Ladies and gentlemen, good day, and welcome to Pidilite Industries Limited Q2 FY twenty-five earnings conference call, hosted by IIFL Securities Limited. 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. Percy Panthaki from IIFL Securities Limited. Thank you, and over to you, sir.
Hi. Good evening, everyone. It is our pleasure to host the conference call for Pidilite's 2Q FY25 results. I have on the line with me Mr. Bharat Puri, Managing Director, Mr. Sudhanshu Vats, Managing Director Designate, Mr. Kavinder Singh, Joint Managing Director Designate, Mr. Sandip Batra, Executive Director of Finance and CFO, and Mr. Dharmendra Lodha, Senior Vice President, Finance. I'll hand over the call to the management who will take you through the results, and then we will open up for Q&A. Over to you, sir.
Thank you. Thank you, Percy, and good evening, everyone. I'll keep my opening remarks brief and short, and I'll take you through the highlights of the Q2 and half year results, which was approved by our board yesterday. The current quarter's revenue were INR 2,965 crores, 7% higher than same period last year, with an underlying volume growth of 8%. As you would observe, the gap between UVG and revenue growth has narrowed. Demand for consumer and bazaar product was impacted by rains in the beginning of the quarter. consumer and bazaar UVG was 6%, with rural markets continuing to outpace urban growth. The B2B businesses continued the growth momentum with a UVG of 21%, driven by industrial and project verticals.
Input prices remained benign, resulting in a gross margin expansion by 280 basis points over the same period last year. VAM consumption in the second quarter was around $980 a ton, compared to $1,000 in the same period last year. EBITDA margins for the standalone business were at 24.6%, expanded by 143 basis points over the same period last year. For the first half of the current year, standalone revenues were INR 6,099 crores, an underlying volume growth of 9%, which was broad-based across both consumer and bazaar, with a UVG of 7% and B2B with a UVG of 19%.
Gross margin in the first half also expanded by 380 basis points over same period last year, and H1 EBITDA came in at 24.6% versus 23% last year. Resultant PAT growth for the half year was 19%. Our working capital situation remained healthy, resulting in strong cash inflows, and we continue to invest in upgrading and building new facilities and our distribution network. A quick commentary on the consolidated results. Consolidated revenue for the quarter at INR 3,222 crores was higher than same period by 7% after adjusting the revenues from Pidilite USA and Brazil subsidiary. Adjusting for that, the growth was around 5%.
Consolidated profit after tax grew by 18% over the quarter last year, and for the half year, PAT is up 19%. Despite challenging economic conditions across the first half, first quarter disrupted by elections and the second quarter because of extensive rains, we have delivered robust underlying volume growth as well as improved profitability. With that, that's all that I have by way of opening remarks. I open the floor for Q&A.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. 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'll wait for a moment while the question queue assembles. Our first question is from the line of Avnish Roy from Nomura. Please go ahead.
Yeah, thanks. So my first question is on the demand side. So we have seen FMCG companies this quarter call out urban slowdown. In your case also, Q1, there was an impact of elections and heatwave, and it was 8% volume growth in C&B. This quarter, the volume growth is 6%. Wanted to understand how much is the impact of the rains in your portfolio in paint? It's a bit easy to understand because exterior paint, there's a clear impact. In your case, given the industries are quite diversified and you have got different kind of products also. So if you could tell us, in the non rain-impacted portfolio, is the demand still more like double digits?
And next two quarters, your base is on the double-digit side, so it is on the higher side.
Would you expect that the double-digit kind of volume growth in C&B could come back?
So good evening, Avnish, Sudhanshu here. And, you know, first of all, to you and to everyone on the call, Happy Diwali in advance and a very happy festive season. I think, very good question, and I think you've been hearing this on demand side from multiple people. I think first and foremost, Avnish, you know, Bharat and I, we always keep reminding everyone. So I just want to first remind, when you call volume growth, we are first talking here underlying volume growth. If I were to give you the volume growth of our C&B business, which is total volume growth, that is still double digits. So I think that's very clear. So I wanted to tell you, yeah, yeah, so and basically our overall is plus 50-odd kind of % number there, in terms of total volume growth.
But we look at underlying volume growth, which as all of you on the call understand, is turnover growth at constant price, which takes into account both volume and mix, and therefore gives you the quality of growth. To your very specific question, Avnish, I think, see, in our case, we've got a wide portfolio, so it's a bit of a mixed bag. So I think there are certain areas which don't get impacted. You are absolutely right. And therefore, there are certain segments which have therefore delivered robust growth. Because if there is some work happening which is indoor and has no implication, there'll be nothing. But at the same time, much like paints, for us also in construction, in waterproofing, in construction chemicals, it's unlikely that you will be doing waterproofing when it's raining cats and dogs.
As you know that in this quarter, there were certain states which were very adversely affected with monsoon. Gujarat is one of them, as I can tell you. I think we've also seen this state-wide pattern as we go forward. But what I'm very happy to report for us at Pidilite is you see a healthier overall underlying volume growth and volume growth for us. I think I attribute it to the quality of our portfolio, because we built that portfolio, and also to the entire approach to execution by core growth and pioneer. I think we do have growth and pioneering categories, where irrespective of the overall demand scenario, I think depending on how we deliver on our execution, we tend to deliver a bit better than the others.
