Good afternoon to all. Let me welcome you all for this Kansai Nerolac Paints investor meet, Q4 and FY 2023 earnings. It's a long time that we had this investor meet, maybe 20 years back, and we always wanted to have this.
Hello. Yeah. Sorry for this interruption. Our new Managing Director, Mr. Anuj Jain, who took this position from 1st of April, has been consistently telling me we should have this meet, as per his direction, we are having this meet today. It will be our endeavor to have this every year. Today, let me welcome Mr. Anuj Jain, who is here to come on stage. Mr. Anuj Jain is with the company for the last 34 years, he has risen from the manager position to this position, he has been in various fields: marketing, manufacturing, research. He's been handling various portfolios. I also welcome Mr. Jason Gonsalves, who is the director, materials and supply chain and IT.
We also have our entire management committee here, which you can interact with them during the course. Now I request Mr. Anuj Jain to take the stage.
Hello. Is the sound okay on the backside? Good evening, friends. Namaskar. Welcome, all of you. Really a great pleasure. I think when I took over last year, he said April, it was not this April, it was last year April, 1st April. When I took over, I think I had a chat with some of you, and you only advised that it will be a good practice if we do this kind of meet physically once in a year. This is the first time we are attempting that, and as Prashant said, it will be our endeavor to do it, you know, every year. Welcome, all of you, and thanks for your cooperation, support, and valuable insight which we keep getting, you know, from all of you. Thanks for that and continued support.
We have the entire management committee team here. You know, you know Prashant Pai very well, CFO, and in the company for last 33, 35 years. You know him. You know Jason Gonsalves. He has been a part of all this online, what we do. Jason Gonsalves is heading the supply chain, the corporate planning, the procurement. So he's also in the company. It's the first company he joined, you know, as an MBA, and he continued. He also gone through various, you know, kind of portfolios. We also have here Abhijit Natoo. Abhijit, please get up. Maybe the MC committee, if you can just come here, I can just introduce all of you. So the entire team is here. So Abhijit Natoo, he is the manufacturing head, a very good person.
In fact, he had experience in Asian Paints, and then he's with us for the last 12, 14 years. He understand the best practices to be in manufacturing and, all, you know, new things what we are trying in the manufacturing is something, you know, what he's creating. Rohit Malkani. Is my mic working? Even if it is not working, I think my voice can reach to you. Rohit Malkani is the Head of sales and marketing of Decorative. He joined company two years back. He has worked with Gillette, Asian Paints. In past, he was in Crompton, but very long time Asian Paints. He is the head. Ram is the sales head, so very good, excellent relations with the dealers in the market for many, many years.
He had worked in the many geographical geographies, now he's in the, and he's heading the sales. We have Govindarajan , who is our Company Secretary, the legal expert, again, a very long hand in the company. 100% compliance for last so many years he has been maintaining. We have Kotera-san. Kotera-san recently got posted in India. He's also a part of marketing. One of the initiative what we are driving, initiative Kotera-san is driving. He's a representative of Kansai Paint Japan in India. Sudhir Rane had a variety of experience. He handled decorative, he handled industrial, and currently he's the Head of HR. He also handle all our subsidiaries, which are international subsidiaries and local subsidiary. Quite, again, in a big number of years, around 30 years, he is with us.
We have Laxman Nikam, a very, very solid hand in terms of technology. He's one of the master in technology. His expertise is there in the automotive, general industrials, and in the decorative also. One of the very rare person who has this kind of technological experience. He's working with us for many, many years. We have Yokota San, who is the, you know, the head of technical and quality control. Yokota San also is there in India for, you know, few years now, four years. He's also a representative of Kansai in Japan, and they provide us the technology and the help to see that, you know, the quality focus remain at the top. We have Amrit Rekhi, you know, is the head of sales and marketing of industrial, which covers automotive, general industrial, auto refinishes.
This entire team, we thought that, you know, when we talk to you quarterly basis, maybe you know that we are not able to, you know, showcase the entire team to you. Since we are doing it physically, I thought it's the right opportunity to showcase the entire team. This is the team which is keeping this company resilient and, you know, they are the people who are, you know, bringing a lot of innovations in the company and taking the company forward. Thank you, all of you. I'll just take you through the presentation, you know, today and we'll try to share some of the things with you, the company. This is the agenda.
Not that I'm going to go through every slide because this presentation is uploaded, but maybe some of the slide where I want to talk about, maybe, you know, I want to share something on that. This slide is on the business environment, but I'm not going to talk much on that. I think you are aware of the challenges which are going on in the country, in the world or maybe in the industry. What I want to share with you is a Nerolac story. I think that would be something interesting for you to know. If you see, our purpose has been create environment for a healthy and beautiful future.
We want to see that, you know, today we are conscious that we are inclusive organization, and when we are working, we must ensure that the product, the environment, the atmosphere, what we are creating, it should be good for our future generations. That was one of the reasons that in the past, we were the first company to introduce healthy home paints, low VOC, zero VOC, lead free, you know, those initiatives because this is, you know, our purpose. The vision is we design solutions that protect, inspire, and touch lives every day. Basically, we provide beauty and protection to the surfaces. Okay? Maybe we are known as decorative industrial company, more as industrial company, but we provide beauty and protection to the all kind of surfaces. If you see this picture, you know, this is very close to our heart.
Inside or outside, any kind of surface, if you see, we have a product available for that. Generally, we believe that every second house, third house has something there which is painted with Nerolac. It could be refrigerator, it could be oven, it could be microwave, it could be a fan, it could be, you know, air conditioner. It is a hairpin, you know, the ladies what they put hairpin in the, y ou know, that is also painted with Nerolac. The artificial jewelry, you know, we supply coatings for that. Two-wheeler, three-wheeler, tractors, the bridges, the metro, so many things, and obviously the interior walls and exterior wall.
That's what, you know, we take a pride that, each and every surface, and that's what our motto is, that any surface which is emerging surface, we should have a coating, you know, for that. As a brand, we are a power brand. Today, maybe in terms of our share or size, we are number three. In terms of mind share, we are number two, and solid, you know, number two brand. We are known for our innovation. If you look at, Japanese technology, which is, you know, that we stand for the high quality and the jingle, Jab Ghar Ki Raunak Badhani. It's a very, you know, the asset what we have created over a period of year, and you know, people still, even the new generation, sing that jingle, know that jingle very well.
Some of the product which I am going to talk in the subsequent slides also, what we have introduced are, you know, different kind of products. That's there in our, you know, that DNA that we, you know, keep innovating. This is what we have created in last 100 years. Obviously that's our legacy, what we have built at 103 years, you know, the, you know, brand. Today, in, you know, today's time, I think there are less number of companies who are able to survive for 100 years. I think if we are able to come to this stage, the adaptability is something which is there, which is our forte. That's something what we created in 100 years.
What I want to talk today is about this slide. This is what I think if you have been attending the quarterly calls, I've been talking about it, that what we have been working on for last one year. We have been in decorative, you know, that the innovation, because when we talk about the market is changing, the competition is changing, all these things happening, what we are going to do to see that we are on the path of success. This is in short like Paint+. That's a new positioning we said, because paint is supposed to be about color. Okay. Today, if you see, we are known for technology in the Industrial also. Technology is playing a bigger role, you know, because technology is functionality, technology is sustainability.
Technology is something which is, you know, giving you something which you have not thought about the product. Paint+ in the decorative is the creation of the technology where we said it is not all about color, it is about functionality and sustainability. We started with Beauty Gold Washable, which is safe for safe paint. Then we get into Mica Marble Stretch and Sheen, which is, you know, that the stretch paint. There are two part of Paint+. One is a unique product. The second is that offer a feature which is available at a higher price in the market, but you make it available at a lower price so that you are able to increase the volume of that product. Recently we introduced Excel Everlast 12, which is like a self-cleaning paint.
With every rain, when the rain comes, thin layer of the paint comes off and your building looks new. 12-year warranty Excel Everlast. We introduced a product in waterproofing, NoDamp, which bring down the temperature of the surface by 14 degrees Celsius and 12-year, you know, that warranty of the waterproofing we give for that product. That product also we have introduced. Impression Kashmir, the no smell. It's a very pure product, so if there are children at home, the old age people at home, they have some kind of allergy with the product. Impression Kashmir, it's like a pure product and the no smell product. That's something we have introduced. We have decided the range of product in this year and the entire range we have, you know, executed in this year.
