Q2 20/21

Oct 22, 2020

welcome to the Asian Paints Q2 FY twenty twenty one Results Investor Conference Call. As a reminder, all participant lines will be in a listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Participants who wish to ask questions can click on the Ask a Question link available on the webcast. On clicking the link, you shall get a dial in number and passcode to join the audio call and ask a question by pressing star one. I now hand the conference over to Mr. Arun Nair from Asian Paints Corporate Communications. Thank you, and over to you, sir. Good evening, and a very warm welcome to all for Asian Paints investor conference call for Q2 and twenty five. We'll start with the presentation. May I request mister Amit Singhal, MD and CEO, to take the presentation? The other members who are there on the call are mister RJJ Emburgan, CFO and company executive. We also have mister Tara Ghani, GM Finance. Over to mister Amit Singhal for the presentation. Very good evening to all of you, and welcome to the Asian Pain's investor conference for the quarter two for the year financial year 2021. When we look at the Asian Paints group, there are certain milestones which we have been able to kind of do over the last seven decades, and I thought it is a good idea to share it with you. Overall, when you look at the group, we are overall revenue is 2,800,000,000.0 USD as a group. We are the, you know, the ninth largest coatings company in the world with fifty years of market leadership in India. We are the third largest in Asia with operations across 15 countries with seventy five years of innovation in paint. Almost three times the nearest competitor in India, and that has been the status for a while. We have 26 paint manufacturing plants overall, and, we service more than, one lakh 50,000 retailers, directly, and some indirectly, in India. Our vision, very clearly has been to be the forerunner inspiring decor and to actively empower customers to create their dream homes. If you look at the overall revenue split, 84% of our business obviously comes from the decorative and the architectural business in India. And, you know, about 12% comes from international and the balance which you can see about 2% each coming from the industrial and the home improvement businesses. This is based on the 1920 financials. Moving on. We all know the current market conditions. It has been pretty challenging time, and the circumstances have been unprecedented. We have seen that, the COVID cases have been rising since March, and they seem to have peaked in September. And the good part is that we have seen a certain decline, which is there coming in from the end of you know, from the October kind of a thing in terms of what we are seeing. And, that is something which is great, but we must remember that we are still having cases which are up to about 75,000 cases a day, which is happening, which is pretty big number. The real GDP is shrinking by 23.9% in Q1 on expected lines. The overall demand recovery acceleration witnessed across sectors in Q2 led by a progressive unlock phases by central and state governments. So obviously, side concerns are easing incrementally and pent up demand supporting the September across industries. The recent releases on the IIT print in line with this recovery because we see that August reporting has been minus 8% year on year growth compared to minus 16% in June and minus 11% in July. So these are indicative enough in terms of how the progression is happening. The headline inflation with CPI clocking in 7.34% for September 2020 continues to remain elevated driven by the food articles. Industrial input prices though remain largely stable. The good thing is that the foreign exchange movement, which is the USD to the INR has been largely supportive in the second quarter. More on the business update with respect to our domestic decorative business. Paint industry seems to be on a recovering mode, gaining from the last month of Q1, led strongly obviously by the Tier two, Tier three and Tier four markets. There has been a very strong, more than 11% volume growth, which we have registered in the quarter two for the domestic decorative business. And this is something which we are saying that month on month, we have improved with respect to the overall volume delivery in the quarter which we have been making. The demand recovery centered around the all ranges of products, including the economy premium and also some luxury range of products. If you see that our emulsion range, in terms of the upgrades that we have got in the market is playing out strongly, the undercoats market continue to do well, and that is something which we have focused. The waterproofing portfolio, is expanding quite well. And we see that today, the luxury immersion seems to be doing quite well, across certain categories, and geographies in the market. There is continued strong response to our, innovations, in the services, which is the safe painting and the Sanishore services. And we are very clear that at home services are the order of the day, and that is something which seems to be holding out for us. Strengthening the decor plate, we have kind looked at introducing, a lot of offerings, more than 1,500 SKUs is what we have launched in the lightings, furnishings, the furniture range. And this is supposed to complement our vision in terms of looking at getting into home decor in a strong way. Gross margins, supported by stable input prices, input material prices as well as continued work on driving sourcing and formulation efficiency has been a hallmark. So overall, if we look at the domestic decorative business, the continued momentum with the double digit volume growth in quarter two after registering a double digit growth in June is something which has been a very heartening performance in terms of what we see. And we see also a value growth of 6%, which has come in, in the in the quarter two. Just to give you insight in terms of the whole area of home decor, as I said, that is something which what we recently introduced where we had a launch to the architect interior designers and to certain select consumers in terms of looking at the entire range which we have introduced in lighting, furnishing, and furniture, thus adding to the muscle in the home decor category and the interior design we feel that this for the home customer is something which is very strong. And we have introduced more than 1,500 SKUs across three brands, which is the Nelaya, Royal, and the Adore. More than that, we have continued on the innovation streak in a very, very strong manner and have been continuously bringing innovative products at the top end, mid end and the economy end as well in the market. And that has been a very, very strong initiative, with the nation paints. We were the first one to kind of come out with a Royal Health Shield, which was an antibacterial paint, which we launched about two years back. And subsequent to that, we have been launching very, very strong propositions for the customer in terms of the entire area of health and hygiene. We also recently introduced a paint which is actually effective against the coronavirus, and that is something which was a credit to our r and d in terms of bringing out a product which can really be effective against the coronavirus. We also have all surface ant antibacterial product which comes in, coupled with another variant, which is a single quote antibacterial pain. So lots of innovation in this space in terms of what has come out. We were also amongst the industry first ones to kind of come out with the entire portfolio of sanitizers and disinfectants, which we launched as on May 1. And we have been relentless in our work around the communities, hospitals, working with the government very, very strongly, taking this entire forte in a very big manner. Along with this, we also launched our sanitizing service, which is called the Sanishore, where we use all these products to give protection to the consumers in a very, very strong way. So the entire focus is on the service where we are able to reach out to homes and offer customers a very strong proposition as far as antibacterial is concerned. We have also launched masks and, PPE kits, which