Please note that this conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you, and over to you, Mr. Joshi.
Yeah, thanks, Manav. On behalf of ICICI Securities, we welcome you all to Q3 FY25 and Nine Months FY25 Results Conference Call of Kansai Nerolac Paints Limited. We have with us today senior management represented by Mr. Anuj Jain, Managing Director, Mr. Prashant Pai, Director of Finance, and Mr. Jason Gonsalves, Director of Corporate Planning, IT and Materials. Now, I hand over the call to the management for their initial comments on the quarterly as well as nine months performance, and then we will open the floor for question and answer session. Thanks, and over to you, Anuj sir.
Thank you, Aniruddha. Good morning and a very warm welcome to all of you. Thanks for joining this call of Kansai Nerolac for quarter three of financial year 2024-2025. It's the first meeting of this calendar year and also a special one. Over the last three years, we have navigated challenges, taken some bold steps, and made some strategic choices that are now bearing fruit. The journey would not have been possible without your support. For that, I sincerely thank each one of you for believing in our and your company. For the quarter, the top line is up by 1.5%, EBITDA is up by 2.9%, and PAT before exceptional items is up by 7.2%. On relative basis or comparative basis, I think this performance or our performance, our team performance in quarter three has been one of our strongest given the market challenges of declining demand and new competition.
We started the year facing a tougher than expected environment. Market demand has slowed, and we did not expect when we started the year, and competition intensified. Despite these headwinds, we delivered a strong performance. This is not just a testament to numbers, but to the strength of the foundation which we have built over a period of time. We chose to adapt, to invest in right areas, and remain a strong, future-ready company. I'll give you some gist of the function-wise, the segment-wise, some of the highlights which I've been talking about the last few years. So, coming to Decorative, the key growth drivers which we have been discussing with you was one is premiumization and Paint+. So, overall, if you've seen this year, we have introduced more than 20 products.
In the first half itself, we have added 10 products, and the salience of Paint+ product is in double digits now. So, that's the first milestone which we wanted to achieve, and it is in the double digits now. There was also a focus from our side on the premium mix, and there also consistently we have been improving the salience, and in the quarter three, it has further gone up. Overall, if you see the new products, we continued launching more and more products because the market, fortunately, is ready for the micro-segmentation, and therefore a lot of new products are getting introduced, the functional products, and our overall contribution of new products is also in the double digits, so that's a good sign.
Some of the new products, you know, because in this situation, we are trying to bring up the product which can differentiate us in the market, and in this year, we have introduced a texture range which is very, very different. We have introduced the product in Excel, which is in no-dust category, but I think what I want to highlight is the launch of Wow Whites, so Wow Whites is the range of products. It's basically a Wow Whites in different brands and the product that we introduced. These products are far, far more superior. You can say the best of the whites in the industry. When it comes to the whiteness, brightness, and the coverage, these are the best products in the industry, and they are available at a different price point.
That's the range of Wow Whites, which is a very, very differentiated, unique offering which we have brought to the market. There are more new products which we have introduced in the construction chemicals, the wood finishes, and those products are also receiving a good response in the market. In new businesses, our growth continues to do well. If you remember, we discussed three years back when we were not there in this category, our first intention was to complete the range which is acceptable to the retail market, introduce the range, and see that if we are able to place the product at least in our channel. We have achieved that successfully. And even for new business, the salience is now crossing double digits. That's again the milestone which we wanted to achieve, critical marks, and we are on track.
In the project business, we are also under index, and then we initiated in terms of launching a range, expanding the team in the towns. Today, we are present in more than 80 towns now, and our growth continues to be better, you know, that even if you compare with the industry. So, either it's a new business or project, so we are doing better. And here also, the salience is continuously going up. It is still not in double digits, but it has been going up. The other part of retail, you know, because we divide the business when it comes to Decorative in three parts. So, one is the project, the new business, and the retail.
In the retail, we worked on, you know, strengthening our position because we are a number two brand, but we wanted to, you know, strengthen through the influencer program and services which we have been talking about. So, the services that we introduced about two, two and a half years back through, you know, the service, Paint as a Service, and through the architect interior decorator. So, there also, we have kept a milestone, a critical mass, which is around, say, 5%, and I'm happy to share that we are now in that particular range. We have touched the critical mass, and it has contributed significantly to our business.
This gives us very good confidence because here we are able to reach out to consumers directly through the digital marketing, able to contact the customer, able to convince them about our Paint+ differentiation, and our conversion rate also is good. In this business, there is a lot of competition, not only four or five companies, many other companies are also there, and that conversion, you know, gives us a good confidence that our brand has a strength and we can increase this business. The number of architects that we are reaching quarter on quarter, it is increasing, and now we are, you know, with this architect initiative, we are there in more than 40 cities, and this also is giving us good fruits. On the painter front, the number of painters, you know, we have been targeting. Initially, we were a little slowed on this initiative.
We were not on target, but the last two quarters here also, we are seeing that now we are in the greener zone where, you know, we have started increasing our painter number, and our extraction from the painters has started going up. So, this initiative, you know, which is like physical, so we have a team on the ground and also the digital initiative, this also has started working. It took some time. If we wanted to achieve it, maybe about six months a year back, but maybe it got delayed, but I think we have started seeing the positive traction on this initiative also.
