Ladies and gentlemen, good day and welcome to Indigo Paints Q3 FY 2025 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero, on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you, and over to you, sir.
Yeah, thanks, Sagar. On behalf of ICICI Securities, we welcome you all to Q3 FY 2025 and nine months FY 2025 results conference call of Indigo Paints. Now, I hand over the call to Mr. Srihari Santhakumar, General Manager, Finance and Investor Relations, to take the call forward. Post that, we will have initial discussion on the quarterly as well as nine-month performance from the management, and then we will open the floor for question and answer session. Thanks, and over to you, Mr. Srihari.
Thank you, everyone. Thanks, Aniruddha. Thanks for joining the earnings conference call of Indigo Paints. For discussing the performance of the company for the quarter and the nine months ended December 2024, we have with us Mr. Hemant Jalan, Chairman and Managing Director of Indigo Paints, Mr. T. S. Suresh Babu, Chief Operating Officer, Mr. Chetan Humane , the CFO, and myself, Srihari. I officially join the call with Mr. Hemant discussing the performance highlights of the company, followed by the quick Q&A. Over to you, sir.
Thanks, Srihari, and thank you all for joining in on the earnings call of Indigo Paints for Q3 FY 2025. We have uploaded the investor presentations on the stock exchange portals, and I hope you've had a chance to go through our financial results. After reporting an industry-leading growth for six consecutive quarters, we ourselves are disappointed to report a negative top-line growth during this quarter. The demand slowdown has been persistent for almost a year now, and the festive demand fell way short of expectations. First, let me come to the standalone results. Compared to Q3 of FY 2024, our sales in Q3 of FY 2025 have registered a negative value growth of 4.0%. As usual, we have maintained the pole position in terms of gross margins, which stood at 47.2%.
The gross margins were slightly muted compared to the corresponding period of the previous year when it was 48.4%, partially due to the price cuts taken by the industry in Q4 of last year and somewhat due to the change in product mixes which happened. The EBITDA on an absolute amount decreased from INR 60.9 crores in Q3 of FY 2024 to INR 57.3 crore in Q3 of this year, registering a negative growth of 5.9%. The EBITDA margin of 7.5% clocked this quarter is very slightly lower than 17.8% registered in the comparable quarter of last year. During Q2 and Q3 of last fiscal, we had significantly increased the sales force strength, anticipating higher growth. However, due to the persistent slowdown in the last few quarters, the incremental employee cost has had some adverse impact on the EBITDA. We expect this impact to disappear once normal demand pattern returns.
The PAT decreased by 3.3% to INR 36.5 crore this quarter, compared to INR 37.7 crore clocked in the same quarter of the last fiscal. The PAT margin for this quarter moderately improved from 10.9% clocked in Q3 of FY 2024 to 11.0% in Q3 of FY 2025. The base effect of higher depreciation due to the commissioning of our new plant in Tamil Nadu is already behind us, and the divergence between EBITDA growth and PAT growth should no longer be there from the next quarter onwards. On standalone basis, for the nine months of Fiscal 2025, we have clocked a top-line growth of 2.4%, achieving a sales of INR 910 crore. The EBITDA for the last nine months have reduced marginally by 3.1% to INR 145.7 crore, and our EBITDA margin for these nine months was 16.0%, again slightly lower than the 16.9% in the nine months of the previous fiscal.
PAT has decreased to INR 87 crore for the nine months of this fiscal, and the PAT margin has clocked at 9.4% compared to 10.6% in the nine months of the previous fiscal due to the significantly higher depreciation burden during the last nine months. Now, let me come to the consolidated results. For the quarter, our consolidated revenue was INR 342.6 crore, registering a negative growth of 3.2% on Y-on-Y basis, while the EBITDA declined by 8.1% and PAT declined by 4.5%. The EBITDA margin on a consolidated basis for the quarter was 16.7%, and the PAT margin was 10.4%. Our subsidiary, Apple Chemie, has registered a good top-line growth of 20.6% in Q3 of FY 2025 compared to the same quarter of the previous fiscal. However, their margins were impacted due to slightly adverse product mix.