are there for all our painters who can access the kits and they can really serve the consumers across. This is an addition to our safe painting service, which has also met with a huge amount of success. And that is one of the services which has actually, taken the paranoia of the people's mind of getting the painters, within their home and start doing painting in a very, very big way. So I think that is something which, some of the initiatives in terms of what we have done, and innovation continues to be the key in terms of what we are doing. When we come to our international business, obviously, here also the volume growth has picked up very, very strongly across the markets in quarter two. And overall, we are closer to, if you look at the entire international business, closer to a double digit growth of volume there as well. The performance is led by good volume growth in Africa and Middle East. Units in Sri Lanka and Bangladesh dropped double digit volume growth. Nepal still under is under pressure because of the continued restrictions due to COVID, which have been there, and it has been one country which has been very, very strongly affected for everyone. There is a strong push around new products, variants in premium and luxury merchants to fill in product gaps. Waterproofing also has been launched in a big way across various markets. There is margin improvement supported by lower material prices as well as work on deriving sourcing and formulation efficiency. Overall international business, the revenues for the quarter two amount to INR660 crores, which comes to a 7.8% growth. And for the half year, it is 1,056 crores, which is a negative of 9% given the fact that April was a washout. International business PPT for the quarter two is 69 crores, which is a healthy 44.3% growth. And for the half year is 73 crores, which is about minus 4.9% kind of a figure. Coming on to the industrial business, we have two businesses here. The first one is PPG AP. This is our joint venture with PPG of US. There is a strong uptick in the passenger vehicles, and we are all hearing that the auto business seems to be doing well, and that is reflected in the performance. And two wheelers builds indicators of a recovering trends. OEM business, reported good growth in q two after a sluggish q one. Refinish business, though better than q one, is still not something to which is to the pre COVID standards. The second, JV, which is the a p PPG. Here, what we have seen, a gradual recovery, in terms of the general industrial business in q two. Powder business has been good leading the recovery. Industrial liquid paint demand is still low since some of the industries are still struggling. But what we see is that the demand from the large consumption sectors like oil and gas and maintenance is definitely lagging. Both the businesses have benefited from the lower input material prices here. Coming to the home improvement business of Asian Paints, the kitchen business, if you look at it, it registered sales of about 61 crores in quarter two, touching the base of previous year. So Q2 has been good for this business. The first half is at INR 86 crores lower than the previous year by 26%. Components as well as the full kitchen segments recovered well in quarter two. Project segment two saw some pickup on a sequential basis. The PBT loss of 4.4 crores in quarter two, is, you know, is much better as compared to the loss of 13.5 crores in quarter one. If you look at the bath business, we registered a 55 crores business in quarter two, lower than previous year by 4%. So this was slightly more effective as far as the overall business is concerned. First half sales is at INR80 crores lower than the previous year by 25%. However, we see a clear recovery by the economy range of products coming in strongly here. Overall, business reported a PPT breakeven in q two. Okay? So we had a breakeven in q two compared to the loss of 7.4 crores in q one, supported by some improvement in, obviously, gross margins, cost control, and lower spend in marketing. Finally, if you look at the stand alone financials for the overall Asian Paints organization, for quarter two, the revenue is definitely up closer to that 6%. The PVDIT performance has been 31.6%. The PVD performance is 33.7%, and the PAT is point 3%. In case of PAT, please note that the PAT is lower due to the tax reversal in last year with the lowering of corporate tax rate. On a like to like basis, path growth should be in is in line with the PBT growth. So there is no tension here in terms of the path as we see it. The overall, I think, highlight has been that the PVDIT margins are over plus 5% if you look at the quarter two. Similarly, when we look at the first half, I think the situation has improved very much as compared to what we were there at the end of the quarter one. We see the revenue, which is still about negative 19.5%, the PPDIT at 17.7% negative, PPT at a negative of 21.5% and a pack which is negative of about 27.6%. But I think the good part still is that overall, the PPDIT margin is still plus 0.5% here. Finally, when we look at the consolidated results, for quarter two, we clearly see the revenue being at about 5.9%. The PPT IT is at 51.6%. The PPT is at 54.4%, and the PAT is at point 8%. The same thing is applying here that given the tax reversal in last year with the lowering of the corporate tax rate. On a like to like basis, that growth is in line with the PPT growth, which you see of 34%. Here again, the PBT and margins have been fairly healthy even at the console level at 4.7% kind of a growth. If you look at the corresponding first half year figures, revenue is 18.5% negative. PPDID is 18.4% negative. PPD is 22.7% negative, and PAT is 29.5% negative. And, PVTI margin remains the same. So that's what where the whole area of the both the stand alone and the consolidated financials for you. Moving on. Finally, when we look at, dividend, we've declared, you know, in the financial year 2021, we declared today an interim dividend of 355%, which translates to rupee 3.35 per share. Just as a reflection back, for the financial year twenty nineteen-twenty twenty, we had paid two interim dividends, one at INR3.35 per share and the other at INR7.15 share totaling up to INR10.5 per share. Then we pay the final dividend of rupees 1.5 per share, and the total dividend therefore translates to 12 rupees per share, which is a payout ratio of 51.1%. Finally, I think a lot of, you would wanting to hear from us. We definitely see a recovery in q two led by, a little bit of a seasonal demand in the market due to festivals. We, obviously, the real question at this point of time, whether this is sustainable, how is it to be seen, very difficult to say at the moment. And obviously, the situation continues to be uncertain. Overall, global recovery could support the export sector in India. There are early signs of recovery with September 20 exports growth in positive zone after a gap of six months. Good monsoons could provide a strong support in the rural economy and demand from that side. We hear the aggregating sector will do well. The rains have been quite good, and there has been a good demand for tractors and other things. So I think this is a positive sign, which is emerging. We to continuously watch on the currency movement and the raw material prices, though they remain stable currently. We continue to work to further cost on the areas of cost optimization and take up only business critical spends across businesses since we still see the environment as a little bit uncertain. Thank you so much for listening to this. I would like to now end this presentation. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Session. The first question is from the line of Abnish Roy from Edelweiss. Please go ahead. Yes. Congrats, Amit, on great sort of numbers. So my first question is on Home Decor. So you're already doing quite well in your core business. Now when I see SLEEK and SS after so many years, still the growth in peak and excess is either flat or down 4% in this quarter versus double digit volume growth in core business. They continue to be loss making. We have taken write off in in the past few years, in some of the years, in those businesses. So what are the learnings from there? Why go further into lighting, furniture, home decor, they're already either online players are there or formidable consumer durable makers are there or even foreign brands are there. So what is the right to win Asian things going to the table? So would you be relevant top three, five players in furnishing furniture, lighting, or home decor from longer term perspective? Or will it be a push when customer comes to your overall that home improvement store? It it will be just a push when customer comes there. So if you could elaborate on this. Okay. Great, Abhish. Thank you for answering, asking this question. When we look at, the entire home decor business, it is in light with our vision. Our vision has been that we want to be a forerunner in terms of home decor, and we want to partner the customer in making their homes beautiful. So when you look at this entire initiative, our vision is very clearly that we would like to be now not only a company which is about, you know, just surface decor. We would like to be a company which influences the spaces between the walls, and therefore, we would like to kind of talk of a share of space within the homes. Given that imperative, we think that home decor is an integral part of our business in terms of going ahead. And we think that, we understand the home consumer quite well, and therefore, this is a natural extension for Asian Paints to kind of get in. Having said that, you are right. Our experience with respect to both the kitchen business as well as the bath business has not been very, very strong in the last three, four years. But what we see is that we have had a very, very good understanding of the market in terms of how it is there. Because if you look at the kitchen business, it is largely fighting against the unorganized business to that extent. And therefore, we feel today, we are the one of the largest players in terms of offering modular kitchens with a footprint across the country. So I think we have built in good strengths, and there are times when we are looking in terms of saying that how the overall business then starts making sense when we start talking of overall home decor. Similarly, in the bath business, I think we have expanded our footprint in the last few years. And now I think we we have also launched sanitary ware. So overall, I think that business also has reached a certain level, as we see it. What we have quickly realized is that when we placed our beautiful home stores across the country, okay? We have now 15 stores across the country, and we quickly realized that when we are servicing the customer there, we don't only require bath and kitchen. We require the entire range. So these stores are positioned as offering decor under one roof to the customer as a proposition in a very strong manner. And we feel that the launches of furnishing, lighting, furniture gives us that muscle in terms of serving the customer fully and would also give acceleration to the bath and the kitchen business as we kind of go ahead. So the idea is to keep on establishing premium stores, which are serving the customers. And these stores are led by a very strong servicing business, which is not only about at the shop, but also at the home, the type of service that you can do. So we think that today, we are at a crucial juncture where we need to kind of really add on to the categories like, what we have done so that we can offer a far more consolidated strong position to the customer. And we think that this will also start giving some acceleration to bath and kitchen. But having said that, yes, it's a difficult journey in terms of what we are taking ahead, but we are sure that this is something which aligns with our vision, and Asian Paints is committed to this business. Thanks, Amit. It's related question. The first question is on sanitizer. So how is your monthly exit run rate in sanitizer now versus q one exit? Why I'm asking this is, now sanitizer sales are increasingly getting consolidated in favor of and in the. They were the core player. Even the Herald company results just came out based at quarter on quarter significant slowdown in Sightizer has happened. If Herald company is not able to sell with so much distribution, how are you now seeing Sightizer thing? Okay. Great. See, what we are very clearly looking is that, see, the largest stake of the entire, you know, sanitizer and disinfectant business is to kind of really propel our, sanitization service in a very, very big way. All the products which we have launched give us a very strong kind of strength in terms of reaching out to the homes and doing a lot of sites. We have been able to do more than 50,000 sites in a very short period. And given the fact that we are able to get into the homes, we get access to the paints as well very easily. So we think that it's a service which complementing complements the painting in the sense that we get to know the customer far more intimately in terms of going forward. And we also see that this is in synergy with that paint as far as the health and hygiene area is concerned. As far as selling the products are concerned, we are exploring our own network as well in terms of which is a huge network who would be able to kind of sell some of the sanitizers and disinfectants in the market, which would be there. Obviously, we don't want to compete with the FMCG in this space where they've got a larger muscle, a much larger network and so on and so forth. But we feel that it's a slow and steady show business, which will keep on complementing the pains in the health and hygiene sector, and we will continue to kind of push on our services as we kind of go ahead. Right. My second question is on core business. So if you could tell us this double digit volume growth is very good, but non 40 volume growth, should it be, say, mid single digit? And in international market, when you are seeing almost double digit volume growth, you are getting there also. So have you launched some new products last few years in international market? I don't know whether that would be relevant there. So if you could elaborate something like Bangladesh, Nepal, I think it will be relevant. So how come you are getting such a good growth in the international market? So when we look at the, Indian market, as I said that there has been a large foray with respect to, looking at upgradation in a big way and also looking at the undercoats market along with the smart care water boosting market. So I would say that all these definitely, there are lot of products which give a impetus to the volume to that extent, and it is not only put the dependent to that extent. And therefore, the volume growth are a combination of growth which are happening with respect to the, operation in emulsions, the waterproofing products and the undercoats to that extent. So therefore, it's not only one product dependent to that When you look at the international market, even in the international markets, today, it's not that, you know, everything is partly led. In fact, the party contribution, in one or two countries might be higher, overall, party is not a very big thing in terms of the international market as well. There, we have been looking at a state of launches this year. As I said, waterproofing has been launched across various countries in a big way, and that has contributed to a large chunk of growth which we have bought there along with the fact that there have been huge amount of variants and emulsions which we have launched across countries, especially when we look at the Sri Lanka, Bangladesh, and Egypt markets, which are the bigger markets that extent for us. And all these are in combination giving us the volume growth that you are getting. Okay. Thanks a lot. That's all for me. All the best. Thank you. Thank you. The next question is from the line of Parsip Antaky from IIFL. Please go ahead. Hi, good evening, Amit and Arun. My first question is on your overheads that you've been able to control very well. I see this quarter, the other expenses line as a percentage of sales is down about 300 basis points. So just wanted to understand how sustainable these savings are. Is this 300 basis points sort of number which is now