Sure, that's useful. One follow-up question on the urban demand. So Sudhanshu, you are a veteran of FMCG, having worked in FMCG companies. So would you say that the urban slowdown in general, which I think a lot of categories are facing, not just in FMCG, if you see even in cars, four-wheelers, there is a significant slowdown versus, say, one quarter, two quarters back. What will be your thoughts on this? Why I'm asking this is, till now, last three, four years, real estate homes have done really well, new homes, and you do have indexation towards that. So if that does slow down at some stage, still robust, but if that does slow down, that obviously will have ramifications.
So any initial thoughts on is this slowdown related largely to the food inflation? So if food inflation cools off, say, in the next few months, would you expect this slowdown in the broader consumption to reverse?
Yeah. You know, Avnish, let me answer the question in three parts. Let me first pick up the very specific food inflation part, and here I'm talking more for FMCG. And I think, you know, as you know, Bharat and I are also on the FMCG committee, and, you know, I've had that experience. So I'm here talking on behalf of others, not necessarily our business. I think there is direct linkage on food inflation. So therefore, as you rightly pointed out, if that eases, there will be advantage to the companies that operate in that area. That's the first part. I think the second part of your question on urban demand, I think so our own understanding is, I'll put it in this form, that is the demand buoyant? Is there a considerable buoyancy? The answer to that is a no.
It is not really buoyant. But is the urban demand, like some of the people have given the commentary, as adverse as is being said out? I think we would like to reserve our judgment on that for another three to six months. We want to see the outcome of the monsoon, which has by and large been good. So I think we will. And then perhaps, with the point which you made on even food inflation, if it eases a bit because of the agri output on the monsoon and all that. So our own prognosis on urban demand is that, you know, we will hold our judgment for another three to six months.
On the third part, Avnish, I just want to remind you, while we get impacted and we are always happy and buoyed by a new construction, the ratio of in-home improvement or renovation to new construction is roughly 85% renovation and 20%, 80/20 kind of a ratio between these two. So therefore, new construction is good news, but first of all, new construction comes to us with a lag, as you may have heard from Bharat many times over, and secondly, that component of new construction to our demand is lower than what it is for renovation.
So I think we don't see a direct impact of that immediately, but it's all, I think, to sum it up, I think wait and watch for another three to six months and then take a final call on it.
Sure. Last question, second and last question. So, Pidilite historically has been very, very proactive in terms of targeting new demand drivers well ahead of any peer. Now, this plan for targeting, say, EVs and the phone manufacturing, any further updates you can share? And, I'm not asking on next quarter or Q4 or maybe even FY 26 , but in terms of optimism and long-term revenue, which you can target on annual basis, say, in the next few years, any clarity you have got on that?
So, Avnish, absolutely no numbers, but I think the good news I can give you is that we are progressing well on that. As a matter of fact, we met up with the partners again. And as I speak to you, in the month of October, we have opened an application center in Bangalore. And therefore, we already, as you know, are operating as a distributor of our partner, eventually when we take this partnership to the next level. So I think all in all, we are progressing well. Beyond that, I can't say. We are very excited, and we are progressing well, is what I would sum it up to you on this question.
So thanks, useful. That's all from my side. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to one per participant. Our next question is from the line of Jay Doshi from Kotak. Please go ahead.
Yeah, hi. Thanks for the opportunity. Just a follow-up question there on, you know, your partnership with CollTech. Can you give some idea in terms of what, what is their positioning at the global level? Who are the large players, you know, for whom they are suppliers of, high performance additives? And typically, what's their market share or standing globally in that space? So that's first question. And is this distributor arrangement, you know, largely a pilot, that you are sort of. And eventually, if this scales up, would you, you know, be manufacturing it in India and taking this to the next level? Or it's, you know, at this point of time, you know, or is it going to be distributor, level relationship, for the long term?
Look, Jay, thanks for the question. I think on our partners, I think these partners have a very strong product portfolio across chemistry. So I think, you know, and as you would understand, this is a very specialized high precision, thermal-resistant kind of chemistry portfolio across different chemistries. So first of all, their product portfolio is very good. Second thing is that they have a very strong inclination on R&D. They have a very high. So 20% of the manpower is on R&D, and therefore, there's constant R&D work which is done. And without naming, I can tell you that some of the large marquee customers across the world are customers of our partners. Now, in terms of the partnership is concerned, the partnership has been envisaged in phases.
Our current phase is basically as a distributor, and in this we are very excited with the work which we are doing. We've set up the cold chain with Snowman. I think in collaboration with Snowman, we are very. We've already started. We've done a lot of specification sampling. We've done some commercial sampling. We've also got an initial order. So then initially it is. It's very good, this thing. I think in terms of manufacturing, your question, we will answer that question when we come to it. I think we are very open to that thought, but as and when we talk about it, as and when we are more clear and our plans are firm, we will talk about that as well.
Right. If I may ask some, a few more questions there. In the current context, you know, what product is being used in India? You know, I know the industry is also evolving, maybe at a nascent stage, but who are the suppliers, you know, at this point of time?
So what I suggest, Jay, is that we can take some of this offline. I'm happy, you know, between Sandeep and I, we can talk about it in more detail. But I think the point at this moment is that we are, there are multiple guys, and you know, this is a slightly different supply chain, as I'm sure you guys must be aware. There are contract manufacturers. Some of the biggest guys are here. Tata Electron- Tata Electronics itself is very large in India now. They've acquired one or two of these contract manufacturers also in India. And then there are a whole host of EMS companies, as you know. So I think this supply chain, we are basically getting to understand, working with them. We have visited some of our top customers. We are working on this piece.
