Good evening, and a very warm welcome to one and all to Asian Paints Investor Conference Call for Q3 FY 2022 results. Today on the call, we have Mr. Amit Syngle, MD and CEO. Mr. R.J. Jeyamurugan, CFO and Company Secretary. Mr. Parag Rane, GM Finance. May I now request Mr. Amit Syngle to take you all through the presentation. Mr. Amit Syngle, over to you.
Good evening, all, and welcome to the, you know, the investor conference for the Q3 of the financial year 2022. Just to reiterate that as a brand, you know, Asian Paints is there for delivering joy since 1942. As a brand, we exist to beautify, preserve, transform all spaces and objects, bringing happiness to the world. You can see that, practically any surface, any space in terms of what is there is something which is transformed by the brand into a place of happiness. When we look at the Q3 , you know, I'm happy to report that, we've got a very, very strong double-digits top-line trajectory which is there, which is now continuing for the last 5 quarters in a very, very strong way.
If you look at from the point of view of overall volume growth, that is the blue bar which you see is about at an 18% growth over the previous, comparable quarter. If you look at value growth, it is at about 27%. What we've also highlighted is the fact that, the CAGRs, I think it is very important because what you've seen is that the last two- years have been a little bit abnormal in various, parts of the year to that extent. Therefore, we have looked at, you know, the CAGR over two- years and three- years, which you can both see that both on the volume front as well as on the value front, it is very, very strong and healthy.
Which is just indicating that the trajectory which the business has been taking over the last 2-3 years has been very, very strong, and this is despite the fact that we have seen that the environment has been a little bit uncertain because of the COVID, which has been prevailing over the last two- years. When we see the 9-month kind of numbers, I think the numbers are even far more healthier because we've seen a very strong Q1 and Q2 with respect to the top- lines as well. We see very clearly that from an overall volume point of view, we are at about a 40% kind of a growth on a 9-month level and a value of about 43% as compared to Q3 of last year to that extent.
Therefore, I think these numbers are pretty strong by itself in terms of what has been indicated. Overall, as I said, the two- year and the three- year CAGR numbers are looking very strong in terms of the double- digits at 20.2% and 18.8% in terms of the two- year and the three- year for volume. For value as well, if you see the three- year, you know, CAGR is at about 15%. Overall, the numbers seem to be very good from the point of view of top- line.
I must indicate that this is something which has been the focus of the organization, and we are committed to the fact that we would like to kind of really be aggressive in terms of top-line growth as we kind of really look at growing and that also looking at profitable growths. Coming on to just to kind of show you the trajectory. As I said, that the trajectory has been very, very strong over the last five quarters also, if you look at it. Overall, if you see the numbers within the blue bars, which is at very strong numbers, 32%, 47%, 105%, 34%, and 18%. You can see the trajectory which is there over the previous quarters.
More importantly, if you see the three-year CAGR, I think that is something also which is just kind of revalidating the whole scenario of the fact that we have looked at consistently growing at very, very strong double-digits growths which are there. We can say that these growths are definitely much higher than the market in terms of what we have been able to see over the previous years and over the previous quarters to that extent. I think that really tells the story about the overall top- line in terms of the way it has been kind of growing. Key updates from the point of view of business.
We feel that when we look at the numbers which have come in for Q2 , you know, we have gained a clear 2.7% market share gain, which is there to that extent amongst the organized players, to that extent. We feel that if you look at the volume market share gain, it would be even higher than 2.7% in terms of what we see. We've also possibly gained some share from the unorganized sector over this in Q2 when we see it overall.
I think very strong share gains, if you look at the first half of the year, where the numbers are available in terms of the published numbers. Secondly, if I look at, in terms of what's really happening across various geographies, we have seen that Q3 , especially if you take the metro Tier 1 and Tier 2 centers, they have been kind of growing at a much higher rate as compared to the Tier 3, Tier 4 cities. Which is indicative of the fact that, when we didn't have a COVID kind of a scenario and the markets were relatively open, we've seen higher growth coming from these centers in a very strong way. I must say that even Tier 3, Tier 4 markets have grown at a good growth rate to that extent.
It's a notch lower possibly than Tier, you know, Tier 1, Tier 2, but they still have gone at a very healthy growth rates. Our overall focus has been in terms of the premium and the luxury space, and in which we have grown in a very, very strong manner in Q3 . It is also coming from the fact that the metro Tier 1, Tier 2 centers have grown much better and therefore the premium and the luxury space has really gone in a very, very big way to that extent. We've also had a good launch of some of our newer products coming in this space, both at a premium and a luxury, and they seem to be doing extremely well in terms of how we have pitched those products going in.
Projects was another very strong highlight. It really grew, you know, in a manner which is quite strong. We looked at that it kind of really indicated the fact that the real estate, the infra market was doing extremely well. We've grown across segments of builders, government, housing societies and so on so forth. A lot of good traction because of the waterproofing and the other admixtures and other products which we have at the construction stage, which is going on, which is giving a very big traction to our overall growths in this thing. I would even say that the projects business has outgrown the retail business in terms of the focus we've got in Q3 .
Overall, waterproofing is one story which has continued for the last seven- years in a very strong manner. We have been consistent in terms of registering growths. Even Q3 was very, very strong. More than 50% growth coming in strongly here. This has been the feature both at retail and projects, when we look at the overall business in India, and then this is something which is really propelling the growth in a very strong way. The other category, which is a strong category for us and largely in the premium and the luxury space is of wood finishes.
This is a market which is dominated by specialized products and technology-led products to that extent, and that is something which we have been driving very strongly, and we can say that amongst the entire organized sector, we are way ahead in terms of looking at wood finishes to that extent. That is something which has been a very strong focus in terms of driving it to the premium end and also looking at some of the urban markets in a very strong way. That's the story in terms of some of the key highlights which I wanted to detail. We have done very strong work with respect to wallpapers, and there's a launch which we have done this year of Sabyasachi.
I wanted to just say that, this is done extremely well and it is doing quite good at the metro Tier 1, Tier 2 cities level in terms of how we see. We've also done an alliance with GM Syntex, which has a brand called Pure. In this we have been able to sell, as part of our décor story, a very, very strong range of fabric and furnishings, across the country. We have now more than 600 retailers who are selling this entire fabric range. As part of our décor initiative, we have been able to sell this in a very strong manner. This is also forming a part of our high-end Beautiful Homes stores which are there. This is an imperative which is gaining now very, very strong momentum in terms of going forward.