However, the margins have improved sequentially from Q2, and we expected to improve by a good measure in Q4, which has always been a seasonally strong quarter for Apple Chemie. We have also made a conscious decision at Apple Chemie to focus on selling in those regions where the product mix is favorable. For the nine months FY 2025, on a consolidated basis, Indigo Paints has achieved a revenue of INR 953.1 crore, which is a 3.5% growth over the nine months of the previous fiscal. EBITDA has declined by 4.8% to INR 146.1 crore compared to INR 153.5 crore in the nine months of the preceding fiscal. The EBITDA margin contracted to 15.3% from 16.7% in the corresponding period last year. All other numbers are given in detail in our investor presentation. I shall now give you some more operational details about the third quarter going beyond the simple financial numbers.
During the last quarter, our overall A&P spends, as a percentage of revenue, decreased from 9.5% in Q3 of FY 2024 to 8.2% in Q3 of FY 2025. Now, it should be noted that in FY 2024, during this quarter, the advertising outlay was higher mainly due to the ODI World Cup series, during which we had advertised quite heavily. As mentioned earlier, we have, during the last five or six months, been supplementing our TV advertising spends with significant spends on digital media, which has started yielding good results by increasing viewership with our target audience. The overall increase in A&P spends will be less than the expected top-line growth in revenues. Hence, A&P spends as a percentage of revenue is still expected to decline for the full fiscal.
In line with our disclosure practices of past, we have given our volume and value growth numbers for each of the four major categories of paint products. For the quarter Q3 FY 2025, the toughest market demand situation which Indigo has faced so far, the volumes have declined in all the segments except for the emulsion category, which is by far the largest category in the decorative paint industry. On a volume basis, our emulsion volumes grew by 1.7% this quarter compared to the same quarter of the last fiscal, and the value growth in the emulsion category was even higher at 2.8%. This demonstrates that our premium emulsions have done better than our economy emulsion segment, implying an improvement in our product mix. This is a testimony to the efforts taken by our team to engage with painting contractors across the country who are the main influencers for premium paints.
We continue to focus on network expansion, on improving the throughput for active dealer, and increasing our printing machine population. As of 31st December 2024, our count of active dealers was about 18,600, and our printing machine population was about 10,800. On the CapEx front, work is progressing on both the water-based paint plant and the solvent-based paint plant, both being set up at Jodhpur. Due to minor delays in civil construction, the water-based paint plant is now expected to be commissioned by Q3 of FY 2026, while the solvent-based plant is expected to be up and running by Q1 of FY 2026. The brownfield expansion at Jodhpur of the putty plant will also be completed by Q1 of FY 2026. This minor delay is not expected to cause any adverse impact as we have enough capacity to cater to the existing demand.
The waterproofing and construction chemical products at Indigo Paints continue to consistently yield good results, contributing to a healthy mid-single-digit contribution to the revenue pile. Coming to the sustainability initiatives, the installation of rooftop solar panels at our Kochi facility is almost complete, and we are in the process of getting the necessary regulatory approvals. As mentioned in our last call, we have started a new initiative called Indigo Seva Utsav. Under this initiative, Indigo Paints is undertaking painting of government schools in Tier II and Tier III towns with the help of the local painter community. I'm happy to inform you that we have painted over 65 schools across 18 states in the last quarter, while adding joy to the painter community, members of the education fraternity, and society at large. On the CSR front, we continue to extend educational benefits for the underprivileged girls.
There are over 360 beneficiaries of this initiative during the last few years. Indigo Paints has now also extended, providing the families of painters a health benefit program to take care of their hospitalization needs. We have already enrolled about 16,000 painter families across 18 states in the country towards this initiative. Finally, all I can say is we really hope that this unprecedented demand slowdown, which is across consumer products in general and paint sector in particular, we sincerely hope that this comes to an end soon. Some improvement has been visible in January, and we are keeping our fingers crossed to see if it sustains, with a favorable harvest subsequent to good monsoons, with a good stimulus provided by the finance minister in the form of tax reductions announced in the budget, and the reduction in interest rates announced by RBI only a few days ago.
We expect the consumer sentiment to improve, and the good news is to return soon to the paint sector. That is what I have in terms of my opening remarks. I look forward to answering your questions. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Again, to register for a question, please press star and one now. Participants, you may press star and one to ask a question. Our first question comes from Aniruddha Joshi from ICICI Securities. Please go ahead. Yeah, sir, thanks.