We'll be happy to take something in more detail, with you offline.
Sure. I'll reach out to you separately. Second question is, look, you know, AkzoNobel Decorative Paints business is on the block, and, you know, some of the companies have publicly expressed interest. So what's your view on that, you know? Does it interest you?
Yeah, I'll take that. Good to hear from you, Jay. As far as AkzoNobel is concerned, we've also read the reports, so on, so forth, et cetera. Let us get all of the details, what is on the block, what is happening, so on. So at an appropriate time, we will then figure, you know, reply on whether it's an area of interest or not. Too early right now, it's all in the press, but they haven't still moved forward from the press into real action.
Understood. Any update you want to give us on the,
We request you to back to the question queue for any follow-up questions. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to two per participant. Our next question is from the line of Sonali from Jefferies. Please go ahead.
Good evening, Pidilite team, and wishing everyone a very happy festive season, and congratulations for a healthy UVG. My first question is related to any updates you would like to give on the smaller business segments, like Paints and NBFCs. Secondly, just an extension to the commentary by Mr. Vats to a previous participant's query, how much of our overall sales would emanate from new construction versus renovation? Thirdly, the present cost of VAM consumption. Thank you.
Thanks, Sonali. The whole set of questions, let me start first. As we've always said, for the Paints initiative, we're in the southern states. We will be in a position to share updates at the end of the period, which is in around March. As of now, and I can tell you with the company, with our sales and distribution strength, I am proud, obviously, initially you get a good response, but I would wait and, you know, come back to you with further plans on what our results are in March. Similarly, on the NBFC, we've just concluded stage one of the two-stage pilot. Again, we will have firm results on the pilot, which is happening in Bangalore in March. So on both these areas, you will get an update from us in March.
Your next question, which is on, you know, I'm not asking in the same, order. VAM consumption rate this time is $980 a ton. Last time was close to $1,000 a ton, so we're pretty much in the same area. As far as... Remember, it's very difficult for us as a company, given that we have 37 different verticals, to aggregate and say what part of our demand comes from new construction versus renovation. But I'll tell you in a very simple, this thing that we use, let's use a 70-30. Seventy comes from repair and renovation, thirty comes from new construction. New construction tends to be therefore the multiplier. The larger part is actually repair and renovation. Have I missed any of your questions?
No, sir, not at all. Thank you. That's all from my side.
Always a pleasure, Sonali. Thanks so much.
Thank you. Our next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.
Hi, sir. Congratulations to the whole team for such a good number in a challenging time. I, I'm little new to the company. I want to understand that in last five, six years, we have added under home care, added several category also, as well as within a category also, we have added a new product. So is it, we can get some kind of, I mean, our innovation turnover index, if you can give some, and how do we see going ahead? That is the first question.
See, Bharat, we are always, you know, very broadly, the objective we set for ourselves is two-thirds of our growth should come out of growing the core, and one-third should come out of innovation. We have largely been true to that as we go forward. We also use exactly the same parameters when we look at new categories and innovation within category. Beyond that, if I share further detailed information, then I'll be helping my competition.
But, sir, would you think that, going ahead, I mean, whatever product that we have introduced can, I mean, accelerate the growth, which we are saying that core is contributing around 65 or 60%, so from that perspective?
See, very clearly our objective is, you know, if we are transforming our portfolio, when we started on this journey, we were 80 core, 20 growth and pioneer. We're now 55, 45. By definition, growth and pioneer grows faster than core, and therefore you're looking at heightened growth. So that is our objective. Over a period of time, we've always maintained, we would like to go to healthy, double-digit, underlying volume growth, because we believe that's the best indicator of success in an emerging market.
And last question, with your permission, sir. Sir, our some of the subsidiary which is we have found, I mean, from our last three, four years, still their EBITDA is declining, so, would like to give some color on that. When do we expect that to really, I mean, start, as the, EBITDA?
See, the only subsidiary that has been significantly challenged over a larger period of time has been Nina Percept, because this is a contracting subsidiary which suffered during COVID, then suffered, you know, with the lack of labor, et cetera. But if you notice, it is slowly coming back to profitability. Frankly, over the next three quarters, you will see Nina Percept also in a profitable situation.
Okay. Thank you, and all the best, sir.
Thank you.
Thank you. Our next question is from line of Arnab Mitra from Goldman Sachs. Please go ahead.
Yeah, hi, thanks for taking my question. My question actually was, again, pertaining to the demand environment. So for want of a better word, you don't seem to be very bearish on the demand conditions compared to some of the other companies I've heard. Now, if I look at the first quarter, you know, there was this question of election impact, second quarter, probably a bit of monsoon impact. Would you say that, you know, in December quarter, you should see, you know, whatever the pent-up demand or some postponement of activity kind of coming through? And would you expect December quarter to kind of be much stronger than the first half? And any major difference you see between, let's say, the retail product like Fevikwik, versus, let's say, woodworking adhesives which are more used for carpentry.
Is there, like, a difference in, like, small ticket versus more, you know, larger ticket, usage products in your case? So any color on both of these would be helpful.