Some of the new products which have kind of come in, where we have seen a very strong impetus is the Royale Glitz, which I spoke of in the luxury space, which has come in terms of, if I look at from the point of view of SmartCare. Flooring zones, we have Epoxy ApcoFloor, which we have launched. In wood we have the Ingenio and the Aquadur, which has come in to that extent. In the premium space, we have the Apcolite All Protek, which we have got a patent for. In the adhesive space, we have launched Trugrip Suprema.
One of the great products which we have launched now, which is gaining very good momentum, is the Apex Ultima Allura, which is basically exterior textures which no other company is offering in India in this way. Just a glimpse into it, 200 texture finishes and some really mesmerizing finishes in terms of what we have launched. It goes both for interior and exterior to that extent, and we think this is a winner of a thing which is kind of getting a very strong response from the market in a big way. Other things in terms of the update, we have been really focusing in a very strong manner at the network expansion, and this is something which has been going in a big way over several years now.
I think we have made a very strong progress in the last quarter and the overall year to that extent. We have added 45,000 new retail points, you know, almost over the last 7 quarters to that extent. Our entire Colour World expansion into newer towns, suburbs, smart cities have been very, very strong. We have a retailing, you know, setup called the Colour Ideas, where we make the customer experience, decor and look at in terms of a guided journey into, surface decor. Therefore, we have about 28 new Colour Ideas which we have opened, and the total numbers have really gone above 450 shops across the country. We have now about 29 Beautiful Homes stores, which are functional.
We have spoken about these stores earlier and given you a glimpse in terms of this is a store which has got decor under one roof. This is all part of our whole home decor strategy, which you see. As we have said earlier, a very, very big focus which we have maintained is our transition from a share of surface within a home to a share of space. We are not only about the four walls, we are now between the four walls, also in the home. We think it is a very, very strong strategy, which basically is also giving us a leverage on the core coating space in a very big way.
How we see this is that because it is the same customer, so in the customer life cycle, today we are looking at the coatings customer going to a décor space and a décor customer coming to a coating space. Therefore, the interplay between these two strategies is very, very strong. Therefore, we think it is a very strong strategy in terms of getting into the whole business of home décor in a very big way because it is complementing our existing business going forward in a very big way. As part of this, as you see, we have got these Beautiful Homes stores, which we call as the one-stop décor shops in which we are looking at everything which goes into the home right from kitchen, bath, furnishing, lighting, furniture, fabrics and everything.
As I said that, what I showed you, the entire fabric and furnishing business is something which is doing very well as part of the decor. We have also looked at the whole range of Nilaya and Royale Play in terms of going forward. I think this is something which has done extremely well for us. The whole decor strategy is something which is strong. As we see in future, this home decor strategy overall should be kind of looking at contributing to 8%-10% of the overall business. We are very serious about this business going forward, and you will see a lot of action happening in the home decor space as we look at our future going ahead. Coming on to the other big differentiator which we have today.
We have today a very strong services kind of a setup which is there. I would kind of say that globally, in the industry, which is of the coatings industry, there is no other company who has such a big service footprint as we have today, what we have created. We have a service which is what we call as the Safe Painting Service, which is now spread across a huge number of towns in India, and it is a significant part of our entire strategy in terms of how we look at. We also have basically Beautiful Homes Service, which is there, which is about the whole home decor. I think in addition, we also have a service called the Sanisure, which is about health and hygiene in terms of homes.
If you look at the entire services framework, as we kind of go from a point of view of a GMV, we can say that as we kind of keep on going, this will start contributing to almost about 7%-8% of all our turnover. This is a very big one. We think that today, there is no other one in the industry who can really compete with us with respect to looking at giving this kind of a service, this kind of an experience, and this kind of a differential in terms of the overall business going forward. If you look at the whole area, the inflationary trend has really impacted. If you have seen Q2, you know, when we saw Q2, I think we saw a big impact in terms of what it has done.
Obviously, we took a lot of price increase corrections which were done in the month of November and December, where we took almost something like a 15% kind of a price increase, which was phenomenal to that extent. But at the same time, even this price increase happening, we've been maintaining a very strong volume growth and a value growth which has happened. Still, if you look at it in Q3 , while the overall margins, the gross margins have improved sequentially, if you see from Q2 , from 35.7% to 37.5%. I think the true potential in terms of this price increases what we have taken would come in Q4. Therefore, Q4, obviously, the margins will become very, very healthy.
I would only like to point out that some of the gross margins which we have seen in the early quarter one and so on and so forth are something which were on the basis in terms of what we saw the year in terms of where the inflationary trend was not there, and therefore, the gross margins were very high at that point of time. The inflation has overall gradually taken a shot in terms of this margins coming down. We are hopeful now that Q4 we should see even a healthier kind of overall gross margin even over Q3 as we kind of go forward.
I think one of the big things in terms of where there were a lot of queries in terms of saying that are we really pursuing profitable growth in a very strong manner? I think the price increases which have been taken have been able to mitigate the effect of the inflation in a very strong manner. We see very clearly that sequentially, if you see, we have been able to move from a 14.2% PBDIT margin to about a 19.6%, which is, I think, a very, very strong jump, which is there to that extent.
I think this is something which is clearly reflective of our overall intention and promise, saying that we are looking at a certain band of PBDIT in terms of going forward, and we will continue to kind of pursue profitable growth in terms of going. At the same time, we will be aggressive in terms of our top-line strategy going forward to that extent. Coming to key business updates. First of all, global. The international business has been affected a lot in quarter three as well. We have seen a lot of disruptions. One earlier because of COVID happening all across to that extent. I think what we've seen is that some of the markets like Africa has been affected very well, both Egypt and Ethiopia.
Ethiopia, there's a strife which is going on, and Egypt was also hurt in a very strong manner. In addition, we had Forex problems happening in Lanka and so on and so forth. I think it was quite a mixed bag in terms of what we see. Still, what we see is that we have been kind of able to kind of grow the overall revenue which is there. However, I think Africa was something which was definitely down in terms of what you can see right on the screen. However, I think the larger impact came with respect to the overall inflation really kind of telling on the profits. We had taken certain price increases across various regions, but obviously they were not very in.