In terms of retail experience, the total number of Shoppes and Shop-in-Shop concept, we have more than 300 plus now in almost, you know, you can say more than 100 towns, you know, that we have the representation of Shoppe, which is a good experience center, and the customer can have a good touch-and-feel experience in these stores. Overall, on the distribution front, you know, satisfactory growth in terms of the distribution extension. We are very close to our target, what we want to achieve in this particular year. So, these are some of the highlights for Decorative. Coming to the Industrial business, the automotive part, where in fact we are market leader, our market share is high.
Despite that, you know, based on the approach to focus through technologically superior products and launching sustainable technologies, you know, which is one of the requirements of our customers, and we went quite aggressive on that. Also, in addition, we were focusing on the new segments, seam sealer, underbody, alloy wheels, and all these initiatives have been executed, and now we have started getting a decent contribution from this. Overall, based on this and the new businesses, what, you know, through our efforts we wanted to generate, we are increasing market share in automotive on the base of high base, we are, you know, able to increase our market share. The new product further we have introduced is Matte Clear Coat for passenger vehicle, which has a very excellent line workability.
There are some special clears for two-wheelers which were introduced, some special PU, you know, matte metallics, the matte finish which goes with the monocoat, and these are also very innovative products which have excellent workability, and it helped to eliminate because it's a monocoat system, so it helped to eliminate one product and therefore very helpful for our customers to increase their productivity. In electric vehicles, you know, which is the trend, though the penetration still is very low, electric vehicles in terms of four-wheelers, 2%-3%, two-wheeler about 5%. In three-wheeler, it is very high, more than 50%, but there are a lot of players there, and we have worked on the right product, right approach, whatever strength we have in this segment, and electric vehicles also our market share is similar or maybe better than overall share what we have in automotive.
In auto refinishes, where our market share has been low, but here also our growth is better than the industry. Our major focus was in terms of getting into the A-class body shops where consistently and constantly we are expanding our number, and quarter on quarter basis we are seeing the growth is going up, and the growth is coming from the premium product which has been a part of our strategy. Coming to non-auto performance coating division, which is a combination of general industrial high performance coating and powder, there in fact, this was part of our strategy which we discussed earlier that we wanted to focus in the given market situation. We wanted to expand this business, increase our market shares, and for that, we expanded the business development team and the feet on ground. That's an initiative which we started, and we are increasing the number.
The high-performance coating business, one, it comes from the OEM, the other it comes from the dealer network also who cater to these small industries, so that was that number, dealer number, you know, we are expanding, and our reach has gone up significantly in this particular channel, and the contribution of the channel sale also has gone up. We got good approvals. Continuously, we are increasing in high-end coating for railways, bridges, oil and gas through use of new technologies like fluoropolymer anti-corrosion. These are high-end technologies which are functional and give a high durability. We are witnessing a strong traction in the market on these as I spelled out earlier also. Vande Bharat is one example, and Atal Setu Bridge, and a lot of credentials we are able to generate in this business.
The growth is good, you know, mainly high performance coating where our market share is low. There our growth is very, very strong and significant, and that is driving the growth of entire performance coating division. Some of the new products we have introduced in this category also, the polyurethane-based product for glass-filled, you know, ABS plastics, and some related to a top coat fusion-bonded polyester for external and internal pipe coating. Some of these products we introduced, it is just to give you an indication that our journey or the effort, the endeavor to keep introducing the good technology product in the premium category continues. The focus has been in the premium salience, you know, that a few years back we decided to exit some low profit business which we successfully came out.
It took one and a half years' time, and we wanted to replace that business with the premium. So our saliency in the performance coating through the premium is consistently going up, and it gives us the confidence that we are on the right track. Some of the segments which we are now catering through performance coating include bridges, windmills, appliances, construction equipment, and also in the powder, the rebar pipe coating, alloy wheels, construction equipment, and some of the global products, you know, like performance coating for metro railways, where we are taking the help of subsidiaries of Kansai Paint, our parent company. So that also is working. So these are some of the highlights related to the business front. Our capacity is approximately 6.16 lakh KL per year. In ESG, we were rated in top 8% globally within chemical industry group in the CSA 2024.
In FTSE4Good, we are rated in top 12% globally within construction and materials sectors. Also, happy to share, you know, some of the awards which we have recently got. One in the CSR, we are the winner of Golden Peacock Award for 2024, and in terms of quality, best quality supplier from Toyota are some of the awards which we have won.
So these are some of the highlights, you know, related to quarter three, and the confidence is that since we are seeing good traction on the initiatives that we have launched, and you know, it gives us a happy feeling that we are on the right track, and our performance is improving, and you know, at least in the quarter three, all these segments, whether it is automotive or performance coating division or in the Decorative project and new business and the retail front, most of these segments, probably whatever results we have seen so far, our performance is better relatively. Thank you so much. So these are some of the comments on the performance, and now we invite for the questions.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one to ask.
If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets only while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have a first question from the line of Abneesh Roy from Nuvama Wealth. Please go ahead.
