Evening and a very warm welcome to one and all to the Asian Paints Investor Conference for Q3 FY 2023 results. This is Arun Nair from Corporate Communications. Today on the panel we have Mr. Amit Syngle, MD and CEO, Mr. RJ, Company Secretary, and Mr. Parag Rane, GM Finance. May I now request Mr. Amit Syngle to take us through the presentation. Mr. Amit Syngle, over to you.
Thank you and good evening to all of you for coming to this investor conference for the quarter three financial year 2023 results. Let me just take you through some of the brief highlights, before we really get into the questioning. As you are aware that it's now almost eight decades of existence in which we have been there for looking at existing to beautify, preserve, transform all spaces and objects bringing happiness to the world in a big way. That has been one of the core values in terms of what we have been kind of speaking of, and that is what we really imbibe in terms of as the core value. Just a disclaimer, obviously.
Going on to in terms of the results, obviously, this quarter has been a little bit of a rough quarter in terms of what we have seen. The overall volumes are little muted in terms of what we see with almost being at base and a value growth of about 1%. You know, this is obviously coming at the back of last year, a very, very high price increase base, which we have seen, which is a 10% increase, which we had taken on 10th of November and a 5% increase we had taken on 1st of December. Fairly hefty increases in terms of what we have seen in the last year, which had preponed a lot of Q4 volumes into Q3 of last year to that extent.
That is why possibly, one, it is a very heavy base. Secondly, what we have also seen a prolonged monsoon, which has kind of got into the month of October, which has kind of really impacted the October volumes. There was a bounce back, which happened in November and December, and December especially, we've looked at, you know, a double-digit volume growth, which is back in terms of what we have got. The other clear thing is that if you look at our overall journey, the volume growths have been very, very strong. If you look back onto the last six to eight quarters to that extent, and before if you look at even on that kind of a number, the three-year compounded growth rate is close to about 16% on volume and about 17.6% on value.
Those are very strong numbers in line with our overall growth in terms of what we have been pursuing over a period of time. The nine monthly results kind of also gives us a peek in terms of how the overall year has been to that extent. We look at a clear double-digit 13% volume growth, which is there, and a 23% value growth which is coming in in terms of the overall decorative business. The CAGR numbers here are also very, very strong at a volume at 18 and a value of 19.2.
Clearly the nine monthly figures are very, very strong from the point of view of the overall growth of the business and the CAGR values kind of reflecting clearly the fact that it is a consistency in terms of what's coming overall in terms of the overall growth story which has been there. This kind of just validates the statement which I was making, you know, in the last slide. If you look at the kind of volume growth story, I think it has been very, very strong double-digit numbers all across. Even the number when we see for the quarter three of financial year 2023, the CAGR number is about 16%.
Clearly showing that this whole impetus of the volume growth has been very strong and it kind of really looks at possibly what would be way ahead in terms of how we would look at the business going ahead. Overall, as I just qualified that the monsoon took a toll and all the seasonal markets, which are the north, central, and the western markets specifically got affected because of the, you know, October, you know, the monsoons extending well into the October. You are all aware that Diwali is a slightly high seasonality which kind of comes in. Given the fact that it was a shorter Diwali, it took a larger toll with respect to the month of October to that extent. Coupled with obviously the price increases basis in terms of what I have already spoken of.
We saw, you know, in fact, ticket growth across T1, T2 and T3, T4 centers. We don't see too much of a difference between the growth rates which we got in the relatively metros and you know, the bigger cities to that extent as compared to even the urban markets to that overall in terms of what we see. In our case, we don't see too much of a difference. Yes, there could be a differential of about 1% or so in terms of the overall growth, but largely not too much of a difference in terms of saying that smaller centers have done, you know, extremely bad or something like that. It is, I think, fairly uniform in terms of what we see here.
What we also see is the December recovery, which is clearly a double-digit growth coming across markets in terms of the overall business which is there. Clearly, I think the larger inventory in the network last quarter was one of the reasons in terms of possibly that inventory not being there in this quarter to that extent, and that has affected the numbers to some extent in terms of both volume and value to some extent. We also see that the mix last year was definitely much better given the fact that the price increases were higher on the relatively high the premium and the luxury products to that extent.
That is why they got better stocked last year to that extent, which is what possibly has affected even the mix this year in terms of what we have seen. We have definitely seen some bit of downtrading happening in the premium luxury spaces to economy spaces, given the fact that today there has been a lot of price increases which have happened to that extent, affecting the mix in terms of the Q3 clearly. However, the products business has been very, very strong still, and it is continuing to grow higher than the retail business. We have grown very well in the government, the factories, the cooperative housing sector and in the builder segments. We have been able to propel a higher quantum of sales happening across the country to that extent.
Our entire foray in terms of looking at, you know, extending our presence across the country continues. We have largely a very strong entire program in terms of opening newer retail points. To that extent, we have added about 10,000 new retail points in the nine months which have gone by. This is on 10,000 which we added almost last year to that extent. Therefore, this reach continues to kind of grow very, very strongly. We are closer to almost about 1.5 lakh retail points across the country, which is kind of giving us a very good presence than any other, you know, kind of brand in the industry to that extent. Overall, the services area has done also very well.
We have a painting service, which is, one, a Safe Painting Service, and the other which is called Trusted Contractor Service, both doing extremely well. Now we have a presence which is large across the country, and this is an unmatched kind of area which no possibly, no other company matches us in India or at global level to that extent with this kind of a service orientation in terms of painting, which we have. That's the crux in terms of some of the highlights, in terms of what we see as in terms of what has happened in the decorative business. Some of the new products which we have launched is also something giving us a very good inroads today. Some of these products are really top of the end products which are there.