You know, the inflation numbers were far higher, and we tried to maximize it so that we are not affecting the consumer in a very, very strong way. Overall, the margins, if you see the profitability has been affected in largely all the regions, apart from, you know, South Pacific. The larger impact obviously has been in terms of, if you see, Africa, Middle East and Asia as well to that extent. I think what we are confident is that overall the revenue has been something which is very strong. If you see on a nine-monthly level, we are still growing at about overall percentage of good growth across regions to that extent, apart from Africa. Overall, we think that top- lines we will be able to grow.
I think as we go forward, having taken the price increases, I think the situation going forward would be much better as far as profits is concerned. We look at the industrial business. The two joint ventures we have, the PPG AP. Now here again, there were obviously challenges, especially in the automotive sector, where we all know that there was a negative build which was happening. There was a chip shortage which was there, and the entire automotive industry has been affected. Overall, when we see in terms of revenues, we have still kind of done fairly well in terms of if you look at Q3 , which we have grown by about 38%.
Obviously, there was a bit of a depressed base last year in terms of what we looked at here. In the other business, if you look at the AP PPG business, which is the general industrial business, it has been very, very strong. The growths have been to the tune of about almost 64%, what you can see on a 9-month level and on a Q3 level, about 33%. Overall, if you see that, the general industrial business has done much better. The automotive business, which is coming under the JV one, you know, in Q3 grew at only about 5% compared to the 9-month number, which you can see there. Again, like other businesses, I think inflation impacted, you know, the profitability here.
If you see both on quarters, both the businesses were down with respect to the profits in terms of what we see. Although at a nine-month level, we still see that PPG AP is at about 1% and the other general industrial business is at a good growth of about 14%. That's the net upshot with respect to the industrial business as we go. Coming next to our entire business, which is about home decor, which is what we call the kitchen and the bath business. Both businesses have done exceedingly well. Today both businesses have been able to cross the INR 100 crores mark in a quarter to that extent. Kitchen crossed it last quarter as well and this quarter as well.
Bath crossed it for the first time in this quarter. I think overall the top- line has been very, very strong. As you can see, kitchen grew in Q3 at about 37% and bath grew by about 42%. The nine-month growths have been also very strong from the point of view of top- line. You can see 67% and 63%. The heartening part here is that we've got now, I think, the business is ticking well from the point of view of achieving not only breakeven, but starting to deliver, you know, some profits as well. Kitchen was at breakeven in terms of the overall PBT at the Q3 level. When we look at Q3 in bath business, we have actually got a profit there in terms of which we have delivered, which is very strong.
I think that it is a very good indication that both the businesses now are on a good footing, growing the top- line and even now the bottom line is something which has started to do well. In summary, when we look at the entire standalone financials to that extent, the story is very clear that, there is a clear double-digits revenue growth which is, happening, which, is 28% by value in terms of coming, we spoke about 18% by volume, to that extent. Overall, if you look at, the contributions have improved to that extent. However, at a Q3 level, if we see the PBDIT is, about down by 11% and PAT is down by about 14% to that extent.
On a nine-monthly kind of a scenario, we see that the revenue growth is very, very healthy at about a 43% growth. Gross contribution has also grown. The PBDIT figure is about 1% negative, and PAT is just about, you know, at about 0.1% profits to that extent. Overall, what we see is that the impact of the inflation has been taken care of by the price increases in Q3 to some extent, which is there. Obviously the full impact will come in Q4 .
I think the story has been very clear that given the fact that we've improved the PBDIT as well, we have been still very, very strong with respect to growing the top-line numbers in a strong manner in Q3 , as far as the standalone results are concerned. If you look at the consolidated numbers, again, the revenue here, overall is at a 26% in Q3 . The gross contribution is just about up by about 2% overall to that extent. The PBDIT is about 14% negative, and the PAT is negative by about 18%.
We can see the effect of some of the other businesses like global and all telling in terms of, you know, putting the profits a little bit down as compared the, to the standalone business in terms of what we see. At the nine-month level, again, the revenue's top- line very strong at 41% to that extent. Overall margins have still grown. PBDIT is about 5%, and PAT is another 5% down to that extent. Overall, that's the story in terms of what we see. Obviously, I think the standalone business has done much better as compared to some of the global business to that extent, and that is something which is the story the consolidated numbers are saying.
Overall, on a nine-monthly level also, the top-line numbers are very, very strong, and we are hopeful that as we kind of go forward, the profitability numbers will also improve. Finally, I think it is a question which all of you have in mind in terms of what we are looking forward to. Obviously, I think with the third wave coming very strongly and the Omicron being there and so on and so forth, there are all kind of consumer sentiments which have got dented to that extent. There are also state-level restrictions which are kind of coming, which has kind of really had an impact in terms of some of the demand conditions, definitely there.
What we obviously see is that the current situation might continue for some time, but I think, overall, what we have seen in the past also, that it is only that we see a deferment of the demand which kind of takes place. The demand doesn't go off to that extent. Therefore, what we see is that possibly as we kind of enter February and then the month of March, I think those are going to be very, very strong because there'll be a pent-up demand to kind of support.
Also what we see is that, as I said, the real estate and the infra market is up to that extent, so even projects is something which is supposed to kind of do well as we kind of enter these kind of months in Q4 , as we go forward. Overall, from a point of view of raw materials, we believe that the inflationary trend will continue further, although the kind of rate of increase which is there would be moderate in Q4 to that extent. We've just seen that the crude prices have gone up and so on and so forth.
I think the inflationary trend will continue to be there for some time, and we will look at in terms of how do we really tackle it in terms of going forward, whether more price increases needed or what we need to kind of do. We will basically evaluate as we kind of go forward in Q4 . Overall, you know, in the international footprint, as I said, we are looking at really seeing that if we can take some more increases which are there, looking at, you know, seeing that how some of these markets really have kind of evolved. Because the export market has been disturbed, and we are expecting that some of these things will ease out.