Yeah, thanks. My first question is on putty and distemper. There is a decline for you in this quarter, and last quarter also, the feedback was for the industry. Some players were offering putty at a very, very low price. If you could comment, what is the current situation in the putty industry? Is it still irrational pricing? And is there some slowdown because in some of the real estate, the approvals have been delayed in many cities? Is that also contributing to this?
Abneesh, so on putty, you know, as we were saying earlier, so pricing definitely is a challenge in the marketplace. I have not seen that whether the market is able to realize or companies are able to realize better pricing, so maybe the volumes are already built, and to some extent, when the demand is down, you know, you're not able to correct the pricing, and yes, in our case, it is negative because we are clear in mind that we have to strike a right balance between the growth, profitability, and sustainable growth, so that is very, very important, so as of now, we don't see much change in the putty scenario, and related to real estate, overall project business is an indicator. There, I think the growth is still continuing to be good.
So maybe some approvals is fine, but I think if I look at the growth as another project business, it is on the good traction.
Sure. My second question is on the comparative scenario in the Decorative. In the earlier quarters, you have said that your confidence level is improving. So if you could tell us how is the confidence level now that almost two, three quarters have panned out for the new entrant? And if Akzo gets sold to, say, JSW or, say, Pidilite, what will be your thought process? Because essentially, it means a good brand goes into maybe stronger hands, whoever more aggressive policy of expansion in India in that space.
So Abneesh, like we discussed earlier also, that now obviously because of the new competition, many new players have entered, one player aggressive, but there are other players also.
And what we are definitely seeing, as we said earlier, that the market takes time to build brand distribution, and the painters, it takes time. It does not happen immediately. Generally, when the new competition comes in as a competitor, what we want to watch is there a differentiation? Is there some kind of unique thing, innovation? Because that can create disruption in the market. We have not seen that. As of now, it's more related to maybe more spending in the market, whether it's marketing activities or customer-free material on that particular front. And if you look at, if you total it up, I think that amount is pretty large. And despite that, you know, that whatever we think the response, obviously there is a response to the competition. It's not that. To some extent, the redistribution of the market is happening in terms of the market share.
But I think if you see based on the spending spree, which I feel is short-lived, you know, because we have seen that whenever there is some moment of time and, you know, the profitability pressure is started, and when you start withdrawing, you know, the market does not accept. So I think with this kind of approach, whatever sale is there, I think that gives you more confidence that, you know, that market is built based on the brand distribution. And, you know, when I say distribution, the quality of distribution, because just by spending money, if you're getting the distribution and all those things, how much it will work, we have to see because obviously the competition is putting their best effort. And as we said earlier, also they are good names, so I'm sure, and they have good people, so they will continue to work.
But as a, you know, as a company, we feel that yes, there is a decent amount of visibility what we have today. There is an impact of the new competition. I won't say that there's no impact, but it is visible to us. And then based on the initiatives that we have taken, I think our confidence is high that we will be able to mitigate and, you know, navigate these challenges. On your second question, I don't have much comment as of now because at the end of the day, whether the business is in one hand, the other hand, what is more important is that, you know, how, you know, any company when they get into it, how they want to take the business forward, how much aggressive they want to take. Because the current strength of the business is the premium sale, good profitability.
So I think if any company wants to maintain that, then, you know, whether it is in this hand or that hand, the competition remains similar. But if any, there are further changes, I won't be able to comment as of now.
Sure, that's helpful. One last follow-up from my side. Essentially, on the new competition only, I do completely agree that no big disruption in terms of product or the marketing strategy, etc. Only question is in terms of the dealer shelf space, it's very limited. So have you seen that the new player is able to completely remove the second or the third player? I understand removing market leader is out of question, but in any market, I'm not saying only the one brand, the Pan India and thing in one region, one can be bigger than the other.
So, I'm asking the second or third brand, is it getting replaced by the new competition in the dealer shop? And similarly on the painter side, if you could tell us, is there any pushback for the legacy players for you, for example, versus the new players?
So, Abneesh, the distribution, they are getting the distribution. New competition is getting the distribution, but it's more of a numeric reach. So, paint industry works on two fronts. One is the numeric, the weighted. Weighted are the larger ones who probably have more say in the market. As of now, it is more numerics, but that is also helpful in terms of bringing up the visibility. So that is there. But on your second question, where you're saying the number two, number three players are getting replaced, my answer is no.
So as we said earlier also, because I don't think it's a matter of size. What is more important is the agility. A player like us works with the good relations, and as we said, the differentiation what we are trying to create, I think impact on the number two, number three players is lesser. I would say that.
Understood. That's all from me. Thanks a lot. All the best.
Thanks, Abneesh.
Thank you. We have our next question from the line of Aditya Bhartia from Investec India. Please go ahead.
Hi, good morning, sir.
Good morning.
So my first question is on competition itself. Besides some market share gain that, let's say, some of the new entrants may have had, how are they really impacting the business economics?
Are incumbents also being forced to respond to some of the higher rates or incentives that new competition may be giving or higher marketing spends? Is that something that you're seeing?