cast in stone, which will continue going ahead? Or as you see business coming back and business normalizing, some of these costs would be restored? And if so, to what extent? If you can just give some amount of idea on that, please. Okay. So when we look at overheads, what we would see is that, you know, we have done a lot of work with respect to the fixed overheads as well where we look at rentals as one of the big thing where we have done very strong work around that entire thing across the country, across our various establishments which are there. And that is something which possibly has given us one good kind of imperative with respect to how the costs are looking. The second thing is when you look at the variable expenses, we also see that at the moment, you know, the travel is another component which has really come down and that is something which is giving us some strength in terms of looking at it. At the same time, there have been a lot of cost initiatives which have been followed by the company, have been in the spirit of saying that we don't compromise on things in terms of service, what we do in the market. But at the same time, we are able to kind of look at a little bit of a frugality in terms of the way we work given the current circumstances which are there. The other bit is in terms of, obviously, as part of the larger story on overheads is that the marketing expenses have come down a little bit. So, what we see is that, overall, some of these things would be definitely sustainable as we kind of go ahead. But as, markets open, as, you know, things kind of return to normalcy, you know, Obviously, some of the variable expenses will kind of go up, but I think the work which is being done as far as the fixed overheads kind of a zone is something which will sustain for times to come. Understood. Other question I had, sir, was in terms of demand, you did mention that July, August, September, each of these months saw increasing momentum in terms of demand and sales. We are well into October now also and the festive season sales, etcetera, also has started. So have you seen that momentum accelerate further into the October month? See, there is definitely some movement in the market, what we are seeing in terms of which is led by, I think, two factors. One is the factor of the immediate festivals, which there coming to that extent, which has caused definitely a spurt in the demand, which is there. And this spurt in demand is across the various tier cities in terms of what we are seeing to that extent. The only thing what we must remember is that so while the momentum currently is continuing, what we must remember is that it is all dependent in terms of how basically, you know, if there is a second peak we hit with respect to COVID and there are further further issues of lockdowns and other things which happen in the environment, it will definitely impact on the growth. So it is very difficult to say that are we really out of it. Okay? I would say that we need to be a little bit cautious about the fact that saying that, you know, that the current momentum will kind of continue. Because what we only see is that we can save it surety once the vaccine is out and people start getting into that zone where people are sure that they are safe to that extent. So I think I would only say that the there is definitely a momentum because of the festivals, which is there to that extent. Now whether this momentum will continue will all depend in terms of how the situation kind of develops, how basically we see a second peak, if we see a second peak going forward. And if the cases keep on coming down and the current new normal kind of continues, I don't see any reason why demand should not continue. Right, sir. And last question from me is on home decor. So just wanted to understand the go to market route for this. Is it completely dependent on retail build out that you do? Yeah. So I there are two, three routes which we do. One is the route in terms of retail a level of stores, are there across the footprint of the country. Then we have our specialty stores, which we call as the beautiful home stores, which are one stop decor stores, are there to that extent. And these are the premium stores, which kind of sell the entire range. Then we have the entire projects and institutional business, which kind of caters to builders and, large corporates and so on and so forth. And we also have a fourth move, which is the architects and interior designers where we, we kind of, liaison with them in terms of looking at supporting them in their work as far as Home Decor is concerned. And can you give us some idea on what is the total market size that you're looking at for these segments like furnishings, furniture, etcetera? How big is the opportunity size? So the opportunity size is as big as you can think because is a very, very unorganized market in India. Today, we don't have, in any of these sectors, any big organized players to that extent. And that is why I think the entry of any overall, India level brand has been always an issue to that extent. So today, I think each of these markets is very, very big. If you look at only furniture, that market size is more than 1 lakh crores. Okay? So I think, if you look at each of these segments, the markets are extremely big in size. But I think the, the biggest impediment is that the kind of an organized nature of the business, the way it is to that extent, becomes a strong impediment in terms of really offering a customer a very, very strong proposition. Right, sir. That's all from me. Thanks and all the best. Thank you. The next question is from the line of Manoj Menon from ICICI Securities. Please go ahead. Hi, Hamid. Hi, Jaeme Rugen. Hi, Arun. First of all, I must congratulate the team for significant improvement in the disclosures because the industry leader always sets the tone. And I hope this will continue and even get better in times to come. Good performance. Just a couple of questions actually. It's more basic. I'm sorry if it is too basic. I'm just trying to put together the statements, double digit volume growth, revenue value growth of 6% and also the comment about better product mix and stable raw material, which essentially implies possibly the only thing I could figure out was that in the equation was the category mix is likely negative. Essentially, you're saying within paints, better product mix, but the category is that the right understanding? Yeah. So we when we are saying a better product mix, what we are implying is that we are selling across economy premium and the luxury and big way. It is just that today, there are certain markets and certain segments within each of these three categories, which seem to be kind of doing well. So it is not a uniform kind of a scenario all across to that extent. But the good part, what we are seeing is the product mix is much better in terms of what we are seeing relative to Q1. And also the fact that today, even at the luxury end, we see some of the growths are really very, very good in terms of certain categories and certain regions, which we are able to see. Understood. No, sorry for pushing this. What I was just trying to understand here is that, one, you see, we think things, the top end sells more than the basically, there is a pyramid out there. But with the per unit realization and more importantly, the gross margins of the other businesses, what you are doing, whether it is waterproofing, other seeds, food feed, primer, the entire market, is that what is the basically the difference of that 4%, at least 4%, if not most, which I'm just trying to understand the revenue line in conjunction with the gross margin performance, which is exceptionally good? Yes. So Manoj, what we must remember is that you know, even with respect to the other categories that you just mentioned, okay, I think the gross margins which we are enjoying there are also pretty good, and we have a constant endeavor in terms of upping that gross margins in terms of the the constant work, which we keep on doing with respect to our formulation efficiencies and so on and so forth. So it's not that the there is a huge difference in terms of the marginalization between the paint categories and