Before the question queue assembles, just two or three questions from my side. Sir, have we seen maybe some turnaround in the industry in January? Or still, we need some more time to wait and see some confirmation in terms of growth happening in the sector? That is question number one. Question number two, how is the general trade inventory? I mean, obviously, compared to earlier levels, has the trade inventory also gone down a bit, indicating dealers are keeping relatively lesser inventory now? And that is also, in a way, causing the primary sales to relatively get more impact. So that is question number two.
And the third point is that if we divide the, in a way, multiple segments like projects, within projects, government as well as private CapEx or real estate developers, then the consumption of premium paints, mid-price paints, and at the, sorry, low-end paints, which is distemper, so where is the growth rate weakest? Where is the growth rate highest? And the fourth question on the latex paints. So we have seen the market leader introducing latex-based paints to tap the consumers at the absolute bottom of the pyramid and also to upgrade consumers using distempers or very basic level of paints or maybe limestone, etc. So we have seen one or two more players also joining the latex paint segment now. So what will be the strategy of Indigo Paints at this segment? Yeah, yeah, these are the questions.
Okay, Aniruddha, starting with your first question about January. Well, all I can say is that January has been significantly better for us than any of the preceding three months of October, November, December in terms of Y-on-Y growth. I cannot say as to how it has been for the other players. Whatever market intelligence that we have from a negative growth on a Y-on-Y basis for several months for most of the players, I think that they have turned positive, but I cannot comment on their behalf. They will be the better ones to say. So that's what I said in my introductory remarks, that we do see a turnaround, definitely visible at Indigo Paints. And I think if my market intelligence is right, there is an overall slight improvement for the industry as a whole, but I cannot speak on behalf of others.
So just hoping that this trend accelerates because please remember in January, the budget had not been announced. The RBI monetary policy had not yet been revealed. So hopefully, better inputs will come in the subsequent months. But between you and me, I doubt if it will be a hockey-shaped recovery. I think it will be a gradual recovery month-on-month basis. And we'll be happy if we do high single-digit growth in this quarter. If we are lucky, we may end up doing small double-digit growth as far as this quarter is concerned, but we have to wait and watch. Whenever demand scenario coming to your second question about trade inventories, whenever demand outlook looks weak, there is a propensity for dealers to keep minimum amount of stock.
As a company, Indigo Paints has never believed in doing unnecessary push sale with the dealers to prop up or window dress our P&L. So if the demand scenario is weak and the dealers are not willing to stock up, we let things be as they are, and the moment the scenario changes, we find a very quick uptick in demand that happens, at least for our company, so at the moment, I would say that the trade-level inventory, at least as far as Indigo is concerned, is fairly low, and as the sentiment changed, we would expect the dealers to start stocking up. Your third question, as far as projects and government projects and all are concerned, we are not very active in that segment, so I can't really comment as to how that sector is working out, but you were talking about other segments.
As I said, the fastest-growing segment for us has been the premium emulsion segment at the retail level. And that has happened because we have focused for the last one and a half years with absolute steadfast conviction on the contractors, the painting contractors in metros, Tier I, Tier II, and Tier III towns wherever they exist. Because when it comes to premium emulsions, they are not very price or discount-driven. They are more driven by demand generation at a secondary level from painting contractors. And we have seen that that segment has bucked the trend, and we are getting very good growth in the premium emulsion category. Finally, you talked about latex paints, which some companies have launched. Our market feedback is that it has not gained much traction, or at least we are not getting much disturbed by that.
So at this point in time, there is no interest on our part to follow suit and to introduce a similar product along those lines. So I hope I've answered all your questions. Thank you. Is doing well in projects.
Yes, sir, this is very, very helpful. Many thanks.
Thanks.
Thank you. A reminder to all the participants, if you wish to register for a question, please press star and one on your touch-tone phone. The next question comes from the line of Yasir Lakrawala from M3. Please go ahead.
Hi, good evening. I had a couple of questions. The first question is, qualitatively, could highlight when you talk about the slowdown in the paint industry, how much of the share of volume has been taken by newer sort of competitors and newer entrants into the paint space?
Would that have had a material impact on overall volume growth for us?
