Ladies and gentlemen, good day and welcome to the Kansai Narelek Q1 FY 2022 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 concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Anuradha Joshi from ICICI Securities.
Thank you and over to you, sir.
Thanks, Karuna. On behalf of ICICI Securities, we welcome you all to Q1 FY 2022 results conference call of Kansai Aerolact Paints Limited. We have with us senior management represented by Mr. Anuj Jain, Executive Director Mr. Prashant Pai, Director, Finance and Mr.
Jaeson Gonsalves, Director, Corporate Planning, IT and Materials. As everybody knows that the paint sector has revived very fast from COVID wave 1 and there is again even after COVID wave 2, there is a strong growth visible in June month onwards. However, the input prices continue to remain impacted, but we see we are able to report strong numbers aggressively leading by the industrial and automotive recovery too as well as strong performance in decorative paints. So we continue to remain positive on Kansai and we have an add rating on the stock. Now I hand over the call to the management for their initial comments and then we will open the floor for question and answers.
Thanks and over to you, sir.
Thank you, Niran. Thank you, Nimit. Good morning, everyone. It is nice to connect with all of you. Aarti, welcome to this consignor like investor call for Q1 of FY 'twenty one, 'twenty two.
I'll give some brief about the quarter 1 and then we'll open the forum for the questions. During Q1, we recorded top line growth of 117.6%. All businesses, divisions fit well. Industry growth was higher on account or low base. Decorative specific, the value growth was ahead of value growth.
Therefore, we improved our product mix. Demand was this time better in urban towns. So if we compare the last year, last year the demand was better in the upcountry market. This time it was better in the local town. And so the key highlights for the Q1 for decorative is that, as I said, emulsions, we did well.
The product mix improved. We increased the number of machine counter, tinting machine counter because emulsion sale is dependent on the penetration of machine counter. There are multiple new products, which we started launching last year, and we kept on expanding this to new and new therapies. And therefore, our contribution from the new products have increased. Most of these new products are in the emulsions and the new businesses like construction chemicals and the premium wood finishes.
The Beauty Gold Washable, which is one of our little different offering to the market that has a proposition of antibacterial and washable with consumer proposition of staff B and safety, which is in line with our approach of pain plus offering pain plus to the market was accepted very well, and we are getting a good traction in trending in this product. In new businesses, where we are a little late in terms of introducing construction chemicals, premium wood finishes, but we got a good traction. I think our range of product we completed in the last quarter and the remaining geographies also we expected in the Q1. So these businesses have picked up and trending well in our portfolio. In terms of price increases, we took 3 price increases, 1 was in the last week of March and then 2 during the quarter.
So 3 pricing pieces we have taken so far in decorative. Our focus continue to be on paint, emulsions and distribution, new products and new segment like construction chemicals and premium wood for decorative. Coming to industrial, the overall growth was good, higher on account of low base. But still there are challenges as passenger vehicle is facing some shortages of semiconductor chips and therefore the production is still not going to the earlier level. 2 wheelers, demand was sluggish, mainly the demands are lower from the rural sector.
Commercial vehicle and sector demand work better. Our area of focus in industrial is new business niche segments like coil coating, puncture powder, high performance coating, and we are increasing our traction here in all these new businesses of niche segments. Even in the existing accounts, we continue to put focus on increasing our share wherever it is possible. And also, the approach is related to seeking price increases because the inflation has been high is higher. Coming to subsidiaries, if you look at the local subsidies, Marcol, which is powder coating, pharma, which is construction chemicals, narrow fix, which is adhesive, all these businesses recorded high growth in quarter 1.
In international, Bangladesh did well, but Nepal and Sri Lanka was impacted relatively impacted the most because the lockdown was for a longer period in Nepal and Sri Lanka. While in Bangladesh, till June, it was going fine and only in the last week of June, there was a lockdown, which was announced in Bangladesh. Some of the other highlights, as the inflationary trend continues, our focus has continued on cost reductions, formation management and judicious overhead management. So that's one area where the entire team is working pretty hard to see that how can we improve on that. The customer visits, which we started sometime around January, February, and then again, because of this lockdown, there was some gap.
But it has restarted now and the entire team and the management has started going to the market. While we are going, we are still following all the precautions and guidelines in our factory offices and whenever we are visiting the markets. Recently, there was a rating on ESG by Crysis and they have rated the Indian companies on ESG. So there are total 225 companies and we are rated in the top quartile. So in the overall companies also, which include banking, IT, manufacturing, all kind of sectors, we are rated in the top quartile.