Yeah, Arnab, once again, thank you for the question, and I think the first part of the question I've partly answered, but I'll again repeat. See, where we are on one side is, we are also not saying that there is considerable buoyancy in the market. But having said that, I think we perform better. We perform better on the quality of our portfolio, on the quality of perhaps the categories we operate in, so therefore, there is that. Because each category is operating differently in a country like India at the moment, and also our execution on the entire front of core growth. And as Bharat was explaining in the previous question, as our growth and pioneering categories grow up, pioneering particularly is largely the execution work to be done by us.
Therefore, we get a bit of a benefit of that compared to some of the other organizations. I think on the second part of your question on our own consumer product business, which is not classic FMCG, but consumer product business, has there been some impact? The answer is yes. I think in the first half of the year, if you look at our own consumer product business, you talked about Fevikwik, but even art and stationery and some of those products, I think there has been a marginal impact. So what you are hearing from everyone, the market conditions do have a play there, so that's the point.
Plus, Arnav, what we are not clear about, and that's why we are rather saying, "Let's see the third quarter." How much of this is due to really these physical factors, whether it was the election, the heat wave, the monsoon, and how much is genuinely demand subdued? We still don't have a fix, so we are just saying, "Wait and watch." I mean, we are, when we look at even October, it's not a buoyant October, it's not a depressed October, it's a normal October. So we are not seeing this upsurge in festive demand, so on and so forth, et cetera, but we are not seeing it depressed either.
Understood. That's very helpful, Bharat and Sudhanshu. And just one last question: You've been doing extremely well in the B2B business for the last three quarters in terms of volume growth. Maybe just help us understand, is the underlying growth in those industries strong, or is this more penetration or market share gain because you have certain lines of business which you are focusing on more versus in the past?
Yeah. No, you are absolutely right. I think our B2B business, we've been delivering consistently strong double-digit growth for, I think, past three or four quarters, if not longer, almost a year plus. I think it's a combination. So if, again, if you look at our B2B business, I think our industrial business and our project business. So I think it's our strategic work which we've done on projects and the quality of execution, I think, which we are dialing up with every passing quarter. So on project side, we are seeing very robust growth, aided also by the construction and some of the things which are happening at macro level. So I think that is one, so that we are seeing very strong growth.
I will be in complete candor, and which is like the spirit of Pidilite. I would also share with you that our industrial product business has delivered good growth, but some of this you are also seeing as a competitor because some of our industrial product business has an export component and exports to western worlds. That business this year has improved considerably over previous years. So there is a little bit of that impact as well. So I think those are the. I think so therefore, that is my response to your question on B2B. But we are confident that we're going ahead, we will continue to drive our B2B businesses in strong double digits.
Thanks so much. All the best. Thanks so much.
Thank you. Our next question is from the line of Anand Shah from Axis Capital. Please go ahead.
Yeah, hi sir, thanks for the opportunity. Just, a couple of questions. So firstly, on the domestic subsidiaries, you know, the C&B business sort of was slower or sort of declined at this quarter YOY. I mean, you did highlight Nina, but that's the only way through or anything else to it for you?
No, definitely, as far as domestic subsidiaries is concerned, the first six months have been challenging both for me. The two big ones are Nina and ICA Pidilite. Both have faced challenges, both from, again, these physical factors that we spoke about, the various areas. In our belief, again, in both these cases, we're fairly hopeful that you will see a far better second half than the first half, given that these were largely local factors. But clearly, I would say if there were two challenged businesses, these were the two challenged businesses in the first half.
Got it. Got it. And, just lastly on your employee cost, I mean, we've also been seeing a surge, and now again, I mean, even in H1, it is up substantially. I mean, is some of this sort of front loading, you know, sort of building or sort of investing more? Or, I mean, eventually you expect with UVG, you will see a lot of level here as well.
See, I think that, that's a great observation. Your observation is largely correct. What we remember in the last just two and a half years, we've built some nineteen new facilities. Now, all facilities take time to ramp up before they come to even 75-80% capacity utilization. Plus, given our model in growth and pioneer, we will always, you know, while these categories will be gross margin attractive, we will always invest in both people and ASP upfront. So this is part of our plan. Over time, you will keep seeing this moderate as we go forward, as the turnover improves. This is, in one sense, I mean, when you, I won't call it front loading, I will just say this is all part of our preparation for future growth.
Got it. Got it. Well, thank you very much, sir. Thank you.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask the question. Our next question is from the line of Tejas Shah from Avendus Spark Institutional Equities. Please go ahead.
Yeah, hi, thanks for the opportunity. So in the past two, three years, competition in waterproofing came from paint players as new joinee there, or three, four years rather, not two, three. Now, with them focusing more on protecting their core, do you see competitive intensity in waterproofing decreasing, or have they become more aggressive because the threat is on core, they are getting more aggressive on waterproofing side?
I think, again, that's a great question, but let me just split it in two. I think your question is the right one. See, paint companies tend to strongly play in the repair and renovation segment. When people repair and renovate, they will waterproof and repaint largely at the same time. Most of the paint companies are not strong in the new construction area. Because at that point of time, the outlets that sell waterproofing are actually the, what we call the building material outlets, steel, cement, et cetera, and not the paint outlets. Now, over time, what has happened is, most of the paint companies have introduced coatings, and even the newer entrants that have come into the market have also got waterproofing coating. So we're not seeing any decrease in intensity of waterproofing.