You look at Dynamo here, which is a top of the end adhesive product. Purafin, which is again a strong wood finishes product, which is there. Apex, which is an exteriors product, coming in. I think all these products come in with a very clear technology advancement which comes in and something which cannot be matched by competition in a strong manner. Over the last few quarters, I have been showing you such products, and today we feel that we have about, almost about 45 - 48 new products where basically competition, or the industry doesn't have an answer. It is a very good kind of proposition for the customers to have these kind of products, which basically gives them a large variety of solutions.
We've also launched, two new cutting-edge products which are there in the waterproofing, which is here, one for interior, which is called the Hydroloc Xtreme, and one for exterior, which is called the Damp Proof Xtreme. Both products basically acting on waterproofing and efflorescence in a very, very strong manner in terms of weight-bearing build protection and suited to the Indian environment, especially to the coastal markets, where the dampness on the walls is higher to that extent. I think again, cutting-edge products where possibly we see that, we have the kind of credence of, these products being only with us. These products, definitely the technology is patented in terms of the way it, we have kind of looked at launching them and putting them in the market.
One other thing which I wanted to highlight, which we have done, which is a very strong thing, is our partnership with the St+art India Foundation, which we have been working over the last eight years or so. We have done about, you know, 500 murals today, across about 30 cities, across the country. This is our initiative to look at, you know, really bringing art to public spaces and beautifying the public spaces in a very strong manner. This is what we call as a democratization of art, where we take up basically large communities and design districts which we have created across the country, where we do this entire beautifying of the public spaces along with the communities who are there. It's a very large initiative. It gives brand a very strong credence which is there to that extent.
Recently we've tied up with the Mumbai Urban Art Festival, which is there and, which is currently on in Mumbai to that extent, till 22nd February. I would urge a lot of you to kind of visit and enjoy this, where we have done this entire Sassoon Dock and really kind of looked at possibly giving the entire Mumbai a chance in terms of how basically public spaces can look very, very different. We've also taken heritage structures and built it up in terms of showcasing the color of the year in terms of what we have looked at. Very exciting times in terms of how it is kind of taking the whole brand imagery to another level as we kind of see going forward. We look at the home decor foray.
As you remember, this is the entire thing of share of surface to share of space, kind of a transition which we are making in a strong manner. We have these stores which are a very big part of our journey in terms of offering decor under one roof. We have now got about 38 stores which are functional across the, you know, T1, T2 cities and some of the metros to that extent, where we kind of have almost about 15 - 16 categories being sold under one roof. Which is technology-led, and which is led by interior designers and color consultants which are there in these stores to that extent, a very strong customer proposition. We also have a Beautiful Homes Service, which is a personalized interior design to professional execution service offered in 11 cities.
This is also doing extremely well in terms of how we are able to take the full home proposition to a lot of people who are coming who want to make their homes beautiful and do the entire home instead of just painting. I think it fits very clearly along with the current business, because we are able to leverage this category of home decor to the people who are painting their homes, who want to kind of do renovation, be it to first homes or into second homes to that extent. Therefore, it becomes a very, very strong strategy which kind of really aids the core strategy of, you know, paint and coatings to that extent.
We also have a beautifulhomes.com which is an inspiring portal, which is there, which feeds into a lot of digital leads which kind of come in from people who are visiting this beautifulhomes.com. We already have about 150,000 Insta followers and a lot of buzz on the social media in terms of this entire home decor, in terms of what we do through Beautiful Homes. If you look at this business, the stores are pretty a number world-class stores designed by Switch, which is an international retailing agency, and this is the state-of-the-art stores which are coming. We believe as we kind of go forward, this is something which is going to really look at helping us reach home decor in millions and millions of homes in India very strongly.
As part of this, we had acquired, you know, this company called White Teak, as you are aware. We have been kind of working around in terms of increasing the distribution footprint, looking at selling more and more of this decorative lighting. You will be happy to know that it's been able to do almost a business of about INR 29 crores in quarter three. On a nine monthly level, we have done about INR 73 crores of business against the last year full year business of about INR 58 crores. I think the strides we are taking are very, very big, and this is clearly a profitable business which is going ahead in a very strong manner. The other company which we had acquired was Weatherseal, which makes UPVC doors and windows. Again, quarter three we have done about INR 7 crores there.
You know, our total revenue, which is from June- December of about INR 15 crores, is what we have done against the last year full revenue of about INR 14 crores to that extent. Again, good strides in this and possibly as we kind of go ahead, we will keep on reporting very healthy numbers there as we kind of go ahead. I think these are kind of adding to our home story of the Beautiful Homes within the stores or in the Beautiful Homes Service in terms of what we are running. The kitchen business and the bath business overall faced a little bit of a slowdown in quarter three, more because of the fact that the retailing was down a little bit and they also had price increases basis overall to that extent, even in the last year to that extent.
Overall, if you look at the kitchen business was down by about 7% on the top line in Q3. The bath business, if you look at possibly was down by close to about 11% in terms of the overall revenue. The nine monthly results for both the businesses show clearly double-digit growth of 19% and 26% respectively in terms of what we've been able to see. On the PBT front of both businesses, we see that bath business for the last five, six quarters has been giving us profits this month. This quarter was a little bit of a blip to that extent, where we had a slight loss in terms of the business.
On a nine monthly level we are clearly looking at about a INR 4 crore profit in terms of the overall operations. The kitchen operations this year have been challenged a little because of the components business there have not been doing too well, and the sanitaryware business not performing too well because of the slower retailing to that extent. Overall, the kitchen business on the PBT front has shown a loss of about INR 6 crores. This is something which we are working strongly in terms of what we can do, because even on a overall year basis, there is a accumulated loss which is kind of coming onto this business.