We wanted to place the products which are at the different price point, a different value proposition, that Paint+ portfolio in this year, 2022-2023, we completed. Second part, services. We introduced the services in the year 2000, but maybe the market was not catching up. Post-COVID or, you know, we are seeing the change in the behavior of the consumer. Today we feel the time is apt and right to get into services. We started the services. First quarter we started this initiative, and it took time because we have to build a lot of infrastructure. Actually, we placed the team in around more than 400-450 cities. Digitally, you know that, we started with 50, 60, 70, and now we have almost crossed 100 cities for these services.
The proposition is that five days, next generation five days painting is a proposition which is very, very unique. Dust-free painting, which is very, very unique. What we have done during the year is that we have created a setup of lead generation and the lead conversion. The call center setup, how do we complete, you know, taking the lead and converting to a business. When we started our conversion rate, because this is all digital system and it works on the conversion basis. When we started, the conversion rate was 1%, 2%. Slowly, we are reaching around 7%, 8%, going closer to 10%, which is supposed to be a benchmark in the lead generation model.
The call center, you know, because who attends the customer, the turnaround time, we say that when we started, it was some hours. Now it is about 10 minutes. Attending the customer, you know, again, it was in days, you know, taking seven days to 10 days time. Now it has come down in three days time. We implemented the system and now it is taking a shape. Digitally now we have started painting 500 homes every month. On the yearly basis, about 6,000 homes we have painted. We are, you know, painting 500 homes per day. In totality, as I said, this is online and digital, but if I include the offline also, then about 20,000 homes we have painted.
This has picked up the pace in last three, four months, because earlier we were setting up digital system infrastructure, and then we said that now we are going to scale it up. This is one area which we are ready with. The painters, because our industry is quite divided, you know. Almost 40%, 50% people go with the recommendation of the painters or, you know, influencers. We have set up a team, which is just a promotion team, who deals with the painters. Basically, idea is that, you know, painter has a potential. From there, you know, how do we get share of wallet? How do we increase our share of wallet?
In terms of training, incentivization, you know, the discussion about the product, helping them, you know, going to the sites so that consumer confidence goes up. That's another activity what we have created. So far, you know, when we exited the year, 100,000 painters have started participating where we are able to. Some of the painters which got dropped, you know, when we were losing some share in the past yesteryears, we are able to get them back. This has, you know, picked up some traction. The contractor, which is basically related to our project business, because there is a verticalization happening in the. Earlier it used to be a phenomenon of metro cities, it has gone into the other A-class cities, now it is spreading.
We were there in the 35 cities. We said we'll, you know, we'll go to 70-75 cities over a period of time. We have already crossed 55. To be specific, 57 cities now we have placed our team and trained them and created a standard operating process. The pipeline system, because this works on how many sites are there in the pipeline, what is the conversion rate, we are gaining maturity in this contractor business. The next thing is about architect and interior designer. Earlier, traditionally, the influence of the architect, interior decorator used to be 5%-6% in the country. Today there are towns. We have identified around 27 towns, where the influence of the architect, interior decorator is about 20%, that is quite high.
Architect, interior decorators are like doctors, you know, in the medical field. Once you prescribe, then, you know, people use that shade or use that paint. Again, a team set up. You know, the digital methodology in-interface with the architect and the team, where you know that we have started registering the architects. Their sites we have started registering. We have provided, you know, started providing them the support. We have started generating some business because it's also a different business model. We have given it a shape, and now we have started generating business through this also. These are some of the initiatives what we have taken during the year.
We had a brand, the mind share, but we said that at the field, what do we execute so that we are able to connect these dots. This is some of the work which we have done and why we are talking about this work today, because we have started gaining the traction from this particular work, and therefore we are going to expand it, you know, further. This slide I already spoke about. You know, you can see some of the examples here. Same, the product and project. I think I covered the point when I was talking about it, but you can refer to this slide later. These are the number of product, the Paint+ product which I spoke, that what we launched.
If you see the packaging, you know that here it is very clear that when the customer goes to the market, what is the journey he goes through? He talk about the brand or not a brand, then he want to understand that whether I want, you know, sheen finish or the matte finish. Thereafter, what is the single parameter where the product is different. The packaging is designed in a manner that if the consumer look at the packaging, he's able to understand what is that unique difference in the product. On the side if he goes on the packaging, he's also able to identify the other, the benefits. To talk about these benefits, through the digital medium on the website, we are, you know, placing the difference that, you know, this, how this product is different.
Because in the paint industry, the problem, the pain point of the customer is he doesn't understand that how this paint is different from the other paint. We are working to ensure that he is able to understand that how this product is different from this. If I'm paying a price, why I'm paying a price. That is how we have created this packaging. These are some of the things which are related to, if you remember, we spoke about indie distribution. We started a concept of Shoppe. This is the actual picture of the Shoppe. We have already crossed. There are two kind of models. Overall it's about we have crossed 100.
Typically for this Shoppe, if, you know, we have executed 50 in the market, the response is good, and I think going forward will increase the numbers of the Shoppes also. These are some campaign. You know that, in this year we have increased our marketing expenditure and, we are doing a lot of work on expanding the communication. These are some of the communication which we have done. In the product related which I spoke about, you know, Paint+. These are the some of the campaign and some of the new films which we have executed very recently. I'm not sure whether you would have seen it. We would like to showcase some of the new films here. This is for Nerolac Impressions Kashmir No Smell.
Nerolac. Paint ki smell hai. Nerolac Impressions Kashmir. No smell? Impossible. Possible. Hmm. Lucky. Sach hua toh main painter ban jaunga. No smell. Ye sirf paint nahi, Japanese technology wala Paint+ hai. Paint itna khaas, ghar le aaye Kashmir ka ehsaas. Nerolac.
This is Nerolac Kashmir No Smell. [audio distortion].
Chhat se barsi behad garmi. Huh? Paani mein sun gaya. Huh? Isko aur woh hai koi super solution? Koi super solution. Operation Bahubali 1214, launch now. Barsha ka seen ko bhagaao. Garmi ko 14 degrees tak ghatao. Nerolac Perma NoDamp+. With Japanese technology. Cooling karne wala waterproofing plus. Baap aa gaya waterproofing. Nerolac.
This is second. Third is, Beauty Gold Washable.
Saaf and safe. Bachche shararati. Bade bimar. Kya paint mein ho sakta hai koi chamatkar? Nerolac. Nerolac. Y e paint nahi Paint+ hai. Divaare easily saaf kar lo. Germs ki tum band bajalo. With Beauty Gold Washable. With Japanese technology. Banaya mere ghar ko- Saaf plus safe. Nerolac. Nerolac.
This is Excel Everlast. The self-cleaning paint with 12 years of warranty.
Nerolac. Introducing Nerolac Excel Everlast 12 with Japanese technology. Idhu paint alla. Paint+ dhannu. Nerolac Excel Everlast 12. Self-cleaning paint. Chuvarukale paththindu varsham manai sanrakshikkuunnu. Made in Sarigam. Nerolac.
There's Mica Marble Stretch and Shield.
Jab ghar pe garmi ka baadal ho. Divaaron ko jab bachana ho. Rango ko chahe nalao. Kaandhi ya chiti milao. Nerolac. Oho. Cracks zero. Matlab Nerolac hero. Ye sirf paint nahi, Japanese technology wala Paint+ hai. Madam, aap batao. Nerolac Excel Mica Marble Stretch and Sheen. Iski do guna stretch rakhi walls ko cracks se taal utaal. Ho jitna bhi change mausam ka haal. Paint+ mein plus. Tamam pehle aaye cracks ab nahi. Nerolac. Nerolac.
Done? Yeah. If you see these are multiple ads and what I said, the Paint+ what we started, you can see Paint+ in all this communication. The Japanese technology you can see in all this communication. There's a Japanese, you know, expert who is there in all these communication and jingle, which is a part of all this communication. What we have created over a period of 100 years time, which is a Japanese technology, and jingle is a part of each and every communication, so that even if we have the multi communication, people are able to connect it with one single outcome, which is Paint+ Japanese technology from Nerolac. You can see our aggression in terms of the multiple communication, multiple ads which we are coming up.