And even in the specific pain industry, we are rated in the top quartile. Coming to financial for the quarter, the net revenue was INR 1301.2 crores, a growth of 117.6% over the corresponding quarter of the previous year. In terms of EBITDA, the absolute figure was 187.1 crores, which is a growth of 132.4 percent over the same quarter of the previous year. And that was 118.7%, a growth of 177% over the same quarter. So even if you look at EBITDA in terms of percentage, we have a little improvement if we compare with the corresponding quarter of the last year.
Looking forward, we feel that the vaccination program, which is underway and hopefully it has picked up some traction on month on month basis. And we feel that with the vaccination going up, also forecast for good monsoon, demand should have recovered. But there's always uncertainty related to when we started the Q1. We never thought that we'd have to pay the lockdowns again. That uncertainty will always remain.
From the company side, because there's a high inflation period, we would be aggressive in seeking price increases. And our focus will continue to be on new segment, where we have picked up new products, which we have expanded and we'll continue to do that, digitalization and cost optimization. So that's a brief on our side on the Q1. And now we welcome the questions.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Prachi from Bay Capital. Please go ahead.
Yes, good morning, sir. Hi, this is Prachi here from Bay Capital. Sir, I just wanted to understand, in the last quarter, you had mentioned that you had been negotiating for price increases with OEMs and weren't very successful. So what has been the case this quarter? Have you been able to take any price increases with the auto OEM segment?
Yes. So we made some progress. Some price increases we have been able to get in the Q1. But as we discussed earlier also, there's a little longer lag when it comes to the OEM customers. And you make a progress customer by customer.
But yes, we made some progress in the quarter
Is it possible to quantify what sort of price increases we have taken?
We generally don't quantify that because customer is smart, so we don't quantify that, but we made some progress.
Okay. Okay. Got it. Got it. My second question was on ad spend.
So last year, we did see some cut on your ad budget. So how are we thinking about this, the ad spend for this quarter and for the whole year?
Last year, one that earlier we have been spending quite high and it was part of our plan that slowly that will have some reduction of the percentage. But last year was specific because Q1 there were hardly any activities. Even in the next quarter, there were certain activities which were not possible. Now as the market is opening up, there is open space to do activities. So obviously, to some extent, the marketing strategy will go on.
Okay. But do we see them going up to what they were maybe in FY 2019 levels or no? As a percentage of the
So, I think
that there was specific plan for 2, 3 years where we did specifically related to increase our brand and now our mind share is quite at the good level. So that time we were spending more in terms of advertising and communication. Having reached to a particular, the focus would be on some other activities, which is also part of marketing. To a certain extent, it will go up, but it may not go to that level.
Got it, got it. And so just one last question, what would have been our capacity utilization for the last for this quarter that is
Yes, sir.
In June, basically we reached around 60% plus. I mean the quarter is actually irrelevant because there was no demand in the month of May. So I think what we need to look at is how we have exited the quarter and that is around 60%. 60%.
All right. Great. Thank you so much. I'll get back in queue with my other questions. Thank you.
Thank you. The next question is from the line of Abinish from Edelweiss. Please go ahead.
Yes. Hi, sir. This is Abinish first from Edelweiss. Hi. My question is on the chip shortage.
So globally, auto companies are seeing big chip shortage. So we have already seen a big impact of that, at least globally and the high end. For your customers, is it a big problem? I have seen the monthly sales data which has come strong. So on the outlook front, chip shortage would impact your B2B sales, OEM sales?
So this is what we have been hearing from our customers that there has been shortages and because of which even if they have a better demand to produce more, they're not able to do it. In terms of outlook, I think there seems to be on the track in terms of able to manage it. But I guess they know better that how much. But as of now, it is being reported that because of chip shortages, they have not been able to ramp up their production.
So any more color to that? So that's a more general answer. In your kind of volume, is the chip shortage also as big a problem because you do
a lot of
mass volumes also? In that also, is the chip shortage equally a big problem?
So your question is from a customer's point of view, right?
Yes. And that will impact you also.
I understand. But as I said, this has been the trend. But I guess that whatever we get the information from their side, there is an improvement. How much they will be able to improve? How far they will be able to improve?
Because ultimately, when they have the demand, so they are much concerned and they're making the arrangement to see that how they cover it up. So we'll have to live with it. So ultimately our business is dependent on the customer business. So as of now, I can only say that there is a shortage. This is what is being reported.
How long it will continue? For us, it's difficult to comment upon.
And last question, we have seen those new reports on JSW chain. So they plan to get more aggressive and they plan to get market share from across the board and maybe more from the first and number 4 pecco players. So any comment you can make on JSW in particular or from the market leader also because price hike has been delayed this time by Asian Trade Prosus earlier. So is that a concern or do you see that this is just a lag effect and ultimately price hike will happen in terms of the requirement?