the other categories to that extent. Yes. There is a difference, but the difference is not so large that it can cause a very big skew with respect to in terms of the overall kind of margins which it can do. So to that extent, I think from that point of view, it's it's still a balanced kind of portfolio in terms of what we are pursuing. And the fact that today, the core paint, along with some of these categories is going is a indicative of the fact that it's a fairly balanced scenario in terms of how the growth are coming in. Understood. Maybe the only exception would be the putty gross margins, which is possibly outside of basically, you know, if it's a material difference. Right? That's probably the only exception if I'm I would not say that because, see, even with respect the economies and the products, basically, if you look at the gross margins, I think, overall, the gross margins are pretty healthy. And within the party, also, there are two, three variants which are there to that extent. And each of the variants has a different kind of a margin. But, yes, the larger selling party would have definitely a little lower margin as we could kind of see in terms of looking at. But, you know, how you need to kind of see it is the per realization, what you would kind of make out of a whole household. So the starting work, which in any household, which will happen is a party. If the party is not yours, maybe the top end products which go into as top course will also be not yours to that extent. So I think what is there to kind of look at is is that the realization from a certain household, which you would make is still very, very healthy given the fact that Partik would be only a small part of the whole purchase. Understood. Completely understood. Just keep one more and then I'll come back in the queue. What is the definition of decorative? And how do you define volume growth? Wow. Okay. That's why I said you said basics. Okay? So decorative means it is basically the entire architectural sector, which means whatever is going within the homes, whatever which goes into offices, what goes into institutions, what goes into high rise buildings, all that basically is, something which we classify as decorative. And these are paints which are not industrial in nature. Industrial segment, when we say it goes into protective coatings largely for varied substrates like iron, galvanized iron, mild steel, you know, aluminum, and those kind of chimneys and so on and so forth, which is there. So the deco sector largely, basically, caters to the whole area of, masonry in a very big way. But, having said that, within the home, you will have various substrates like wood, masonry, metal, which we would kind of cater to. So the larger business is all about homes and living spaces. That is how I would say, how the decorative and the architectural business is defined. Living spaces is a big word there in terms of what you should kind of take, from this conversation. The other thing is, what you said is that, how do we look at volume growth? Okay? So the volume growth would qualify in terms of all these products which we have, wherever we have, largely the liquid components, which are there, where we are able to measure the per liter kind of a thing is where we will look at the volume growth. Anything which possibly is not in a liquid state would not kind of translate in terms of joining in the volume growth. Understood. Understood. So it's not a kilo converted to liter. So when you what I'm just trying to understand that it is what we you know, what you calculate internally is not a value weighted volume. Right? It is just tonnage to tonnage or liter to literatures. That's right. So so, obviously, you know, when you have a product like Distemper, which basically sells as, kilogram, okay, there's a conversion to a litter which takes place there to that extent. Okay? So so it's not that, so, it's it's not that it is taken as, something which is not accounted for in the volume to that extent. Understood, sir. Understood, sir. Thank you so much, and all the very best. Thank you. The next question is from the line of Abhi Mehta from IIFL. Please go ahead. Hi, sir. Sir, thanks for clarifying the product mix improvement. My question was that why is this improvement in mix not getting reflected in the gross margins, which have moderated from 1Q levels? Sorry, the gross margins have improved from the Q1 levels? Sir, if I look at the stand alone business, it doesn't seem like that. Maybe if you could It's Adi, it's also a question of what is the kind of input spends that happened in Q2 versus Q1. Okay? And but if you if you're looking from a from a material cost perspective, gross margin is better than q one in q two because we've seen the material prices, on on a downward trend in q two. So material prices are on a downward trend. Mix was on an improving trend. But, sir, our end to sales has actually moved up from one. Right? Yeah. So that's that's a question of the the the the input that happens between various quarters. Okay. Okay. So it's just clear what kind of input is being used for the product, so whether it's okay. That Yes. So you must remember that, the overall inputs and discounting also plays an important part in terms of governing that gross margin to that extent. And therefore, it is very difficult to isolate only on one level and say that it's the product mix, is the material prices or it is the discounting in terms of what's going in terms of looking at giving that gross margins. Okay. And does that imply that your formulation change is partly the reason for that, sir? Or is it possible with the mix only changing because upgradation has happened? Is that No. So formulation is an ongoing process because you must remember that the material prices have a strong contribution to the overall cost. And therefore, given the fact that whatever saving which we make in terms of effective formulations, it would kind of give us a big impetus with respect to improving our margins. Okay, sir. So the second question was essentially on the demand side. Could you help understand whether the metro demand has now come back to pre COVID levels or how is that behaving? Because you did say there is an improvement, but in the start also you highlighted it was largely led by the two towns. Has Metro now come back? Or how would you kind of say that? So I would say that when we compare with the q one levels and we look at the Metro t one and t two cities, there is definitely improvement which has happened progressively over the months. And that is something which is a clear trend which we are seeing that the metros are definitely improving along with the t one, two cities. And this is reflective across various categories to that extent. So it is not particular to all category. It is reflective of across categories. And it is definitely improved, but it is not back to the pre COVID level. It is still, I would say, at a level of about 70 to 80% kind of a zone. It's not come back. And within that, also, there is a differentiation. For example, Mumbai has been the most sluggish in terms of coming back to life to that extent. And there are places like Bengaluru and Chennai, which also happens, you know, slow. Whereas what we find is that North and East have been far better with respect to coming back to life far more strongly. So there are differences geographically, which we are also seeing with respect to this metro T1, T2 cities. But to sum it up, it is not back to the pre COVID levels. It's still about seventy eighty percent. Perfect. And last, sir, just a bookkeeping. What has been the reason for the increase in others in the better, sir, in this course in this, you know, first half? You're talking about the it is a better position. Right? Yes. Yes. Right. As a yeah. And the as a percentage of sales or in whichever way. Yeah. So if you are comparing it again with the with the specific to the q one n number, it's the reflection of the growing normal returning back to the business. Because because of the loss of sales of April, the better outstanding position with the work that happened in April and the incentive selection had come down. That is just moving back to a more normal. So I was actually