I think we are confident of turning this around as we kind of go forward because in the previous quarters we have been able to do a breakeven in terms of this business to that extent. When we go ahead and look at our international, which is what we call as the AP Global operation, this is the representation you see of the countries where we are represented, and down below are the brands in terms of what we operate there. I think the markets have done fairly well overall to that extent, although they were a little bit muted markets, so it's a mixed result in a way. We have seen overall AP Global doing about a 2% kind of a revenue growth this year in the quarter three.
However, if we just take out Lanka out of this, where Sri Lanka, you are aware in terms of has been not doing too well. The growth rates go up to about 13% in terms of the overall AP Global business. On a nine monthly level, we are at about 11% growth in the global business. As I said, Africa has been doing very well, Middle East has done well. Asia has been a little bit of a issue where we have seen Lanka obviously at a certain level. Bangladesh was facing certain Forex problems to that extent, Nepal saw a little bit of a slowdown in the market in this period to that extent, which has led to Asia kind of coming down a little bit. South Pacific was also marginally down to that extent.
On the overall front, you know, minus Lanka, we have seenTerms of the overall global business. On the PBT level, again, this year has been a very strong year as far as the PBT is concerned. We are at almost at about INR 37 crores, kind of profit in Q3, which is there, which is a huge up on the last year that we are facing a debacle because of the price increases and the inflation which was coming even on a nine monthly basis with the profit is above INR 118 crores. I think, the total profitability in the global has been a big story in terms of what we are seeing, which translates to the PBTIT margins as well, doing well and overall gross margins also going up in the overall business to that extent.
That's the AP Global business in terms of what is here. Coming quickly to the industrial business, you know, we cater to every kind of surface here, whether it is auto OE, whether it is in terms of general industrial or it is in terms of powder. We cater to all the businesses here. We have two joint ventures which is there. One is called the PPG AP. This is a venture which kind of caters to the automotive segment. The auto story has been very, very strong. Last year, last two quarters, we have seen auto coming back very strongly. This quarter also auto was very good, leading to almost about a 24% kind of a quarter growth which we have seen.
Even on a nine-month level we have seen overall business at about 34% kind of a growth to that extent. Very, very strong top line which we have seen as far as this business is concerned. When we look at from the point of view of overall bottom line, bottom line also has been healthy in terms of the business because we have been able to take price increases overall and support the business. We've seen about INR 91 crores kind of a profit this quarter and overall profit is at about a 194% kind of a growth. I think the business has done extremely well, both top line and bottom line. If you look at the general industrial business, which is AP PPG, again, the business here is very strong.
We have got a 24% top line kind of a growth which has come in. On a nine monthly level, it goes to about 53% kind of a growth which is there. Consistently for the last about 10 quarters, this business has been on double-digit growth. Very, very strong story on the industrial side which is coming. The profitability has been also very good in terms of what it has come to, INR 26 crores in the quarter and about INR 51 crores on a nine monthly basis. Overall, the margins have gone up, the gross margins have gone up and therefore the industrial story is sounding extremely good in terms of what has been done in the quarter and almost at the 9 monthly level as well. This is basically the overall story amongst the businesses.
Just a trend to kind of show you that from a standalone gross margins, how the gross margins have moved. Last time there was a lot of concern about the margins coming down. This quarter we have got back very strongly. On a sequential basis, we have gone from 35.6 to about 58.7, which is almost about a 3.1% jump in terms of what you see in terms of the gross margins coming over a material deflation of almost about 7%, which we have seen in the quarter, which is also half realized because of the higher inventory which is there in this quarter. Obviously margins are expected to possibly go even higher as we see the next quarter coming in.
Even on a year-on-year, we see that we are back to our original kind of profits of about 38.9%, which used to be the profit at that point of gross margin at that point of time earlier. 43.6% is a bit of an aberration, but I think we are back to the overall gross margins in terms of because of the deflation now happening to that extent. This only will get better as we kind of look at it. Even from a year-on-year kind of a gross margin situation, you have gone from 36.9% to about a 38.7% kind of a distance, which is almost like a 1.8% jump happening on the gross margin.
Strong per margin kind of scenarios which are emerging to that extent. The overall summary of the business appears like this. Overall, the standalone business, there is a 1% kind of a top line which is coming. The gross margins have gone up. The PBTIA margins are up to that extent. Overall, if you look at PBT is at about a 6% growth to that extent, and so is the PAT to that overall level. On the point of view of nine months listing, the picture is very healthy. Overall net sales are at about 23%. Gross margins are also up as I just spoke about it. Therefore the PBT and PAT numbers are very, very strong from the point of view of almost showing about a 28% growth coming in from those numbers.
When we look at consolidated pictures overall, the situation is largely similar in terms of what we see with a 2% top line coming. You know, we see basically clear improvement with respect to the PBIT margins sequentially going up from basically about 14.6 to about 18.7 in Q3 to that extent. Even year-on-year there is a very clear kind of, increase which has happened of about 0.5% to that extent. Overall, PAT is at about 6% growth on a nine-monthly basis, obviously the picture is far, far stronger. 22% top line PAT of 53%, both PBTIT and PBT numbers also looking fairly healthy. I think that's something which is the overall picture.
That really I wanted to just highlight one or two more areas to you. As we kind of go ahead, we are still kind of quite positive in terms of what we see as the quarter story ahead. We have seen good kind of upturn in terms of December, which has happened. We think it is more the base correction which has happened this quarter. To that extent, the overall foray from our side in terms of growth will continue, and that is something which we'll pursue as a growth story in terms of what we have been doing. Overall, what we see is that in our case, we are still expecting T3, T4 towns to kind of really bounce back as we kind of go ahead. The rains have been good.