So what I would say that because the new competition is aggressive on all fronts, whether it is marketing or dealers or painters or demand generation team, they're pretty aggressive. So that way we have a good competitor in the market, let's accept it. But over a period of time, what we have realized, and as we have been saying earlier, building brand takes time. So even if you're going aggressive there, as a company like us, we are number two brand. It is already built. It will take time, and we don't have to react to that. So I think in this situation, maybe we'll have some reaction which is specific to some product and some geographies.
But overall, it's not a reactionary approach. Overall, it's the approach where we would like to strengthen our customer value proposition, and that is what we have been working upon, the initiatives, some of the initiatives what we are talking about. And initially, the competition has spent a lot of money. We don't have to react on that. We are not required to outspend on that particular part. So I think we are going fine. When it comes to the market, there is a realization that, you know, market, even if you give some higher discounts or some higher incentives to the painter, it's not that based on that the market will move away. Some market will move away. So my guess is that maybe if you say 4%, 5%, the market could be going in favor of the new competition. But as of now, that's it.
So even there, it's not a situation where you have to match, and therefore, you know, beyond a point, your margins will get impacted. So I think the quality of distribution over a period of time, what we have created, the brand strength, what we have, the relationship, you know, what we have with the painter is working. And no one can deny that there will be some redistribution of market share for one year or two years, but it will get reset. And to me, it's a sign of the mature and competitive industry where, in fact, the market is big and market has room for growth. And I think in this situation, what is more important is that without overly worrying about market share redistribution, you know, that how do we reposition ourselves is more important.
But I think the clarity is that the market has a room for growth for all players. And what is important is that what you carve out for yourself, how do you reposition for yourself, and that's a positive scenario.
Sure, sir. That's helpful. And on competition in the putty market, sir, just two clarifications. One is that from my understanding, we largely use outsourced manufacturers to kind of manufacture putty. Is that understanding correct? And with the kind of pricing that's going in the market, what do you think would be the prevailing margins? Both at the gross margins and maybe some estimate at the EBITDA margins as well?
Very, very low margins. So it's outsourced, you're right. Our understanding is right. Margins are very low. Maybe I don't know whether they're margins or not margins, but very, very low.
That's why, in fact, in our approach of striking the balance between the market share and sustainable growth and profitability, you know, we appropriately decide, and that's why we said it is negative. As of now, margins are question mark.
But would they at least be positive? If you sell more putty, would it be accretive on an overall basis, or there's a risk that it may lead to losses?
Yeah, there's a risk.
Understood. And sir, just one last thing. On auto refinish segment, if you could give us some indication about what your market shares may be today. And given that, I mean, my understanding is that market shares at this stage may be low, then from that perspective, do you think that a single-digit growth is not good enough and maybe you would have liked to be growing at a faster pace?
Yeah, that is our approach.
But there are also the route what we have taken is through the premium. So we are not getting into the categories, you know, because there are a lot of categories which are low profitable items. So we are not targeting that. So our market share was low single-digit, but the last two, three years, every year we are increasing the market share. Even in this year, we are increasing the market share. But we have chosen our segment. We are not going, if you are asking, we are not going after auto refinish. It's full. We are going after some segment in the auto refinish. And in those segments, we are gaining good market share, double-digit market share. Overall market share is low, but overall market share is also increasing.
Perfect, sir. Thank you so much. Very, very helpful, and wish you all the best.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to take questions from all participants in the conference, please restrict yourself to two questions per participant. Should you have a follow-up question, we request you to rejoin the queue. The next question is from the line of Tejas Shah from Avendus Spark Institutional Equities. Please go ahead.
Hi, Anuj. Thanks for the opportunity. Sir, post-COVID, the residential and commercial real estate picked up, and logically, we expected that to translate into strong demand for paint players by now, but it has not happened. So where is the gap in our understanding here?
Very good question, but I don't know whether I have the answer for that because I can only give some indicators, you know, that maybe post-COVID, maybe there is a preponderance of things have happened.
Maybe people wanted to concentrate more in terms of painting, and they wanted to improve the lifestyle. So there was a pent-up demand, and in that process, maybe there is some kind of advancement which has happened. Second, obviously, in the last one, one and a half years, because obviously the paint industry also has not seen it in the last. Probably this is our first experience we are also experiencing. Otherwise, the paint industry has been able to navigate all kinds of challenges, all kinds of slowdown, and it still continued to grow. This is the first time we have seen that the paint industry demand is impacted. So I think it's directly proportional to the consumption down, which is, you know, which is affecting all discretionary items.
Also, there are a lot of new technology areas where, you know, probably people are relocating the money what they get in their pocket. So to some extent, you know, there is an impact of that. Earlier, the rural was impacted. Now the consumption is a problem in the urban sector also. I hope with some of the good steps the government has taken in the recent budget, you know, both the pillars related to consumption and the CapEx; this will help, and I do foresee that gradually, I do foresee a gradual recovery in the demand. How much it will go, whether it will go back to the earlier stage, we still need to wait and watch, but I see a gradual recovery.
Perfect. Sir, last, not pertaining to the quarter, hypothetically, if you had one or two years more in the role, what unfinished business would you tackle?
What one-line playbook advice you will give to your successor, Mr. Chaudhari?