What I can only say is that generally for any industry, the more the merrier, it is always better for the industry. There have been a very limited number of organized players in paints, and it's always welcome that if the new company comes in. Because the paint one reason that why the paint industry has been growing consistently in double digit for last so many years is the penetration of the paint, the per capita consumption of the paint, it's still about 4 kilograms in India, which if you compare with other countries, it is 15 kilograms 20 kilograms And even if we consider rural population, I think it's still even if we double it, it is about 8 kilograms So that's very less. So when more companies are there, the more communication happens, the more awareness happens. And it always helps industry to grow because industry still has a good scope in terms of increasing the penetration.
So more the merrier because when the innovation happens, we always know that there's a benefit to the customer. So it's a welcome move from. That is what I can comment on.
And pricing with?
Sorry.
Pricing aggression by the market leader taking direct price hike, taking less price hike?
Pricing aggression, I don't think as
of now, in fact, the pricing aggression is more there in the lower end products, you can say, which is Patti or some of the other items. There it is. There one of the reason is that during lockdown period, sometime the product mix gets skewed. We don't know that what exactly the market would be demanded. So as of now, the pricing integration is there in the lower end product.
It is not there in the higher end product.
Okay. That's all from me. Thank you.
Thank you.
Thank you. The next question is from the line of Amnesia Gopal from PL India. Please go ahead.
Yes. Hi, sir. Thanks for the opportunity. I have a couple of questions. My first question is, as you stated that the demand rebounded in June.
Now we are, I think, already through with the month of July. So has the demand sustained in the month of July and any change in the whether it is geographical or rural urban trends you are witnessing in the month of July? That is my first question.
So generally, we don't talk about the future, but June demand was there because May demand destruction happened. And we have a learning from the last year that last year, as of the Q1, demand was down. But then later every quarter, a part of the pent up demand got compensated. And that's the same trend we are expecting.
Okay. So my second question is that as gross margins now, they have dipped already quite significantly and there have been some price increases also. So what's the quantum of inflation currently and would it be you can say, fine to presume that the margins have more or less bottomed up now?
Inflation is high double digit. And if you look at the margins, obviously, in the quarter 1, we should not compare it with the last year because last year was a very different kind of mix, a very skewed mix. So if you compare on the quarter to quarter basis, which means that if we compare margins with the last quarter, Jan to March, a slight improvement, maybe at par with that. And inflation, as I said, is in high double digit. And obviously, the action is the price increase partly we have taken in the Q1, and then we'll continue to see for more pricing changes to mitigate that inflation.
Okay. And sir, just finally one bookkeeping question. In your PPT, you have indicated that 10% of your revenue came from new businesses. So does it refer only to chemicals, the bases and wood coatings? Or does it also include new launches on the paint side?
That includes it's all new products, basically. So it includes the paint side products also.
Okay. So excluding paints, how much that would be, if you can share, please?
So that generally we don't share because the new business is. The only thing is that we started last year, probably we were a little late to start in the industry, but we are getting a good traction till we reach to a critical mass now that we don't talk about those figures there before.
Okay, sir. Thanks a lot.
The next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi, sir. Sir, I just wanted to understand on the industrial side, especially in the auto space. Now in Deco, I can clear you have clearly showed the ability to use mix as a lever. Is there any lever in the auto side also to do the same or it has to be only price increases, sir?
No. So auto, in fact, that is how we are maintaining our position in specifically auto where we are market leader. Is always based on the technological improvements. So there, in fact, we always work with our partner parent, Kansai, to see that what technological breakthroughs can be provided to the customer. So it's an ongoing thing and we are making a good progress there.
In fact, we are working on a lot of technology products, which help consumer to increase their productivity efficiency. And also, maybe in terms of per liter cost, it is higher. But overall, it helps in terms of achieving their objectives also. So that's the very key thing. Pricing is mainly we are talking about because when the inflation is there and obviously the process in the OEM is longer, but otherwise our entire focus is on the technology products, which we keep doing and we are doing that.
And sir, any quantum of the increase that we need to
kind of get industrial margins back to earlier levels?
Obviously, it is there, but we don't want to talk about it. As I said that because of this situation, the business situation, we are aggressively seeking for the pricing case, because obviously everybody understand, we also understand the customer problem that how
do they give so much
of increase. But the situation is very much understandable. So it's a kind of mature discussion in terms of that win win situation and that is what we do. And alongside that we work on the cost reduction also. So therefore, how much can we manage is something which is a one to 1 discussion which happens with the customer.