It's now become part of their range and, you know, obviously, everybody is right now in this disruptive situation, trying to protect share, et cetera. So you will see a certain amount of this, you know, turmoil in the market, but I think it... Is it substantially more than the past? No, the answer is no. Is it lesser? Definitely, the answer is no.
Got it. So second, you have observed this industry for many years, and looking at the profit pool and the way it is growing and then the challenges that it has, do you see that it can accommodate this many new players, or you see that consolidation is the only way to kind of make justification for the ROI that industry has been used to?
See, when you have a large, deep-pocketed player with a substantial front-loaded investment coming in, you're going to see disruption for 12-18 months, right? There is no doubt about that. Now, you know, finally, as I always put it, if the current incumbents manage to continue to satisfy their consumer and customers a little more than the newer fellows, then like many new entrants into the paint market, you will see that this may not be a disruptive moment for the industry. But if they don't, I definitely do think that there are too many players in the market. What will happen future, you guys are far better experts than we are in all this business of consolidation, et cetera. Will paint as an industry contract? So the answer is yes. What will be the new normal?
I think probably this time, post the festive season next year, and next year, I presume Diwali will be in the third week of October. Post next year's festive season, you'll really know where the new normal is emerging.
Perfect. And so last one, if I may. You were candid about your view on demand environment. You, if I understood correctly, you seem cautiously optimistic. So just wanted to know, we are already midway into the festive season, whatever sentiment you are picking up right now, you still think that the signs of revival are there, or you still wait for, let's say, Diwali to get over or somewhere around mid-Q3, you will have some more clarity on the demand?
I think you'll only have clarity, frankly, at the end of the third quarter. Everybody currently is basing things on hope. There is no evidence right now of what I would say, a much more buoyant demand situation during the festive season. We are ten days away, though I must say that, remember, the last ten days of the festive season are very strong. But having said that, I mean, we are not seeing any major, like, you know, as if there was a lot of pending stuff that had to be completed, and therefore there is a rush. It's, it is still a normal October. It is not a buoyant October.
Got it, sir. Very clear. Thanks, and happy Diwali to the team in advance.
Same to you. Thank you so much.
Thank you. A reminder to the participants that you may press star and one to ask a question. Our next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi, team. Thanks for the opportunity. I just, you know, most of the questions have been answered. I just had one basic, you know, question on the margin front. Now, you have historically indicated this 20-24% steady state range. With the first half EBITDA margin already ahead of that range, it's at 24.5%, would you say, and input costs are benign, would it be right to say that there's a higher possibility of us breaching that range? You know, obviously, things could change, but I'm just trying to understand how should we look at the margin front. That's all from my side.
No, Avi, I would not say that there is a very high possibility of breaching. We, you know, you know that we don't manage margins on a quarter-by-quarter basis. Given the extended range, et cetera, we postponed a lot of promotional and advertising activity to the third and fourth quarters because it didn't make sense during that time. So, you know, therefore, you're also seeing, I mean, one of the reasons why our EBITDA is higher is because of lower ASP spend. That will not actually happen in the third and fourth quarter. We, I presume without any black swan geopolitical events in the fourth quarter, we will be at the higher end of our margin range, but I don't see great possibilities of breaching it substantially.
Got it, sir. That's all from my side. Thank you very much, sir.
Thanks.
Thank you. Our next question is from the line of Percy Panthaki from IIFL Securities Limited. Please go ahead. Hello, Percy, sir?
Am I audible?
Yes, sir, please go ahead.
Yeah. Just a question on the growth. You mentioned that October month hasn't been any kind of blowout month or any kind of delayed demand witnessed. So, I mean, would it be fair to say that unless something changes materially in the underlying demand environment, the volume growth in the second half should remain similar to what we have seen this quarter?
I don't think I would put it like that, you know. What I would say is that, see, we've always stated that we would like to deliver double-digit underlying volume growth. And as you know, in the first half, we have delivered just shy of that, 9%, very strong single digit. Now, depending, and like we've been saying from the beginning on this call, depending on how the environment plays out, our plans and our attempt would be to stay to our, you know, double-digit underlying volume growth commitment. So to that extent, we would like to have an uptick of what you've seen over first half. But a lot will also depend on what are the intrinsic demand positions, which both Bharat and I have spoken about on this call.
Right. So I understand the aspiration to have the double-digit volume growth, but the overall macro environment that we are in currently is very different. We can see, of course, not directly comparable categories, but we can see many of the consumer companies which have reported till now have reported extremely weak numbers, probably the weakest in a decade, without any one-off event like demon or a COVID or something like that. So in that context, would you still say that I can understand medium-term aspirations, but till the environment remains as is, would you still say that a double digit is a possibility?
See, remember, in our sector, I would take a step back. If I look at the headwinds, a lot of the headwinds in the first half, hopefully we're not going to have these extreme weather events, be it the monsoon or heat. We're obviously not going to like, you know, face disruptions because of the elections, et cetera. We also know that the... and this is a statement of fact, that the whole capital expenditure of the government is weighted very substantially to the second half.