No, so I think for me, leadership is, you know, about guiding the organization through the change and ensuring that it is stronger than, you know, when you took the charge. So I think the transformative journey what we had gone through and the initiatives, you know, what we have implemented. So we have, you know, from one stage, we have come to the second stage. So one, obviously, is the continuation, you know, that's something which is working. How do we continue? And obviously, with every change, you know, there is always the opportunity to bring something better.
So as a combination of foundation what we have built, and which is definitely indicating today, you know, that the quarter-on-quarter basis of results are improved, and we continue on that and then bring something better which every change is supposed to bring. So I think as a combination of that, I feel confident, you know, that the company will see a brighter future.
Perfect. Thanks, and all the best for the future, sir. Thanks.
Thank you.
Thank you. A reminder to all participants to restrict yourselves to two questions per participant. The next question is from Avi Mehta from Macquarie. Please go ahead.
Yeah, hi, sir. Sir, I just wanted to check with you on how should we look at the, you know, when we had started the quarter, as in towards the end of Q2, you had indicated towards an expectation of margins.
Now, do you see that range of 13 to the lower end of 13% - 14% probably being much better than what you had started, given how the third quarter has been? And the second question that I had was on the Decorative side. So this is the quarter where you've done better than the leader. Is it fair to expect this to continue going forward, or is there anything that one should be aware of which could delay the continuity? Those are the two questions, sir.
So margins, in fact, that has been our endeavor. That is what we have been maintaining, that our endeavor is to maintain the range of 13%- 14%. We stay with that.
Obviously, based on third quarter, you may see it, you can see it better, but let's remain in that particular range because we need to be prepared for any additional step of the competition. So it can be better. If I have to say, it can be better, but we would like to stay in that range of 13%-14%. So that's what. And second, you know, our growth, you know, because it's in the journey. If you remember last two, three years also, we have been talking about it. So yes, every company chased the numbers, but we chased the numbers through some process. And for that, you know, we have clearly spelled out our initiative. And our complete focus was in basically ensuring the effective execution of those initiatives. And today, you know, at least when we talk about those initiatives, the critical marks we have crossed.
And our betterment of the growth has come based on the successful execution of those initiatives. And therefore, it is definitely sustainable. It is not something, you know, that just changing the numbers. So it has come based on those execution of the initiative, and therefore, I definit ely see it sustainable.
No, perfect, sir. And it was a pleasure talking to you, sir. And I look forward to more conversations even later. Thanks a lot, sir, for all our interactions.
Likewise. Thank you.
Thank you. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.
Hi, sir. Since the drivers and the demand situation is very different currently for Decorative versus industrial, could you give us some idea for the quarter? What was your value and volume growth in the Decorative business, please?
Volume growth, paint volume growth is marginally positive, and value growth is degrowth, you know, slight degrowth or low single-digit degrowth, you can say. And in industrial part, it is high single-digit growth, and overall growth is 1.5%. Sorry, in industrial, did you mention the volume or the value growth? Industrial, I'm mentioning the value because generally in industrial, we talk about value. So high single-digit value. In Decorative, it is low single-digit value and negative. Decorative is negative, low single-digit value negative. In terms of volume, paint volume growth is slightly positive. And overall, obviously, because of industrial, our volume growth is decently positive.
Understood, understood.
Secondly, I just wanted to understand, given all the initiatives that you have done over the last two to three years, or even if you want to take a longer period like five years, for example, has it resulted in any kind of change in your geographic sales mix? And if so, can you give some quantification or some idea about the same?
So a little difficult, but let me attempt to answer it. So generally, we are stronger in north and east, and we are so north, east, west, and south. So what we have done is some of the initiative, for example, project business. Now, in some market, weaker market. So we have not gone after the retail. We have gone after the project. So to that extent, today, the weaker markets also started performing on the back of, say, project and this business, right?
So it is not that we pressed all the levers in all the markets. So you know, what is important to know is that yes, we remain strong in the market where we were stronger. And in the other market, through some initiatives, we have started performing better, you know, because there are limited resources, and it is very difficult to apply all the resources across all the markets. So we have chosen some segments. So it's like segment and market approach, geography and segment approach. So it's not that, you know, that approach will give you a very good increase in terms of market share because, for example, if you are taking a project approach in a weaker market, project business could be contributing 15%-20% of that market.
In that business, when we start improving, our market share will go up in the project business, but overall impact, you know, will not be very, very significant. The only thing it will help is that if you are going behind the market, we will start going ahead of the market. So overall mix has not changed, but some of these initiatives have started giving a result in the pockets.
Right, sir, and last question is, if you can give some idea over the last three years or so, what is the increase in the number of distributors and tinting machines, and what do the number of distributors and tinting machines stand as of today?
So we have been targeting double-digit increase in the distribution expansion, which we are plus minus 1%, but even in this year, we are on target, so continuously, we are able to do that.
And our penetration of the machine is closer to 75%. So that's the penetration which we are maintaining.
And would I be right in assuming roughly, ballpark, that number of distributors you have would be somewhere in the region of 35,000-40,000?
Yeah, you are close to that.
Okay, sir. Okay. Thank you very much.
Thank you. We have our next question from the line of Mihir Shah from Nomura. Please go ahead.