No, I agree, sir. But when we look at, for example, the input cost pass that you highlighted double digit, would it be fair to argue that double digit inflation essentially corresponds to a double digit price increase at the minimum? Is that correct way to look at the thing or that would not be right, sir?
Inflation is on the raw material cost and the raw material cost is some percentage of the revenue. Yes, sir.
But I mean, we see the numbers, they are high double digits, honestly. They are not even and that is where I was coming from, sir. Is that I mean, a simple message is that even if I take a rough percentage, it means a double digit increase is needed. So essentially, that's why I was trying to understand what is the how much of the increase that we see?
But from our side, what we can say is that, as I said that in the industrial, it is very difficult to pass on the completing fees. But you have to see that depending on the customer to customer that how do you manage and how do you maximize that and parallelly work on your cost optimization so that you are able to mitigate the impact.
Okay, sir. And does that entail a change in royalty as well, sir, because we are using a lot more of our parent's help or royalty rates remain unchanged? How does that work, sir?
No change.
No change, right? I mean, overall percentage of products using royalty will kind of go up, nothing like that happens. Okay,
sir. Yes. No change. In fact, the percentage is fixed.
Okay, sir. And sir, lastly, last for the last few quarters, you've been kind of you had done a strong push on digital. I mean, we can see a very healthy kind of pickup as well. Could you share how is that kind of helping us on the cost control side and how much gains can kind of assume, say, going forward to sustain any quantum any target you could share that would be? That's all from my sense.
Yes. So, see, digital initiatives basically are of 3 kinds. 1 is trying to add the convenience of the consumer and maybe to that extent at some point it may help in gaining revenue. 2nd is optimizing cost and third is improving productivity. So initiatives which are there, if you look at it more from a market side, like we had introduced app for the dealers, app for the influencers.
So if you look at these COVID times, it is more actually has been more of an aid to business, not necessarily at this point of time it is resulting in any extra revenue growth. But there are lot of analytics which are going on at the back end, a lot of I would say process automation which is going on at the back end, which is helping the company control its cost and improve its productivity. So to that extent, digital is adding at least the back end as of now. Front end, I think it's a matter of time as the markets open up and as these apps gain more and more traction in the marketplace, we would see positive gains coming from it.
Okay, sir. Any targets, sir, on cost saving that we can share? Any I mean, if it is possible to share, I understand some of these are difficult, but if it is possible to get a sense on how much of that can be sustained or how much margins benefit can come through from that, if that's
Prashanth? Avi, if you look at
our expenses as a part of net sales, right, or the overheads of percent net sales, we have been trying our best to be best in the industry, right. And our endeavor is to maintain this trend going forward also. And as I said earlier in the last meeting also that we every department has been given targets and they're working to achieve goal of cost reduction.
Perfect, sir. That's all from my side. Thank you very much. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Anuradha Joshi. Please go ahead.
Hello, sir. So just two questions from my side. How do you see the region wise recovery across, let's say, Northeast, Southwest? So I guess, North India is the key region for us. So how is the recovery in that region?
Also, if you can indicate about the update on the new businesses, the way you explained about the international geographies. So how is the Powder Coating Adhesive and the Water Coating segments doing? Any update on the growth? And also the profitability in these businesses? And lastly, how do you see the price hikes going forward?
So do you see the industry and as well as Kansai taking price hikes again in this quarter? Or it will be maybe after a point after the trade digest the current set of price hikes? Yes, that's it from my side.
Side. Okay. So in terms of region, I think the recovery is west, north, east and south in this order. West, north, east and south in that order. So that's the answer to your first question.
Then you asked about what was the second question, the new businesses, I think. New businesses. So new businesses, I think I spoke about it. See, we cannot talk about growth because these are like when you say new, we just started, maybe we started last year, the base is very, very low. So therefore, talking about the growth does not make much of sense as of now.
What is important is that, yes, specifically construction chemical, if you really look at it, which is the water proofing and the other product like sealants and all. We have completed the range. Completed the range in mean that construction and everything has a very large range and you know that we have taken this company, Parma has a good range of products. Whatever range is possible to place into retail market, because for the institutional project business, there is the range of products are more than 100. But whatever is the retail specific product, those products we started placing through our network in Narelag where we are getting a good traction.
And in paint typically it happens that good percentage of your network is always exclusive network, so they give you a support. So that's why I mentioned that once you reach those critical mass, then only it probably makes sense to talk about the figures. So as of now, the traction is good. And since we were late entering into that, it was important for us to place the right product as the right strategy in the market so that we start getting traction. So we are doing well.
