-wheeler, three-wheeler, commercial vehicles and tractors. So even if I look at, look at Q2 , the commercial vehicle growth has been good. Auto production growth, as I said, 6%. Two-wheeler growth is just a little negative, and tractor also has been negative. So as a combination, if you see, you know, maybe the, the difference between- b ut only if you talk about the passenger vehicle, you are right.
Okay. On the decorative side, with all the initiatives that you have taken in last 4-6 quarters, where do you see for the like-to-like category, you growing faster or at least catching up with the industry? And Q2 demand, you just see because of the timing difference, it, we have seen the slowdown or there is some continuous slowdown that we are witnessing in paint?
I could not understand the last line what you said.
The slower demand that we have seen in decorative in Q2 , is it just because of the timing difference of festive and monsoon, or there is a genuine demand slowing that you are seeing?
Okay. So the growth, we are seeing good traction in segments and the new businesses, you know, which we started, and there we are seeing a better traction. Within the retail categories, you know, the categories like, you know, what we talk about, at least about premium based on our influencer program, architect services, those initiatives are supporting, you know, some of those categories. And demand, yes, the demand has been slow, one because of monsoon. In fact, this has become a trend now. In fact, we have seen that whenever Diwali is in November, the third quarter growth is always better and the second quarter growth a little lower.
But maybe this quarter, the Q2 , this year, has been lower than expectation. Yes, we are seeing some uptick in demand, and we are hopeful that Q3 will be better.
Sure. Thanks a lot, and all the best.
Thank you.
Thank you. Ladies and gentlemen, you press star and one to ask a question. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Good afternoon, Anuj and Prashant.
Good afternoon. Thank you for the opportunity.
Just two questions in the beginning. To my understanding, the channel has told us that because the demand was subdued, in the month of July and August, so we had a early discounting by most of the industry participants in the month of August, and the intensity has climbed up, very high. So the question here is that, is the promotion or discounting intensity has now stabilized or, it's still gone up? Because the demand, what you have been saying, looks better, in the anticipation festive season is going to be good, but still rural is not recovered. So your comments on that.
So I think discount intensity has gone up, and, as of now, I cannot say it is stabilized, but it depends, you know, that in going forward, that's how it happens, but as of now, it is not stabilized. It is still up.
Okay. Okay. The second observation is that, what we understand, the Q2 growth was largely driven by the economic dimensions. Assume that if the festive season pans out and there is a luxury premium, segment, which should come back, and wedding season also will complement. So that means that, our margin guidance or not guidance, the margin what we have achieved, there is a likely chance that the, the margin will move up because of the mix change? Is that a fair assumption?
In our case, if you see, as I said, that within our mix, the contribution of the premium actually has gone up. And as I said, that excluding, you know, the cement putty, our growth is better. So generally, what happens is that when the market is subdued, the growth is subdued, you know, that time we don't change volume so much, you know, because it may add to the volume, but not much to the value. But when you see a better market growth, then probably during that period, you know, that we would like to release some resources, even for the volume-driven product. So to that extent, you know, I think it gets balanced.
Okay. And the last question. Yesterday, we heard one of the leading players said that the South, there are problems, maybe the rains were insistent or below normal, so there are pains. So in your understanding, what is happening in South or our South observation is, I mean, is the South not important to us?
Yes. Look, every market is important, but obviously our market share is low in South or salience is lower in South. So hopefully, you know, because South generally, yes, this observation is right, but generally, South market gets picked up by the end of November or first week of December, because December, January is supposed to be a good season time. So we can only hope that, you know, by the season time, I think South market picks up, and it therefore gives some spurt to the growth of the industry.
Okay. So if South comes back with the full steam, can industry expect a double-digit volume growth for the second half?
Yes, it is possible.
Okay, wonderful. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Abhijeet from Antique Stock Broking. Please go ahead.
Hi, sir. Good morning. So my question was on, what would be the differential growth between industrial paints and decorative paints? Because your overall growth has been about 2% growth, so I just wanted to get an understanding of, you know, what would, what would have been the growth broadly in decorative and broadly in automotive. So if automotives has grown at a higher rate, so, I mean, industrial, sorry, industrial has grown at a higher rate, then the decorative sales would have been more muted. I mean, just the difference between the two growth rates.