There is healthy construction activity. Overall, after all the dust has settled, it's a good monsoon, which will hopefully lead to an upsurge in rural incomes. Now, therefore, are we hopeful and are we planning? Yes, we are. And it's not just aspiration. We believe that if, you know, in these tougher times, we have delivered 9% UVG, stepping it up second half is an imminent possibility. But as I said in the answer to another question on demand, frankly, the best. This question will be best answered in January, because by then you'll know where the new normal has settled post-Diwali.
Got it. Secondly, I just wanted to understand, in terms of the pricing, I mean, in the second half, would it be fair to say that if commodity remains where it is today, then your sales would be equal to UVG?
In fact, sales will be a little better than UVG, because obviously we want better mix on so on so forth. But yes, we don't see further possibilities of price decreases, et cetera. You will now see a convergence, and hopefully slowly value outpacing volume.
Got it. And, lastly, I just wanted some more details on the paint venture. It's been now quite a few quarters since you have launched. And earlier when we used to ask, you used to say, "Just wait a couple of quarters and we will share some more information." So can you give some more color on, now, sort of which states are you getting a decent traction into, in those states? What kind of sort of market share roughly you have or anything of that sort, that would help us understand how successful the foray has been?
See, my simple answer to you, which I answered again, I think Sonali asked the same question. The festive season in the south, et cetera, will be Pongal and, you know, which is first week of or close to the tenth of January. Wait till therefore we go through one full cycle, and then let's come back to you. We are in no hurry. As we've said that, listen, we are not into this big bang approach. We are not setting up, you know, factories across every nook and corner of India and then giving away products free. We believe we have a right to win in small town and rural India. We are proceeding at our pace. All I can tell you is, as of now, we are happy and satisfied by what we are doing.
But more color and more further plan. Wait till we get over the festive season of the South.
Fair enough. Fair enough. But just... I mean, the reason why I asked is, I just wanted to understand in the current numbers and the growth that we have, let's say 7-8% kind of growth that we've done, is it that, let's say, 2-3% is coming from this new venture and excluding that, the growth will be lower?
No, no. I want to just explain to you, we are in four states in rural and semi-urban. Semi-urban is 30% of the total market, right? So 70% of those states also, we are not in. These four states will be less than one-third of the Indian sub- I mean, even if we, you know, extremely well here, we would not make any significant difference to our growth rates.
Understood. Understood. Yeah, okay. That's all from me. Thanks, and all the best.
Thank you.
Thank you. Our next question is from the line of Rahul Maheshwari from Ambit Asset Management. Please go ahead.
Good evening, sir. I had just one question as you mentioned in your earlier remarks that the growth and the pioneer categories are growing faster than the core categories. Can you give some more detail in terms of range, how much fast it's growing, and what are the brands which are driving the growth? And any pipeline which you can highlight that how many further subcategories or brands you would be able to add? That will be very helpful. Thanks.
See, Rahul, very simply put, we will not tell you about future pipelines, et cetera, because that is of more interest to my competition than to anybody else.
No, in terms of numbers, I'm asking, not in terms of-
In terms of numbers, we are clear. We've always said that core categories should grow around GDP, and growth categories should be two to four times GDP. Pioneer categories, we don't have a target. We want them to be, in three years, achieve a certain minimum size so they can become a growth category. As of now, therefore, if you look at our business, it is spread now 55 core, 45 growth. Largely, we are, you know, if, again, plus minus 10%, exactly meeting these numbers, so we are according to plan. In, if you look at, for example, the core categories, that would include wood adhesives like Fevicol, Fevikwik, M-Seal.
If you look at the growth categories, it would include waterproofing, it would include tile adhesives, it will include the joinery segment, it will include what we, what we call also growth geographies, which is rural India. So we've got a whole set of stuff. This is I mean, you know, we are one of the few companies that the question hasn't been asked. This is now the third year where rural for us is growing twice urban. You know, everybody else has been complaining about rural and, you know, now urban has got challenged, so people have forgotten rural, but the so-called turnaround in rural that we are still talking around is little or nil growth becoming 2% and 3%. In our case, rural has been twice urban growth.
Sir, so if you don't mind, sir, what is that only you are able to grow 2 X means? What are two, three success factors which has made Pidilite grow 2 X of rural of urban, sir? Can you comment on that?
Yeah, I will definitely tell you. First, it's just the categories that we have. I mean, I, it's not that we are much smarter than all our friends in the FMCG sector. Our scope for penetration, Rahul, is much, much higher. I mean, you know, we have such a vast portfolio, and in our portfolio, making our products just available is of no use. We have to teach people how to waterproof, how to use tile adhesive, how to put wood together. So we, about five years back, created a new division called Emerging India, which actually aggregates all of Pidilite's products for rural and semi-urban India. We have substantially, therefore, invested behind brand building, behind education of intermediaries and the retail universe. I mean, you know, you all know of our initiative called Pidilite Ki Duniya.
We've added 1,000 Pidilite Ki Duniya just in the first six months of this year. We now have 15,000 Pidilite Ki Duniya, which are retail stores in villages with a population of 5,000-15,000. We have consistently believed, because of the penetration data that equalizes for income, we have a greater opportunity, but it will take a lot of doing to capitalize on that opportunity. I would say, and, you know, without trying to pat ourselves on the back, in the home improvement sector, we would be by far the deepest penetrated company by a long distance.
Okay. Sir, sir, just a follow-up question. Can you give how much distribution expansion you are making or any target in terms of percentage? Will it be in line with the sales growth, or can you give some color in terms of how the mix approach you are taking for the from a distribution point of view?