Overall indications from the rural sector are going forward, that in Q4 we will get better results, and in Q1 going forward next year, I think it'll be still better. When we look at material prices overall, we'll be expecting it to soften it further. We have not taken the full impact of the, you know, the deflation which is in quarter three. Overall, I think the prediction obviously is that the margins will get only better in terms of looking at going forward. The B2B business, products business will continue to do well. As I said, the industrial businesses are doing well, I think they should continue in terms of doing so to that extent. Yes, a little bit of a caution in terms of the recessionary fears, in terms of what we are seeing.
If the GDP continues to kind of grow at this pace, to that extent, we could see no reason in terms of why possibly the Indian market should not do well. Yes, international markets, there are some African Asian markets where there are forex pressures. That is something I think we'll just have to exercise a little bit of caution in terms of how basically it pans out as we look at quarter four and then the quarter one of next year. This is about what we see as in terms of the path forward going forward. Just to kind of update, while all these announcements we have made and we have appraised you last time as well, our total investments we are going to now look at going forward is close to about INR 8,750 crores.
That's a quite a strong kind of punch which we are giving because we are convinced about the growth story coming in. We've announced a new plant which is coming on the anvil. This is a total greenfield plant which is coming where we have just announced about a INR 2,000 crore kind of investment with a 4 lakh KL kind of capacity which is coming. Currently with some of the brownfield which was coming, our capacity was going to about 22.7 lakh KL. With this new greenfield coming, it will get added. 4 lakh KL will get added, and it'll go to about 26.7 lakh KL, kind of annum capacity. Overall, to that extent, that's already a huge capacity in terms of what we look at from the point of view of offset processing.
I think we are preparing ourselves very strongly for the next three years to four years to how we kind of see the overall growth spanning out in terms of looking at. In addition, the backward integration initiative we announced in terms of our white cement and the VAM-VAE kind of areas which we are putting money, and those should be ready in another two years' time as we look, which would kind of give us a further increase in terms of our margins as we kind of go forward. Strong story in terms of looking at profitable growth as we kind of go ahead in a strong manner. That's what I wanted to share with you. I'm sure now there are questions, and we'll take the questions now. Thank you.
Good evening, everyone. Today, we have participants joining via Zoom video platform and via teleconferencing. Requesting all participants joined via Zoom video platform, kindly rename yourself with your name and your company name. Please use the Raise Hand feature to ask a question to the panelists. Kindly unmute when given a chance to ask a question. Please mention your name and your company name before asking your question. Kindly restrict your questions to only two due to time constraints. Participants connecting via Zoom video platform can post their questions on the chat box too, and we will ask on your behalf. Participants joining via teleconference, please press star one to ask your question. Our first caller has joined via Zoom, Mr. Abneesh Roy.
Yeah, hi. Thanks for the opportunity. My first question is on the capacity and the demand in paint. If I see in Q2, you had sharply increased the capacity guidance, and now in Q3, further INR 4 lakh has been added. Being industry leader, I'm sure you'll be tracking the capacity addition announcement by non-paint players, number two, number three paint players also. One question I had was, over the next three, four years with your capacity and so much capacity in the market, how do you see overall market share, overall pricing discipline, et cetera, because of that? Because everything seems to be happening at the same time. What would be your view on that?
First of all, as we see it, you know, capacity announcement is not equivalent to sales. I've been maintaining that for a very strong point of time. We see that today, when we are looking at an increase in capacity, it is to do with the way we have been growing in the last 10-15 years at a certain CAGR in terms of overall volume. If you look at the last two years, we have added almost about INR 9,000 crores overall in just about two years to that extent.
Our capacity expansions in terms of what we are looking is in line with what we have seen as ourAnd also what we are putting our strategic direction in terms of growing and expanding our footprint with respect to the emerging Indian market, which we see a lot of potential in terms of growing. Today, what I see very clearly is that the market is about INR 70,000 crores to that extent. We have all the newer players who are coming, and they want to kind of do business. maximum I see in another three years' time, they can do a maximum sale of about INR 1,000 crores to INR 1,500 crores, which actually would be a minuscule percentage of the total capacity they are talking of in terms of putting.
I can say that for Asian Paints that it is a very clear calculated move in terms of what we are making, because today we are operating at about 70%, 75% of our capacity. Going forward, we are very clear that we would be able to kind of utilize all these capacities, and we are keeping pace with our growth plans to that extent. With respect to how others are kind of putting their capacity, I think it is their only calculation which is there. We do not know in terms of how they justify the capacity additions which they will do over a period of time, because we don't see that they would be able to realize the capacities to that extent in terms of the way they are putting the capacities.
Sir Amit, thanks. One, follow-up on the demand bit. In Q3 the demand has been volatile. When I see the November remarks and December remarks, I wanted to understand the difference there. Is it because of the base? In September you have said double-digit growth. In November you have said recovery. Is it just because of base? What is the reason for difference in your commentary? In Q4, would you say that the double-digit pace growth which happened in December, would you be confident of a double-digit growth for the full quarter in Q4?
I think we are very clear that the commentary which is there for the quarter is that, I spoke of two very heavy price increases which we took last year of almost about 10% and 5%, which has kind of increased the stock into the market. Therefore the inventory has kind of had gone up in the network in a very strong manner. That was clearly one of the reasons which we saw that, we saw very, very strong numbers which were there in October and November, which came in because of these two price increases to that extent. The second reason is that, the extended monsoons which went on till almost about 15th October, really kind of affected the shorter Diwali which we had to that extent.