In addition, again, we have subsidiary in NeuroPix and NeuroPix products, some of the products we are trying to sell through Neurolec Group. Specifically, we are targeting now in India as of now, because we do not want to get into all India and then able to spread our resources so thin. So these are like geographical focuses we are doing so that we are able to just do justice to that and that is what we are doing. So that is your second question. And third question, you spoke about the profitability of these new businesses.
So they are primarily you can say that similar to Paying. But initially, it happens that when you get into the market, maybe you try to become more aggressive. But otherwise, in terms of margin, they are quite similar to Paying. So I think I covered all your questions.
So lastly, on price hikes, how do you see the industry working on the price hikes going forward? Because still there is need to raise prices, but how will the industry and consign planning ahead? Yes, that's it from my side. Thank you.
You're right. In fact, no pricing case. In fact, one pricing case has also happened recently. So there would be more price increases because obviously, the industry wait and see that whether the prices are softening or not softening, but inflation continue to be high and obviously it demands more prices. And according to the industry, we will be working on that.
But why isn't it can be issuing trade because the trade would be ordering goods on a regular basis and if there are prices, so then one stop of older prices, one stop of new prices,
will that not be a
What happens is that if you see maybe because the price increases have come in part, so the absorption has been better. And maybe in the last quarter, because there has been uncertainty of the demand. So if the demand is more certain and that we have a festive season, the adoption happen a little faster. Obviously, as an industry, always the choice is that you try to stabilize the demand in the market, but in this kind of inflationary period, there's no choice also. So I think what is important is see that how do you stagger it so that the market is also not impacted and you stagger it and you are able to get the pricing increase also and then you are able to stabilize the demand.
I think that's the approach which need the scales taken. And to that extent, I think it's reasonably okay to take the pricing
Okay. Sure, sure, sir. This is helpful. Many thanks.
Thank you. The next question is from the line of Parsee Tandaki from IFL Securities. Please go ahead.
Hi, sir. My first question is more of a housekeeping question. Apologies if you've already given this, I joined a little late. What is the volume growth for this quarter?
So I guess you're talking specifically about negative. So as I said earlier that the value growth is ahead of volume growth. So this quarter has been different for us because our focus was on the product mix. And this quarter's growth was led by emulsions. And therefore, our product mix improved, value growth is ahead of volume growth.
Okay. Okay. Secondly, I just wanted to know in terms of your distribution expansion, if you can give some data on your tilting machines currently and how they've expanded over the last year or over the last 3 months, any kind of data you can give on this will be useful.
Approximately, we have about 26,000 of dealers and last year not much of expansion. Generally, every year there's expansion in the network, but last year there was not much of expansion because of this demand up and down continued and the visits to the markets were also because of the safety reasons, the visits to the markets were limited. In terms of machine, we have a penetration of around 75% to 80% penetration of the machine. And now this year, there is not from the April, because when April started or from, say, last quarter, the market movements have started. We are seeing expansion in the distribution.
In between, again, there was a lag because of this May lockdowns. But I guess now since the market is open, I think that story of expansion, the distribution will be followed in this year.
And what would be your target, sir, for expansion?
Target won't always keep higher than what others do, but it is we keep in mind that now that we should be able to increase our reach. So internally, our targets are always we look at the universe and then whatever reach we have and we try to increase the reach. I'll not talk about the numbers, but increasing the reach is the target.
And lastly, I just wanted to know, see, there is, of course, margin pressure in both decorative as well as industrial. There cost inflation in both segments and there is some amount of price increase in both segments. So at an overall basis, I mean, if you sort of look at the cost inflation versus the price increase in each of the segments, where is the margin pressure more acute for you? Is it in the industrial segment currently after the price increases you have seen this quarter partially or is it in the decorative segment?
Pressure is on both, but it is higher in industry.
Okay, sir. That's all from me. Thanks a lot, the best.
Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi. Thanks for taking my question. I have a couple of questions. First question pertains to nature of complete wind density versus parts. So just wanted to get your observation that are you seeing any change in the agility or intervention reflexivity, which we have seen for last many years whenever inflation comes, has been compromised this time or this observation slight misplaced because we are not seeing the kind of fast intervention that industry used to make.
And then my comment is mostly on decorative wins. We are not seeing it this time. So just wanted to know your thoughts on the same.