One of the ad was Malayalam ad, but it is there in the different languages. This is related to a communication. New businesses which we were the late entrant we started, but now we completed the range in construction chemicals. The range what we wanted to complete, not that we want to get into everything. The wood finishes premium and you know, the adhesive, which we have a subsidiary. Today, you know, our contribution is almost touching 7%-8%. Now we have picked up this business is growing at a good rate. Our first objective was that whatever distribution we have, who has started taking the waterproofing from, you know, the other companies that we should be able to get back, we are able. We are now making some progress in this regard.
Shifting to industrial side, you know, from the decorative and you know that we are, you know, the number one in terms of automotive and even industrial. Our position is numero uno position we are holding, and this is our pride. Actually, if you see whether it is four-wheelers, two-wheelers, commercial vehicles, and this is, you know, basically we are into this market with the technology, and technology always has been there. I think now the kind of technologies what we are launching, which is in the area of, again, energy efficient, you know, that, whether we can have the product which has to be baked at the lower temperature in less number of minutes and therefore the lot of energy saving at the customer end, the productivity goes up.
We are making a good strides there. High solid paints and this low bake paints we are doing. Some of the new segments, seam sealer, underbody black I spoke about. We have now installed the capacity and you know the supplies are starting. The, you know, partner, which is, you know, one of the subsidiary of Kansai Paint, Helios, who is in Europe with their support. This is again, we have got the approvals and we are starting the supplies. It's not mentioned in this slide, but I spoke about the pre-treatment chemicals and the booth chemicals. Because, you know, when the, the car gets painted in the automotive, this, factory, you know, that goes to the body shop where there's a booth and which require booth chemicals.
Those areas are also, you know, that we have entered. This is basically a, you know, step towards how do we increase the addressable market size in this category where we have the leadership, because when we are going to the paint booth, whatever is applied in the paint booth is what we are taking forward. Technology is giving the advantage, whereas earlier, you know, people used to feel that in this business it's difficult to charge price, the technology is the answer which we have started deploying. In two-wheeler and commercial vehicle, we have gained market share. We are working on the technology like our Prime Minister launched ethanol 20%, ethanol 30%. Earlier, the ethanol used to be 5%.
Now, you know, the same, the paint product, if your petrol is mixed with the ethanol 20% or ethanol 30%, it may not work. You know, that, the technology alignment to see that the product work on this kind of thing. A lot of work on the colors. You know, because in this industry also, I think it is not, it is not completely industrious. It is also becoming like a glamorous and a decorative industry where you know that along with the. There in the decorative, we are saying along with the color, we give the functionality. Here along with the functionality, how do we give the beauty? This is, you know, related to this. As I said, the addressable market size what we are, you know, planning to increase.
This is the refinish market where again, we were late entering. Our market share is single digit, but our market share is continuously for last two, three years, we have started increasing the market share and our confidence has now gone up that we'll be able to increase the market share in auto refinish. Auto refinish relatively is the better profitability. The more market share we increase there, partly the auto, you know, along with the auto, we are able to see the impact of that in terms of the profitability. Performance coating. Now, this is a big area. There's a lot of investment happening from the government side also. This industry, this size is becoming larger than the automotive market now. This market is, again, you know, that infrastructure and lot of segments are there in this particular market.
We have started expanding this area also. Here, in fact, I spoke in my earlier meetings also, we had a problem related to the margins, where we looked at that how do we increase the margins in this category, and therefore exited the business, which was low-margin business, around 10% of the business. That we made that exit. You know, in this quarter that part would be complete. Our complete focus is on the premium category product, which are high-tech product, and that's what we are concentrating upon, all the premium products and, the Trans Harbour Link, the bullet train project. This kind of project, what we are looking at, which are premium, give you a good business, and it's a reasonably profitable business. This is one area which we are making our strength.
Lot of technology is required, fortunately, we have this, that support available from Kansai, Japan and the subsidiaries like in Europe and Turkey. All this knowledge, wisdom we are using to make our impact. In this line, you need a lot of approvals. We have set up a team which is basically to take the approval, because once you get the approval, then taking the business becomes easy. In this year, 2020 to 2023, we just worked in terms of taking the approval, and we made a good progress in getting the approval and now the business will start coming in. Shifting to the manufacturing, this is our capacity, 606 million liter.
The digitalization which we are, you know, that piloted in one of the factory basically to see that consistency in the quality, the cost goes down, the cycle time goes up, we are getting a good return out of that, and which we are planning to take it forward further. There's a backward integration resin, you know, that which we used to buy from outside, but then we started making. We have been making it, but now we expanded the capacity so that the cost part, you know, we are able to take care of. So this is related to manufacturing. In supply chain, we focus in terms of increasing the services. How do we provide?
In fact, we have taken a lot of initiative where we are increasing the service at the local level, at the upcountry level. In some of the cases, we are drastically, if we were supplying in 24 hours, we are bringing down the time to 10 hours to 12 hours of time. That is what we have done. In select cities, we have introduced this premium services, where the premium product, which is a paint product, Paint+ product, can be supplied to a dealer in one hour time, that is already implemented in how many cities? Around 60-67 cities we have already implemented. This has started working. Human capital, which is, you know, that very close to my heart. You know, when I started, the first part, what we looked at is people first.
That is what I believe in, that the future is dependent on the people. We have to ensure the people who are working with us. Today's competitive situation is very, very different. People are, i n any field, you know, people are working hard. When they are working hard and external challenges are so high, internally, we have to create some life. We have created a life at Nerolac, so people are working and feel happy about it. These are the areas like health and wellbeing, security, lifestyle, learning development, awards and recognition. We started in learning and development. We initiated, you know, called Taj, which is Tapp, Abhyaas and Jab, which is basically we have a mission and vision, but ultimately Abhyaas, the practice.
We have curated, you know, courses which are like, how do we bring the leadership capability in the people and that, you know, program we have started. In awards, we, you know, that, we were finally able to launch RSU scheme for our select, you know, leaders. Basically to see that, you know, they continue to work with the company and they contribute to the company. A lot of things we did in this area. There are points which are mentioned here. We have created, you know, for one sector like, you know, sales force, we have created a auto system in terms of that if you perform, you get the promotion, you know, that, no assessment like that. Some of the innovation we have done in this particular area.
The digitalization, this is a big effort which we have been doing, and it is obviously taking time, but probably 70%, 80% you know, work we have already completed. The behavior change the consumer. You know, if you actually want to read the mind of the consumer, no research can read it. That's why it is not so easy that any company come in and they say that we'll be able to understand consumer, because consumers say something, think something, but do something. That only you can read that if you have a, you know, digital process in place through which you are able to track the customer, you know, on his journey. In this case, we are talking about the paint.
If you see in the next slide, there's a lot of, you know, digital initiatives. Virtually that whether it is our sales force, whether it is our painters, with our demand generation, the dealers, the territory marketing officers, everything we are trying to digitalize so that you are able to... Through the digitalization process, now we have started tracking that how much sale we are able to convert to the secondary. What material we are selling to the dealer, now it has already reached to 35%- 40%. The moment we are able to cross 50%, 60%, then we know that whatever we are selling, we are able to convert to the secondary sale, therefore know that how your primary sale can go up. We are working in this area continuously.
How do we take care of the consumer experience? There are a lot of nudges which we are going to bring in as a differentiation as a part of this digital strategy. This is related to our safety. You know, we go through the global safety quality, and our scores are, you know, in the high range. These are some of the awards which we have won. One of the award we got is dream companies to, you know, work for, and then there are quality awards and digital in the manufacturing. ESG, as I said, it is linked to our purpose also. You know, we are part of Kansai Paint Japan, they're also very conscious about it. We are working in the area of emission, energy, climate, water. In the water, we are already neutral.
Now we're heading towards the water, you know, positive. We are the company who has committed for science-based target, you know, for the emission. In energy management also, we are, you know, the science-based target. The climate change TCFD is something which we are adopting. There are very less number of companies in India who are doing this, but we are doing this. We got some of the awards from S&P, FTSE and CRISIL, where we have been rated. In our industry, we have been rated at, you know, top level. Even in the, if you compare with the other companies, we are in the, you know, higher quartile.
This is CSR initiatives, which is like the UN objective, where they have, you know, the sustainable development goals. We have a social purpose, so we have chosen seven out of that. Our CSR money gets spent in terms of education, the water conservation. These are some of the area we are spending our CSR. These are some of the pictures. Is the sound coming? Okay. These are some of the pictures of CSR. Shifting to the financial performance. You must have seen the result. This is our growth in this quarter, all the businesses have done well. All the businesses are double-digit growth. In decorative also double-digit growth. The volume growth is also double digit.