Therefore that was a double impact on the October volumes in terms of what we took this year to that extent. Therefore I think the October is totally understandable in the way it was. What we clearly saw that there was some impact of the price increase base in November as well. Definitely there was a recovery which happened. I think December we were back to normal in terms of what we could see with respect to the overall market conditions and how we see the secondaries moving in the market. Therefore, what we see is that we are fairly optimistic about the quarter four in terms of going forward. Obviously the cold wave has been very, very strong in the northern markets in terms of some extent which also affects the exterior painting at this point of time.
I think we are confident that overall that the quarter four volumes should be optimistic in terms of going forward.
Sure. My second and last question is on the bath and the kitchen. Those are a bit more discretionary versus paint. When I see urban demand, in terms of new drivers, clearly we are seeing job losses in the startups. Tech job addition has been at a multi-quarter low. I also see that there is a inflation cooling off and the salary hike also seems to be quite optimistic. If I mix all this, how do you see your bath and kitchen growth in the coming quarters?
In fact I would qualify that question from the point of view of our home decor completely because now it is not the question of only bath and kitchen. It's a question of kitchen furnishing, lighting, everything in terms of what we sell. As we kind of look at the quarter four, yes, these are categories which are slightly more discretionary, but we feel that this should be also in line with the overall economy in terms of the way we work. Construction is going on at a good rate. There is a good real estate equity in the market in terms of people are purchasing new homes and second homes despite the interest rates going up. I think it is all dependent on this whole area of housing index, new construction, new houses coming up to that extent.
I think we are still optimistic that the overall home decor should kind of continue to do well as we kind of look at quarter four as well.
Sure. Thanks. That's all from my side. Thank you.
Thank you very much for your question, sir. I request all the participants to kindly limit your questions to only two due to time constraints. Moving ahead, our next caller has joined via Zoom video platform. Mr. Avi Mehta.
Hi. Sorry am I audible?
Yes you are.
Hi sir. I just wanted to kind of build on your comment on the sequential EBITDA margin expansion in fourth quarter. Given that third quarter was already at around 19%-20%, with, you know, should the current input environment in terms of costs and if I hear you, your demand commentary was also fairly supportive, are we looking at a 20%+ EBITDA margin trajectory going forward? Is that a fair way to look at, read your comments or am I wrong in that assessment?
If you know we have already kind of maintained that we would lie in this whole band of about 17%-20% band in terms of. Obviously, when we look at, you know, the PBDIT margins of the last quarter, it has improved by almost about 4.8% as far as the standalone business is concerned. What we see is that the realization in terms of the deflation has not been fully there to that extent. However, what we will see is that, I think, we see that there could be marginal, you know, increase in terms of the overall margins, which we will see in Q4. Definitely we are seeing some more deflation to come and full realization of the Q3 deflation to that extent.
Therefore we definitely see the margins to kind of go up.
Sir, would it be fair that the mix also was inferior? The volume growth also was relatively weaker. You also had, you know, those headwinds in terms of margins. All that together still, you know, while 58 might be that range, it could be slightly ahead or more ahead of that. That's where I was coming from, which is what I-
Yeah, it would definitely be there because the product mix, given the fact that, last year in the same quarter, the high value products had higher price increase and therefore the inventory of those products was higher. As we kind of go see that, the mix would definitely kind of improve is what we are confident of. Obviously as the volume growths improve, the value growth also will improve with the mix to that extent. That will also definitely positively impact the margins.
Perfect, sir. Okay. Sir, the second bit, I just wanted to, you know, just understand the demand comments a little better. I don't know why you highlighted December had seen double-digit value growth. You know, I just want to understand what gives us confidence, because there is also this, you know, comment that keeps kind of floating around that the stronger growth seen in the earlier years was more an advancement of demand, and hence we could probably move to a period of slow volume growth. Would love to hear your thoughts on why you believe that may not be the case, sir.
What I say is that, you know, going forward, obviously a lot depends in terms of how the economy behaves and how the overall GDP comes up. We feel that, you know, there is definitely, you know, a little bit of a pattering down of not very high volatile volume growth to that extent. I think the volume growth will continue. Possibly the level of volume growth which we have seen in the past will definitely come down to that extent because today the markets are kind of now coming to a certain maturity. They have seen two years of good growth overall to that extent. The bases which we all are sitting are at a certain level. We might not see very explosive volume growth to that extent.
Definitely I think, we would see good volume growth going forward to that extent because of the overall economy, what has been predicted at being a decent level as we kind of go forward. From that point of view, I think December double digit was a good indication. As I said, in double digit there is always 11% and there's always a 20% as well. I think the double digits also vary from that point of view to that extent. Therefore, what we are saying is that we are optimistic, but obviously I think the overall kind of story on volume growth might not be the same as what we have seen in the last two years.
Good would mean still a double digit. Would that be a fair comment? I take your comment. Can be 11 or 20, but still, that would be.
Yes.
A reasonable way to appreciate or, no, are we seeing good might even be a single digit. That's why I just wanted to clarify that point.
No, I would leave that interpretation to you, but for us, I think good can really be definitely in the double-digit growth.
Perfect, sir. That's all from my side. Thank you very much.
Thank you very much, sir. Our next caller has joined us via Zoom video platform. Mr. Jaykumar Doshi.
Hi. Thanks for the opportunity. You've mentioned that, you know, full impact of 3Q deflation was not reflected in gross margins, and over and above that there is further reduction in RM prices in 4Q. Is it possible to quantify what is the extent of gross margin improvement should we expect further from 39% or levels for your business if, you know, RM prices stabilize at current levels? At what point of time would you consider passing on some benefit to customers in the form of end product price reduction? At what gross margin should we consider that?
What we see is that, see, we are still assessing that for quarter four, what would be the exact kind of deflation which we would see. As I said, that part utilization of the deflation has happened in the quarter three, which is there. I think it totally depends in terms of how quarter four augurs from the point of view of total RM softening in terms of what we see. Any decision with respect to price corrections or otherwise, we will take only when we are kind of very clear that there are certain kind of cost reductions which are happening from the point of view of quarter four.