comparing Y o Y. I was comparing the last two second quarter. Yes. So between the two years, we will object we have to think in terms of the loss of sales that happened in the month of April. And therefore, at it as a percentage of sales. Okay, sir. Okay. Thank you very much. Thank you. The next question is from the line of Latika Chopra from JPMorgan. Please go ahead. Yes. Hi. Thanks for the opportunity. My first question was on your revenue trends. Clearly, looking at the volume and the value equation, there is a difference. And the difference started sometime in the same quarter last year, which is moderating sequentially, but it's still roughly about 5% difference. Do you expect it to taper going forward as the Tier one city recovery gathers pace? That's one part of the question. And the second is in rural and semi urban towns, you have seen share gains from the unorganized or the smaller players who probably witnessed supply chain disruption over the last few months. Do you see the situation normalizing? Do you see them coming back? And do you think these share gains are sustainable and you can probably build more here? And the second question that I had was on these new segments that you talked about on furnishing, furniture and decor. I would assume that these are still sourced to a third party and or if you are going to go on your own in manufacturing these, is there any large outlay on CapEx there? Thank you. Okay. Just taking the questions one by one. First of all, what we feel is that as we come towards normalcy, okay, I don't think so that there is too much of a contraction with respect to this gap, which is going to be there. There could be a one, one and a half percent kind of, you know, difference which could kind of come in. But largely, I would say that the gap would continue with respect to this kind of thing because the way the overall product mix is there, the way the focus, which we are kind of taking on certain categories, I think, would kind of stay. And what we are clearly committed to the fact is that, I think, the overall volume growth, has been operating quite well for us in terms of giving us access in various markets, overall, which also propels the value growth, as we kind of see it. So that's that's one. When we look at, possibly, you know, the our share gain, which you spoke of in terms of the some of the tier three, tier four cities kind of thing, I would say that a lot of the share gain is kind of coming at the best of possibly even gaining from the organized companies. Because today, Asian Paints conventionally has a far better reach with respect to our retailers, which we have across the the small towns and small cities across the country. We far we have a far better distribution reach as well as from a servicing angle. And we feel that given the range of materials which we have, which we are able to reach out to the smaller shop in in upcountry town. I think that is something which is giving us a share gain from even the organized players. In fact, I would go ahead and say that some of the regional players, I would say, in the regions where they are have done pretty well, and they have also bounced back pretty good in terms of servicing their own retailers to that extent. There is only disruption in their supplies where they have to reach out to other parts of the country to some extent, but largely in the regions where they are, the unorganized sector is also doing very well. So to that extent, I think some of these gains are very, very strong in terms of what we are seeing for ourselves. The third part is that in terms of looking at some of the sourcing about the home decor currently, yes, we are currently looking at, you know, a lot of partnering, a lot of franchising in terms of, how we are sourcing. But what we are very clear is that as far as, the design sense goes and the quality parameters go, that's something which is of the Asian Pain standard. And currently, there are no larger CapExes which are going in that flavor to kind of really fuel this kind of launches. Thank you. This is very clear, and wish you the best. Thank you. Thank you. Before we move to the next question, we would like to remind the participants to limit the question to one per participant and also keep it brief so that we can ensure that we answer all the questions in queue. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead. Hi, sir. Thanks for the opportunity and congrats on a good set of numbers. So in terms of adjacency in the last many years, we have got into many spaces. Some have been tactical, some have been strategic from long term perspective. Is it a fair understanding from our side that of all those adjacencies, waterproofing will be the next big thing after coating that we can look forward to? As for me, you know, there is nothing like the next big thing because we feel that within the paint also, there are a lot of next big things which are there to that extent. So whether it is some of the, you know, the emulsion innovation which we are doing, which is the whole area of the health and hygiene, which you have kind of gotten, whether it is with respect to some of the, you know, undercourse which we have gotten to some of the upgradation products or whether it is some of the wood finishes which we are coming out with. I think there is a all round focus on huge number of categories to that extent. Yes. What I see is that the what we must remember is that Asian Paints doesn't really follow any competition to that extent, and we are looking at seeing that how the per capita consumption of paint is something what we can increase because we feel that as a market in India is still underdeveloped as far as the perfect capital consumption is concerned. So I think there are a lot of large areas, which could be the next big thing in terms of what we are looking and some are core to the paint to that extent and some are related to the paint category to that extent. So I will not like to peg it on only on one kind of category because as a leader, if we peg it on one category, then you can't be there for the next one hundred years. Sure. But sir, you call what is the same relatively success versus home improvement and other ventures that we had in last three, four years? Or that's still too early to call it out? See, something which is very strongly integral to what we have been doing for the years is relatively much easier to that extent. And therefore, since the waterproofing really correlates with a better painting performance, I think it was relatively easier to kind of establish the credentials there strongly and kind of take on. So that definitely has been a faster normalization in terms of the usual Asian things we are working. The home decor part is a different part where there's been a lot of learning which has been involved. And given the fact that that learning is a little bit slow, it has taken its own time. Mr. Shah, request you to join the queue for any follow-up questions. Sure. Thank you. The next question is from the line of Aditya Souman from Goldman Sachs. Please go ahead. Hi, good evening. So my question was also on the Pinduya Health. So how would you rate Pinduya Health at this point? Sorry, I couldn't get your question, please. So just in terms of dealer health, how do you rate your dealer health when you compare that with, say, the same quarter last year and then the first quarter this year? See, I would say that as far as our retailers are concerned, we feel that we have been able to really support them very, very well, whether it was in quarter one and then sequentially now in quarter two, both with respect to the type of demand which we could kind of take to them and the kind of margins they are making in their own business to that extent or the innovation for the customer we could kind of bring about. Okay? So I think today, I would say the overall health of the, you know, retailers and the entire industry is very, good in terms of what we see it. Because what we also see it is that they are seeing continuity in terms of the business, and there is largely the anxiety of disruption, which came in has now been modified to a lot a lot of strength. And this entire performance which has come in is because the