Obviously EBITDA, these numbers you must have seen. This is on the consolidated basis result, you must have seen that. In the working capital also, we have reduced our inventory. You know that they are working capital, which was around 30% of the revenue, it has come down to 26% now. Here also we have made a good progress in this year. Dividend, we declared 270%. Last year it was 225%. We are in the range of that 1/3 payout, 30%-32% is something which we have been following. Also this year, you know, because 2010 was the last year when we offered bonus, we thought centenary year, but all COVID. This year we considered 1:2 bonus also.
Obviously, this is subject to the shareholders approval, this is another thing which we consider. This is our CapEx. You can see the numbers. In the subsidiaries, Nepal is going through some tough time, but fortunately, we have been doing good for so many years. Currently, the time is not so good for this. In Bangladesh, we got the positive EBITDA for the year. It was negative earlier. There are strategies basically to chase the profitable growth, and it has made progress. Sri Lanka, despite you know what has happened in Sri Lanka, but we had grown at the rate of 83% Sri Lanka and increased our market share. We adopted some different strategy there. It worked for us. Sri Lanka is becoming good.
Nerofix, we have acquired 40% of the equity, and it has become a wholly owned subsidiary of Nerolac now. You know, coming back to the Nerolac story. We are obviously, when you say decorative industrial business, you know, I discussed with a lot of you. What we believe, and that's the vision what I was talking about, that we are beauty and protection. We are, you know, reorienting our thinking. It is no more, you know, decorative or industrial. What we say is that we are providing beauty and protection. We have surfaces. Surfaces are home interiors, exterior, mobility, appliances, infrastructure. Tomorrow there could be a new surfaces. For all the surfaces, you know, whether we have some kind of solution, you know, available.
Today, if you look at, you know, it's a common topic we discuss about the competition. In one of the surfaces, the competition is emerging. The diversification, what we have and, you know, that is something which is our strength. You know that there are different surfaces and how we are looking at it. In some of the areas where we looked at our challenges, somewhere it was profit, somewhere it was sale, how, you know, we are trying to come up with that. This is, I think, the strength what we have, that we are very diversified company. There are areas, you know, that, because some of the businesses, some of the surfaces where based on our technology strength and the service strength, I think they give us a very stable revenue stream, which, you know, is predictable.
Even if there is a risk in terms of the competition, one side you have your strategy in terms of seeing that, you know, because in this time of competition, we are just trying to enhance our ability to respond to the competition, because that's the best what company can do. That is what, you know, I was trying to showcase to you that what we are doing. I think the stable revenue stream, which is predictable, and they are what segments we have chosen and now what we are working upon, is the strength what we bring to you. These are the micro step in summation, what we have done in last one year.
These are small steps we have taken because we are looking for the sustainable growth and we feel that, you know, that we have enhanced our capability and ability and therefore, we are better prepared for the, you know, future and tomorrow. Thank you so much. Now we invite the questions, you know, that we have. Can you ask someone to combine this? Meanwhile, we invite the questions. Yes.
Hi, sir. This is Mihir from Nomura. Thank you for taking my question. firstly on congrats on the Paint+ range of products. If I can just ask, the Paint+ range, you know, you've kind of filled the portfolio gaps, the white spaces that were present. it has all the white spaces in your mind that you want it to be present in filled with the Paint+ range. That's point one. A few sub-questions. If you can share, what is the saliency of Paint+ products in our entire, you know, sales? That's the question number one, sir.
Yeah. Actually, we decided the list of the product which we wanted to introduce in 2020 to 2023, that list 100% we executed. There are some more products in pipeline, that will come forward. Fortunately, there is a change in the market also. Our dealer network, you know, earlier they used to resist that more number of products are coming, that how do they decide what number of SKUs they have to keep. They have become more acceptable now, they are also looking at more and more new products. We'll keep expanding because this is like that we keep spotting in terms of the price point, price point or the benefit. We keep scanning worldwide what kind of technologies are available and, therefore, keep coming with the ideas.
For 2020 to 2023, whatever we have decided, we have executed. In terms of sale, the traction is good. I'll not be able to share the number, but the numbers are continuously moving up, reaching closer to the double-digit, you can say. That is how we are replacing, because once, you know, that we start getting the contribution from Paint+ product, there, you know, you are building the loyalty with the kind of product which are a little different. I have not mentioned, but we also introduced next-generation range of whites. These are better whites. You know, it doesn't turn yellow, because otherwise the whites turn yellow. These are, you know, basically given as a distribution strategy also to next generations, you know, some of the distribution counters what we have created. It is helping us, and I think it is gradually making improvement.
Thank you. A follow-up to the question, sir, is, you know, you had put in a lot of new initiatives, you know, in the influencer program. You know, you had earlier spoken about a new go-to-market strategy, where you will showcase you had a different distribution system to push these paints products. Anything that you can talk about on the distribution front, how we have scaled that up? Because, you know, we've seen the market leader behaving like, you know, a challenger and growing distribution, you know, very, you know, across the board, basically. How does that kind of tie up with the product, new product launches and the new strategies that you had spoken about?
See, distribution is incidental, you know, because the product is the starting point, whether we have the good product, breakthrough product. That was the starting point, Paint+. We concentrated on the product range. Second is that if we have the product, can I demonstrate to the market that the product can be converted to a sale? That's why the influencer management. Once we have completed that, the distribution is incidental. In last two, three years, our run rate for distribution opening has been in the range of 8%-10%, we believe now the stage has come, we can scale it up. When you compare the number with the competition, what they talk about is the combination of direct and indirect distribution.
We generally don't talk about indirect distribution, though we have also created a distributor network and we have started tracking the opening of that. Generally, we don't talk about the indirect network. Our run rate has been 8%, 10%. With the exception of the Paint+ and the influencer strategy, we believe we'll be able to scale it up now.
Got it. Sir, I wanted to move to margins. you know, about three to four quarters back, the difference in industrial margins and deco margins, you know, was somewhere close to about 750 basis points. Historically, what we had understood was on an EBITDA level, it was kind of similar range. Has there been a meaningful, I know that you've taken substantial price increases, you know, and bridged that gap. Is the gap completely bridged? Will it, you know, if there is still a gap, will that gap, you know, get bridged at all, or will that gap still remain? Secondly, f irst that. I'll wait for the other one.
You're saying gap between decorative industrial?
Yeah.
If you remember that when we started the year, the margins were bottom in industrial. You know, they were very, very low margins. I think we have been talking about it, that our target is to see that how do we reach to a double digit. I think we are entering that zone in terms of, you know, this particular thing. Bridging the gap, yes, the gap is bridged, but the balance gap, probably new competition will bridge. You know, it may happen that way. I think from our point of view, what we looked at is that make some investment in decorative, because decorative we wanted to catch up with our growth plan. In the industrial, we wanted to improve the profitability, which I think we have done successfully. One reason is the price increase.
100% of the customers we have been able to take the price increase. If there was a discussion that we cannot take the price increase, we can take the price increase. There is a time lag, it happens, but we can take the price increase. There are a lot of other initiatives in terms of technology, which are differentiated products. The service, which we are able to build as a competitive advantage, give us reasonable confidence that sustainability.
In industrial, the important point, I think what is important for all of you to know is that whether the margins are sustainable, because we have seen up and down, up and down. I would say as of now, obviously the decorative margins would always be higher, but I think it's in our mind, I think we have reached to that area which is acceptable range and sustainability is more important, I think.
The follow-up on that is the industrial price increases. Have we completely done with the price hikes in the industrial auto, non-auto industrial segment? Or there is still some more price increases than we can expect, which will still support some margin improvement?
We have completed the, you know, price increase and bits and bits, smaller things could happen, but we have completed the price increase.
Thank you. I'll have a few more long-term ones. I'll come back in the queue.