We are there to stay in the market because we should not forget that there is still which is a war which is going on to that extent. There is still some volatility which we see in terms of the variation from up and down in terms of the prices which are happening to that extent. We will take a call depending on how quarter four finally augurs with respect to the deflation. As far as gross margins are concerned, I think from a existing level of about 39 in terms of, or 38.6, where we are to that extent, there would be definitely marginal improvement, which we'll definitely see as a result of what we have seen from the quarter three kind of deflation which overall has come about.
Just a follow-up there. Are you still maintaining your band of 39%-40% as the range you want to be in? Is there a possibility of it moving up?
See, it totally depends in terms of the softening of the prices and where they are and when do we kind of go up. Yes, we would like to maintain overall, the overall band in terms of about that 38%-40% in terms of what we would like to keep ideally.
Capacity expansion increased from INR 17.5 lakhs to INR 26 point something lakhs. It's roughly about 50% increase. Is this like for like? I know you have some third-party contract manufacturing also. Is the mix going to change or this is more of like for like 50% increase?
No, this is our in-house capacity in terms of what we are talking of increasing. There we have a mix of increases in capacity, which is happening in water-based, in terms of solvent-based, in terms of some of the wood finishes categories and even in terms of the waterproofing areas. It kind of really spans across the various kind of overall product range in terms of what we have. As far as the, you know, the outsourced manufacturing is concerned, that is something which is in line. It is almost equal to about almost about 15 lakh - 16 lakh KL in terms of capacity, which we have to that extent, which possibly is not going up at a very, very high pitch as compared to what we are doing at in terms of the in-house kind of investments.
The outsource is usually different products or set of products, right?
Yeah. That is what I'm saying. The outside processing largely would be for some of our powder products and some of the other primer products in terms of what we have to that extent, even some range of strict paints which we have to that extent. There is some duplication which happens in terms of the outside and the inside capacity as well, depending on how the overall kind of logistics play out in terms of various regions to that extent. As I said that, the larger increase in capacities is in overall our water-based, our overall solvent-based products and in terms of some wood finishes and waterproofing categories.
Thank you so much.
Thank you sir. Our next caller is Mr. Shirish Pardeshi, joined us via Zoom video platform.
Hi, good evening Amit and team. Thanks for the opportunity. Two questions. You started with the remark that this quarter was rough, and you did explain that rains were prolonged. However, December you also mentioned you were very positive. Just wanted to understand, in the beginning of rains or October, was the system inventory was cut because maybe the trade was expecting some amount of price cuts? Maybe you can say what is the inventory levels happening at the trade level?
As I said that, when you announce a 10% increase, you know, the inventory levels across the entire trade will definitely go up because in a paint industry, 10% is too huge kind of a, you know, a price increase which will happen. If any retailer doesn't pick up any material in this kind of an increase, then the retailer cannot function in the market to that extent. There was an all-round inventory increase across the set of retailers, whether it is small towns, mid towns, or it is the T1, T2 or the metro cities to that extent. Therefore, the inventory definitely went up in the month of October and again in the month of November to that extent.
Therefore, if you sequentially look at it, quarter four was a little bit weaker as compared to the quarter thr of last year to that extent. I think, very clearly what we saw was that this inventory impact, coupled by the monsoon impact of October, which I spoke of, really did depress October in terms of the way it kind of came up. There was definitely a recovery in November, which we saw, but it was not a full recovery because we had another price increase on 1st of December, which kind of really kept the inventory levels inflated to some extent. It was only in December that those inventories started liquidating. Compared to last quarter, this year we definitely see that the level of inventory in the network would be limited and not to the extent in terms of the way it was in quarter three of last year.
Just one follow-up. I do understand for many years, we ran the annual incentive for the trade partners. Was it that also was not a driver or the quantum of incentive was not lucrative for the trade to pick up the inventory?
The quantum of incentive can never match the 15% kind of a price increase.
Okay.
It can never match the price increases.
Okay. Second question on the overall capacity expansion. You did mention that the capacity is growing, but if you can give us some timelines, over next eight to 10 months or maybe 12 months, what is the water-based capacity which is going to come in the system?
As I said that, currently from 17 we are going to about 22.7 lakh KL, which is there. You see almost a 5 lakh KL jump which is happening, and this 5 lakh KL jump would happen possibly in the next about two years to 2.5 years in terms of what will come out. We will start basically actioning 2 lakh 4 lakh capacity in terms of what we have spoken of.
Okay. Thank you, Amit, and all the best to you and the team.
Thank you.
Thank you, sir. Our next caller has joined us via Zoom video platform, Mr. Manoj Menon.
Hi, team. This is Manoj from ICICI Securities. Normally I wouldn't focus too much on the short term, but this time, given there are just too many moving parts and one-offs, just goes to ask if you follow up again on the December quarter. To start with, you know, given the flattish INR gross revenue, largely speaking in standalone, does this kind of imply that the paints would have declined significantly given the assumption that the rest of the business, you know, would have grown fairly well?
No, I think nothing like that overall, because the larger contribution is from the paints only to that extent. Overall, if you look at from an organization perspective, the other businesses are fairly small from the point of view of the coatings business. The larger impact has come in from largely the decorative business of paints specifically. As I said, the industrial businesses, both auto and the general industrial business in coatings have done well. The larger kind of impact is from the point of view of the decorative business.
Amit, my question. Thanks for this. It's Abbas, essentially, are we do we include less than other paints in the definition of decorative? I'm not sure whether I should add up both, you know, whether or not the paints should be clubbed with paints, when you're trying to analyze. Just unsure.