Hi, sir. Thank you for taking my question. And congrats on a good set of numbers, sir. So there's a very stark difference in performance this time for you and the market leader in both in sales and margin.
If you can share your thoughts around why there's differences there in sales, is it due to the difference in geographic presence or urban-rural presence, or is it due to your focus on premium more versus, you know, less focus on the economy segment or the putty segment? And maybe a third part is that is there an angle for competition not impacting your regions as much as it is impacting the market leader's regions? I know it'll be a combination of all the three, but maybe, you know, which one is contributing the highest and the lowest? Your thoughts around that would be really appreciated, sir.
Yeah, I think, you know, we were never, never ever, you know, got into that what competition is doing. Obviously, as a company, we keep a track. We respect all the competition.
But as you said earlier, also for us, what was important in this situation is that what is best for us because as a company, we cannot keep following because something which is good for other company may not be good for us. We developed our strategy. We completely focus on that. And, you know, we were never, you know, going here or there. So we were just simply putting efforts in terms of execution of our strategy, whatever we have spelled out. And I'm just happy to share that that is working because some of these steps, if you see, they were new steps. We were not there in the services at all. And today, when we are generating a business, which is coming closer to 5%, it's the new capability what we have developed. And all these initiatives were new initiatives for us.
And when we started, because it is, I will call it a transformative journey because we reimagined the business model where we said we'll go from paint to Paint+, primary to secondary, and product to services. And that is what we have demonstrated, that paint to Paint+. Today, Paint+ is more than 10% of our business. Primary to secondary, we have a large team in the market. And today, we are able to track when we are selling to our dealers and distribution how much we are converting to secondary. And it's an ongoing journey.
And then, product to services, that part of the business started coming from services, which is like what ultimately we are able to generate the business on our own and partner it with our, you know, able dealers and the painters who are a part of our ecosystem. So, I think as of now, I can only say that that strategy what we have adopted, and it takes some time to give it a shape, which I've been talking about all competitors also, that nothing happens overnight, even when we started this journey, because otherwise there was no differentiation in this industry. It's like, you know, that you have product, similar kind of product, go to the market, give discount and sell it. You know, it's a pure sales job. So, I think we have taken a new route, or maybe some companies are doing it.
We were not doing it, but I think even if we are able to take that particular route, which is more qualitative route, and we are able to build those, you know, competencies that today that business we can handle, you know, that when we participate into that business, we also get the business. So that is what is working for us, and that is what is giving. It is not a question of that whether the competition is affecting one geography or other geography. I think competition is equally affecting the geographies, you know, that wherever they're entering as of now, I'm just saying. So I think it is just up, you know, patience, work for us, sticking to our strategy, and continue to work on that without getting disturbed with what is happening in the market.
Got it, sir. No, thank you. That's very clear.
Clearly, it is showing up, and we have always appreciated your strategy into getting into new things. You know, what you called out in your opening remarks, reaching double digits in many of the new segments is a testimony of the strong execution. We are hoping that if you continue the strategy that you embarked on, we continue going forward also. I just wanted to wish you all the very best, and thank you for all your contribution. Wishing you all the best, sir.
Thank you, Mihir. Thanks a lot. Thank you. Before we move on to the next question, a reminder to all participants, you may press star one to ask a question. I repeat, you may press star one to ask questions. The next question is from the line of Mrunmayee Jogalekar from Asit C. Mehta Investment Intermediates Ltd.
Thank you for the opportunity. So my first question actually was with respect to the revenue growth that we expect maybe in the next couple of quarters. So is it possible to, you know, reach high single-digit kind of revenue growth, say, starting from Q1 of FY 2026, considering that the base would catch up and, you know, some improvement on the demand side as well?
So can't really comment upon it because to be very frank with you, when we started last year, we never anticipated that market will degrow, okay? And to some extent, market growth is down, which is impacted by demand, and also to some extent, you know, new competition who would have taken 3%, 4% of the market. So let me accept it that we failed to predict that what is going to be the market demand.
As of now, I can only comment that based on some trends, what we are seeing, some action from the government, what we are seeing, that there is going to be a recovery. Very difficult to comment that whether it is going to be high single-digit. I see a recovery. Maybe, you know, from the negative, it would get into a positive area. But how much positive, difficult to comment. We'll have to wait for one or two more quarters to see that how it is ramping up.
Okay, sir. And secondly, actually, I wanted to ask that, you know, the A&P spends that we have, most of them would be for the Decorative side of business, right?
Yes.
So if I look at our A&P spends as a % of not the overall revenue, but as a % of just the Decorative revenue, it is kind of a higher % compared to, you know, the other players that are there in the industry. So is there any path where, you know, we are maybe reducing that % or something like that we have on card?
So we don't look at the % to sales basis. Basically, what is, you know, optimal, you know, what is optimal to support these strategic initiatives, that is always activity-based initiatives we decide. And obviously, the % is higher, but as our activities are maturing, I think, you know, that we definitely feel that this % over a period of time will come down.