Yeah, thanks, [audio distortion]. Sure. My first question is on advertising and marketing. When I see in terms of brand equity, you claim to be number two, so if you could elaborate that, because in terms of advertising budget, even the company which came with an IPO a few years back, they claim that their advertising budget in deco is now bigger than yours. If you could elaborate in advertising budget also, are you now number two, which tallies with your brand equity? Second is, in your advertisements, you are using that interesting line of Japanese Technology. You also mentioned that beauty and protection, both are important. In a home decor, hasn't customer now moved more towards beauty and home decor? Does Japanese Technology kind of tagline help here market leader also has these specific products, which you mentioned, some of those would be unique. Does that help in deco, home deco business, or it is too early to call that out?
Your first question, when you talk about the advertising, see, brand equity and advertising, these are two different subjects. Brand equity is what you build over a period of time. How you take that is top of mind awareness, the total, you know, the awareness scores or the brand equity index, which you do a research to, say, companies like Nielsen or ORG-MARG. They are in fact our mind share. It is basically if the decision is left to consumer to buy, which brand is going to buy? Because in between them there's a distribution influencer who can change his choice. In terms of the recall, we are the second-highest recall brand. Just to give you example, you know, new companies can come in, they can advertise.
Just example, Dunlop, the company does not exist, you know, the brand still exists. It is like that. If you see Sony, the distribution could be very weak, as a brand, the recall is very high. That way I'm saying the brand is, recall is very high. Even in the, you know, past three years, if we have reduced our marketing budget, our brand recall has not gone down. That's the strength what the brand is, you know, has built. Now when we up the advertising, the only difference is maybe with INR 100 we'll be able to build it further. If somebody else has to do it, he has to spend INR 200, INR 300, INR 400 to build that kind of thing. Advertising budget, obviously, the new companies will have to spend higher.
You start spending, the results start coming in two years, three years' time. The needle doesn't move, you know, immediately. That was the first question. What was the second question?
Yeah. Second was essentially in terms of the Japanese technology.
It's like Paint is a product where people don't understand the differentiation. The first is whether you know that, what is the conviction, what is that thing which you want to tell them that, yes, because of this particular reason, because they want to. You know, people are ready to experiment today, but they don't know which product is better. When you are able to word Japanese technology, I think that gives the first confidence that, yes, the product is good. I think beauty, what you're saying is fine, but the concept of today's customer is changed. Beauty is not what it looks, beauty is what it does. You know, even the general personality, people want to see that, you know, how the quality of this person, I think that thinking is changing.
The only thing is people have to talk about it, because the paint has a role to perform in terms of the expertise, which people have not been talking about because it is very easy to sell, you know, saying based on the beauty. If we talk about it, I think in the paint industry today, we say INR 60,000, INR 70,000 crore, 25% is unorganized, which is say INR 15,000 crore. They're also selling paint. They also provide beauty. I think the distinction can be created through this functional expertise. Our research says that 40%-50% of the people definitely are ready to look at that, how product is different. The only thing is the demonstration is not possible, so therefore it is not like, you know, that you are comparing this TV versus this TV. How do you demonstrate?
That's why some of this, the field work, what we are saying and bringing the tech on ground, that how do you demonstrate that this product is better than that product, is the attempt in that particular direction. Obviously, the progress will happen gradually, but I'm sure that the market is ready for that.
Sure. My second and last question is on the tile adhesive. You have done multiple adjacencies in the last one, two years. Wanted to understand what is the confidence level here, because Pidilite is very strong in overall adhesive, although they are also number two in tile adhesive. Here Pidilite has got a specific brand, Roff, while you are doing it through the mother brand. How does it help or is it a problem? Second is, now Pidilite is also entering the interior deco paints, and they have a much wider distribution in paint shops than you and the number two player also. Do you see that as a big, long-term concern, bigger long-term concern than someone like a Grasim?
In terms of this adjacencies, the confidence when we started, obviously we just started without knowing that how much success we'll get. From the last year to this year if our confidence was, say, 30%-40% last year, it is 60%-70% now. It is still not 100%, but we have made progress. What we have introduced is what our distribution can sell. Therefore the mother brand Nerolac will work. Roff is a specialty area, expert area, which would be a second point of action. The first is that we have a distribution, because our strength area is our dealers, our distribution. What they can sell, that's the range what we have introduced.
I think from 30% to 70% confidence level we have reached and, I think we, sooner we should be reaching to a further increase in the confidence level and then the right time would come to get into this expertise area. It's like, they have the distribution, but the, you know, distribution doesn't mean that all the people are keeping paint. People who are not keeping paint, whether they can sell paint, difficult to say, because you have to bring the footfalls, you have to generate the influencer demand. It's not so easy. You have to spend a lot of money. People who are already selling paint, why should they replace existing paint with the other paint? You know, difficult, because today the number of shades which are being provided in the industry are quite large. So multiple product, multiple bases.
Unless you know that the people who are dissatisfied with the existing company, there's the opportunity. You know, maybe you spend big money in terms of pulling them. Otherwise, it's not that easy that, you know, people will shift.
Understood.
Hi sir. Avi here from Macquarie.
Hi, Avi.
Hi. Hi, sir. Thanks for this presentation. Sir, I wanted to just build on your earlier comment about industrial margins being in a very comfortable range. Could you give us a sense how are they versus pre-COVID levels, pre-pandemic levels or normalized levels? Just to get some sense on is it still down from that level and how much-
The highest margin in the industrial, I think pre-COVID, we must have seen more than 15% down to EBITDA level. Not sustainable because maybe for some period you must have seen that.
More normalized.
Yeah. I think double-digit margins, sustainable margins, you know, I think that is what we are talking about and with what kind of efforts and the strategy you reach to that margin, sustainable margin. I think the double-digit margins are sustainable margin. Maybe in between some years could happen where the industry growth is very high or maybe we get a better margin, but in terms of sustainability, I think that would be better. Concentrate more on the volume and maintain double-digit margins.
How far are we I mean, below that journey is what is. I understand.
We are as close as you are.
Okay, sir. Since, you know, just on the sense of the digital investments, now clearly we are doing a lot of work over there. Could you help us, you know, understand how does this compare, contrast versus industry benchmark levels? Are we, you know, is this a catch-up exercise the way we are doing in new products? Is this something that will be completely different from what is already existing in the competition? Some sense in that, sir?
It's a mix of both. For example, like I spoke about project market, we are going to the newer market. It's a catch-up game. We were there in 35, now 55. It's a catch-up game. Some of the products, it's a catch-up game. There are many products which are unique game. There are many products where we are democratizing the, you know, things. As I said, this crack, you know, that which is typically the property of elastomeric paint, but that's very expensive. Now you are able to bring the similar property at a lower price point where you can generate, you know. I think there is a sufficient amount of uniqueness in terms of special feature or democratization. There is also a catch-up game. There are certain markets where we were weak. Now it's a chicken and egg story.
In the weaker market, you put the team first and then get something, or you wait for the productivity. It's a mix of both.
What about the influencer marketing, the app-based, those are already existing in the market, sir?
There are a lot of uniqueness, you know. We started, you know, disbursing the painter incentive in two minutes, Rohit, you know. We were
Less than a minute.
Less than a minute.
Less than a minute.
We were the first company to do it. Now it's 10 seconds. Earlier, we used to take 30 days. We are directly connected with the painters now. 100,000 painters were directly connected. There are certain uniqueness. What happens is that, you know, today, finding that unique thing, okay, is very difficult because the uniqueness lies in the details, nudges. Our attempt in the influencer marketing also that, you know, what nudges we create, you know, which are differentiated. Obviously, you can understand that all of these things we cannot talk about. Yes, there is a differentiation.
Lastly, sir, I mean, I can sense increasing confidence in the initiatives that you have launched. Would you be able to give us some idea of, you know, Historically, we have, if I go to get three years, four years back, we were leading the industry by a wide margin in terms of growth and decorative. We probably, you know, from there on, there has been a change in pace. In your estimate, guesstimate, by when do you think we can probably go closer to that path?
As you said, yesterday years, you know that we were going well. Then in between there was a period we committed some mistake, we learned from it, we moved on. I think last year also, I think this point you discussed, and that time also we said that, you know, to any company, any new CEO, you have to give some what period? five to six quarters. I think four quarters are over. I think we are very close to that stage. That is what we feel. I think quarter-on-quarter we made the progress. I think in this quarter, fourth quarter, we feel that we are quite close. The results are still not out, but we feel that. I think we are making a gradual progress and every quarter we have seen the progress.
That gives us the confidence that what work we are doing is moving in the right direction and our ability to respond to the competition, the changing competition is going up.
Perfect, sir. Thank you very much, sir.