I think in the India standalone revenue number growth that we have seen, adhesives is definitely a part of it, but the volume number is standalone paints. To that extent, it's paint volume is only volume is only for paints. See, in terms of the other businesses, even adhesives and all, as compared to the over larger categories, it will still be the larger categories which dominate the overall, this thing. It is reflective of the overall larger interior, exteriors, wood finishes and the waterproofing business which we have.
Fair point. Amit, secondly, as I was looking through the last year's con call transcripts, in exactly the same time, 12 months back, you know, what you find is there are questions about inventory, et cetera last year. The comment was, it is not a material one. That's one. Second, you know, given the, as I recall, you know, the October, let's say, surprise and the price increases in November, which was one of the highest, et cetera. Essentially would have meant that December would have been a low base month for you, right? I mean, what I'm trying to understand is the recovery in this December, is it an optical one or is there something underlying here?
No. What as I said is that the recovery in December we see measure in terms of more from the point of view of the secondaries which we see in the market to that extent, because it's not that the inventory in the market will become zero. There will be some inventory which will still remain in the system to that extent. What we would kind of say is that the double-digit recovery in terms of what we are seeing is definitely with respect to the secondaries which have been moving in the market. We have seen that the secondaries have moved both in the T1, T2 and the T3, T4 cities to that extent.
Actually the double digit is coming more from the point of view of watching what the extent the secondaries have kind of come in. There is no possibly inventory pile up which is kind of happening in the month of December, which is giving the double digit to that extent. To the fact that last year December would have been slightly lesser because of the increased pile up of inventory of October and November. That comment you would be right.
Fair point. Amit, thanks for that. Secondly, just on the ESOP plan which you had announced, you know, some time back, you know, it's one of the first that you have done in a long time. Just wanted to comment about the people policy attrition, particularly in the middle and above, and some more color on the ESOP, et cetera. More importantly, a why- way analysis on what made the management decide to do this at a particular point in time. How do you know, see this panning out?
The ESOP policy was announced in June of 2020 in terms of when we had kind of really announced the whole area. It was done almost about three years back in terms of what we see. One of the areas which we kind of looked at was that ESOP was now becoming a norm in all, you know, world multinational FMCG companies to that extent. When we peg ourselves, we compare ourselves to the best in the world in terms of looking at the kind of people we get from premium campuses all across India, and even at the lateral level in terms of whatever we take.
I think the whole concept of looking at ESOPs came in from the point of view of saying that this would be a strong area in terms of looking at one, propelling the overall growth in terms of linking it to the actual kind of business growth and therefore the return to the stakeholders, which kind of really happens. The second area obviously we looked at was saying that as we kind of go ahead, the human capital is very, very important. The way we have ambitions in terms of going forward, we needed to kind of also see that we could kind of look at a dual area of both, you know, incentivization and retention and of people in the organization to that extent.
I think that was the basis in terms of what we looked at the ESOP strategy and what we have seen in the last three years actually, that overall, you know, the attrition rates compared to that extent are basically in a certain band in terms of what we see overall. The rates have not kind of gone up. In specific cadres it might have kind of re-increased a little bit here and there to that extent. As far as the top and middle management is concerned, that is something which is basically in line with the last about seven, eight years in terms of what we have seen as the overall attrition. Are you able to hear me?
Thank you, sir. Our next caller is Mr. Tejas Shah, joined us via Zoom video platform.
Hi. Thanks for the opportunity. Sir, we have been growing aggressively in project business for a while. Just wanted to know what will be our current contribution from this vertical. Is there any number that you would like to saturate this business? How different is the margin and working capital profile of this vertical versus our core B2C paint business?
Overall from the profile, we really see that this business is pegged at about anywhere close to about 15%-20% of the total business in terms of what we see. It varies depending on how the overall retail and the project growth rates really pan out to that extent. It kind of is in that kind of a band in terms of what we see. Overall, the growth in this business have been stronger in terms of what we see from a point of view of overall businesses which we have been able to see, whether it is the builder segment, the government segment, the cooperative housing sector or the factory segment to that extent. There is something which is a very strong focus in terms of what we are maintaining.
As far as overall working capital is concerned, we really work through our retailers here, and it is not a direct kind of intervention in terms of what we make to that extent. Therefore, the working capital requirements are literally similar as compared to the retailing environment. As far as overall returns are concerned from the business, yes, definitely, here, this business is far more competitive to that extent, and it is definitely something which is slightly lower in the retail business in terms of what we make.
Okay.
Are you, are you there with us?
Yes, I was muted. The second and last question. Sir, for many years, in fact decades, this sector has enjoyed a form of oligopoly and this question was perhaps not relevant because everybody was growing together. Now we have attracted competition from previous quarters, not even from our industry, but from outside also. Do you believe that the case for consolidation is very strong now than ever? If you believe in that, would Asian Paints be willing to participate in this or would you prefer to go organically and then face competition on your own?
You're talking about the paints category? I missed the first part of your question.
Yes, sir. Yes, sir. Paints category.
As I see it, I think given the strengths which we have from the point of view of our R&D, the strengths which we have in IT, the world-class supply engine which we have, and the areas of marketing and branding excellence in terms of what we pursue, I think we have been very strong in terms of looking at pursuing the kind of, you know, growth and the returns which we have seen. We have almost have a CAGR of about 12%-14% in terms of what we have had for the last about 10-12 years, and it has been a very strong growth rate in terms of we have been able to see.