If you do the math, Mr. Lakdawala, the answer is very simple. I think by their own admission, the new entrant that you're talking about may have got anywhere around 2.5% to 3% of the market share. Now, if you look at the industry leader who used to traditionally grow at 8%, 9%, 10% and has now reported a 7.5% negative growth, so that's an overall decline of like 15% to 17%, out of which maybe you could say 2.5% is contributed by a new entrant, but that's a very small portion, and that is hardly the reason for the industry reporting bad numbers. As far as Indigo is concerned, I would say that we have been even impacted to a lesser extent by Birla Opus.
I don't think that with our differentiated products and with the kind of distribution network that we have, I don't see, I mean, I won't say that the effect is zero, but I would say that the impact on our sales has probably not even been 2.5%. It would probably be maybe 1% or something. So these things keep happening. New entrants come. Some of the old players exit, which is not discussed very actively. There are some old players who have dropped very drastically for other reasons in specific geographies. There could be regional players, etc. So I don't think that any new entrant would materially change the dynamics of the paint industry because whatever share they may get would be a relatively small amount compared to the overall size and the growth of the industry. Now, the problem is that the industry is not growing.
The industry is degrowing. Now, when an industry degrows, then everything starts looking bad. But if you do the simple math as to how much a new entrant has gained and how much collectively the existing people have lost, I think the mathematics will show that the presence of the new incumbents is responsible to a very small extent for the decline that is happening for most of the existing players. Sure, that was very helpful, Larry. Secondly, I think if you look at Q1 and I think Q3, I mean, in terms of dealer count, it's probably broadly stayed the same. Now, based on your operating history overall, almost 15-odd years or 15 to 20 years, what is your take on whenever an industry experiences slowdown?
How hard is it for a relatively smaller player of our size to sort of increase the penetration of printing machines and grow our dealer network? If you could share some experiences over the years, it would be very helpful for us to understand the. Oh, very valid question. You're right that the dealer count that we show, please note, it is the active dealer count. It is the dealers who are purchasing with a certain amount of frequency. So when the market gets bad, although we do add a lot of dealers every month, this is not the total count of the dealers that we are dealing with. This is the dealers who are buying frequently. And that tends to stagnate when the demand scenario is weak. The moment the demand starts reviving, you'll see a very sharp uptick in the count of the active dealers.
You'll notice that the printing machine addition has not slowed down very much. That's true. And if you go back in time for two years, when our active dealer count was about 16,800 and our printing machine count was slightly less than 8,000, so about 45% of our active dealers had printing machines. Now, today, when our active dealer count is 18,600 and our printing machine count is nearing 11,000, that number is closer to 60%. So what is more important for us is to increase the throughput per dealer. Yes, increasing dealer count is important, and we are adding dealers. The active dealer count, you will see a very drastic increase once demand scenario comes back to near normal. But what is refreshing to note is that the printing machine adoption is happening at a healthy pace. And we don't give free printing machines.
These are printing machines adopted by dealers who seriously want to start selling our emulsions because they have some skin in the game. We just would like to take this ratio of 60% of our active dealers having a printing machine to maybe 70% in the next one and a half, two years. That's pretty much what we hope to do.
Wow, that's great. Lastly, just when you mentioned that I think this year you might see a sort of muted A&P spend, Hemant, just to sort of get a better understanding. Sorry. Is it—what is the thought process in terms of in such times when there is obviously a slowdown in the industry? Is it not, in terms of you're looking at long-term brand building, is it not a better strategy to continue a certain level of A&P spend?
Because, I mean, that could probably yield better results three, four, five years down the line, right, in terms of building the.
Absolutely right. And we have never said that we are going to reduce the A&P spends. A&P spends are pretty much flat, or they grow by a very marginal amount to take care of inflation from one year to the next. Normally, because of increase in the top line, the A&P spends as a percentage of revenue comes down. Now, this year, that decline may not be all that large because the growth in the top line will be fairly small. So yeah, I mean, let's say for the whole year, hypothetically, the top line grows by, I don't know, 5%, 7%, or something like that, then the drop in the A&P spends as a percentage of revenue will be, to that extent, marginal.
But there will be a drop. I entirely agree with you that A&P spend should never be looked at as a short-term measure to boost your EBITDA. It is a long-term investment. For a company of our size, we feel that we have miles to go before we rest. And therefore, a long-term investment in advertising and promotion remains topmost on our mind. And that is why this year, along with television advertising, we have also started digital advertising, which we were not doing up till now. And a sizable budget is being allocated towards that. And we have to reach out to the customers in more ways than one to win over their minds and hearts.