Yeah, distribution, when we look at distribution, like Bharat was telling you, I think there are. He talked about Pidilite Ki Duniya, which is our both presence and demand generation. But in terms of our absolute coverage of outlets, we now cover close to about six lakh outlets in the country. And even in the quarter which has gone by, we've expanded by about 5%. So you know, we've added close to about 30,000 outlets. Much of it will be in the smaller towns and rural, but that's a continuous expansion. But for us, distribution expansion is also about improving the range of our products as we go to these outlets.
And as you know, Pidilite has a very wide range, and that is another factor which we measure, KPI of range sales index, and that we keep growing as we go forward. I think we've made progress on that as well.
But any run rate of growth in distribution as of the shops and et cetera, that you were telling, any target that you are keeping into mind from two, three years perspective, where you want to reach from overall distribution point of view?
See, we have clear targets at each of, like, for example, at every town, you know, from 0- 10,000, here are so many villages, this is where we reach and this is the range that reaches. So we have targets across all town classes, which Emerging India does. And at a broad level, as Sudhanshu says, every year, we hope to, in a numerical sense, to improve our distribution anywhere between 12 and 20%. But numerical alone is not important because in our current distribution, there is an equal opportunity in increasing range. I mean, I'll give you a simple example: When we took over Araldite, it had very little sales in emerging and rural India. Now, Araldite, if you go to the smallest of the small towns, you will find it available.
One of the reasons why we have doubled Araldite sales over three and a half years that we've acquired is just our distribution clout.
Right. No, that's very helpful, and thanks to the management and best wishes. Thanks.
Thank you, Rahul.
Thank you. A reminder to the participants that you may press star and one to ask a question.... Our next question is from the line of Sheela Rathi from Morgan Stanley. Please go ahead.
Thanks for taking my question. And, you know, actually, I was very intrigued with the, with the comment, which, Mr. Puri, you made about, you know, we, operating in thirty-seven verticals, and then, obviously, you gave the details around the categories. You know, the question I have is, seeing the success in terms of so many categories we have done over the years, what are the key synergies you see when you think of getting into different spaces or categories or even into adjacencies? And, you know, what, according to you, is the biggest challenge when, you know, we are managing so many categories?
See, I think that's a great question, Sheela. Firstly, good to hear from you after long. Very simply, we have a very clear model. When we look at adjacencies between consumer, customer, which therefore is the channel, consumer, channel, and technology, we must have the right to win in at least two of the three. Then we consider that as an adjacency. So, like, you know, the best example I'll give you is we started with tile adhesives. With tile adhesives, you need tile grouts, because that's what, like, you know, holds the tiles together. That those are the, you know, what you see as the lines between the tiles. When we did, after we did tile grouts, we realized that, you know, there are other surfaces, stone and marble. Therefore, we did Tenax, and we became stone and marble.
Then we realized there's a need not only for fixing them, but also maintaining them. Therefore, we did cleaners for weave. So, like this, what we try and do is, between consumer, channel, and the technology, we must have a winning position in two, and that's how we keep identifying adjacencies. What we also have done over a period of time, two of our senior-most managers, who were CEOs of businesses, currently spend 100% of their time identifying new businesses. Because if our model is that of a pioneer, you know, we are a company that creates new categories on a consistent basis, then we must be studying the world for these categories, and we study a whole set of affinity markets. And what you see in the marketplace is after a fairly rigorous evaluation and testing when we go out into the market.
Anything around the challenges which we face? Because I'm sure there would be some.
Oh, there are significant challenges, because in a lot of these, you have to learn the technology, you have to learn the application. I mean, you know, we put up this factory. I'll give you a simple example. For what is an exterior plaster cum paint, you know, you don't have to do any plaster, putty or paint. All of it does together. This is now very popular in Southern Europe. Understanding how it will be applied in India by the Indian mason, will it be the mason or will it be the painter? How will it be done? So remember, as a pioneer, you will generally take a longer to do the category. But once you do the category, you become associated with the category and therefore almost become the category definer. We know that model. We follow it fairly rigorously.
The challenges then, you know, as you rightly said, also, is making sure that it gets enough management attention. It also gets the right resources, which is why our buckets of core growth and pioneer. We have clear investment criteria for core growth and pioneer. We have clear people and advertising allocation for these based on their position. So we, over time, have evolved a model which is internal to us.
Do we think we are still in a position to add another 30 verticals? Or, I mean, how are we positioned for that?
Without any doubt, Sheela. Every year, we will add at least two large verticals and, you know, many within those verticals, smaller ones, because frankly, that's the lovely thing about India as a market. We still have a large... I mean, you know, let me give you a simple example. Tile adhesives, even today, one in four consumers uses any tile adhesive. Three out of four use standard cement. Now, similarly, grouts, they use white cement. They don't use a grout at all between. Now, this is a long term, and, you know, with the three Indias approach, the, what I call Premium India, Middle India, and Aspirant India, you need products for all three. So therefore, at any point of time, we will be actually looking at a minimum, I mean, as we talk today, we will be studying at least fifteen, fifteen different verticals.
Very interesting. Thank you very much, Mr. Puri.
Thank you.
Thank you. Our next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance Company. Please go ahead.