As a leader we have also been growing the market to that extent. We don't look at competition only from the point of view of acquisition of sales from any other player to that extent. We were the first pioneers in the exterior market. We grew up the market from cement paints to that extent. We have kind of transformed the French polish market in terms of entire wood finishes market. We have looked at the bottom of the pyramid to explode the entire distemper market into economy emulsions sales market. What we see is that we have been taking strategic shifts in terms of increasing the per capita consumption of paint. Therefore, we have been channelizing the growth strategy of paint sector in a certain manner to that extent.
As we believe we will continue to do that, we don't really look at from the point of view of saying that, any acquisition of competition is kind of giving us any benefits from the point of view of our strategy to that extent. Having said that, if there is a proposition which is really cutting edge, if it is there is something which comes up which kind of adds to the organization from the point of view of either technology or from any other strength area, we are open to that in terms of looking at, in terms of, anything which comes from a consolidation point of view to that extent. I believe that we have a very strong story of our own, which is very clearly growth led, and it is led from a profitable growth perspective.
I think I like to factually correct you that it is not that the competition is coming now. The competition has been coming for the last two decades. We had Sherwin-Williams, which came in some time back, tried persisting for a certain point of time. We have had entries of Nippon, Jotun, lot many other players in the market. We have loads of other players which are relatively at a small level. There's already a Kamdhenu, and there are other players to that extent. I think the market is an Indigo which has come up, seven years, eight years back. I think the market always has seen a lot of players coming into this market to that extent.
Therefore we see that this is a continuous process and I think we anticipate even more players coming as we kind of go ahead.
Thank you, sir. Our last caller of the day is joining us via Zoom video platform.
Taking my question. This is Mihir Shah from Nomura. I just wanted to get your understanding on the demand environment in the near to medium term and how you see it. You know, when we see your 3Q numbers and other discretionary category numbers, it is indicating a slowdown. Can we say that recently 3Q numbers, you know, there was one-off in the numbers and volume, you know, like you highlighted for the December month, can continue to deliver double-digit growth over the next couple of quarters? Is there any trend that you are seeing in rural? Of course, you highlighted that this quarter there was no trend, any trend that you're seeing that in rural or urban demand, is there a slowdown gripping on, or are there any green shoots of improvement?
Any kind of indication or, you know, even from the unorganized, I used to see competitive intensity increasing. Any of these, you know, on the demand front can touch upon would be helpful. Thank you, sir.
I've already touched upon this question, and as I see it, that overall, I think we remain pretty optimistic about the coming quarter to that extent in terms of the overall sales. Yes, there has been a little bit of the slowdown, and I mentioned that possibly the kind of growth which we have seen in the last two years might start coming down to that extent. We still see, you know, healthy growths which are going to happen in the market as far as the paints category is concerned going forward. Therefore, as I said, that possibly I don't see any difference with respect to T1, T2 cities or T3, T4 cities.
In fact, anticipation is that some of the T3, T4 cities will start coming up as we reach the middle of the quarter four and Q1 of next year to that extent. Overall, I think, we are still kind of very positive about quarter four in terms of looking at how the growths are, because, I think, the last 12 quarters or the last 11 quarters indicate the growth trajectory in terms of what we have been able to deliver. Therefore, we will see that, this quarter definitely was a challenge given the high bases and price increases in terms of what we have taken in the past, but we remain positive as far as quarter four is concerned.
Good to hear that, sir. Thank you. That's very helpful. My last question is actually a bit, little bit of a bookkeeping. I just wanted to understand the mixed impact, you know, when we triangulate the value growth and volume growth, and we factor in the earlier taken price increases, you know, we are still seeing, you know, price increase would have been in the mid-teen range for the third quarter. Of course, it'll slow down further in the fourth quarter. But the mixed impact for the third quarter seems to be quite large, similar to what we have seen in the second quarter, somewhere about, you know, 12%-14% range.
Can this quantum continue or will it reduce to the, you know, -5% levels that we were, we are used to seeing in the earlier years? You know, that's all from my side. Thank you.
What we see going forward, that the mix will definitely improve. We are kind of predicting that for the quarter four overall, the mix as compared to quarter three we have delivered will definitely improve. Therefore, what we definitely see is that, going forward, we will have possibly, you know, a larger focus with respect to the kind of growths which come in from, you know, the high-end, premium luxury products in terms of going forward. Which we'll definitely kind of look at in terms of taking the overall volume and value gap to a certain level in terms of what we have seen in some of the times earlier to that extent. Therefore, going forward, we will always see possibly, you know, a gap of about, you know, the 4%-6% kind of a gap which we see between the volume and the value as we kind of go forward.
Fantastic. That's very heartening to hear. I completely understand the point that you mentioned on the gross margin improvement, nothing further to add. Just if you can throw a one more small bit of on the other expenses. You know, we've seen some moderation. Can this be attributed to lower ad spends? Given that there's a large CapEx announcement, when will these costs, you know, start coming in and to what level would they kind of, you know, increase the other line, other expense line item? That's all from my side. Thank you.
Overall, we don't see any aberration with respect to the overall overheads. The overheads would partially be as a percentage be higher because of the lower volumes to that extent. Overall, from a point of view of whether going forward that can affect our advertising or marketing expenses or in terms of employee spends or in terms of general overheads, we don't see that there would be any larger curbs or anything which we would kind of place to that extent. The CapEx funding is very clear that it is coming from a certain section of our reserves, which are there to that extent. I don't see any implications with respect to going forward in terms of a larger containment of any of the overhead spends as we kind of go forward.
Thank you, sir. Wishing you all the best.
Thank you.
Thank you, sir, and thank you everyone for your questions and for joining us. I now request Mr. Amit Syngle to give us the closing remarks.
Thank you everyone for joining us for this [investor call]. It was great kind of hearing all your queries and we hope that as we kind of go forward, we look at more buoyant times in future. Thank you.
Thank you.