That's very helpful. Thanks a lot, Hemant, and wish you and the industry the best of luck in the quarters ahead. Thank you once again. Thank you.
Participants, you may press star and one to ask a question. The next question comes from Mihir Shah from Nomura. Please go ahead.
Hi, sir. Thank you for taking my question. So if you can share some insights on how the urban and rural markets have performed and what would be your salience currently in these markets?
We don't find much of a difference between rural and urban demand scenario. I know other people have been talking a lot about urban stress. To begin with, the definition of urban and rural is somewhat arbitrary and depends upon how you wish to define it. Now, if you go by Government of India census, then rural is considered towns with a population of less than 4,000. I don't think you're talking about that definition. So the definition between rural and urban becomes somewhat arbitrary.
But having said that, if we look at metros, tier one, tier two, tier three, tier four, in whatever way we define it, we find the demand outlook to be bad, across all sizes of towns. We don't find any noticeable difference between larger cities and smaller towns at this point in time. Now, there is a lot of talk that when it comes to the smaller towns, what you may call the tier three, tier four towns, where a good harvest would have a greater influence on the demand, FMCG companies are talking about some uptick that they are beginning to see in rural demand.
Since our presence in the smaller towns is very, very vast and we get a lot of our higher percentage of our sale coming from the smaller towns, we hope that we will have a good Q4, but we just have to wait and watch. At the moment, I don't see too much of a difference between size of towns and the growth rate.
Understood. No, that is exactly precisely what I was trying to understand, that given that this it's been maybe three quarters for the industry to see a slowdown in volumes and one is expecting a cyclical recovery, and given you have a higher saliency in the Tier III, four, maybe that will likely pick up the earliest, so
I sincerely hope that you are right, Mihir . [Foreign language] . I hope so.
Out of the 18,500 dealers that you have right now, how has been the competitive intensity in them? How many dealers can we say are completely exclusive for you with having only your printing machine inside? Are you seeing seeding of the new players' printing machine in any of these regions? Any insights in that will be very helpful.
We do have some dealers who deal exclusively with us. I don't have the exact headcount of that, but that percentage would be low. It would be low, frankly, for any player in the paint industry. In general, most dealers across India are multi-brand. Now, some may have a disproportionately high share, 75% to 80% devoted to one brand, but they will have two or three other brands which may constitute at least 20% to 25%.
In most cases, in most dealers, without naming any brand, it will be hard to find dealers who commit more than 60% or 65% to any one brand. It will be generally distributed across at least two brands with about 10% share coming from even local unknown brands. I mean, that is the normal trend. So that is the case in our case also. I would expect, I mean, if you want a top-of-the-hat number, maybe out of 18,000, maybe there are somewhere around 750 to 1,000 dealers who are dealing almost exclusively with Indigo. But I'm just giving you a top-of-the-mind number. I don't have any precise numbers to share at that stage. Now, the installation of printing machines by a new competitor has happened across the landscape because, as you know, they are providing free printing machines.
So that has happened across the tier network of any company. The question is, how many of those printing machines are really being used and are being printed for emulsions, etc.? I don't have any granular numbers to share with you. But as I said earlier, I think we are one of the least impacted, is what I can say, in terms of whatever outreach the new entrant may be making. So none of our sales team has been calling out as a major disruption coming in our sales in any part of the country from a new entrant, at least at this point in time.
Perfect. That's perfect. That's wonderful.
So last question, if you can throw some insights on the cost structure, maybe whether it is employee ad spends or even the dealer margin, are you starting to see any stress on any of the cost line items or cost structures in any of these line items?
Again, why don't you just look at data? Look at gross margins for all the paint companies as reported. You'll find that the gross margins of all paint companies, as I have observed the numbers that have come out so far, I think one major paint company is yet to declare its results, which is probably coming out tomorrow. But everybody's gross margin compared to the same quarter last year has declined by around one percentage point, 100 basis points. And that's about it.