retailers are doing well, and they are also earning money overall to that extent. And therefore, we feel that there is no issue with respect to that and they continue to kind of really be in a very strong partnership with Asian Pets. No, thanks. That was clear. Just in the case of that, just posted them through this early stage. Would I still need to support them going forward? So what we did was that we definitely did support them on a lot many issues, both in terms of the you know, some of the financial settlements which had to be done or what accrues to them, or in terms of, insurance for their shop boys, sanitization of their shops, and stuff like that. We also introduced a new new credit layer in terms of what we gave to them. But surprising to us is that most of the people, while they initially utilized it, as they kind of saw their business kind of normalize, they're not really kind of utilized that layer so much as we would have kind of seen to that extent. But having said that, that layer still stays in the market if people have to lose this. Thank you. The next question is from the line of Pandav Mitra from Credit Suisse. Please go ahead. Yes. Hi. Congratulations on a good quarter. Just one question regarding the new home because segments that you spoke about. So it seems that a lot of these segments, we're going to general trade. Are the channels very different in terms of their stock for the retailers to strongly product? And or is there some commonality? And if they are different, would that mean that you would have to set up separate sales teams and therefore, it will be a very, initial, till you kind of scale up. And also related to that, I mean, how do you manage the SEO complexity of this team? How do process that would have now had to add it to your portfolio? Okay. So, as far as the home decor categories are concerned, you know, there is, actually, with a lot of our retailers, there is, you know, a very little commonality which we see to that extent. But, what we have been able to kind of successfully do is that player of the retailers, we have basically, being able to align them to kind of start basically getting into these categories as well. So today, the the beautiful home stores which are coming, in the market are none other than our retailers only to that extent. Basically, retailers who have a customer orientation, and we believe that they are customer centric in terms of their behavior and they are able to spend their time with the behavior with with the customers is something which we look at to that extent. And therefore, we are now currently in our entire network creating these layers where we are kind of segmenting the retailers with respect to their customer disposition. And we are able to find that, this is a, interesting experiment where some of our retailers, have started to kind of diversify their businesses and try to align themselves selling some of these categories, strongly to that extent. So I think, what we are finding is that there is a clear layer of retailers which is emerging, which are able to sell some of these home decor categories slowly but surely. We found the same thing when we introduced wallpapers in the market. And today, what we are finding is that some of these categories are also finding a common ground because some of these people were already dealing either in bath or someone were dealing in electricals or they were dealing in hardware to that extent, and they find a natural disposition that they can offer a lot many other categories to the consumer. It takes time, but I think that is something which is a challenge in terms of orienting them to start selling these categories as well. Thank you. The next question is from the line of Satish Pardeshi from Centrum. Please go ahead. Yes. Hi, Amit and Mr. Murgan. Thanks for the opportunity, and I really appreciate such detailed information shared by Shinpaint. I hope it would continue. Well, I have your question on demand. And in my observation, what we saw, the urban demand was challenged in last few quarters. And if I pick up the commentary what other companies are saying, top 100 towns and metros has an issue. Is it safe to assume that second half, if things normalize and COVID comes out, we will see a better demand what we have reported just now in the second half? Yeah. See, you know, there is currently, you know, after COVID has come in, you know, there is nothing which you can say in a very definitive manner. Okay? Because, you the situation changes kind of every month and how governments react and so on and so forth to that extent. But I think it is reasonable to assume that as the paranoia from the customer minds kind of goes on and customer knows that today, the fatality rate is kind of going down and the positive cases are coming down and he or she can really step out of their homes and they can get people within their homes to that extent. I think, this this kind of a trend will continue. And I would say that if this really happens, then the second half, should be definitely better in terms of the way it kind of, really goes as far as demand is concerned. However, I think, today, a lot would depend with respect respect to to how the metros T1 and T2 cities fare out because T3 and T4 cities are back to their pre COVID level demands to that extent. So I think a lot depends on metros and T1 cities specifically in terms of how these kind of come back to normalcy in a very fast manner. And it would also depend a lot with respect to how government is responding in terms of looking at opening up the economy very, very strongly and not doing a U-turn at certain times in middle, which sends a very, very wrong signal in the market. Do you think to get this demand, you need to take a price cut or or you have already initiated some price cuts? No, I don't think so that, that is required today. I think, to that extent, what we have seen is that, there is no large level downgrading happening by people, to that extent, and that is something which is as a trend, which is appearing in quarter two. So from that point of view, I don't think so pricing is an issue. You have not taken any price cuts? No. And have you increased any discounting in the trade? A little bit to that extent because that is a normal thing in terms of really looking because there's a time when people are not willing to stock and a little bit of discounting to kind of get people to stock a little so that they can do. But there's nothing which is we have gone really out of the way in terms of doing it. The reason I'm asking because in two pockets, we have seen the inventory has gone up in the trade. So I think it could But this is not comparable to that extent. I would still say that when you see from a pre COVID level, the inventories in the trade are much lesser. Thank you, Mr. Paretosh. Your question has joined the question queue for follow-up. The next question is from the line of Richard from Jain Financial. Please go ahead. Hi, thank you for taking my questions. So if you can just help me understand two aspects, please. And I think Percy has dealt with this in some form earlier, But I have something which is more over the medium term. So if I look at margins across the board, across your different business lines, it seems like each and every business has got more profitable now given that you have taken a lot of cost measures during the lockdown, etcetera. And this is true for domestic decor, for international, for industrial and maybe sleek and FS2. And these cost measures seems to be some long lasting ones, right? And revenue, of course, have taken a knock in Q1 and now seem to be back to where they used to be, at least on an aggregate basis. So my question is that has this couple of months of COVID hardship that you had to go through actually made your business a much more higher quality one in terms of margin and profitability. And and and this better quality is for keeps forever now onwards? So I I won't say that, you know, the, you know, coming of the COVID has bettered the quality or, you know, has intensified our effort with respect to, looking at, bettering our margins in that way. It has been an ongoing initiative, which we have been doing over a period of time. And