So I think I, you know, stated at the start. Decorative growth is marginally negative, and excluding putty, it is kind of flattish, while industrial, it's a higher single-digit growth towards, double digit, whatever.
Sorry, I missed that. Okay. No problem. Okay, got it. So high single-digit growth in industrial, then with the 6% growth in production that we have seen in passenger vehicles, but high single-digit growth could still be sustainable, right? I mean,
Yes.
Even, even at the current rate of sales?
Yes.
That sounds nice. So only your decorative growth has to move up for you to show a high single digit to a double-digit growth in sales going ahead.
Yes.
Understood. Thanks. Thanks, sir.
Thank you. Next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi, Anuj. Hi, Prashant. Thanks for the opportunity.
Hi.
So when we entered the quarter, the narrative or the expectation from the industry was that whenever there is an uptick mass and run-up to the festive season is delayed, we usually see good pickup in decorative paints. But now when we are picking up from it, we have seen that it did not turn out to be that way. So is it that the underlying demand is actually much more weaker than what it appears on the number?
So you are right in terms of that. Definitely, the growth in Q2 was lower than, you know, what industry has estimated. And mainly, if I break it up in urban and rural center, I think the demand was tough in the rural market. And rural segment also contributed good to the paint industry. So there, in fact, there has been some stress, and the industry has been hoping to see uptick, which so far we have not seen. But based on some of the trends, as I said, it may not be across the country, but some of the geographies, we are hopeful that in this quarter, mainly because of the good monsoons in, you know, some of the geographies, we are hopeful to see that.
If that happens, then I think the overall demand of the industry will go up.
Sir, the divergence between urban and rural is very stark, or relatively rural is weaker and hence urban looks better, or, or urban has actually definitely picked up in a, in a very strong way?
Urban, we can say, picked up in the sense there is a normal demand. Rural, the demand has gone down, and rural contribution is good, and therefore it is affecting the total demand.
Got it. And the last one, so you spoke upon on competitive intensity, and this question has been asked in many different ways in the last four, five quarters. But from your experience, you would have seen the industry has actually kind of fought with many challenges in past and last two decades and still survived in a very strong way, incumbents in particular. Would you qualify the new competition in the same bucket as in the way what we would have faced in last 20 years? Or this time, sheer size of balance sheet with which it is coming, you say that this time it's, it could be different?
So I would say this time it could be different, you know, because of the reasons as you rightly said, but the basic facts of the industry remain same, that what is the kind of brand you have, what is the kind of network in terms of dealers or the influencers you have, and what are the, you know, drivers of the growth which industry is ready with. So I think those factors are there. So whether it is a big-sized player or small-sized player, I think there's no answer available overnight. So obviously people can come in. As I said, that it is always good for the industry to have more number of players, because it always it's helpful, beneficial for the industry in the longer run.
So that is what I expect, that there may be a more good thing happening in the industry rather than the bad thing, and therefore, the industry will prosper from it.
Yeah. And so last one on that, and I'm just trying my luck here. Would you have any? I'm asking the forecast only or a crystal gaze. Can the competitor intensity have a very different regional flavor or a market structure flavor, as it could be very high at mass end or premium end, or it can have a very regional flavor also, that it could be very high on west and south, and not necessarily north and east. Do you have any such forecast, if it can give?
No, very difficult. It's very difficult for us to make any comment on that. Sorry.
Got it. So that's all from my side, and seasonal greetings to you and the team.
Thank you. Same to you.
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thanks for the opportunity again. Just one housekeeping question: In the Q2 , the kind of growth that we have seen in other expenses, if you can just tell, is it A&P or something, some other line item, or there is one-off, since the absolute growth itself is very high? So little bit clarity. Thank you.
Yeah, Prashant. So, other expenses, as I said, we have as per our plan, and we have been mentioning quarter-on- quarter that we'll be increasing our ad spend. We have been doing that as per our plan, and that is one of the reasons. Plus, other expenses are more of normal growth, which is in line with the inflation.
Okay. Thanks a lot. Thank you.
Thank you. A reminder to all the participants, you may press star and one to ask a question. The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher Private Limited. Please go ahead.