And this is more attributable to a price cut that the industry leader took and others had to follow, which happened in Q3 and Q4 of last year. So the fact that nobody's gross margin has been disturbed and gross margins are intact is the best way to try and judge as to whether the competitive intensity due to new entrants has caused any disruption at all or not. So for me, if the gross margins are more or less what they were a year ago, there is no better proof that you have that there is no disruption in the cost structure of any paint companies. Now, naturally, when top-line growth will not happen, the EBITDA margins will naturally decline because all your fixed costs will get absorbed on a lower base, and fixed costs do increase from year to year.
EBITDA margins may decline, but disruption due to any new entrant will reflect itself instantly on gross margins. And I don't see that happening for any of the paint companies, certainly not for Indigo Paints.
Got it. Got it, sir. Specifically on ad spends, employee and dealer margins, any comments on specifically on these three line items?
See, dealer margin is not something that is offered by any paint company. It is a natural consequence of your width of distribution. And I've said that many times earlier, the more number of dealers you appoint, the more competition you create amongst your existing dealer network because a dealer is competing with another dealer who's 100 yards away selling the same product. And that tends to drive the price down and therefore reduce the dealer margin. No paint product of any company is sold at MRP.
They are all sold at a discount to MRP at a negotiated price. So there's something called a market operating price. And that is determined by your competitive intensity. So typically, if you do a study among dealers, you'll find that the dealer margin that is effectively retained by the dealers would be the lowest for the market leader because obviously, they have the widest distribution reach. Now, if somebody tries to imitate that and create almost an equivalent distribution reach, they are likely to face a backlash sooner or later because the dealer margins will get suppressed. Now, the market leader is able to get away with it because of the brand pull that it has created over the last 50 years. It is very difficult for any other player to match that kind of a brand pull.
Therefore, all other players, whether it is the number two player, number three player, or even ourselves as the number five player, we have to be conscious that we do not increase the dealer network beyond a certain healthy number, beyond which it starts becoming counterproductive. So dealer margin will vary from region to region depending upon how wide your distribution network is in that part of the country.
Got it, sir. Thank you very much for that. So lastly, just a bookkeeping one. From next quarter onwards, should one expect the negative pricing to reverse, and we should incrementally see some kind of price growth barring the small cut that we've seen in January this time?
I can't answer that question. All price changes are led by the market leader, and they are the only ones who really have control over pricing power.
So if the market leader increases prices or decreases prices, there is no option left for the rest of the industry to follow suit in quick succession. I don't think the industry is interested in a price drop at this stage. They would like to see slight price increases happening. But I don't think that that decision is in anyone's hands other than the market leader. So they are the best ones to answer this question as to whether prices are likely to go up or go down in the foreseeable future. And if so, for what categories? I really don't know.
So ceteris paribus, the adversarization should happen, right? I mean.
Pardon?
Ceteris paribus, there are no other further changes in pricing. Then I think from fourth quarter onwards, we should see some small price growth in the numbers. Would that be?
Price growth. Value growth, you're telling.
I didn't understand. You're talking about price increases. If there are no changes in prices, then a pricing-led growth will not happen. But if quantities start going up, then value growth will automatically go up.
Got it. That answers my question. Thank you very much. That's all from my side, sir. Wishing you all the best.
Thank you.
Thank you. Next question comes from Tejas Shah from Avendus Spark. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, I'm attempting to ask this question because you are at the other end, and I'm hoping for a very insightful and an honest answer. So for years, we have been taught on the sector that there is a huge per capita consumption gap between how we consume paints versus some of the other markets.
Second, we have also been taught that there's a huge unorganized segment which operates in the paint industry, and hence the unorganized to organized will happen indefinitely, at least for the near future. Now, I can understand macro environment is bad, and you reasoned out very well that it has nothing to do with the new competitor. The environment itself is very bad. I was just wondering, in such environment, ideally, this unorganized to organized should play out better. And the whole per capita consumption argument should be independent of what is happening on a competitive landscape. So why some of those macro drivers, which we were always positive about as an industry, as an analyst, investors, are not playing out as we speak in this current year?
So these per capita consumption figures have to be taken on a slightly longer time span.