Can you know again maybe in a simpler way if you can just
add? Yes. So I'll put it this way that earlier for example the similar period we had seen in somewhere around 2 1009, 2010, when industry taken some 6 price hikes in span of some 6, 7 months led by and then somehow it appeared from outside that the whole decorative industry behaves similarly in terms of the intensity of the price hike. This time, we have seen staggered price hikes, not necessarily everybody is taking at the same time and in the same proportion. So just wanted to understand, is there any change in the competitive nature or competitive intensity?
So I think that period is different because today what is happening is because of COVID and demand up and down, you have to strike a balance between that. But as I mentioned that already 3 price and fees have been taken. Company taking their own price and fees, different price fees, I think that's a good sign because that way you can say that every company is established in their market and whatever market share they have, they've been able to establish themselves and to that extent they have the pricing power to decide what they want to take. But otherwise, it is just getting staggered and it's a balance between the demand and the price and fees. Otherwise, the approach in terms of approach of the industry remains same that whatever inflation is there, you have to mitigate that with the efforts of price and fees or the cost reduction.
That continues.
Sure. So this time, it is not that ticketed by other players. So just wanted to know, would your price increase be higher than the industry average? Or the relative price index, would you be would you have bridged the gap between, let's say, you versus the 2nd guy or the 1st guy in the industry?
Slightly here or there because the pricing means pricing plus discount. So they are never saying they are always different that pay from one company to the other company. I think what different you are seeing is that the periods were different. Maybe this time like we announced the price increase earlier and then everybody is doing it with their own approach. So that's the difference.
Otherwise, now the pricing, it is never same because the pricing also include discounts. So it is different from lumpy to lumpy.
Sure. And the second question pertains to Construction Chemical. You said that you have now completed the whole range of product which is acquired. But there's also a very natural efficacy led gestation period of the business. So usually we have seen in the other launches where players also that they need to wait for 2, 3 monsoons to get their confidence on the efficacy part before they extend warranty.
So where are we on that cycle in terms of going that aggressive on warranties and efficacy part?
We are late starter to
that an extent that will have to wait. You are right that business always take 2 to 3 years to scale up to that particular level. But I think what is important is that some of these products, based on your accelerated test, you can still claim. And that is what we are doing. But yes, comparatively, it will take some time because in waterproofing, unless you pass a 2, 3 monsoons and then you see the performance.
But technologically, I think that we have a as we have a good access to the technology. So there's no problem. But in terms of practical experience, we'll have to wait and watch for that period.
Sure. That's all from my side, sir. Thanks, Akamad.
Since that our technology also some of the products, which have taken over from the Perma, and the Perma has been there in the market for many, many years. So those products are well tested and that way giving warranty about a profit.
Sir, this is for both wall and ceiling as well, right, the whole range?
Yes, wall, ceiling, roof, horizontal, vertical, all kind of surfaces. Excellent product inside some of the recent product what we introduced, which goes on the horizontal surfaces also, they reduce the temperature by minus 10 degrees. And also in addition to that, they give waterproofing properties. And the advantage is that it becomes a full system along with the paint. Because earlier also, if there's a defect in the paint, the customer used to say, even if the defect is because of the waterproofing, which is applied under the paint.
But now when it goes as a system, I think it is working well. And hopefully, this will help in expanding the market also for construction and maintenance.
Very helpful, sir. Thanks. Thanks and all the best. Thank you.
Thank you. The next question is from the line of Kiyur Pandya from ICC Potential Life Insurance. Please go ahead.
Thanks for the opportunity. Sir, in your annual report, you have mentioned about revisiting the approach towards the current market and restructuring the B2C business into 4 things like narrow leg rings, solesir rings, institutional and new businesses. Can you throw some more light on what you meant by all these things? And I mean, what are the interventions in terms of products, distribution or allocating resources?
So traditionally, if you look at it, this was paint. And now there are many segments. So there are paint, there are construction, the metal, that is wood premium, but tea, but tea is still with a separate segment, which did not exist in the past in the paint. So it is a recent thing. So if you look at the history, our expertise is there in the paint.
So when we talk about relooking at this, ultimately, we are looking at different segments, which you need to focus upon. So the first segment is paint. And then the segment of, say, construction chemicals, asbestos, wood premium and petite also we consider as a separate segment, because it is a very low value, low margin product and different kind of reach started by not the paint company, non paint company. So these are the 4 business lines. And accordingly, what we have done in terms of structure is that we have now business structure, business division for each of this.
So paint, construction chemical, additives, wood finishes. So that is what we have created. And earlier everything was looked together in a same manner. Now it is all business lines. And in terms of resources, the separate resources are allocated to paint, construction chemicals and other safes.
So each and every business is independent in that form and being run by the business set and independently the resources are allocated to them.