Today's situation is making it difficult because we still have to wait and watch how the competition pans out, what we need to do. But maybe some indication as of now that at least it will not go up. It can be definitely controlled, maybe now or maybe a year from now. But I think this initiative, which has started working, we will continue to invest there. But I think even if this percentage is higher, we see that, you know, it has supported the initiative. So it will not go higher. It may remain in the same range. Or maybe there is a potential to reduce over a period of time. Okay, got it.
And just one last clarification. Are you able to share what is the share of rural in our Decorative business?
It is depending, you know, how the rural is defined, but whatever we have defined, it could be around 35%. Okay, sir. 30%-35%. 30%-35%.
Okay, great. Thank you so much.
Thank you. We have our next question from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah, sir, just two questions from my side. So first of all, now with the new managing director joining, what will be the likely change in the strategy? Because after you had joined, we had seen there were multiple initiatives done towards premiumization as well as expansion of the product book as well as services, as well as expansion of the distribution network. So what are the possibilities? I mean, obviously, that is a real question to the new team. But anyway, what can be the likely changes in the strategy? That is question number one.
And secondly, in terms of the putty business, so putty plus primer plus waterproofing, what is the total revenue contribution? And what is the current profitability of that business also? And lastly, now we will be taking an, in a way, big amortization in Nepal and in Bangladesh, sorry, Bangladesh and Sri Lanka businesses also. So how should we read about the future over the next three years in these two entities? Yeah, yeah, that's it from my side.
You know, in our company, Kansai Nerolac Paints, I think it is always a teamwork. So it is not that my work or this is completely a teamwork. The complete leadership team has worked together, including KPJ, who is our parent company. And the new managing director is Praveen Chaudhari, who is, you know, part of KPJ. So everybody is involved into the strategy. The strategy is well adopted by everyone.
It's teamwork, and the team continues. And, you know, that I'm also there with the company may not be as a managing director, but to ensure that it's more transition, everything is set. To that connection, it's teamwork, and teamwork will continue. The second is on the putty business, putty contribution, maybe higher single-digit contribution to the business. Margin, I've already said that. I don't know the exact margin, but I think the margins are not there even read it like that. For the Sri Lanka-Bangladesh, yes, we have done that, you know, because Sri Lanka-Bangladesh have gone through a very volatile geopolitical situation, and therefore the business has been impacted. As a prudence, you know, that we have taken the impairment.
We hope that now these countries will pick up, the business will be good, and therefore it is positive because we have already taken the note and taken the impairment, conservative prudence we have taken. So it can be only better in the future.
Okay, sure, sir. Understood. Just one clarification. Post 31st March, is it total retirement you are taking, or you will still continue to remain associated in a, at least in a non-executive role or guiding force kind of a role or something like that?
I'm made for Nerolac, so whenever a company requires, I'm available for any kind of advice and ensuring there is a smooth transition. I'm available.
Okay, sure. Sure, sir. Understood. Yeah, and wish you all the best post-retirement life after 31st March.
Thank you, Aniruddha.
Thank you. We have our next question from the line of Ajay Thakur from Anand Rathi Securities. Please go ahead.
Hi, sir. Thanks for taking my question. Sir, I wanted to understand a bit more in terms of the redistribution of the market share which you were pointing out to. What would be currently, you know, the share gain by the new competitor, if you can throw some light? Will it be something in the mid-single-digit kind of a range or higher? And do you believe that, you know, given the consistent, you know, redistribution expansion that they are obviously kind of trying to play out, can it reach to maybe, you know, something like a high single-digit?
So as of now, just a rough estimate. I may not be very strong on the number, but 3%-4% of redistribution would have happened.
If I just talk about the history, if you see last 10-15 years, also two, three players have entered and they've gained 2%-3% each. So last 10-15 years, 10% of redistribution has happened over a period of 10 years. And that's why probably the market has not realized. But this has happened faster, maybe, you know, so 3%-4% redistribution would have happened. Going forward, whether it can be in high single-digit, no comment, you know, because as I said, that good competition has come in the paint industry. And therefore, I definitely give credit to them because in the past, also some companies have come but not been successful. At least now there are good, you know, the companies are doing good work and they're able to do it. But whether it will go to the high single-digit, I have no comment on that.
I can see the intensified competition in the market, but, you know, to me, you may achieve market share, but market share is not the only metric to me. You know, when we talk about the business, market share is one metric, but also what is important is the profitability and the sustainability of the growth. The achieving the market share, it can be achieved. Even the high single-digit can be achieved. But if it is coming, you know, on the back of effect on the profitability, then whether it is really a short-lived or long-lived, it needs to be seen. Higher market share, sustainable market share is the function of quality of distribution, brand equity, and the product differentiation. What we have not seen as of now is the product differentiation. Brand building will take time, and the quality of distribution is yet to be seen.
So that is how I would like to answer this question.
Understood. Quite helpful. Thank you, sir. Second question was more on the volume-value gap. So industry has been seeing the volume-value gap persisting while it has kind of reduced for some of the players, but leaders still kind of, you know, struggling with the volume-value gap. If you can throw some light in terms of, you know, when can we expect the volume-value gap to kind of, you know, diminish or kind of, you know, go off for the industry and for us as well?
So for us, it is significantly reduced. The volume-value gap is significantly reduced. But I won't be able to say whether it will diminish because one is the function of putty. So putty is a good product, but maybe at the wrong price.