They cannot be judged on a quarter-by-quarter basis, so per capita income of the country continues to rise. When the GDP growth rate slows down, then the per capita income growth rate will also slow down for a few quarters, and then they will recover back, so we have a long way to go in terms of per capita consumption in paints in India compared to the rest of the world, so the long-term story, nothing changes, and although it's the first time that I've seen in 25 years when there has been some kind of a demand slowdown extending for four quarters, in the past, whenever such a blip has happened, it's generally been at most for one quarter. We hope that this ends soon because structurally, there is nothing wrong with the Indian economy, and sooner or later, demand has to bounce back.
The government would be keen for its own needs and for its tax collections to see that the demand grows back and bounces back, which is why some of the measures that you see being rolled out in the budget. I mean, it's an unprecedented tax break that was offered. Extreme situations demand extreme solutions, which is what the government is attempting. I think in the long-term scenario, the per capita consumption in paints will increase. There can be temporary blips for two or three quarters, but I'm sure it'll come back. Maybe it'll come back with a vengeance. Let's hope so. As far as the unorganized sector is concerned, I won't say it is very large as of now. There is an unorganized sector.
I think a lot of the cleanup of the unorganized sector, well, the unorganized sector, what you call, I think you're talking about the smaller players. Let's not call them unorganized because previously, eight, 10 years ago, there was a sizable segment of these small players who operated outside the legal framework of taxation. I think most of that got cleaned out progressively after the introduction of GST. So either some of them came into the legal framework of taxation or many of them closed down. But that was quite some time back. It's been seven and a half years since GST was implemented. So I don't see that there is any meaningful change in the unorganized sector, or shall I call it more appropriately, the smaller scale sector. There are a few thousand of them across India. They will exist.
I don't see much of a share gain or loss happening between the larger players and these smaller players. They have a certain role to fulfill in the paint sector, and I think they will always exist. From our point of view, we have never consciously attempted to snatch away sales from those smaller players because it's going to be very difficult and damaging to our own P&L if we try to do that.
Sure. Sir, and this per capita consumption number, is it a circular reference number? Knowing you, you would have spent a lot of time on arriving at some of this. It has been well calculated because many times we have seen that some RHP or DRHP will write it, and then it circles back as a new norm.
But you believe, because when we look at some of the Western markets, there is 75%-80% industrial paints. So perhaps on decorative paints, that number might not be that high as it appears from here. So just wanted to understand the nuance part of it, sir.
Even you're right that the share of industrial paints in Western countries is significantly higher than decorative paints. But even then, the gap between the per capita consumption, however you calculate it, for Western countries and India is still very, very large. Now, I don't know if anybody has done any organized study as to what these numbers are and how they are trending.
You're quite right that when people file DRHP, they look at some published report somewhere, and that gets copied, pasted onto that DRHP number, and that becomes a reference point for the next DRHP or the next, shall I say, market study report that comes. So I don't pay too much attention to that except to know that in India, the growth story for all consumer products, and for that matter, even for all industrial products, whether you look at per capita steel consumption or per capita copper consumption or aluminum consumption or any particular commodity, whether in consumer space or industrial space, is a very small fraction of what the developed economies are. So we have a very long way to go.
So if you start looking at the paint industry from a 10-year horizon, there is absolutely no doubt in anyone's mind that the CAGR will be close to 9% or 10% value-based in the decorative segment. Now, if there is a blip in one year, as it has happened in this last year, it could come back with a vengeance in the next year or the next couple of years. Very clear, sir. It recognizes itself is what we expect.
Sure. Very clear, very detailed, sir. So last one, if I may. Sir, we saw a very sharp revival on commercial real estate and residential real estate around COVID, and then it has actually been very, very strong, at least in the metro centers.
And then we all thought that by now, in three, four years, it will trickle down at some of the paint industry or the tertiary beneficiary of once the position actually comes through. So we have not seen that kind of revival that we thought looking at last two, three years of real estate cycle. Any gap there, sir?
Yeah. So two, three things to note. New construction accounts for only 15% of paint consumption in India. 85% is repainting. Secondly, when you talk about real estate and commercial real estate, you're talking about a handful of large builders who operate in 10-15 cities of India. So that's not representative of what is happening in Bharat.
So if you want to look at construction activities, which, as I said, in itself accounts for only 15% of paint consumption, and you want to look at it on an all-India basis, maybe you should have to focus on cement consumption that has happened rather than look at the results of five or six large listed players in the real estate business. And cement demand has been subdued. That has not been good. So you can see that from the narrative of all the cement companies. So therefore, you can conclude that in general, new construction across India would be somewhat muted during the last one year. But as I said, that does not impact paint consumption to that extent because most of it comes from repainting. And when market sentiments get bad, repainting your home is something which is postponable by a few months or six months.