Okay, okay. Understood. Sir, second question, you mentioned that in this quarter, value growth is higher than volume growth. Now this is because of the way market behaved? Or this is a conscious effort and this would be the strategy going ahead and we should continue to see this trend going ahead also?
So this is, as I just spoke about the structure, so paint and paint does not include patty. So that's one. And so this was a conscious effort definitely. So in terms of paint, the growth was led by emulsion and that's why the value growth is ahead of that, followed by this new business is construction chemicals, that is sales, which also give you a relatively higher average selling price, ASP. And Patti is a little different in the market because the market is seeing a good aggression in the Patti.
So it depends on because we feel that currently it's not a right time and you have margin pressure. So that is like a balance between revenue and the profitability. So, but it is something that where one can decide at the appropriate stage that when you want to go aggressive, because it's more of a pricing game. So maybe as of now, we are not very aggressive when it comes to the Patti segment in the market.
Okay, understood. So last question on industrial side, you mentioned that I mean inflation, so pricing impact is there on both industrial and decorative. Within industry, can we bifurcate between the auto and non auto that it is easier to pass an inflation in non auto versus auto players or in any other way can we differentiate pricing power within industrial also?
Yes, yes, definitely. So auto and non auto, non auto and powder coating, general industrial and high performance coating. And there the progress direction on the pricing piece is also better, because it is this takes a longer time in terms of automotive. But automotive is a bigger business. But in the other businesses, definitely the pricing power is better.
We'll be able to give
it more than
share. Okay. So last question on these new categories where we talk about construction chemicals, adhesives. So how are we trying to take this opportunity in terms of as you mentioned, we need different skill set of people as well as probably different distribution and different influencers as well, especially in adhesives. So what is our right to win in these 2 categories and initiatives taken by the company?
One is that strength which we borrowed from say, Perma, because they were like our technical expert. And there is a as I said, the business structure is there is a dedicated team, which is purely focused on the demand generation with the audience. So basically going and showcasing your product, demonstrating your product, getting product approved. And all these people are because construction chemical is little different from paint, whereas you rightly said, it's more of a techno commercial kind of thing. So the skill set we borrowed from Perma and further than with the help we have created the business structure.
There the team is focusing on providing the right kind of training to this dedicated team. Fairly, the effort what we are putting is because we also have a demand generation team for the painters in the market that the painters are being trained for correctly using the waterproofing product. Because for painters also it's a business expansion. So earlier they were doing only paint and now they know that along with the paint they can do a waterproofing. So one side the effort in terms of training the painter to rightly apply the construction chemical, the other side, the techno commercial team of the construction chemical to meet the right audience.
Okay, understood, sir. Sir, thanks a lot and all the very best.
Thank you.
Thank you. The next question is from the line of Jay Kumar Doshi from Kotak. Please go ahead.
Yes. Hi, thanks for the opportunity. And sorry, I joined a bit late, so the question was already answered. My first question is, in Decorative Paints for the April to June 2021 quarter, has revenue is revenue higher than April to June 2019 or is it still lower than April to June 2019?
So we are generally not tracking on a 3 year basis. Because last year also, there were kind of up and down. So on the 3 year basis, we are tracking and on the 3 year basis, it is positive, CAGR.
Understood. Got it. And second question is over the past 2 or 3 years and ad spends, A and P spends as a percentage of sales have come out. If I look at your FY 2021 numbers, there's about 40% cut as against maybe 15% cut that we have seen from the market leader. So how should we think about A and P spends as a percentage of sales going forward in view of likely sort of increase in intensity as the new entrant enters the market?
Actually, I answered this question, but okay. So what happens is in the past for a few years, we went aggressive in terms of creating the brand mindshare. And that time also our approach was that once we are able to reach to that level of mindshare, then probably as a percentage it may start coming down. But last year was abnormal in the sense because there were Q1, Q2, there's not much possibility in the market to do the activities, but even if you are doing it, it may not be much impactful. So therefore, maybe it came down more than what it could have been otherwise.
And going forward, obviously, because this goes with the market requirement, market need, as of now, because our mind share is quite good, we are now having a very strong mind share. But the other activities, marketing activities, whatever is required in terms of below the line activation, the painter activities, training, all those things will continue. And to a certain extent, you may see that advertising may go up, but it may not be to that level what we were doing earlier because that was a specific objective to create mindshare.
Thank you. The next question is from the line of Hitesh Dang from ICA Direct. Please go ahead.
Thank you, sir. Sir, I just wanted to know one thing. During this disruption period where the supply chain has been disrupted severely, and we believe like we would have gained some asset from the unorganized segments also. So I just wanted to know how the unorganized segment have performed during this period. I mean, how are we seeing kind of market share gains from that segment?