The forex conditions will improve to that extent in certain markets like Egypt and Lanka. Overall, I think our estimate is that Q4 should be definitely better than Q3 in terms of going forward. That's the overall outlook in terms of looking at it. Thank you so much for listening. Thank you.
Thank you, sir. We will begin with the Q&A session now. Today, we have participants joining on Zoom video platform and also via teleconferencing platform. Requesting all participants joined via Zoom video platform, please use the Raise Hand feature to ask a question to the panelist. Kindly unmute when given a chance to ask the question. Please say your name and company name before asking your questions. Please also restrict your questions to two questions only. Participants connecting via Zoom video platform can post their question on the chat box too, and we will ask on your behalf. Participants joined through toll free numbers, please press star one to ask questions to the panelist. Please say your name and company name before asking your question. Now, we have the first question from the teleconferencing platform itself, and that is Mr. Abneesh Roy.
Sir, please state your name and company name and ask your question.
Yeah. Thanks.
This is Abneesh Roy from Edelweiss. Congrats on extremely strong volume growth and good margin recovery. My first question is on volume growth. Consumer behavior post-Diwali, did you see a preponement of demand? Because your price hikes which are coming say in December and maybe even November because it happens a bit gradually. That was quite well-known in the media. Consumer also would have picked up feelers and painters effectively would have picked up. Did you get some benefit of that? Second is, when you see mix between consumer and FMCG, we are seeing rural slowdown very prominently. We have seen very high inflation in diesel prices, fertilizer prices, et cetera. Plus, we have seen a very sharp COVID wave too in the smaller towns.
Would there be some lag effect on paint? Currently, headline numbers are not suggesting that. Would you see the rural growth at some stage getting at a lower level?
Okay. overall, see, what we feel is that, you know, the festive season this time was very, very strong and we felt that the consumer demand which came in was very positive at that point of time. Overall, when we look at October in the entire quarter was at the maximum volume growth to that extent. Therefore, October was a very healthy month and so was November to that extent. In fact, we feel that the overall volume growth would have been higher if in the second fortnight we would not have been hit by the third wave of COVID kind of starting to that extent.
What we feel is that largely to some extent since you know we have seen that you know it was an early Diwali to that extent. That is why also we saw that a larger demand came in October in a very very strong way, which basically kind of helped us in terms of achieving the overall volume growth which we are speaking of to that extent. The second thing which is there is that we have seen that you know the effect of COVID very very strongly in Q2 .
What we had seen was that it was the T3, T4 cities which were performing extremely well, and they had given a very high growth number overall to that extent because there was still little bit of a impact in terms of what was happening of the COVID in terms of T1, T2 and the metro and the larger cities to that extent. In Q3 , we saw the reverse since the environment was much more open to that extent. The spending in the metro T1, T2 has really exceeded the kind of demand which was coming from the T3, T4 cities to that extent. We feel that we did not see that the T3, T4 cities were way off the demand to that extent.
The demand was still pretty healthy, a notch lower than T1, T2 to that extent. We still feel that the story as maybe the other companies in the industries are feeling. For us, I think the T3, T4 has been very, very strong, and we have looked at a large part of network opening, looking at getting into upgradation products and a lot of work which we have done to kind of spruce up the demand in terms of the T3, T4 cities to that extent. Overall, what we see is that the story of T3, T4 cities should be quite relevant. The overall rainfall has been pretty okay to that extent, and I think there is still a strong story which is there as far as the T3, T4 cities are concerned.
Sir, Amit Khan. One small follow-up there. In the international markets, your price hike in paints would have been how much? Will the 18% price hike that you've taken in India be the highest which any paints business has seen in any other part of the world?
I couldn't get the second part of your question.
18% price hike, is it the highest in the world though?
Oh, okay. In the international market, the inflation has been upwards of about close to 28-29%. What we have been able to take overall increases is in the zone of about 15-18% in various markets to that extent. We have not been taken increases as we have done in the Indian market, which has grown to almost something like about 22-23% in terms of the overall increases which is there. I would say that, yes, this kind of price inflation which we have taken, I think it is for the first time in the history of Asian Paints we would have taken this kind of increases to that extent. It would be definitely something which has been one of the stronger price increases we have taken in the past.
My second and last question is on waterproofing. What kind of price hikes have you taken there? When you compare Sika and CICO, because they have their in that business since 34- years. How to compare Protan versus SikaLife, currently? Longer term, would you look to dominate there, at number one the way you dominate, paints?
Actually, what we see is that overall, waterproofing, I think the pricing has been comparable to what we have taken the increases across all other products. There is nothing which is special about waterproofing to that extent. It's in the same league as what we have taken for emulsions and other products to that extent. Going forward, see, waterproofing is an integral part of our strategy, and we feel that it comes as a natural thing from a consumer's point of view because the consumer earlier used to really blame the top coat because of the fact that he sees any problem there. Therefore, we saw that waterproofing was a very big potential in terms of putting in place.
Overall, as we see it, we have been growing, as I said, at a very, very strong rate over the last seven- years. We see that the overall potential in terms of the overall waterproofing market is extremely high. Therefore, we really do not compare in terms of, you know, how are we doing with respect to some of the other players in the market. What we know very clearly is that with the kind of range which we have, the kind of products which we have, and the kind of resources which we have put behind, I think, we are growing much faster than the market than any other player, Indian or multinational.
Sure. That's very helpful. That's all from my end.
Thank you, sir. Requesting everybody to keep your questions to two questions only in the interest of time. Our next question is from Mr. Avi Mehta, who has joined us on Zoom. Sir, please unmute yourself, state your name and company name and ask your question.
Hi sir. This is Avi here from Macquarie. I just had two questions. Barring the short-term impact of this wave, would it be fair to expect that the sharp price increases taken would result in volume declining? Because Q3 possibly didn't see the full impact of that 15% price hike.
I don't think so that would happen because you know, we have seen an increase of almost about a 10% increase, which we did it in November, and we still saw very healthy growths, which we were able to achieve in November. If I look at the second price increase, which we'd implemented, even the first fortnight of December was very, very good from the point of view of overall demand to that extent. It is only that in the second fortnight we got hit with the third wave coming in. As I see it, you know, the elasticity of you know, paint from the point of view of pricing is pretty good.