Yeah. Hi, Anuj and Prashant. I have just one question on the volume growth. Because in the, I think, couple of questions back, also it was discussed that if we put, say, our total volumes in two buckets, that is, decorative and industrial. Then on the, say, industrial side, while auto is doing well, I would say powder coatings and all, even durable, were slightly tapped. If you look at the overall sales of the industry, and general industrial is, I would say, doing reasonably well. So that is one bucket, and the second is decorative, which has not done that great so far, maybe because of delayed festival season.
Now, if the automotive industry, it grows by 5%-6% sale volumes and general industrial, and you can say, powder coatings, they might grow, say, by around, say, in tandem, then do you see a possibility that the decoratives will have a momentum which will enable double-digit growth rate for the industry in the second half of the year?
Yeah, as we discussed that, obviously, if you see the breakup between industrial and decorative, mainly the double-digit growth is missed because of the decorative part. And because of this, Diwali momentum, followed by, the good marriage season, which is expected in the month of November, December, we are hopeful that, you know, this growth will get into the area of double-digit volume growth.
In Q4 also?
H opefully, yes.
Okay. This time around, I think the pricing will remain negative if your product prices are not chaged.
No, not, not changed.
Okay.
The price change, you know, that when you are able to see stability, because now in the market you see the volatility is there. As I said, that going forward, there may be some upward movement of the raw material prices. One will have to wait for that when it gets stabilized.
Okay. That's useful. The second bit is on the, you can say the, your putties, waterproofing and all the other, you can say, the construction chemical segment, which we had, you can say, entered over the past two, three years. So how are we trending over there? Any, you can say, idea which you can give us on market share or in terms of, say, distribution or where, actually, what, what's our movement and how we are progressing on, in those particular segments?
In waterproofing, construction, chemical areas, specifically, we have started doing better than the market in terms of the growth. Obviously, our saliency is lower because we started late, but in terms of growth, we have started doing better.
Okay. So, can you share with us that how much that could be part of decoratives now?
Overall, new businesses would be about 7%-8% of the decorative now.
Okay. And that new businesses will include all this?
Yes.
Okay. Thanks a lot.
Thank you.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Abhijeet from Antique Stock Broking. Please go ahead.
Yeah, thanks for the follow-up opportunity. My question was on, you know, everybody has been asking for about competition, the competitive environment to intensify and all. But on ground, I think you will be able to tell me if I don't know, I don't know. But on ground, have your large dealers seen any, I mean, has the competition approached them? Have you seen any competition, you know, trying to tap the your large dealers? Have you seen that? Because we, we-
There are discussions in the market, people are meeting, but I think it's a little early, you know, because, see, the competitions have already entered. There are companies who have entered in last one year, one and a half year.
Sure.
You know, the business, whatever business is happening, it's happening, but that has not impacted much, the industry. When you talk about some of the new players who are going to come in, they're in fact, as of now, you know, obviously, there's nothing, the product is not into the use or the packages are not yet rolled out, so I think it's little early to comment upon that.
Understood. Thanks.
Thank you.
Thank you. The next question is from the line of Atharva Bhutada from Purnartha. Please go ahead.
Sir, I just have one question. I just wanted to understand if the rural demand is being impacted due to higher price, price increases that you have taken over the last 4 quarters-5 quarters?
Could be possible, but, you know, parallelly, industry has come out with a lot of products which are there in the economy range also. And generally, in what we are seeing in many of the consumer industries, there's a downgrading which is happening. And so therefore, there are, you know, products available which are at the price range. So I think it's a matter of demand, and to some extent, I probably would agree with you that it's a downgrading, so to that extent, it's a combination of both.
Very good, sir.
Thank you.
Thank you, sir.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for your patient hearing, and we really appreciate for your support, continued support. And, this is a good part of the year, in fact, you know, when there are so many festivities and that we are approaching towards. From my side and the, you know, the—from behalf of Kansai Nerolac Paints Limited, I extend, the best wishes, the greetings for Diwali to all of you. Please enjoy with your family, and thanks once, once again. We'll catch up again after, after the next quarter. Interesting times ahead for the industry, but I think the industry trends, have, have remained bullish in the past and will remain bullish in the future also. Thanks for attending, and best wishes for the season. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.