Hi. Thank you. This is Jay from Kotak. Just follow up on Avi's question on margins. If I interpreted correctly, you're indicating that you're very close to double-digit EBITDA margin for industrial business. That implies that your decorative margins are barely about 10%, 11% at this point of time, 4 Q results. If I understand correctly, decorative margins were about 18%, 19% pre-pandemic peak. When I look at KNPL's 4Q performance, there is perhaps a gap of 800 basis point in EBITDA margin for decorative business, whereas others are yet to report. Our expectation is that the gap is narrowed for others to 300 basis points, 400 basis points. Is this investment or is that something has changed structurally?
What do you think is the sustainable EBITDA margin for decorative business, based on the visibility you have today?
I can only tell you that when you say 18%-19%, that time the industry has seen 24% margins also, right? Between the leader company and the challenger brand, there would be a difference of 400 basis points-500 basis point. You can look at, you know, the margins what the leader is operating at, which is about 19%. 400 basis points-500 basis point, if you calculate, that's a sustainable margin, because that much of money, definitely, you know, as a challenger brand, we are required to invest into building our efficiencies, the marketing, advertising, and we'll definitely not shy away in doing that.
When you talk about this quarter, I think we are saying that we are entering that zone, right? Therefore we are reaching to that particular area. I think margins are in this kind of range.
That's helpful. Thank you. Second is, could you sort of give an overview of, you know, what's the outlook for different segments of industrial in terms of? I can understand the environment is quite challenging and volatile, but over a two, three-year period, how do you expect each of the segments that you operate in within industrial to grow from a revenue perspective, more normalized growth rate? Second question there is, when we talk to a couple of your listed peers, all of them claim that, you know, they are gaining share in auto coatings. In all the three segments, you've also indicated that on the slide. Who is losing market share, and how easy or difficult it is for you to compute the market share trends in this segment?
In the industrial, if you see auto sector, there is obviously cyclic, but the long-term prospect is very good. The kind of capacities which the customers are creating, the penetration of car in India, if you see, it is very, very low, even if you compare with China or U.S., there's a big difference. The long-term prospect, so there is a cyclic nature, but the long-term prospect of auto is very, very good. In the other part of the industrial business, which is your high-performance coating, even the short-term prospect, medium prospect is very good because the government is also putting a lot of focus. A lot of CapEx is being spent, private or government. We see a good progress there.
A lot of government business which used to be, taking the low-quality products, now shifting to the premium products and high-level products. I feel that, you know, there's a good potential even in the next, two, three years' time. Consistent, you know, growth. Sometimes we feel that, if you compare with the other countries where the contribution of industrial is higher. Earlier we used to say, so there may be a possibility, there may be a slight possibility that going forward, the contribution of the industrial improve. I'm saying mainly even the non-auto areas. There, fortunately, as I spoke about, you know, there is a good business potential even in the premium areas and the profitable, you know, business mix.
A follow-up, if I may. Do you, over the next couple of years, expect industrial coatings to grow faster than decoratives, ballpark similar or slower?
Because our market share is low in decorative, our internal intent would be that decorative grow faster. What really happen, we'll have to wait and watch.
Thank you so much.
Sir, Tejas from Avendus Spark. Sir, couple of questions. First, at a very broad level, if I see last decade, the first five years were very good till 2018, 2019 for the industry. In fact, till 2018, and then we have seen sudden slowdown in the industry. On top of that, when we see the kind of competition this category has attracted, it is, like, unprecedented. When we add these two factors, how do you see next three, five years in terms of growth runway also and the competitive landscape, how it is evolving?
See, I can only share from our experience that it's not an easy industry. If you want to make some place, and there are players who have entered this industry and we have seen what has happened. We have seen some successes also in a specific states. There, what kind of money is spent and then what kind of market share is created. If you look at one company who has created a good market share in state like Tamil Nadu, spending what kind of money and then creating a market share of 7%, 8% over a period of 13 years or 14 years. That's the best case study which is, you know, available today. It's a deep pocket. Sustainable, question mark.
Whatever you create a ripple, you know, it's about three years because what we have seen in that state for those two, three years, the existing companies got impacted, they are back in terms of growth. Today there's no problem. There is a reallocation of the share happen. If you look at from the long-term perspective, you know, shouldn't be a problem. That's my take. It's not going to be very, very easy. From our point of view, if you look at it, you know, in decorative our market share is low. We are also, you know, 9%, 10% kind of market share. We have equal opportunities. It depends that, you know, how do you change approach.
As I said that there are certain markets where we are not available or present. You get into those market, your brand is already there. You start taking those steps. Definitely, you know, today when I discuss, some of you people feel that where the market share is low, it is, you know, the companies are vulnerable. I don't believe in that. You know, ultimately, you need to have a strength, and that is what we are trying to build upon it. If you create your solid infrastructure background and systems and processes, I think we have the equal opportunity to go to the newer market and, you know, build our market share.
Sir, in terms of market share, when you see your portfolio and regional presence, would you like to share some insights on region or product portfolio where you are highly under indexed versus your average, and where your incremental focus will be in the coming period?
In terms of regional, North is a strong market for us, followed by East, West and South is a weaker market for us. Our product portfolio, we are good in popular and economic category. Premium is a weaker area for us, which through the Paint+ we are focusing upon. In terms of rural, urban or tier-wise, if you see Tier 2, Tier 3, Tier 4, we have a very good market share. Tier 1 is the weakness for us. The services and some of the contractor thing, what we are talking about is basically Tier 1. Does that answer your question?
Okay. Last one, if I may. Extension of Jay's question only. When we see, when the competition that we spoke about and the incremental effort that we are putting to gain market share, should we assume that at least in the near term, the best margins that we saw pre-COVID will be a slightly distant event for us to regain and the focus will be largely on to gain market share and build some more presence in the decorative paints?
Focus will be to build volume sales, whether it's a decorative and as I said, there's a good opportunity in the industrial certain areas. Everything we cannot speak, but that is also because there are execution capabilities. Let me accept it's far, far better. There are some low-hanging fruits and we have realized that there is a lot of juice in that business also. Idea is to basically build volume to, you know, what possible extent and to support those initiatives, whatever investments are required, you know, those would be made.
Thank you. Very helpful.
Hi, sir.
Hi.
This is Rohit from Entrust Family Office. It'd be good to have your thoughts on the construction chemical side. As we understand, we've been under-indexed, compared to the leader, in waterproofing, and we've been trying to plug those gaps, right. What's our strategy there? I mean, the impression I get is it's more like just catching up and launching those external sort of, you know, waterproofing products. Is there any differentiation there? Overall, if you look at the market, I think this is something which grows at maybe mid-20s compared to the decorative paints market, which probably grows at mid-teens. What's our strategy there? What
Our strategy, so, Sorry. Yes.
Sure. I just wanted to add that I think if we are at a mid, maybe a 5%, 6% share of waterproofing now of total sales, this is the number I think you had given one of the calls. Do you have any target in mind as to where this kind of settles a couple of years down the line maybe?
Far our strategy was very simple, catch-up game, no differentiation. As I said that when we have completed the range, now there are certain products which we are introducing which are differentiated. Otherwise, so far it was purely a catch-up game based on our distribution. What we are looking at is because our market share is closer to 10%, the first target is we reach closer to 10%, and after that then we see how to take it forward. That's our first milestone, I think.
Any comment on the B2B versus B2C mix? Because some players are very aggressive on the project side of waterproofing, whereas someone like a Pidilite is probably stronger on the B2C side.
Project side, we were again weak player, but we expanded the team, we expanded the markets, and obviously the waterproofing is a part of that particular thing. Today the growth rate in project, I think we are catching up or maybe doing better. We have already caught up. That's like, you have to just establish a knowledgeable techno commercial team, you know, who goes to these big buyers and able to demonstrate and explain the product. That was again a catch-up game for us, which we have done.
All right, sir. Thank you.
Hi, sir. This is Sheela from Morgan Stanley.
Yeah.
My first question was on the industrial segment. It seems like we're doing very well there. We're gaining market share across categories. Will it be fair to say that the growth momentum there could be much more superior than what we could see in the decorative segment over the next few years? Of course, there's an industrial cycle which is picking up. Why are we not putting in more energies there than, you know, more innovations on the deco side?