So people tend to postpone some of these things. And when the sentiments improve, you want to paint in a hurry, and demand comes back with a bang.
Very clear. Insightful as always, sir. Thanks a lot and all the best for coming quarters. Thanks.
Thank you. The next question comes from Vedant Mehta from QRC Investment Advisors. Please go ahead.
Hi, sir. Good evening. I wanted to understand what the contribution of differentiated products was for this quarter, and if you saw any change and any difference in the demand for differentiated products compared to the rest of your products this quarter.
No, we give these numbers on an annual basis because many of these differentiated products have a distinct seasonality built into it. And therefore, to report on a quarter-on-quarter basis as to what is the contribution of differentiated products is not very meaningful.
So we have never reported the contribution of differentiated products on a quarterly basis. But next quarter, when we are presenting the results for the whole year, we will definitely be presenting, as we have done for every year in the past, as to what our contribution for differentiated products has been. But on a broad sense, with whatever trend we have seen in the last nine months, I don't think that there is much change in the differentiated products versus the more vanilla products as far as growth is concerned. I think they're pretty similar.
And any reason for why they're similar and there's no difference between the growth?
There is no reason for it to be dissimilar, let me say. It's all based on the same consumer demand concept. So if the overall demand scenario is weak, sales of the differentiated products would also be weak.
So there is no specific reasons as to why those products would sell much more than any other product of the paint.
Understood. Thank you. Thanks.
Thank you. Next question comes from Anand Mundra from Soar Wealth. Please go ahead.
Good evening, sir. Thanks for the opportunity. Sir, on Q-on-Q basis , also, there is a big swing in gross margin. Any reasons for that, sir?
Pardon? Can you repeat? Your line is not very clear.
Okay. Sir, on Q1, quarter-on-quarter basis, also, there is a big swing in gross margin. So wanted to check any reasons. That is always the case. That is always the case. And you'll find in Q4, the gross margins would be the highest. And that is entirely a function of product mix. So gross margins would always be the lowest in Q2, which is the monsoon months.
During the monsoon months, July, August, September, the product mix deteriorates drastically in this industry. Exterior painting virtually comes to a halt. Most of our differentiated products, which contribute significantly to our gross margins, are also exterior-based, and their consumption also goes through a downtrend. Our overall sales, our overall gross margins, and our EBITDA margins have always been by far the highest in Q4. You can plot that for the last four years, and you will find that trend. That is entirely to do with the product mix scenario and nothing else. Normally, Q1 and Q3, you'll find that both EBITDA margins and gross margins are similar. They are low in Q2, and they are very high in Q4.
Understood, sir. And sir, last question on what is the net cash on the balance sheet, sir?
We have treasury investments of around INR 195 crore or something. So it is already disclosed. It's not been uploaded but just there in the balance sheet. But yeah, I mean, if you want, I can tell you that treasury balance is about INR 196 crore as of 31st December. Thank you, sir. Thanks a lot. And this is after all the internal funding that is happening for the CapEx. For two years, we spent on this about INR 280 crore in this plant in Tamil Nadu, which got commissioned about 15 months ago. And now, the ongoing expense of almost a similar amount, a slightly higher amount, is happening at Jodhpur, which is about halfway done. And all that has been funded from internal accruals without resorting to a single penny of debt. And we have still managed to maintain our treasury investment at about INR 195 crore.
Thanks, sir.
Thanks a lot, sir.
Thank you. The next question comes from the line of Prakash Kapadia from Spark PMS.
Please go ahead.
Thanks. My questions have been answered.
Thank you. Ladies and gentlemen, as there are no further questions, I now hand the conference over to the management for closing comments.
Well, thanks. Thank you all for joining in and giving us a patient hearing. I hope we have been able to answer all your questions. And for our sake and for the sake of investors in this entire paint industry, we need your good wishes that the demand scenario comes back sooner than later. So let us hope that we meet in more joyous circumstances at the end of Q4, and we have much better numbers to report. Thank you all.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us.
You may now disconnect your lines.