I think, over a period of time, I think, this is a continuous initiative, we are kind of pursuing. And we definitely don't don't need another COVID to kind of really intensify our efforts there again. But I think today, we see is that, yes, it all depends in terms of the demand and how the mix kind of augurs as we kind of go ahead in terms of looking at sustainability of these margins in terms of what is there to that extent. It also depends on how the material inflation part goes in the future to that extent because as demand stabilizes and demand starts to kind of go up as well on a more stable basis, we also see that the inflation in the market catches on, which kind of then basically affects you because there is only so much you can pass on to the market. So I think it is all dependent in terms of how those factors pan out. But I can assure you that, I think some of the initiatives that we have taken around, the formulation efficiencies, improving our, kind of mix and so on and forth, that is something which is going to stay. Okay. And one more question, if I may. Considering the amount of drop that we've seen in crude oil prices and TiO2 is also kind of doing okay as far as what I could see on the numbers. The gross margin expansion of 200 bps Y on Y and nothing Q on Q does not seem commensurate with the kind of downward fall that we've seen in crude oil price behavior. Can you help put this in context for me, please? Thank you. They you know, the difference possibly would be just about a one percentage point kind of a thing. Okay? Or 1.1% kind of a thing which is there. Because what we are seeing is that, know, crude kind of took its lowest level kind of a thing, and we are seeing a lot of crude derivatives, now starting to go up. If you take a case of MTO, which is the very basic thing, which kind of goes up, we have started seeing escalation in the prices which are there to that extent. And similarly, with respect to certain other raw materials also, we are seeing that there is a little bit of an upward graph, which has kind of started to that So I think that is one reason which we are seeing that today, you know, you you are seeing that there is a little bit of this, you know, benefit what we got from this thing in q one is something which is now definitely coming down to that extent. Extent. And as I said that there is a little bit in terms of the discounting, which really spend also impacts in terms of the overall margins as you see in terms of going forward. All right. Thank you. Wish you all the best. Thank you. The next question is from the line of Amit Sachdeva from HSBC. Please go ahead. Hi, good evening and thank you for taking my question. Amit, congratulations on great numbers. My just one question is on the same thing, which probably Latika also asked, that mix started sort of being adverse last year. And then we had seen substantial difference between volumes and value. And you alluded to it going more aggressive on volumes and perhaps that would continue for a while. And correct me if I'm wrong, that last year mix was inferior, and I would think that Q1 demand would have sort of been coming to now Q2, Q3 as well. Would that perhaps would give you a better mix this Q3? And in that case, should we see that tapering offset the kind of deflation we are seeing? And how should we think about next year when bolting and it also rises? Then would that trend be continued by 2022 as well? How should we think about this aspect of it, where you are deliberately pushing volume on certain SKUs and giving us that effect? If you look at, currently, you know, you know, we are in a situation where, there is no, set trends that you see across markets, across regions. And I can tell you there is no pent up demand of Q1, which we are seeing into Q2. Whatever demand which we are seeing in Q2 is basically a new demand, which is kind of there to that extent. And there is no pent up kind of a demand, which we are, seeing here to that extent. Now as we kind of keep on going forward, I think a lot depends in terms of the fact that, today, what all kind of, growth opportunities really come in, as I said, that there are markets. For example, there is a wood finishes market, which is a large amount of French polish in the market to that extent. Now it's a very, very big world, and it is at the economy end to that extent. Now tomorrow, you start focusing on that and start growing the market, you will start getting the volumes as well to that extent. And it's not that we should not kind of focus on that category in terms of going forward to that as we kind of look at it. In my view, as we kind of keep on going ahead, so long as basically, we are looking at good margins, we are good day realizing good kind of bottom line as we kind of go ahead. I think it is immaterial in terms of whether this margin between the volume and the value remains and how it kind of augurs out. Thank you. Ladies and gentlemen, we'll take the last question from the line of Chaitoshi from Kotak Institutions. Please go ahead. Hi, good evening. Thanks for the opportunity. A question on Home Decor. How should we think about the pace of scale up for beautiful home stores expansion and investments over the next three years? What is the extent of investment a dealer needs to make and whether Asian Paints may also contribute in the store expansion in any way in terms of investment? And are you open to inorganic opportunities considering that CapEx requirement for the core business is going to be minimal over the next couple of years and there is enormous free cash flow that you'll generate? So would you be using capital to step up growth in Home Decor? See, it's a fairly, interesting business, as I said, and, it has large potential, but at the same time, challenging given the fact that there's a large amount of unorganized sector, which you are kind of contending as competition here to that extent. Now as we kind of look at, in future, we definitely want to up the trajectory with respect to the beautiful home stores, which are kind of coming up. But we don't want to do it irrationally. We want sustainable stores who are able to deliver the proposition. As I said, the biggest point in this proposition is just not a customer coming and purchasing something off the shelf. It is the whole engagement of the store with the customer and the customer centricity, which the store has to show with the customer in terms of going forward. So I think it is a very different model compared to a home depot model, which you see across the cities or even in terms of some of the models which you see in India, which are in operation, are large format models to that extent. Our entire thing is hand holding the customer in a very strong way. And therefore, we would kind of put a certain trajectory in terms of what we want to kind of grow the beautiful home stores in terms of going forward. At the moment, we are open in terms of looking at if there are opportunities which come in the market as far as some of the secondary investments, which we need to kind of make. We would be open in terms of doing that, having learned from our experience with respect to Kitchen and Bath. As far as the part as the share is concerned, yes, there is a a share which, the retailer makes, and that's makes the models of model very different because then there is an equal stake of the retailer as well in the entire model in terms of going forward. Thank you. Ladies and gentlemen, I now hand the conference over to Mr. Amit Singhal for closing comments. Thank you, and over to you, sir. Okay. It's been great interacting with you. And I've tried to kind of look at answering questions which are pretty open and in an honest manner in terms of so that you get an idea in terms of what's really happening in the business in terms of going forward. I think it's been a good quarter overall. And I think we look forward in terms of as we go ahead, possibly some of these trends continue. Thank you all for coming this evening and being with us for this investor conference. Thank you so much. Thank you, everyone. Thank you. Thank you. Thank you very much. Ladies and gentlemen, on behalf of Asian Paints, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.