Hi, team. Just one question. So on the gross margin side, if you look at VAM as a representative of raw material, I mean, from $980, probably it is still trading at lower prices. So you have always talked about, say, reinvesting for growth. Now, when you are talking about, say, there is some possible slowdown or lull, and, I mean, is it possible to reinvest even from such high levels of investment in A&P in last year? Or, is it better to take that in the pocket, when additional investment may or may not yield additional, say, growth in near term? So just thought on balance between margin and growth, especially from the perspective of already high investment that you are doing for last one and one and a half years.
Yeah. You know, thanks for the question, Keyur. I think good question. I think see, the way we look at markets, if we and you know, we define ourselves as a pioneering company, so we look at opportunities all the time. So for us, there are always opportunities to invest and opportunities to build categories. And when you build categories, your over-indexation on investment is there, as you know, as we've talked through this call, and Tarun talks about it all the time. So for us, the market being a little dull or being very buoyant is totally independent to our desire to build categories, you know? So therefore, that and because India has such strong runway across many of the categories, or if not all the categories that we operate in, I think there is always room for us to keep on building.
Anecdotally, I wanted to tell you, Roff, you know, recently had a property which comes with, you know, this basically Kabaddi, the Kabaddi League. And it depends on when the Kabaddi League is, that property will get X price, and there so the ASP will come in. But that I'm just telling you, so therefore, our investments are going to continue to be what is right for the brand, what is right for building the categories, and wherever we want to get into some more longer-term pioneering effort, those investments will be there, and we will make those investments in the right form. So I wouldn't look at it the way you were looking at it. Can you also look at the simple thing? Somebody, one of your colleagues asked the question on people and the increase in people.
That is clearly again a strong and very significant investment into growth.
Understood. Noted. Just one last question. I mean, so what would be VAM prices right now?
See, what we are buying currently is between $800 and $900, depending on the timing, so on, so forth, et cetera. At an overall level, while VAM may have softened, there are some other prices that have gone up. At an overall index, we are pretty much in the same range we will be in quarter three. We will, quarter three will be very similar to quarter two.
Noted. So thanks a lot. All the best. Happy Diwali!
Thank you.
Thank you. Our next question is from the line of Krishnendu Saha from Quantum AMC. Please go ahead.
Hi. Yeah, hi. Thanks for taking the question. I'm very new to the company, so just trying to understand the business. You launch pioneer products, two or three products every year. So in the last four, five years, how many have you actually launched? I mean, how many products have you, sort of, stopped or you could not... You thought the success was not good or up to the mark, so you had to recall the product or you had to stop producing that category? How many would that be?
See, Krishnendu, again, that's a great question. We. You see, before we launch the product, we have a concept of piloting products. We pilot in very restricted geographies, get the more. See, we are a very patient company. I mean, if you want to be a pioneer, then you have to be a learning company.
So we don't launch anything extensively without a lot of... We will first pilot in a geography, then we will pilot in a state, then we'll pilot in a region before we go all India.
So therefore, and again, we use the pilot for learning, so there are many pilots which go back, we reformulate the product. We again, you know, we may need to make some changes in the application process. We make those. So it's an ongoing process. In all new stuff, if you have a success rate of over 70-75%, it's a great success ratio, and that's what we try and remain at.
I see. So we have a higher success rate. Right. And just to understand a little bit more, our rural is, or emerging market is growing faster. This is my understanding, is because we have opened Pidilite Ki Duniya on a faster clip. Is that would be one of the core reasons? The rural is volume-wise and everything is growing faster. That's my understanding, right? Is that understanding right?
So, Krishnendu, there are multiple paths to it. It may be very simplistic to say that just because you are opening more PKD, your rural growth is going up. PKD is an integral, integral and an important element of one of our things as we go deeper into rural India and smaller villages. But at the same time, as we were talking through this call multiple times, I think it's about distribution expansion, it's about range, it's about demand creation in some of these places. Because, again, let me tell you, all across India, most of our categories need a lot of work with the applicators or users to create demand. I think that work has to continue for us to be able to deliver growth.
So the good news is that these categories need to be created, the demand for that needs to be created, applicators need to be trained, and so on and so forth. So all of that, it's a summation of many of these things, and not just one single initiative. It's an important initiative. It's some kind of a surrogate or an indicator, kind of an initiative as to how we do combined sales and demand planning, but that's not the only thing which sort of delivers that kind of growth.
Right, and it also helps because we have a higher success rate of 80% of new pioneering, so that's relaunch. So that also compounds growth. And last thing, when you open up Pidilite Ki Duniya outlet, does it carry all your products at the same outlet or it's like it come in stages? How do you go about that when you open up the business?
So Pidilite Ki Duniya, by definition, does carry most of Pidilite products, because it's the one Pidilite. But over a period of time, you build an assortment, and you also build an assortment, which, in our judgment, is right assortment for that particular village or that particular small town. So I think, yes, by definition, do we have most of Pidilite products? Is it like a one Pidilite approach? The answer is yes. But do you carry all your products all the time to all PKD? The answer is no. You sort of build it over a period of time, test what is the right assortment, and then do it.
Sure. Thank you. Thank you for your time. Thank you. Happy Diwali!
Thank you.
Same to you.
Thank you. As there are no further questions from the participants, I now hand the conference over to the management.
Thank you very much to everybody for their continued interest in Pidilite, and as we sign off, wish each on the call and their families very best wishes for the festive season. Thank you.