So tomorrow, if there is some correction in the price and the putty growth goes up, then volume-value growth could remain. Also, like there are a lot of products which are getting introduced in the construction chemicals, which are also lower ASP products. And then there are efforts by the industry to, you know, pick up the sale on the lower-end emulsions. So I think the volume-value gap would remain, but the gap is reduced, but it will remain in a healthy manner. So today, maybe the volume-value gap is reducing because of putty, and putty, obviously, one needs to see that the pricing should get corrected. But in the future, if there is a gap, some gap, which I still feel volume will be ahead of value, it will be a healthy gap. It will not affect the margins of the company.
Understood. Quite helpful.
Thanks, sir, for all the, you know, the interaction that we had over the past few years. It's been a pleasure kind of interacting with you, and all the best for your future. Thank you.
Thank you.
Thank you. A reminder to all participants, you may press star and one to ask a question. If you wish to ask a question, you may press star and one. The next question is from the line of Sheela from MS. Please go ahead.
Yeah. Thanks for taking my question. Sir, my question was more on the medium, you know, as we sit today, and I know the demand environment is not as we would like it to be. But, you know, when we think about the next three to five years, what in your view would be the industry growth rate for the Decorative paints business?
I know in the long run, we have always said that this is certainly of the GDP growth rate. But, you know, today, how do you envisage that? An earlier participant had asked the question around the real estate demand and how it's not getting respected in the paint sector, so taking everything into consideration, how do you think the trend would be?
My take is the trend will be positive. I foresee a higher single-digit growth for the industry over a period of five years, and there is a simple calculation for that. The penetration of the paint is lower. With the new competition coming in, many more good players coming in, and they are, you know, getting into marketing, creating awareness of the product, the penetration will definitely increase, so that will definitely help.
Also, the upgradation will happen, you know, on the back of the communication going up because even in this year, if you see the share of voice of the paint industry, if you look at the entire media, if you look at all companies put together, has gone up. Therefore, I definitely see more formalization will happen in the paint industry. Penetration is low, more formalization, and more awareness. These are clear-cut indicators that, you know, this is just a short-term impact on the demand. If you're talking about next five years, high single-digit is something what I envisage.
Just slightly below the nominal GDP growth rate. Is that the right way to look at it?
Generally, difficult to say. That's like a positive scenario.
I'm just saying that if you look at the last 30, 45 years, then it can be closer to the GDP growth also. But based on the current situation, I'm saying higher single-digit is something what I feel it can be better.
Understood. So my second and final question is, you know, the point you made about how, you know, the painters have become important influencers for us over the last two quarters. Just from your lens perspective, you know, in the previous question, also you said how, you know, quality of distribution, brand equity, everything matters. But from an influencing standpoint, you know, how do you place the various stakeholders to drive, you know, growth? You know, when we talk about dealers, we talk about painters, we talk about, you know, the interior decorators and others.
So, you know, how do you place each of these stakeholders from an influencing standpoint to drive consumption or drive demand?
So we, you know, actually all are equally respected and all play a role, and they are a very important part of the ecosystem, you know, because everyone, maybe somewhere the role is lesser or higher. But, you know, this is a chain. So you can't handle one and then leave the other, and then the chain is broken. So everybody is to be taken care of. But having said that, obviously for any company to increase the business, demand is definitely more important. And demand comes from two parts. One is the consumer demand, which is a function of advertising and marketing. And the second is the painter because there is a large influence which, you know, painters can also make.
Therefore, building up the relationship with the painter and therefore, in return, getting their recommendation for your brand is very important. So what we have been working upon is the demand factor because this brand equity is high, and we are, you know, in terms of the mind share, we are number two. So we have been putting more emphasis in creating the demand through the influencers. Influencers include painter, contractor, and architect.
Understood. Thank you very much, sir, and best of luck for the future.
And it also helps in terms of, you know, because our customers are our partners, our dealers are our partners. So when we do that, we are able to give them more positive contribution to the business. In the process, we are keeping our customers happy, and that's what works.
Understood. Thank you very much, sir, and best of luck for the future.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today, and I now hand the conference over to the management for closing comments. Over to you, sir.
Thank you, everyone, for asking questions. Your questions are always insightful for us, and it always gives us some good insight, you know, that what you feel, what you want to have. I understand that you want to have more visibility, more predictability, and I have tried, you know, from my side, to give you, you know, some transparency and, you know, that you're able to read that how we are working, and that's what, you know, we have been talking in the other forums also, and today also, you know, we tried to highlight related to the progress on those initiatives.
So I had two three good years, transformative years, I would say, and the time has come for me to retire from the services. Praveen Chaudhari will take over from 1st of April. He knows the company well. That is what I was, you know, trying to tell you. And the leadership team is fully, you know, equipped. Strategy is clear, and the foundation what we have built is strong enough to sustain and accelerate growth despite market challenges. What we have demonstrated and what we are doing is the quality over quantity has been our approach that will continue. I am grateful to the trust you have placed in me, and I go with full confidence that the company is poised for a better future. Thanks for support and trust. Let's move forward. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference.
Thank you for joining us, and you may now disconnect your lines.