The only to some extent where it kind of starts making an impact is at the economy end to that extent, where it can start hurting you a little to that extent going forward. However, we must remember that when you look at there is a cost of painting, 60%-70% cost is of labor, and the material cost is only about 30%-40% to that extent. Therefore, even if there is a large increase, the effect gets nullified from the point of view of an overall increase, which you see in terms of prices to that extent, when it translates into a per sq ft price on a certain surface.
What we see going forward that, largely, I don't think so that we could kind of get impacted, especially the luxury premium space would be very strong to kind of happen. There could be a little bit of an impact at the economy end, but by and large, I think the volume growth should be healthy.
Okay. Perfect, sir. Now the second question I just wanted to kind of check on the price increases. What kind of crude price inflation is built into the price hikes taken till date? Would it be fair to say crude price till $80-$85, because that's what the level was, are already passed on, but further inflation would necessitate more price hikes?
See, it is not directly correlated with just the crude prices because a lot of products which are raw materials which go into paint are derivatives which are there. It's not a direct correlation that if the crude price goes up by $2, then there will be a correlation in terms of the price hike we need to kind of take overall. I think overall, we had taken a median in terms of about $80-$82 kind of a range in terms of the crude prices going forward. We think that you know, you know, it would really depend on certain crude derivatives in terms of how the price would translate in terms of those zones.
As we see right now, the inflationary percentages might not be very, very high as we kind of look at Q4 to that extent. We'll have to kind of wait and watch. Obviously, I think the inflation goes very, very high. We will have to take a call in terms of what to kind of do, but there is no direct correlation which you can put to crude prices in terms of that and what increases we need to kind of take.
Perfect, sir. Very clear. We should thank you and wish you luck for the future.
Thank you.
Thank you, sir. Our next question is from Mr. Manoj Menon, who has joined us on Zoom. Sir, please unmute your mic, state your name and company name and ask your question.
Hello, Amit, Mr. Jeyamurugan, and Parag. This is Manoj Menon from ICICI Securities, which is ICICI. Now, you know, the first thing I just wanted to understand, you know, if it is possible for you to help us, you know, in the overall volume revenue growth, you know, which Asian Paints, you know, disclose every quarter, would you be able to help us understand what is actually paints and what is the, let's say, the non-paints contribution, let's say, over the last three, five years, et cetera?
Let's say for example, the reason I'm asking because, you know, when I compare, and as an analyst, Asian Paints' performance with the other paint companies, it does appear that, Asian has done a far, far better, you know, execution or other strategization execution when it comes to non-paints portfolio. It'll be very helpful, you know, if you could quantify, let's say, what is the non-paint contribution to your overall portfolio today.
Overall, if you look at from a point of view of non-paints kind of a sale, today we account for everything which is happening in terms of whether it is waterproofing, putty or whatever, that's part of the paint sales as well to that extent. It's only the, you know, the area which is the kitchen, the bath business and the other areas of home decor, which we see are basically part of the non-paints which kind of really qualify under that category to that extent. That part is not a very, very big part of the overall business. You've just seen that I spoke of kitchen and bath business crossing about INR 100 crore in each of the quarters to that extent, which is there.
The fact that today there are other home decor areas like furniture, furnishing, fabrics in terms of what we deal with. If you look at from a point of view of an overall percentage to the overall coatings business, the non-paint would not form a very major part of it. The larger performance you can take it is largely on the paint performance what you see.
Amit, I truly appreciate that, you know, comment, but maybe I'm happy to kind of connect one-on-one on this. Is it even actually fair to call a waterproofing as part of paints actually? Because, you know, paints is supposed to be delivering a different functionality, let's say versus a waterproofing where the consumer understanding that it is meant for the roof, but whereas let's say for, you know, waterproofing, which is meant for the wall is like obviously, you know, should classify in a different, you know, classification. Now, what I'm trying to understand is that I think you have done a very good job in terms of, but it appears that you're very reluctant to acknowledge the good work which you have done actually, in terms of the non-paints diversification.
No, no. We will take the credit of doing good work all across, and not look at only one category in terms of doing good work there. Principally, I disagree with you because, see, if you look at that's what I emphasize the point that waterproofing is an integral part of painting. You know, just like you put a primer and a putty today, waterproofing is put to kind of take care of any seepage which happens on the wall or any damp walls which are there to that extent. I think the way we are pitching to all our retailers, to painters, to contractors, is the fact that today you can't see waterproofing separate to painting to that extent. That I think has been the largest story which we have been taking.
Unless your waterproofing is going on a very, very specific specialized purpose of saying you're looking at a swimming pool where you are looking and applying waterproofing there to that extent for a special delivery to that extent. In our business, the larger zone which we are looking at is that how it is integrated with paint going forward. As I said, that is why we don't want to really compare, you know, with any other company in terms of what is used there, because they might be talking of waterproofing as a totally separate business in terms of how they see it. In our business, it is very well integrated into the mainstream line.
Understood. That I think probably the achievement which, you know, paint companies like you and some of your peers would have managed in the last 2-3 years. I get that. Sir, the second question here is, you know, when I take a step back and think about the assumption 15-18 months back and versus let's say what realistically transpired and actually happened in the market. You know that, you know, when I go back to April, May, June of 2020, the assumption or the expectation was that, you know, oh no, you know, paint, you... I mean, consumers are very worried and kind of you wouldn't really want painters to come into your home and because you're worried about COVID, etc.
Versus the reality was that, you know, it appears that, you know, yours is one of those industries where it actually got benefited, you know, from, let's say, whether it is the consumer thought, you know, consumer is spending more time at home. It kind of completely turned on its head from versus expectations. Second aspect here is also that, you know, possibly rental or people moved to, you know, villages and kind of, you know, let's say you had more rental apartments available in urban areas and vice versa, et cetera. Just trying to understand that in your opinion, just for a minute, you leave the hat of the CEO and just let's say, put the hat of a marketing manager.
In your scientific observation, what you have seen in the last 18 months, is there any significant noise in the last 18 months of performance at an industry level, including you as a market leader?
No. As I see it, overall, you know, as I said earlier that, there are two larger components of painting. One is the repainting segment, which is there. The other is the new construction segment, which is there to that extent. What we saw very clearly in the year one was that the repainting, which is there, only got deferred when there was COVID to that extent, and therefore we always kept on referring to a pent-up demand which kept on happening whenever the market really opened for us to that extent. The repainting market in a nutshell never got affected to that extent. It only got deferred to another quarter or to another two quarters to that extent in terms of what is there.