And going forward that segment will still be hurt due to this pandemic?
Very difficult to comment upon that because there's no way to track it. The only thing is in the disruption period, it happens that maybe some companies are able to manage their logistics and supply chain better than the others. And because within the unorganized sector also, there are good companies, there are good reasonably good companies. So it will not be right to call them unorganized. So some companies are able to manage, some companies are not able to manage.
And ultimately, market has a demand plate. So if somebody is not able to manage, automatically it happens that, that business goes to them. So I say that in the small scale, there are lot of good companies, regional companies, niche companies who have these trends. They understand the customer better for that particular market. And I don't see any reason that why they would lose out.
So even if something is happening, it may be on the temporary basis. But having said that, it is true with any industry that part of small scale always shift to the large scale. And over a period of time, some of these small scale also become themselves the large scale. So that's a very natural trend which happened.
Okay. And so my next question pertains to our new product segment. So out of this total dealer network, how much dealers cover this core sizes of our new products?
And Mr. Took, sorry to interrupt you. This is the operator. Can you please check your line? There's a lot of disturbance from your
Yes. Mr. Tom, you can continue now.
Okay. I just wanted to know how much dealers out of total dealer network are covered for our new product category?
As of now, the numbers are not very high. But I can say potentially more than 50% can be covered, potentially. As of now, I know because it's a new start, then it's slowly you start. So basically, you first cross the 1st milestone, then 2nd milestone. But potentially, I would say that more than 50% can be
covered. Okay, sir. Thank you very much
for the answer. Thank you.
Thank you. Ladies and gentlemen, this was the last question.
Yes, thanks. Sir, just one, two questions again from my side. So, one, how do you see the new portfolio means shaping as a percent of total turnover over a period of, let's say, 3 year to 5 year timeframe? Do you see all that entire new product portfolio moving beyond 25% of the total sales? And also secondly, currently the business, entire new product business is in investment mode.
So how do you see it starting contributing to means coming back to let's say normal EBITDA margin level with the rest of the business in 1 year or maybe it will take more time for these investments? So
actually, the contribution would not be that high what you're talking about. Because if you look at construction chemical as a market, I think the size of that market is 5,000 crores. If you compare with the paint industry, paint industry is 55,000 crores, but if you look at the credit, it's basically 30,000 crores. So again, €30,000, the size of the construction chemical market is still €5,000. So from there, you can guess what best percentage any paint company can achieve from that.
And the adjustives and wood finish, they are very niche business. And also even in the wood premium, though the growth rate is faster, but it's a very premium and it's just not an entire wood finish is what we are talking about, very premium and niche business, but still it's a very important. So the contribution will not be that high, but as I said that the size of the industry, so the larger business size is the construction chemical where I spell out the what is the market size and that is what best any company can achieve over a period of time. In terms of EBITDA margin, as I said, these margins are not actually they are good. So it is in line with the pain.
Initially, it happens for any category that you do a little aggressive. But since we have the distribution strength, so it is not that you are damaging the margin. But typically in the newer business, initially you spend some higher than over a period of time and you are able to set up your range, then you are able to stabilize that. So not much of challenge I see there.
Okay. So one more question. How do you see the B2B customers accounting for the new businesses? Because
there is
a fairly large B2B portion in the water proofing construction chemical industry. Even in other large industrial industries as a business. So what are the focus in all these new segments, whether we will go for projects and B2B customers or it will be more of a B2C business for us?
So it's like now, I mean to go for Parma. So Parma is basically largely B2B. So that is a business which is established business. And one side, they have their team, which is B2B, they have their customer, which is B2B, and that business focus is given separately. And what we are additionally trying to do is basically get into the retail.
So retail business was not there, which we are adding. And B2B business was already there in the Perma, which is not taking that particular base from there we are trying to strengthen.
So these are my questions. On behalf of ICICI Securities, we thank all of you for being on the call, Anuj sir, Prashant sir and Jaisant sir, we thank you for the call and answering the questions of the investors and analysts. Now I hand over back to
you for your closing comments
on the performance. Thank you, sir.
Thank you so much for connecting, and it was nice talking to you all. And thank you for all the questions, and I hope that we have been able to do justice with the answer. And the business situation last 2 years, not business or all the businesses continue to be uncertain with this COVID impact and all this thing. Hopefully, as you know, mankind will come out of it and I hope the situation becomes better and better. So all the best from all of us to all of you.
Keep yourself safe. Keep taking care of yourself and your family and your friends. And thank you for joining. All the very best.
Thank you. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.