These are separate business units for us. There are strategy for each and every business. I think I mentioned about it that our focus is, you know, when we talk about the industrial, one is the auto, where our market share is pretty high. Within auto also, we are trying to increase the size because we are the market leader there, and role of any market leader would be to increase the size. That is what we are trying. In the non-auto area, which is high-performance coating, the liquid coating, there is a definitely a potential, and our market share is within 20%. There we are putting a lot of focus. We have taken an initiative in terms of technology tie-ups, the increase in the manpower and the approvals, because that business is based on the approvals. We are taking a lot of steps and we are reasonably upbeat to increase the business there.
Where I'm coming from is, isn't it going to be much easier for us to, you know, take this business?
Yes.
Make it much bigger than where we are currently?
Yes. Yes, it is. In our mind, the direction is there. It is.
With much better margin profile, because you talked about more premiumization in terms.
Yes. Yes. Yes. That's the direction what we are taking. You can say that's what I spoke about, that the fragmentation or the diversification which we bring as a strength. One side that because our market share is, say, around 10% in decorative, as I said that there are markets where we can play our game and we can do that. That's a separate strategic business unit. That strategy is there. If you see from the market point of view, tomorrow if you are saying the short term, there's going to be a fragmentation and therefore any kind of risk if you say, one of the mitigation part is that area, and we are definitely working very seriously on that.
The second and final question is on the deco segment. What I wanted to understand is, going ahead, would the focus will be on market share, you've been talking about it, or on margins? Will we defend our market share or will we defend our margins?
I think, no, margins in the sense that the focus would be on profit. You know, obviously there is a, in our case, we look at our return on capital employed and earning per share, because that's one area, what we are focusing and what profit can make you achieve that. I think that's the point. If you say that whether you are so focused that you get 15%, 18% rather of that approach, you know, focus on profit, because with the less growth you can get a better profitability but lesser profit. I think that's the approach what we are taking, that, generate the profit which give you a good return on capital employed is our, is the part of our strategy.
Just one follow-up here and that's it from me. Do you sense that the competitive intensity, even in amongst the existing players, have gone up much more than, you know, where it was, say, three years ago?
What intensity?
Competitive intensity.
Yeah, it has gone up. When you get the news that there's new competition coming, so the intensity has gone up. Definitely it has, 'cause there, in fact, people have become more aggressive. There are certain product categories where the discounts have gone up, the marketing activities have gone up. It's good. I think, one good outcome of this activity could be because in our industry, the penetration is still within 55%. When these activities goes up, the new competition also come in, the penetration should increase. There may be a possibility that the market growth, is still, you know, itself, will show some kind of uptick. The other is the formalization, you know, that every year it happen, but the speed of shifting from the informal sector to the formal sector also would change.
Thank you.
Thanks.
Sir, Ramesh Bhojwani from Mehta & Vakil .
Right.
In the recent times, particularly if you see in the IPL, the competition like JSW Paints is having a brand ambassador in Alia Bhatt in their ad or in their communication. Indigo Paints is having MS Dhoni. I personally believe that a company like yours, Kansai Nerolac, if it can reinvent the communication aspect with a brilliant brand ambassador, it would do wonders. Asian Paints is deploying Ranbir Kapoor, but for exterior paint, where Asian Paints stands at number five. Internal decorative paints, they are number one. Personally, I feel that Nerolac has been in existence for a very, very long period, in fact for decades. Somewhere the connect with the consumer is lost. Why not have an extremely powerful brand ambassador in the communication across all media, digital, print, TV, newspapers? You say what?
Thanks for the suggestion. I thought that, you know, we should tell our story to you, so that all of you become our brand ambassadors and help us increasing our market share. I agree with you. I think in the past we have had the brand ambassador, now also we have Ranveer Singh. If you see the campaigns, what we had shown here, you know, we are talking more authenticity, where we are seeing the Japanese expert who is talking about the Japanese technology.
Yes.
Because in some of the cases you can see, if you see, the case like Dove, in case of Hindustan Lever, you know, that is endorsed by the medical fraternity. Sometime, you know, that today there are many options available in the world of digitalization, even the, you know, influencer recommendation. There are many, many ways. We do have the ambassador and, I take your suggestion, and maybe at the given time we'll see. I think more important is that somebody from the industry itself who's the expert and who knows the product and talk about the product. I think this millennial generation is more hooked towards that. It'd be a combination, because the brand ambassador, only help it does is that when you advertise, maybe it catches the eye of the people.
Yeah.
You know, that maybe they are not wanting to see, because of that reason they see. How much they are able to register the message, that it's a mix and match. You have to generate that kind of positivity in terms of, yes, this is seen. I think as of now we're working more in terms of quality, but blended with... We have the brand ambassador also, and the communication what we had shown there, you could have seen that two films are with Ranveer Singh and three films are without Ranveer Singh, which is like a common people, you know. I think that's a very authentic story, and that we feel that there is a chance there that, you know, when you talk to the people in their own language, probably it will bring the consumer connect.
Absolutely. Second observation was, sir, I stay in Andheri West, and I went to the distributor in the whole area. There are two powerful people. At both the places I found Asian Paints executives standing outside the outlet. Unfortunately, at both the outlets after Asian Paints, they are stocking Dulux, but they are not stocking Nerolac.
Yeah.
Neither they are stocking Berger Paints. I think as far as distribution goes, your manpower or force, sales force should become proactive and penetrative.
No, I agree with you, definitely. Mumbai is one of our weak markets, so I understand. I know Andheri West market also. I understand whom you are talking about also.
Yes.
It's a weak market for us.
Yeah.
As I said that, obviously we will not be able to do everything because, you know, obviously you also expect us to generate sales and profit both. Yes, the investment what we are talking about, we are moving in that direction. The team, the support with the team, the digitalization, the activities, we are working on that. I think. That's the opportunity for us, you know. That when we are not there, that's the opportunity available for us.
Precisely.
We are working on it.
You got a wonderful impression range, particularly for the whites.
Thank you so much for giving us the compliment.
Yes. All the best.
Thank you. Anyone else?
Hi sir, this is Mihir from Nomura here again, sir.
Yes.
Sir, can you talk a bit on the overall demand environment? You know, now we are entering in a phase where the pricing leg that we had taken over the past, you know, many quarters will start disappearing, and we will be largely left with, you know, a negative mix and the volume-led growth. Given the raw material prices have meaningfully corrected, visibility of any further price increases also seems to be at a distance. How is the demand environment, you know, currently? Maybe in the near to medium term, how is it shaping up? Can there be a case of preponement of demand during the COVID period and hence is there a possibility that we can enter a very low demand environment?
I mean, we have seen this, of course, not comparable. But in, you know, in other FMCG companies, we are seeing a lot of down-trading to low price SKUs while volumes are remaining flat. You know, smaller SKUs are growing. On a, on an overall demand sense, if you can throw some light on the near to medium term, what is the kind of volume growth that we can expect? Earlier it used to be a multiplier to GDP, what can be the case in the near future, sir?
Correlation with GDP is still there. If we expect a GDP growth of 6%, maybe we can expect the demand of 8%-10%, and there will not be much difference in value and volume. This I'm talking about for all businesses, whether it's a decorative, industrial, any part of the industrial. Because the average selling price would be similar, so there would hardly be any difference. That's what the possibility is. In terms of this year, Diwali is in the 1st week of November, so our past experience says that whenever Diwali is in the month of November, we get a good season because generally Diwali is in October and now the monsoon get extended till, say, October.
There's hardly any period, you know, before Diwali for the painting. This time it will be a longer season, so there could be help in that. I think there's a stable demand. Even in the automotive sector, what we have seen, one reason was outlier, because in the last year, the month of May, because previous year there was a COVID impact, so the First quarter growth has been very high. Now it is a stable demand. Automotive probably one can say closer to 10% or maybe 8%-10% demand will continue. Rural market as of now is not much predictable, but I think because, First quarter was not so good, two quarters we saw that rural demand is coming back. Fourth quarter, again, there is some kind of distance between the urban demand and rural demand.
We are talking based on our data, so we don't know what is happening in the industry. We believe that still if the monsoons are good or this, you know, the impact of what we are hearing, El Niño is not there, then I think the rural demand is up because people are spending money, people are. Therefore somewhere the money started flowing to the rural market. If that happens, the two-wheeler, we feel the demand will pick up because one or two years it was subdued. I think in all the sector we are seeing a kind of stable demand. Some areas related to infrastructure will see a better demand.