The fresh construction is where it got impacted far more strongly for the industry as a whole, because it is not very easy that if you have started a construction of a building that you can stop and kind of start it very easily because there is labor, there is other infrastructure which kind of comes into place to that extent. What I see in year one, which is the last year, you know, the construction business got affected in a very big way, and that is why some of the projects areas got affected in a very, very strong manner to that extent, which is there. Coming into this year, we have seen impetus in terms of both the businesses.
Apart from the month of May, which kind of created that COVID crisis which was there, we saw definitely the pent-up demand happening in June, July and August to that extent, which is there. Also we have seen a very strong demand coming from the real estate construction infra business this year, which has basically accelerated the projects in the institutional business.
I'm sorry. I'm sorry, sir. Just to push the envelope on this actually.
Basically what I'm trying to understand is, in the last 18 months, let's say 21 months since March 2020, did the industry benefit from, you know, any one-off noise about, let's say people in urban moving to rural, which means you have more, you know, let's say, apartments available in urban for rental or, you know, let's say if, say, I went from urban to rural, you said, "Okay, now let me paint my rural home as well." What I'm trying to understand is that are there any, in your opinion, as a, you know, CEO, marketing manager that looks, are there any one-off noise in the last 18 months of demand trends which you have seen?
Okay. Quickly just to tell you that, see, I don't think so that has got really too much impact overall because, in fact, with a lot of metro homes going down, the rental homes basically repainting came down to some extent. On the other side, the second homes market kind of increased because a lot of people were purchasing second homes and so on and so forth to that extent. At the same time, you know, a lot of people started focusing on their homes, which they were staying in to that extent. Since they stayed in the home for a very long time, they started basically painting more in the home, and the frequency of possibly the painting cycles increased to that extent.
I would say it was overall just a shift of the demand to that extent. I didn't see that anything which has really contributed in terms of the industry increasing a lot just because of any of these demographic changes taking place.
Understood, sir. Just to paraphrase.
Sorry, sir, Manoj. I'm really sorry to interrupt you. We have many questions in queue, so we'll have to move on to the next one. Really sorry for that.
Just for clarification, I will come back. Thank you, sir.
Thank you, sir.
Sure. Thank you. The next question is from Mr. Tejas Shah. He's joined us on the Zoom platform itself. Sir, please state your name and company name and ask your question.
Hi. Thanks for the opportunity. This is Tejas Shah from Spark Capital. Thanks for the very detailed presentation. I'm not left with much questions on the decorative part or the core business, but except one, that you spoke about project business today and now project business is coming out of slumber after a long. We did well in the quarter materially versus the other part of the business you called out in the opening remarks also. Just wanted to understand that how's the growth runway looking here because it is after almost seven, eight years we are seeing this cycle reviving.
Six, seven years back we vaguely used to say that the mix of fresh painting versus repainting is 25/25, and I believe in last few years that number would have moved in favor of repainting materially. Where it stands today, and how do you see it panning out in this cycle, let's say next two, three years?
I would say that, structurally, you know, we still kind of talk of, you know, the new construction to be still around about 30% and, you know, today the repainting to be about 70% kind of a zone. Because what we've also seen is that, in the meanwhile there's a tick-up which is there, both from the point of view of builders coming into this space, we also see a lot of action happening at the factories, the institutions, and so on and so forth. More importantly, I think, government spending has really gone up in the last two- years to that extent.
Government is a very strong space in terms of where we have seen a lot of kind of spending which is happening from a projects institutional space. For us, that segment has also gone up because of the waterproofing coming in to that extent. Because waterproofing becomes an integral part to start the foundation in terms of what is there, and then basically gets into the whole painting cycle after that to that extent. Overall, I would say that the percentages would be like 70/30. My take is that going forward, I think we will see a lot of CapEx which would happen from a point of view of the budget which is coming on infrastructure going forward to that extent.
Therefore, I would say that the fresh construction, I think as an activity would continue in the coming two- years very, very strongly in terms of both government spending as well as the private lobbies coming in terms of spending on the housing segment.
Yeah. Just one clarification on that. Waterproofing in construction project or government projects will be part of Asian PPG or it will be part of Asian Decorator?
No, the entire projects business also is part of the Asian Paints only to that extent. Where Asian Paints PPG comes in, they look at supplying to OE businesses like the auto and so on and so forth. The general industrial business basically would give larger thing to factories for chimneys, for maintenance, and so on and so forth to that extent, which are all basically as we call as the protective coatings and the powder coatings to that extent. The projects business which I just spoke of, which is the builders and which is the cooperative housing societies and some of the government projects which are coming up or the hotels or the institutions all will come under the Asian Paints business.
Sure. That clarifies. Second question is, so last few quarters the most exciting part of your presentation has been the vision that you have shared on from share of wallet to share of space. Now, if you can share some operational insights on the décor business. How does customer discover us? What's the material sourcing arrangement? And how the fulfillment happens on that whole line of business?
Okay. There are two, three things. One is obviously the physical brick-and-mortar model in terms of what we follow. We have standalone kitchen and bath stores which are there across the country, which way we are able to kind of push the home decor items through those stores to that extent. We have started with this whole vision of something called the beautifulhomes.asianpaints.com, which is a central engine where the customer comes in looking at inspirations of home decor and so on and so forth. We are able to kind of then generate a lot of digital leads which kind of come in from there, where people are seeking home decor in a very big way. We kind of direct them to two areas.
One is we have got a Beautiful Homes Service which provides basically them a full experience sitting at home of redecorating their homes or renovating their homes. In addition, we have now 29 Beautiful Homes stores which are there, which is décor under one roof. We will guide a lot of those people who are coming onto our central engine, beautifulhomes.asianpaints.com, in terms of going into those stores and really kind of getting their home décor requirements from there. In addition, these stores will get basically walk-ins which are happening because they are located in a high street retail market to that extent, so on and so forth.
I think the whole model which works in is, from the point of view is that there is a digital engine which is energizing the people on inspiration and visits, and then there is a brick-and-mortar model which basically makes people experience things, see the physicality of it, experience it, and then kind of take those things home.
That's very helpful, sir. Thanks a lot. Best.
Thank you, sir. Our next question is from Mr. Jay Doshi. He's joined us on Zoom. Sir, please state your name and company name and ask your question.
Hi. This is Jaykumar Doshi from Kotak Securities. Thanks for the opportunity. I have a couple of questions. The first one, sir, you indicated significant progress on network expansion and called out 45,000 outlets being added over the past seven quarters. Can you provide some more insights in terms of quality of these retail outlets that you added? What is the tinting machine penetration in these outlets? Or over the last seven quarters, how many tinting machines have you seeded and where is your overall network count today in terms of dealer count?
Overall, if you look at, you know, when we speak of this 45,000 retail touchpoints, we speak of the overall ingress which we are making with respect to, one, putting our tinting machines there to that extent. We are also now working with respect to certain distributors in terms of reaching out to smaller players where we want to increase our reach in terms of smaller towns and so on and so forth, which is there as a model in terms of what we are taking to that extent. Therefore, it involves all kinds of retailers coming onto the picture. There could be, you know, retailers who are dealing in electricals. There could be retailers who are kind of dealing in cement and steel and so on, so forth.
It kind of includes a whole plethora of people who come onto the board to that extent. In terms of overall tinting machines, I think the ingress has been very, very strong in terms of what is there, because literally now it has become like a hygiene there because where a retailer cannot operate without the tinting machine not being there with him to that extent. Therefore, what we see is that that's the overall zone which we are looking where possibly we speak of today retail touchpoints, which are almost more than about 1.4 lakhs overall to that extent. But not necessarily every one of these would be our direct retailer to that extent, and nor everyone would have a tinting machine in terms of which is there to that extent.
Overall, that's the kind of touchpoints which we are talking in terms of, going forward. Gradually, what we see is that as these retailers mature, they will eventually take a tinting machine and go forward to that extent. That gives you an indication in terms of how the numbers kind of look for future.
Just a follow-up. Have you increased your tinting machine penetration or seeding per year or per quarter significantly versus the previous run rate?
We see that is an overall focus which we have been maintaining for the last four, five years. Yes, if you compare from what we have done possibly a decade back, the run rate would have kind of gone up to that extent. But that is, I think, an inherent part of our strategy that we kind of keep on looking at putting more and more machines, as I said, in newer towns, suburbs, newer cities and so on, so forth, as we kind of go forward.
Sure. The second quick question is, you called out that you are targeting 7%-8% revenues from services and 8%-10% from home decor. What is the time frame that you were referring to? In services revenue, typically for a paint project, services is two-thirds of the sales. What does this mean in terms of revenue accounting? Does it mean that when you indicate 7%-8% of your revenue should be services, does it mean 3% or 4% of your projects or overall paint business will be through your services?
What it is that, first of all, I think we are saying that by, you know, definitely in the next 2-3 years, we will kind of get into this number percentage contributions in terms of what we are speaking of. Specifically, I think by March 2025, we are definitely looking at this kind of contributions coming. In case of services, what happens, we talk of the GMV, which is the gross merchandise value overall. Therefore, to that extent, it is a combination of the material plus labor in terms of what really kind of plays in. Whereas in from the point of view of decor also, it kind of varies that, in some cases it would be only the material which would be there.
In some cases it would be a question of, labor plus material coming into the play to that extent. What we are definitely saying is that if you look at the overall GMVs, they will start contributing to those kind of percentages in terms of the overall business.
Just so that I've understood correctly, 17%-18% of your revenues will come from home decor and services in the next, by March 2025, and that number would be less than 3-4% today?
Today, you know, you can't take it as 17% straightaway because as I said, there is a gross merchandise value which is there. If you look at from the point of view, you will have to break it up from the point of view of material plus labor to that extent. There will be percentage possibly lower than that in terms of what we are talking. That is point one to that extent. And secondly, today, yes, today that number, definitely is in the region of about 5%-6%.
Understood. Thank you. That is very helpful.
Thank you, sir. Moving on to the next question. We have Mr. Shirish Pardeshi who joined us on Zoom. Sir, please state your name and company name and ask your question.
Hi. Good evening, Amit. Good evening, Mr. Jeyamurugan and team. Thanks for the opportunity. I really appreciate the comments what you have passed on before. I think the volume growth momentum is very, very strong. Just one quick question. I think not per se the rural, but the fantastic work what you have been harping on, saying that tier two, tier three market, and now you are exploring the distributor-led model. What is it that the market it can go up to? This is a continuous journey, which I can understand, but obviously there is some level in your understanding that you have been trying a new format, but what is the market and this kind of growth, how long it will continue?
I mean, demand conditions are very good, but the channels and formats which you are using will have some limitations at some point of time.
I would not agree to that because I see that we are a consumption market in India. We are also a growing market to that extent. I think the GDP projections which are there are not the projections that are coming down substantially as compared to what we look at the Western markets to that extent. I would say that if the GDP is remaining in the healthy zone of anywhere between 6%-8% kind of a zone for our country going forward, I don't see that you know growth would be a problem to kind of come in. What we also significantly see is that today when you go into T3, T4 cities, I think the consumption is kind of going up. The decor levels are going up to that extent.
The purchasing capacity is going up to that extent. Therefore, what we see is that, the potential which kind of, some of the, rural geographies kind of give you is very, very strong. Therefore, we think that the expansion process will continue. Today, as the towns get populated more and more, you kind of look at 2 or 3 outlets coming in. When they get populated more and they expand, the outlets go to 10 or so to that extent in terms of that place. What we see is it's a continuous process, and I don't see that, there is any stoppage to this if I look at from the point of view or even from the point of view of next 20- years or so.
Thank you, Amit. My next and last question is on obviously the margin. You did mention that this kind of price increases has never happened in the history of paint industry or any of the industry. But just suspicion that if the way inflation is looking at, and you yourself said that the derivative, crude derivatives will have a lag. If assume that hypothetically, if the inflation is still hitting on, would you have a confidence today saying that in the way you want to protect the margin further, you will still exercise, or the management is of the view that we will still be able to pass on some more price increases to the trade or whatever has happened is the cap?