Thank you, sir. Second question is on, you know, competition and capacity. Everybody has increased capacity in the wake of, you know, the competition as well. Do you think that historically, you know, we've not seen such a lot of capacity coming in the paints category at the same time, you know, especially given that all the other players are also in a. Regional diversification is there. Then you take any player, you are a, there can be a case of excess capacity in each of the regions, cumulatively also. Is there a case, possibility that we can have excess capacity and then, you know, that can lead to, you know, possible price, you know, cuts or, intense competition? And how do you see that scenario playing out, sir?
No, I guess, at least for the existing players, may not be much of the case. I can only tell you that INR 60,000-70,000 crore base of the industry, if the growth is 8%-10%, INR 7,000 crore is the growth. From the INR 7,000, INR 1,000, INR 2,000, INR 3,000, even if that is shaved off, how it will impact the capacity of. Maybe, you know, your capacity utilization, if it is going up by 3%, 4% every year, it may get reduced to 2%. It will not come down. It's, you know, because whatever growth this new competition is going to create will be from the additional growth itself. To that extent, only the reallocation will happen because that's INR 5,000-INR 7,000 crore every year which is getting added, that itself is a good size. Whatever new competition happens, it will be only from that. The, you know, the worst risk is that you are not able to increase your capacity utilization.
See that you're quite geared up with a very strong, you know, Paint+ functional plus portfolio to, you know, take the competition head on. Thank you very much.
Thank you.
Yeah.
Hi.
Hi.
Can you share something on capital employed in international subsidiaries. What are your views and when are they likely to be yielding some positive things?
Sorry, your first question, capital?
Capital employed.
International subsidiaries.
Yeah.
Prashant.
When do you think that they will be giving some benchmark return which you expect?
Mic?
H ello. See, if you look at our subsidiaries, the capital employed is, you know, as per whatever we had planned. We had additional infusion in our Bangladesh and Sri Lanka subsidiaries. We are very mindful of the fact that whenever the capital is required, we are giving the required capital so that, you know, all these countries, this other than India, these countries are going through a financial turmoil. In this condition we have to support and we have been doing that. Based on whatever we have supported, all, for your information, all these four companies are in profit right now. Initially when we took over they were in big losses. If it is the fourth quarter results, all these four subsidiaries have turned around. This is a positive sign and we will be funding these companies regularly if and when it is required.
Yeah. Can you quantify and what is the benchmark return which you are expecting maybe three to five years down the line? Not saying one or two years of turmoil is-
Very difficult to make a guess or you know, a statement right now because it will take some time for these companies to mature. Maybe I don't expect a EBITDA margin in the way we are having India immediately. For example, I'll tell you in Nepal, they are giving a better return than India, right? Whereas in Bangladesh and Sri Lanka, it is still on the maturity stage. We believe that it will take about another two to three years for them to mature till we get just a benchmark return of maybe 12%-14%.
It also depends on because these countries are also facing some challenges. If you see our Q4 result, you will find that the stand-alone and the consolidated. Consolidated in terms of EBITDA is slightly better than the stand-alone. Obviously subsidiaries have contributed to that. But also like in some of the countries, the January to March quarter is supposed to be a season period. Nepal, the last year Sri Lanka was challenged, but you know, we still provided growth of 83%. Bangladesh was a challenge and therefore we changed our strategy to a profitable growth. We are making a progress on that. Nepal, as he's saying, that has been giving us a very good return. There is a pressure on Nepal. In the other market we have made progress. If Nepal come out of the challenge, I think then the situation will come back faster.
Something on Nerofix?
Yeah. So Nerofix is wholly owned subsidiary now, and we have been doing a good business. Again, it's a very good mix and synergy with us, you know, because we have the adhesives for B2B and B2C both. Now since it has become wholly owned subsidiary, we have a plans to take it aggressively.
Can you share some more thoughts on increasing your size of industry in auto space?
Size of? Auto. Size is, yeah. As I said, that there are certain opportunity areas like for seam sealer, what we introduced, which is underbody sealer. There are fastener coatings with the help of our Helios in Europe that we introduced. The car get painted in the booth. Booth required a booth chemicals. There is a pre-treatment chemical where we are not there. That is what we are entering. These are some of the opportunities which we have been able to identify. Alloy wheels, we have made some progress. These are the areas through which we are trying to increase the size of the market.
Can you share some numbers how big are these, collectively put together?
These areas would be about INR 600 crore-INR 800 crore kind of thing. These are niches, but give you a good, profitable business. These are the sizes. As of now, we have been able to spot these areas. There could be more in the pipeline.
They being niche and small volume requirements, margins will be obviously higher. Yes, will you be needing some more CapEx to be done for that?
Yeah. In fact, some of the areas where we have entered, we have already like in sealer, we have already installed the capacity. In fastener coating, we have already installed the capacity. That we are doing.
Thank you and all the best.
Thanks.
Hello, sir.
Hi.
Ajay Thakur from Anand Rathi. I just wanted to have two queries kind of addressed. One was, you mentioned about 1 lakh painters reach that you have. Can we get some kind of a sense what would be the universe of the painters across India or, and or what could be the reach of our competition in the painters, you know, reach kind of a thing?
Number of painters in the country would be around 20 lakhs, 20 lakhs-25 lakhs. These include small, big painters all. About 7 lakh painters are the painter who are weighted reach painters, who drive the demand or you can say 80% is what they are doing. Out of 7 lakhs, our reach would be 3.5 lakh. 1 lakh is we have started engaging on the personal level. Our reach of the 7 lakhs. You know, because we may be reaching to 10 lakh painter, but that number we are not able to track. What we are tracking is about 3 lakh-4 lakh of number and 1 lakh number where we are able to engage with the painters.
Okay. Secondly, I wanted to understand bit more on the high cost inventory that we had mentioned last time in the last quarter. Have we exhausted that inventory or some part of that is still there in our raw material for the next year?
It's more or less exhausted now because, as I told you, it takes about, four to six months, and that cycle is more or less over now.
Okay. Thanks for that.
This time, you know, in the industrial category because geopolitical situations is not, still not so supportive. Some items we keep higher inventory. Yeah, we are reasonably okay now.
Thanks for that. Thank you.
Yeah.
Hi sir, this is Archana from Morgan Stanley. Two questions. Firstly, just continuing from the point on the capacity addition side, what are the plans that you have for the medium term to expand capacity to, you know, benefit from the growing demand? Secondly, just to get a broad sense of your revenue split right now. Earlier, you all used to mention a split of around 55% deco, 45% industrial. How does that look like right now? One request, sir. It would be great, very, very helpful to us if you could start disclosing segmental, you know, performance also in terms of numbers going ahead.
Capacity, as I mentioned in the presentation, 606 million liters is the capacity what we have. We already announced the capacity expansion of, you know, partly the water-based capacity extension. About INR 300 crore is the investment which we have announced over a period of 18, 20 months, which has started last year. That's the capacity expansion we are doing. What was the other question? Sorry.
These are decorative industrial split.
Split, yeah. Generally, we maintain 55%-45%. Obviously, sometime it goes 2% higher or sometime 2% lower. We keep ranging from 53%-57%. In the last year the industrial contribution was more, decorative contribution has come down. To be very frank with you, we generally don't give exact figure. We say 55%-45%. Sometime it has gone up to 57% also. It is in this, in that range only. Segment-wise reporting, we generally don't give.
Thank you.
Thanks. Anyone else? With that, I think, if there are no more questions, we'll end this.
[audio distortion]
I think we have received some questions from these people who are attending on the Zoom also. There's a question on ROC in FY 2023 is around 13%. By when can we expect it to go back to historic rate of 20%? I think our ROC is about 14 point. 14+. 14+. We have already made some progress, from, you know, 12.5% to 14+ we have come to. At 20%, I don't know, but I think, in our mind, 17%-18% is the right figure. I think that's a right in our kind of mix for decorative industrial, you know, that is what we are looking at. By when will the land sale of value INR 660 will complete? It is not INR 660, it is INR 655. Yeah, it's under the process, so we hope to get it sooner. This was one question I think, yeah?
Yeah, that's right.
Thank you all. Thanks for your questions and thanks for the participation. After this, we have arranged high tea. Kindly, please enjoy. During this course we can always discuss if you have any further questions.