See, I think it is always a very, very dynamic situation in terms of what you play out to. Now, if you look at it, in the last six months, we did not take such a heavy increase because we were trying to balance the whole area of consumer demand, the consumer sentiments, because we were going through a far more stronger COVID period, where anyway the demand conditions were not looking very good to that extent. I think we would always kind of balance the fact that when we kind of go ahead, and if there are inflation, what is the part which you can absorb? What is the part you can pass on? I think these are dynamic questions. We take a call as we kind of go ahead.
We would like to respect the consumer sentiment and look at in terms of not upsetting that. At the same time, we would not like to kind of take and say that the profitable growth component kind of goes out of the story to that extent. I would say that, we would take a very, very balanced opinion in terms of going forward, in terms of balancing, demand versus the price or, you know, pass on, which we kind of do as we go ahead.
Just one quick follow-up.
Sir, sorry, we have a lot of questions in queue.
Sure, sure. Okay. Thank you. Thank you, Amit.
Thank you.
The next question is from Percy. He has joined us on Zoom. Please state your name and company name and ask your question.
Yeah. This is Percy Panthaki from IIFL Securities. Just wanted to check some information which was discussed earlier, whether I got it right. Basically, you said that the repainting constitutes 30% of sales now, which was a couple of years earlier, pre-pandemic it used to be-
No, no, the other way around. It's repainting is about 70%, definitely.
Correct. Repainting is 70% and pre-pandemic, it was 75%. Is that correct?
Very difficult to really assess that, you know, it was exactly by that percentage because no one measures it that strongly to that extent. You could take a band that it has remained in that band over a period of time.
Okay. See, what I'm trying to understand, Amit, is you mentioned that real estate revival is one of the things which is sort of benefiting the top- line. I just wanted to get a sense of how much that benefit would be. Let's say if the real estate cycle had not revived and it had remained as sluggish as it was two, three years ago, then this sales growth of 28% you have done, that would have been how much lower, is what I'm trying to understand.
I think if you get into that kind of a microanalysis, it is very difficult to kind of put saying whether it would have taken 2% of the volume growth or it would have taken 3% of the value growth to that extent. I don't think so it works like that to kind of micromanage it like this, because as far as even the construction segment is concerned, you know, the growth kind of vary. It is never set to that extent. It might basically if it is growing at possibly 30%, it might come down to 20% or 15% because some projects will keep on going, some government spending will keep on happening, some hotels will keep on coming in the environment and so on, so forth to that extent.
I think to that extent, you know, depending on what is there, you could just say that, you know, maximum it could be, 2, 3, 4 points here and there, which you could kind of really see in terms of the market can behave to that extent. I don't think so that it would kind of do a very big major dent in terms of bringing it down by 50% or so.
Understood. That helps. Secondly, I just wanted to understand based on your input cost scenario. You mentioned that margins in Q4 should be better because part of the price increases will filter through in Q4 only. Wouldn't the same hold true for input cost inflation as well that Q4 versus Q3 on a sequential basis, don't you see input cost inflation still being positive?
No. See, if you look at the quantum of the price increases which we have taken in November and December, you know, they are pretty substantial, and we would not have realized it over the full quarter period to that extent. What I meant was that this whole price increase of close to about 15%, the full thing would kind of take shape in Q4 . Whereas the inflation which we see over Q4 to Q3 would not be of that kind of dimension to that extent, and it would be possibly much milder as we kind of go and see. Therefore, I think a larger impact in terms of profitability will definitely come in Q4.
Understood. My last question is-
I'm sorry, sir. I'm sorry. We'll have to move to the last question anyway. We have one participant waiting.
Sure.
The last question in the interest of time is from Mr. Abhijeet Kundu. He has joined us on Zoom. Sir, please state your name and company name and ask your question.
Yeah, hi. This is Abhijeet Kundu from Antique. Sir, thanks for the opportunity. You know, you said that in the last 3- years you have added about 45,000 you know, touch points, which is you know, broadly about 15,000 touch points. When we compare it with your previous year, I mean, the last 10 to 15 years, typically it used to be in the range of 4,000, 5,000 per month. Sorry, per year. Now it has you know, the addition has been quite substantial. According to you, how much would be the you know...
I know you can't give, you know, a particular figure to that, but there would be a good amount of growth coming due to the, I mean, outlet addition side. I mean, one would be that. In terms of geography, you know, which are the geographies where, because you have been very strong in South and West. I mean, there is a good amount of presence across geography, but South and West have been your very strong geography. All these incremental outlets that have been added, which are the geographies that have done well for you or you have seen major additions in those areas?
Okay. See, when I speak of the number of outlets, as I said, these are outlets which are direct and some indirect outlets which we are getting and, you know. There are outlets where you will open directly, and there are outlets now which we have started opening through distributors as well. I think the combined impact of 45,000 what we spoke of is coming as a combination of both to that extent. What are the things which you were kind of referring to earlier was more in terms of the direct outlets to that extent which were coming in. That's clarification number one.
Second, when we look at the overall, I think all geographies have done extremely well for us, and we are seeing that the kind of double-digits growth which we are seeing today across the country for several quarters now, these are kind of spread across all the divisions to that extent. We would say that I think the impetus is coming from all the divisions across the country geographically very well. I think if you were to kind of pick up, we have seen that the geographies which are there of North and Central and East have been possibly having far more outlets and far more these things which are coming as compared to possibly relatively South and West.
Okay. Got it. Last one. In terms of your capacity, you know, you still have, you know, spare capacity which can be added in your last two units. When do you plan to, you know, add capacity there? Because you had the assembly line in place, but you have to add proper capacity there.
I think it will happen definitely. I think, we will look at in the next, 2-3 years to kind of look at in terms of adding that capacity going forward. The rate at which we are growing, definitely we will need that capacity.
What would be the utilization levels currently?
It is at about 70%-75% level.
Okay. That's it. That's it from me. Thank you.
Thank you, sir. That was our last question. May I now request Mr. Amit Syngle to give his closing remarks?
Thank you, all. I am sure that there would have been many more questions, and we could have carried on for the next hour as well. But I think it's been a pleasure interacting with all of you, and it's great, I think, listening and answering to your queries. Look forward to meeting you and wish you a very safe next quarter. Thank you.